The Japanese Financial Services Agency (JFSA) and the Bank of Japan have published the results of a survey on the use of LIBOR by financial institutions (including banks, securities companies insurance companies and others), their LIBOR exposures and LIBOR transition progress. The survey enables supervisory authorities to quantify the number of contracts that reference LIBOR and preparedness for the transition away from LIBOR to alternative reference rates. Key findings include:
- contracts referencing EUR, GBP and CHF LIBOR are limited – most contracts reference USD LIBOR, followed by JPY LIBOR;
- volume of contracts referencing LIBOR – there are around 70,000 loan contracts that will mature beyond end of 2021 (50,000 of which are USD LIBOR Loans) and the amounts outstanding of contracts referencing LIBOR are around 164 trillion yen of assets, 35 trillion yen of liabilities, and 6,300 trillion yen of notional amounts of derivatives, of which a significant number will mature beyond end-2021. Few contracts incorporate fallback provisions;
- volume of contracts referencing LIBOR by business type – Banks were found to have the largest number of contracts that reference LIBOR, with 90 per cent of assets and 70 per cent of liabilities. Securities companies were found to have the largest number of derivatives contracts that reference LIBOR, equating to approximately 65 per cent;
- identification of contracts referencing LIBOR – most institutions have developed a framework that can track the volume of contracts referencing LIBOR and 85 per cent have identified business operations affected by the transition; and
- preparedness for LIBOR transition in Japan – the survey indicates that preparations by institutions are either still in progress or have not yet been started.
The survey identifies the main next steps which financial institutions need to take focussing on customer services, IT systems and other actions, with the responsible and active involvement of senior management officials. Financial institutions need to prepare for scenarios where a number of consultations with customers can arise at one time – that means having systems in place to deal with bulk amendments.
The JFSA and the Bank of Japan may in future set more specific targets and conduct on-site monitoring to assess the progress of financial institutions in meeting the end-2021 target.