Sunday, March 31, 2013

Net Worth Update (March 2013)

Current Net Worth
% change
Savings Account 1
Savings Account 2
Savings Account 3
Investment Linked Fund
Schroders Commodity Fund
Stock Holdings
Phillip Money Market Fund
Physical cash
Market Value Of BTO Flat (to be built in 2016/2017)

Total Assets


Home Loan

Net Worth (including flat to be built in 2016/2017)
Investible Net Worth

Friday, March 29, 2013

Are Personal Bankers Qualified Enough?

Personal Bankers / Personal Financial Consultants / Personal Wealth Managers are the sales people in a bank branch who promote all kinds of banking products which include unit trusts, insurance, loans, structured deposits, etc. Walk into any bank branch and you will see young and driven personal bankers dressed in corporate wear soliciting walk-in customers or sitting in their cubicles servicing the mass market customers.

Since personal bankers are on the front line of a bank recommending financial products to potentially ignorant consumers, we naturally assume they have adequate financial knowledge or at least a degree in finance or other related majors. However, a simple search on JobStreet will reveal that the minimum qualification for personal bankers is a degree or diploma in any discipline. In addition, candidates are required to have a minimum 1 year of sales experience.

Personal bankers are required to pass the CMFAS exams (all MCQs) and go through some form of sales training for about a month before they are eligible to start selling banking products. I personally have taken the CMFAS HI, M5, M8 & M9 exams and I can say that the exams alone are insufficient to equip a person with sufficient financial knowledge. The bulk of the CFMAS syllabus is on rules and regulations rather than finance topics.

From what my personal banker friend told me, there are a number of personal bankers who have non-finance related degrees such as geography, engineering, etc. With insufficient financial knowledge, personal bankers might not be able to fully comprehend and explain the inherent risks of certain products to customers. In a desperate attempt to hit sales target, some personal bankers start using past performance to paint a bright outlook on a fund's future performance or comparing interest rates on savings deposits with potential returns of a bond/equity fund without emphasizing on the risks involved.

The Lehman Brothers saga in 2008 exemplified this problem. Investigation findings on the sale and marketing on structured  notes linked to Lehman Brothers released by MAS stated that there were insufficient steps taken by some financial institutions to ensure that all their financial advisory representatives were properly trained before marketing and selling the product.  Also, from the many descriptions given by investors with regards to the information the received from sales representatives, it is clear that there were misrepresentation of this product.

Banks should have more stringent requirements on hiring personal bankers and have a more detailed and extensive training program. The sales target of personal bankers puts them under such high pressure that closing the deal overrides everything else. It is well known that retail banks have a high turnover rate for front line staff as many of them are unable to hit ridiculous sales target. For example, bankers of local bank XXX are given monthly sales targets which are denominated by 'revenue points'. Each dollar of sales charge or revenue earned equates to 1 revenue point. Monthly sales target could be to achieve 30,000 revenue points or more. This means that a personal banker will have to sell at least $20,000 worth of unit trusts everyday!

So are personal bankers considered finance professionals? Or are they just typical sales people? Many of my friends in university have applied to retail banking programs such as UOB Personal Banking Associate Programme or Standard Chartered Consumer Banking Fast Track Programme. What they might not understand is that it might not be as prestigious as it sounds and the chances of moving from retail banking to private banking are slim.

Thursday, March 28, 2013

Banks In Cyprus Reopen

The banks in Cyprus reopened this morning at 10:00GMT.

There has been no panic or a shambolic dash by people to withdraw all their cash.

For why?

The capital controls limiting daily manual withdrawals (to what you can take from cash machines), the banning of cheques etc are ensuring that there cannot be a mass withdrawal of cash by those who were not tipped off before the crisis occurred.

However, the litmus test will be when/if the capital controls are removed in seven days time.

Wednesday, March 27, 2013

The 80% Cyprus Haircut

As capital controls are about to be put in place, and Cyprus is ring fenced from the rest of the world, it now emerges that the 40% haircut will in fact be around 80%.

