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3-month Sibor plunges to 0.89%; borrowers may gain, savers may be hit

Interest rates have plunged to near five-year lows as loan demand falls off a cliff even as governments inject liquidity to get credit flowing again.

Yesterday, the key three-month Sibor or Singapore interbank bank offered rate fell to 0.89 per cent, not far from the all-time low of 0.69 per cent on Nov 21, 2003. The benchmark rate, to which many home loans are pegged, is now 60 per cent lower from less than two months ago when it hit 2.23 per cent on Sept 26.

While this may be good for borrowers, savers may find themselves earning no interest - similar to the situation in Hong Kong where banks pay nothing for savings accounts.

HSBC Hong Kong pays zero interest for amounts less than HK$5,000 (S$969) while amounts higher than that earn 0.01 per cent. DBS Bank Hong Kong too pays a miserly 0.01 per cent for savings accounts regardless of amounts. Even its high-end Treasures customers get only 0.15 per cent, regardless of their balance.

The rapid fall in interest rates has caught many by surprise. ‘We are in unprecedented times,’ said Alvin Liew, Standard Chartered Bank Singapore economist.

Mr Liew said that Singapore’s interest rates are influenced by US interest rates and domestic demand.

‘In recent years, domestic interest rates moved more or less in line with the US$ Libor or interbank rate, but at a discount, as Singapore has in recent years had a forex appreciation stance,’ he said.

‘With Singapore now having moved to a neutral policy, one of the key implications would be that currency appreciation is taken out of the equation, and we are likely to see SGD Sibor tracking US$ Libor much closer.’

The US Federal Reserve recently cut the Fed Fund Target Rate (FFTR) by another 50 basis points to one per cent (on Oct 29) and many expect another 50 bps snip before end-2008 to bring FFTR to a record low of 0.5 per cent and held at this level for the whole of 2009.

But the three-month Sibor is still lower than the FFTR and one of the factors could be that Singapore is regarded as a safe haven in a more volatile region, said Mr Liew.

Selena Ling, OCBC Bank economist, said that, over the years, the three-month Sibor has traded at a wide discount to the US rate, though a very rough guide would be one per cent discount to the FFTR.

‘But if the Fed cuts to 50 basis points, we can’t go to negative, right?’ Ms Ling said. She noted, however, that overnight Sibor rates recently have gone very near to zero.

‘It’s highly unlikely we’ll go to zero, but never say never,’ she said, referring to the three-month Sibor.

‘The current circumstances are quite abnormal because all the central banks are injecting liquidity, and you can’t second guess them,’ she added.

Some feel interest rates will continue to face downside pressure as demand for loans will contract next year given that Singapore is already in a recession.

So what can borrowers and savers expect?

Dennis Khoo, general manager of lending at Standard Chartered Bank was non-committal.

‘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. Should customers feel that rates will eventually move higher, then Standard Chartered Bank offers them an attractive mortgage pricing package with a two-year lock-in period of 2.49 per cent.’

He added: ‘As interest rates drop, the savings rates will move in tandem.’

Source : Business Times - 12 Nov 2008

Bad news for savers, good news for mortgage owners

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.’

Source : Straits Times - 12 Nov 2008

CITIBANK Singapore is offering an overdraft to affluent clients collateralised on their global properties.

The bank said that its global home financing solution allows high net worth clients to consolidate mortgage financing on residential properties here and abroad into one overdraft that they can use at their convenience.

‘It’s aimed at customers whose properties have low leverage or none at all, and helps them take advantage of market opportunities,’ said Anil Wadhwani, head of consumer markets at Citi Singapore.

In conversations with customers, Citi has found that those with properties in different countries find it cumbersome dealing with various bankers when investment opportunities arise.

Some 40 per cent of Citi Singapore’s affluent client base would be interested in properties overseas, said Mr Anil.

The bank’s latest product gives a line of credit by consolidating a customer’s property portfolio across markets. Customers need only to deal with one relationship manager in Singapore, he said.

Tan Chia Seng, head of commercial markets at Citi Singapore, said: ‘It provides clients with the means to unlock the equity in real estate to tap market opportunities without having to sell their properties.’

