Regulatory Alerts2020-07-10
Added · Updated
Results of Survey on Reform of Interest Rate Benchmarks for Q2 2020
The Hong Kong Monetary Authority issued this report detailing the status of interest rate benchmark reform within the local banking sector as of March 2020. The document quantifies Hong Kong banks' exposures referencing LIBOR and HIBOR, noting significant volumes in assets, liabilities, and derivatives, while highlighting the percentage of these exposures maturing after 2021. It further assesses the preparedness of Authorized Institutions for transitioning to Alternative Reference Rates, revealing that most have established steering committees and transition plans, though many still need to finalize IT system upgrades and risk assessments.
Annex 1 Results of Survey on Reform of Interest Rate Benchmarks for Q2 2020 (Figures in parentheses represent changes versus six months ago)
- Hong Kong banking sector’s exposures referencing LIBOR (LIBOR exposures) (HKS trillion, as at end-March 2020) | Assets Liabilities Derivatives Total amount of LIBOR exposures ot9) $4.8 ($0.3) $1.6 (-) $34.7 (+$0.1) as a % of total assets or liabilities denominated in foreign currencies LIBOR exposures which will mature after end-2021 of which without adequate fall-back outstanding amount as a % of total LIBOR assets, o 0) 7 0 liabilities or derivatives 35% Crappy 39% (+llppy) 50% (+Sppt) 30% (一) 11% (--) N/A $1.9 (+504) $0.7 (+30.2) $18.1 (+$2.0) $1.7 (+303) $0.6 (+30.1) $17.4 (+$1.9) Note: Includes exposures referencing LIBOR in five currencies (i.e. USD, EUR, GBP, JPY and CHF), as well as benchmarks calculated based on LIBOR, including Singapore Dollar Swap Offer Rate (SOR), Thai Baht Interest Rate Fixing (THBFIX), Mumbai Interbank Forward Offer Rate (MIFOR) and Philippine Interbank Reference Rate (PHIREF).
- Hong Kong banking sector’s exposures referencing HIBOR (HIBOR exposures) (HKS trillion, as at end-March 2020) | Assets Liabilities | Derivatives Total amount of HIBOR exposures $4.5 (-50.1) | $0.2 (-) $12.1 (-$0.1) as a % of total assets or liabilities denominated in HKD 48% (-1ppt) 2% (=) N/A
- Als’ preparation for transition to alternative reference rates (ARRS) Key components in Als’ preparatory work for transition to % Als having the ARRs (mote) component in place Establishment of a steering committee and/or appointment of a senior executive for overseeing the preparation for transition 85% (+22ppt) Development of a bank-wide transition plan 61% (+23ppt) Quantification and monitoring of LIBOR exposures 64% (+16ppt) Impact assessment across businesses and functions 51% (+9ppt) Identification and evaluation of risk associated with the transition 48% (+10ppt) Development of a plan to introduce ARR products 46% (+18ppt) Identification of affected IT systems and development of a plan to 45% (+6ppt) upgrade these systems Identification of affected internal models and development of a ° . 36% (--) plan to modify these models Development of a plan to reduce LIBOR exposures 31% (+6ppt) Development of a plan to renegotiate LIBOR-linked contracts 31% (+7ppt) Note: Based on latest information collected by the HKMA, all except a few smaller Als have developed a bank-wide transition plan with proper governance in place to oversee the transition.