This will end badly!

Two Questions For The Good People of Cyprus

1 What will happen to the rule of law in Cyprus when the list of people who removed their money from the country before, and during, the ongoing crisis is made public?

2 What was the Central Bank of Cyprus doing during this period?

Bank of Cyprus Head Yiannis Kypri Fired

Yiannis Kypri, head of Bank of Cyprus, has been fired by central bank governor Panicos Demetriades who, apparently, is acting under orders form his Eurozone overlords.

Diesel-Boom's Master Plan

As the markets ready themselves for the mother of all bank runs, as and when the banks re-open in Cyprus (I cannot see that they will open before Easter), the apparatchiks of the Eurozone have also been making plans.

The Slog reports that Diesel-Boom has a plan all ready to go live, that will impose capital controls within the Eurozone that will prevent people moving money out of the Eurozone:
"A plan is ready to go, and has been since January.

But the FinMins have yet to discuss it – not that this will make much difference. Now he’s in the Eurogroup driving seat, Dijsselbloem has become a prime mover in all this”.
As the Slog notes, Diesel-Boom has no clue as to the way markets work. He studied agriculture at University, took a masters in it at UCD, and then became a local councillor before moving onto the national political scene in the Netherlands.

Cyprus is the Eurozone's Czechoslovakia (betrayed by the Munich Agreement in 1938).

Tuesday, March 26, 2013

The Diesel-Boom Theme Tune

Diesel-Boom is now so popular, that a specially commissioned theme tune has been written for him.

Feel free to make up some appropriate lyrics, I'll start you off:
He's a star,
He'll go far...etc"

Question For The Bank of Cyprus

If the Bank of Cyprus is meant to be the good bank, and the one that is meant to survive, why has the Chairman of the Bank of Cyprus (Andreas Artemis) resigned?

The Hand of Diesel-Boom Detected In The Market

Jeroen Dijsselbloem has been busy again, today saying that there were no signs of a bank run in periphery countries or deposits moved from periphery to core.

That's nice.

Except that the banks in Cyprus are closed, and are likely to remain closed until after Easter.

Once they re open there will most certainly be bank runs and deposit moves.

Meanwhile maybe someone should tell Dijsselbloem that the banks are shut and, more pertinently, that he should shut his mouth!

Chaos and Confusion - Courtesy of Dijsselbloem

As I noted yesterday, the idiotic remarks made by Jeroen Dijsselbloem about Cyprus being the template for future bailouts would cause chaos.

I was right.

As per the Guardian, by the end of the day shares in Europe were tumbling, the euro was dropping against the dollar and the cost of insuring European banks against default was rising.

Today we see further confusion and chaos caused by a split between Dijsselbloem and ECB executive board member Benoit Coeure being made public.

Coeure has flatly rejected Dijsselbloem's views, as per the International Business Times:
"I think Mr. Dijsselbloem was wrong to say what he said.

The Cyprus experience is not a model for the rest of Europe because the situation had reached a level which cannot be compared with any other country."
All very well, but the damage has now been done and the markets now no longer know who trust or believe from the Eurozone.

German Banks After Russian Money

It seems that, having more or less destroyed the Cypriot banking sector, Germany (in the spirit of Eurozone "fraternity") is seeking to get its hands on all the Russian money that will take flight from Cyprus.

Faisal Islam has tweeted:
"German banks in Cyprus are offering bonuses to accountants with Russian clients to divert savings to Germany, a Cypriot businessman tells me."
So much for the Eurozone being a "band of brothers" who support each other when times are hard!

Monday, March 25, 2013

The Man Who Caused the Eurozone Bank Run

Ladies and Gentlemen please put your hands together for the man who started the bank run in the Eurozone, and put an end to the Euro experiment, Dutch Finance Minister Jeroen Dijsselbloem.

Question Re Cyprus

Question: When does a one off event (the theft of depositors' accounts in Cyprus) become a template for future bailouts?

Answer: Ask Dutch Finance Minister Jeroen Dijsselbloem

Happy Greek Independence Day - Cyprus "Fixed"!

