All Sibor retail loans to be converted to reference Sora in June 2024

ALL outstanding Singapore Interbank Offered Rates (Sibor) retail loans will automatically be converted to reference Singapore Overnight Rate Average (Sora) in June 2024, said the steering committee for Sor & Sibor transition to Sora (SC-STS) on Wednesday (Mar 15).

Prior to that, customers have the option to switch their loans to the banks’ prevailing packages or to the Sibor-Sora conversion package – determined each month as the average spread between Sibor and compounded Sora over the preceding three months. 

This will occur during the transition period between Aug 1, 2023, and Apr 30, 2024. 

Those with a Sibor-pegged retail loan and do nothing during this period will have their loans automatically converted to reference Sora in June 2024.

This is necessary to prevent loan disruption, as interest payments based on Sibor cannot be computed after the benchmark interest rate is discontinued, the committee said.

The adjustment spread applied at the conversion will be based on the five-year historical median spread between Sibor and compounded Sora, which will be published by the committee before Aug 1. 

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These changes proposed are part of a consultation launched by the SC-STS. (see *amendment note)

“The SC-STS views the five-year historical median spread as reflective of a fair rate through the lifetime of the loan,” the SC-STS said. 

“The application of the historical median at automatic conversion also safeguards against extreme scenarios in which spot-spreads may experience unexpected and volatile surges.”

Those who choose to switch out of their Sibor-based loans early with the same bank or to the Sibor-SCP will not be charged a conversion fee. 

The change will also not be regarded as a refinancing of property loans and thus will not affect the Monetary Authority of Singapore’s computation of the total debt servicing ratio, loan-to-value, and mortgage servicing ratio requirements, said SC-STS. 

*Amendment note: SC-STS has clarified that the changes are part of a proposed set of changes and have not yet been finalised. The article has been amended to reflect this.