South Africa’s financial markets are in the process of laying out the welcome mat for ZARONIA, the South African Rand Overnight Index Average. This near risk-free rate, based on actual overnight transactions, is replacing the traditional Johannesburg Interbank Average Rate (Jibar) benchmark. The latest step in the transition from Jibar to ZARONIA came in March 2025, when the approved methodology for the credit adjustment spread (CAS), was published by the South African Reserve Bank’s (SARB) Market Practitioners Group (MPG) in a technical paper entitled “Recommended methodology for determining Jibar fallback rates”.
The SARB noted in a further announcement that when it stops publishing Jibar, any financial contracts referencing the benchmark, being primarily in the loan, bond and derivative markets, should include robust fallback provisions to deal with this scenario. This caters for the risk of disruption to existing Jibar-referencing financial products that extend beyond the cessation date of Jibar, anticipated to be 31 December 2026.
The MPG has recommended that fallback provisions should refer to a compounded ZARONIA rate, plus a credit adjustment spread (CAS) that accounts for the difference between Jibar and ZARONIA. This CAS is calculated using historical data of the differences between Jibar and compounded ZARONIA over a five-year lookback period, applying the standard fallback methodology outlined in ISDA’s derivative documentation. The five-year lookback period is calculated relative to ZARONIA’s cessation announcement date (expected to be end December 2025) i.e. the credit adjustment spreads would be variable up until this date and then only fixed as at this date.
The CAS is important because it ensures an equitable transition that does not result in a transfer of economic value from one party to another. It also reflects credit and liquidity risk because JIBAR includes a credit and liquidity premium, which ZARONIA does not. The CAS compensates for this difference. Importantly, it forms the basis for the parties to transition existing Jibar-referencing products, such as bonds, loans and derivatives, to ZARONIA.
The SARB further noted in its March 24 announcement that Bloomberg Index Services Limited had been appointed as ISDA’s vendor to calculate and publish Jibar fallback spreads on its platform daily, alongside compounded ZARONIA rates and indicative Jibar fallback rates. Further, ISDA will incorporate Jibar fallback provisions into its 2021 Interest Rate Derivatives Definitions (IRD Definitions) by April or May 2025 to cater for the smooth transition of Jibar derivatives.
Background
ZARONIA is the interest rate at which rand-denominated overnight wholesale funds are obtained by banks in South Africa, where credit, liquidity and other risks are minimal. The rate is based on unsecured overnight call deposits placed with commercial banks, which are classified as deposit-taking institutions in the Banks Act 94 of 1990.
On each South African business day, ZARONIA is determined as a trimmed, volume-weighted mean of the central 80% of the distribution of interest rates paid on eligible unsecured overnight call deposits, rounded off to three decimal places. As it is a backward-looking rate, there is more transparency in the market and less room for possible manipulation.
Key differences between ZARONIA and Jibar:
| ZARONIA | Jibar |
| Near risk-free rate | Built in credit and term premium component |
| Overnight rate | Term rate |
| Backward looking | Forward looking |
| Fully transaction based | Indicative rates |
| Broad array of market participants | Only five contributing institutions |
ZARONIA transition steps
The latest ZARONIA transition plan proposed by the MPG recommends that Jibar cessation be preceded by a period in which Jibar is no longer allowed in new positions in order to decrease the number of documents referencing Jibar ahead of the cessation date.
The cessation of Jibar refers to the situation where the benchmark will no longer be published past a certain date, anticipated to be 31 December 2026.
This means all contracts referencing Jibar beyond the cessation date will need to be actively transitioned prior to the cessation date to an alternative reference rate (the recommended one being ZARONIA) and/or make provision for the use of the fallback rates. New contracts entered into after the announcement of the cessation date, and which mature after the cessation date, will need to reference ZARONIA.
There is the possibility of legislation to be enacted to address tough legacy contracts, namely contracts that cannot be transitioned to ZARONIA because of inadequate or no fallback provisions to address Jibar’s discontinuation or with fallback provisions that are impossible or impracticable to implement on or before the cessation date due to legal, operational or commercial constraints. However, regardless, parties are actively encouraged to identify and transition all Jibar-referencing contracts across the financial markets in anticipation of the cessation date.
ZARONIA is to be welcomed as a symbol of transparency, stability and global best practice, placing South Africa on equal footing with other countries in the global markets.
