Account Charges

Transaction Charges

What is the background of the transition?

The London Interbank Offered Rate (LIBOR), which serves as an interest rate benchmark across a number of financial products, is expected to be discontinued by the end of 2021. LIBOR (in all its underlying currencies) is expected to be replaced with overnight risk-free rates (RFRs).

The transition from LIBOR to RFRs arises from the global shift to improve the robustness and integrity of financial benchmarks. As part of this shift, the UK Financial Conduct Authority, which acts as the supervisory authority for LIBOR, stated that it would no longer compel banks to submit rates used for the calculation of LIBOR after 31 December 2021.

Alternative benchmark rates have been identified by the respective jurisdictions/countries to replace LIBORs and are set out in the table below. These risk free rates are all overnight interest rate benchmarks, and are based on actual transactions which may be secured or unsecured.

What is Singapore doing about the transition?

As the Singapore Dollar Swap Offer Rate (SOR) utilises USD LIBOR in its computation, the expected discontinuation of LIBOR by end-2021 would impact the sustainability of SOR. The Association of Banks in Singapore and the Singapore Foreign Exchange Market Committee (ABS-SFEMC) has identified the Singapore Overnight Rate Average (SORA) as the most suitable interest rate benchmark to replace SOR.  SORA has been published by the Monetary Authority of Singapore since 2005.
 

How does this impact our customers?

Should our customers have loan(s) or derivatives contracts with us that reference LIBOR or SOR maturing after December 2021, this transition will impact them. This will require them transiting the LIBOR or SOR reference rate to the relevant RFRs of either SOFR for USDLIBOR or SORA for SGDSOR.

Our Bank’s representative or Relationship Manager will contact customers to assist customers with this transition, taking into account the industry’s guidance.

Customers may refer to the following websites to understand the current global reform, as well as the frequently asked questions on MAS and ABS’s websites for more information on the transition of SOR to SORA.

• Monetary Authority of Singapore’s website on Interest Rate Benchmark Transitions:

  https://www.mas.gov.sg/regulation/interest-rate-benchmarks-transition

• UK Financial Conduct Authority’s website on transition from LIBOR:

  https://www.fca.org.uk/markets/libor

• The International Organisation of Securities Commissions’s website on a general background regarding benchmarks transition from LIBOR

  https://www.iosco.org/library/pubdocs/pdf/IOSCOPD636.pdf

• The Association of Banks in Singapore’s (ABS) website on SOR to SORA transition:

  https://abs.org.sg/benchmark-rates/sor-to-sora
  
  https://www.iosco.org/library/pubdocs/pdf/IOSCOPD636.pdf

Industry Announcements on Timelines for SOR and SIBOR Cessation

The Steering Committee for SOR & SIBOR Transition to SORA (SC-STS) and MAS have announced the following new industry timelines:

• By the end of April 2021, all financial institutions and their customers are to cease usage of SOR-linked loans and securities that will mature after end 2021
• All Domestic Systemically Important Banks (D-SIBs) are expected to offer a full-suite of SORA-based products to their customers by end February 2021. All non-DSIB banks should be ready to offer new SORA-based products by end April 2021
• By the end of September 2021, all financial institutions and their customers should cease usage of SOR in new derivatives contracts AND all financial institutions and their customers should cease usage of SIBOR in new contracts.
• By the end of March 2022, 6-month SIBOR will be discontinued.
• By mid of 2023, all SOR benchmark will be discontinued.
• By the end of 2024, all SIBOR benchmark will be discontinued.
• For USD LIBOR, it will cease by end June 2023.

FREQUENTLY ASKED QUESTIONS

[LOANS – EXISTING]

Q1. My company has an existing loan that references SOR/LIBOR and matures after end 2021. What should I do about this?

There is no immediate impact on your loan at this juncture. We will be reaching out to you in due course to assist with the transition. However, to prepare for the upcoming transition, you are encouraged to review the terms and conditions of your loan contract to understand the implications and the actions required.

Q2. Can RHB replace my SOR/LIBOR loan pricing to SIBOR (or enhanced SIBOR)?

We will be sending an official letter at the appropriate time for you to consider different options. You will also need to consider if replacing a SOR loan with other benchmarks impacts your related transactions (e.g. hedges) and the corresponding accounting and tax implications.

