Malaysia central bank to start new retail loan pricing

system in 2015
KUALA LUMPUR, March 19 - Malaysia's central bank said today that it will introduce a new
reference rate framework for banks to price retail loans from January next year, in order to
make
monetary
policy
more
effective
and
reflect
market
conditions.
The new reference rate replaces the base lending rate (BLR), which Bank Negara says had
become less relevant as a reference rate as it lacks transparency and lenders often price
retail loans at a substantial discount to the rate. 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," the central bank said in a statement today.
It will also better reflect changes in cost arising from monetary policy and market funding
conditions, while encouraging greater discipline and efficiency among financial institutions.
Bank Negara's main policy rate is its overnight rate , which has been held at 3 per cent since
mid-2011. Lenders, including Maybank, CIMB and Public Bank, have been pricing consumer
loans at a substantial discount to the current base lending rate to attract customers and
boost
loan
growth.
This is especially the case for housing loans where lenders have offered 1-2.35 percentage
point discounts to the current 6.6 per cent BLR for the first few years of repayment. Bank
Negara said the new rate will be determined by the financial institutions' benchmark cost of
funds and the statutory reserve requirement. 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 new base rate, the central bank added.

Frequently Asked Questions (FAQs) on Base Rate (BR)

What is Base Rate (BR) and how is it different from Base Lending Rate (BLR) / Base
Financing Rate (BFR)?
(i) BR is the new reference rate introduced by Bank Negara Malaysia (BNM) for pricing of
retail loans / financing / pegged to BLR / BFR effective 2nd Jan 2015.
(ii) Based on the BR framework, banks will use funding costs only as their benchmark to
quote their base rate.
(iii) Bank's BR is computed based on its internal cost of funds which is aligned with
the BNM reference rate framework. The same BR is applicable for both conventional loans
and Islamic financing.
The effective interest / profit rate to the customer under BLR / BFR and BR is currently the
same.
What are the objectives for changing BLR / BFR to BR?
The objectives of BR are:

(i) To promote transparency, thus enabling customers to make informed decision based on
the BR and the spread provided by banks
(ii) To allow banks to be more market driven and responsive to changes in the cost of funds
arising from monetary policy and market funding conditions
(iii) To encourage more disciplined and efficient pricing practices for retail loans
Note: The effective interest / profit rate for new loans / financing under BR remains the
same.
How will the bank price its loan / financing from 2nd Jan 2015?
The Bank will offer BR Plus spread for its loans/financing from 2nd Jan 2015.
Note: This is because BR covers only the funding cost which is less than the Banks Total
Cost.
Can one bank's BR and interest / profit spread differ from other banks?
Yes, each banks BR is different as they can adopt different benchmarked cost of funds i.e.
internal cost of funds, money market rates of 1-month / 3-month KLIBOR or any of these
combinations based on their funding strategies.
Similarly, the interest / profit spread differs as each bank has its own cost structure, operates
based on different business models and has different risk profiles and appetite.

What types of loans / financing are required to use BR?

Effective 2nd January 2015, all new loans / financing previously pegged to BLR / BFR and
applied by individual customers will be based on BR.
Examples:
Mortgages / Home financing
Units trust (ASB) and share margin financing
Personal financing and OD facilities
For new Islamic financing, the same BR will be used for its Sale Price. However, loans /
financing extended to business entities and for HP / AITAB are excluded from using BR.
Is there any change to an existing loan / financing that is pegged to BLR / BFR?
The existing loan / financing remains pegged to the prevailing BLR / BFR rate until
settlement / expiry or upon review, where applicable. For Islamic financing, the existing Sale
Price remains at the prevailing BFR.

When will the Bank adjust its BR?

The Bank will adjust its BR when there are changes in monetary policy (such
as OPR and SRR) and funding conditions. Monetary Policy Committee from BNM is
responsible for monetary policy.
What if a customer applied for a loan / financing before 2nd Jan 2015 but it is
approved thereafter?
For loans / financing applied before 2nd Jan 2015 and approved thereafter, the prevailing
BLR / BFR will be applicable.
Will an existing personal OD facility be based on BR upon renewal?
Yes, a personal OD facility will be based on BR upon renewal.
What is the treatment for an existing account that has been rescheduled /
restructured?
The account will be based on BR.
Note: BR Plus with higher spread may apply in this instance to reflect the credit risk
associated with the deterioration in credit worthiness of the customer, where relevant.

