Malaysian banks raise Base Lending Rate (BLR) or Base Financing Rate (BFR) to 6.85% pa

In tandem: Public Bank, Hong Leong Bank and Maybank are among banks which have confirmed that they have either adjusted or will be adjusting to the new rates.

A number of banks raise their base lending rates (BLR) and base financing rates (BFR) in tandem with Bank Negara’s announcement to raise the overnight policy rate (OPR) by 25 basis points (bps) from 3% to 3.25% effective yesterday, today and tomorrow.

As a result, the BLR and BFR has adjusted to 6.85% from 6.6% per annum previously.

The banks that have confirmed that the new rates effective from 16 July 2014 include Malayan Banking Bhd (Maybank), Hong Leong Bank Bhd (HLBB), CIMB Group Holdings Bhd, Public Bank Bhd, Alliance Financial Group Bhd and OCBC Malaysia, HSBC Bank Malaysia; effective 17 July 2014 include Citibank, Standard Chartered Bank;  effective 18 July 2014: UOB

It is understood that some banks may announce the interest rate revision on a different date, as they are still considering the quantum of the deposit rates, which will impact their earnings eventually.

Bank Simpanan Nasional senior vice-president and head of distribution Akhsan Zaini told StarBiz: “ We are still studying the impact of the rate hike on our bank before we announce the adjustment next week, tentatively.”

He also said the bank had yet to decide on how much it would adjust for its deposit rates

CIMB Research expects the rate hike to enhance banks’ earnings by 1% to 2%, as their net interest margins (NIM) widen.

Maybank Investment Bank Research, on the other hand, anticipates NIM growth to be short-lived due to price competition.

The research unit had said in an earlier report: “Our forecasts already assume a 50-bps rate hike in 2014, and as a result, we are looking at a marginal four-bps aggregate NIM improvement in 2015 versus a seven-bps contraction in 2014.”

Some banks have also announced the revision of their deposit rates, but the quantum varies from one lender to another as well as the deposit tenure.

Among others, Maybank’s deposit rates will be revised upwards by up to 15 bps.

HLBB and Hong Leong Islamic Bank Bhd (HLISB) will increase their fixed-deposit and Term Deposit-I rates by up to 25 bps.

Following the revision, HLBB and HLISB’s new deposit rates for one, six and 12 months would be 3.05%, 3.2% and 3.3%, respectively.

Hong Leong Banking Group’s managing director Tan Kong Khoon said the group would continue to work closely with its customers to address their financing and savings needs. Meanwhile, OCBC Bank (M) Bhd and OCBC Al-Amin Bank Bhd will be increasing their fixed-deposit and General Investment Account-i rates respectively by up to 20 bps, depending on tenures effective July 21.

In a statement, Maybank said: “The last revision in Maybank’s BLR and Maybank Islamic’s BFR was on May 11, 2011 when they were revised from 6.3% to 6.6% per annum.”

OCBC Bank’s mortgage lending rate, the alternative to using BLR for home loans, will also increase, to 5.7% compared with 5.45% previously.

JP Morgan Research noted that it was cautious on banks, as the combination of rate hikes and subsidy rationalisation would test the credit risk management of Malaysia’s consumer-led loan growth in the past five years.

It preferred liquid banks and upgraded HLBB and Maybank to “overweight” from “neutral”.

- By Ng Bei Shan/The Star/Asia News Network

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Making Malaysia’s Base Lending Rate more relevant

 New interest rate framework expected to be more linked to funding cost

BANK Negara is moving ahead with the times by replacing the outdated base lending rate (BLR) with a more relevant interest rate benchmark.

“The BLR has become less meaningful as a basis for the pricing of loans, as the retail lending rates on new loans being offered by the industry are at a substantial discount to the BLR,’’ The Star reported, quoting governor Tan Sri Dr Zeti Akhtar Aziz.

For the third quarter this year, the average lending rate (AVL) was 5.4% compared with the BLR of 6.53% and fixed deposit (FD) rate of 3.15% for 12 months.

For the corresponding quarter last yer, the AVL was 5.55% while the BLR was still at 6.53% while the FD rate for 12 months was 3.16%.

The current BLR reflects other costs such as overhead costs.

The new framework will be more related to funding cost, especially marginal funding cost, which is actually how banks are pricing their loans, Zeti said.

While work is underway to come up with a new BLR, the intervention rate under the current BLR framework is expected to nudge upwards, said Nazlee Khalifah, the chief corporate strategist of Affin Bank.

Under the current BLR regime, the intervention rate of 3% is expected to increase 25 basis points by next June, said Nazlee.

The upcoming BLR is being discussed with a concept paper expected next month.

‘“They have to think of how to prevent capital flight as interest rates in the United States may rise and attract capital back to the country,’’ said Nazlee.

Beginning next January, the Fed announced it would start pulling back its bond buying from US$85bil per month to US$75bil.

Instead, it will provide forward guidance on interest rates which are expected to remain low, in view of US unemployment being above 6.5% and inflation kept low.

The US$1 trillion stimulus programme has been a huge success but this is the journey back to fundamentals.

The world economy is being weaned of easy money and every player has to play his part in ensuring recovery and sustainability.

It is not enough for just the regulators to be keeping an eagle eye on miscreants but the participants themselves have to know their limits.

The Hong Kong Securities and Futures Commission is cracking down on insider trading.

In a landmark ruling, a Hong Kong court has ordered Du Jun to pay 297 investors almost HK$24mil for the money he earned from his illegal dealing in 2007, said the South China Morning Post (SCMP).

Last year, 7,700 investors who bought shares of Hontex International were paid back after a court ordered the sport fabric maker to pay HK$1.03bil to small shareholders for allegedly misleading information in its listing prospectus, said the SCMP.

There have been many instances of insider trading but the punishment has become more severe in view of the trend towards investor protection and reimbursement worldwide.

Contributed by Columnist Yap Leng Kuen applauds the tapering off of the era of easy money.