Understanding the SIBOR

The Singapore Interbank Offered Rate (SIBOR) is the reference interest rate for interbank lending in Singapore, where banks get loans from other banks within the Singapore market. By end-2024, the SIBOR will be replaced by the Singapore Overnight Rate Average (SORA), which is a more robust and transparent interest benchmark. Find out what SIBOR is, and how different the SORA is.

What is the SIBOR?

The Singapore Interbank Offered Rate (SIBOR) is the reference interest rate for interbank lending in Singapore, where banks obtain loans from other banks within the Singapore market. This interbank market is typically used to transfer funds and currencies between banks in the Singapore market to manage liquidity. SIBOR is currently the most common base rate used to calculate home loan interest rates. However, this is soon to be changed after the adoption of the SORA.

How is the SIBOR determined?

SIBOR is set every day by the Association of Banks in Singapore (ABS). There are 20 member banks who report their interest rates daily. The calculation is made based on these interest rates if at least 12 member banks report their rates for the day. If more than 12 member banks report their rates for the day, the upper and lower quartiles are removed to get an average SIBOR. If less than 12 member banks report their rates for the day, no SIBOR will be calculated.

What affects the SIBOR?

The SIBOR can be affected by the following factors:

• Connected economies and exchange rates
• Supply and demand of transferring funds between banks, borrowers and equity funds in Singapore
• Overnight funds market
• United States federal funds rates

One-Month SIBOR

The one-month SIBOR and three-month SIBOR are the most common rates used for home loans. The one-month SIBOR changes more frequently and is therefore more sensitive to changes in the economy.

While the one-month SIBOR tends to be lower than the three-month SIBOR, the former is more viable when interest rates are projected to be declining for the period of the home loan package. However, in the current low-interest rate environment, borrowers can safely select the option with the lowest interest rate, while retaining the three-year lock-in period.

What is the difference between SIBOR and SOR and why does it matter?

The Singapore Swap Offer Rate (SOR) uses the Singapore Dollar (SGD) and United States Dollar (USD) forward rates and spot rates to calculate the implied interest rate. The SOR indicates the cost of artificially borrowing SGD, which is done by borrowing USD then using a currency swap (foreign exchange swap) to get SGD.

While the SOR may be used as an alternative to the SIBOR, they are influenced by different factors, although their wider trends tend to follow similar patterns. Therefore, regardless of the state of the economy, an increase in SIBOR also means that there would be an increase in the SOR.

While both are administered by the Association of Banks in Singapore, The SIBOR is typically used for home loans, while the SOR is usually used for commercial loans and wholesale loans. The two rates are also calculated differently. The SIBOR is based on the interest rate charged between banks, when borrowing unsecured funds in Singapore, and derived from the average of at most 10 banks.

The SOR, on the other hand, merely uses the average rate from SGD and USD spot transactions. As a result, the SOR tends to fluctuate more, as it is tied to the U.S. economy, hence it is no longer applied to home loans.

Approximately one-quarter of all borrowers of home loans are under the SIBOR or SOR, rather than fixed interest rates.

SORA will be replacing the SIBOR

The SIBOR will be fully replaced with the Singapore Overnight Rate Average (SORA) by end-2024. Like the SIBOR, the SORA will provide banks with interest rate benchmarks which will help them decide on how much interest they should charge on a loan. Unlike the SIBOR and SOR, the SORA is used for home loans and it is administered by the Monetary Authority of Singapore.

It is calculated using data from the overnight interbank cash market (SGD) in Singapore, through the volume-rated average rate of unsecured lending transactions. The SORA is more transparent than the SIBOR, since it takes into account the average rate over all interbank lending transactions, rather than excluding the upper and lower quartiles of the data.

Both the SIBOR and SOR would eventually be discontinued and replaced by the SORA. This is in accordance with the “SIBOR Reform and the Future Landscape for SGD Interest Rate Benchmarks” report jointly published by the ABS, Singapore Foreign Exchange Market Committee, and the Steering Committee for SOR Transition to SORA.

Read also: Real Estate Co-Investment – The New Alternative

About RealVantage

RealVantage is a leading real estate co-investment platform, licensed and regulated by the Monetary Authority of Singapore (MAS), that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.

The team at RealVantage are highly qualified professionals who brings about a multi-disciplinary vision and approach in their respective fields towards business development, management, and client satisfaction. The team is led by distinguished Board of Advisors and advisory committee who provide cross-functional and multi-disciplinary expertise to the RealVantage team ranging from real estate, corporate finance, technology, venture capital, and startups growth. The team's philosophy, core values, and technological edge help clients build a diversified and high-performing real estate investment portfolio.

Get in touch with RealVantage today to see how they can help you in your real estate investment journey.

Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.