On 30 June 2023, the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS“) finalised its recommendations on the approach to convert Singapore Interbank Offered Rate (“SIBOR“) loans to Singapore Overnight Rate Average (“SORA“), in particular the setting of adjustment spreads to account for the difference between SIBOR and Compounded SORA.
SIBOR will be discontinued after 31 December 2024, the recommendations will allow the industry to complete its transition from SIBOR ahead of SIBOR’s discontinuation. Once the transition from Singapore Dollar Swap Offer Rate (“SOR“) to SORA has completed, the industry will focus on the SIBOR transition.
By way of context, the conversion of a legacy SIBOR contract to a SORA-based contract requires an adjustment spread because SIBOR incorporates term and credit risk premium. This typically results in a higher interest rate than SORA, which is an overnight near risk-free interest rate. SC-STS issued an earlier Consultation Paper in March 2023 seeking views on the adjustment spreads for the conversion of legacy SIBOR loans to SORA. A summary is available in our March 2023 issue of Newsbytes (Page 15). On 30 June 2023, SC-STS issued its Response to the Consultation Paper where it also set out its final recommendations, briefly outlined below.
SIBOR Corporate Loan Transition
Adjustment spreads of 0.2059% and 0.3571% respectively will apply to convert loans referencing one-month and three-month SIBOR to compounded SORA. These represent the five-year historical median spreads between SIBOR and compounded-in-advance SORA in the relevant tenor over the period of 30 June 2018 to 30 June 2023. Corporate loans include small and medium-sized enterprises (SME) loans, bilateral corporate loans and syndicated loans.
SIBOR Retail Loan Transition
The transition will take place in two key phases as follows:
(a) Active transition phase from 1 September 2023 to 30 April 2024
The SIBOR–SORA Conversion Package (“SIBOR-SCP“) will be structured as: three-month SORA compounded-in-advance + customer’s existing SIBOR margin + Adjustment Spread (Retail). The Adjustment Spread (Retail) will be determined as the average difference between SIBOR and compounded-in-advance SORA over the preceding three-month period. Customers may choose to take up either the SIBOR–SCP or any of their bank’s prevailing packages.
(b) Automatic conversion in June 2024 for remaining customers who did not participate in the active transition phase
Their bank will apply the SIBOR-SCP with the Adjustment Spread (Retail) set at 0.2426% and 0.3571% respectively to convert loans referencing one-month and three-month SIBOR to three-month compounded-in-advance SORA. These represent the five-year historical median spreads between SIBOR and compounded-in-advance SORA over the period of 30 June 2018 to 30 June 2023.
SC-STS earlier announced fee waivers and loan rules exemptions. SC-STS has worked with banks in Singapore to offer customers with existing SIBOR retail loans a one-time fee-free switch to any prevailing package offered by the same bank. The Monetary Authority of Singapore (“MAS“) also affirmed that the taking up of the SIBOR-SCP and prevailing packages offered by banks to customers with existing SIBOR property loans will not be regarded as refinancing their property loans under MAS’ property loan rules.
SC-STS encourages market participants and customers with SIBOR loans to adopt the guidance to convert their SIBOR exposures to SORA.
Click on the following links for more information (available on The Association of Banks in Singapore (“ABS“) website at www.abs.org.sg):
