RMA revises MLR third time

The Royal Monetary Authority (RMA) revised the single Minimum Lending Rate (MLR) from 6.51% to 6.52% in December last year.

A circular from RMA states that the central bank has revised the MLR from 6.51% as of June 2017 to 6.52% in December 2017. This revised MLR will remain effective for the next six months commencing March 2018 until August end 2018.

It states that all the financial institutions including the banks and non-bank financial institutions are expected to revise their final lending rates of various loan products earliest by April 1, 2018 using the revised single MLR.

This is the third time that the central bank is revising MLR after the introduction of MLR policy in July 2016.

In the previous revision, the trend of the revision was slightly decreasing, however in the recent revision it has slightly increased.

The RMA revised the MLR second time from 6.75% to 6.66% effective from March 2017 until August end 2017.

The RMA revised the MLR from 6.66% as of December 2016 to 6.51% in June 2017 effective from September 2017 until February end 2018.

MLR is a single benchmark or minimum reference rate for lending to be uniformly applied across all the financial institutions. On the common MLR, each financial institution will competitively add its expected spread to arrive at the final lending rates. The main objective of the MLR is to encourage competition and professionalism among the financial institutions to result in a balanced approach of engaging in financial intermediation.

There are three common parameters for computing the MLR: marginal costs of funds, negative carry charges on cash reserve ratio and operating cost.

The initial MLR was implemented from August 1 2016, and will be reviewed on a semi-annual basis, based on the end of June and December monthsโ€™ balance sheets.

RMA will review the MLR which subject to change every six months. The interest rates are bound to change twice a year based on the market forces.

Dechen Dolkarย from Thimphu