Small businesses want lower interest rates on bank credit

The Chamber of Small Business (GRTU) has joined the chorus of business voices saying that Maltese SMEs must have easier access to banking credit.

“We were very pleased to hear the undeniable confirmation from the governor of the Central Bank himself who insisted that lending rates in Malta are the fourth highest in the euro area,” the GRTU said.

Maltese SMEs are facing lending rates that are far higher than those faced by their counterparts not just in Luxembourg, but also in distressed countries Spain and Italy.

Interest rates in Malta are higher than the euro area average. “When comparing this rate with the average in countries that have been experiencing economic trouble, you can see that our banks are not following the same route,” CBM governor Josef Bonnici said.

In 2009, the difference in the rates set by the European Central Bank and those offered by Maltese banks was 2.8%, and in 2013 this climbed to 4.8% while for countries like Luxembourg this difference has remained stable.

GRTU president Paul Abela said that that both bank interest rates and bank charges remain excessive, especially on the smaller enterprises that have less negotiating muscle.

“Banks are still increasing their charges with a relatively recent development as an example by HSBC where it had introduced charges on internet banking to the private sector. The bank had saved money when it closed some branches and pushed businesses to go online to affect their banking needs,” Abela said.

Abela said that bank charges in Malta are higher than in many other places, when the changeover to internet banking should have meant lower charges. “In Luxembourg banks reduced costs of internet banking to encourage people to switch over to internet banking. Not in Malta. In Malta banks charge you even to transfer your money between your own accounts because more than one bank is involved,” Abela said.

Malta’s two major banks, and a third core domestic bank – Banif Bank – have denied suggestions by European Commission experts who have examined the island’s banking sector, that high interest rates are the result of some form of collusion or anti-competitive tactics by the banks.

The European Commission’s IDR (in-depth report) has not ruled out possible collusive behaviour among banks, after four of the five core domestic banks, identified by the Central Bank of Malta, appeared to have similar interest margins on loans.

The IDR found that the interest margin – the difference between interest rates on deposit accounts and loans – was so similar between banks, that it was possible that the limited competition had allowed interest rates on loans to converge between different banks… even if the profits that Maltese banks are making would allow them to start bringing interest rates down, in line with other EU banks.

Labour MP Silvio Schembri has also led talks as chairman of the parliamentary economic and financial services committee, on bringing banks to lower interest rates on lending to SMEs.

The EC report confirms claims that the interest rates charged on corporate loans appear relatively high, while retail banking fees in the two dominant banks – BOV and HSBC – appear higher than in the rest of the sector. “A closer look at the drivers of the high intermediation margin and fee and commission income could, thus, be warranted.”