On this bank holiday in Cyprus, to celebrate Greek Independence Day, doubtless the good people of Cyprus are also "celebrating" the fact that the banking crisis has been "fixed" and that they will receive Euro10BN in bailout money.

The Eurozone finance ministers have agreed that Laiki (Popular) Bank will be wound down and depositors with more than Euros100K will face losses of 40% or more (Schauble's original plan). Those who have deposits of less than this amount will, theoretically, incur no immediate losses.

However, unlike the last "deal", the Cyprus parliament will not be voting on this.

It seems that, once again, the Eurozone sacrifices democracy in order to pursue its Messianic mission!

The chairman of the Cypriot parliament's finance committee, Nicholas Papadopolous, told the BBC said the agreement made "no economic sense":
"We are heading for a deep recession, high unemployment. They wanted to send a message that the Cypriot economy ought to be destroyed, and they've succeeded in a large part - they've destroyed our banking sector.
Needless to say the banks, as it a bank holiday, remain closed. As and when they re open will be the litmus test as to whether people believe that this is "fixed".

Clearly anyone with half a brain will empty their bank account immediately, Cyprus has signed its own death warrant and is finished unless it leaves the Eurozone.

Happy Greek Independence Day!

Friday, March 22, 2013

Troika Demands More From Cyprus

Much like a loan shark adding more to the bill of his hapless borrower, the Troika now claim that conditions have worsened and as such have increased the amount of money they want from Cyprus from Euro5.8BN to Euro6.7BN.

Meanwhile in Cyprus, it seems that the despised and rejected bank levy is now back on the table!

Haircut For Depositors In Other European Countries

As per The Slog:
"We cannot exclude a haircut for depositors in other European countries."
You have been warned!

We are all Bulldozer Man now!

Eurozone Pressing For Extreme Measures For Cyprus

Eurozone finance ministers are now pressing for measures that would shrink Cyprus's banking system, these measures were "ironically" rejected last week as being too extreme.

Bloomberg reports that finance ministers want to close the two biggest banks in Cyprus and freeze the assets of uninsured depositors.

Cyprus Popular Bank (CPB) and the Bank of Cyprus Plc would be split to create a bad bank.

Insured deposits (below the European Union ceiling of 100,000 euros) would go into the good bank, whilst uninsured deposits would go into the bad bank and be frozen until assets could be sold.

It is estimated (though as with all estimates this may well be wildly off the mark) that losses could be 40%.

Let's see how that goes down with the good people of Cyprus!

Cyprus Brings Euro Project Crashing To Earth

The former Governor of the Central Bank of Cyprus (Athanasios Orphanides) has vented his spleen against the Eurozone and the ECB over the handling of the Cyprus bailout farce.

Mr Orphanides told the FT that the EU has been condemned to economic disintegration as a result of top policy makers’ “bullying” of Cyprus and “cavalier attitude” towards the expropriation of property:
The European project is crashing to earth.

This is a fundamental change in the dynamics of Europe towards disintegration and I don’t see how this can be reversed.”
He bemoaned the lack of "fraternal" support from fellow Eurozone members:

I would have expected them to support the European project. I would have expected them to protect the citizens of the smallest and weakest member states against discrimination. We have seen a cavalier attitude towards the expropriation of property and the bullying of a people.”
He noted that:
It suggests that in Europe not all people are equal under the law.”
He quite rightly notes that the outcome of this ongoing farce has yet to be fully felt in the global financial markets:
I don’t think that the full extent of the shattering of the trust that we have seen in this case . . . has been seen fully yet.

Banks’ funding costs in the [southern eurozone] periphery will rise further – there is no way we will avoid that. This in turn will make the recession in the periphery deeper, adding to the misery that the mishandling of the crisis has caused so far.”
Were one a cynic one might wonder whether this farce has been deliberately engineered in order to force the "peripheral" countries out of the Eurozone, or to give Germany the excuse it needs to leave it.

