* Banks ordered to review how interbank rates are set
* Told to have independent reviews done
* Main concerns of c.bank Sibor and SOR rates (Adds information on Sibor, SOR rates, comment from local bank association)
SINGAPORE, July 25 (Reuters) - Singapore's central bank has ordered banks in the city-state to review the way benchmark interbank borrowing rates are set, as regulators worldwide scrutinise the troubled Libor system.
"We've directed the banks to take a look at their processes and have an independent review done," Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore (MAS), told a news conference on Wednesday.
Regulators in Singapore and other major financial centres are looking into reforming interbank borrowing rates following suspected rigging of the London interbank offered rate (Libor).
More than a dozen banks are under investigation in the United States, United Kingdom and Japan for allegations they tried to manipulate interbank rates. British bank Barclays was fined $453 million last month after it admitted its traders tried to rig its rate submissions.
Libor and other similar benchmarks are used to price trillions of dollars worth of loans and derivative contracts.
The MAS's main concerns focus on the Singapore interbank offered rate (Sibor) and the Singapore swap offer rate (SOR), the two main benchmarks used to determine mortgage loans in the city-state.
Sibor is set daily, based on a panel of banks who submit the rate at which they could borrow funds if they were to ask for and accept a rate from another bank in the region in a reasonably sized market.
For the SOR, the panel of banks submit the cost of borrowing U.S. dollars for a certain period of time and swapping them into Singapore dollars for the same period of time. It is commonly used as many banks in Singapore rely on U.S. dollars for their wholesale funding.
Teo added all rates set by a similar process will be reviewed, though it is too early to say what changes the review will lead to.
The Association of Banks in Singapore, which runs the interbank rate panel, said it is looking into the rate-setting process but did not provide any details on the nature of their review or how long it will last.
In the UK, the Financial Services Authority head of conduct Martin Wheatley is expected to provide recommendations on Libor setting and governance by the end of this summer.
Last week, Royal Bank of Scotland said it had removed itself from the Association of Banks in Singapore (ABS) panel that sets the city-state's benchmark interbank rate.
The MAS said ABS did not expect further withdrawals of banks from the panel, which now has a dozen banks sitting on it.
While the fallout from the Libor scandal has discredited the current system, regulators have said it will be tough to come up with a ready-made replacement system. One big obstacle is that many outstanding financial contracts are linked to the rates, so scrapping them straight away would lead to difficulties pricing them. (Reporting by Kevin Lim; Writing by Rachel Armstrong; Editing by John O'Callaghan & Kim Coghill)