Sberbank extends Russia’s first loan secured by new risk-free SOFR indicator
Sberbank and OOO Grain Service have signed the first lending deal in Russia using SOFR, an all-new risk-free indicator. Reaching USD 12 mn, it’s a revolving 18-month line of credit with a floating rate pegged to SOFR.
SOFR is a new risk-free interest rate indicator designed by the Federal Reserve Bank of New York and the Alternative Reference Rates Committee to replace LIBOR denominated in the US dollars.
US Dollar LIBOR will cease to exist in 2023. Stakeholders engaged in international financial markets are currently moving the ongoing lending contracts and derivatives from LIBOR to new risk-free indicators: SOFR (dollar), €STR (euro), SONIA (pound), TONAR (Japanese yen), SARON (Swiss franc).
Sberbank is the first bank in Russia to issue loans using new risk-free indicators instead of LIBOR.
LIBOR is to be replaced, it is unavoidable. The regulators leave no doubt about the LIBOR discontinuation. SOFR and other risk-free indicators have several advantages for borrowers over LIBOR. First, the value of SOFR cannot be manipulated since it is based on real repos, the most liquid segment of the US money market estimated at about USD 900 bn per day. Second, SOFR is a risk-free indicator, it does not contain the credit risk premium of LIBOR contributing banks. For example, at the beginning of the COVID-19 pandemic in March 2020, SOFR depreciated from 1.2% to 0.02% per annum as a result of Federal Reserve actions to support the economy, while LIBOR appreciated to 1.43% from 0.74% due to increased credit risk. Third, the average SOFR rates used in loans are less volatile than LIBOR rates.
Vice President, Director of Treasury, Sberbank
For us, this deal is an opportunity to learn about the new indicator without any rush. The ongoing indicator reform dictates its terms, which are a new reality, and we seek to be part of the trend to not waste resources on adaptation to SOFR when LIBOR goes away for good.
Nikolai MarkovDirector, OOO Grain Service