The recent Barclays role in the LIBOR scandal brought a fine of £290 million (S$572.6 million) last week and has already claimed the scalps of chief executive Bob Diamond and others. Several other banks in London have also been implicated.

You may give a yawn to the news but you may not be aware of the impact of interest rate on your personal finances and lifestyles. What happens in the interest rate market affects many aspects of your everyday life in home mortgages, investments, jobs, the economy and even politics.

The LIBOR (London Interbank Offered Rate) is the rate at which the world’s most preferred borrowers are able to borrow money day to day. It is derived from a filtered average of the world’s most creditworthy banks’ (not quite so now) interbank deposit rates for larger loans. In another word, the benchmark of the financial market in the world is set by a few institutions.

Similarly, the rate used in Singapore is called SIBOR (Singapore Interbank Offered Rate) which is set by the Association of Banks in Singapore (ABS).

THERE are 15 banks contributing data to set the Singapore Interbank Offered Rate (Sibor) for the financial year ending March 31, 2013:

  • Bank of America
  • Bank of Tokyo-Mitsubishi UFJ
  • BNP Paribas
  • CA-CIB
  • Citibank
  • Credit Suisse
  • DBS
  • Deutsche Bank
  • HSBC
  • ING
  • JPMorgan Ch!se
  • OCBC
  • RBS
  • Standard Chartered
  • UOB

Most of the mortgage loan packages in Singapore are linked to Sibor. Since majority of Singaporeans use their life savings to pay their houses and interests,  the movement of Sibor will have severe impact on everybody. If you ever think interest rate is as stable as recent years, you will be shocked to know historically, from 1988 until 2012, Singapore Interest Rate averaged 1.70% reaching an all time high of 20% in January of 1990 and a record low of -0.75% in October of 1993.

Fortunately or unfortunately, the relatively small size of the Singapore housing loans market suggests that banks here are unlikely to have enough incentive to risk rigging Sibor. As pointed by ABS director Ong-Ang Ai Boon in today’s news article “Rigging of Sibor ‘is highly unlikely'”, “Sibor is domestic and just for limited usage… it is not an international benchmarking rate, unlike Libor.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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