Today I just came across this article from The Star newspaper, thought of to share it here. Please take a look!

There may be a price war to give out cheaper bank loans

By TEE LIN SAY
linsay@thestar.com.my

KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.

Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.

The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.

A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.

“Previously we were offering BLR-1.9%. Now, we are revising the rate to BLR-2.1%. We had been losing some market share to foreign banks and decided to join in the price war,” he said.

The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs.

The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.

This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.

StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.

It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.

While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.

“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.

The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.

Business loan is now 44.7% of total loans as at end of July 2010.

Property brokers agree that the outlook for the property sector has been improving.

Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.

“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.

A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.

However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.

She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.

The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.

This impact might be offset by the new round of price war among banks for consumer loans.

Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items

The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.

The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.