Focus Shifts to Risk Management as SOR Discontinuation Nears
Singapore’s banks have been strongly encouraged to make significant efforts to transition out of the Swap Offer Rate (SOR) or incorporate appropriate contractual fallbacks into all SOR contracts maturing after June 30, 2023, by March 31, 2023. This directive was issued by the steering committee for the SOR & SIBOR Transition to SORA on July 18.
The committee stated that the objective of promoting the adoption of the Singapore Overnight Rate Average (SORA) in both cash and derivatives markets has been largely achieved. Between March 2021 and March 2022, gross exposure to SORA derivatives surged from under S$10 billion to over S$1.136 trillion, surpassing the size of the SOR derivatives market. In addition, exposure to SORA loans increased dramatically, from less than S$4 billion to more than S$62 billion across various sectors, including small and medium-sized enterprises, bilateral business and syndicated loans, as well as retail loans.
While efforts to encourage a smooth transition from SOR to SORA will continue, the committee noted that recent developments have reduced the challenges related to risk management and the valuation of fallback rate (SOR) contracts. As a result, it is now deemed “prudent and appropriate” to shift the industry’s focus towards strengthening risk management and completing contract remediation ahead of SOR’s planned discontinuation.
