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.
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.”
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.
The process of setting the benchmark rates is still under review, Ong-Ang Ai Boon, a director at the Association of Banks in Singapore, said. She declined to comment further.
In July, the Monetary Authority of Singapore said it’s looking into how banks set key interest rates, mirroring reviews under way in financial centers from Sweden to South Korea.
The city-state’s regulator is working with the group of banks and the currency traders’ committee to review how Sibor can be strengthened, and has also directed the banks to independently review their internal submission processes, Lawrence Wong, a senior minister of state who sits on the monetary authority’s board, said in Singapore’s parliament on Sept. 10.
Aditya Agarwal, chairman of the Asia Pacific Loan Market Association’s Singapore branch, said in an e-mail that the organization is “aware and engaged” regarding the proposal to drop dollar Sibor.
Agarwal, who is also the Asia Pacific head of loan syndicate at RBS, declined to comment on how loans may be affected by proposed changes.
On Sept. 24, the central bank said it asked the banks to extend their review to include non-deliverable forwards, a derivative traders use to speculate on the movement of currencies that are subject to domestic foreign exchange restrictions. UBS, based in Zurich, and RBS suspended at least three traders in Singapore as part of probes into the manipulation of those rates, two people with knowledge of the matter said in October.
The Singapore Foreign Exchange Market Committee will meet again next month, the person said. The group, which aims to set industry standards and a code of conduct for currency traders, has 20 members including the Monetary Authority of Singapore and the nation’s sovereign wealth fund, as well as banks including JPMorgan Chase & Co., UBS and RBS, according to its website.
Lenny Feder, group head of financial markets at London-based Standard Chartered Plc, who chairs the SFEMC, declined to answer any questions when contacted on his mobile phone last week. Standard Chartered hosted the meeting last month at its Singapore offices, according to the person.
RBS, Britain’s biggest publicly owned lender, was fined $612 million by regulators in the U.K. and the U.S. this month for rigging the London interbank offered rate and similar benchmarks. The Edinburgh-based lender said it would recoup the U.S. portion of the penalty by shrinking its bankers’ bonus pool and clawing back awards from previous years.
More than a dozen traders made hundreds of attempts to manipulate yen and Swiss franc Libor between mid-2006 and 2010 to benefit their trading positions, sometimes colluding with other firms, the U.S. Commodity Futures Trading Commission said.
The attempts to manipulate Libor -- which are at the heart of the biggest and longest-running scandal in banking history -- flourished for years, even after bank supervisors were made aware of the system’s flaws.
The British Bankers’ Association, the lobby group that oversees Libor, is cutting currencies and maturities included in the benchmark where there is insufficient trading data to estimate borrowing costs accurately. The BBA will stop quoting rates in Australian and New Zealand dollars as well as the Canadian dollar, Danish kroner and Swedish kronor rates by June. The group will stop publishing interim maturities, such as the two-week, four-month, and eight-month tenors for all currencies at the end of May.