Implementation of Base Rate Maybank Islamic

Transcription

1. IMPLEMENTATION OF BASE RATE BNM NEW REFERENCE FRAMEWORK FOR RETAIL VARIABLE RATE FINANCING
2. Background Reference Rate Framework- Issued by BNM on 19th March 2014 Objectives of the New Reference Rate Framework • Promote a transparent reference rate that allows meaningful comparison to be made for informed decision making by consumers; • Better reflect changes in the cost of funds arising from monetary policy or market funding conditions; and • Encourage more disciplined and efficient practices by FSPs in the pricing of retail financing facilities. Scope • Applicable to all Shariah Compliant retail financing facilities which are priced against a reference rate. Effective Date • Effective 2nd January 2015 2
3. Background Reference Rate Framework- Issued by BNM on 19th March 2014 Affected Customer Segment • Applicable to all new retail financing facilities extended to individual customers which are priced against a reference rate, including but not limited to mortgage financing, vehicle financing, personal financing and financing to individuals for business use. Excludes credit card. • Optional for the pricing of other financing facilities, such as corporate or SME financing. Corresponding Adjustment to BR and BFR • Any revision to the BR shall apply to the BFR by the same magnitude. Application of New BR • Applies to applications received for new retail financing facilities and refinancing of existing retail financing facilities, and the renewal of existing revolving retail financing facilities, on or after 2nd January 2015. • Existing floating rate retail financing facilities which were granted prior to 2nd January 2015 shall continue to remain priced against the BfR. 3
4. Policy Requirement Base Rate (“BR”) Profit Spread BR Reviewing Conditions  Benchmark cost of funds+ SRR  Correlates to monetary policy changes i.e. reflects the cost of managing Rate of Return and liquidity risk  Transparent market based pricing practices  BR plus a spread ( not below the quoted BR)      Liquid Asset Requirement (“LAR”) Liquidity risk premium (“LP”) Credit risk premium Administrative or operating costs Profit margin  Monetary policy changes  Market funding conditions  Regulatory changes Any revision of BR and BFR, FSPs shall provide the customers with particulars of the revised monthly installment amount at least seven calendar days prior to the effective date of the revision. 4
5. Policy Requirement  Permitted revision o Credit risk profile/creditworthiness of the customer. Spread Reviewing Conditions Applicability Exclusion  Non-permitted revision o Changes in operating costs o Funding management strategies o Portfolio default experiences o Higher profit margin  Only apply to new retail financing and the refinancing of existing credit facilities, and renewed OD facility effective 2nd January 2015 onwards  Financing generated prior to 2nd January shall continue to remain priced against the BFR ( except for OD which will be converted to BR upon renewal).  The installment amount by default shall be adjusted with each BR revision.  Adjust the financing tenure is allowed based on customer’s specific request. Customer must be informed on the adverse implication of the rescheduling.  Credit cards which are subject to the max financing rate of 18% p.a. 5
6. Policy Requirement Deposit Rates Disclosure Requirement  The proposed new reference rate framework will not affect current requirements with regards to deposit rates (as stipulated in the Guidelines on Reference Rates, Financing Rates and Deposit Rates of Banking Institutions) except for Conventional Children’s Saving Accounts and Housing Development Account.  Banks shall ensure that the reference rates and deposit rates, including the effective dates of these rates, are prominently displayed at the business premises and website.  Banks shall display changes to BR, including those made in response to a change in BNM’s OPR, at the business premises and website no later than the effective date of the revision. 6
7. Policy Requirement No . Notification Requirement Notification Period Submit to BNM the basis and methodology used to set the BR as well as triggers or conditions for change to the BR At least two (2) months prior to the effective date Notify BNM of the proposed BR level At least one (1) week prior to the effective date 2. Notify BNM for revision to the BR and the BFR that are made in response to a change in BNM’s OPR At least one (1) working day prior to the effective date of revision 3. Notify BNM on the revision to the BR and the BFR due to other factors At least one (1) working day The advance notification to existing customers on the revised monthly instalment as required under para. 8.14 Take place only after the lapse of the one (1) working day‘s notice to BNM 1. Notification Requirement 7
8. BASE FINANCING RATE VS BASE RATE From 2 January 2015 , Base Rate will replace the BFR for pricing of retail financing (floating rate) BEFORE 2 JAN 2015 FROM 2 JAN 2015 Profit Margin Base Financing Rate (BFR) Profit Margin Operating Costs Operating Costs Spread Liquidity Risk Liquidity Risk Credit Risk Cost of funds + SRR Credit Risk Existing BFR-based retail financing will continue to be priced against the BFR Benchmark cost of funds + SRR Base Rate (BR) 8
