Benchmarks

Since 2014, a global discussion has been underway regarding the reform of benchmarks. These reforms have led, among other things, to decisions to reform or gradually discontinue certain benchmarks, including the phase-out of LIBOR and the discontinuation of EONIA – to be replaced by new benchmarks known as Risk-Free Rates (RFRs).

RFRs are calculated under the supervision of national regulatory authorities, generally on the basis of actual transactions in the interbank market or with other counterparties. They are overnight rates, calculated daily and then adapted to specific tenors (periods such as 3M, 6M, etc.) by using an appropriate method. Therefore, they are not identical in their construction and application to the existing interest rate benchmarks. First of all, they are determined at the beginning or before the start of the period to which they relate, which provides certainty as to the amounts due accrued at the end of that period.

The following examples illustrate the key structural differences between RFRs and traditional term benchmarks such as WIBOR or EURIBOR:

• A term benchmark is determined by reference to future and uncertain interest rates on deposits, while the RFRs are determined on the basis of values embedded in the past;
• A term benchmark represents a forward-looking interest rate for several periods (tenors) such as 3M, 6M, or 12M, while RFRs are purely O/N (overnight) rates with no term component;
• A term benchmark incorporates a premium for the Bank's credit risk and term liquidity risk. On the other hand, the RFRs, as a rule, contain a very small additional premium or do not contain it at all due to the construction of the overnight interest rate and the fact that they are sometimes secured;

Due to the construction of the RFRs (they are calculated on a daily basis), it may be necessary to adapt them to contracts and instruments in which the tenor (period) rate was used, e.g. 3M or 6M. For this reason, Term RFRs, the so-called “compounded rates” are also provided, which allow for setting interest rates for longer interest periods (“Term RFR(s)”) using RFRs.

Such Term RFRs, e.g., the “SARON 3-months Compound Rate,” are calculated on the basis of the daily values of the underlying RFR – in this example, SARON. The administrator that calculates such a Term RFR takes into account a certain publication period of the RFR (e.g. SARON), corresponding to an interest period (for the “SARON 3-months Compound Rate” this will be three months), and then determines an observation period for that RFR. The observation period does not necessarily coincide with the interest period for which the Term RFR will be used – therefore, the final value of the Term RFR will already be known before the end of the interest period. The observation period of the underlying benchmark may begin, for example, a few days before the commencement of the interest period to which it will apply. As a result, the value of the “compounded rate” Term RFR applicable for that interest period will be known the same number of days earlier. Administrators use different formulas and mathematical methods to calculate Term RFRs; however the aim of this approach is to ensure a comprehensive replacement of term rates with RFRs. With the applied adjustment, the economic effect of an operation of replacement with an RFR should not differ from the effect obtained when using term benchmarks.

The interest rate of a financing contract or a payment resulting from the purchase of a financial instrument is reviewed in accordance with the contractual interest rate period (for example, the interest rate period for WIBOR 3M is three months). On the date of determination of the interest rate for the next interest period, the Bank will use the currently applicable reference rate, published by the relevant reference rate administrator, in accordance with the BMR.

WIBOR is a key interest rate benchmark within the meaning of the BMR, provided as of the date of delivery of the information document by GPW Benchmark S.A. (administrator) . WIBOR and WIBID are provided according to a methodology independently determined by GPW Benchmark S.A. under the supervision of the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego - KNF). Details concerning WIBOR and WIBID, including a description of the methodology for its provision and the procedures for receiving and reviewing complaints regarding its determination process, have been published by GPW Benchmark S.A. on its website at https://www.gpwbenchmark.pl/.

On 06/12/2019, the Polish Financial Supervision Authority received from GPW Benchmark S.A. an application for authorization to operate as an administrator of interest rate benchmarks, including a key interest rate benchmark.  Submission of the application before the end of 2019 means that, pursuant to Articles 51(1) and 51(3) of the BMR, the transitional period during which entities supervised by the KNF could still use the WIBID and WIBOR benchmarks was extended. This period lasted until the completion of the administrative proceedings concerning the granting of the aforementioned authorization. The administrator provided information about the proceedings on its website at https://www.gpwbenchmark.pl/.

