KUALA LUMPUR (March 27): Malaysian banks will be required to revise loan instalments within a set turnaround time following changes in reference rates, starting July 1.

Under Phase 1 of the new approach, financial service providers (FSPs) must adjust instalments within 60 calendar days, with Phase 2 reducing the turnaround time to 30 calendar days from Jan 2, 2028, according to a revised policy document released by Bank Negara Malaysia (BNM) on Friday.

BNM said the phased approach is intended to ensure faster and more efficient transmission of monetary policy to customers, while giving FSPs sufficient time to upgrade systems and align operational processes with the enhanced requirements.

The new approach applies to all licensed banks, licensed Islamic banks, and prescribed development financial institutions.

Malaysia introduced a standardised base rate (SBR) in August 2022 to replace the previous base rate (BR) as the reference rate for retail loans and financing facilities.

Under this system, the lending or financing rate charged to customers is calculated as the SBR, which is based on the prevailing overnight policy rate (OPR), plus a spread determined by the FSP.

BNM said FSPs will continue to have the flexibility to set lending and financing rates for new loans based on internal and commercial considerations.

However, FSPs are required to adjust the SBR within seven working days following any change in the benchmark rate, with adjustments applied symmetrically for both increases and decreases.

Any change to the SBR must be reflected in all new and existing retail loans and financing facilities priced against it.

Once a retail loan contract is signed, any increase in the spread over the SBR during the loan tenure may only reflect changes in the borrower’s credit risk.

FSPs are also prohibited from raising the spread to account for operating costs, funding strategies, portfolio performance, or to increase profit margins over the life of the loan.