The move from Jibar to Zaronia is bringing about a big change in South Africa's financial sector. The effects of this move on contracts and financial risk are something CFOs need to be aware of.
CFO South Africa had a conversation with Eulali Gouws, Portfolio Manager, in the fixed income (money markets) team at STANLIB at their Melrose Arch offices to make sense of the introduction of ZARONIA to the market.
For a very long time, South Africa has been using the Johannesburg Interbank Average Rate (Jibar), in the money market space. This is the long-standing benchmark for short-term loans and instruments, the rate comes in one-month, three-month, six-month, and 12-month discount terms. But the rands spent on Jibar by companies are fast running out as a new kid on the block is ready to take over.
Now, the South African Rand Overnight Index Average (ZARONIA), is what will be implemented from 2025. It reflects the interest rate at which rand-denominated overnight wholesale funds are obtained by commercial banks. Unlike Jibar, it is based on actual transactions and calculated as a trimmed, volume-weighted mean of interest rates paid on eligible unsecured overnight deposits.
The big question then is, what does this switch from Jibar to ZARONIA mean for senior executives such as CFOs, who are responsible for managing the financial activities and strategies of organisations.
“The shift to ZARONIA should not affect current pricing of instruments. However, as the calculation methods of the rates differ, CFOs should consider renegotiating contracts to ensure that a credit spread adjustment is taken into account, to compensate for the difference between ZARONIA and Jibar.
Furthermore, they must be aware that ZARONIA is going to be trading lower than Jibar. There is about a 20-basis point difference between the two rates. Corporates will therefore need to readjust their projections interest rate risk management strategies,” she added.
A transitional period comes with challenges and changes, which might not be easy for everyone to navigate. Some of the contracts signed by respective companies will expire way after the implementation of ZARONIA. Eulali cautioned CFOs about the importance of reading and understanding the implications of this switch.
“CFOs must ensure that their contracts have fallback language in place,” she emphasised.
Convincing the key stakeholders on how to move
When it comes to the boardroom dynamics, Eulali is convinced that this is one discussion that will not need any CFO to persuade the board that they are making a good move.
She explains; “ZARONIA is a train that is coming, and it is not going to stop. There is no necessary convincing to be done. So, the South African Reserve Bank (SARB) is going to stop publishing Jibar by the end of 2026. It is important for companies to be prepared or they are going to miss it.”
Eulali adds; “CFOs must make sure that their businesses are ready for this transition. Market readiness is going to start being tested from March to May 2025. From May 2025 SARB is going to start issuing ZARONIA-only contracts. But your trades on Jibar must be re-negotiated. By the end of 2026, no more Jibar rates are going to be published.”
The switch from Jibar to ZARONIA is a three-phase approach. Provisional timelines suggest ZARONIA will be available for use in the derivatives market before end-2024, and for use in the cash markets, including bonds and loans, by mid-2025.
"STANLIB is highly active in the general transition process and is prepared for the introduction of ZARONIA at an organisational level. STANLIB is also represented on the market practitioner's group This group addresses any questions that arise from the market immediately. The market practitioner’s group meetings made decisions about the implementation of ZARONIA and its intended usage as a reference rate. We are prepared to assist our clients, where we can, in adopting and implementing ZARONIA,” Eulali states.
“As things stand, there has been a noticeable advancement in the process of replacing the long-standing Jibar with the new ZARONIA rate, indicating a strong acceleration of reforms to the country's reference interest rate,” she concludes.