Thursday, March 21, 2013

Cyprus Popular Bank To Be Split?

According to the Cyprus media the Cyprus Popular Bank is to be split into good and bad banks.

However, the Central Bank of Cyprus is currently denying this story.

ECB Causes Run On Cyprus ATM's

Today's idiotic threat by the ECB has, not unsurprisingly, caused a run on ATMs in Cyprus.

Follow the situation live here:

Cyprus - Another Fine Mess!

Ekathimerini reports that Eurozone finance officials (pictured above) acknowledged being "in a mess" over Cyprus during a conference call on Wednesday, and discussed imposing capital controls to insulate the region from a possible collapse of the Cypriot economy.

One official described emotions as running "very high", making it difficult to come up with rational solutions, and referred to "open talk in regards of (Cyprus) leaving the Eurozone".

Cyprus Issued With Ultimatum

The ECB has issued Cyprus with an ultimatum:
"Decide by Monday, or else!"
All very threatening and all that, but what then when Cyprus does not acquiesce?

The contagion will spread.

Wednesday, March 20, 2013

Budget 2013 Key Points

The Chancellor halved his growth forecast in today's Budget. All very well maybe, but no one really believes these forecasts in the first place; therefore halving a figure that no one believes in to another figure that no one believes in is a futile exercise.

Rather amusingly the Evening Standard had to apologise after it published details of the Budget online before George Osborne delivered his statement. When I was a young lad, breach of Budget purdah was a "hanging" offence; now breach of purdah is de rigueur!

Here are the key points, courtesy of the BBC:


September's 3p fuel duty rise scrapped
April's 3p rise in beer duty scrapped. Instead, beer duty to be cut by 1p
Annual inflation +2% rise in beer duty to be ended but "duty escalator" to remain in place for wine, cider and spirits
Cigarette duties unchanged - continuing to rise by inflation +5%


Limit at which people start paying tax to be raised to £10,000 in 2014 - a year earlier than planned


Shared equity schemes extended, with interest-free loans for homebuyers up to 20% of value of new-build properties

Bank guarantees to underpin £130bn of new mortgage lending for three years from 2014


Growth forecast for 2013 halved to 0.6% d from 1.2% in December
Office for Budget Responsibility watchdog predicts UK will escape recession this year
Growth predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017.


Borrowing of £114bn this year, up from previous £108bn forecast
Borrowing set to fall to £108bn, £97bn and £87bn, £61bn and £42bn in subsequent years
Borrowing as share of GDP to fall from 7.4% in 2013-14 to 5% in 2015-16
Debt as a share of GDP to increase from 75.9% in 2012-13 to 85.6% in 2016-17


Most government departments to see budgets cut by 1% in each of next two years
Schools and NHS will be protected
£11.5bn in further cuts earmarked in 2015-16 Spending Review, up from £10bn
1% cap on public sector pay extended to 2015-16 and limits on "progression" pay rises in the sector
Military to be exempt from "progression" pay limits.
Proceeds of Libor banking fines to be given to good military causes, including Combat Stress charity


600,000 more jobs expected this year than at same time last year
Claimant count to fall by 60,000


An extra £15bn for new road, rail and construction projects by 2020, starting with £3bn in 2015-16


Corporation tax to be cut by 1% to 20% in 2015
New employment allowance to cut National Insurance bills cut by £2,000 for every firm
450,000 small firms will pay no employer National Insurance
Government procurement from small firms to rise fivefold
Tax relief for investment in social enterprises
Stamp duty axed on shares traded on growth markets like Aim.
Tax avoidance and evasion measures, including agreements with Isle of Man, Guernsey and Jersey, aimed at recouping £3bn in unpaid taxes


Tax incentives for ultra low-emission cars
Pottery industry in Midlands to be exempt from climate change levy
Tax allowances for investment in shale gas


2% Bank of England inflation target to stay in place
Bank remit to be changed to focus on growth as well as inflation


Single flat-rate pension of £144 a week brought forward a year to 2016
Cap on social care costs confirmed


20% tax relief on childcare up to £6,000 per child from 2015
£5,000 payments for those who lost money on Equitable Life policies bought before 1992. Extra money for those on low incomes

Cyprus Going Into Financial Lockdown

Some five days after the start of the self inflicted banking crisis, Cyprus has finally decided to try to start to stem the outflows of capital from its dying banking sector. The Cyprus central bank is drafting rules to curb deposit outflow.

