Why SA is replacing the interest rate system that affects nearly every loan?

Stephen Grootes speaks to Deborah Carmichael, Executive Director in Banking and Finance at ENS about how the end of JIBAR, South Africa’s key interbank lending rate, will reshape 135,000 home loans and usher in a new era of interest rate benchmarks.

Listen to the interview in the audio player below.

South Africa’s financial system is preparing for a major change.

Tthe Johannesburg Interbank Average Rate (JIBAR), one of the most widely used interest rate benchmarks in the country is expected to be replaced by the end of 2026. JIBAR has been around since 1999.

Banks use it to help calculate interest rates on many loans, bonds and financial contracts.

But there’s a growing problem.

The market that JIBAR is supposed to reflect has become extremely quiet. There are hardly any real trades happening. This means banks often have to rely partly on expert judgement instead of actual transactions, something global regulators no longer consider reliable.

These benchmark rates are the backbone of the financial system, and if the rate is unreliable or open to manipulation, it can affect everything from home loans and business finance to big investment products used by banks and global institutions.

That's has already happened.

The push for reform goes back to the 2012  London Interbank Offered Rate (LIBOR) scandal, when major international banks were caught manipulating the London Interbank Offered Rate to benefit themselves. Investigations later showed the problems had existed for years, even during the 2008 global financial crisis when suspiciously low lending rates raised red flags.

This scandal revealed how vulnerable the old benchmark systems were and triggered a worldwide overhaul, including here in South Africa where the Prudential Authority (PA) published a proposal to modernise South Africa’s benchmark rates.

JIBAR is being replaced by the South African Rand Overnight Index Average (ZARONIA), a new, data-driven benchmark rate designated by the South African Reserve Bank (SARB).

Speaking to Stephen Grootes on The Money Show, Deborah Carmichael, Executive Director in Banking and Finance at ENS says the end of JIBAR will reshape 135000 home loans and usher in a new era of interest rate benchmarks.

"The transaction that underpin corporate South Africa have typically referenced that rate for all of their cash market transactions, and cash markets include loans, and it also includes the bond markets. So when people raise money on the JSE, for all manner of things, JIBAR has underpinned that rate for, I think three decades," said Carmichael.

"The market based on JIBAR was as representative of the actual market in which we existed, rather than it being subject to manipulation," added Carmichael. 

Scroll to the top of the article to listen to the full interview.