Local banks are introducing more loan products pegged to the Singapore Overnight Rate Average (Sora), which is fast becoming the new benchmark interest rate.
Sora - the average rate of unsecured overnight interbank Singapore dollar transactions - is a backward-looking measure.
This is seen as more stable than the two forward-looking term rates commonly used: the Singapore Interbank Offered Rate and the Singapore Swap Offer.
United Overseas Bank (UOB) and property giant CapitaLand have signed a two-year $200 million term loan pegged to both Sora and the Secured Overnight Financing Rate (SOFR).
The dual-tranche loan is the first of its kind in Singapore, UOB and CapitaLand said yesterday.
The interest on the two tranches will be based on the compounded averages of the daily Sora and SOFR, both calculated in arrears, and with respective applicable margins.
The loan facility comes ahead of a global transition from Interbank Offer Rates, including the London Interbank Offer Rate, to alternative risk-free rates.
Alternative risk-free rates are overnight interest rate benchmarks based on actual transactions and are seen as more transparent and reflective of market conditions.
UOB and CapitaLand aim to enhance market confidence in adopting Sora.
"This is in line with the Monetary Authority of Singapore's (MAS) initiatives to support the adoption of Sora as a key interest rate benchmark and the development of robust Sora markets," they added.
DBS Bank launched a Sora-pegged business property loan yesterday that it said was the first in Singapore.
It provides business property owners with additional financing options and covers all real estate loan types.
The loan is tailored for small and medium-sized enterprises (SMEs) looking to finance commercial and industrial properties.
Interest rates will be based on the three-month compounded Sora published by the MAS, as well as an applicable margin.
SME owners can borrow up to 80 per cent of their property value and choose to stretch their repayment tenor to up to 25 years.
Last month, DBS launched the agribusiness industry's first Sora-based loan, as well as the industry's first Sora loan coupled with an interest rate swap.
Correction note: An earlier version of this article did not give an accurate description of the Singapore Overnight Rate Average. We are sorry for the error.