Unfortunately, it seems that those in power in Cyprus already emptied their accounts last week!

Follow The Budget Live

Cyprus Votes Down Bailout

The Cypriot Parliament yesterday voted down the bailout "plan" which was meant to raid the savings accounts of everyone with a bank account in Cyprus.

Oddly enough the party that had agreed the deal abstained.

One wonders why they had agreed to it in the first place?

The ball has now been kicked very firmly back to the IMF, ECB and Eurozone. Despite numerous threats coming out from Berlin, about there being no banks left to open in Cyprus if Cyprus doesn't get its act together, the Cypriots know full well that it is now up to their "friends" within the Eurozone to resolve this monumental clusterfuck.

The "game" continues!

Cyprus Banks To Remain Closed

I wrote on Monday that the banks in Cyprus (contrary to what officials were saying) would remain closed until at least Friday, this has now been confirmed.

At this point I would draw your attention to what I wrote on Tuesday, about them most likely being closed until at least next Tuesday after next Monday's official bank holiday (to celebrate Greek Independence Day).

Tuesday, March 19, 2013

Cyprus Insider Dealing

As per Swiss Banker:
" Cyprus media report President's associates & other economic “heads” have withdrawn in last 2 weeks huge amounts from local banks."
How very "surprising"!

Cyprus Vote Postponed Again

The planned vote on the failed Cyprus bailout plan (allegedly to taken place this afternoon) has, according to Cyprus media reports, been postponed until tomorrow.

The slow agonising death of the Cypriot banking system continues!

The Cyprus Clusterfuck Continues

As the Cyprus clsuterfuck continues, and the country's "leaders" struggle to find a plan B, the mainstream media are still sticking to the line that the banks will re open this Thursday.

However, as I noted yesterday, the non official planned re opening is in fact Friday. That being said I note that next Monday is a genuine bank holiday in Cyprus (to celebrate Greek Independence Day), the Twittersphere is leaning towards the view that the banks will in fact remain closed until at least next Tuesday.

Other unconfirmed reports indicate that Cypriot MPs have been receiving calls from various Russian businessmen.

Meanwhile the people of Cyprus continue to withdraw cash from the ATMs.

Monday, March 18, 2013

Pension Payments To British Expats In Cyprus Suspended

The Telegraph reports that Greg Clark, a Treasury minister, has said pension payments to expats in Cyprus due today had been frozen to ensure that money from the Government reached its intended recipient.

However, recipients of these payments are able to switch the bank account into which payments are made with immediate effect by contacting the International Pension Centre.

International Pension Centre
Online enquiry form
Telephone: +44 (0)191 218 7777
Textphone: +44 (0)191 218 7280
Monday to Friday, 8am to 8pm

You can also write to the following address.
International Pension Centre
Tyneview Park
Newcastle Upon Tyne
NE98 1BA
United Kingdom

Retrospective Cypriot Legislation

The state sponsored theft of Cypriot bank deposits is retrospective.

The levy is on deposits as of last Friday, even though the agreement was made on Saturday and the legislation has yet to be ratified by Parliament.

As per the Ministry of Finance:
"Ministry of Finance Announcement Agreement for a Financial Assistance to the Republic of Cyprus 

On the 16 th of March 2013, an agreement has been reached by the Member States of the Eurozone, for granting financial assistance to the Republic of Cyprus. Financial assistance up to an amount of €10 billion is to be granted to cover fiscal needs , the restructuring of the banking system and for the support of the economy in general. 

With this financial assistance, the Government will proceed with structural changes in the public finances, in the banking sector and in the economy i n general. More specifically, t he urgent needs of the public sector will be financed, as well as the huge needs for the recapitalization and for the restructuring of the banking sector for the period 2012 - 2015. 

