BANKS have been urged to minimise the adjustments to their deposit rates following the cut in Bank Negara's intervention rate, a move intended to reduce the cost of funds to businesses.
The banks have the flexibility and cushion to do so,'' Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said after delivering her keynote address at the MCA economic seminar yesterday.
Bank Negara said yesterday adjustments in deposit rates should be less than in the base lending rate (BLR). In clarifying news reports, it said the one-month deposit rate should not be less than 3%, and that adjustments downwards in other fixed deposit rates should not be more than 0.3%.
Following the cut in the intervention rate by 0.5% to 4.5%, as announced in the economic package on Wednesday, the ceiling BLR (to which the intervention rate is pegged) for commercial banks would fall to 6%, from 6.42%; and for finance companies to 6.94%, from 7.46%.
OCBC Bank (M) Bhd head of consumer banking Cheong Chin Kuan said there was a need to lower deposit rates to mitigate the impact on banks' revenue due to the intervention rate cut.
The adjustments have yet to be determined, but we expect to come to a decision in a couple of days. The rates may be lowered by about 0.2%-0.3%, as per the guidelines issued by Bank Negara, he told Starbiz.
An analyst from OSK Research said with the reduction in BLR, a lowering of fixed deposit rates was to be expected as was the case when the intervention rate was reduced by 0.5% to 5% in 2001.
Margins of banks will be squeezed due to the reduction in intervention rate, but with the lowering of fixed deposit rates, the magnitude will not be so great, the OSK analyst said.
The analyst agreed that the quantum of reduction in fixed deposit rates should not exceed the reduction in BLR.
On the reduction in BLR, she said: It would help to stimulate demand for loans, thus increasing loans growth.
An analyst with a foreign-based stockbroking firm expected earnings in banks to fall by between 6% and 8% should deposit rates be maintained at current levels. However, analysts see the banks revising the deposit rates downward.
According to analysts, the extent of margin squeeze would vary among the banks those with more loans pegged to BLR would be affected more.
Meanwhile, Malayan Banking Bhd has announced a reduction in BLR to 6%, from 6.4%, effective today.