Competition office delving deeper into high bank interest rates

The Malta Competition and Consumer Affairs Authority is carrying out a sector inquiry over Maltese banks’ high interest rates on loans, among the highest in the eurozone.

DOWNLOAD PDF ‘State of play document on interest rates’

“Over the past months, there has been an intense debate regarding allegations of excessive charges and high interest rates on loans by the banks,” the MCCAA’s office for competition said, referring to numerous statements from business organisations and even the Central Bank governor on high credit interest rates being charged.

The sector inquiry focuses principally on the interest rates of loans charged by banks to SMEs, interchange fees and merchant service charges.

Competition in the banking sector in Malta has been the subject of a wide debate particularly over the last few months. In the last Budget Speech, finance minister Edward Scicluna expressed the government’s concern on the alleged high interest rates at which SMEs are borrowing and on high charges, noting that high interest rates and charges increase costs for businesses and erode the country’s competitiveness.

Banks’ margins on loans are wider in Malta when compared to other EU states and that remains room for further alignment with peers.

And a recent European Commission report has noted converging interest margins and has observed that higher interest rates on loans could reflect lack of competitive pressure or even collusion.

The office has been in contact mainly with the core domestic banks, Central Bank and the Malta Financial Services Authority and requested from them both quantitative and qualitative data. Meetings were held with Chamber of SMEs GRTU and the Chamber of Commerce.

Market studies can lead to a range of outcomes. If the inquiry confirms that the market is not working well, the director-general can recommended action where necessary to restore healthy competition, initiate an investigation where a breach of the EU or national competition rules is suspected; and accept commitments from the undertakings concerned to address the competition concerns.

“At this stage the Office is in the process of gathering complete information. In the interest of transparency, the Director General of the Office for Competition is releasing a state of play document on its sector inquiry indicating the remit of the Office for Competition, the objectives and scope of the sector inquiry and possible courses of action in terms of the Competition Act.”

The Office for Competition is inviting interested third parties to submit their views and feedback on this inquiry by 16 May 2014.