The policy document on reference rate framework (RRF PD) was issued by Bank Negara Malaysia (BNM) on 11 August 2021 and will come into effect on 1 August 2022.
The RRF PD, when it comes into effect, will apply to financial service providers (FSPs) licensed under the Financial Services Act 2013. These are the following:
- Islamic banks licensed under the Islamic Financial Services Act 2013; and
- development financial institutions prescribed under the Development Financial Institutions Act 2002.
From 1 August 2022, a standardised base rate (which will be linked solely to the overnight policy rate (OPR)) will be used as the common reference rate for pricing of all new retail loans or retail sharia-compliant financing facilities (including, without limitation, housing loans or financing, vehicle loans or financing and personal loans or financing).
Any change to the standardised base rate will occur only when there is a change to the OPR, as determined by the Monetary Policy Committee of BNM. 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.
BNM has indicated that the shift towards the new standardised base rate will not impact the effective lending rates of existing retail loans or retail sharia-compliant financing facilities.
The RRF PD, when it comes to effect on 1 August 2022, will supersede the policy document on reference rate framework which was issued on 18 August 2016.
For further information on this topic please contact Pamela Kung at Shearn Delamore & Co by telephone (+60 3 2027 2911) or email ([email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.