Malaysia c.bank to start new retail loan pricing system in 2015

KUALA LUMPUR, March 19 Wed Mar 19, 2014 7:46am EDT

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KUALA LUMPUR, March 19 (Reuters) - Malaysia's central bank said on Wednesday 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 on Wednesday.

"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 percent 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 percent 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. (Reporting by Niluksi Koswanage; Editing by Simon Cameron-Moore)

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