Effective January 2, 2015, the Base Lending Rate (BLR) structure was replaced with a new Base Rate (BR) system. Under BR, which will now serve as the main reference rate for new retail floating rate loans, banks in Malaysia can determine their interest rate based on a formula set by the central bank.
Under the previous BLR, the rate was set by Bank Negara Malaysia (BNM) based on how much it costs to lend money to other financial institutions. Meanwhile, the cost to borrow money was determined by the Overnight Policy Rate (OPR) set by central bank.
With the new BR, interest rates are determined by the banks’ benchmark cost of funds and 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 in the new BR framework.