January 17, 2014 / 3:02 AM / 4 years ago

Malaysia c.bank plans new retail loan pricing system for banks

KUALA LUMPUR, Jan 17 (Reuters) - Malaysia’s central bank plans to launch a new reference rate framework for lenders to price retail loans to ensure monetary policy is more effective and reflects market conditions.

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 base lending rate (BLR) for the first few years of repayment.

“The proposed basis for setting reference rates will eliminate negative spreads to the reference rate,” the central bank said in a statement late on Thursday.

“Future changes to the reference rate will directly reflect changes to a financial institution’s funding costs due specifically to monetary policy changes, regulatory changes and market funding conditions,” it added.

Bank Negara said under the proposed framework, the new reference rate will be set by financial institution’s funding structure, strategies and statutory reserve requirements that will boost transparency.

Other pricing components such as borrower credit risk, liquidity risk premiums, operating costs and profit margins will be included in the spread to the reference rate, the central bank said.

Bank Negara said lenders have been set a Feb. 14 deadline to give feedback on the proposal. (Reporting by Niluksi Koswanage; Editing by Jacqueline Wong)

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