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BNM: Banks Must Revise Interest Rates within 7 Days

In an unprecedented move to publicise a directive, Bank Negara Malaysia (BNM) said that all banks are required to revise their interest rates within seven working days following a change in the Overnight Policy Rate (OPR).

According to BNM strategic communications department director Shariffuddin Khalid, banks will have to reflect changes to the base rate (BR) and the base lending rate (BLR) within seven days of an OPR decision.

The statement came as a response to a letter to the editor of a local English daily which lamented the wait for banks to lower interest rates on loans.

Although the Reference Rate Framework issued by BNM requires banks to revise their BLRs and BRs in order to reflect changes to the benchmark cost of funds due to the OPR changes, it is understood that no timeline was previously given for the action to be made.

Sia Ket Ee, economist at Hong Leong Investment Bank Bhd, believes that the purpose of the new directive was to expedite the transmission of monetary policies.

eqwevwe“The OPR cut was announced on July 13 and some banks took two weeks to revise their BRs and BLRs. BNM probably wants faster transmission of any monetary policy changes so that they can be translated faster to reach consumers,” he said.

Previously, banks were quick to react to such changes since the BLR system was straightforward, said Sia, adding that CIMB Group Holdings Bhd or Malayan Banking Bhd (Maybank) are usually the first to announce their revised BLRS.

“But now, with the BR, every bank can set its own rate depending on its cost of funding,” he said.

He noted that banks need to calculate their pricing as well as their strategy prior to revising their rates.

Notably, the BLR framework served as the main reference on retail floating rate for loans before January 2015 and was determined based on the bank’s internal cost of funds.

BNM, however, introduced the BR for a better indication of the changes in cost, greater transparency and higher efficiency in banks.


Credit August 3, 2016

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