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(KIBOR)
KIBOR is an average rate at which bank wants to lend money to other bank It is
provided by specialized institution (SBP, PBA) to all commercial bank of Pakistan so
that they charge interest to their customers on the basis. This rate is risk free rate
plus inflation plus risk premium.
History of KIBOR;
In Year 1999
Summary for KIBOR was presented
In Year 2001
It was Implementated on Money Market
In Year 2004
It was used as Reference Rate for Corporate Lending
In Year 2004
For the first time, KIBOR-related lending rates to corporate customers
Introduction of KIBOR
The KIBOR was launched in 2001 and in 2004 its scope and operation was
expanded. Since it has started, almost every bank of the country preferred to
devise its own mechanism for determination of KIBOR and it evoked serious
reaction from private sector.
The SBP in consultation with the Pakistan Banks Association has introduced KIBOR
as a reference rate for corporate lending to make interest rates more market-
driven.
The Habib Bank Ltd (HBL) has become the first commercial bank which has linked
its Karachi Inter-Bank Offered Rate (KIBOR) related financing with State Bank of
Pakistan (SBP).
Need of KIBOR
Before 2002, the banking sector has used PKRV (Pakistan Re-valuation Rate) rates
instead of KIBOR. Every bank and corporation has their own interest charges.
There was no centralized system. Some banks charge higher and some charge
lower rates. So SBP decided that there must be a standard system.
KIBOR Maturity/Tenor
Short Tenure
1 week or 2 week
1,3 or 6 month
Long tenure
1 Year or 3 Year
The SBP in consultation with the Pakistan Banks Association has introduced KIBOR
As a reference rate for corporate lending to make interest rates more market
Driven there is no specific formula State bank of Pakistan (SBP) calculate it every
Morning SBP demands quotations for lending/borrowing Rates of (1-week rates
To 3-year rates) from Primary Dealer i.e. around 20 strong commercial Banks of
Pakistan and these rates are floated on Reuters after which SBP eliminates 4 Top
Quotes from Higher side and 4 bottom quotes from lower side and take the
Average of Quotations of in-between. Thats the KIBOR for the Day. Around 11
A.M every working day it is provided by SBP.
Basis of Quotation
Following is the basis which is selected by commercial bank in providing
KIBOR Quotation to SBP
BID RATE
Rate the bank wish to pay on any borrowing
OFFER RATE
Rate the bank will want to receive on any lending
BID rate is always less than OFFER rate
FLOOR
A bank shall not decrease rate than floor rate
CAP
A bank shall not increase rate than the cap rate
Tenor of the deal: Profit margin depends on the time for which loan is
given/taken. Generally, the longer the term, the higher the rate.
Liquidity level: The more the bank is in need of cash, usually the higher is the
interest rate it offers.
Credit quality: Lower rates are offered to customers with more credit worthiness.
KIBOR
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
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