LIBOR-update

Let’s talk LIBOR again

Last year, we shared an insight into how we’re focusing on LIBOR (London Interbank Offered Rate) reform. Together with international regulators, we’ve been developing alternative Risk-Free Rates (RFRs) to replace Interbank Offered Rates (IBORs) by the end of 2021. This year is key in making the changes happen and making sure our customers are supported throughout their LIBOR transition journey. The colleagues working on the programme and those with direct contact with customers are leading the way to make sure we succeed together.

Take an interactive journey through our progress so far – hearing directly from colleagues involved in the changes – and see what we’ll focus on in 2021.

The story so far

This is a critical year, with only 11 months left to meet the
Bank of England (BoE) target to complete the transition away from sterling LIBOR and instead use alternative RFRs, such as SONIA (Sterling Overnight Index Average), by the end of 2021.

This includes

Stop issuing new sterling LIBOR cash products by the end of Q1

From Q2 2021, no new sterling LIBOR loans

And, importantly for us, meet the BoE target to complete transitions of existing customer contracts by Q3 2021. An ambitious timeline.

The story so far

Already, we’ve done some good work to prepare the Group and colleagues to support customers through the change, including:

Setting out a clear business strategy to make it easy for colleagues to understand and access the right knowledge to help customers.

Providing the right alternative products – and launching new ones where necessary - to give customers choice as they move away from LIBOR

Training colleagues to make the transition for our customers smooth, using informative guides and live webinar events with Q&As.

The story so far

Already, we’ve done some good work to prepare the Group and colleagues to support customers through the change, including:

Testing the communications and transition process, running pilots with a handful of front-line colleagues and their customers.

Providing access to plenty of support with topic experts, we even have a specialist transition team of expert bankers to give support colleagues and customers.

Focus 2021

The good progress made last year means we can focus on specific customer needs and the actual transition itself this year. We’re ready, but there will be challenges, especially as these changes are happening amid other priorities that influence our customers’ focus.

For all franchises in the Group, some of the challenges we’ll face in 2021 are:

Continuing to maintain a close relationship with the regulators so we’re aware if they amend their guidance and we can adopt the advice in a timely fashion for the benefit of our customers.

Finding the best solutions for very complex customer situations or contracts and still meet the LIBOR deadlines.

Making sure we’re ready for the changes ‘behind the scenes’ – including building and putting in place the systems and processes that will deliver these new products.

Irrespective of the challenges, we will succeed – we have talented, dedicated colleagues who’ll continue to put customers first and, by collaborating across all our business areas, will help achieve our objectives by the end of 2021.

Views from our franchises

Phil Lloyd
Head of Market Structure & Regulatory Customer Engagement, NatWest Markets

In early 2021, we’ll increase client engagement, especially around more esoteric products such as securitised (i.e. tradable securities based on loans/assets held by a separate company) and non-linear products (i.e. more complex products that don’t follow a straight path unlike linear products). These depend on the linear market so sit later in the transition journey.

And as the year evolves, we’ll focus on reducing the exposure of LIBOR for ‘tough legacy’ products including non-linear markets. Just to explain, ‘tough legacy’ refers to situations that genuinely have no appropriate alternatives for LIBOR and will be difficult to amend.

Katie Young
Head of Lending (Finance my Needs Client Journey Owner), Wealth

Graeme Shields
Corporate Lending Programme Manager, RBSI

Our immediate focus is to make alternative Risk-Free Rates available to our customers by completing the upgrade to our systems – the Loan IQ platform.

We have a Mortgage Book of personal customers to transition to an alternative RFR and a small population of Coutts Crown Dependencies customers who have LIBOR linked products too. So quite a diverse range
of tasks to deliver this year!

This year, we’re rolling out our transition strategy for clients with existing LIBOR exposure, starting with client contact and consent. This will be a relationship moment of truth for our Bankers and Operations teams as they help our clients to transition smoothly onto alternative rates.

Views from our franchises

Kevin Farnan
Director - Portfolio and Capital, Ulster Bank Ireland DAC

Jamie Thrower
LIBOR Transition Business Lead, Commercial Banking

In the first half of 2021 we’ll focus on customer engagement. Customer conversations will be about explaining clearly and consistently our approach to the LIBOR transition as we look to minimise any disruption to their day to day workings during the changes.

Ulster Bank Ireland DAC has a unique challenge in that we operate under regulatory conditions set out by the Central Bank of Ireland and the European Central Bank. This regulatory change has been largely driven by UK based regulators (Financial Conduct Authority and Prudential Regulatory Authority), so we’ve been heeding the advice of the UK based regulators while making sure the transition adheres to principles set out for financial institutions operating in the Republic of Ireland.

Q1 2021 is crucial as LIBOR loans will no longer be available from end March – to prepare we’ll focus on our bankers, giving them everything they’ll need to help our customers navigate this change. We’ve started to contact existing customers on this already.

