KUALA LUMPUR, March 19 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