Azman: New rate framework will spur competition

by **Cals** Mon 27 Jan 2014, 01:55

Published: Saturday January 25, 2014 MYT 12:00:00 AM
Updated: Saturday January 25, 2014 MYT 7:04:12 AM
Azman: New rate framework will spur competition
PETALING JAYA: The new reference rate framework proposed by Bank Negara to replace the base lending rate (BLR) will spur stiff competition in the banking industry,AmBank Group chairman Tan Sri Azman Hashim said.
“Competition will get stiffer, as customers will be exposed to more transparent pricing,” he told a media briefing after handing over a multi-purpose vehicle to the Malaysian Islamic Women’s Welfare Council as the diversified banking group’s contribution.
Also present was the Tunku Ampuan of Negeri Sembilan, Tuanku Ampuan Najihah, who is also the council’s president.
The new reference rate, as proposed by the central bank via an industry consultative paper to the financial industry on Jan 16, will be determined by the respective financial institution’s funding cost.
Under the proposal, every financial institution should have a specific funding structure and strategies, and its compliance with the statutory reserve requirements will be reflected in the pricing. Other pricing components such as borrower credit risk, liquidity risk premiums, operating costs and profit margins have also been proposed by Bank Negara to be reflected in the spread to the reference rate. — Bernama
The current BLR-minus will be replaced with a new style of reference rate, plus a spread.
Therefore, the basis for introducing the reference rate will be simply to eliminate negative spreads to the reference rate, going forward.
Azman, a veteran banker, agreed with the central bank that the proposed changes in the reference rate framework would have no major impact on effective lending rates charged to retail borrowers.
Once the new reference rate is implemented, both new and existing borrowers can expect to easily compare a more transparent pricing mechanism between financial institutions for better informed decision-making.
In this transparent scenario, banks will have to add more value to loan packages to attract customers, with the latter benefiting the most.
Banks have been given until Feb 14, 2014 to provide feedback to Bank Negara on the suggested reference rate.
Azman also did not deny that competition might lead to another round of bank mergers in view of the Government’s stand to allow market forces to decide on the consolidation.
In July 2007, the Government said that it had no plans for further consolidation of banks after they had been reduced from 44 to 10.
As of now, there are eight local commercial banks, with 19 others under foreign ownership.
On the outlook for the banking industry this year, Azman said in jest: “Since this year is the year of the ‘horse’, (industry) players will keep on ‘cantering’ so (that) the economy will keep on moving, which is good, although the pace might not be that fast.”
Azman expects banks to retain profits this year, even though the loan growth might be flattish on the back of a possible hike in interest rates.
”AmBank will remain strong and will continue to grow in the ever-competitive market, as we will always add value to our products.
”Our next growth area could be in the insurance segment,” he added. — Bernama