Derivatives buys signal receptiveness to THOR

Derivatives buys signal receptiveness to THOR

Several banks have been involved in the derivatives market based on the Thai Overnight Repurchase Rate (THOR), accounting for a total value of 8.3 billion baht, a positive sign encouraging the country's new reference rate.

Since the Bank of Thailand implemented the new reference interest rate on April 1, there have been four banks involved with THOR-based derivatives: CIMB Thai Bank (CIMBT), Kasikornbank (KBank), Krungthai Bank (KTB) and Standard Chartered Bank Thai.

THOR was developed to replace the upcoming phase-out of the London Interbank Offered Rate (LIBOR) as the interest rate used as a reference for the repurchase of corporate bonds between banks.

Britain's Financial Conduct Authority, the regulator overseeing LIBOR, announced in 2017 that all currency and term variants of LIBOR could be phased out after year-end 2021.

The news led central banks worldwide to develop their own home-based repurchase rates.

The Bank of Thailand also plans to issue bonds based on THOR next year.

The financial product activity quoted in THOR is expected to increase by the end of this year, which will stabilise the country's new reference rate, said Pao Chatakanonta, senior executive vice-president and head of the treasury division at CIMBT.

The Thai market has seen considerable progress on the development of the new reference rate with the Bank of Thailand's support.

THOR has been implemented faster than expected, Mr Pao said, and market activity has been showing positive signs in terms of players and volume.

There are 10 active players that use the existing Thai Baht Interest Rate Fixing (THBFIX), the existing reference rate that incorporates LIBOR for interest rate calculation.

CIMBT, a small bank, ranks third in the banking industry's derivatives market with a 24.3% market share, worth 6.23 billion baht.

The bank plans to convert the existing structured notes quoted in THBFIX to THOR and issue new derivatives products based on THOR next year, Mr Pao said.

CIMBT has built up awareness about the new reference rate to commercial customers, so the bank will gradually convert existing customers' loan contracts from THBFIX to THOR this year, he said.

"Despite being a small bank, CIMBT is a key player in the money market using THBFIX," Mr Pao said. "With financial exposure [in the banking industry] based on THBFIX worth 4 trillion baht in total, CIMBT has a market share of 20-25%."

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