Updated: HSBC, BOV reduce their base rates

Peter England

Nov 13th 2008, 14:43

And what about Lombard Bank ?

Following the reduction of 0.5% last month Lombard remained pretty sitting without moving a figure. What about this month? Why dosen't The Times report on small banks ? Can the MFSA please light a candle on this ...to save some energy :)

K. Grech

Nov 12th 2008, 10:29

So correct me if I'm wrong. HSBC home loans are at 3.55% when BOV home loans are at 3.25%, but HSBC makes it a point to say the interest rates on savings accounts has been reduced by less than the ECB rate cut, to benefit customers!! So on the same note, they should say they have decreased the interest rate on home loans by less as well.....to benefit the bank. Am I right on this?

A Mangion

Nov 12th 2008, 09:59

@ Caruana R

The euribor rate is the rate at which banks lend to each other as you rightly stated. BUT its not the base rate. The base rate is always set by the Central Bank only. On loan contracts, the loan rate is a premium on the base rate. Now if the bank is having problems to lend money from the Central Bank and has to increase its realiance on euribor, than its bad management. And bad management should reflect on bank performance and not being paid by its customers.

In fact, a large number of commercial loans have their premiums set on 1 month Euribor. So the bank can cover its overdependence on Euribor by basing part of its assets (commercail loans) on the same basis. But still the BASE RATE is still one. Its still the ECB rate in our case. If banks would like to pass over the increases in Euribor rates, they should reprice and renegotiate their loans to be based on euribor rates.

Imposing a higher BASE RATE because of higher Euribor rates is FRAUD. Asset Liability Management should be responsable for any losses in its policy and not customers. MFSA PLEASE NOTE.

B Sant

Nov 12th 2008, 09:51

if savings are not reduced does not justify that rates on loans are not reduced, as Dr Portelli pointed out , interest rate reductions are set to stimulate the economy and not for people to hoard on more on their savings...... so the logic defies the method adopted by the banks

What the banks are doing they are inviting ppl to leave their savings there and then do not match up the motivation to get new loans etc so the banks can ride on more cash.

If people want a more competitive savings rate they should not expect me as a lender to subsidise their savings

A Mangion

Nov 12th 2008, 08:48

@ D Sant

1. The base rate is the rate at which the Central Bank PAYS Banks to deposit funds. Not the other way round

2. According to BASEL 2, all banks (not as you stated Maltese banks, min fejn gibtha din!) must have a level of capital adequacy according to Tier 1 and Tier 2 capital. Your comment on deposit to lending ratio is childish and non-sense.

3. The 'cost of money' is not the base rate but the 'risk free rate' This is totally different, and is set by the market daily. Just look at Euribor rates to have a clue.

4. There is no one single reason why banks should differentiate their base rate on different loans. As you may well know (hopefully) bank adjust their risk position by increasing the premium on the BASE RATE. So the higher the risk, the higher the premium. SO THERE SHOULD BE ONLY ONE BASE RATE.

5.What makes banks safe is not the level of cash they hold, but the trust customers have. In recent weeks we just witnessed this phenomena.

Reuben Caruana

Nov 11th 2008, 23:55

most comments are inaccurate, misleading and to a certain extent unfair.

Last week, the European Central Bank lowered its base interest rate by 0.5% to 3.25%, with effect from 12 November 2008 (hence the day). On the same day, it also reduced the rate at which it lends to / borrows from banks on a short term basis (1day) to 3.75% and 2.75%, respectively.

When a bank lends money to another (interbank), they use Euribor (Euro Interbank Offering Rate check: www.euribor.org ) as a base rate and not any ECB's key rate. A common tenor used is the 1 month euribor, which between Thursday and Friday contracted by just 0.148% notwithstanding ECB lowered its rate by 0.5%.

Against this background, I think that the fact that banks did not pass all the savings to their customers on loans is justifiable. Mind you, compared to the rest of the eurozone, mortgages in Malta are amongst the lowest as other banks normally use Euribor.

