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Singapore: What is SIBOR?

Posted by admin | 12:45 AM |
Jun 22, 2009

Singapore: What is SIBOR?

If you ask lay persons in Singapore what is SIBOR, many people will not be able to answer this question.

We at Singapore Loan Rates do not profess to be experts at answering this 'What is Sibor' question.

From what we gather from bank officers in Singapore, SIBOR stands for 'Singapore Interbank Offered Rate'.

So what is SIBOR then? It is the offered rate that banks lend money to one another.

Why would banks lend money to another bank using SIBOR? Aren't banks loaded with lots of cash from taking deposits from bank customers and making big bucks from banking products? The simple answer is to make more big bucks! The banks charge interest when they lend money to each other. The complicated answer? You've got to go and ask the bankers themselves.

So what affects the SIBOR? In other words, how do banks determine what interest rate to charge one another? What is the formula, if any, that guides banks to set the interest rate?

This question on what is SIBOR must really be put to the banks themselves. We could not find any documents on the Net that makes this answer transparent.

We will attempt to answer this question as best as a lay person will ever know about SIBOR. You should read this part about SIBOR with care.

Basically, banks set the SIBOR rate. We know that it is a commercial decision of the banks themselves. SIBOR is not determined by Monetary Authority of Singapore directly.

When mortages are pegged to the SIBOR, we become the end users, the consumers. Our home loan rates that are linked to SIBOR will be affected whenever banks raise or lower the SIBOR.

We do not know the formula on how SIBOR is calculated to the last decimal point. We cannot predict how SIBOR will turn out in the future, in 1 year, 2 years or 10 years down the road. If you tie your home loan payment to SIBOR, you must live with the rise or fall of SIBOR.

Therefore if your home loan package is pegged to SIBOR, you should ask the bank officer what is SIBOR and how it will affect your monthly loan payments before you sign on the dotted line.

If you already bought a property that has a home loan pegged to SIBOR, and you are reading our post on what is SIBOR, good luck to you.

Perhaps a banker in Singapore reading our SIBOR post can shed more light on this.

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