The Co-operative Bank has unveiled a new method of pricing foreign currency loans. This comes as the global banking industry transitions from the London Interbank Offered Rate (LIBOR).
LIBOR, which has been the benchmark interest rate at which major global banks lend to one another, will be phased out by June 2023.
Banks typically use the benchmarks as a starting point in pricing of loans, with a margin added and which is determined by a number of factors including the tenor of the credit facility.
Co-op Bank has developed its own pricing system for foreign currency loans, adding that customers who had borrowed based on LIBOR will be migrated without a change in what they had been paying before.
“The bank adopted an Internal Bank Base Rate for all foreign currency-denominated credit facilities. The existing interest rates to existing borrowers will be retained for all outstanding foreign currency denominated credit facilities using the Internal Base rate,” Co-op Bank said in its latest annual report.
Co-op Bank has already sent out specific letters giving notice of change of LIBOR reference rate to the new base lending rate in August 2021.
“It is expected that all customers will hence be on the new Bank Base Rate latest October 2021. Pricing of new foreign currency-denominated credit facilities will subsequently be pegged to their internal Bank Base Rate. This effectively retains the prevailing rates offered under the respective products.”
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According to Co-op Bank, customers who had borrowed based on LIBOR will be migrated without a change in what they had been paying before.