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Estimated probability of default

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Maybank has a three-month outstanding loan to XYZ Inc. The key information about the loan is as follows:

  • Maybank expects that the loan would return 12.5%, given an estimated probability of default is 3%;
  • The bank has been charging its best borrowers an interest rate of 8%, whereas the current OPR is assumed at 5%;
  • A compensating balance requirement for Maybank's borrowers is 5%;
  • A loan origination fee of 1.5%;
  • Bank Negara Malaysia requires Malayslan commercial banks to keep 2% of their deposits (including the compensating balance) at the central bank;

Based on the information provided, what was the premium to compensate for the default risk that Maybank charged to XYZ Inc.? Provide the answer in percentage terms and round answer up to two decimals.

Reference no: EM133074609

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