Bank Negara Malaysia announces today that effective 2 Jan 2015, the Base Rate will replace the Base Lending Rate (BLR) as the main reference rate for new retail floating rate loans.

Since the introduction of the BLR framework in 1983, the BLR has served as the main reference rate on retail floating rate loans in Malaysia. Since then, the determination and implementation of the BLR has evolved with the development of the financial sector. In the recent period, however, the BLR has become less relevant as a reference rate for loan pricing, as lending rates on new retail loans are being offered at substantial discounts to the BLR. The BLR also lacks transparency, which makes it difficult for consumers to make an informed decision.

The new Reference Rate Framework aims to provide a more transparent reference rate to enable better decision by consumers in making choices among the many loan products offered by financial institutions. The new reference rate will also better reflect changes in cost arising from monetary policy and market funding conditions, while encouraging greater discipline and efficiency among financial institutions in the pricing of retail financing products.

The Base Rate will be determined by the financial institutions’ benchmark cost of funds and the Statutory Reserve Requirement (SRR). Other components of loan pricing such as borrower credit risk, liquidity risk premium, operating costs and profit margin will be reflected in a spread above the Base Rate. This increases the visibility of the factors underlying changes to the Base Rate. The greater transparency in turn will enable more informed decision making by consumers. Under this cost-plus structure, spreads will always be positive as it would not be possible for financial institutions to offer lending rates below the reference rate. Financial institutions will be given the flexibility to determine their respective benchmark rates. The expected strong link between the Base Rate, market interest rates and the Overnight Policy Rate (OPR) will facilitate more complete adjustments to retail loan repayments when market interest rates adjust to an increase or decrease in the OPR.

The Base Rate will be used for new retail floating rate loans and the refinancing of existing loans extended from 2 January 2015 onwards. After the effective date, BLR-based loans prior to 2015 will continue to be referenced against the BLR. However, when a financial institution makes any adjustments to the Base Rate, a corresponding adjustment to the BLR will also be made. As such, financial institutions would be required to display both their Base Rate and BLR at all branches and websites.

The shift to the new Reference Rate Framework should have no impact on the effective lending rates charged to retail borrowers which are determined by various factors, including a financial institution’s assessment of a borrower’s credit standing, market funding rates and competitive considerations. It is also important to note that the changes do not represent a change in the Bank’s monetary policy stance.

http://www.bankinginfo.com.my/04_help_and_...ntArticleID=158

-deleted- sorry

This post has been edited by BlurGuy1992: Dec 5 2014, 08:05 PM

i also dont know what it means

Bank A Package

Bank A offers a package of BLR-1.8% for 30 years. (BLR = 6.6%)
Means 6.6 % – 1.8 % = 4.8 %.
If u borrow RM 300,000
You will be paying about RM 1,574 per month.

Bank B Package

Bank B offers a package of BLR- 2.0% for 30 years. (BLR = 6.6%)
Means 6.6 % – 2.0 % = 4.6 %.
If u borrow RM 300,000
You will be paying about RM 1,537 per month.


I think you mean the surplus will be close to 0
so for next year
BLR = 6.6% - 0 % = 6.6%

0qkpy,i think so, next year those loan people esp home buyer to apply loan need to pay 6.6% instead of 6.6-2.0%
how about existing home buyer whose currently paying the monthly installment?
will they still paying 6.6-2.0%?
or 6.6-0%?
this is the main question i need to ask and know

ok this is what ive been very briefly briefed (ex-banker), BR is not BLR. what this means is that instead of BLR (which is set centrally at BNM at 6.85%) it will be replaced with BR which is what each of the banks set. chances are the banks won't deviate much from each other. this is done because BNM doesn't like negative spreads and prefers a cost plus rate. BLR was created aeons ago and back then it was BLR plus, but as banks general cost base has come down due to pricing competition it is slightly distorted now. old loans 25 years ago are priced at BLR+2, while nowadays loans are priced at BLR-2.5, so BNM has to do away with the BLR otherwise the old loans will be distorted if BNM changes BLR to 3% (example) so here comes a new bench rate.

example.
Loan A: BLR - 2% = 4.85% now
after Jan = new loans could be priced at BR + 1.3% = 4.85%

that means for Bank A, their BR = 3.55%
if Bank B's BR is different, for example 3.45%, and they set their loans at BR+ 1.4% = 4.85% also.

in summary, this means each bank could potentially have their own Base Rates (reflecting each own bank's cost and funding structure). a more efficient bank can afford to price their BR lower, and enjoy higher spreads.

example;
Bank A BR = 3%
Bank B BR = 3.5%
current market rate = BLR-2.5% = 4.35%

Bank B is charging BR + 0.85% = 4.35% (assume they keep same pricing after changeover)
Bank A can charge at BR + 1.35% = 4.35% (because they have a lower cost, can afford to make more margins). this also means Bank A can afford to cut loan prices since their margins are bigger than Bank B.

but once a bank pegs the BR, any further revisions will impact BLR because the old loans are still priced at BLR.
example

Bank A: BR = 3.55%, old loans still priced at BLR-
if BR revised to 3.70%, BLR is now 7% (from 6.85%)

oldloan at BLR-2% = 5%
newloan at BR+1.3% = 5%

but essentially there shouldnt be a change.
most likely association of banks will agree on a range of base rates so the effective rate (4.3% to 4.6% now) shouldn't change by much.

Hahah..
So good or not?

This will remotely happen in the actual situation because of our monopoly situation in government sector.

Finally I found details explanation with example. Hope this is true.

Will the BR will also fluctuates just like BLR?
And how OPR will affect the BR? Or any other factor???

This is important as I'm thinking to buy house and not much info about BR. New buyer for this year is just like lab rat.