AFTER 2018, the OCBC preference shares will return investors a floating rate known as the Singapore dollar Swap Offer Rate (SOR) plus 2.5 per cent a year.
The SOR comprises the bank’s prevailing lending costs plus the Singapore Interbank Offered Rate (Sibor).
Sibor is the interest rate at which banks lend to one another and is partly influenced by supply and demand for funds.
The SOR is now about 1.25 per cent, down from about 3 per cent a year ago.
If the OCBC preference shares are not redeemed by Sept 20, 2018, this floating SOR rate will replace the fixed 5.1 per cent annual rate they pay for the first 10 years.
This will be payable every three months.
Using a three-month SOR figure of 1.25 per cent as an example, the OCBC preference shares will carry a dividend rate of 3.75 per cent (2.5 per cent plus 1.25 per cent).
SOR, like Sibor, gives a rough indication of where deposit and savings account rates at banks might be headed
In a falling interest rate environment, mortgage rates linked to Sibor or SOR will also trend downwards.
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