Base Rate vs Base Lending Rate (BLR)

Base Rate is much more transparent & banks are not allowed to lend below the base rate
(except for cases specified by Bank Negara Malaysia, BNM). Base Rate is to be reviewed by
the respective banks at least on quarterly basis & the same is to be disclosed publicly.
On the other side, the calculations of Base Lending Rate (BLR) was mostly not transparent
& banks were frequently lending below the BLR to their prime borrowers & also under
pressure due to various reasons.
Base Rate (BR)

Base Lending Rate (BLR)

Jan 2, 2015

Used since 1983

More transparent

Lacks of transparency
Substantial discount to the current BLR to
attract customers and boost loan growth.

Rate based on borrower credit risk

Market driven & efficient pricing
practices for retail loans

Bank determined the rates and inefficient

pricing on retail loans

Determined by financial institutions

benchmark cost of funds and the
Statutory Reserve Requirement (SRR)

Calculated by financial institutions by takes

into account the institutions cost of funds and
other administrative costs

For illustration purpose:

Loan Amount: RM350,000 (No Lock-In Period)
Loan Tenure: 30 years

Before 2 Jan 2015

From 2 Jan 2015

Reference Rate

BLR = 6.85%

BR = 3.67%

Interest Rate

BLR - 2.20%

BR + 1.00%

Effective Lending Rate

4.65%

4.67%

Monthly instalment (RM)

1,804.73

1,808.93

Note: Effective Lending Rate may vary if BLR or BR changes.

The Base Rate will be used for the new retail floating loans and the refinancing of existing
loans extended from Jan 2, 2015.
After the effective date, BLR based loans prior to 2015 will continue to be referenced against
the BLR. Also, when any bank makes an adjustment to the Base Rate, a corresponding
adjustment to the BLR will also be made.
Currently, the BLR is 6.85%* while the prevailing mortgage rates hover between 4.20% and
4.90%.
* The BLR is almost always the same amongst major banks.

Latest Base Lending Rate (Latest BLR)

Local Commercial Banks

BLR (% p.a)

Effective From

Affin Bank

6.85

16 July 2014

Alliance Bank

6.85

16 July 2014

AmBank

6.85

16 July 2014

CIMB Bank

6.85

16 July 2014

Hong Leong Bank

6.85

16 July 2014

Maybank

6.85

16 July 2014

Public Bank

6.85

16 July 2014

RHB Bank

6.85

16 July 2014

Development / Islamic Banks

BLR / BFR (% p.a)

Effective From

Agrobank (Bank Pertanian)

6.85

21 July 2014

Bank Islam Malaysia

6.85

18 July 2014

Bank Muamalat

6.90

16 July 2014

Bank Rakyat

6.85

19 July 2014

Bank Simpanan Nasional (BSN)

6.85

22 July 2014

Foreign Commercial Banks

BLR (% p.a)

Effective From

Al-Rajhi Bank

7.15**

17 July 2014

Bangkok Bank

6.85

18 July 2014

BNP Paribas

6.75

31 July 2014

Bank of America

6.30

13 July 2010

Bank of China

6.85

22 July 2014

Bank of Tokyo-Mitsubishi UFJ

6.50

J.P. Morgan Chase Bank

6.40

13 May 2011

Citibank

6.85

17 July 2014

Deutsche Bank

6.50

15 May 2011

HSBC Bank

6.85

16 July 2014

Industrial and Commercial Bank of China

6.85

23 July 2014

India International Bank

6.85

25 July 2014

Kuwait Finance House

6.85**

16 July 2014

Mizuho Corporate Bank

6.60

National Bank of Abu Dhabi

6.60

Nova Scotia Bank

6.85

21 July 2014

OCBC Bank

6.85

16 July 2014

Royal Bank of Scotland (RBS)

