OCBC first bank to extend SORA-linked home loans

December 23, 2020

OCBC emerged as the first bank to offer home loans that are based on SORA as SIBOR and SOR are set to be discontinued in a few years. Image: Google Street View

OCBC Bank has extended over $1 billion of home loans linked to Singapore Overnight Rate Average (SORA) – an alternative interest rate benchmark launched less than six months ago, reported The Business Times (BT).

This comes as the banking industry moves towards adopting SORA as the SGD (Singapore dollar) cash and derivatives market’s new interest rate benchmark.

The lender revealed that 50% of the loans extended were processed digitally using its one-hour home loan and approval service.

OCBC emerged as the first bank to offer home loans that are based on SORA as the Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR) are set to be discontinued in a few years.

Recommended article: SIBOR vs SOR vs SORA (2020): What Do These Rates Mean for Your Home Loans?

The SORA home loan package offered by OCBC references the three-month Compounded Sora – a backward-looking overnight rate that is published by the Monetary Authority of Singapore (MAS). Comparatively, the usual benchmark rates SIBOR and SOR are quoted for different periods of time on a forward-looking basis. 

As an overnight, backward-looking rate, compounded Sora rates are considered to be more stable than forward-looking term rates, which are more exposed to market factors on a single day’s fixing, like quarter or year-end volatility. 

“The strong take-up shows that consumers are receptive to Sora as the new interest rate benchmark. We are confident that the market will be ready for Sora even before 2024 comes, when SIBOR-based home loans are officially discontinued,” said Sunny Quek, OCBC’s Head of Consumer Financial Services Singapore, as quoted by BT.

Suggested read: Home Loans Amid COVID-19: Will This “Low Interest Rate Environment” Last?

Singapore is in the midst of transitioning to SORA from SOR, with SIBOR also set to be phased out.

Sora will replace SOR, which is the present benchmark used to price business loans and derivatives in Singapore, given the end of the scandal-tainted London Interbank Offered Rate (LIBOR) after end-2021. The US dollar LIBOR is used by SOR in its computation.

Widely used in corporate loans and retail mortgages, SIBOR will be discontinued by end-2024.

Going forward, Sora will be used as the SGD financial markets’ main interest rate benchmark since it was the “most robust and suitable alternative”.

MAS data showed that around 25% of borrowers are on housing loans that are pegged on either the SOR or SIBOR.

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