How is the SIBOR determined, calculated and set?

SIBOR Interest rates

The SIBOR rate is one of the most widely followed interest rate benchmark in Singapore due to the fact that practically all mortgage loans are priced off it.

A small move up or down in the SIBOR rate has the potential to impact not just a few hundreds of millions of Singapore dollar denominated loans but a few billion.

Here’s a quick primer on the calculation methodology for those who are interested in knowing how the SIBOR is really set, and I’m sure the Monetary Authority of Singapore (MAS) keeps tabs on the banks to make sure none of them rig the process.

The information is taken from ABS’ website.

First let’s identify the key players

  1. Contributor Banks. These are the banks that decide to borrow money from other banks.
  2. ABS Co. ABS Benchmarks Administration Co Pte Ltd was setup in June 2013 specifically to own and administer the ABS Benchmarks in Singapore – the Singapore Interbank Offere Rate. In addition, the ABS Co. administers the Singapore Dollar Swap Offer Rate (SGD SOR), the Singapore Dollar Spot FX and the Thai Baht Spot FX. The ABS Co. is a fully owned subsidiary of the Association of Banks in Singapore (ABS).
  3. Thomson Reuters. ABS Co. has appointed Thomson Reuters as the Calculation Agent to calculate and determine the Benchmarks on the ABS Co’s behalf.

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Calculating the SIBOR

  1. On each business day, the Contributor Banks will contribute rates at which it could borrow funds, were it to do so by asking for and then accepting the interbank offers in reasonable market size.
  2. The contributor Banks will do this just prior to 11:00 am Singapore time.
  3. The rates quoted by the Contributor Banks must be in Singapore Dollars and the maturities (1, 3, 6 and 12 months) must be stated.
  4. Each Contributor Bank should contribute their rates without referring to the rates contributed by other banks.
  5. A guideline for the rates are that they should be 1) In reasonable market size 2) Simple and unsecured and 3) goverened by the laws of Singapore
  6. Maturity dates follow the ISDA modified Following Business Day Convention. Greek? In English and with an example, this means that if the maturity date is on the 5th of Jan (Sun), but 5th of Jan is NOT a business day, the maturity date will be the following day that IS a business day i.e. 6th Jan (Mon). Another example: If the maturity date is 30th Jan (Sat), but 30th Jan (Sat) is NOT a business day, and 31st Jan (Sun) is also NOT a business day, then the maturity date will be 29th Jan (Fri) which is a business day
  7. The ABS likes it really detailed. They require contributed rates to be up to five decimal places
  8. There is a panel of Contributor Banks, each of which has been selected by the Administrator. The SIBOR panel banks are
    1. Australia & New Zealand Banking Group Limited
    2. The Bank of Tokyo-Mitsubishi UFJ
    3. Bank of China Limited
    4. Barclays Bank PLC
    5. Bank of America, National Association
    6. BNP Paribas
    7. CIMB Bank Berhad
    8. Citibank N.A
    9. Credit Suisse AG
    10. DBS Bank Ltd
    11. Deutsche Bank Aktiengesellschaft
    12. The Hong Kong and Shanghai Banking Corporation Limited
    13. JP Morgan Chase Bank NA
    14. Mizuho Bank Limited
    15. Malayan Banking Berhad
    16. Oversea-Chinese Banking Corporation Limited
    17. Standard Chartered Bank
    18. Sumitomo Mitsui Banking Corporation
    19. United Overseas Bank Limited
    20. UBS AG
  9. For the setting of rates, a minimum of 12 Contributor Banks shall submit rates for each maturity i.e. 12 Contributor Banks required to submit EACH for 1, 3, 6 and 12 month maturities.
  10. The contribution time is between 11:00 and 11:10 am Singapore time.
  11. On each business day, ABS Co. will rank the rates in order.
  12. The top and bottom quartiles will be removed.
  13. The remaining rates will be averaged arithmetically.
  14. The arithmetic mean shall be published as the SIBOR Rate at 11:30 am Singapore time.
  15. If there are less then 12 Contributor Banks for any maturity, the ABS Co. will issue a notice that the SGD SIBOR for that maturity cannot be published due to an insufficient number of submissions.

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So there you have it, now you can tell people you know this really important, well not so much really, piece of information.

If you’re interested to know how the SIBOR rates has been moving, check out this handy SIBOR chart.

Share with us, how does SIBOR affect you? Do you keep track of it very closely?