Impact of Standard Base Rate (SBR) Replace Base Rate (BR)
Bank Negara Malaysia (BNM) has released the revised Reference Rate Framework, under which the Standardised Base Rate (SBR) will replace the Base Rate (BR) as the reference rate for new retail floating-rate loans from August 1, 2022. The shift towards the SBR will have no impact on the effective lending rates of existing retail loans, which will continue to be referenced against the BR and Base Lending Rate (BLR).
Under the revised Reference Rate Framework, the Standardised Base Rate will be used as the common reference rate for all financial institutions for their new retail floating-rate loans. The Standardised Base Rate will be linked solely to the Overnight Policy Rate (OPR). Changes to the Standardised Base Rate will therefore only occur following changes in the OPR, which is determined by the Monetary Policy Committee of Bank Negara Malaysia. Other components of loan pricing such as borrower’s credit risk, liquidity risk premium, operating costs, profit margin and other costs will continue to be reflected in the spread above the Standardised Base Rate.
Other components of loan pricing such as borrower’s credit risk, liquidity risk premium, operating costs, profit margin, and other costs will continue to be reflected in the spread above the Standardised Base Rate. Standardised Base Rate will have no impact on the effective lending rates of existing retail loans, which will continue to be referenced against the Base Rate (BR) and Base Lending Rate (BLR).
After the effective date, the BR and BLR will move exactly in tandem with the Standardised Base Rate as any adjustments to the Standardised Base Rate will simultaneously be reflected in the corresponding adjustments to the BR and BLR.
What is the Standardised Base Rate
The SBR is the reference rate that all banks will use starting from 1 August 2022 in the pricing of new retail floating-rate loans, refinancing of existing retail loans, and the renewal of revolving retail loans from 1 August 2022. Retail loans refer to loans to individuals (not SMEs or businesses), while ‘floating-rate loans’ refer to loans where the interest rate can change during the lifetime of the loan. The SBR is linked solely to the Overnight Policy Rate (OPR), as determined by the Monetary Policy Committee (MPC) of Bank Negara Malaysia.
What is the Different between Standardised Based Rate vs Base Rate vs Based Lending Rate
What is the Impact on Standardised Base Rate to current loan
SBR will only have an effect for those who will be taking on a loan starting from 1st August 2022. Anything before that will still be priced against the BR or BLR.
To put it simply: This move is expected to allow consumers the benefit of comparing lending rates easier and to ensure more transparency.
Heightened transparency would translate to better-informed consumers, thereby benefiting both property owners and consumers in Malaysia. With only one rate which is driven by the OPR, consumers would thus be able to better understand the reason behind loan repayment changes when the interest rates change as well. In addition, consumers would also be able to easily compare the lending rates of each bank if they’re shopping for a new home loan, so they can see which one has the best spread for them.
Benefits of Standardised Based Rate
- Easier to understand that repayment instalment will only change when there is a change in the OPR, unless there is an increase in your credit risk, for example, if you fail to make repayments.
- No longer need to compare differences in computation of BRs across banks.
What should you do as a borrower?
- Compare the effective lending rates (ELR) or the spread above the SBR quoted by different banks before taking a new loan.
- Read the Product Disclosure Sheet (PDS). It provides key information on financial products offered by banks, including on the ELR and total repayment amount for the loan you are considering.
- Understand that your monthly repayment amount will increase or decrease when there is a change in the OPR going forward.
- Assess whether you can continue to afford the loan repayments if the effective lending rate increases in the future.
Source: PropertyGuru, Bank Negara Malaysia (BNM)