(KIBOR)

Introduction

History
 Year 1999:
 Summary for KIBOR presented
 Year 2001:
 Implementation on Money Market
 Year 2004:
 Used as Reference Rate for Corporate Lending
What is KIBOR ???

 Karachi Interbank Offered Rate (KIBOR)

 Quoted on Reuters by 20 commercial banks
(as selected by FMA - Financial Markets
Association of Pakistan).
 Updated at 11.30 AM daily on Reuters by
excluding Out-layers, 4 extremes on higher
and 4 extremes on lower side.
What is KIBOR ???
Contd…

 Authenticity is confirmed by making the contributors liable

to accept Bid/Offer within 15 minutes from the time of up
date up to Rs 100million of Lot Size by Contributor Banks.
 FMA ensures timely and error-free availability of the rates.
 With effect from 31st January 2004 Karachi Interbank
Offered Rate (KIBOR) is used as the benchmark for all
corporate lending.
 Currently KIBOR is quoted for tenors ranging from 1-week to
3-years.
Need for KIBOR

 Need to Benchmark
 ( Borrowing / Lending Rates)
 Harmonize operations of financial markets
 Encourage transparency,
 Promote consistency in market based pricing,
 Improve management of the market risks
Types of KIBOR rates

 Shorter Tenure
 1 week
 2 week
 1 month
 3 month
 6 month
 Longer Tenure
 1 year (31 march, 2004)
 3 year (31 december, 2004)
KIBOR Applicable to…

 All floating and fixed rate time loans

 TFCs
 Commercial Papers
 Overdrafts / Running Finance
KIBOR not applicable to…

 Financing under Export Finance Scheme of

the State Bank of Pakistan.

 SME Financing
Methodology

 Rates published on Reuters Page daily

 Banks and the borrowers are free to decide
on the relevant tenor of KIBOR and the
spread over KIBOR at their discretion.
 Will be set for the lending facility on the date
of draw-down.
 Offer Letter to the client should clearly
indicate the KIBOR’s tenor plus agreed
spread, frequency of revision etc
KIBOR– BID/OFFER RATES

 BID rate
 Rate the bank wish to pay on any borrowing
 OFFER rate
 Rate the bank will want to receive on any lending

Bid rate is always less than Offer rate.

KIBOR Floors & Caps

 Floors
 A bank shall not decrease rate than the floor rate
 Caps
 A bank shall not increase rate than the cap rate.

 This is used in exceptions cases.

How KIBOR is calculated

 No Specific Formula
 Balancing of Payments
 Purchase Power
 Inflation Control
 Rates contributed by money market
brokers/contributors on daily basis.
Effects on Money Market

 Interest Rate Risk

 KIBOR as benchmark
 Help Banks create better products for the
customers
Launch of KIBOR Futures

 A very significant milestone has been

achieved by the listing of Kibor Futures
Contracts on National Commodity Exchange
Limited (NCEL).
 Launching of this new product was an
essential prerequisite for Banks, Brokers,
Financial Institutions and Corporate to start
familiarizing themselves with it
Advantages Of KIBOR Futures

Interest rate risk is ubiquitous :

 Similar to changes in prices of other assets,
interest rate changes also create uncertainty
for businesses.
 Like all other futures, interest rate futures
also provide the essential service of reducing
risk and uncertainty and help in better
business planning and management.
To help Banks create better
products for customers:
 Interest rate futures have very fundamental
benefits for financial markets.
 The chief advantage is to have a tradable
yield curve which provides information about
the market’s consensus view regarding the
future path of interest rates.
Contd..

 Interest rate futures have a history of almost

30 years ever since they were first launched in
the US. They have proved to be a
fundamental building block of interest rate
markets and have shown their strength and
usefulness in every jurisdiction.
 With the launch of Kibor futures, banking
and financial sector as well as the rest of the
pakistani economy will be able to benefit in
the same way as the rest of the world has.