It’s a big undertaking so we’re starting 2021 strong – to instil confidence and momentum as we work towards the cessation of LIBOR at end 2021. We have c.4,5000 loan agreements to transition in a private market, that means every loan needs the customer to be involved and sign the amendment agreements – a significant undertaking where our success is very much dependent on customer engagement and collaboration.

Our colleagues tell us more

Tell us about your unique role in the delivery of LIBOR transition?

I joined the LIBOR Transition Team in 2020 as a Transition Delivery Manager (TDM) - a role created to help deliver the change. I love the technical side of the role but also the customer interaction. Coming from a background in Investment Banking and having run my own customer portfolio for over 25 years, I knew this would be the right role for me.

The team will support Relationship Managers (RMs) and customers on the LIBOR transition journey. TDMs are experienced bankers with a vast amount of lending knowledge so we’ve been working to get ready for the transition, including preparing the information needed to have customer conversations this year. I’ve been building training material whilst others on the team are assisting legal with documentation, building process maps for the syndicated market and bespoke fixed rate loan amendment agreements.

The main challenge this year will be managing the transition journeys for a large number of customers within a limited timescale. I’m looking after over 100 RMs with over 600 customers. Collaboration between RMs, Performance Management and Back Office functions to transition customers smoothly without delays will be key.

Carol Worsley
Commercial Bank – LIBOR Transition Delivery – Transition Delivery Manager

So far, customer conversations have been positive, however the challenge is that LIBOR is not the priority with so many other competing demands in the current environment. Hopefully priorities will change as the year progresses and we’ll then work with them to transition away from LIBOR.

Our colleagues tell us more

What's it been like to work with a client that's already adopted LIBOR changes?

One of my large corporate clients, Bunzl, are a FTSE 100 company with a global diversified portfolio, including the supply of goods to retailers. For example, last year they supplied PPE to the UK – an outstanding, supportive contribution.

From the beginning, Bunzl were keen to be a leader and first to the market on moving away from LIBOR. They’re seen as thought leaders in the Treasury world, so they wanted to be ahead of the curve to test the transition process and make sure they’re ready for the changes.

Interestingly they don’t have any syndicated facilities (i.e. when a contract is held with a number of banks) but have ten bilateral deals (i.e. each one with an individual lender), so migrating their contracts will be very complicated.

Last year, we moved them to a new switch deal on SONIA. This new deal with NatWest is the first one they’ve done.

It’s taken 18 months of discussions, mainly because this is a market led regulatory reform and it’s taken time to build consensus across the industry on the key elements - such as loan conventions and pricing. So, each time we had to incorporate these changes before being able to move ahead with the updated deal.

Rosie Gill
Commercial Banking – Industrials, Large Corporate & Institutions

Relationship Manager for Bunzl

Throughout the process there’s been great collaboration and connectivity between all the teams involved. As Bunzl signed a bilateral facility, our NatWest teams did all the work. An extra benefit is that we worked with Bunzl to create a LIBOR transition guide covering details on SONIA, loan calculations, transition options and processes.

Bunzl have been impressed with how the whole process has been managed. And, importantly, this experience is a great test case that’ll help us with other, similar customers.

Our colleagues tell us more

What do you think will be the challenges we'll face when helping customers?

We can’t underestimate how big the LIBOR transition challenge is for customers. There’s a lot to do within a short time.

This year, we’re going from the theoretical to the practical, which is about working with customers to make the transition happen. We need to be ready in case the practical is more complex than expected.

How customers embrace this change is important. We’ve been talking to them about this subject for around 18 months now. For example, we discussed moving one client with a series of 5 bi-lateral Revolving Credit Facilities (RCF) that refinanced in Q1 2020 to a new SONIA loan deal. At the time the customer wasn’t convinced the loan market had arrived on a common approach so chose to stick with LIBOR. Now this choice no longer exists and the customer will have to transition to a new Risk-Free Rate.

We won’t know for sure how prepared customers or other banks are until we engage with them to progress the changes. I’m working on an amendment/extension agreement right now that involves 3 banks – and to achieve this we all need to agree a common approach. This in itself isn’t that unusual but given the fluidity of the regulators’ advice we’re facing significantly more challenges to make sure we’re able to find common ground that works for the customer

Les Anderson
Commercial Banking - Corporate & Commercial Banking, Scotland

Our colleagues tell us more

What do you think will be the challenges we'll face when helping customers?

It’s key when there are a number of banks involved that the banks and our customers agree just one solution that works for everyone. But it’ll be only once we roll up our sleeves and start the transition work that we’ll understand the challenge fully.

It’s up to us - the customer facing teams - to put theory into practice. No doubt we’ll need to be nimble and agile, collaborating internally and externally and learn as we go, to refine our approach to what works best for our customers. Considering how much time we have to get it done, I’m preparing as well as I can to engage our customers and deliver a successful transition to new Risk-Free Rates.

Les Anderson
Commercial Banking - Corporate & Commercial Banking, Scotland