Now to be fair, criticism would have been justified should banks reduces interest paid on savings/deposits by 0.5%.This was clearly not the case but no one bothered to write about it here.

lgalea

Nov 11th 2008, 22:27

Emanuel Muscat
Whatever you say the eu is a dictatorship which does not allow governments of member countries to do what is necessary for their country and its citizens with their one-size-fits-all policies.
Any decent economist and decent person can tell you that.

A Agius

Nov 11th 2008, 21:11

oh yes D Sant that is why the bank differentiates between home loans and other loans because of the lending ration..tell it to the marines!!!!
you cannot change bank becuase all banks work the same and the agree prior to amend the rate

Frank Portelli 2BFRANK

Nov 11th 2008, 20:51

The Base Rate (Prime Rate in America) is set by the Monetary Policy Committee of the Central Banks

In Europe the base rate is set by the ECB, in the UK by the Bank of England, in the US by the Federal Reserve ( FED).

The Base rate is the rate of interest the Central Bank charges Banks for lending them money.

It is also the rate the Central Bank pays Banks for any money they deposit with the Central Bank

The Central Bank lowers the interest rate to stimulate the country’s economy. ( Monetary Policy )

When demand for goods and services falls businesses may close , unemployment rises , the economy goes into recession.

Lower interest rates hopefully encourage businesses to invest and consumers to spend thus stimulating the economy.

When Banks do not pass on the reduction in interest rate to their customers – they are defeating the scope of the exercise.

Businesses do not invest, Consumers do not spend - the economy is not stimulated.

Many Banks played a major role in causing the present financial crisis - now they cannot be allowed to aggravate the economic crisis

Dr Frank Portelli MD FRCS (Ed)

D Sant

Nov 11th 2008, 18:11

Does anyone know what the base rate is? The Base Rate is the interest banks are charged for holding money with the country's Central Banks. This means that, for example, if HSBC has €1,000,000 deposited at the central bank, HSBC PAYS the Central Bank 3.25% interest. That is also known sometimes as the "cost of money". When banks lend, they do so at a percentage over base rate, ex 2.5% over base rate, effective 5.75%. The earning for the banks is the amount over base rate. What may cause banks to not lower the base rate in the same amounts as lowered by the ECB is the fact that due to Maltese legislation, banks MUST have a certain deposit to lending ratio. Banks cannot just lend money without having cash. That is what makes our banks safe. The fact that there is a worldwide economic crisis and everyone looks for stability means that all depositors (and this includes banks) keep their money where it is safe (in the bank's case at the CBM) therefore the banks PAY more interest to the CBM. Now if you do not like the revised LOWERED interest rates, change bank. All banks work the same!

Emanuel Muscat

Nov 11th 2008, 17:53

@IGalea: with all the dictatorships you are seeing around, why don't you start preaching Liberation Theology so that we can all become good and clever marxists:the only clever marxists are the chinese who are loaning the US trillions so that in the end the US and the west will go bankrupt and their plan for world domination will come to fruition:all their politburo is made up of engineers which says a lot about how practical they are!

Emanuel Muscat

Nov 11th 2008, 17:14

@B.Sant-The UK man in the street, the local councils and charitable institutions lost billions in the icelandic bank meltdown and the UK government can do nothing about it! After advocating a laissez-faire attitude for more than a decade Gordon Brown has seen the light of better bank regulation! How about that for protection of the UK consumer!

lGalea

Nov 11th 2008, 17:03

Karl Abela
This is the result of decisions taken by those eu petty dictators at the ECB. So why are you always grumbling against the MLP and its leader?

emanuel muscat
All the banks are not only a cartel, but now they have been organized as a cartel by the ECB which dictates everything. Some people are already living in Oliver Twist times, and many more will soon follow with the Gonzipn Government and the eu petty dictators diktat.

B Sant

Nov 11th 2008, 16:39

@ E Muscat-
did the EU reduce rates to accomodate banks or to accomodate the economy as a whole?
you cannot move to another bank coz all banks did the same thing when they reduced rates- thats not grumbling - thats a CARTEL!!!!
The uk citizens found the protection of the state when lower prices where not passed on to customers - why shouldnt we?
So please remove your blinkers !!

