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The banking index, also known as the banking sector index, is a measure of the performance of a group of banks or financial institutions listed on a particular stock exchange. The index is calculated by aggregating the market capitalisation of the individual banks in the index and provides investors with an overall view of how the banking sector is performing.
Bank indices can vary depending on the criteria used to select the constituent banks. For example, an index may include only large-cap banks or banks headquartered in a particular country or region. Some well-known bank indices include the KBW Bank Index (BKX) and the S&P Banks Select Industry Index.
Investors can use bank indices to track the performance of the banking industry as a whole and to compare the performance of individual banks within the index. The performance of the banking indices can also be used as an indicator of broader economic trends, as the banking sector is closely linked to the overall health of the economy.
SOFIX
SOFIX is the oldest index on the BSE-Sofia. It was launched on 20 October 2000 with a base value of 100. It represents the ratio between the sum of the free-float-adjusted market capitalisation of the companies included in it as of the current day and the sum of the free-float-adjusted market capitalisation of the same companies as of the previous day. The most liquid issues with a capitalisation of at least BGN 50 million and at least 500 shareholders are included.
– What does EURIBOR AND LIBOR mean?
LIBOR stands for London Interbank Offered Rate and is an average interest rate reflecting the rates at which banks offer unsecured loans on the London interbank money market. LIBOR is used as a benchmark to determine the interest rate for various banking transactions.
– What does EURIBOR mean?
EURIBOR stands for Euro Interbank Offered Rate and is the average interest rate at which a representative group of banks in the euro area (countries of the European Union where the euro is the national currency) provide each other with euro-denominated term deposits. EURIBOR is used as a reference (benchmark) index to determine the interest rate for various banking operations.
EURIBOR and LIBOR are two widely used reference rates for short-term loans between banks.
EURIBOR (Euro Interbank Offered Rate) is the reference rate for euro area banks and is published daily by the European Money Markets Institute. It is calculated on the basis of the interest rates that a group of euro area banks charge each other for unsecured loans in the interbank market. EURIBOR is used as a reference rate for various financial products, including loans, mortgages and derivatives.
LIBOR (London Interbank Offered Rate) is the benchmark interest rate for UK banks and is published daily by the ICE Benchmark Administration. Like EURIBOR, LIBOR is calculated on the basis of the interest rates that a group of banks charge each other for unsecured loans in the interbank market. LIBOR is also used as a reference rate for various financial products, including loans, mortgages and derivatives.
– What do the SOFIBOR and SOFIBID indices mean?
SOFIBID and SOFIBOR are reference indices and represent a fixing of quotes for unsecured deposits in lev offered on the Bulgarian interbank money market by a representative group of banks for a range of maturities. The quotes are submitted to the BNB by 11 a.m. every day.
The SOFIBOR index is an average of the “sell” quotes and the SOFIBID index is an average of the “buy” quotes.
For a long time, the SOFIBOR index was among the main economic indicators used in the determination of interest rates on lev loans.
However, in the last two years, some regulatory changes have called into question the way such market indices are calculated and imposed new rules to protect consumers from possible manipulation.
The role of indices in lending
Variable interest rates are made up of two parts: a fixed premium and a reference rate (RRR).
As the mark-up does not change, banks rely on market indices or other indicators published by the BNB or the NSI in the composition of the RRR to ensure interest rates that are adequate to the state of the overall economic system.
Indices are a key indicator providing information on the price at which liquid funds are exchanged between banks. That is why they are an important part of the formation of interest rates on most of the BGN loans in the country.
Thus, banks have calculated interest rates that are directly dependent on the price at which they themselves provide funds, but in a transparent, understandable and acceptable way for consumers.
What has happened in recent years?
Over the last few years, there have been many banking scandals in Europe related to the manipulation of major market indices such as LIBOR and EURIBOR.
Based on this, in order to implement greater transparency, the European Parliament and the Council of the EU introduced new rules for all indices used for the purpose of financial instruments and contracts. Their EU Regulation 2016/1011 mandates that such indices will only be maintained by institutions registered and licensed to do so.
Following the changes to EURIBOR and LIBOR, SOFIBOR has also disappeared. In its place, banks opted for other indices- most often now interest rates are indexed to EURIBOR.
So, now all interest rates are linked to EURIBOR.
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