THE Association of Banks in Malaysia (ABM) has commended the new interest rate framework announced by Bank Negara Malaysia on Friday that came into effect immediately.
The new framework is more reflective of the actual demand and supply conditions in the interbank market as it is based on the newly introduced overnight policy rate (OPR), said ABM chairman Dr Rozali Mohamed Ali through a statement released by the association in Kuala Lumpur on Saturday.
The OPR, which is now fixed at the current interbank overnight rate of 2.70%, is to be used as the anchor rate for banks to calculate their respective base lending rates as opposed to the 4.5% intervention rate used under the previous framework, he said.
A corridor of plus or minus 25 basis points (bps) has been introduced to contain excessive volatility in the overnight rate.
Each banking institution will now determine its own respective Base Lending Rate (BLR) based on its cost structure and business strategy, he said.
The removal of the 25 bps cap on BLR would allow banks more freedom to quote their interest rate above their respective BLR, he said.
The new framework has been designed to be transparent, simple, and efficient, thereby reducing speculative elements in the direction of interest rates, he said.
Dr Rozali said it was also a significant step towards liberalising the interest rate regime in line with the Financial Sector Master Plan and would spur a new dimension of competition among the financial institutions.
To take advantage of this liberalisation, member banks are expected to introduce more structured products and financial packages to break into new market segments as they are now in a better position to differentiate pricing based on product offerings and risks, he said.
With higher levels of disclosure and consumer education, the public are expected to be better informed and more discerning in their choice of banking services, he said.
This, coupled with further enhancement of the Financial Mediation Bureau in the near future, would pave the way for further improvements in the quality of banking services in this country, he added.
Indeed, the introduction of this completely new interest rate framework is timely, considering the economic environment that has not only turned around but also registered increasingly higher growth, he said. Bernama