Showing posts with label Sibor. Show all posts
Showing posts with label Sibor. Show all posts

Saturday, December 13

Lower Sibor attracts buyers

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Dec 13, 2008
Lower Sibor attracts buyers
0.9% rate sees more interest but analysts warn of risks
By Gabriel Chen

INSTALMENTS for many home loan borrowers are set to fall after the all-important interest rate at which banks lend funds to one another nosedived to about 0.9 per cent this month.
Many home loan packages are pegged to this rate - known as the three-month Singapore Interbank Offered Rate (Sibor) - so when it goes down, so do Sibor- linked home loan instalments.

WHY SIBOR IS DOWN
There is widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting next Tuesday. Sibor closely tracks this rate.
Continued measures by the Singapore authorities to pump liquidity into the system.
According to economists, the three-month Sibor should remain at these depressed levels into the new year.
OCBC Bank economist Selena Ling said the three-month Sibor is reacting to a couple of factors.

One is the widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting on Tuesday.

The Sibor closely tracks this rate.

Another factor: continued measures by the Singapore authorities to pump liquidity into the system, against a backdrop of global and domestic recession.

In September, the three- month Sibor spiked to 2 per cent as the global credit crunch hit home here. Banks were afraid to lend to one another for fear of not getting repaid.

With the rate coming down sharply, more and more home buyers are looking at Sibor- linked loan packages.

Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent, estimates that six out of every 10 customers he is seeing are enquiring about Sibor-linked packages not only for high-end units, but also for HDB flats.

A year ago, when Sibor was significantly above 1 per cent, only three or four customers out of 10 would show interest.

It is easy to see why Sibor- linked packages have become the talk of the town, given the potential savings.

Suppose you want to buy an HDB flat. The best rate in the market is the 2.6 per cent annual rate for those qualifying for an HDB concessionary loan. This rate is pegged at a level 0.1 percentage point above the prevailing CPF ordinary account interest rate.

By comparison, at Standard Chartered Bank, for example, if you choose a two-year lock-in, its Sibor-linked package works out to Sibor plus a spread of - in this case - 0.95 per cent.

So if three-month Sibor stands at 0.9 per cent, you pay an annual rate of 1.85 per cent - lower than the HDB concessionary rate.

Still, financial experts say homebuyers must be careful. When Sibor falls, borrowers with a loan pegged to it gain as they will be paying a lower interest rate. But conversely, if the benchmark rate heads up, mortgage instalments also rise.

'We think though, that Sibor still has the potential to spike up, given that risks still remain out there,' a United Overseas Bank spokesman said.

Borrowers need to think carefully about choosing between two loan options, experts say.

Since January 2003, when banks were first allowed to provide loans for HDB flats, many homebuyers have opted for Sibor-linked packages as Sibor was very low, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

In June 2003, the three-month Sibor bottomed out at 0.5625 per cent, but then surged to as high as 3.56 per cent three years later.

Mr Leong said that historically, the HDB rate of 2.6 per cent has been lower than rates for Sibor-linked packages.

More importantly, homebuyers with an HDB concessionary loan who switch to a bank loan cannot go back to the HDB if bank rates suddenly rise above the board's 2.6 per cent concessionary rate.

Experts think that banks are far more inclined than the HDB to repossess properties in the case of loan default.

'During the economic slowdown, there'll be people who'll struggle to meet monthly payments. Sure, Sibor- linked rates are low now, but if you want certainty, you'll choose HDB's,' said Mr Patrick Lim, associate director of financial advisory firm PromiseLand.

Take Mr David Lee, for instance. The 35-year-old engineer said that even though he is paying more now because he chose an HDB concessionary loan, he is not going to switch to a Sibor- linked package any time soon.

'I don't mind the slightly higher rate for peace of mind,' he said.