On December 16, 2020, the KNF issued a permit for GPW Benchmark S.A. to operate as an administrator of interest rate benchmarks, including key benchmarks. The authorization of GPW Benchmark S.A. granted by the KNF means that the financial supervision authority believes that the process of providing the WIBOR and WIBID benchmarks is compliant with the requirements imposed by the BMR.

Following the receipt of the authorization, GPW Benchmark S.A. (GPWB) published a statement regarding WIBID and WIBOR, referred to in Article 27 of the BMR, containing key information about the WIBID and WIBOR benchmarks.

On the basis of the authorization obtained, GPWB has also been authorized to provide other interest rate benchmarks, whose provision process would be carried out in compliance with the requirements of the BMR. Receiving the authorization to operate as a WIBID and WIBOR administrator does not mean that the method of their determination will not be modified. Such a position was expressed in a KNF communication, according to which: “The UKNF expects further improvement of the methodology for the provision of interest rate benchmarks, so that they may be easily adaptable to changing economic realities”. It should also be noted that the BMR requires benchmark administrators to conduct periodic reviews of the methodology for determining the WIBID and WIBOR reference rates. The most recent review took place in 2024.

Specific risks concerning WIBOR/WIBID include, in particular:

• the risk of abandoning the bilaterality of rates, i.e., suspending the publication of WIBID,
• the risk of a material change in the methodology used to provide the benchmark,
• the risk of discontinuation of provision of a selected WIBOR tenor, e.g., WIBOR 1Y.
• Additional information regarding the ongoing reform of the WIBOR and WIBID benchmarks can be found in the section News

Since mid-2022, Poland has been carrying out a benchmark reform, under which the so-called National Working Group for Benchmark Reform (NWG) was established. It includes representatives of the Office of the Polish Financial Supervision Authority (UKNF), the National Bank of Poland (NBP), the Ministry of Finance, the Bank Guarantee Fund (BFG), the Polish Development Fund (PFR), the Warsaw Stock Exchange (GPW), the National Depository for Securities (KDPW), Bank Gospodarstwa Krajowego (BGK), GPW Benchmark S.A., and representatives of banks, investment funds, insurance companies, and sector organizations representing financial market participants. The primary objective of the NWG was to prepare an action plan to ensure a smooth and safe transition (conversion) process from the WIBOR and WIBID benchmarks – as the so-called “Roadmap”.

The Roadmap published by the NWG is a document summarizing the results of the analyses and work carried out by the NWG. It outlines the schedule for replacing WIBOR with an RFR-type benchmark. The replacement timeline presented in the Roadmap was prepared on the assumption that the process of replacing WIBOR would comply with the BMR, that a liquid market for cash and derivative financial instruments using an RFR would be created, that all financial market participants would be operationally and technically prepared for the replacement of the WIBOR and WIBID benchmarks with an RFR, that the required changes in Polish and European Union legislation would be implemented, and that full awareness of the reform and its consequences would be built among all financial market participants, in particular consumers.

The Roadmap is not a source of universally binding law but merely identifies key milestones in the replacement of WIBOR that financial market participants can expect in the future. The dates indicated in the Roadmap represent the agreed targets that all NWG members are collectively working toward in the conversion process.

Information on the assumptions of the Roadmap and updates on the implementation of individual stages of the NWG’s work can be found on the website of the Polish Financial Supervision Authority (KNF) www.knf.gov.pl, in the Benchmarks section, under News.

According to the communication of the NWG Steering Committee dated October 25, 2023, the target date for the conversion (replacement of WIBOR benchmarks) is set for the end of 2027.  Detailed information regarding these changes is available on the KNF website www.knf.gov.pl, in the Benchmarks section, under News, the communication of October 25, 2023 titled “Communication of the NWG Steering Committee on changes to the expected Roadmap for the Benchmark Reform.”

In March 2024, the NWG Steering Committee decided to initiate a review and analysis process of alternative RFR-type benchmarks to replace WIBOR. The review covered both the WIRON rate, initially selected as the target replacement benchmark, and other potential indices or rates.

In December 2024, the NWG Steering Committee decided to select the index with the technical name WIRF as the target benchmark to replace WIBOR. In January 2025, the NWG Steering Committee changed the name of this index from WIRF to POLSTR (abbreviation for Polish Short Term Rate). The administrator of the POSLTR benchmark is GPW Benchmark S.A.

