Base Rate – How to Evaluate the Base Rate

With the implementation of the Base Rate to replace the BLR for retail loans, many borrowers are confused and do not know what is best for them. This short article attempts to give an insight of how to choose the best rates offered by the banks.

BLR has been in used since 1983. Its limitation is the lack of transparency. Individual banks have the prerogative to give varying discount to the BLR to attract customers and boost their loan growth. In short bank determines the rate for the retail loans.

Base Rate implemented on January 2, 2015 is said to be more transparent. With the new BR, interest rates are determined by the banks’ benchmark cost of funds and Statutory Reserve Requirement (SRR). Other components of loan pricing such as borrower credit risk, liquidity risk premium, operating costs and profit margin will be reflected in a spread in the new BR framework.

Loans that are already approved and extended prior to January 2, 2015 will still follow the old BLR until the end of the loan tenure.

For new loan applicants and refinancing applicants, the new BR framework will have a direct impact on interest rates with effect from the date.

Banks are still required to display both BLR and BR on their branches and websites.

Base Rates and Indicative Effective Lending Rates of Financial Institutions
No. Financial Institution Base Rate (%) Indicative Effective Lending
Rate* (%)
1 Affin Bank Berhad 3.99 4.75
2 Alliance Bank Malaysia Berhad 4.00 4.65
3 AmBank (M) Berhad 3.99 4.45
4 BNP Paribas Malaysia Berhad no retail loan
5 Bangkok Bank Berhad 4.15 5.35
6 Bank of America Malaysia Berhad no retail loan
7 Bank of China (Malaysia) Berhad 4.05 4.85
8 Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad no retail loan
9 CIMB Bank Berhad 4.00 4.65
10 Citibank Berhad 3.70 4.60
11 Deutsche Bank (Malaysia) Berhad no retail loan
12 Hong Leong Bank Malaysia Berhad 3.99 4.80
13 HSBC Bank Malaysia Berhad 3.90 4.85
14 India International Bank (Malaysia) Berhad no retail loan
No. Financial Institution Base Rate (%) Indicative Effective Lending
Rate* (%)
15 Industrial and Commercial Bank of China
(Malaysia) Berhad
4.02 4.75
16 J.P. Morgan Chase Bank Berhad no retail loan
17 Malayan Banking Berhad 3.20 4.55
18 Mizuho Corporate Bank (Malaysia) Berhad no retail loan
19 National Bank of Abu Dhabi Malaysia no retail loan
20 OCBC Bank (Malaysia) Berhad 4.02 5.05
21 Public Bank Berhad 3.65 4.45
22 RHB Bank Berhad 4.00 4.65
23 Standard Chartered Bank Malaysia Berhad 3.67 4.67
24 Sumitomo Mitsui Banking Corporation no retail loan
25 The Bank of Nova Scotia Berhad no retail loan
26 The Royal Bank of Scotland Berhad no retail loan
27 United Overseas Bank (Malaysia) Bhd. 4.02 4.75
No. Islamic Financial Institution Base Rate (%) Indicative Effective Lending
Rate (%)
1 Affin Islamic Bank Berhad 3.99 4.75
2 Al Rajhi Banking & Investment Corporation
(Malaysia) Berhad
4.25 4.70
3 Alliance Islamic Bank Berhad 4.00 4.65
4 AmIslamic Bank Berhad 3.99 4.45
5 Asian Finance Bank Berhad 4.02 5.35
6 Bank Islam Malaysia Berhad 3.90 4.45
7 Bank Muamalat Malaysia Berhad 3.90 5.05
8 CIMB Islamic Bank Berhad 4.00 4.65
9 Hong Leong Islamic Bank Berhad 3.99 4.65
10 HSBC Amanah Malaysia Berhad 3.90 4.85
11 Kuwait Finance House (Malaysia) Berhad 2.96 4.45
12 Maybank Islamic Berhad 3.20 4.55
13 OCBC Al-Amin Bank Berhad 4.02 5.05
14 Public Islamic Bank Berhad 3.65 4.45
15 RHB Islamic Bank Berhad 4.00 4.65
No. Islamic Financial Institution Base Rate (%) Indicative Effective Lending
Rate (%)
16 Standard Chartered Saadiq Berhad 3.67 4.67
No. Development Financial Institution Base Rate (%) Indicative Effective Lending
Rate (%)
1 Bank Kerjasama Rakyat Malaysia Berhad 3.87 4.67
2 Bank Pembangunan Malaysia Berhad no retail loan
3 Bank Pertanian Malaysia Berhad 2.33 n.a.
4 Bank Perusahaan Kecil dan Sederhana Malaysia no retail loan
5 Bank Simpanan Nasional 4.00 4.45
6 Export-Import Bank of Malaysia Berhad no retail loan
* Indicative Effective Lending Rate refers to the indicative annual effective lending rate for a standard 30-year housing loan/home financing product with financing amount of RM350k and has no lock-in period.
As at 2 January 2015
Bank Negara Malaysia

