South Africa’s ZARONIA Transition Reaches Critical Phase as JIBAR Prepares for Year-End Extinction

South Africa is entering the final and most consequential phase of one of the most significant transformations in its financial markets history: the replacement of the Johannesburg Interbank Average Rate (JIBAR) with the South African Rand Overnight Index Average, known as ZARONIA, as the primary benchmark reference rate for rand-denominated financial contracts. The South African Reserve Bank (SARB) officially announced on December 3, 2025 that JIBAR will be permanently discontinued after its final publication on December 31, 2026 — a deadline that makes 2026 a year of intense preparation, migration and operational transformation for every financial institution in the country.

With the “No New JIBAR” rule taking effect from March 31, 2026 — from which date no new financial contracts may reference JIBAR — South Africa’s markets have crossed the threshold from voluntary migration to regulatory mandate. The transition echoes similar global transitions that reshaped benchmark rate infrastructure around the world, including the replacement of LIBOR for US dollar and British pound transactions, and the Euro Overnight Index Average (EONIA) transition in Europe.

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What is ZARONIA and Why Does It Differ from JIBAR?

The South African Rand Overnight Index Average reflects the interest rate at which rand-denominated overnight wholesale funds are obtained by commercial banks. Unlike JIBAR — which is a three-month rate derived from quotes provided by banks referencing a market that has contracted significantly over the years — ZARONIA is based on actual transactions and calculated as a trimmed, volume-weighted mean of interest rates paid on eligible unsecured overnight deposits.

ZARONIA has been published by the SARB every South African business day at 10:00 since November 2, 2022, when the SARB commenced its observation period publication, primarily to allow market participants to observe its performance and assess the implications of adopting it as a JIBAR replacement. The observation period ended on November 3, 2023, since when ZARONIA has been an official benchmark that market participants may use in financial contracts.

The structural difference between the two rates is fundamental. JIBAR is a forward-looking, unsecured funding rate that anticipates movements in the SARB’s repo rate — essentially a rate set on the basis of where banks expect short-term rates to be over a three-month horizon. ZARONIA, by contrast, is a backward-looking overnight rate based on actual, near risk-free transactions. It closely mirrors the SARB’s repo rate movements and lacks the built-in credit and term premium components of JIBAR, making it generally lower. This structural difference means that simply substituting ZARONIA for JIBAR in existing contracts would alter the economics of those contracts — an issue addressed through the Credit Adjustment Spread (CAS), which was fixed on December 3, 2025 following the official cessation announcement.

The Institutional Case for Reform

The motivation for replacing JIBAR is one shared by the global financial system’s response to the LIBOR scandal and the broader recognition that benchmark rates underpinned by thin, declining transaction volumes are inherently fragile. As the SARB has repeatedly noted, JIBAR does not meet all the required attributes of an interest rate benchmark as determined by the International Organization of Securities Commissions (IOSCO). The rate is calculated based on quotes from commercial banks referencing a market that has significantly contracted, diminishing the relevance of the rate as a true reflection of actual market conditions.

The SARB Deputy Governor Dr Rashad Cassim described the eight-year reform process at the Market Practitioners Group (MPG) Conference in Sandton in December 2025, noting “significant progress” in adoption since the launch of the ZARONIA First initiative. Market exposures using ZARONIA had risen from R6.4 billion to over R200 billion in the initial months of the programme. However, JIBAR exposures remain significantly larger, meaning that a substantial migration effort is still required in the months remaining before year-end.

The Credit Adjustment Spread: Preserving Economic Neutrality

The CAS — the technical mechanism that makes the JIBAR-to-ZARONIA transition economically neutral for most participants — was officially fixed on December 3, 2025. The methodology recommended by the SARB’s Market Practitioners Group aligns to the ISDA (International Swaps and Derivatives Association) fallback methodology, which is the median of the five-year historical difference between ZARONIA and JIBAR. By fixing the CAS, regulators have eliminated one of the key sources of transition uncertainty — market participants can now plan their contract migrations with a clear understanding of the rate equivalent between the two benchmarks.

