Maltese banks charging high interest rates on lending

Malta has the fifth highest rate of bank lending interests rates after Cyprus, Greece, Portugal and Slovenia, Central Bank governor Josef Bonnici told a parliamentary committee this week.

Labour MP Silvio Schembri, who chairs the economic and financial affairs committee, asked Bonnici to give a presentation on banking interest rates, which the MP says are too high for small and medium enterprises to get credit and expand operations.

Even countries with stressed economies, like Italy and Spain, were shown to have lower lending interests rates than Malta.

Bonnici's presentation showed that deposit rates in Malta were closer to eurozone levels than lending rates. Banks had higher interest margins than the euro area average.

But credit growth in Malta had also slowed down since the financial crisis in 2008, almost approaching the zero level in 2013 - such is the caution exercised by banks in the face of non-performing loans and other defaulters, especially in the construction industry.

"This presentation clearly proves my concerns: while I understand that banks must make profits, they must keep in mind the obligations they have towards society and the country's economy.

"There is no doubt that a bank's function is reduced when there is no economic growth, and that without their credit economic growth can be limited. I know banks have big challenges, but one cannot ignore that their interest rates for non-financial corporations is one of the highest ones in Europe," Schembri said.

The MP says he wanted to create public awareness about the high rate of interest on lending interest rates by Maltese banks, saying that after registering satisfactory profits these banks should help businesses get access to credit. Various factors need to be considered when building business credit. Visit this website to read about all the ways business-owners can build business credit sufficiently

"One needs to note that while in 2009 business loans from banks were increasing at the rate of 14%, this started decreasing from one year to the other, reaching the zero level last year," Schembri told MaltaToday.

"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. 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."

Schembri also said that those banks in Malta that are considered to be "non-core" - unlike banks like Bank of Valletta, HSBC Malta, APS, or Banif Bank - only attract deposit-holders who reap interest rates after three years.

"The main bulk of deposit holders - 89% - prefer to deposit their cash with Maltese banks," Schembri said, underlining the bulk of money held by these banks.

When it comes to profits, Maltese banks also registered the second highest return on assets in Europe, and the highest return on equity, with 24% compared to just 5% for German banks.

"Banks must keep in mind that our economy has to grow and that it needs financing. The way to do this is by reducing the cost of borrowing, which will mean reducing the burden our business face on financing costs, when compared with their counterparts."

Bank lending to business firms in Malta shrunk "at a record pace", according to data supplied to the European Central Bank, declining at annual decline of 10.4% according to the latest monetary statistics.

Bonnici has called on Maltese banks to reduce their rates for loans to businesses, bringing them in line with their European counterparts.

Bank of Valletta recently reduced its business lending base rate by 15 basis points while raising rates payable on deposits with a maturity longer than one year, by up to 50 basis points. But BOV chairman John Cassar White has said the high margin between the rates for borrowers and depositors had to be sufficient to make up for credit losses, banking infrastructure, and to give shareholders a fair return.

An HSBC spokesman also said that it was important to maintain a proper balance in the banking system between deposits and loans.