Singapore's Smooth Transition to SORA: A New Benchmark for Stability and Predictability

The Association of Banks in Singapore (ABS) recently announced the successful completion of the transition from the Singapore Interbank Offered Rate (SIBOR) to the Singapore Overnight Rate Average (SORA) for retail loans. This significant milestone, achieved by the end of 2024, marks the end of the work of the Steering Committee for SOR & SIBOR Transition to SORA (SC-STS) and the beginning of a new era for Singapore's banking sector.

The transition to SORA, which was first outlined by the SC-STS in March 2021, has been a carefully managed process that has benefited both banks and their customers. The new benchmark rate has several advantages over its predecessor, SIBOR, which has contributed to its widespread adoption.

Firstly, SORA is a more transparent and robust interest rate benchmark, as it reflects the average rate at which banks in Singapore borrow funds overnight from one another. This transparency and robustness make SORA a reliable and stable benchmark for interest rate products, contributing to the stability and predictability of the Singapore dollar financial market.

Secondly, the transition to SORA has led to lower interest rates and borrowing costs for retail clients in Singapore. SORA is typically lower than SIBOR, as illustrated in Chart 1, which shows a historical comparison of 3-month SOR and 3-month Compounded SORA. This lower interest rate environment has benefited both banks and their customers, as it has allowed for more competitive lending rates and improved affordability for borrowers.



The transition process has also been facilitated by the introduction of the SORA Conversion Package, which allows customers with existing SIBOR loans to switch to a SORA-based loan at no additional fee and lock-in period. This package is designed to minimize differences in interest payments at the point of conversion from SIBOR to SORA, ensuring a seamless transition for retail clients.

The successful completion of the transition to SORA is a testament to the resilience and adaptability of Singapore's banking sector. The country's ability to manage such a significant change in interest rate benchmarks showcases its resilience and adaptability, attracting international investors and businesses. This enhanced competitiveness, both domestically and internationally, can drive economic growth and contribute to Singapore's overall development.

In conclusion, the transition from SIBOR to SORA has been a smooth and successful process that has benefited both banks and their customers. The new benchmark rate's advantages, such as transparency, robustness, and lower interest rates, have contributed to its widespread adoption and the stability and predictability of the Singapore dollar financial market. The completion of the transition also marks the end of the work of the SC-STS and the beginning of a new era for Singapore's banking sector.