OCBC extended more than S$1b in Sora-linked home loans since launch

MORE than S$1 billion of home loans linked to Sora (Singapore Overnight Rate Average) - an alternative interest rate benchmark - was extended by OCBC Bank in less than six months since its launch, the lender said on Tuesday.

Out of which, half of the loans were fully processed digitally with OCBC's one-hour home loan application and approval service, it added.

This comes as the industry is moving towards adopting Sora as the new interest rate benchmark for the SGD (Singapore dollar) cash and derivatives market.

OCBC was the first bank to offer Sora-based home loans, with the Swap Offer Rate (SOR) and the Singapore Interbank Offered Rate (Sibor) to be discontinued in a few years' time.

OCBC's existing Sora home loan package references the three-month Compounded Sora, which is an overnight, backward-looking rate published by the Monetary Authority of Singapore (MAS). This is unlike the usual benchmark rates SOR and Sibor, which are quoted for different periods of time on a forward-looking basis.

As backward-looking overnight rates, compounded Sora rates are thought to offer more stability compared to forward-looking term rates commonly used for floating home loan packages in Singapore, such as Sibor. Forward-looking term rates are more exposed to market factors on a single day's fixing, such as quarter or year-end volatility.

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Sunny Quek, OCBC's head of consumer financial services Singapore, said: "The strong take-up shows that consumers are receptive to Sora as the new interest rate benchmark. We are confident that the market will be ready for Sora even before 2024 comes, when Sibor-based home loans are officially discontinued."

Singapore is in the midst of its transition from SOR to Sora, with Sibor also to be phased out eventually. SOR - the current benchmark used to price derivatives and business loans here - will be replaced by Sora, given the end of the scandal-tainted Libor (London Interbank Offered Rate) after end-2021, as the SOR uses US dollar Libor in its computation.

Sibor, widely used in retail mortgages and corporate loans, will be discontinued by end-2024. Sora is to be used as the main interest rate benchmark for SGD financial markets going forward, as it was found to be the "most robust and suitable alternative", underpinned by a deep and liquid overnight funding market.

About a quarter of borrowers on housing loans are pegged to either the Sibor or SOR, MAS data showed.

Other banks have stepped up to offer more Sora-pegged loan products. DBS in September announced its first Sora-pegged business property loan. Others such as Deutsche Bank, Standard Chartered and UOB have already undertaken Sora derivatives transactions.