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.
Transition of interest rate benchmarks
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. LIBOR — the London Interbank Offered Rate — is expected to be discontinued after 31 December 2021.
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:
- Current Benchmark
- New Benchmark n
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 after 31 December 2021 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.
For IndividualsSee all questions
If you have retail loans referencing SOR, the loans will be affected by this transition. There is no immediate action required from you unless you wish to reprice or restructure these loans before the industry wide exercise where your bank will contact you to transition to other loan packages which do not reference SOR.
For BusinessesSee all questions
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.
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.
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.
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.
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.
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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