Banks raising BLR by 30bps on Wednesday

KUALA LUMPUR: Banks are raising their lending rates by 30 basis points (bps) on Wednesday, May 11, following Bank Negara Malaysia's (BNM) move to raise key interest rates by 25bps to 3% last week.

Industry sources said all banks are raising their lending rates, led by CIMB Bank Bhd.

"Traditionally, it is Maybank (Malayan Banking Bhd) that takes the lead, but this time, banks are taking the cue from CIMB," a source said.

While the overnight policy rate (OPR) was only raised by 25bps, banks are raising their lending rates by 30bps as they added both the impact from the rise in the statutory reserve requirement (SRR) and OPR to the lending rate increase, he said.

"The bankers had discussion with Bank Negara on the possibility of raising lending rates by more than 25bps, given that banks were not allowed to raise their base lending rates in the previous SRR hike.

"Hence, banks are allowed to raise 30bps instead of 25bps this time round," an industry source said.

When the SRR was raised by 100bps to 2% in early April, CIMB raised its base lending rate (BLR) by 5bps to 6.35% but reversed its decision in less than 24 hours.

On Tuesday, RHB Banking Group and Maybank announced that they would raise its BLR and base financing rates by 30bps to 6.6% from 6.3% effective on Wednesday.

The two banking groups also announced that their fixed deposit rates would be raised accordingly effective on Wednesday.

The last time banks raised their BLR was in July 2010, following key interest rate hike by 25bps to 2.75%. Analysts said it is inevitable for banks to raise their lending rates, after the central bank raised interest rates, given that the OPR is the key guidance to lending rates.

Last Thursday, BNM simultaneously raised the OPR by 25bps and SRR by 100bps to 3% against market expectations, citing concerns of inflation.

The SRR is the amount of funds that banks have to keep with BNM interest-free, for the central bank to manage liquidity. It is calculated as a percentage of a bank's eligible liabilities.

The interest rate benchmark was last revised in July 2010, when it was raised by 25bps to 2.75%. Overall in 2010, BNM had tightened the OPR by a total of 75bps from a low of 2% during the height of the global financial crisis.

"Domestic headline inflation has continued to increase, rising to 3% in March to average 2.8% for 1Q of 2011. The increase was mainly due to higher food and fuel prices. The assessment is that supply factors will continue to be a key determinant affecting consumer prices.

"With the economy firmly on a steady growth path, the MPC (Monetary Policy Committee) decided to adjust the degree of monetary accommodation. At the current OPR level, the stance of monetary policy remains supportive of growth," BNM said in a statement last Thursday.

While the central bank's move to raise both the OPR and SRR at the same time was surprising, analysts said the hike in the rates was not likely to affect loan growth.  

"The hike in SRR would only mop up about RM190 million in liquidity from the banking system, which is insignificant. What Bank Negara is sending is a signal to the market that it is taking measures to prevent excessive risk-taking from banks," an analyst said.