South Africa: Reference rate reform – the transition from Jibar to ZARONIA

Written by Bowmans | 17/05/2023

The Market Practitioners Group (MPG) is a joint public and private sector body comprising representatives from the South African Reserve Bank (SARB), the Financial Sector Conduct Authority (FSCA), and senior professionals from a variety of institutions from different market interest groups active in the domestic money market.
The MPG recently hosted a conference to discuss reference rate reform in a South African context and the roadmap to transition from Jibar to ZARONIA (similar to the transition from LIBOR to risk-free rates).
ZARONIA is an acronym for South African Rand Overnight Index Average. It is administered by the SARB and is the MPG’s preferred successor rate to the Jibar. The rate is a measure of the interest rate at which rand-denominated overnight wholesale funds are obtained by banks in South Africa, where credit, liquidity and other risks are minimal. The rate is based on unsecured overnight call deposits placed with commercial banks, which are classified as deposit-taking institutions in the Banks Act 94 of 1990.
On each South African business day, ZARONIA is determined as a trimmed, volume-weighted mean of the central 80% of the distribution of interest rates paid on eligible unsecured overnight call deposits, rounded off to three decimal places. As it is a backward-looking rate, there is more transparency in the market and less room for possible manipulation.

Key differences between ZARONIA and Jibar are summarised below:

ZARONIA	Jibar
Near risk-free rate	Built in credit and term premium component
Overnight rate	Term rate
Backward looking	Forward looking
Fully transaction based	Indicative rates
Broad array of market participants	Only five contributing institutions

The transition plan to ZARONIA is in its foundation phase. It is estimated that the Jibar cessation date will be announced in early 2024. Pursuant to a rough timeline it is estimated that the Jibar cessation date will occur in 2026. The transition plan recommends that Jibar cessation be preceded by a period (roughly from June 2025) in which Jibar is no longer allowed in new positions in order to decrease the number of documents referencing Jibar ahead of the cessation date.

The cessation of the Jibar refers to the situation where the benchmark will no longer be published past a certain date. This will mean that all contracts referencing the Jibar will need to be actively transitioned to an alternative reference rate and/or make provision for the use of an appropriate fallback rate. New contracts entered into after the announcement of the cessation date, and which mature after the cessation date, will need to reference an alternative rate such as ZARONIA.

The MPG is also working on a sample Jibar replacement clause for loan agreements. However, the SARB has stressed that this wording will not be prescribed, and clients need to obtain legal advice on the provisions that are suitable for the particular transaction. The clause can be a useful starting point for negotiations, and we can also draw on what the Working Group on Sterling Risk Free Reference Rates in the United Kingdom has recommended in the transition from LIBOR to RFRs - for example, including credit adjustment spread language where appropriate.

Answers to frequently asked questions related to South Africa’s benchmark reform journey are available on the SARB’s website here.

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