Due to the large banking recapitalization needs, as well as the urgent public finances needs, the Eurogroup agreed with the Cypriot authorities on the need to impose a one - off levy on the deposits. The levy , as agree d at t he Eurogroup level, is 6.75% on deposits up to €100,000 per account, and 9.9% on deposits over €100,000. Shares of banking institutions that will be recapitalized will be offered to depositors. Provided that the deposits are kept in the banking institutions for a period of at least two years, the shares can be convertible into bonds , the yield of which is to be backed by the expected natural gas revenues, in accordance with a scheme to be determined and issued by the Minister. Eurogroup’s decision supported by European Central Bank, European Commission and the International Monetary Fund, is, without any doubt, a one - off, extraordinary measure that will not be repeated under any circumstances. 

The levy will be imposed on the credit balance of deposits accounts as of Friday, 15 th March 2013. This effectively means that no new withdrawal or deposit will affect the levy that would have been imposed or collected until Monday 18 th March 2013. 

Admittedly, this decision is very difficult and painful for all of us. However, under the circumstances, the implementation of the decision is necessary in order to end the uncertainty in the economy and to ensure the rescue of the country. Without the levy, the sovereign debt would have undoubtedly be non - sustainable, and no financial assistance would have been given for the rescue of the Cyprus people. We do recognize the severity of the situation . 

In order to avoid more painful consequences, such as the foreseen collapse of the banking sector, we have decided, with a strong sense of responsibility, to accept the imposition of the levy on deposits for the rescue of the country. With the imposition of the levy, we ensure the country’s stability, the smooth operation of the economy and the return of Cyprus and its people to the path of growth and prosperity. Furthermore, the future generations will not be imposed with the unbearable burden of the re - payment of a loan similar to the ones granted in other member states of the Eurozone. 

At the same time, the chances of a possible second Memorandum of Understanding to deal with the pressing problems of the economy are minimized. The Cyprus people have, in the past, faced equally serious difficulties and challenges. We need to remain calm and united, so as to successfully face this challenge, in order to safeguard the security, prosperity and progress of our people. 

18 th March 2013"

Run On Cyprus Banks UPDATE

This morning I wrote that Cyprus's banks would remain closed until Thursday.

It seems that I was wrong.

The New York Times reports that the banks will now in fact remain closed until Friday, or maybe even beyond Friday!

Proof positive that there is a run on the banks in Cyprus.

Vladimir Putin is not best pleased with this and has described the state sponsored theft as "unfair, unprofessional and dangerous".

Russia has $60 billion exposure to Cyprus, which will be withdrawn once the levy is imposed. Thus, in one fell swoop this "plan" will destroy the Cypriot banking system

Meanwhile the ECB and Germany are falling over each other to wash their hands of having played any part in this clusterfuck even though the Cypriots claim that the "plan" was imposed on them.

This will not end well

Cyprus Vote Delayed Until Friday?

It seems that vote in the Cypriot Parliament, which in theory is meant to ratify the plan for state sponsored theft, may be delayed until Friday.

By then the Euro will have been wiped from the face of the planet and the Cypriot banking system will be but a "cherished memory".

Run On Cyprus Banks

Cyprus State TV RIK has confirmed (albeit obliquely) that a run on the banks in Cyprus has started, by announcing that banks will remain closed on Tuesday and Wednesday.

The idiots who put forward this absurd plan will soon realise that whatever cobbled adjustments that they may come up with today, they cannot put the genie back in the bottle.

They have in one fell swoop destroyed the Cypriot banking system.

In other news, the Russians will be adjusting the terms of their loan to Cyprus!

Sunday, March 17, 2013

Oops Apocalypse!

The markets open for trading in but a few hours, yet Cyprus has delayed its vote on the "bailout" (state sponsored theft) plan until tomorrow afternoon.

Chaos will ensue, and the banks that this "plan" was meant to save will collapse.

