Business Loans

Understanding SORA and its Effects on Commercial Loans in SG

Lina Tay
February 20, 2024

Your company has undertaken several loans in Singapore. Over time, you find that the interest rates for these loans fluctuate, and this sparks a sense of curiosity.

All types of loans in Singapore, whether business or personal, feature interest payments, to be made in tandem with your principal loan payments. Most of these loans feature a floating interest rate, which changes according to the different market conditions.

What Are Floating Interest Rates?

Floating interest rates increase when the economy of a nation is doing well, and fall when there is a slowdown in market sentiments. For example, the global economic recession during Covid 19 caused banks worldwide to slash their interest rates. However, following reopening and recovery, interest rates have been rising steadily from 2022 onwards.

Floating interest rates are pegged to a benchmark, which determines their actual value. In Singapore, three types of floating interest rates exist, namely the:

  • Singapore Dollar Swap Offer Rate (SOR)
  • Singapore Interbank Offered Rate (SIBOR) and
  • Singapore Overnight Rate Average (SORA)

Both SOR and SIBOR are being phased out, and will be completely replaced by the SORA system come 2024. How do these benchmarks differ, and how is the shift to SORA poised to redefine commercial loans? Let's find out.


Singaporean banks and private lenders have, in the past, offered financing with interest rates based on these three systems. Here’s how they differ:

Singapore Dollar Swap Offer Rate (SOR)

The SOR system depends heavily on interest rates of the US dollar, as reported by the London Interbank Offered Rate (LIBOR). In simple terms, the SOR is the difference between interest rates in Singapore and interest rates in the United States. Alternatively, it can be described as comparing the synthetic rate (rates used when one currency is made to simulate another) of borrowing SGD to the synthetic rate of borrowing USD and converting it into SGD of the same maturity.

USD value serves as an indicator of the global economy, and in this case it is compared to the value of our SGD to indicate a suitable interest rate. Singaporean lenders have stopped issuing SOR referencing loans as of October 1st 2021, as LIBOR ceased to publish USD interest rates. According to reports, as many as 10,000 SOR based contracts worth about $1.4 trillion will have to transition in due time.

Singapore Interbank Offered Rate (SIBOR)

While SOR depends on USD interest rates, SIBOR is a more domestic-centric system. It is a trimmed arithmetic mean (the average after removing a portion of the largest and smallest values) of the interest rate by which Singaporean banks are willing to lend money to one another. SIBOR is calculated daily, and is the averaged value of interest rates submitted by a group of banks, known as SIBOR panel banks.

SIBOR reports are released for different loan tenors ranging from 1 month onwards, by the Association of Banks in Singapore Benchmarks Administration Co. (ABS Co.).

The SIBOR reference system is also being phased out, with all outstanding loans based on this system gradually transitioning to SORA by April 2024.

Singapore Overnight Rate Average (SORA)

SORA is considered a much more accurate and reliable interest referencing system. In brief, it is the volume-weighted average of unsecured borrowing transactions, taking place between 8am to 6.15pm daily. This rate is calculated and released by the Monetary Authority of Singapore (MAS).

SORA is what bankers call a backward looking rate, and is gaining favour in the Singaporean financial markets due to its wider and fairer points of reference. Rather than depending on the reports of a few banks, as is the case with SIBOR, SORA takes into account all loan transactions of the previous day.

Why is Singapore Switching to SORA?

Singapore has been preparing to streamline its interest referencing system for several years, and intends to fully convert all loans to reference SORA by 2024. There are several reasons for this.

A More Transparent System

SORA provides a clear and verifiable benchmark that is calculated using a robust method. This helps prevent fraud, especially by lenders who intend to manipulate the system in their favour. Therefore, it inspires more confidence and trust among the financing sphere.

Less Volatility

SORA is backed by actual transactions, and lenders usually offer compounded SORA rates. These are rates averaged out over a period of time (usually three months) and therefore more stable. Borrowers will benefit as they can avoid sudden and unexpected surges in interest rates.

Lack of External Influence

The SORA referencing system is free from the influence of external currencies, in particular the USD market. This makes the market more independent and resilient, and less vulnerable to external shocks. It also makes domestic efforts to influence the financial systems more challenging.

How Will SORA Affect My Commercial Loans?

If your current commercial loans in SG reference SORA for its interest rates, there will be no changes. MAS reviews the SORA rates regularly and will recommend changes to it, should the daily calculated average show significant increase or decrease over a prolonged period.

SORA will also not affect you if your interest rates are fixed and not floating, or if your interest rates are pegged to other benchmarks like fixed deposit rates or board rates.

If your loan was issued prior to 2022, and its interest rates are pegged to SIBOR or SOR, your lender will contact you to transition to SORA. This may involve signing a new contract, or choosing an alternative loan package for your outstanding quantum.

SORA rates are actually lower than that of SOR, as shown by a 3 month average comparison between them from 2016 to 2021. Borrowers transitioning to SORA can therefore benefit from this new benchmark.

Final Thoughts

Referencing SORA as a benchmark for interest rates doesn’t just benefit the financial markets, but the borrower as well. Borrowers can expect more predictable rates moving forward, which lends stability to their repayment plans and business operations.

Lendingpot offers a platform where you can compare the most competitive business loan rates available in Singapore. When you sign-up with us, you’ll enjoy loan offers from more than 50 lending partners, including leading Singaporean banks. You can also set up an appointment with our expert to discuss floating interest rates and how they impact you.

Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.

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