In Q1 2025, the NWG Steering Committee approved an updated Roadmap for the replacement of the WIBOR and WIBID benchmarks and the implementation of the POLSTR index. According to the Roadmap, WIBOR and WIBID are to be gradually phased out and replaced by the new POLSTR rate over the period 2025–2028. The planned process begins in 2025 with the preparation of benchmark documentation, the adaptation of IT systems, and the first issuance of POLSTR-based bonds. The Roadmap foresees that in 2026, new credit products and derivative instruments based on POLSTR will be introduced, along with the development of a liquid market for POLSTR-based derivatives. The phase-out of WIBOR and WIBID is scheduled for 2027. From 2028 onwards, the complete cessation of WIBOR publication and the full transition to POLSTR across all financial products are planned.

POLSTR is currently an interest rate benchmark within the meaning of the BMR. It is provided and published by GPW Benchmark S.A. under an authorization granted by the Polish Financial Supervision Authority (KNF). Detailed information regarding the benchmark’s values, a description of the key elements of its calculation methodology, the procedure for submitting complaints related to the determination of POLSTR, and the rules governing its publication are available on the website of GPW Benchmark S.A.

POLSTR is an interest rate benchmark that is close to a risk-free rate (RFR) and is calculated based on actual deposit transactions concluded with a maturity starting on the day of the transaction and ending on the following business day (O/N – overnight).

POLSTR is intended for use as an interest rate benchmark within the meaning of the BMR. In line with the assumptions of the Roadmap, it will replace WIBOR and will be applied in financial contracts (e.g. loan agreements) as well as in financial instruments.

You can find all the details on the Administrator’s website.

EURIBOR is a key interest rate benchmark within the meaning of the BMR, developed as at the date of providing the information document by the European Money Markets Institute (EMMI), based on the authorization granted by the Belgian Financial Services and Markets Authority on 02/07/2019. EURIBOR is developed according to a method independently determined by the EMMI under the supervision of the Belgian Financial Services and Markets Authority. The details of EURIBOR, including a description of the key elements of the EURIBOR methodology, the Benchmark Statement (this document is published by the administrator pursuant to Article 27 of the BMR) and the procedures for receiving and handling complaints regarding the process of determining the EURIBOR benchmark, have been published by the EMMI on its website at: www.emmi-benchmarks.eu/euribor-org/.

The SOFR index is developed and published by the "Federal Reserve Bank of New York" which is a US bank of the Federal Reserve System and therefore a third country entity. The SOFR is determined based on overnight deposits collateralized by U.S. securities in the repo market. Detailed information on the index is published on the Fed's website

The CME Term SOFR is a different index than the SOFR. On July 29, 2021, the CME Term SOFR was formally approved by the Alternative Reference Rates Committee (ARRC) as an alternative index to USD LIBOR. The CME Term SOFR is a dollar forward interest rate benchmark calculated and published by CME Group Benchmark Administration Limited and therefore a third country entity. The CME Term SOFR is a forward-looking index published for the following tenors 1M, 3M, 6M and 12M. The methodology for determining the CME Term SOFR uses a combination of one-month and three-month futures SOFR contracts.

A working group at the Bank of England has recommended the SONIA as an alternative index to GBP LIBOR and as a risk-free index for all sterling products and contracts. The SONIA (Sterling Overnight Index Average) is an interest rate benchmark for sterling calculated and published by a third country entity, the Bank of England. The SONIA is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling on a daily basis from other financial institutions and other institutional investors.

While the SONIA index has been developed since 1997, it has been reformed and as of August 3, 2020 it is published as the SONIA Compounded Index. Thus, it has simplified the calculation of compound interest rates, and ensured the standardization of the method by publishing it as an official source. Details concerning SONIA, including a description of the key elements of its calculation methodology and the procedures for submitting and handling complaints related to the determination of the benchmark, have been published by the Bank of England on its website: www.bankofengland.co.uk.

FTSE Term SONIA (previously Refinitiv Term SONIA) is a different benchmark than SONIA. FTSE Term SONIA (previously Refinitiv Term SONIA) is an interest rate term benchmark for sterling calculated and published by a third country entity – FTSE International Limited. The underlying inputs for calculating the FTSE Term SONIA (previously Refinitiv Term SONIA) rate are obtained from various providers and processed according to the cascade methodology. The basic source of data are the quotes obtained from electronic platforms for centrally cleared GBP SONIA OIS contracts.

