NatWest preparing to launch new Sonia loan

FILE PHOTO: A man walks past ATM machines at branch of the NatWest bank in Manchester, Britain September 21, 2017. REUTERS/Phil Noble

LONDON (Reuters) - NatWest is preparing to pilot a loan using the new Sonia interest rate, it said on Monday, after British authorities ordered a switch from the discredited Libor benchmark.

The Financial Conduct Authority (FCA) has ordered banks and markets to stop using the London Interbank Offered Rate as a basis for pricing contracts.

Banks across the world have been fined about $9 billion for trying to manipulate Libor, which prices mortgages, credit cards and other loans worth over $300 trillion globally.

The new Sonia, or Sterling Overnight Index Average rate, is compiled by the Bank of England and based on actual transactions. That is seen as harder to manipulate than Libor, which is based on quotes supplied by banks.

“The FCA has made clear that it wants to see early adoption of the SONIA rate in all financial markets,” Alison Rose, deputy CEO of NatWest Holdings, said in a statement.

“As the UK’s biggest lender to businesses, we are committed to helping lead the development of SONIA-based lending in the market and to supporting our customers through the transition away from LIBOR rates.”

The bank said it expected to launch the SONIA product to the wider market in the second half of 2019 using lessons from a pilot project with a limited number of large corporate customers.

Reporting by Elizabeth Piper; Editing by Andrew Cawthorne