Karl Abela

Nov 11th 2008, 16:36

Is it possible that MuscatMLP has brainwashed so many people to regard everything as BAD on this island? Do we really want such pessimistic people controlling our island?

What is the fuss about here? Our loans are getting cheaper! What is the problem here?!?!

emanuel muscat

Nov 11th 2008, 16:21

It is unbelievable how many grumblers are there on this island!:if you do not like what HSBC is doing to your money,go to another bank:it is called freedom of choice!You hardly ever hear any congratulations to the maltese banks for being careful with our money:all you hear is'we want more':we are not living in oliver twist's time!

Jeff Rogers

Nov 11th 2008, 16:16

I remember reading comments regarding how safe the banks are in Malta & as usual someone had the audacity to reply and comment that they are all safe and the customer is not at a loss and negative comments that gives the banks a bad name.. well sir who ever you are, You are completely wrong this time me ol'sunshine according to this columm. I agree with you Mr.Reece is there room for one more?

Bradly Reece

Nov 11th 2008, 16:07

This is just about the limit for me., i'm pulling out once and for all Adios Amigos hasta la vista.

R Zahra

Nov 11th 2008, 15:49

Banks are acting as a CARTEL!! Who is PROTECTING the customers!!??

Maria Dolores Fenech

Nov 11th 2008, 15:48

Tiehu bla ma trodd, is-swar thott!

Peter Murray

Nov 11th 2008, 15:39

This unaccountable elite has once amply again demonstrated it's arrogance and apathy towards customers and masks this ennui by implying that it has magnanimously failed to onpass the full rate reduction to savers to benefit them,further insulting our intelligence through omitting to mention that savers contribute towards them lending even more money to borrowers at exorbitant rates and conditions.They are unaccountable and able to perpetrate such insidious actions with impunity because they are allowed to be through under-nourished and less than robust regulation. We as consumers should also be more demonstrable and forthright in our protests to these banks,and demonstrate as best we can however futile it may appear.

Carol Cassar

Nov 11th 2008, 15:36

always the same customers suffer!!!!

C Pace

Nov 11th 2008, 15:33

This situation has already been faced by APS's clients last month. When the ECB lowered the rate to 3.75%, APS (church owned bank!!) lowered the rate only to 3.95% with effect from 1st November when the cut should have applied from October. Now I wonder whether the latest 0.5% cut will be passed on to clients in full this time round!!

A Mangion

Nov 11th 2008, 15:21

i urge the Banking Unit of MFSA to wake up and demand an investigation. Bank Customers need an answer for this abuse. You should be the customers' voice and not just carry on as business as usual. Please publish your findings so we may know the outcome of why this abuse. The UK government has called on UK Bank CEOs and urged them to pass on the full decrease by the BOE. I expect Minister Fenech to take similar approach and press HSBC to revise this press release. We need action, especially now that the we are faced with huge costs.

E.Gatt

Nov 11th 2008, 15:20

then take your loan to APS!!!

Marcello Savona

Nov 11th 2008, 15:06

whenever the ECB increases the rates they always followed suit by increasing the rates at the same amount. This is not the case of APS where the rates were always a bit lower then the rest of the banks.
the funny bit is the BOV will follow suit and do just exactly the same... were is the competition in Malta???

B Sant

Nov 11th 2008, 15:04

and how come teh effective date is 12th novmeber????? it should have been 6th Novmber ...they have pocketed 10 Euros for each 100000 Euro Loan

B Sant

Nov 11th 2008, 15:03

@ A Mangion....... well said....we r now subsidising both the govt and the banks...who's next in line for a subisidy from Joe the Plumber?

A Mangion

Nov 11th 2008, 14:54

SHAME ON HSBC

The base rate has decreased to 3.25% but the base rate for loans with HSBC is set at 3.55%. Where's the MFSA to protect us the clients. The ECB decreased the interest to boost the economy, while here, HSBC keeps part of this decrease in their pockets. The MFSA should investigate why the decrease was not passed in full to customers. Hope BOV won't follow with the same approach.