By Anton Usov
The European Bank for Reconstruction and Development (EBRD) is further developing the financial markets in Kazakhstan by introducing a new local currency interest rate swap derivative – an Overnight Indexed Swap (OIS) in which the overnight rate is exchanged for a fixed interest rate.
An inaugural one-year OIS transaction, based on the Tenge Overnight Index Average (TONIA), was closed with one of the country’s largest lenders, Bank CenterCredit (BCC).
The OIS market will allow banks and investors to better manage their interest rate risk, thus making the financial system more stable and financial markets in Kazakhstan more attractive.
The EBRD’s Treasurer, Axel van Nederveen, said: “The EBRD and Kazakhstan are making significant progress in the development of financial markets. This transaction reconfirms the role of TONIA as the interest rate benchmark in the country, stimulates local currency lending and encourages more TONIA-linked swaps.”
The EBRD believes the new derivative instrument fills an important gap in the capital markets and is keen to participate in the development of this one, not only as part of its commitment to local currency financial markets, but also as an active participant.
In line with market practices for indexing transactions to similar overnight risk-free-rates in other currencies, TONIA is compounded daily and the compounded rate is then calculated using TONIA Compounded Index (TCI) at the end of each interest period. Using TCI simplifies calculations and reduces the risk of operational error.
The Kazakhstan Stock Exchange (KASE) publishes the rate and index that it developed with assistance of the Money Market Working Group, comprising the National Bank of Kazakhstan, the EBRD and the country’s leading financial institutions.
With more than €10 billion(US$10.8billion) invested in the country to date through 313 projects, Kazakhstan is the EBRD’s largest and longest-running banking operation in Central Asia.