The Association of Banks in Malaysia (ABM) said commercial banks could exercise their discretion in revising their reference rates in response to a change in their funding costs.
It said in a statement yesterday that from Jan 2, 2015, commercial banks were allowed to do this regardless of whether there was a change in Bank Negara’s overnight policy rates (OPR).
According to a report in The Star, this is in line with the new Reference Rate Framework which was announced by Bank Negara in 2014.
“Generally, commercial banks raise funds from various sources which include deposits, wholesale and equity markets. In addition to the OPR, the cost of raising funds would depend on several factors such as the banks’ credit ratings, market funding conditions and competitive pressures,” ABM said.
Several commercial banks have recently increased their reference rates, which comprise the base rate (BR) and the base lending rate (BLR), due to a hike in total costs of funding, the report said.
The downward trend of the three-month Kuala Lumpur Interbank Offered Rate (Klibor) during the first quarter of this year (1Q2016) also proved insufficient in offsetting the rise in total funding costs incurred by banks throughout 2015 and this year, said ABM.
“This is the first time these banks have revised their BR and BLR. Despite the increase, the BR of these banks remains below the average BR for the industry of 3.89 percent as at 1Q2016.”
On the other hand, following the recent reduction in the statutory reserve requirement ratio from 4 per cent to 3.5 per cent effective Feb 1, several banks had reduced their BR and BLR.
“For any adjustment to the BR and BLR, banks are obligated to provide borrowers with particulars of the revised monthly instalment amount at least seven calendar days prior to the date the revised instalment comes into effect. If the change in the monthly instalment amount is less than RM50 per month or the bank’s internal threshold amount, whichever is lower, a bank is permitted to retain the borrowers’ monthly repayment amount,” said ABM.
If, however, the charge is more than RM50 per month or the threshold amount, banks are allowed to revise the monthly instalments unless a specific request is made by the borrower to retain the amount, it noted.