Change in LIBOR Tenures and Impact on Trade Finance

Libor changesLIBOR scandal was discussed in the earlier articles like Pushing the reset button on LIBOR – Speech by Martin Wheatley and Impact of Libor Review on Trade Finance in India .

Effective from 01 June 2013, two major change has been implemented.

  1. Henceforth LIBOR rates will be available for below tenures only:
    1. LIBOR – overnight
    2. LIBOR – 1 week
    3. LIBOR – 1 month
    4. LIBOR – 2 months
    5. LIBOR – 3 months
    6. LIBOR – 6 months
    7. LIBOR – 12 months
  2. Libor rates for the below currencieshas been discontinued.
    1. NZD (New Zealand Dollar)
    2. DKK (Danish Krone)
    3. SEK (Swedish Krona)
    4. AUD (Australian Dollar)
    5. CAD (Canadian Dollar)

3. Libor rates is now only available for below currencies

Impact on Buyers Credit & all Trade Finance Transactions

  1. If importer is looking for buyers credit for tenures for which Libor rates are not available, buyers credit providing banks has started using higher tenure LIBOR rates  & thus resulting in increase in cost for importers. For Example: If Importer is looking for buyers credit for tenure of say 120 days or 150 days. Earlier buyers credit was provided at 4 Month Libor or 5 Month Libor respectively. But since yesterday banks have started quoting for such transactions at 6 Months Libor only. Same way if importer is looking for  any tenure above 6 Months,  banks have started quoting rates at 12 Month Libor.
  2. Currencies for which Libor rates are not available, banks will have to start using alternate benchmark for providing trade finance. For example, as of now buyers credit would stop for these currencies transaction till the time banks find an alternate benchmark. As this currencies are used  limitedly by Indian importers it will limited impact.

Note: The above changes is yet not been made to Euribor. Thus will not impact EURO Transactions.

Reference Article

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3 thoughts on “Change in LIBOR Tenures and Impact on Trade Finance”

  1. For Applying buyers credit for imports what is the TIME ELIGIBILITY ?
    For example: BL date is 01-01-2012. LC 180 day so that Due date 29-06-12 and then applied for buyers credit for 180 days so that next due date for buyers credit is 26-12-12, after that again whether do we have eligibility for applying for buyers credit. (i.e from BL date, how many years we can get buyers credit.)

    1. Tenure for buyers credit will depends below two factors.

      1. RBI Regulations: Banks can approve upto below tenure.

        A. non capital goods import (Raw Material, Consumables, Accessories, Spares, Components, Parts etc) : upto 1 year from the date of shipment
        B. Capital Goods import : upto 3 Years from the date of shipment

      2. Bank Sanction letter: Maximum tenure approved for buyers credit by lou issuing bank

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