LIBOR EUR will be replaced with EURIBOR

In compliance with the regulatory requirements set by the European Union, starting from January 1st, 2022, SEB bank will begin to replace LIBOR EUR, a benchmark used in credit agreements of the bank, with EURIBOR.

We kindly remind you that calculation of the interest rate in credit agreements consists of two parts, namely the benchmark rate, and the added interest rate. The added interest rate is set individually for every customer of the bank, whereas the benchmark rates have historically been linked to indices. The most often used indices have been LIBOR and EURIBOR.

The Regulation (EU) 2016/1011 of the European Parliament and of the Council has been in force since 2018. It sets the requirements that the benchmarks must comply with. 

Since LIBOR EUR benchmark no longer complies with the mentioned requirements, starting from the beginning of 2022, it will not be used anymore.

Based on the credit agreement of the client, the LIBOR EUR benchmark will be replaced with the equivalent term EURIBOR, which will be further used in determining the interest rate. The process will be finalised by the end of 2022. Other terms of credit agreement will not be changed.

More information on the benchmark rates, their importance and changes can be found in the webpages of the European Central Bank (ECB) and the Bank of Lithuania (BoL).

Customers affected by the changes will be contacted no less than 60 days before the first interest change day of 2022. They will be informed via internet bank, email and / or SMS message. The customers will not need to do anything regarding the changes.

Frequently asked questions regarding LIBOR EUR replacement with EURIBOR

Which benchmark rates will begin to be changed by SEB bank starting from January 2022?

The LIBOR EUR benchmark will be replaced with the equivalent term EURIBOR, which will be further used in determining the interest rate.

More information on the benchmark rates, their importance and changes can be found in the webpages of the European Central Bank (ECB) and the Bank of Lithuania (BoL).

In my credit agreement, LIBOR EUR benchmark is applied. What should I do?

You do not need to do anything. Customers affected by the changes will be contacted no less than 60 days before the first interest change day of 2022. They will be informed via internet bank, email and / or SMS message. The change will take effect automatically.

In 2022, when the interest rate change day comes, LIBOR EUR benchmark will be replaced with the equivalent term EURIBOR. Other terms of credit agreement will not be changed.

After the benchmark rate used in calculating the interest rate changes, you will receive the internet bank message with the necessary information: the interest rate, the instalment amount, etc.

The change will be implemented free of charge.

Will the interest rate and margin change, after LIBOR EUR replacement?

Margin of the credit will not change.

If the credit agreement contains a clause that during the period when interbank offered rate is negative it is considered equal to zero, credit instalment will not change.

If the credit agreement does not contain a clause that during the period when interbank offered rate is negative it is considered equal to zero, the credit instalment that depends on EURIBOR might change. Currently, LIBOR EUR and EURIBOR benchmarks are of similar size.

Calculation example (updated on November 29th):

On 29th November, 2021, 6-month LIBOR EUR is -0,5523 %, and EURIBOR is -0,5360 %.

If that day outstanding loan is equal to 30 000 Eur, loan maturity is 15 years, and the credit is repaid using annuity method, then, after changing the benchmark from LIBOR EUR to EURIBOR, interest paid by the customer will increase to 4,83 Eur per year.

Will my credit instalment change?

Monthly instalment will depend on the size of the variable interest rate on that particular day, meaning it will depend on EURIBOR benchmark value on that particular day when the benchmark for calculating interest rate is changed.

If the credit agreement contains a clause that during the period when interbank offered rate is negative it is considered equal to zero, credit instalment will not change.

If the credit agreement does not contain a clause that during the period when interbank offered rate is negative it is considered equal to zero, the credit instalment that depends on EURIBOR might change. Currently, LIBOR EUR and EURIBOR benchmarks are of similar size.

Calculation example (updated on November 29th):

On 29th November, 2021, 6-month LIBOR EUR is -0,5523 %, and EURIBOR is -0,5360 %.

If that day outstanding loan is equal to 30 000 Eur, loan maturity is 15 years, and the credit is repaid using annuity method, then, after changing the benchmark from LIBOR EUR to EURIBOR, interest paid by the customer will increase to 4,83 Eur per year.

Why are IBOR changes being implemented?

Financial regulatory institutions have requested to clarify the methodology for setting benchmark interest rates or to set new alternative benchmark interest rates, which would replace the existing ones. The goal is to avoid the risk of manipulation of benchmark rate setting methods in international financial markets, which negatively impacts both significant market participants and financial institutions in general, as well as all households.

More information on the benchmark rates, their importance and changes can be found in the webpages of the European Central Bank (ECB) and the Bank of Lithuania (BoL).

What is IBOR?

IBOR (Interbank Offered Rate) is used in benchmarks or indices linked to benchmark interest rates. For example, EURIBOR (Euro Interbank Offered Rate) and LIBOR (London Interbank Offered Rate). In credit agreements, benchmark rate reflects the price for which the bank borrows money in the market.