KUALA LUMPUR (March 24): Bank Negara Malaysia (BNM) will release a roadmap in 2025 to phase out the Kuala Lumpur Interbank Offered Rate (KLIBOR) and transition to a new interbank rate for pricing financial contracts.

It will also form working groups to help develop and integrate the Malaysia Overnight Rate (MYOR) and Malaysia Islamic Overnight Rate (MYOR-i), and manage legacy KLIBOR contracts before the rate is phased out.

Exposure to KLIBOR is to be gradually reduced, with its use in new products to stop by 2027.

It said the strategic shift is to maintain confidence in the reliability and robustness of financial benchmarks used in the domestic financial market.

MYOR was introduced in 2021 as Malaysia’s new reference rate, following a global rate-rigging scandal involving the UK’s London Interbank Offered Rate (LIBOR). This shift was made to adopt more reliable benchmarks based on actual transactions, rather than rates set by banks.

The scandal involving LIBOR triggered investigations across the world, from the US to Singapore.

 In 2024, BNM began consultations on transitioning from the KLIBOR to the more robust MYOR and MYOR-i.

Ongoing discussions with industry stakeholders have helped BNM address market volatility and improve market infrastructure, the central bank said in its Annual Report 2024.

BNM also released a discussion paper to gather public feedback on key issues, including selecting successors for term reference rates and managing legacy KLIBOR contracts.

At end-2023, legacy KLIBOR contracts totalled RM929 billion, including derivatives, bonds, and loans. Nearly 90% of the exposure to KLIBOR relates to derivatives, while only about 7% relates to bonds and loans.

Click here to read more stories on BNM Annual Report 2024.