The Wheels Fall Off Cyprus's State Sponsored Theft Plan

As George Osborne (clearly caught by surprise by the theft of people's savings in Cyprus) announces that the UK will compensate British troops and British government workers in Cyprus hit by the planned "bank levy", it seems that the wheels are already falling off this harebrained idea.

In order for the bailout, and planned state sponsored theft, to take place the Cypriot Parliament has to ratify it. The debate was to have taken place today. However, as a result of the not unsurprising outpouring of anger by Cypriot citizens over the smash and grab raid on their accounts, it has now been postponed until tomorrow.

I will wager that this odious plan will die a very painful death, as the politicians are made to realise that theft (especially when orchestrated by the state) will not be tolerated by the people.

Saturday, March 16, 2013

Live Tweets About Cyprus

State Sponsored Theft

In an action that can only be described as "state sponsored theft", depositors in Cypriot banks will be hit with a one off tax on their savings, as part of the €10 billion bailout for Cyprus from the euro zone and the International Monetary Fund.

Accounts with more than €100,000 will be taxed at 9.9%, those with less at 6.75%. The money will be taken on Tuesday (Monday being a bank holiday).

It is clear that the governments of the Eurozone will do anything to keep the failed Euro experiment alive, resorting to state sponsored theft as and when required.

Clearly those with money deposited in Eurozone accounts cannot trust the governments of the Eurozone. Anyone with any commonsense will withdraw their money immediately, and place it outwith the Eurozone.

Oh and by the way, the fact that the money will not be taken until Tuesday gives people three days to empty their accounts via ATMs.

Rest assured this insane idea will cause a run on the banks in Cyprus, and will cause catastrophe in the financial markets on Monday.

Friday, March 15, 2013

How Banks and Finance Companies Work

ECB To Recruit 800 More Staff

The many millions of people in the Eurozone who have been made redundant because of the policies of the ECB need fear for their futures no more, the ECB is planning to recruit more staff.

Unfortunately the ECB will only be recruiting 800 more staff, paid for out of the pockets of the hapless European taxpayers.

For why does the ECB need to increase its headcount?

In December EU finance ministers agreed to make the ECB chief supervisor for banks in the Eurozone, the deadline for full implementation of the supervisory role being March 2014, thus the ECB believes that it needs extra staff in order to fulfill its new role.

The new supervisory powers of the ECB are one further step towards full monetary union. Those who are recruited would be advised to be aware that, despite the hubris of the politicians and technocrats, the Euro experiment will end in tears, as such their roles cannot be seen as anything more than temporary.

Thursday, March 14, 2013

Troika Postpone Greek Decision

The Troika have left Athens without signing off on the next tranche of bailout loans for the country. They will return in April.

It seems that despite Greece making "significant progress", there remain "technical issues" that need to be resolved before Greece receives the next Euro2.8BN of bailout funds.

The sticking point appears to be whether Greece is making progress on substantially reducing (25,000 job losses by 2014) the size of its civil service.

Wednesday, March 13, 2013

How Does Different Tenures of SIBOR and SOR Affect Borrowers?

The following is a guest post by Property Buyer

As Singapore has been largely dependent on importation in maintaining a small and open economy, it has literally adopted a policy for the exchange rate that significantly affects import-based inflation. MAS or Monetary Authority of Singapore is responsible for regulating and managing the Singapore dollar valuation against its main trading partners and their related currencies. Based on this perspective, we can say that the world money market actually determines the rise and fall of the interest rate in Singapore. The interest rate fluctuates as a result of this undisclosed band between the MAS and its trading partners. This is relevant to how the US Dollar became a main component in the basket of currency between trading countries. To explain the strength of the Singapore Dollar, we can refer to the way the US Dollar works within the basket of currency. This simply explains how currencies between trading partners work. 

