end of the London Interbank Offered Rate (LIBOR) began about eight years ago
when financial regulators in the US and Europe discovered that certain
financial institutions deliberately reported distorted and false LIBOR rates
for certain benefits. The incident severely damaged the credibility of the
LIBOR. Although relevant parties worked hard to improve the compilation
mechanism of LIBOR to establish transparency and restore credibility, their
transaction volume continued to decline. Finally, the UK financial regulator
announced that banks will no longer be required to submit information for the
compiling of LIBOR from 2022 onwards.
of the main tasks of financial regulatory authorities in many countries in
preparation for the permanent cessation of LIBOR is to develop a new interest
rate benchmark to replace LIBOR. Currently, the US, UK, Switzerland, Eurozone
and Japan have established overnight repurchase reference rates for their
currencies. For Thailand, the Bank of Thailand (BOT) has also developed a new
overnight repurchase rate called THOR (Thai Overnight Repurchase Rate), besides
the Bangkok Interbank Offered Rate (BIBOR) and Thai Baht Interest Rate Fixing
(THBFIX) which are both key reference interest rates in Thailand’s money
advantage of THOR is that it can better reflect the liquidity of the Baht in
the Thai money market and move in line with Thailand’s policy interest rates, compared
with THBFIX which fluctuates with the liquidity of the US dollar and is
affected by the termination of LIBOR. In addition, THOR is calculated based on
the actual volume of transactions in the Thai private repurchase market (more
than THB100 million per day), differing from BIBOR, which is obtained through
daily inquiries with banks while there are few transactions that refer to BIBOR.
business sector, large companies may be more familiar with THBFIX while SMEs
are mostly familiar with the minimum loan rate (MLR). Therefore, businesses, especially
large companies, shall review loan contracts that refer to THBFIX and contact
financial institutions to revise THBFIX-based loan contracts in order to change
to Fallback THBFIX which will be the substitute reference rate for THBFIX from
2022 onwards after the termination of LIBOR. However, the substitute will only be
effective for existing loan contracts that have not yet expired.
businesses must prepare for and become familiar with THOR, which will be used
as the reference interest rate for new loan contracts or financial products. It
is expected that the guidelines for the development of THOR will be gradually
issued over the next 1-3 years from this point onwards. However, its popularity
will hinge on a concerted effort by all parties concerned, including the BOT,
government agencies, financial institutions and the business sector.
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