What is the function of Base Lending Rate?

Base Lending Rate (hereinafter 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 B ank Negara Malaysia controls Overnight Policy Rate (hereinafter OPR) correlation to BLR over the inflat ion rate, in a way the bank will adjust BLR in reference of OPR. Before the Bank Negara Malaysia annou nces the BLR, there must be a revision among the banking institutions and had come to an agreement on r ates of BLR as their base interest percentage, hence any bank will set their own BLR by providing the per centage discount (BLR -) or percentage premium (BLR +). In the usage of BLR, the customer can formulate it by using the rate of BLR from the Bank Negara Malay sia and then subtracting or adding with the BLR percentage provided from the bank. This formula indicat es the amount of percentage of interest rate that need to be covered when applying the loan such as home loan, personal loan, overdraft and others product that includes BLR. From time to time, this rate will be a djust depends on economic situation such that when the market uptrend, the BLR will increases due to the higher inflation rate, and vice versa. When BLR increases, same goes to OPR and this will slows down th e customers demand and spending. On the other hand, if the BLR decreases, it will be a good opportunity to apply loan to get lower interest rate. In addition, the BLR reflects the actual cost to the bank that has to be covered through their lending opera tions. This is an improvement over the Prime Lending Rate (hereinafter PLR) due to the lack of opacity in its determination and the tendency for several loans to be reckoned at sub-PLR rates. However, this is a matter of bank disclose BLR unlike PLR, and the customer will know the cost of the bank spent and other administrative costs that had been charged. The insight of using BLR can be quite a risk on conventional bank as this rate will be inconsistent from ti me to time which will be depends on economic situation. For instance, when the BLR changes the rate of interest also changes, and it will influences the installment to pay the loan in the given period of time. The customers will bear the impact of increasing or decreasing of BLR when they have to pay up the loan or property.