Explaining the framework of SIBOR or Singapore Inter-bank Offered Rate

When banks or financial institutions lend to each other, they usually refer to an interest rate to base their inter-borrowings. They use SIBOR as their inter-bank rate or inter-borrowing rate. The rate is actually set by the Association of Banks in Singapore. It is being announced daily at the start of the trading day to the public and mainstream media. For your information, SIBOR works similarly to LIBOR or London Interbank Offered Rate. Most home loan rates in Singapore use the SIBOR rate.

In Singapore, SIBOR are available in 1 month, 3 months, 6 months, and 12 months tenure. Usually the longer the tenure of SIBOR , the higher would be its rate.

Understanding the SOR or Singapore Swap Offer Rate

The expected forward exchange rate of the USand Singaporedollars is the SOR. The SOR is also used as the lending cost, where upon maturity, the SOR is being used as the rate of the Forex conversion with no bid and spread from the US to Singaporedollar. The banks love to use the SOR because they save more by using this rate. However, it demonstrates more volatility than SIBOR. The Association of Banks in Singaporeset the SOR as the currency swap for the US dollar even though its currency movement directly influence the volume of the contracts and trading. SOR is offered in terms of 1 month, 3 months, 6 months, and 12 months.

SIBOR and SOR pegged home loans

This refers to variable or market pegged floating loan packages offered by most banks using the SIBOR or SOR rates. The interest rate for these loans  is the spread + SIBOR or SOR.

How do you define bank spread?

The profit margin that banks or other financing institutions use to gain income on top of the SIBOR or the SOR rate is called the spread. For example the SIBOR rate is 1%, then the bank would like to gain 2%. The 2% is the bank spread. This means that the client would get the SIBOR + spread = 1% + 2% = 3% rate. A few years after the start of the loan, the bank usually changes the spread. The revision usually reflects an increasing bank spread as shown below 
Interest Rate (p.a.)
First Year
0.75% + 1-Month SIBOR
Second Year
0.75% + 1-Month SIBOR
Third Year
0.75% + 1-Month SIBOR
Fourth Year
1.00% + 1-Month SIBOR
1.25% + 1-Month SIBOR

What are the benefits of using either a SIBOR or a SOR rate?

We would like to correct the misconception of most people. You must understand that although the two correlate with each other, the SOR tends to fluctuate more and can be above or below the SIBOR rate. Please take a look at Figure 1, 2, and 3 below for clearer explanation

Figure 1: 1-Month SIBOR/SOR for Jan 2012-Dec 2012

Figure 2: 3-Month SIBOR/SOR for Jan 2012-Dec 2012

Figure 3: 3-Month SIBOR/SOR for Dec 2006-Aug 2012
 Here is a piece of advice for those who are planning to apply for a housing loan: Always ask for the bank spread and evaluate the interest rate throughout the duration of the loan. Is the spread reasonable enough for you to take?

Differentiating the features of SIBOR and SOR

For both SIBOR and SOR,  their tenures are usually inversely related to their rates. For example, a 1-month SOR will be lower than a 12-month SOR.  This is because long term opportunities are more risky and normally incur higher opportunity cost.

A shorter tenure SIBOR is more volatile than a longer tenure SIBOR.

SOR fluctuates more than the SIBOR.

SIBOR tends to be preferred by risk-averse borrowers.

Recently banks started rolling out 1-month SIBOR packages which impact their administrative cost.

From Figure 4, we can see that the 1-month SIBOR is  lower than the 3-month SIBOR. Take a look at the historical trend for the last 20 years in Figure 4.

Figure 4: 1-Month and 3-Month SIBOR for Jan 1989-Dec 2012

When is the right time to choose a 1 month or a 12 month SIBOR?

You must understand that choosing a shorter tenure SIBOR also means greater instability. The rates are being changed or modified in shorter intervals. This means that if you take the 1-month SIBOR rate, depending on the financing institution, you can get a change of rate in every 1 or 3 months. However, if you choose the 12-month SIBOR rate, you have the confidence that you will pay the same SIBOR rate for the next 12 months. You may find it beneficial to seek the advice of an expert before you decide which housing loan package to take. Free advice and loan package consultation may be obtained from simply fill up an enquiry form at

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