What is the Singapore Interbank Offer Rate (SIBOR)?
Singapore Interbank Offer Rate, or SIBOR, is the estimated amount a bank predicts it will need to pay to borrow Singapore dollars from another bank. This estimation is determined by a panel of contributor banks through daily submissions.
Soon, Swap Offer Rate (SOR) and SIBOR will no longer be used because financial markets worldwide are shifting to interest rate benchmarks that use real transaction data to calculate them.
The 6-month SIBOR has already been phased down since March 31, 2022, while the commonly used 1-month and 3-month SIBOR will be discontinued right after December 31, 2024.
As a result, SORA (Singapore Overnight Rate Average) will replace SOR and SIBOR as a new benchmark.
Recommended article: 9 things about SORA for home loan interest rates (before it replaces SOR and SIBOR)
How is SIBOR calculated?
The Association of Banks in Singapore (ABS) determines SIBOR daily by collecting interest rate data from its 20 member banks.
To calculate the SIBOR, at least 12 member banks must submit their daily interest rates. If more than 12 member banks submit their rates, the top and bottom 25% are discarded to derive an average SIBOR.
If fewer than 12 banks report their rates, no SIBOR is calculated for that day.
What influences the SIBOR?
The following factors can affect the SIBOR:
- The exchange rates and connected economies
- The supply and demand of transferring funds among banks, borrowers, and equity funds in Singapore
- The overnight funds market
- The United States federal funds rates
What should SIBOR borrowers expect?
If you have loans that use the 6-month SIBOR as a reference rate, your bank should have contacted you about your options. If you haven’t been contacted, you should immediately get in touch with your bank, as the 6-month SIBOR is no longer used.
For those who use 1-month or 3-month SIBOR, information on how to switch your loan will be provided later, as these reference rates will only be discontinued after December 31 2024.
To make the transition easier for everyone, if you switch to a SORA package with the same bank, you won’t have to recalculate your Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).
If you want to refinance your property loan with another financial institution, you should check for any other TDSR exemptions. For example, owner-occupiers are exempt from TDSR when refinancing their property loans.
Recommended article: SORA-pegged home loan: 5 key things to know if you’re switching from SOR or SIBOR