Please note that as a result of the rebranding of London Stock Exchange Group products in Q4 2023, of which Refinitiv Benchmark Services (UK) Limited is a part, the name of the benchmark changed from Refinitiv Term SONIA to FTSE Term SONIA, and effective from December 16, 2024 the administrator changed from Refinitiv Benchmark Services (UK) Limited (RBSL) to FTSE International Limited.

In 2018, the Cross Industry Committee on Japanese Yen Interest Rate Benchmarks was established, consisting of financial and institutional investors and non-financial companies. Its purpose is to conduct the necessary work to facilitate and guide the reform of the Japanese yen interest rate benchmarks. In 2019, the Committee, together with the Bank of Japan, conducted a public consultation on the selection of alternative benchmarks for JPY LIBOR, the results of which revealed an industry preference for two options: the Tokyo Interbank Offered Rate ("TIBOR") and the Tokyo Overnight Average Rate ("TONAR"). The Committee and the Bank of Japan stated that entities are free to choose which of two alternative options to JPY LIBOR they wish to use. The TONAR is a risk-free rate based on an unhedged overnight call rate and is developed by a third country entity, the Bank of Japan. In February 2020, the Committee appointed QUICK Corp as agent for the calculation and publication of the forward reference rate, and in May 2020, QUICK Corp began publishing prototype forward rates of various tenors on a daily basis. The TORF is one of the alternative interest rate benchmarks that replace LIBOR JPY. The TORF is calculated and published by QUICK Benchmarks Inc. (a third country entity) based on derivative transactions whose underlying asset is an unhedged overnight call rate. www.torf.co.jp/en/

The SARON (Swiss Average Rate Overnight) is an interest rate benchmark for the Swiss franc calculated and published by SIX Index AG (hereinafter: “SIX”). The SARON is based on the collateralized money market and calculated as a one-day reference rate based on data from the Swiss franc settled repo market.

The SARON Compound benchmark is derived from daily SARON indices. The SARON Compound benchmark meets the requirements imposed by the BMR.

The SARON is based on repo transactions and quotes made in this market, as it is a key part of the financial industry and central bank activity. The repo market is characterized by high liquidity, high regulation and high reliability. The SARON and SARON Compound are developed according to a method independently defined by SIX under the supervision of the Swiss Financial Market Supervisory Authority.  The details of SARON and SARON Compound, including a description of the key elements of their development methodology, the Benchmark Statement (this document is published by the administrator pursuant to Article 27 of the BMR) and the procedures for receiving and handling complaints regarding the process of determining the benchmark, have been published by the SIX on its website at: www.six-group.com

The administrator of the SARON Interest Rate Reference Index and the SARON Compound is SIX Index AG, i.e. a third country administrator. However, the administrator located in the European Union, i.e., SIX Financial Information Nordic AB, Stockholm, using the procedure provided for in Article 33 of the BMR, obtained on January 21, 2021 the approval of the aforementioned benchmark. The approval was granted by the Swedish financial supervision authority Finansinspektionen (FI). On this basis, the European Securities and Markets Authority (ESMA) has entered the SARON and SARON Compound interest rate benchmark indices in the register referred to in Article 36 of the BMR.

€STR (Euro short-term rate) is the interest rate benchmark for the Euro calculated by the European Central Bank (ECB). The €STR reflects the cost of wholesale unsecured overnight borrowings in Euro by banks located in the Eurozone, based on data from the Eurosystem. The €STR is published by the European Central Bank. Detailed information on the benchmark is published on the ECB's website.

The following general risks can be identified in relation to the use of benchmarks:

• certain benchmarks, including their methodology, may be subject to changes (including material changes) made by their administrators, due to regulatory or business reasons;
• the administrator of a given benchmark may decide to temporarily or permanently discontinue its provision;
• the competent authority may revoke the administrator’s authorization to provide the benchmark;
• benchmarks may cease to be representative of a given market or economic reality due to the cessation of provision of the relevant input data by contributors necessary to provide a given benchmark, or benchmarks may lose their reliability for measuring the relevant underlying market as a result of a decision by the competent supervisory authority;
• benchmarks may cease to be published or provided in part or in their entirety (e.g. LIBOR as a benchmark no longer exists) or in relation to a specific tenor (e.g. a given benchmark may continue to exist, but the calculation of certain tenors, such as WIBOR 6M, may be discontinued) or a specific currency, and relevant alternative benchmarks may not be designated;
• there may be a legitimate need to amend financial contracts or financial instruments by introducing a reference to risk-free rates.

