Bank Negara Malaysia announced today the release of the revised Reference Rate Framework. The Framework will be effective 1 August 2022. Under the revised framework, the Standardised Base Rate will replace the Base Rate as the reference rate for new retail floating-rate loans.

Reference rates are publicly accessible interest rates that are used by financial institutions as a basis for pricing loans. The Reference Rate Framework was introduced in 2015, which established the Base Rate (BR) as the reference rate for retail floating-rate loans in Malaysia. Under this framework, financial institutions use different methods to set their respective BR, which has made it more difficult for consumers to compare the retail loan products offered by each financial institution and understand the reasons behind changes in their loan repayments. In addition, the different BR methodologies across financial institutions have resulted in a more uneven transmission of monetary policy.

Under the revised Reference Rate Framework, the Standardised Base Rate will be used as the common reference rate for all financial institutions for their new retail floating-rate loans. The Standardised Base Rate will be linked solely to the Overnight Policy Rate (OPR). Changes to the Standardised Base Rate will therefore only occur following changes in the OPR, which is determined by the Monetary Policy Committee of Bank Negara Malaysia. Other components of loan pricing such as borrower’s credit risk, liquidity risk premium, operating costs, profit margin and other costs will continue to be reflected in the spread above the Standardised Base Rate.

The OPR as the Standardised Base Rate improves comparability and is more transparent to consumers. Governor Datuk Nor Shamsiah said “Consumers would find it easier to understand changes in their loan repayments as the OPR will be the only driver of the Standardised Base Rate. The Standardised Base Rate will also facilitate effective monetary policy transmission as complete adjustments to retail loan repayments will take effect following a change in the OPR.”

The Standardised Base Rate will take effect as the reference rate for the pricing of new retail floating-rate loans and the refinancing of existing loans from 1 August 2022 onwards. The one-year transition period will provide sufficient time for financial institutions to undertake the necessary preparations and system enhancements to ensure a smooth implementation of the revised framework. The shift towards the Standardised Base Rate will have no impact on the effective lending rates of existing retail loans, which will continue to be referenced against the BR and Base Lending Rate (BLR). After the effective date, the BR and BLR will move exactly in tandem with the Standardised Base Rate as any adjustments to the Standardised Base Rate will simultaneously be reflected in the corresponding adjustments to the BR and BLR. As such, financial institutions will continue to display their BR and BLR, in addition to the Standardised Base Rate, at all branches and websites after the effective date for customers’ reference.

New retail borrowers should also be largely unaffected by this revision, as effective lending rates for new borrowers would continue to be competitively determined and influenced by multiple factors, including a financial institution’s assessment of a borrower’s credit standing, funding conditions and business strategies.

The shift towards the Standardised Base Rate following the revision in the Reference Rate Framework does not represent a change in the monetary policy stance of the Monetary Policy Committee of Bank Negara Malaysia.

For further information, please refer to the attachment below on the Key Highlights of the Revised Reference Rate Framework.

See also:

• Key Highlights of the Revised Reference Rate Framework
• Consumer Guide on the Revised Reference Rate Framework