Issue link: https://read.uberflip.com/i/1271078
3 The imminent transition away from LIBOR has the potential to be highly disruptive, and the deadline is fast approaching Preparing market infrastructure for the transition is well underway, but there have still been relatively few transactions based on alternative rates in the loan markets Daily compounding, new notice requirements, portfolio conversion and change management are a few of the challenges lenders face Sopra Banking Software is proactively working to help our clients with exposure identification, strategic planning and technological readiness Global regulators have signaled that banks should transition away from LIBOR (London Interbank Offered Rate) to alternative risk-free rates (RFRs). With a year and a half to go until banks are no longer compelled to submit quotes for LIBOR, the pressure to complete the transition continues to mount. LIBOR-based loans that affect banks, asset managers, insurers and corporates are estimated at USD 350 trillion glob- ally. This figure illustrates just how deeply entrenched LIBOR is in the financial world, and a poorly executed discontin- uation of it presents a systemic risk. In moving off LIBOR, banks will need to determine the exposure of their portfolio, handle workflow interruptions and meet a series of operational challenges. They will likely need to adjust the margins on their loans, introduce dynamic credit spread adjustments, modify the way interest rates are processed and institute new fallback language. This paper will cover the shift from USD LIBOR to its successor, the Secured Overnight Financing Rate (SOFR). In partic- ular, it will explore the effect on lending — in terms of servicing system impacts and readiness. Compared to other fi- nancial markets, there have been relatively few transactions based on alternatives in the loan markets. The time frame to make this change is shrinking, and banks, along with all relevant stakeholders, need to take action. Executive summary 01/ CONTENTS 01/ Executive summary 02/ Timeline & latest updates 03/ Inherent challenges 04/ Loan servicing impacts 05/ RFR experience 06/ Sopra Banking Software in action