Open AccessApplying Game Theory to Mortgage Framework
Author(s) -
Abdul Shukur Abu Hasan,
Nurulhuda Firdaus Mohd Azmi,
Nilam Nur Amir Sjarif,
Haslina Md Sarkan,
Yazriwati Yahya,
Salmy Edawati Yaacob
Publication year - 2020
Publication title -
iop conference series. materials science and engineering
Language(s) - English
Resource type - Journals
eISSN - 1757-899X
pISSN - 1757-8981
DOI - 10.1088/1757-899x/864/1/012075
Subject(s) - loan , competition (biology) , transparency (behavior) , business , oligopoly , customer base , welfare , game theory , economics , industrial organization , financial system , microeconomics , finance , market economy , ecology , political science , law , biology
To some, the retail banking market is considered an oligopoly. This is not healthy for a country’s economy and its people because it is important for competition to thrive in the banking industry. Any form of market failure or anti-competitive behaviour affects productive efficiency, consumer welfare and economic growth. With the introduction of the Base Rate (BR) to replace the Base Lending Rate (BLR), Bank Negara Malaysia (BNM) seeks to inject transparency into the mortgage framework. Under this system, banks will have to disclose their margins and are not allowed to loan below the BR just to attract customers and boost loan growth. This new framework will allow customers to make better financial decisions whilst having little impact on borrowers. Even though this only applies to personal home loans, it still poses a challenge to competing banks. Those with a seemingly strong niche in consumer financing will be able to offer more attractive and competitive BR leading to better Effective Lending Rates (ELR). This paper proposes using Game Theory (GT) as a method to predict probable outcomes in strategic interactions for BR revision. Monte Carlo Simulation (MCS) will then provide a means of weighing the probabilities of the contributing factors. With the ability to anticipate the competition’s next moves in a quantifiable manner, strategists will be better prepared in understanding and navigating the complex banking system.