SORA and SIBOR are different SGD benchmarks that are determined on a different basis. In relation to the usage of SIBOR, ABS Benchmarks Administration Pte Ltd (ABS Co) is conducting a transitional testing for the enhanced SIBOR, and will provide an update after the transitional testing is completed in 2H 2020. The results of the transitional testing will be considered by the Steering Committee for SOR Transition to SORA (SC-STS), which will issue industry guidance in due course.

While SORA is not commonly used in the loan market, it is not new and has been published daily by the MAS since 2005. Over time, just like any new benchmark, e.g., when SOR was introduced, borrowers will become familiar with SORA, and its use in loans and other cash or derivatives products will increase.

Q3. What will happen to my outstanding loan if I do not want to change my rate, even when SOR/LIBOR is discontinued?

When SOR/LIBOR is discontinued, we will no longer be able to calculate your interest payment using SOR. Instead, your loan interest payment will be calculated using a ‘fallback’ rate or other alternative provisions specified in the terms and conditions of your loan contract. You should start preparing for the transition as early as possible by reviewing the terms and conditions of your loan contract to understand the consequential implications and actions required. We will be reaching out to you in due course to assist in the transition, including, where not provided for in your current contract, updated terms and conditions. You are encouraged to review these updated terms and conditions and seek any clarification you need from our Bank representative or your Relationship Manager.

Q4. How will the change in benchmark affect my loan repayment?

The transition to a RFR could lead to changes to your loan repayment, which impacts the calculation methodology of the loan repayment amount, besides this, it will also depend on market conditions at that point in time.

Q5. If I have more than one loan pegged to SOR/LIBOR, will I have to re-sign every loan?

Yes, all SOR/LIBOR-pegged loans will be affected once SOR/LIBOR is discontinued. We will be reaching out to you in due course to assist in the transition, including, where not provided for in your current contract, updated terms and conditions. You are encouraged to review these updated terms and conditions and seek any clarification you need from our Bank representative or your Relationship Manager.

Q6. What if I had hedged my SOR/LIBOR loan with a swap?

If you had hedged your SOR/LIBOR loan with an interest rate swap under ISDA, your interest rate swap would also have been likely pegged to SOR/LIBOR. You should review the terms of your interest rate swap contract as early as possible to understand the consequential implications once SOR/LIBOR is discontinued. There could be a hedging mismatch as the ISDA protocol for the replacement of SOR/LIBOR may not be in alignment with your loan. We will be reaching out to you to assist in the transition, including, where not provided for in your current contract, updated terms and conditions. You are encouraged to review these updated terms and conditions and seek any clarification you need from our Bank representative or your Relationship Manager.

Q7. What are the tax and accounting-related implications of the change in benchmark?

You need to consult your tax adviser to advise you on the implications of the change in the benchmark once the Steering Committee Sub-group that was formed to provide guidance on accounting and tax-related issues, including hedge accounting, have published their guidance in due course.

[LOANS – NEW]
 

Q8. I am looking to take up a new loan. Should I avoid entering into any new contracts that still reference SOR/LIBOR?

If you wish to take up a new loan that references SOR/LIBOR, you should review the proposed new loan contract for terms that set out, or permit a switch or fallback to an alternative rate from SOR/LIBOR.

Q9. Who should I contact if my company is keen to take up a new loan pegged to SORA?

If you are keen to take up a new loan pegged to SORA, kindly contact your assigned Relationship Manager.

Q10. How will SORA be used to compute interest payments for corporate borrowers?

There are a few ways SORA could be used to calculate interest payments for corporate loans.

In other markets such as the US and the UK, banks have used the RFR rates calculated based on a compounded or simple average of the alternative overnight interest rate benchmark. Further update will be provided once the Singapore Steering Committee for SOR Transition to SORA (SC-STS) have issued their guidance on the matter.

Q11. Will RHB continue to offer fixed rate loans? Will these be affected by the transition?

The expected discontinuation of SOR only affects contracts that reference SOR, e.g. SOR floating rate loans. RHB will continue to offer other types of loans that fit customer needs, including fixed rate loans.

Reference:
SORA - Singapore Overnight Rate Average
SOR – Singapore Swap Offer Rate
LIBOR – London Inter-Bank Offered Rate