Transition of interest rate benchmarks

LIBOR and SOR will be discontinued.
Here’s how you may be affected.

GLOBAL BENCHMARKS TRANSITION

Interbank offered rates (IBORs) are widely used interest rate benchmarks for various financial products, including but not limited to loans, bonds and derivatives. IBORs rely on rates submitted by panel banks. To improve the robustness and integrity of financial benchmarks, regulatory authorities around the world have announced the transition from IBORs to overnight risk-free rates (RFR) underpinned by actual transactions.

The UK Financial Conduct Authority, the supervisory authority of LIBOR , announced on 5 March 2021, that all LIBOR settings will cease to be provided permanently or will no longer be representative from the following dates:

Immediately after 31 December 2021, with respect to all Sterling Euro, Swiss Franc and Japanese Yen LIBOR settings, and the 1-week and 2-month USD LIBOR settings; and
Immediately after 30 June 2023, with respect to the remaining USD LIBOR settings.

The benchmarks transition is a complex process. Regulatory authorities and financial institutions involved in the transition are committed to ensuring a smooth transition for all end-users, given the impact it has on existing and new financial products.

These are the new benchmarks that have been identified:


United Kingdom
United States
Euro Area
Switzerland
Japan

Current Benchmark
GBP LIBOR
USD LIBOR
EUR LIBOR
CHF LIBOR
JPY LIBOR

New Benchmark
SONIA - Sterling Overnight Index Average
SOFR - Secured Overnight Financing Rate
ESTER - Euro Short-Term Rate
SARON - Swiss Average Rate Overnight
TONA - Tokyo Overnight Average Rate

IMPACT ON SINGAPORE DOLLAR SWAP OFFER RATE (SOR)

SOR is a commonly used benchmark in Singapore. It is defined as the synthetic rate for deposits in SGD, which represents the effective cost of borrowing the SGD synthetically by borrowing USD for the same maturity, and swapping out the USD in return for the SGD. Given that SOR utilises the USD LIBOR in its computation, the cessation of USD LIBOR will directly affect the sustainability of SOR.

The Association of Banks in Singapore (ABS) and Singapore Foreign Exchange Market Committee (SFEMC) have identified the Singapore Overnight Rate Average (SORA) as the most suitable interest rate benchmark to replace SOR. SORA has been published by the Monetary Authority of Singapore (MAS) since 2005, and is a robust benchmark that is underpinned by a deep and liquid overnight interbank funding market.

WHAT DOES IT MEAN FOR YOU

How will payments under my products be affected?

If payments under a product is calculated by reference to LIBOR or SOR and if such rate is permanently discontinued, the relevant contract needs to be reviewed to assess if the relevant consequences are specified in the terms of the contract. If not, parties will have to agree to apply a new benchmark or a “fallback” replacement rate in place of LIBOR or SOR upon its discontinuation so that the contract can continue to be effective.

Will I be disadvantaged because of the new benchmarks?

We are working to ensure that the transition is of minimal impact to you, financially or otherwise. Depending on the product being affected, the transition approaches may differ according to market developments and industry guidance. We will contact you to assist with the transition in due course.

Depending on how the fallback replacement rate compares to LIBOR or SOR, payments under that contract may be more or may be less than they would otherwise have been.

frequently asked questions

For Individuals
For Businesses

For Individuals

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I currently have a property loan referencing SOR. How does the discontinuation of SOR affect my property loan? Do I have to take any action now?

If you have a property loan that references SOR, you will need to switch out to another loan package by 31 August 2022. Please fill up this online form to request for a switch by end July 2022 at the latest, so that we can effect the conversion by end August 2022. This is to prevent you from being inconvenienced by any possible disruption to your loan when SOR ceases after 30 June 2023 (e.g. if the interest on the loan cannot be computed).

You are strongly encouraged to switch out of your SOR-based loan soon and contact us early to explore the available options. If you do not switch your SOR loan to an alternative package by 31 August 2022, we will automatically convert it to a SORA-based loan on 18 October 2022.

I hold investment products which reference LIBOR/ SOR. What action is required?

There is no immediate action required. We will be notifying you in due course of the actions that you may be required to take as part of the transition. Please also look out for relevant notices from the issuer.

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For Businesses

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What is the market’s transition plan for existing and new swap and derivatives contracts referencing benchmarks such as LIBOR and SOR, which shall permanently cease in end 2021?

Once details on the fallback rates and calculation methodology are finalised, ISDA will publish one or more supplements to the 2006 ISDA Definitions (Revised 2006 ISDA Definitions).

New swap and derivatives contracts entered into on or after the effective date of the Revised 2006 ISDA Definitions shall be deemed to have applied the fallback rates by incorporating by reference the Revised 2006 ISDA Definitions into the swap and derivatives contracts.

ISDA will also publish a related protocol (ISDA Protocol) that market participants can adhere to amend legacy swap and derivatives transactions entered into prior to the effective date of the Revised 2006 ISDA Definitions.

How will my outstanding swap or derivatives contracts be affected by the transition?

If you have outstanding swap and/or derivatives contracts referencing LIBOR and/or SOR that mature beyond end 2021, the smoothest transition would be to replace or amend such contracts referencing LIBOR and/or SOR to reference the fallback replacement rates set out in the Revised 2006 ISDA Definitions before end-2021.

How will the change in benchmark affect my loan repayment?

The transition from LIBOR/SOR to another benchmark could lead to some changes to your loan repayment, depending on market conditions at that point in time. We will reach out to you in due course to discuss options that are available to you as a borrower.

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Articles

The impact of COVID-19 on the IBOR-to-RFR transition

In Singapore, the transition from the SOR to SORA, and the reform in SIBOR, has continued to see good progress from both the regulators and the banking sector.

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A primer on new benchmark rates

Meet the replacement rates and get an understanding of what is being done in the US, UK, Europe and Singapore summary.

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SOR to SORA: Looking through the pain to see the positives

There will be teething issues making the transition, but these should not last long. Read on to see the three positive implications of the change.

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