6.50

22 July 2014

Standard Chartered Bank

6.85

17 July 2014

Sumitomo Mitsui Banking Corporation

6.80

21 July 2014

United Overseas Bank (UOB)

6.85

18 July 2014

* Base Lending Rate (BLR) is a minimum interest rate calculated by financial institutions
based. The BLR is almost always the same amongst major banks.
** Base Financing Rate (BFR)
Rate refreshed : 7 May 2015

Guide to Consumer on Base Rate

Effective 2 January 2015, a new reference rate known as the Base Rate (BR) will be used
for new floating rate loans / financing facilities such as housing loan / home financing.
As a borrower, you should known and understand the following before you decided to sign
up the loan:
1. Compare the effective lending rates quoted by different financial institutions before taking
out a new loan.
2. Ask for a Product Disclosure Sheet (PDS) providing you with the effective lending rate
and total repayments amounts for the loan / financing facilities you plan to take out.
3. Ask your financial institutions to explain the factors which may lead to a change in Base
Rate.
4. Your monthly repayment amount will decrease or increase when there is a change in
Base Rate.
5. You should also assess whether you can continue to afford the loan repayment if the
effective lending rate increase in future.

Latest Base Rate (Latest BR)

Effective 2nd January 2015, in line with new Reference Rate Framework introduced by Bank
Negara Malaysia (BNM), Banks in Malaysia are implement a new reference rate to be known
as Base Rate (BR) to replaced theBase Lending Rate (BLR) for all new consumers lending.
Listed in table below is the BR and Effective Lending Rate (ELR) for the banks in Malaysia.
Local Commercial Banks

BR (%)

ELR (%)

Effective From

Affin Bank

3.99

4.75

2 Jan 2015

Alliance Bank

4.00

4.65

2 Jan 2015

AmBank

3.99

4.45

2 Jan 2015

CIMB Bank

4.00

4.65

2 Jan 2015

Hong Leong Bank

3.99

4.80

2 Jan 2015

Maybank

3.20

4.55

2 Jan 2015

Public Bank

3.65

4.45

2 Jan 2015

RHB Bank

4.00

4.65

2 Jan 2015

BR (%)

ELR (%)

Effective From

Agrobank (Bank Pertanian)

2.33

2 Jan 2015

Bank Islam Malaysia

3.90

4.45

2 Jan 2015

Bank Muamalat

3.90

5.05

2 Jan 2015

Bank Rakyat

3.87

4.67

2 Jan 2015

Bank Simpanan Nasional (BSN)

4.00

4.45

2 Jan 2015

BR (%)

ELR (%)

Effective From

Al-Rajhi Bank

4.25

4.70

2 Jan 2015

Bangkok Bank

4.15

5.35

2 Jan 2015

BNP Paribas

Bank of America

Development / Islamic Banks

Foreign Commercial Banks

Bank of China

4.05

4.85

2 Jan 2015

Bank of Tokyo-Mitsubishi UFJ

3.64

2 Jan 2015

3.70

4.60

2 Jan 2015

HSBC Bank

3.90

4.85

2 Jan 2015

Industrial and Commercial Bank of China

4.02

4.75

2 Jan 2015

India International Bank

Kuwait Finance House

2.96

4.45

2 Jan 2015

Mizuho Corporate Bank

National Bank of Abu Dhabi

Nova Scotia Bank

4.02

5.05

2 Jan 2015

3.67

4.67

2 Jan 2015

4.02

4.75

2 Jan 2015

J.P. Morgan Chase Bank

Citibank
Deutsche Bank

OCBC Bank
Royal Bank of Scotland
Standard Chartered Bank
Sumitomo Mitsui Banking Corporation
United Overseas Bank
Rate refreshed : 7 May 2015
Note:
BR : Base Rate
ELR : Effective Lending Rate
" - " : No retail loan offer

Effective Lending Rate (ELR) refers to the indicative annual effective lending rate for a
standard 30-year housing loan / home financing product with financing amount of RM350k
and has no lock-in period.