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Frequently Asked Questions (FAQs) on Base Rate (BR)
What is Base Rate (BR) and how is it different from Base Lending Rate
(BLR) / Base Financing Rate (BFR)?
(i) BR is the new reference rate introduced by Bank Negara Malaysia
(BNM) for pricing of retail loans / financing / pegged to BLR / BFR
effective 2nd Jan 2015.
(ii) Based on the BR framework, banks will use funding costs only as
their benchmark to quote their base rate.
(iii) Bank's BR is computed based on its internal cost of funds which is
aligned with the BNM reference rate framework. The same BR is applicable
for both conventional loans and Islamic financing.
The effective interest / profit rate to the customer under BLR / BFR and
BR is currently the same.
What are the objectives for changing BLR / BFR to BR?
The objectives of BR are:
(i) To promote transparency, thus enabling customers to make informed
decision based on the BR and the spread provided by banks
(ii) To allow banks to be more market driven and responsive to changes
in the cost of funds arising from monetary policy and market funding
conditions
(iii) To encourage more disciplined and efficient pricing practices for
retail loans
Note: The effective interest / profit rate for new loans / financing
under BR remains the same.
How will the bank price its loan / financing from 2nd Jan 2015?
The Bank will offer BR Plus spread for its loans/financing from 2nd Jan
2015.
Note: This is because BR covers only the funding cost which is less than
the Bank’s Total Cost.
Can one bank's BR and interest / profit spread differ from other
banks?
Yes, each bank’s BR is different as they can adopt different benchmarked
cost of funds i.e. internal cost of funds, money market rates of 1-month
/ 3-month KLIBOR or any
of these combinations based on their funding strategies.
Similarly, the interest / profit spread differs as each bank has its own
cost structure, operates based on different business models and has
different risk profiles and appetite.
What types of loans / financing are required to use BR?
Effective 2nd January 2015, all new loans / financing previously
pegged to BLR / BFR and applied by individual customers will be based on
BR.
Examples:
• Mortgages / Home financing
• Units trust (ASB) and share margin financing
• Personal financing and OD facilities
For new Islamic financing, the same BR will be used for its Sale Price.
However, loans / financing extended to business entities and for HP /
AITAB are excluded from using BR.
Is there any change to an existing loan / financing that is pegged to
BLR / BFR?
The existing loan / financing remains pegged to the prevailing BLR / BFR
rate until settlement / expiry or upon review, where applicable. For
Islamic financing, the existing Sale Price remains at the prevailing
BFR.
When will the Bank adjust its BR?
The Bank will adjust its BR when there are changes in monetary policy
(such as OPR
and SRR)
and funding conditions.
What if a customer applied for a loan / financing before 2nd Jan 2015
but it is approved thereafter?
For loans / financing applied before 2nd Jan 2015 and approved
thereafter, the prevailing BLR / BFR will be applicable.
Will an existing personal OD facility be based on BR upon renewal?
Yes, a personal OD facility will be based on BR upon renewal.
What is the treatment for an existing account that has been
rescheduled / restructured?
The account will be based on BR.
Note: BR Plus with higher spread may apply in this instance to reflect
the credit risk associated with the deterioration in credit worthiness of
the customer, where relevant.
Sources:
baserate.my
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