Regulators globally have indicated the need for financial institutions (“FI”) to transition away from using Interbank Offered Rate (“IBOR”) benchmarks to alternative interest rate benchmarks. The list of existing benchmarks that will undergo transition (the “Affected IBORs”) currently includes the SGD Swap Offer Rate (“SGD SOR”), London Interbank Offered Rates (“LIBOR”) in various currencies, and others.
CIMB recognizes that this transition will have an impact on our clients through the products and services we offer. We are working closely with the regulator and other stakeholders to ensure smooth transition to the new benchmark rates.
Overview
In 2014, the Financial Stability Board released a report (https://www.fsb.org/wp-content/uploads/r_140722.pdf) recommending the replacement of the LIBOR. LIBOR is one of the Interbank Offered Rates, or IBORs, used globally to set the benchmark rate for a wide range of financial products, from loans and bonds to derivatives and mortgage-backed securities.
Regulators are now working through an IBOR transition process to identify and develop alternatives to existing IBORs. In most cases, overnight risk-free reference rates (“RFRs”) have been identified as the suitable replacement benchmarks. RFRs are typically based on actual transactions and hence are more transparent and more reflective of market conditions.
The transition from IBOR to RFRs is expected to occur by end 2021. Regulators and market participants are working toward effecting a smooth transition and we encourage you to stay up to date on industry developments in relation to IBOR.
Transition to SORA
The Singapore Dollar (“SGD”) Swap Offer Rate (“SOR”) is used as a benchmark rate for financial products such as bonds, derivatives, loans, mortgages and structured notes denominated in SGD. As the determination of SOR utilises the USD LIBOR rate in its computation, SOR will be directly impacted by the cessation of LIBOR.
The Singapore Overnight Rate Average (“SORA”) has been identified by The Association of Banks in Singapore (“ABS”) and the Singapore Foreign Exchange Market Committee (“SFEMC”) as the most suitable interest rate benchmark to replace SOR. Click here for more information.
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. You may wish to visit the ABS Website for more details on SORA.
To ensure a smooth transition from SOR to SORA, the MAS has set up an industry-led Steering Committee for SOR Transition to SORA (the “SC-STS”). The SC-STS, comprising senior representatives from key banks, relevant industry associations and MAS, provides strategic direction on industry proposals to develop new products and markets based on SORA while supporting this transition process.
Next Steps
The transition may affect some of CIMB’s consumer, commercial and wholesale banking customers who use or invest in financial products and services, which reference an Affected IBOR. We will be contacting these customers to provide them with details of how they may be impacted.
We assure customers that ample notice will be provided so that they can consider their options before the transition takes place. There is no immediate impact on you at this juncture.
For more information on Singapore’s transition, please visit ABS website at https://abs.org.sg/benchmark-rates/faq.
For more information on LIBOR Transition, please click here.