Can Citibank unilaterally increase SIBOR loan’s spread?

Recently, I stumbled upon a case where a bank (Citibank in question) over-rule their agreed terms in their main contract agreement to raise the supposedly fixed loan spread (or loan margin)! 

The issue is like this: In the contractual mortgage agreement that has been signed, the interest rate was stated to be something like “SIBOR + 0.70%”, and then Citibank unilaterally changed the fixed “0.70%” to something like “0.85%” (or more)! Usually, we call this “0.70%” figure to be the loan spread or loan margin and I believe almost all of us think that if the figure has been specifically spelled out in the mortgage contract, it should be fixed at “0.70%” through the loan tenure right? But Citibank doesn’t think so! They said they have the right to change this “0.70%” fixed figure! 

So, the pertinent question here is: Can banks (like Citibank) legally do this?

You can read lots of heated discussions here:

It runs on for 38 pages! I have a keen interest on this issue and have managed to read all 38 pages, so I think I may as well summarize as below (I will break into several posts as it is too long in one!):

You can see this news about Citibank at this webpage at this URL (in Chinese)…

“2015年03月16日

部分银行调高浮动利率配套息差

胡渊文

随着本地基准利率上扬，有银行调整了浮动利率配套的息差（spread）。

　　花旗银行日前通知现有客户，他们的房屋贷款SIBOR配套息差调高到0.85％（SIBOR+0.85％），据了解，一些客户原本的息差是0.70％（SIBOR+0.70％）。

　　SIBOR是新元拆息率，指的是银行同业之间的借贷率。

　　银行贷款的条款中允许银行调整利率，但几家受访的银行均表示，还未调整过SIBOR配套的息差。

　　星展银行和渣打银行表示至今没有调整过。据悉，大华银行也从未调整过。

　　花旗银行表示，上述的调整只有一小部分客户受到影响，银行是基于和客户的整体关系来进行评估，并给予客户足够的通知期。

　　一名业内人士说，花旗银行调整息差，可能是反映了银行的商业成本。她说，新元银行同业拆息率是银行之间借贷的成本，是透明的，如果银行要赚取更多收入，只能调整息差。

　　另一名银行业人士说，银行有权这么做，但通常不会调整现有客户的息差。

　　本地经济师宋生文说，银行这么做可能是因为目前的利率环境特殊，要考虑到接下来更大的波动性。

他说，本地的基准利率应该是和美国利率挂钩，但由于担心美国加息以及其他地区的经济情况，本地的利率率先走高了。”

The Google Translation is as follow:

“2015-03-06

With the local benchmark interest rate rise, banks adjust the floating rate matching spreads (spread).

Citibank recently notify existing customers, supporting their mortgage SIBOR spreads increase to 0.85% (SIBOR + 0.85%), it is understood that some customers had interest margin is 0.70% (SIBOR + 0.70%).

SIBOR is SGD interbank rate refers to the borrowing rate between the interbank.

In terms of bank loans allow banks to adjust interest rates, but several banks surveyed said yet adjusted spreads SIBOR supporting.

DBS Bank and Standard Chartered Bank said that has not been adjusted. It is reported that UOB has never been adjusted.

Citibank, said the adjustment is only a small part of the affected customers, the banks and the overall relationship is based on the customer to evaluate and give customers adequate notice period.

An industry source said, Citibank adjust spreads, probably reflecting the bank's cost of doing business. She said SGD interbank interest rate is the cost of borrowing between banks is transparent, if the banks want to earn more income, only adjust interest rate differential.

Another banking source said, banks have the right to do so, but usually do not adjust existing customer spreads.

Local economist Songsheng Wen said the bank may do so because of the current interest rate environment, special consideration to the next greater volatility.

He said the local benchmark interest rate and US interest rates should be linked, but the fear of the US economy to raise interest rates as well as other areas of local interest rates will move higher.“

It seems that this Chinese newspaper’s reporter/journalist had terribly missed the crux of the issue, which has been highlighted here: 

“Haiz this reporter is extremely useless. He failed to mention the most critical part : citi sold the mortgage as "throughout spread", and yet it changed it ! This report made it sound like bank adjusting spread is a normal business , and yes, as teddy put it, almost like bank adjusting spread is "normal", not adjusting is doing customer a favor ! It should have highlighted the fact that citi did not honour the term !

The most ridiculous part of this report is this : "as SIBOR is transparent fixing rate, bank cannot adjust this rate, so bank has to adjust the spread". SIBOR being transparent is the exact reason why customers take up SIBOR packages, so the bank CANNOT anyhow change its reference rates ! If a bank can change the rate no matter what, then it might as well dun sell any number, just simply say "the mortgage rate shall be whichever number we think reasonable". And see if citi can sell any mortgage with that !”

I think CASE is not sufficient. It's the MAS that should step in. This is public interest. Citi cannot be allowed to set such precedent. No other bank has ever done this.

In fact it is also unfair to other banks. Citi effectively attract customers from other banks by, effectively cheating. Although I can imagine other banks will love to see this incident go unnoticed, so they can feel free to do the same next time.“