For BC Funding Solutions and other institutions whose agreements are linked to the South African Prime Rate (rather than JIBAR directly), the transition has no immediate impact. The Prime Rate — which sits at 10.25% as of March 2026 based on the SARB’s Repo Rate of 6.75% plus 3.5% — operates on a separate, long-established formula and is not directly affected by the JIBAR cessation.

However, for the significant volume of financial contracts across loans, bonds, derivatives, interest rate swaps and related instruments that do reference JIBAR, the migration is both operationally complex and legally sensitive. The Forvis Mazars guidance notes that entities must ensure IFRS 7 disclosures meaningfully reflect both the risks and progress of the transition, with specific requirements around identifying benchmark-linked instruments, explaining transition strategies and disclosing key assumptions and uncertainties.

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The ZARONIA First Initiative and Term Rate Development

The MPG’s “ZARONIA First” initiative, launched in May 2025, signalled a shift toward prioritising ZARONIA-referenced derivative contracts over those linked to JIBAR. The Johannesburg Stock Exchange (JSE) and South Africa’s central securities depository confirmed their operational readiness to process and list ZARONIA-linked bonds, and Standard Bank issued the first listed bond referencing ZARONIA in South Africa — a significant milestone marking the practical embedding of the new benchmark in South Africa’s bond market infrastructure.

The SARB is also working to appoint a benchmark administrator capable of publishing a term ZARONIA rate by April 2026. This term rate — which would provide a forward-looking version of ZARONIA for tenors beyond overnight — is seen as important for certain market segments, particularly term loans and some derivatives, where a compounded-in-arrears rate creates operational challenges. However, the SARB has consistently encouraged market participants not to delay transition in anticipation of the term rate, urging them instead to build liquidity in ZARONIA-linked products now.

Implications for Multinational Enterprises and Transfer Pricing

For multinational enterprise groups operating in South Africa, the transition to ZARONIA has an additional layer of complexity: transfer pricing compliance. JIBAR has served as a trusted benchmark for setting interest rates in financial arrangements between connected persons in South Africa, providing an arm’s length reference point for regulatory and tax compliance. With JIBAR’s cessation, transfer pricing documentation must be updated to reflect ZARONIA as the replacement rate, and any amendments to financial instruments between connected persons must be demonstrated to remain compliant with arm’s-length principles.

KPMG’s February 2026 South Africa report notes that replacing JIBAR with ZARONIA in related-party arrangements should result in an arm’s length rate, without unintended tax consequences — provided that the CAS is correctly applied and documentation is updated in a timely manner. Groups that fail to update their documentation face the risk of transfer pricing challenges from the South African Revenue Service in subsequent periods.

What This Means for Financial Markets Globally

South Africa’s ZARONIA transition is not merely a domestic regulatory exercise — it is part of a global shift toward more robust, transaction-based interest rate benchmarks that reduces the systemic risk arising from rates susceptible to manipulation or based on thin markets. The SARB’s approach echoes the Federal Reserve’s SOFR transition, the Bank of England’s SONIA implementation and the Bank of Japan’s TONA adoption. Each of these transitions has proven technically complex and operationally demanding, but each has ultimately delivered a more credible and stable rate that better reflects actual market conditions.

For South Africa, a credible and internationally aligned benchmark rate infrastructure strengthens the country’s appeal as a capital markets destination for foreign investors. The ZARONIA transition is expected to increase market efficiency and investor confidence while reducing the scope for manipulation that contributed to the global IBOR scandal. As Deputy Governor Cassim put it at the December 2025 MPG conference: “Operationalising new benchmark rates will be a major achievement.” The work is not yet complete, but the final chapter is being written.

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Photo Source: Google

By: Montel Kamau

Serrari Financial Analyst

19th March, 2026