Risk that the administrator may change the benchmark provision methodology

The entity providing a given benchmark, acting on the basis of its authorization as part of its activities, is entitled to make changes to the benchmark provision methodology in accordance with the procedure set out in the benchmark documentation published by the administrator on its website. In accordance with the general information usually published by the administrator regarding the process of changing the benchmark provision methodology, such a change is typically preceded by a public consultation process, during which the administrator sets out the scope of the proposed change and its justification. The administrator's justification for amending the benchmark provision methodology may include, for example, the need to adapt the benchmark provision methodology to the BMR requirements, the guidelines of the supervisory entity, or recommendations issued by the supervisory body. An amendment made by the administrator to the benchmark provision methodology may lead to a change in the benchmark's value. An increase or decrease in the benchmark’s value resulting from a provision methodology amendment made by the administrator may affect the value of mutual obligations between you and the Bank under the concluded contract, or the valuation of the financial instrument/financial product you hold.

Risk that the administrator may temporarily or permanently cease providing the benchmark

The entity that provides a benchmark in the course of its activities is entitled to permanently cease to provide the benchmark using the procedure described in the benchmark documentation published by the administrator on its website, subject to authorizations of supervisory authorities in that scope arising from Articles 21 and 23 of the BMR. The administrator may decide to cease providing the benchmark, in particular for business reasons (a non-economic factor) or due to the administrator’s assessment that the data used for the benchmark are no longer representative of the market or economic realities the benchmark is intended to measure. The benchmark cessation process is preceded by a public consultation, which usually lasts several months, during which the administrator sets the date from which it intends to cease providing the benchmark. In addition, the benchmark provision methodology customarily indicates that there may be circumstances in which, on a given day, the administrator may not be able to determine the value of the benchmark, for example, if on that day it does not receive a sufficient amount of input data necessary to calculate the benchmark value. A consequence of the administrator's permanent or temporary cessation of provision of the benchmark may be that the Bank is unable to use such a benchmark to determine the value of mutual obligations under the contract concluded between you and the Bank. In such a situation, the provisions of the binding contract between you and the Bank will apply.

Risk of discontinuation of provision of a benchmark, in whole or in part, and the absence of an alternative benchmark

The entity that provides a benchmark in the course of its activities is entitled to permanently cease to provide the benchmark using the procedure described in the benchmark documentation published by the administrator on its website. It is also possible to discontinue the provision of a benchmark partially, i.e., with respect to a specific interest period (tenor) or a specific currency. In such cases, the administrator will announce that, as of a specified date, it will cease publishing the benchmark for a given tenor (e.g. 6M) or for a specific currency (e.g. Swiss franc). A similar event occurred, for example, in the case of the LIBOR benchmark.

Risk of withdrawal of the administrator’s authorization to provide a given benchmark

The entity that provides a benchmark operates on the basis of an authorization obtained through the relevant administrative procedure conducted by the supervisory authority to assess whether the entity meets the conditions specified in the BMR. In cases referred to in Article 35 of the BMR, the supervisory authority may withdraw the authorization granted to the administrator, which will result in the administrator being removed from the relevant register of administrators. Such a situation may occur, for example, if the administrator no longer meets the conditions under which the authorization was granted. In such a case, the benchmark may no longer be used in financial contracts and instruments. For benchmarks provided by entities from third countries (e.g. the United Kingdom), a similar effect to withdrawal of authorization would occur if the administrator’s registration is withdrawn by the European Securities and Markets Authority (ESMA), as referred to in Article 31 of the BMR.

Risk of a benchmark being unrepresentative of the market or economic reality it is intended to measure

The administrator’s internal procedures set out rules for the periodic review of the methodology used to determine a given benchmark. If, during such a review, it is determined that the benchmark does not accurately reflect the market or the economic reality it is intended to measure, the administrator may decide to change the methodology or discontinue the provision of the benchmark. The consequences of changing the benchmark’s methodology or the decision to cease providing the benchmark are described above.