Apr 18 2015, 11:39 AM
QUOTE(samkps @ Apr 18 2015, 07:53 AM)
Jason gor, thanks for the information... 
Have done some reading and there is clearer picture now..
BR = Benchmark cost of fund + SRR
Spread = profit margin + operating cost + credit risk + liquidity risk
There are 3 types of reference rate - base rate, benchmark cost of fund, actual cost of fund index. All three have strong correlations with COF. Apparently, the approach adopted by Bank Negara is Reference rate = Benchmark cost of fund + SRR.
Bank Negara gives flexibility to the bank to adopt their choice / methodology of Benchmark Cost of Fund. 90% bank choose to use 3M KLIBOR as Benchmark COF, but there is still 10% banks choose to use "Internal Funding Cost" as the Benchmark COF instead. I think the obvious case here would be Maybank, due to their super low BR (3.2%), I suspect they are not using the 3M KLIBOR as the Benchmark COF. Public bank maybe another case as well.
Therefore, the divergence in base rate methodologies could lead to uneven adjustment to base rate when there is changes in OPR or KLIBOR. Bank Negara expects that Internal funding Cost-based BR shall be adjusted less than the KLIBOR-based BR.
Majority banks propose that when there is a change of 5-10 base points in the benchmark of COF, it will trigger the change of the BR.
Notes:
1.) I presume the formula that is being used by the banks for calculating the BR all are same. The variation only rely on which type of benchmark cost of funding the bank is using - either internal fund or KLIBOR.
2.) I presume Bank Negara also provide a time frame for the banks to capture the KLIBOR data. They cannot varies too much between different banks within the same time frame. Therefore, I believe the variation in BR for different banks that adopt the KLIBOR-based COF mostly is due to the SRR components. SRR is the fund deposited to the Central Bank according to the bank liability. Therefore, I believe the variation in bank liability is much higher compare to the KLIBOR and hence carry more weightage in terms of BR variation.
So complicated! But thanks for sharing! Have done some reading and there is clearer picture now..
BR = Benchmark cost of fund + SRR
Spread = profit margin + operating cost + credit risk + liquidity risk
There are 3 types of reference rate - base rate, benchmark cost of fund, actual cost of fund index. All three have strong correlations with COF. Apparently, the approach adopted by Bank Negara is Reference rate = Benchmark cost of fund + SRR.
Bank Negara gives flexibility to the bank to adopt their choice / methodology of Benchmark Cost of Fund. 90% bank choose to use 3M KLIBOR as Benchmark COF, but there is still 10% banks choose to use "Internal Funding Cost" as the Benchmark COF instead. I think the obvious case here would be Maybank, due to their super low BR (3.2%), I suspect they are not using the 3M KLIBOR as the Benchmark COF. Public bank maybe another case as well.
Therefore, the divergence in base rate methodologies could lead to uneven adjustment to base rate when there is changes in OPR or KLIBOR. Bank Negara expects that Internal funding Cost-based BR shall be adjusted less than the KLIBOR-based BR.
Majority banks propose that when there is a change of 5-10 base points in the benchmark of COF, it will trigger the change of the BR.
Notes:
1.) I presume the formula that is being used by the banks for calculating the BR all are same. The variation only rely on which type of benchmark cost of funding the bank is using - either internal fund or KLIBOR.
2.) I presume Bank Negara also provide a time frame for the banks to capture the KLIBOR data. They cannot varies too much between different banks within the same time frame. Therefore, I believe the variation in BR for different banks that adopt the KLIBOR-based COF mostly is due to the SRR components. SRR is the fund deposited to the Central Bank according to the bank liability. Therefore, I believe the variation in bank liability is much higher compare to the KLIBOR and hence carry more weightage in terms of BR variation.
Quote
0.0434sec
0.71
7 queries
GZIP Disabled