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Malaysia Proposes New Framework for Banks to Price Mortgages

Jan. 16 (Bloomberg) -- Malaysia’s central bank plans to introduce a new reference rate framework for banks to price their consumer loans to better reflect market conditions.

The proposed changes would stop lenders from offering debt at discounts to base lending rates, according to a concept paper released by Bank Negara Malaysia today. It would also boost transparency and ensure charges better take into account institutions’ lending costs, funding structures and statutory reserve requirements, it said in a statement.

Malaysian institutions set their own base lending rate, or BLR, for pricing consumer loans, particularly mortgages. This has lost relevance in recent years as lenders including Malayan Banking Bhd. have charged customers much less. Malaysia’s biggest bank is offering mortgages at 4.8 percent for the first three years under its MaxiHome package. That’s a 2.2 percentage-point discount to its 6.6 percent BLR rate, according to its website.

“The proposed basis for setting the reference rates will eliminate negative spreads,” the central bank said. “The new reference rate aims to improve the transmission of monetary policy to both new and existing borrowers, and promote a transparent pricing of floating rate retail loans that is more reflective of market conditions.”

In recent years, banks have typically set similar BLRs to one another to stay competitive. There is insufficient transparency, the central bank said.

Lenders will have until Feb. 14 to give feedback on the proposed framework. The changes don’t reflect a shift in monetary policy, Bank Negara said.

To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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