Final transition approach for SIBOR loans to SORA announced
28 July 2023
On 30 June 2023, the Association of Banks in Singapore announced that 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. The recommendations will allow the industry to complete its transition from SIBOR, ahead of SIBOR’s discontinuation after 31 December 2024.
The transition to SORA follows broad public support for the SC-STS’ July 2020 recommendations - to discontinue both the Swap Offer Rate (“SOR”) and SIBOR, and shift towards the use of SORA as the main interest rate benchmark for SGD financial markets. This would support a deepening of SORA markets, more transparent loan market pricing for borrowers, and more efficient risk management for lenders. With the transition from SOR to SORA now completed, with all outstanding SOR retail loans having transitioned out in October 2022, the industry will now shift its efforts towards the SIBOR transition.
The committee’s final recommendations on SIBOR-to-SORA adjustment spreads are set out in the SC-STS’ Response to the Consultation on Adjustment Spreads for the Conversion of Legacy SIBOR Loans to SORA and are as follows:
- For corporate loans (including small and medium-sized enterprises (SME) loans, bilateral corporate loans and syndicated loans), 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 30 June 2018 to
30 June 2023. - Retail loans will transition in two phases as follows:
- Active transition phase: First, an active transition phase from 1 September 2023 to 30 April 2024 during which customers may choose to take up either the SIBOR–SORA Conversion Package (“SIBOR-SCP”) or any of their bank’s prevailing packages. The 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.
- Automatic conversion: Second, an automatic conversion will take place 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 30 June 2018 to 30 June 2023.
SC-STS encourages market participants and customers with SIBOR loans to adopt the guidance to convert their SIBOR exposures to SORA.