CIMB to delay raising mortgage floor rate to Jan 1, 2021 after customer furore

CIMB Singapore will delay the effective date of its minimum rate of its Singapore inter-bank offered rate (Sibor) and Swap offer rate (SOR) to Jan 1, 2021, in an announcement posted on its website seen on Wednesday.

The bank wrote that this is based on customer feedback and also "in light of the Covid-19 circuit breaker" in Singapore.

"For customers who wish to refinance, the bank will facilitate by waiving our penalty and administrative fees, where applicable," said CIMB on the website. "This extension will give our customers sufficient time to consider all alternatives available to them."

Based on CIMB's earlier notification, the increase in floor rate would have taken effect from May 18, 2020.

The bank added that it will be writing to affected customers shortly.

This follows an article by The Business Times on April 25, which reported that CIMB Singapore drew flak from customers for raising the minimum floor rate of its floating rate packages to 0.9 per cent, from 0.1 per cent previously.

Most of the mortgage loans sold by CIMB here are linked to the one-month Sibor. The issue is that the one-month Sibor rate as of April 29 is at 0.685 per cent, below CIMB's new floor rate of 0.9 per cent.

It remains to be seen if the latest move by CIMB will pacify irate customers - disgruntled customers had told BT last week that they considered the move "highly unethical" and intended to challenge the bank on the decision.

CIMB is believed to be the first bank to increase its floor rate for such floating-rate mortgages amid the Covid-19 pandemic, with most banks keeping the floor rate of about zero. Floor rates are understood to protect lenders from losses, and introduced as a clause in loan contracts in the case of a collapse in rates. For example, in 2011, the SOR turned negative.

With a floating-rate mortgage, customers are charged based on the benchmark rate, as well as the accompanying spread. If the benchmark rate turns negative, banks protect themselves by keeping to a minimum floor rate.

Victor Lee, chief executive officer of CIMB Bank Singapore, had said that the adjustment of floor rates was deemed necessary after its internal review of the funding structure of the bank.

"Our loans are funded by the bank's deposits," he told BT last week. "CIMB Bank has continued to keep our current and savings deposits interest rates high in a declining interest rate market and, as such, some alignment to the funding structure was needed."