African Development Bank can offer RFR loans
04/26/2022 | News & Press
The African Development Bank Group (AfDB) is a regional multilateral development finance institution established in 1963 with a mandate to promote the economic development and social progress of African countries individually and collectively. The AfDB is headquartered in Abidjan, Côte d'Ivoire.
Like all financial institutions worldwide, the AfDB is faced with the need to convert variable rate loan contracts based on Interbank Offered Rates (IBOR) reference rates (LIBOR/EURIBOR) to Risk Free Rates. The previous LIBOR/EURIBOR benchmark relies heavily on self-reported data from individual banks. Therefore, the Libor benchmark is easy to manipulate, requiring little effort to influence financial data in a profitable way. After allegations of manipulation became known, a consortium of banks installed the Alternative Reference Rate Committee and tasked it with finding an alternative to the LIBOR benchmark.
As a result, SOFR (Secured Overnight Financing Rate) was designated as an alternative to USD LIBOR and SONIA (Sterling Overnight Index Average) was designated as an alternative to GBP LIBOR. There are also alternatives to other LIBOR benchmarks such as EUR, CHF, JPY, etc. As of January 1, 2022, USD LIBOR will no longer be published as the first currency, and financial institutions will have to offer USD loans with SOFR rates. Therefore, it was important to convert loan contracts to Risk Free Rates in the short term and to have the RFR functionalities required for this available in the IT backend systems as soon as possible.
b²tec Software GmbH supported AfDB in the IBOR transition project, which included configuration changes to the existing SAP S/4 HANA system with CML and TR modules, data migrations, and conversion planning and execution.
Based on the experience b²tec had already gained in other IBOR transition projects, the successful transition from IBOR (LIBOR/EURIBOR) to SOFR was achieved. AfDB went live with RFR within 6 months without any major problems.