9. New Reference Rate – Benefits & Weaknesses Benefit Internal Funding Rate 1. 2. Internal COF Base – Historical COF Market Benchmark Rate + Internal Funding Rate     Weaknesses    Market Benchmark Rate 1. 2. KLIBOR Base – 1 month KLIBOR Base – 3 months Enable to be competitive in the market. Reflects the bank’s funding structure and strategies and fosters proactive funding management Able to accommodate anticipatory changes in the market, thus providing predictive capabilities in the BR. Enable to take advantage of Bank’s franchising value.   Correlated to monetary policy changes Reflects the marginal cost of funds concept Transparent market based pricing practices Efficient transmission of higher funding cost to customers. Good reference for hedging Rate of return risk where basis risk can be minimised Internal COF approach, hence, does not reflect the marginal cost of funds concept Rate of return risk potentially not addressed Low correlation to monetary policy changes as there is a time lag between revision of deposit rate and OPR (rising rate scenario).      Less diversification of Bank’s exposure across a range of profit rate tenors. Leaves a very thin profit margin for competitive pricing. 9
10. Key Impacts The Key Impacts of Introduction of Base Rate (BR) Products – Financing • The product packages / pricings are to be revised & priced against BR. Negative spread is not allowed for all the products Systems • Core Banking System, Financing Origination System, Marketing, MIS & reporting systems are to be enhanced to cater for the introduction of BR Communication • BR and its effective date is to be prominently displayed at branches & websites • Notification to customers on changes of BR & installment – at least 7 days before the effective date 10
11. Expectation By BNM on Front Liners to Communicate the Right Information to Consumers 1 ) 2) 3) 4) 5) 6) To inform customers that the Base Rate will apply to new applications for a floating rate financing product, received on or after 2 January 2015 To reassure customers that existing retail financing products (with fixed tenure) that are priced against the BFR will continue until maturity To provide customers with the consumer guide & product disclosure sheet and to advise customers to make comparison based on effective financing rate before taking a financing To educate customers that the FSP will adjust the Base Rate and BFR when there is a change in the OPR or market funding conditions To inform customers that for a floating rate financing, the monthly instalment amount will increase when there is a rise in Base Rate and BFR To alert customers to consider the potential increase in Base Rate when assessing their affordability in meeting payments. 11
12. Key Highlights of BNM Townhall Session on 2nd Dec 2014 Choice of Benchmark COF • • • 90% selected 3 months KLIBOR 10% (3 banks) selected other than 3 months KLIBOR Indicative BR ranges between 2.95% to 3.99% Trigger for BR review • • Majority proposed movement in benchmark COF> 5% to 10% Movement must be at least 5 consecutive days BR Notification to BNM • • Submission of final BR level to BNM by 26th December 204 Compiled list of BR will be shared with banks thereafter Transition Period (Jan to mar 2015) • • Banks cannot increase Effective Financing Rate except for OPR hike Effective financing rate defined as follows:Before 2nd Jan 2015 Reference Rate BFR= 6.85% BR=3.80% Profit Rate BFR-2.00% BR+1.05% 4.85% 4.85% Effective Financing Rate Post Transition Period (After Mar 2015) • • • After 2nd Jan 2015 Flexibility to price retail financing based on funding cost, risk and competitive force 14 days notice to BNM to change methodology Quarterly review of BR (recommended) 12
13. Key Highlights of BNM Townhall Session on 2nd Dec 2014 Communication • • Develop Consumer Guide, focusing on:o Educating customer to decide on Effective Financing Rate instead of on BR o Product Disclosure Sheet (PDS) to show effective financing rate and total payment amount o Advising customers to consider future payment capability in the event of increase on profit rate/installment amount o Corresponding adjustment to BFR and BR Disclosure indicative effective financing rate for a standard home financing (financing 350k, tenure 35 years) at all branches and website. Application of BR (2nd Jan’15 onwards) • • • New and refinancing Upon renewal of OD facility Restructuring of existing financing Adjustment to Installment Amount • Flexibility to retain existing installment amount if change is less than RM50 pm or an internal threshold, whichever is lower . BR Adjustment Note: Further checking to ensure than the non-adjustment of the installment amount does not result in infinity account or “large” tenure extension • Following change in BR/BFR, the monthly installment may be adjusted at end of the quarter • Should the benchmark COF/BR increased first in anticipation of OPR increase, no further adjustment to BR is required with actual OPR change. However, BR is to be adjusted if the benchmark COF subsequently moves to correct any over or under adjustment before the actual OPR change. • 13
14. THANK YOU