SINGAPORE: OCBC has made a S$150 million loan referencing SORA – the Singapore Overnight Average Rate – the first loan to use the new rate, the bank said on Tuesday (Jun 16), part of a major global effort to change lending benchmarks.
Singapore’s current main lending benchmark, SOR, is calculated using Libor – the London Interbank Offered Rate – which is set to be discontinued at the end of 2021.
The financial industry has moved away from Libor after several banks were found to have manipulated the benchmark for profit and fined about US$9 billion in total.
Asian financial institutions have been slower than their counterparts in other markets to shift away from existing benchmarks, and the Asian loans market has lagged the derivatives market in this regard, say market participants.
In August 2019, the Association of Banks in Singapore and the Singapore Foreign Exchange Market Committee identified SORA – a backward-looking overnight rate – as the most suitable interest rate benchmark to replace the SOR.
The loan is part of a S$300 million loan to developer Capitaland. The interest rate on the SORA-linked part of the loan will be calculated using a compounded average of daily SORA rates, calculated in arrears.
“We are pleased to be working with CapitaLand on Singapore’s first SORA-pegged loan, which is an important first step for the industry transition from SOR to SORA,” said Ms Elaine Lam, head of global corporate banking at OCBC.
“This deal will provide guidance for the development of SORA-pegged loans, pave the way for greater market acceptance and help such loans gain traction in the market,” she added.