Puzzled by rise in instalments

  • Letters
  • Monday, 23 May 2016

I REFER to the report “All eyes on interest rate” (StarBiz, May 19). The first paragraph states “All eyes are on Bank Negara as speculation mounts on the possibility of the central bank lowering interest rates today.”

The graph accompanying the report shows that the interest rate in Malaysia has been stagnant since December 2015.

Reading this report left me very puzzled because the instalment for my housing loan has been steadily increasing over the last few months. I do understand that since the changes announced by Bank Negara on Jan 2, 2015, the interest rate for housing loans is based on a new floating rate mechanism. But it still puzzles laymen like me as to why our instalments are going up.

According to Bank Negara, the new mechanism (Base Rate) “will be determined by the financial institutions’ benchmark cost of funds and the 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 above the Base Rate. This increases the visibility of the factors underlying changes to the Base Rate. The greater transparency in turn will enable more informed decision-making by consumers.

Under this cost-plus structure, spreads will always be positive as it would not be possible for financial institutions to offer lending rates below the reference rate. Financial institutions will be given the flexibility to determine their respective benchmark rates. The expected strong link between the Base Rate, market interest rates and the Overnight Policy Rate (OPR) will facilitate more complete adjustments to retail loan repayments when market interest rates adjust to an increase or decrease in the OPR.”

Those, including me, who got their housing loans before Jan 2, 2015 are still pegged to the base lending rate (BLR) but according to a Bank Negara statement, “After the effective date, BLR-based loans prior to 2015 will continue to be referenced against the BLR. “However, when a financial institution makes any adjustments to the Base Rate, a corresponding adjustment to the BLR will also be made.”

On behalf of all Malaysians who have housing loans to service, we sincerely hope that banks do not increase the rate despite Bank Negara maintaining the OPR and after it revised the SRR recently.

Furthermore, every time the BLR changed, the banks would need to publicise the changes in the local newspapers to inform their customers. Now, after the new mechanism, customers are in the dark unless we proactively check with the banks before we pay our monthly instalments. I was just recently called up by the bank about this and was even slapped with a fine for paying a lower amount of instalment.

We would like to request that banks be more customer-friendly. Life is already tough for us with the current high cost of living.


Shah Alam

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