Steven Jackson, Business Reporter

Jamaica Bankers Association President Bruce Bowen estimates that around 40 loan transactions are locally exposed to the manipulation of a key global indicator used by individuals and companies to borrow funds, called the London Interbank offered rate (Libor).

Bowen cautiously described the local impact as "not so big a deal" because there are few Libor loans locally and the manipulation would have likely resulted in the movement of the interest rate between five to 10 basis points.

"So I don't believe it would be a large impact," he told Wednesday Business on Tuesday.

Bowen, who is also president of Scotia Group Jamaica, the second-largest banking group of seven, said that from his reading, the fluctuations may have been manipulated up and down. Last week, United Kingdom (UK) and United States (US) authorities fined UK based Barclays Bank £290 million (US$453m) for attempting to manipulate Libor rates between 2005 and 2009.

The rate-rigging, which has sparked a parliamentary enquiry in the UK, has led to the resignations of Barclays' CEO, chief operating officer and chairman (see related story on C11).

Benchmark

Libor is commonly used as a benchmark for setting loan rates globally. Millions of loans utilise this benchmark, but in Jamaica Libor-based loans are rare.

"I wouldn't be surprised if there are 30 or 40 loan transactions based on Libor in Jamaica," said Bowen. "That few," he said.

Bowen explained that Libor loan transactions would entail large projects in tourism, construction, utility power, government and its agencies, and banks.

"Some banks would have some funding but it wouldn't be a large percentage," he said.

Local loans usually are priced in reference to local Bank of Jamaica rates or US rates Libor.

"They fund out of local or US deposit markets, which are not directly correlated with Libor. In other words, Libor can be low but Jamaica interest rates can go up and down based on perceptions of Jamaica country risk," he said.

The real impact will depend on how UK and financial institutions deal with the Libor in the wake of the enquiry. Bowen reasoned that there are two main options going forward.

"Will they (UK government and financial institutions) simply fix Libor where changes will be made to make it more accurate, or will they go to a completely different (standard)?" asked Bowen, explaining that the latter option would require a tremendous workload to change the contracts, which only refer to Libor as a benchmark.

Bowen said scrapping the Libor would be a radical move which would cause a severe workload globally.

It would become "a huge administrative nightmare to deal with those contracts rather than to adjust the dollar amount," he said. "In Jamaica, with such few contracts, it won't be such a big deal."

The Bank of Jamaica referred requests for comment to the Ministry of Finance, but the relevant officials were not reached in time for comment.

steven.jackson@gleanerjm.com