KUALA LUMPUR (Jan 15): A shortage of ringgit and US dollars following the decline in the Malaysian currency's value over the past year has forced some foreign banks to raise their cost of borrowing.

The Business Times in Singapore reported that OCBC Bank (Malaysia) and United Overseas Bank (Malaysia) (UOB) both increased their base rates last week.

UOB told the business daily that the base rate was raised last Friday by 11 basis points, from 3.89% to 4%. It's base lending rate (BLR) has also gone up from 6.85% to 6.96%.

Meanwhile, OCBC took similar steps immediately after the new year, increasing its base rate from 3.92% to 3.99%, and its BLR from 6.85% to 6.92%.

The moves were made despite Bank Negara Malaysia (BNM) maintaining the key overnight policy rate (OPR) at 3.25%, so as not to add further pressure to businesses and individuals struggling with loan repayments.

Analysts say the liquidity crunch in the country is due to the shortage of ringgit and US dollars. The Business Times reports that the ringgit is currently trading at 4.42 to the US dollar, having declined by about 30% since late 2014.

An independent interest-rate and foreign-exchange strategist Suresh Ramanathan told The Business Times that due to the liquidity squeeze, large-scale wholesale deposits are being taken out by companies and converted to foreign-currency deposits to pay back loans or to cover foreign-exchange losses.

He added that many corporations would not have thought of having to hedge their US dollar borrowings at the 4.5-to-5 level and so have to resort to such moves.

According to The Business Times, the BNM website, as at last Friday, had listed Maybank as offering the lowest base rate of 3.20% with Public Bank next at 3.6% and Ambank at 4.0%.

Meanwhile, another foreign bank, HSBC Bank Malaysia, denied earlier reports that it would also raise its base rate from today.