SARB leads transition to ZARONIA, replacing JIBAR by 2026
In line with international best practices, the South African Reserve Bank (SARB) is spearheading the transition from JIBAR to a new benchmark reference rate by 2026. This change follows similar global transitions, such as the replacement of LIBOR for USD and GBP, and aims to create a more robust interest rate benchmark to price financial instruments in ZAR.
To facilitate this transition, the SARB established the Market Practitioners Group (MPG), a collaborative body of public and private sector representatives. The MPG assessed potential alternatives and selected the South African Rand Overnight Index Average (ZARONIA) as the most suitable successor. This choice prioritises reliability, robustness, transparency and strong correlation with central bank policy rates. ZARONIA is an overnight rate and is based on actual transactions which are reported daily to the SARB. The SARB began publishing ZARONIA from November 2023 on its website, and it is now publicly available on the SARB website (ZARONIA interest rate benchmark) for use by market participants.
Key milestones in the transition to ZARONIA
The financial market is actively progressing towards the widespread adoption of ZARONIA. The adoption phase is underway, and the adoption of the new benchmark rate will commence with new derivative contracts in the first quarter of 2025. The formal announcement on JIBAR cessation is expected in 2025 followed by final publication of JIBAR (or JIBAR cessation) at the end of 2026. Click here to read more about the Industry timeline and reference frequently asked questions about ZARONIA.
Understanding the differences between JIBAR and ZARONIA
While both serve as benchmark rates, ZARONIA and JIBAR differ significantly in their methodology and characteristics. ZARONIA is a backward-looking overnight rate based on actual, near risk-free transactions, closely mirroring the SARB's repo rate movements. JIBAR is a forward-looking, unsecured funding rate which anticipates movements in the South African monetary policy repo rates.
| ZARONIA | JIBAR |
|---|---|
| Near risk-free rate (no implied bank credit risk) | Built-in credit and term premium component |
| Backward-looking overnight rate | Forward-looking term rate |
| Based on actual transaction reported daily to the SARB | Based on submission by contributing banks |
| Broad array of market participants | Only 5 contributing banks |
The fundamental differences between these two rates will represent a significant shift in pricing, valuation and legal contracting terms when transitioning existing JIBAR contracts to ZARONIA.
Preparing for a seamless transition from JIBAR to ZARONIA
To ensure a smooth transition from JIBAR to ZARONIA, we recommend implementing proactive planning processes. Key considerations include the following:
- Conducting a comprehensive impact assessment of current JIBAR exposure to inform stakeholders and prioritising transition steps
- Reviewing existing legal agreements and renegotiating terms as needed, incorporating fallback provisions and other necessary clauses
- Analysing the impact of ZARONIA on contract terms, including cash flows, valuations, hedging strategies and financial reporting
- Updating systems and implementing robust processes to effectively manage ZARONIA exposures
- This transition signifies a crucial step in aligning South African financial markets with international IOSCO best practices. Standard Bank fully supports the adoption of ZARONIA and encourages market participants to engage in thorough preparation.
Our client teams are here to assist and guide you with pricing transactions using ZARONIA and transitioning JIBAR transactions to ZARONIA where clients extend beyond the expected cessation date.