Johannesburg - In the wake of the scandal that erupted in
the UK over the manipulation of the London Interbank Offered Rate (Libor) – the
rate of interest at which banks lend money to each other – South African
financial authorities have moved to reassure the country that the process for
determining the interbank lending rate in the country is sound.
The Libor scandal now involves as many as 12 leading banks,
including Absa’s parent bank, Barclays, which has already been heavily fined.
Sharp focus is now being placed on the Johannesburg
Interbank Agreed Rate – or Jibar.
The Jibar, or money market rate, is used to price financial
transactions across our domestic economy.
According to a Morgan Stanley research report released this
week, 11 other British banks could join Barclays and be penalised for their
part in the scandal.
The report says that the combined regulatory penalties and
damages to investors and counter parties could stand at an estimated £14bn
South African banks have been relatively unaffected – local
regulators have moved to reassure the investing and banking public that the
process of determining Jibar is characterised by soundness and integrity.
Jibar determines the cost at which South African banks loan
one another money.
It is an approximation of what the banks believe the repo
rate (the rate determined by the Reserve Bank’s monetary policy committee) will
average over the next three months.
Given that prime is 3.5% above the repo rate, Jibar is on
average 3.5% below prime.
Jibar is compiled by the JSE on the basis of contributions
received from nine South African commercial banks.
The Jibar rate is published at 11:00 on a daily basis.
Mark Brits, general manager of the banking and finance
division of the Banking Association of SA, said that the association was
“comfortable with the way that the Jibar rate is determined”.
Brits said in the light of what had happened in the UK with the
Libor rate, “it was an appropriate time for our regulators to confirm the
integrity of our domestic processes, and we look forward to working with them
The Banking Association of SA, according to Brits, expects
that the regulators of the banks would test the validity of the processes for
determining the rate from time to time.
He said banks remained confident that the processes were
sound and the rate was determined in a respectable way.
The SA Reserve Bank said it had confidence in the process of
determining the Jibar rate, but South African regulators had announced that a
commission to make recommendations about Jibar was being established.
The British regulator of banks fined Barclays £290m (R3.7bn)
for its role in rigging Libor rates between 2005 and 2009.
Barclays’ chairperson Marcus Agius was interrogated by
British financial authorities this week as regulators are increasingly seeking
to bring order to financial institutions they deem to be improperly managed.
The Economist this week reported that Agius confirmed to
British MPs that the Bank of England had forced Barclays’ chief executive Bob
Diamond to resign after the bank’s misdeeds became public.
Diamond is leaving Barclays with a £2m payoff.
He has already received more than £100m since 2005.
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