Mr Tan said that the product allows clients to move quickly as and when they require investment funds.

The overdraft facility can be used for a range of investments including stocks, bonds and properties.

For a start, the product will apply to properties in six markets - Singapore, Hong Kong, Malaysia, Australia, Canada and the UK.

Up to 70 per cent of the value of each property in these six markets can be aggregated into the overdraft facility.

The line of credit is offered in a range of currencies, comprising the Singapore dollar, US dollar, Australian dollar, Hong Kong dollar, euro, Japanese yen, sterling and Swiss franc.

Property consultant Knight Frank said that the total value of residential properties transacted in Singapore, the UK, Hong Kong and Malaysia in the 12 months ended Sept 30, 2008 was about US$315 billion. Of this, a quarter or about US$79 billion of properties in these markets were bought by foreigners.

Source : Business Times - 05 Nov 2008

Well-Heeled banking customers, with properties in Singapore and abroad, are being offered a first-of-its-kind product by Citibank Singapore.

The product, launched yesterday, allows these affluent types to consolidate their mortgage financing on residential properties held here and abroad into an all-in-one overdraft that they can use at their convenience.

These clients are Citigold Select customers - who have liquid assets of at least $1 million - and have properties in multiple countries.

Citi says the key benefit of the product is that these clients have a single point of contact, which allows them the speed to act as and when they need investment funds.

This is even more important in the current volatile market, where attractive opportunities are expected to surface.

‘These individuals understand the value of having a consolidated line of credit and a single point of contact, both of which go towards facilitating timely investment decisions,’ said Citi Singapore’s head of commercial markets, Mr Tan Chia Seng

Citibank’s clients can use a range of currencies, such as the Singapore dollar, US dollar, Australian dollar, Hong Kong dollar, euro, Japanese yen, British pound and Swiss franc. They can also switch currencies seamlessly.

Currently, the product is available only in Singapore and for properties in six markets - Singapore, Malaysia, Hong Kong, Australia, Canada and Britain.

Up to 70 per cent of the value of each property in these markets can be aggregated into the overdraft facility.

Citi Singapore’s head of consumer markets, Mr Anil Wadhwani, said the product offers ease, speed and convenience from a single window, since clients need only speak with one officer here for all their properties, instead of different ones in different markets.

Mr Tan said the product evolved from client’s feedback and that they have worked on it for a year.

Interest rates are pegged to the Singapore Interbank Offered Rate or the London Interbank Offered Rate. Citibank declined to reveal the spread.

Source : Straits Times - 5 Nov 2008

LENDERS and the credit bureau have a role to play in responsible credit.

But consumers must also be more circumspect in their borrowing practices, the Consumers Association of Singapore (Case) cautioned yesterday.

Case executive director Seah Seng Choon, who was speaking at a seminar organised by DP Credit Bureau, urged consumers to determine how much they can afford when they take out a loan and to shop around before they jump in, for instance, to sign up for a mortgage with a bank.

‘Bargain for the best offer and read all terms and conditions, paying particular attention to lock-in periods and penalties,’ said Mr Seah.

His advice comes amid consumer anger over the alleged ‘mis-selling’ of financial products like Lehman Minibonds.

Mr Seah was speaking to consumers, small businesses as well as bank representatives and moneylenders.

And while he warned consumers to be more careful when they borrowed, he also laid out several pointers for financial institutions to observe when they lend money to customers.

For example, moneylenders have to truly verify the borrower’s ability to pay the loan, as well as improve their assessment of the creditworthiness of the customer, he said.

‘Unfortunately, in the United States, as we have seen, these financial institutions were more interested in making money. These firms that provide the lending opportunity introduced collateralised debt obligations, and they could eventually pass on the risks to investors,’ Mr Seah said.

He also expressed caution about churning policies practised by firms. ‘Once every two weeks, I receive calls from banks asking me whether I want to refinance my mortgage,’ he said.

He said that when a customer is asked to refinance his loan, he must end up being in a better position than before.

‘If you don’t do that and if it results in a dispute, then you probably have to handle his complaints. So put the borrowers first, before you ask them to go about refinancing,’ he said.

Source : Straits Times - 22 Oct 2008