Standard Bank Introduces a Risk-Free Rate Calculator to Support JIBAR-to-ZARONIA Transition
South Africa’s financial system is undergoing a significant transformation with the phasing out of the Johannesburg Interbank Average Rate (“JIBAR”) in favour of the South African Rand Overnight Index Average (“ZARONIA”), which has been selected as the successor rate by the South African Reserve Bank (the “SARB”).
This transition aligns with global efforts to adopt more transparent and reliable benchmark interest rates.
To support clients through this change, Standard Bank has launched a Risk-Free Rate Interest Rate Calculator (the “Calculator”), Standard Bank Calculator This educational tool is designed to help users understand the impact of calculating interest using risk-free or near risk-free reference rates (“RFRs”) such as ZARONIA on financial contracts, and to offer insights into the associated pricing methodologies. The tool also incorporates other global RFRs, such as the Sterling Overnight Index Average (“SONIA”) for the UK and Secured Overnight Financing Rate (“SOFR”) for the US, to broaden understanding.
In line with the SARB’s recommended methodology, ZARONIA is calculated as a daily rate that is compounded in arrears. The rate is observed retrospectively, based on an applicable lookback period, either with or without an observation period shift. For example, when ZARONIA is compounded in arrears with a five-business-day lookback, the rate applied to a specific day is derived from the overnight rate five business days earlier. This methodology enhances cash flow predictability by avoiding same-day rate notifications for interest payments.
The Calculator defaults to a five-business-day lookback period but also allows users to customise the settings. It includes functionality to download detailed Excel outputs for further analysis, as well as help text to facilitate navigation. Importantly, only the observation date is shifted in the model, the rate still applies to the same number of calendar days within the interest period, typically excluding weekends and public holidays.
Calculating interest based on a risk-free rate differs from traditional term rates, where interest obligations are known in advance. With ZARONIA, the daily rate fluctuates, and the final interest amount is only known based on the last lookback date before the interest payment date. This requires more active calculation and monitoring. The Calculator enables clients to model various scenarios, helping them to understand how rate fluctuations could impact their financial obligations.
The Calculator also caters for the simulation of JIBAR-to-ZARONIA transition scenarios, where a Credit Adjustment Spread (“CAS”) is required. The CAS is intended to mitigate the risk of transferring economic value during the transition from legacy JIBAR contracts to ZARONIA. It will be fixed upon the announcement of the JIBAR cessation date by our Regulators, which is currently earmarked for December 2025. To allow the market to become familiar with the CAS prior to it being fixed, Bloomberg has been publishing the daily CAS since 8 April 2025 for market use. In the interim, users can simulate transition scenarios by applying the daily CAS values published by Bloomberg.
In addition to the compounding method, the Calculator includes alternative methodologies, such as a simple interest approach. Although this method is not the preferred industry standard, it has been incorporated for illustrative purposes. Interest is calculated by applying the daily rate using the South African day count calendar, Johannesburg (ZAJO), exclusively on business days and directly to the principal loan amount. The interest payment is the aggregate of interest amounts accumulated over time, with no compounding applied.
The launch of the Calculator marks another key milestone in Standard Bank’s benchmark rate reform programme. It promotes transparency, enhances client understanding, and supports readiness for the shift to a more robust and market-aligned reference rate. Clients are encouraged to use the tool and consult with their relationship managers to better understand how ZARONIA could impact their financial strategies.