Singaporeans, Are Your Loans Feeling Heavier ?

If you notice that your monthly instalments are getting a little higher, you are spot on the fact that 1 month SIBOR is at its highest levels in 4 years.

Ok, we cannot say the same for the 3 month SIBOR or the 6 month SIBOR yet but they are at their 3 year highs.


For Singaporeans, I do not think there are more than a handful or maybe hundred, including past and present money market dealers who understand how SIBOR works or what SIBOR is. (refer to my excerpt below)

And I feel awkward going around correcting misconceptions about SIBOR so I have just given up because when I was at TIMES the other day, I picked up this $30 book with one of those multiply-your-money titles, written by a Singaporean expert, that claims that SIBOR is related to LIBOR due to our exchange rate policy. And I do not profess to be an expert as neither have I written any $30 books.

Ho ho ho. Look how LIBOR did for the same period.

1M Libor

So why is 1M LIBOR still at 0.154% when 1M SIBOR is at 0.37105% ?

“The reality of the current environment is that long term(>1 month) borrowing and lending does not take place very much. Some attribute it to the reduction of placement limits after the Lehman crisis.

Which makes deposits even more important to banks yet I see bank accounts frozen at their 0.05%. Which begs the question of HOW IS SIBOR DERIVED in the absence of a wholesale market ?”

I will make some observations.

1. Local banks hold the key to SGD deposits (savings accounts at 0.05% etc.) and from deposits, you get lending.
* From another recent article, “It would seem that UOB is running more SGD loans and DBS is doing the opposite and UOB would be short of SGD funds because 85% should be the breakeven level.”

2. Local banks have all posted very, very decent loan margins that have improved over the past quarter.

Results are unavailable for foreign banks.

3. Other banks who have no or lesser access to SGD deposits have to fund themselves via USD swapped into SGD ie. SGD forwards.

SGD that has to be procured from the local banks in the local money markets.

4. “I have my misgivings which are probably unfounded and am not seeking to challenge the integrity of the SIBOR system. It is just worthwhile to point out a minor flaw here.

SIBOR is required to price loans. Banks do not actively trade it. SIBID is conveniently forgotten since it does not determine deposit rates anymore.  This creates an opportunity for banks to keep SIBOR high without having to justify deposit rates to the little people like my 11 y.o. son, who happens to have some savings whittling away against inflation (5%) at 0.05% per annum.”

* Incidentally, son is 13 now.

So let’s go with Pt.3. That SGD forwards could have an impact on the SIBOR.

This is what the 1M SOR chart looks like.


Aha, yes. We see the recent spike in SOR which justifies the move in SIBOR. We are not quite at 4 year highs though.

But cast your eyes back to Sep 2013 for the SIBOR curves.

What caused that spike up ?


usdsgd vs sor

So we had USDSGD higher, SOR unchanged and SIBOR higher ?

And frankly, no one will tell you why because it is top secret !

Because the day the retail market turned to SIBOR loans when SOR turned negative back in 2011, I think no one had any idea that they have just crossed over into a twilight zone.

Now, I suppose people will want to know how to hedge it ?

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Excerpt on SIBOR :

“What on earth is SIBOR ?

There is no way of deriving that number from any monetary policy. It does not trade in the market much because interbank activity for SGD SIBOR has been drastically reduced as banks have all but stopped much of the outright lending and borrowing business since Lehman days. Much funding is done via fx forwards, swapping SGD for USD or vice versa, ie. via SOR, which diminishes the role of SGD SIBOR.

I am not about to begin a history lesson on SOR except that many moons ago, money market trainees were taught that SOR = Sibor plus cost of funds*. There is none of that notion now and more than half the market is ignorant of that concept. No one knows the origin or purpose of SOR these days except that it is the forwards derived rate.
*Cost of funds has also much to do with the liquid reserves that MAS requires banks to keep for regulatory purposes.

SIBOR should theoretically be lower than SOR then. Yet because of its limited use and the elimination of the use of SIBID completely, SIBOR has been consistently higher than SOR. That is perhaps because SIBOR’s only use these days is for loan fixings ?”