Bank Negara to Issue Consultative Paper on New
Reference Rate That Will Replace BLR
Maybank IB Maintains
strengthen the link between
retail lending rates and the
reference rates that financial
institutions used to manage
the risk of future changes in
the funding costs incurred
by the financial institutions in
providing the loans.
The new reference rate will
be used for the pricing of
new retail loans and the
refinancing of existing loans
after the effective date of the
new framework.
Bank Negara says the
proposed changes in the
reference rate framework
will not have an impact
on effective lending rates
charged to retail borrowers.
Bank Negara will issue an
industry consultative paper
to the financial industry
on a new reference rate
framework to replace the
base lending rate (BLR)
regime quoted by financial
institutions in the pricing of
retail loans.
The central bank said in a
statement that under the
proposed framework, the
new reference rate would be
determined by the respective
financial institution’s
funding costs, which
reflect its specific funding
structure and strategy,
and the statutory reserve
requirement.
“Other components of pricing
such as borrower credit
risk, liquidity risk premiums,
operating costs and profit
margins are proposed to be
reflected in the spread to the
reference rate,” Bank Negara
said.
“Currently, there is
insufficient transparency
in the basis adopted
by individual financial
institutions for setting
the BLR, which reduces
the sensitivity of the
BLR to changes in an
institution’s funding costs
and comparability across
institutions,” it added.
The central bank justified
that this was necessary, given
that in the recent period,
retail lending rates on new
loans offered by financial
institutions have been at a
substantial discount to the
BLR.
This had resulted in a
divergence between changes
in the retail lending rates
on new loans and the BLR
of financial institutions,
suggesting that the BLR had
become less relevant as a
reference rate for the pricing
of retail loans, it added.
“The new reference rate aims
to improve the transmission
of monetary policy to both
new and existing borrowers,
and promote a transparent
pricing of floating rate retail
loans that is more reflective
of market conditions,” Bank
Negara said.
The proposed changes in the
reference rate framework
will not have an impact
on effective lending rates
charged to retail borrowers,
which are determined by a
range of factors, including
the financial institution’s
assessment of a borrower’s
credit standing.
“Existing loans will continue
to be referenced against
the BLR. However, when a
financial institution makes
any adjustments to the
new reference rate, a
corresponding adjustment
will also be made to the BLR,”
it said.
It is important to note that
the changes in the reference
rate framework did not
represent a change in the
monetary policy stance, said
Bank Negara.
The central bank has given
financial institutions until
Feb 14 to provide feedback
pertaining to the proposed
reference rate framework.
Maybank Investment Bank has maintained its
“underweight” rating on the property sector and
expect the market to be hit by the new cooling
measures of Budget 2014..
The investment bank said developers had expressed
caution on the property market outlook over the next
six months and are switching their product focus to
affordable housing as the demand is still resilient and
supported by the young demographic.
“Stricter mortgage lending by the banks will also slow
down new transactions,” the bank said in a note.
Competition is also intensifying with the entry of
developers from China into Iskandar Malaysia, said
the investment bank.
At end-2013, China-based Guangzhou R&F Properties
acquired 46.94 hectares in Johor Baharu from the
Sultan of Johor for US$1.4 billion.
“We are concerned that these developers will deluge
the market with a massive supply of high-rise mixed
development projects, inducing price volatility, if
there is no synchronised planning and control by the
authorities,” it added.
...developers had expressed caution
on the property market outlook
over the next six months and are
switching their product focus to
affordable housing as the demand is
still resilient and supported by the
young demographic.
The 7FFV