CIMB Bank Singapore U-turns on mortgage floor rate hike after customer uproar

CIMB Bank Singapore is backtracking on its intended mortgage floor rate hike, following pushback from incensed customers who have banded together to challenge the bank's earlier decision.

In a statement that came late on Wednesday, CIMB said it will revert to its original floor rate of 0.1 per cent - down from a planned hike to 0.9 per cent - for all its existing consumer mortgage loans pegged to the one-month and three-month Singapore interbank offered rate (Sibor) and three-month Swap offer rate.

In a statement, Victor Lee, chief executive of CIMB Bank Singapore, said this was due to the reduction of deposit rates and cost of deposits.

"We factored in that the market's cost of deposits have fallen, hence allowing us to lower our deposit rates and cost of deposits so that we can maintain our floor rate at 0.1 per cent," he said.

"We thank our customers for their feedback, and we sincerely apologise for the inconvenience caused."

In addition, the bank is offering affected customers either a two-year fixed-rate package of 0.9 per cent or a three-year fixed-loan package of 1.10 per cent to "mitigate the fluctuations of the current volatile interest-rate environment".

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The Business Times first reported on April 25 that CIMB would raise its floor rate for certain floating rate mortgages from an initial 0.1 per cent to 0.9 per cent from May 18.

Some of these mortgage loans extended by CIMB were inked as recently as March this year, only for the bank to notify customers just a month later that it was raising the floor rate.

After incurring the wrath of customers, CIMB said it will delay the start date to Jan 1, 2021 to give customers the option of switching to another package without incurring any fees.

Floor rates are understood to protect lenders from losses, and introduced as a clause in loan contracts in case of a collapse in rates when they turn negative.

With a floating-rate mortgage, customers are charged based on the benchmark rate, as well as the accompanying spread. If the floor rate for the Sibor is set at 0.10 per cent, then even if Sibor drops below that, the interest charged on the borrower would still be 0.10 per cent plus the spread.

For CIMB, most of the mortgage loans sold are linked to the one-month Sibor. As of June 3, the one-month Sibor rate was at 0.249 per cent - far below CIMB's planned floor rate of 0.9 per cent. Most banks here have a minimum floor rate of about zero.

Frustrated with CIMB's move, a group of its mortgage customers joined forces, setting up a website (HonestMortgages.sg) to raise awareness as well as to pressure the bank to honour its mortgage offer letters. To date, more than 100 people have rallied behind the cause.

In response to the latest update, a spokesperson for the group told BT: "We accept CIMB's apology, and hope that they and all banks undertake not to amend mortgages in this manner again. Homeownership is not possible without fair and honest mortgages. We look forward to CIMB reviewing their terms and conditions to ensure this is the case."