As some may be aware, the OPR has been brought down by 75bps, which is now standing at 2.50% on 21st Jan 09 during the Monetary Policy Committee (MPC) & the reduction of SRR from 3.50% to 2%. Then the thought process began…someone asked me through email:
TN: Hi... can I know what is SRR?
SZ: Statutory Reserve Rate – the amount set aside by the bank with BNM each time they take in a deposit, its basically idle money as it doesn’t earn interest in the BNM account, so it’s a cost to the bank.
TN: Ok. So it is 2% of total deposits is it? Is it any kind of deposit?
SZ: Yes 2% of the net of the eligible liabilities & asset. There is a way to calculate the amount that is eligible to be deducted from the SRR, certain deposits & capital items are exempted, that’s the eligible liabilities, get the net figure & apply the 2% which will be placed at BNM account with no interest. Refer to the attachment, the items are stated in the appendix [if anyone wants to see it, just ask me]
TN: Thanks. So when the OPR drops, it will be better for banks who are borrowing rite? And when SRR drops, banks have more money to lend out rite? But FD rate will also drop rite?
Here’s where I started thinking…
SZ: Yes yes & yes, but im wondering, actual deposits will also drop then kan? People will find else where to put their money, and since the equity market is down, ppl might just turn to unit trusts n all…since they could expect more returns, rather than low interest FD's...what do u think…then how to raise $$?
TN: guess people will just start spending more instead of saving rite?
SZ: That’s what they are trying to get ppl to do, but is it good for the bank that ppl dun wanna put money in?
TN: True... so does that mean this will cause adverse effects to the banks?
Gee I have no idea how it affects the bank…the question is still left hangging...Maybe I should start monitoring the deposit accounts & check the trend...or just find some reading material…
TN: Hi... can I know what is SRR?
SZ: Statutory Reserve Rate – the amount set aside by the bank with BNM each time they take in a deposit, its basically idle money as it doesn’t earn interest in the BNM account, so it’s a cost to the bank.
TN: Ok. So it is 2% of total deposits is it? Is it any kind of deposit?
SZ: Yes 2% of the net of the eligible liabilities & asset. There is a way to calculate the amount that is eligible to be deducted from the SRR, certain deposits & capital items are exempted, that’s the eligible liabilities, get the net figure & apply the 2% which will be placed at BNM account with no interest. Refer to the attachment, the items are stated in the appendix [if anyone wants to see it, just ask me]
TN: Thanks. So when the OPR drops, it will be better for banks who are borrowing rite? And when SRR drops, banks have more money to lend out rite? But FD rate will also drop rite?
Here’s where I started thinking…
SZ: Yes yes & yes, but im wondering, actual deposits will also drop then kan? People will find else where to put their money, and since the equity market is down, ppl might just turn to unit trusts n all…since they could expect more returns, rather than low interest FD's...what do u think…then how to raise $$?
TN: guess people will just start spending more instead of saving rite?
SZ: That’s what they are trying to get ppl to do, but is it good for the bank that ppl dun wanna put money in?
TN: True... so does that mean this will cause adverse effects to the banks?
Gee I have no idea how it affects the bank…the question is still left hangging...Maybe I should start monitoring the deposit accounts & check the trend...or just find some reading material…
.JPG)
