The bank is the first in the UK to respond to calls from the Financial Conduct Authority (FCA) to accelerate the transition away from loan products that use LIBOR (London Interbank Offered Rate) towards Risk-Free Rates (RFRs) by the end of 2021.
NatWest’s new loan, to be piloted initially with a limited number of large corporate customers, instead uses the SONIA (Sterling Overnight Index Average) rate based on transactions carried out in the market the day before, giving a more transparent, data-led benchmark.
NatWest’s new bilateral facility is a first for the market as well as for the bank. It uses methodology already seen in the Sterling Floating Rate Note issuance market, including compounding of interest and ability to hedge.
Alison Rose, Deputy CEO, NatWest Holdings, said: “The FCA has made clear that it wants to see early adoption of the SONIA rate in all financial markets. As the UK’s biggest lender to businesses, we are committed to helping lead the development of SONIA-based lending in the market and to supporting our customers through the transition away from LIBOR rates.”
NatWest expects to launch the SONIA loan product to the wider market in the second half of 2019 using learnings from the pilot project.