Notes

Flexibility of Loan Interest rates
As interest rates rise, there would be a challenge as less people will be willing to take up loans. Therefore, DBS needs to come up with more favourable packages to entice customers to ensure a steady growth of income.
In view that interest rates would potentially keep increasing, there needs to be a way to keep loans more affordable for its customers. One recommendation for DBS would be to introduce a loan scheme whereby the interest rates are pegged to special interest rates set by the DBS team itself. The special rates will be weighed on the following factors: the SIBOR, the stock price of the company and performance of the other respective operations.
The special rate will be calculated every month based on the stock price and SIBOR rate on the first day of the month.
A benchmark will be set on the stock exchange price, allowing the rates to move correspondingly according to the price. Therefore, those who speculate a rise in the company’s share price would benefit largely from the drop in interest expenses in the long term.
Although SIBOR might be a factor which influences the rates of such a scheme, the impact of the increase might not be as severe as it would be set off if the stock price of the company does well.
The idea is generally to help those customers who are more hesitant to take up loans in reference to the expected increase in interest rates.
This idea benefits borrowers as they are given more options for allowing flexibility in loan rates, making it more attractive to those who have negative perceptions in future interest rates. In the event that the stock does well, borrowers will benefit from the reduced costs.
A disadvantage would be that the company needs to hire more staff to monitor and manage the special rates, leading to additional costs for the bank. Also, if both the SIBOR and stock prices were to rise in the long term, it would result in the loss of potential profits for the bank. Also, stock prices are much volatile compared to interest rates, which might pose an issue for those with the loan.