Finanace, Kibor

Q#1. What is KIBOR ?

The Karachi Interbank Offered Rate, or KIBOR, is the average interest rate at which term deposits are offered between prime banks in the Pakistani wholesale money market or interbank market. KIBOR is the average interest rate at which banks want to lend money to other banks.

Karachi Inter Bank Offer Rate (KIBOR), given by specialized institution (SBP, PBA) to all the commercial banks of Pakistan so that they charge interest to their customers on that basis. Types of KIBOR rates:

* SHORTER TENURE

* 1 week

* 2 week

* 1 month

* 3 month

* 6 month

* LONGER TENURE

* 1 year

* 2 year

* 3 year

Q#2. How KIBOR is implementing in Commercial Banks?

* KIBOR is applicable on:

* Term Finance Certificates

* Commercial Papers

* Over Drafts and Running Finance

* State Bank Of Pakistan Calculate KIBOR rates. Interbank clean (without collateral) lending/borrowing rates of (1-week rates to 3-year rates) from Primary Dealer.

* The banks under this arrangement quote these rates at specified time i.e. 11.30 AM every morning at Reuters.

* Around 20 banks are member of KIBOR club and by excluding 4 upper and 4 lower extremes, rates are averaged out that are quoted for both ends via : offer as well bid.

* For tenors exceeding three years and not covered by KIBOR, banks are advised to use appropriate benchmarks such as secondary market yields on the relevant tenor of Pakistan Investment Bonds.

* Banks and borrowers are free to decide on the relevant tenor of KIBOR and the spread over KIBOR at their discretion.

* For floating rate time loans, the tenor of the benchmark rate should be the same as of re-pricing tenor set for the floating rate loan, if a loan is re-priced every six month, then six month is the relevant benchmark, whether the loan is of 1, 2 years or any other term.

* It is used as a benchmark for corporate lending rates. KIBOR as a benchmark:

* To encourage...