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.

Frequently Asked Questions

a)      Why Does IBOR Need To Be Replaced?

Following the financial crisis, changes to bank capital requirements resulted in a significant decrease in transaction volumes in the unsecured interbank lending market - upon which LIBOR is based. Regulators have therefore grown increasingly concerned about the long-term sustainability of the benchmark and have decided to pre-empt any further possible deterioration by indicating their preference of a transition away from LIBOR.

 

b)      Are Other Major Economies Also Transitioning To Alternative Benchmark Rates?
 

Yes, other major economies are also in the process of transitioning to alternative benchmark rates, including but not limited to those illustrated below:

c)       How Is CIMB Preparing For This Transition For Its Customers? 

As part of our customer engagement plans, we will be contacting our IBOR-exposed customers to discuss appropriate next steps and potential transition options to ensure that they are fully informed to make the right decisions around their portfolio or contracts with CIMB.

d)       What Is SORA? Where Can I Get Data On This Benchmark?

SORA is published daily by the MAS and is a robust benchmark underpinned by a deep and liquid overnight interbank funding market. It is published on the MAS website daily and has been accessible at no charge since 1 July 2005. The historical series can be downloaded from the MAS website at https://secure.mas.gov.sg/dir/domesticinterestrates.aspx

e)       What Types Of Products Will Be Affected By This Transition?

Any product using SOR (or other Affected IBORs) as a reference rate will be affected. This could include derivatives, cash market products (e.g. business loans, syndicated loans, retail mortgages, floating rate notes, perpetual bonds and banks’ capital instruments), as well as outstanding debt securities with resettable interest rate features referencing SOR or other Affected IBORs.

For more FAQs, please visit the ABS website at https://abs.org.sg/benchmark-rates/faq

f)       What Is The Impact Of IBOR To My Portfolio?
 

We recommend that our valued customers develop a more granular understanding of the impact of the transition on their portfolio and exposures to IBOR-referenced financial products with maturity beyond 2021. Should you require further clarity, you may reach out to us via our online enquiry form by clicking on the link below and we will provide you with a response within 2 working days:

Click here for Personal Banking
Click here for Commercial Banking/Corporate Banking


g)       Can I Continue To Retain SOR For My Existing Financial Products With The Bank And Not Be Subjected To The Alternative Benchmark?

CIMB is intending to align with regulatory expectations and requirements as well as industry developments.  IBORs such as LIBOR are expected to be discontinued after 2021 given that banks will no longer be compelled to submit rates used for the calculation of such rates.

For SOR, the cessation of LIBOR will directly affect the sustainability of SOR as USD LIBOR is used in SOR’s computation. You should therefore be prepared to shift towards the use of SORA in respect of your existing or new products as soon as practicable.

This page will be updated regularly to ensure we keep our customers abreast on all relevant information.