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, is on record as saying that 'repossession would be a last resort, after all other measures have failed'.

gabrielc@sph.com.sg


My perception is that Sibor is likely to remain low too into 2009. With the economy in recession, it is likely that the Fed will keep the rate low and thus this means that Sibor will remain low. Perhaps the Sibor will move up only after the economy has recover.
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Saturday, November 15

Sibor falls to 4-year low

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Nov 12, 2008
Sibor falls to 4-year LOW
Bad news for savers, good news for mortgage owners
By Gabriel Chen

This benchmark rate, known as the three-month Singapore Interbank Offered Rate (Sibor), has been highly volatile of late. -- PHOTO: AGENCE FRANCE-PRESSE
THE all-important interest rate at which banks lend funds to one another has nosedived to 0.89 per cent - its lowest level since mid-2004.
This is likely to be good news for many home owners, who are set to enjoy lower mortgage rates soon. Rates on other consumer loans may also fall.

But the outlook is not so good for investors holding fixed deposits - as their interest rates are likely to fall as well. And businesses big and small will not necessarily get a flow-on benefit of lower borrowing costs. This benchmark rate, known as the three-month Singapore Interbank Offered Rate Sibor), has been highly volatile of late.

In September, it spiked to 2 per cent as the global credit crunch hit home here in a big way as banks were afraid to lend to one another for fear of not getting repaid.

Today, the three-month Sibor, to which many home loans are pegged, is at its lowest point since July 2004.

Economists say the aggressive interest rate cuts by central banks around the world as well as massive doses of liquidity injections to thaw frozen credit markets are working.

'Fears of the credit crunch and counterparty failure risk have also in part subsided slightly recently, partly due to the extension of deposit guarantees and government bailouts for troubled financial institutions in countries like the United States,' said OCBC economist Selena Ling.

All these explain why the three-month Sibor - which closely tracks the benchmark US federal funds target rate - is easing.

And it will continue to stay low in the near term, economists say.

Standard Chartered Bank economist Alvin Liew expects it to decline to 0.8 per cent early next year. 'We expect the three-month Sibor to decline in early 2009 to well below 1 per cent and remain around that depressed level for most of next year.'

Fixed deposit rates, even those on a promotional basis, could trend lower if Sibor remains low. Foreign banks appear to have less need to pull in deposits by dishing out attractive promotional fixed deposit rates, as they had done in recent months when credit was very tight, one banker said.

This is because the recent deposit guarantee announced by the Monetary Authority of Singapore has helped to dispel the perception that foreign banks are not as safe as local banks.

'The lower cost of funds is more icing on the cake for foreign banks, as they can tap the interbank market for funding,' he said.

For home owners, any loan pegged to Sibor will mean a lower rate.

'If customers feel that rates will go lower, then the three-month Sibor is a good way to capitalise, given that it automatically adjusts as the rates go lower,' said Mr Dennis Khoo, Stanchart's general manager of lending.

While Sibor is unlikely to bounce back as quickly and sharply as it has fallen in the last two months, bankers say those looking for fixed cash flow and protection against interest rate movements should opt for fixed-rate home loan packages.

For the banks themselves, interest rates are but one consideration in determining the prices of housing loans.

In contrast to the booming property markets in 2006 and early last year, banks now have to contend with increased capital costs and 'potentially higher delinquencies' amid the current financial turmoil, said OCBC's head of consumer secured lending, Mr Gregory Chan.

However, businesses may not necessarily benefit from the lower Sibor.

In the past, both small and large businesses could have expected lower borrowing costs from a falling Sibor, but current conditions may negate this, bankers say.

While there are exceptions to the rule for certain customers, banks will price in higher spreads between borrowing and lending costs in the months ahead to reflect greater credit risk in these recessionary conditions.

'In deciding pricing for corporate lending, banks would also incorporate their liquidity premium in the pricing,' said Fortis Bank head of corporate banking for Asia-Pacific Patrick Tan.

Given today's tight liquidity, banks generally are pricing their own cost of borrowing into what they lend out to their customers, he said.

Citigroup economist Kit Wei Zheng warned that a smooth ride out of the crisis is far from assured.

'The economic weakness that we now see could still feed back into the financial sector, which may then spark another round of risk aversion and possible future spikes in interest rates.'

gabrielc@sph.com.sg




Sibor is likely to remain low in the near future. Another fiscal policy that one should be aware of is the weakening of SGD against USD. This is usually done to boost exports out of Singapore in order to stimulate the economy.
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