BANDAR SERI BEGAWAN

BANK loans and financing on home properties no longer have a regulatory cap for their interest or profit rates, according to the Autoriti Monetari Brunei Darussalam (AMBD).

The AMBD has revoked regulations on profit rates on residential property financing for Islamic banks as well as interest rates on residential property loans for banks, according to two notices published in the AMBD website.

In the first notice, “Deregulation of interest rates on residential property loans,” which applies to banks, the AMBD said that the effective interest rates on residential property loans are deregulated. All banks are also free to price their residential property loan products “within a reasonable range.”

In the second notice, “Deregulation of profit rates on residential property financing”, that applies to Islamic banks, the AMBD said that the annualised profit rates on residential property financing are deregulated and all Islamic banks are free to price their residential property financing products within a reasonable range.

The notices were dated to be effective on October 3.

Last year, rates for home property financing had been capped at 4.5 per cent per annum. In March 2013, the AMBD had said that these measures aimed to enhance financial infrastructure and promote financial and debt management among borrowers.

AMBD defines residential property loans and financing as financial tools used for the purpose of purchasing, improving, construct-ing or altering of immovable property in Brunei Darussalam. Such property is solely used for personal purposes and not business purposes and shall be secured by a charge of the property. But AMBD said that banks should ensure that the rates charged to customers are not excessive and reflect a reasonable risk premium over their cost of funds.

It also said that banks should ensure that existing charges or fees for loans and financing are reasonable and shall not be increased. The AMBD said that new or additional charges/fees, in whatever form, will be imposed on the borrower.

It said that banks should also ensure that the value of the residential property loan or financing reflects a prudent valuation of residential property charged and is supported by a professional valuation report prepared not more than three years from the date of the application.

Banks also need to ensure that the counterparty risk of the borrower is carefully assessed to minimise the repossession risk of the property financed. AMBD also urged banks to provide “maximum publicity” on profit or interest rates, including publishing it on their respective websites and relevant published materials.

The AMBD said that starting this month, all banks are required to submit the residential property loan or financing rates charged to customers to the Regulatory Department. it said this should be done on a monthly basis.

The authority said that it will closely monitor lending in the property sector and “reserves the right to intervene from time to time to ensure a healthy competitive market”.

The Brunei Times