Dollar Sibor may be dropped amid global rate-rigging probe

ROYAL BANK OF SCOTLAND PLC is among the financial institutions being analyzed by Singapore's central bank amid Libor and rate-rigging allegations.
Posted 2/18/13

SINGAPORE - Singapore’s central bank and a group of lenders are considering putting an end to the city-state’s U.S. dollar-linked interbank lending rate as regulators worldwide probe allegations of rigged benchmark borrowing costs, a person with knowledge of the matter said.

Members of the Singapore Foreign Exchange Market Committee examined the proposal in a Jan. 22 meeting, during a discussion of the Monetary Authority of Singapore’s review of benchmark rates, said the person, who asked not to be identified as the discussions are confidential. The group may instead use the U.S. dollar London interbank offered rate, the person said.

The banks are reviewing how Singapore interbank offered rates are set amid probes into rate manipulation worldwide. Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc have been penalized $2.6 billion for rigging the U.K.’s Libor, a scandal now set to engulf interdealer brokers such as ICAP Plc.

“People are losing confidence because of manipulation,” said Benedict Koh, a finance professor at Singapore Management University’s Lee Kong Chian School of Business. “Given what has transpired, it’s important for the authorities to provide more transparency and audit by an independent body so that rates are fairly set and not biased to financial institutions that have conflict of interest.”

DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp., Singapore’s largest banks by market value, together had about $80 billion in dollar loans at the end of last year. United Overseas Bank Ltd., the third-largest, had $15 billion of loans in the currency at the end of the third quarter. The company is scheduled to report 2012 results next week.

June changes

The Singapore banking system’s total loans outstanding were valued at S$879.2 billion ($709 billion) as of Dec. 31, 10 percent higher than a year earlier, according to monetary authority data.

Singapore’s central bank will probably announce changes to the benchmark rates and the process for setting them by the end of June, the person said. The authority doesn’t comment on its internal operations, a spokesperson for the regulator said on Feb. 15.

The effect of using dollar Libor rates set in the U.K. instead of dollar Sibor would be “almost immaterial” for Singapore banks, said Jim Antos, a Kong-based analyst at Mizuho Securities Asia Ltd.

“For the MAS, it’s such a good idea to do this,” he said. “Potential control problems move to London and no bank in Singapore can be involved in price-fixing or possibly be accused of anything like that.”

Market rates

The U.S. dollar Sibor rate was set at 0.295 percent today in Singapore for a three-month tenure, according to ABS data compiled by Bloomberg. That compares with 0.2901 percent for three-month loans in U.S. dollars that banks in London said they pay, figures from the British Bankers’ Association show.

Sibor, used to price debt ranging from commercial term- loans to home mortgages, is calculated on behalf of the Association of Banks in Singapore. Each day, the 12 contributing banks are asked how much it would cost to borrow Singapore dollars from each other for different periods from one month to 12 months. The three highest and lowest quotes are excluded, and the six in the middle of the range are averaged and published at 11:30 a.m. in Singapore.

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