United Bank Limited (UBL) has executed Pakistan’s largest-ever Interest Rate Swap (IRS) transaction with Pakistan Mobile Communications Limited (Jazz), carrying a notional value of Rs75 billion. The landmark deal represents a significant development in the evolution of Pakistan’s financial derivatives market and signals growing maturity in corporate risk management practices within the country.
Under the structure of the transaction, Jazz has converted its floating-rate borrowing exposure into a fixed-rate obligation. This move allows the telecom operator to lock in its financing costs over the tenor of the agreement, providing greater certainty and long-term visibility for financial planning. By fixing its rate, Jazz has effectively insulated itself from future interest rate volatility and the risk of potential increases in benchmark rates.
Prior to the swap, Jazz’s floating-rate loan was linked to the six-month Karachi Interbank Offered Rate (KIBOR). The rate was last reset in November 2025, with the company’s total borrowing cost estimated in the range of 11.5 to 12.0 percent, based on the prevailing six-month KIBOR plus a spread of 60 basis points. Through the interest rate swap, this exposure has now been transformed into a predictable fixed-rate liability, reducing uncertainty around future debt servicing costs.
Market analysts note that the transaction carries meaningful implications not only for Jazz but also for UBL. By entering into a long-term fixed-rate position without deploying balance-sheet capital in the same way as traditional lending, the bank is positioning itself strategically for a lower interest rate environment. This approach allows UBL to generate risk-based earnings through derivatives rather than relying solely on conventional credit growth.
According to Shahid Ali Habib from Arif Habib Limited, sensitivity analysis suggests that for every 50 to 200 basis-point decline in floating rates, UBL could earn an estimated annual gross benefit, before tax, ranging from approximately Rs0.38 billion to Rs1.50 billion. These potential gains highlight how interest rate swaps can create an additional earnings stream for banks while managing exposure to changing monetary conditions.
The deal is being widely viewed as an indicator of structural deepening within Pakistan’s financial markets. Interest rate derivatives have historically seen limited use in the domestic market, but transactions of this scale demonstrate increasing institutional confidence in hedging instruments and a growing willingness among corporates to actively manage balance-sheet risks. The agreement also reflects expectations of a medium-term easing cycle, with market participants anticipating a gradual decline in interest rates.
From a broader market perspective, the transaction could influence pricing behavior across the banking sector. By taking long-term fixed-rate exposure, UBL’s positioning may contribute to compression in medium- to long-term bond yields, particularly if similar strategies are adopted by other financial institutions. This, in turn, could support the development of a more robust yield curve and improved liquidity in fixed-income markets.
For corporates, the Jazz-UBL swap underscores rising sophistication in liability management and treasury operations. As businesses face increasingly complex financial environments, the use of derivatives such as interest rate swaps allows them to stabilize cash flows and focus on core operations without being overly exposed to macroeconomic volatility. For banks, such instruments open new avenues for revenue diversification and reinforce their role as providers of advanced financial solutions.
Overall, the transaction marks a milestone for Pakistan’s digital finance and banking ecosystem. As demand for hedging tools continues to grow, deals of this nature are expected to strengthen market depth, enhance risk management practices, and contribute to the long-term resilience of the country’s financial system.
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