As the title implies, there will be a new reference framework for bank interest rates from 1st August 2022. So what is this Standardized Base Rate (SBR) all about?
In 2015 when Base Rate (BR) was first introduced, different financial institutions used different benchmarks to set their respective interest rates. So we end up having different interest rates between banks and this creates confusion among borrowers. How then do we determine which bank gives the best interest rate?
Let me explain more in detail. BR is a floating interest rate and is dependent on the Overnight Policy Rate (OPR) which is determined by Bank Negara. BR varies between banks. You need to add the “Spread” to get the Effective Lending Rate (ELR) which is the final interest rate you will be paying. The “Spread” is a fixed interest rate which is determine by the banks and it varies from bank to bank. It depends on factors such as a borrower’s credit risk and cost of lending. Therefore the determining factor when choosing a bank is not BR or the “Spread” but ELR.
Come 1st August 2022, BR will be replaced by SBR as a common reference interest rate which will be used by all financial institutions. It will be easier for borrowers as it will be the same in all banks. In future, SBR changes will only occur where there is a change in OPR which is determine by Bank Negara. As for the “Spread” there will be no changes.
The move towards the new Standardized Base Rate (SBR) will not have effect on the existing interest rate that borrowers are currently paying.
Please take note that SBR only applies to housing and personal loans floating interest rate. Floating interest rate refers to interest rate which fluctuates and not fixed. There might be changes in future though.
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