BankBazaar Singapore – December 22, 2017
SINGAPORE: On December 4, the Association of Banks in Singapore (ABS) put forward a proposal to modify the Singapore Interbank Offer Rate (SIBOR) calculation method. Since SIBOR plays a major role in deciding consumer lending rates, the suggested changes could have more influence on your financial situation than you may think. If you have credit products such as home loans or made investments, being aware of the implications is critical.
Reports indicate that the proposed SIBOR changes include suggestions to take in market transaction data to improve its pricing system. This means that in the future, even a bank’s frequent funding activities such as bonds could influence the interbank lending rate.
On the face of it, this is a good move as it makes the whole procedure more transparent. Not too long ago, banks in several countries like the UK and Japan had come under fire for colluding to rig the interest rates. In Singapore itself, 20 banks were found fixing currency and borrowing rates about four years ago.
However, this also means that SIBOR could be exposed to live market rates which can often be unpredictable. This unpredictability could, in turn, make SIBOR more volatile. A volatile SIBOR inevitably leads to volatile costs on products like home loans.
The good news is that once the reforms kick in, transactions could increase, leading to higher liquidity in the market. While the final impact of this is difficult to predict, in general, the more the liquidity, the lower the rates.
SIBOR’s increased exposure to external market forces could further mean that the lending rates will also be dependent on global market trends. The US lending rate, for instance, will become a more relevant factor.
For the average consumer, this would mean there could be a rapid spike in lending rates. More importantly, as US lending rates are expected to go up in the coming years, a speedy SIBOR adjustment will force Singaporeans to seek options to repay or refinance their loans sooner than expected.
SIBOR’s exposure to global markets will potentially have a stabilising effect on Singapore dollar (SGD) exchange rates. This could further result in higher yields on investments and savings accounts.
In short, the suggested changes to SIBOR will definitely have a major impact on how consumers approach loans and investments. While it is not possible to accurately predict how things will pan out in the medium to long-term, consumers would be better off being aware of the changes and adjust their financial plans accordingly.