Page 137 - ICD AR21 EN

35 LIBORTRANSITION (Continued)
• ThereisliquidityriskinthatthefundamentaldifferencebetweenLIBORandthevariousalternativebenchmark rates is that the former is are forward-looking term rates published for a period (e.g. 3 months) at the beginning of that period and include an inter-bank credit spread, whereas alternative benchmark rates are typically risk-free overnight rates published at the end of the overnight period with no embedded credit spread. These differences will result in additional uncertainty regarding floating rate interest payments which will require additional liquidity management.
• Negotiatingandagreeingnewrateswithcounterpartiestoreplaceexistingratesmaynotbeaneasytask.This poses litigation risk if no agreement is reached on the use of alternative benchmark rates or where there is difference on the existing fallback clauses.
• TheInformationsystemmayneedtobeupgradedtobeabletohandlethetransitionfromLIBORtothenew benchmark rates.
• ChangingtoanewbenchmarkmayhaveShari'ahimplicationsthathavetobeclearedbytheShari'ahCommittee
• Thetransitionintonewbenchmarksmayleadtoachangeintheaccountingtreatmentofaproduct.The
practical expedient is only applicable to changes required by the interest rate reform-it is necessary as a direct consequence of the reform and the new rate is economically equivalent to the previous rate. Any other change will have to be dealt with using other modification requirements in IFRS 9 (including assessing whether the change results in derecognition).
The Corporation started the inclusion of fallback clauses in some agreements to help in facilitating a steady transition to a new rate. We will continue developing and incorporating ‘fallback’ clauses into all future LIBOR based floating rate contracts. The facilities both financing and borrowing linked to LIBOR which will mature after June 30, 2023 have been identified. In addition, ICD management will establish a working group made up of representatives from the different units of the Corporation, which will be tasked with the responsibility of:
• EstablishingaLIBORtransitionplanwithcleartimelineandmilestones
• ReviewingtheidentifiedexistingassetsandliabilitiesthatareLIBORbasedandmaturingafterJune30,2023
• Ensuringthatfallbackclausesareincludedinthosethatdonothavebyengagingalawfirmtohelpinthisprocess • Communicatingtheneedforchangeandnegotiatingwithclientsonadjustedrates
• LiaisingwithPathSolutionstoensurethatthecorebankingsystemcancopewiththechange
• Advisingmanagementabouttheimpactoftheproposedchange
• Revisingtheinvestmentandtreasuryguidelineswhereappropriate
• Operationalizingthefallbackclauseandissuingalternatebenchmarkrates
• Monitortheimplementationofthechangeovertoensurethateverythingisgoingaccordingtoplan.
36 AUTHORIZATION FOR ISSUE
The financial statements were authorized for issue in accordance with the resolution of the Board of Directors dated 18 May 2022 (corresponding to 17 Shawwal 1443 AH).
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