Though certain banks may be setting a higher BR compared to others, they can sometimes offer lower ELR (Effective Lending Rate) to customers in order to remain competitive through the adjustment in the spread.

For example:-

Banks                Base Rate  Spread      Effective Lending Rate

Maybank            3.2%         1.35%               4.55%

Public Bank        3.65%       0.8%                 4.45%

This essentially means that Public Bank is willing to take a smaller profit margin in order to be more competitive.

According to BNM the new Base Rate will be more transparent and will create healthy competition among banks and provide a wider range of options for loan applicants. This new reference rate will also better reflect changes in cost arising from monetary policy and market funding conditions, while encouraging greater discipline and efficiency among financial institutions in the pricing of retail financing products.

Also, because the base rates are managed by individual banks, this will force banks to come up with more cost-efficient rates in order to compete with each other and create a much more competitive market.

However, given the flexibility to determine their respective benchmark rates, smaller institutions may risk losing out on the race of getting more borrowers for loans. This is because the Base Rate is determined by banks’ cost of funds and will differ marginally from one bank to another.

Typically, banks that are able to attract cheap long-term fixed deposits will be able to offer lower Base Rates as opposed to banks that depend on the more expensive inter-bank market for funding.

The “cost plus” element essentially comprises the financial institution’s over-heads and the credit risk profile of borrowers.

This effectively means that banks that are less efficient and incur high over-heads will not be able to offer competitive rates.

What’s For Us?

  • Better rates for consumers with stiffer competition among banks
  • Before one refinance your loan it is advisable to see if the new BR will have better savings and gives you get a better deal. It is always a viable move as long as the switch does not involve hefty refinancing fees that negate whatever savings you’re making from the interest.
  • Customers with existing loans under BLR won’t be affected.
  • There will not be any fixed term loan, variable or neither hybrid loan nor Klibor based loan with the implementation of the new Base Rate.

Financially, which is the better option to choose?

Go for a lower Base Rate or a lower spread?

The key consideration here is the Base Rate of banks may change over the loan tenure whilst the spread is fixed.

Hence for example

              Base Rate  Spread      Effective Lending Rate

MBB          3.2            1.35                    4.55

HLBB       3.99          0.46                   4.45

PBB           3.65          0.8                     4.45

Note: The spread of the individual banks may vary over the period or on the individual borrower risk level.

Looking at the table above, it is advisable for borrowers to take note of the Spread is fixed over the loan tenure.

The Base Rate will change over the period depending on the operating costs of funds of the bank and the Base Rate is revised quarterly.

A point to consider is the track records or performance of the banks and their ability to attract cheap long term fixed deposits to lower their cost of funds. To also take into consideration the service level of the bank.

In conclusion, the spread will have bigger impact on the borrowers rather than the Base Rate in the long term. Hence it is advisable to choose the lower fixed spread to minimize interest cost during the loan tenure.

By | 2017-02-22T17:03:50+00:00 February 9th, 2015|Finance|0 Comments

About the Author:

HongThang have been actively involved in the real estate and property development industry. After completing her tertiary education locally in University Malaya, and her second degree in Louisiana State University in the USA, she have been working in 7 different public listed companies in property development. Her work experience spans all areas of the business, from pre-development stage in land sourcing, feasibility studies, project work processes, sales administration, marketing and project management. In her personal capacity, she is also an avid property investor, having made several profitable investments through the years. Her investments have reaped returns from minimum of 25% up to 400% in capital appreciation.

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