ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Foreign banks in Brunei can adjust to monetary policy shifts: ADB
Publication Date : 21-09-2013
The Asian Development Bank (ADB) believes that foreign banks in Brunei will factor the effects of interest rate controls imposed by the Autoriti Monetari Brunei Darussalam (AMBD) into their operations.
ADB Principal Economist at the Regional Cooperation and Operations Coordination Division Jin Chyn said that the specific issues at hand need to be analysed based on the banks' current situation and financial strength.
"Given the low interest rates globally, foreign banks would operate in Brunei as far as there are profitable projects to lend, given the controls," he said in an email responding to questions from The Brunei Times.
"As external and domestic environments change, for example higher funding costs globally, (there will be) further and frequent revisions in the ceiling or floor rates by AMBD. However, foreign banks would adjust their operations accordingly."
AMBD mandated new interest rates last March 6 to enhance the financial infrastructure and inculcate sound financial practices and debt management among users of credit.
The monetary authority revised interest rates for loans, capping effective interest rate or annualised profit rate Effective Interest Rate (EIR)/Annual Percentage Rate (APR) for residential financing at 4.5 per cent per annum.
Credit facilities against fixed deposits under lien to the bank (excluding credit cards) are subject to a maximum of EIR/APR of five per cent, while a rate of 5.25 per cent was imposed on non-property credit facilities against property charged.
Corporate credit facilities against corporate guarantee are set at six per cent and the EIR/APR for credit facilities against direct debit to salary or pension assigned to the bank (excluding overdrafts) are capped at 7.5 per cent.
For motor vehicles excluding motorcycles, EIR/APR for different tenors of motor vehicle financing cannot exceed 4.25 per cent.
A revised minimum savings deposit rate of 0.15 per cent per annum is now be applicable for new and existing savings.
In its most recent country assessment report on Brunei, the International Monetary Fund (IMF) said that interest rate controls by the central bank might have detrimental effects on the financial sector.
"The recent interest rate controls imposed by the AMBD could have a negative effect on financial intermediation," said IMF in the June report.
Meanwhile, the chairman of the Brunei Association of Banks, Terence Cuddyre, said that financial institutions are coping with the new lending and deposit rates imposed by the central bank.
He admitted that the revised financing and deposit rates implemented by the AMBD had been a "challenge" for several financial institutions.
In an interview with The Brunei Times, he said that several banks were still trying to get used to the regulations and operating based on the capped rates.
"I think that we're still getting used to the new interest rate rules that were implemented and we're starting to get to grips with that but that has been a challenge for a number of institutions in the market place," said Cuddyre.
"Lending product is a mainstay for most of the banks. So the new regulations that were put in place did put caps on a number of the lending products that were in the marketplace."
"And it has made that a little more difficult to manage from the stand point of managing a book of loans in terms of the interest rates that we can charge and how rates are reset and so on. So that's been a challenge for a number of institutions."