Higher interest rate for moratorium beneficiaries 'possible'

HSBC has not ruled out applying a higher interest rate to hoteliers who take up the recently-launched loans moratorium once the period lapses.

This possibility raises questions about the possible after-effects of the moratorium on cash-strapped hoteliers once the breathing space is over.

Furthermore, an exercise carried out by The Times shows that the five commercial banks will be adopting normal lending criteria to determine client eligibility for the moratorium.

This course of action, according to one leading economist, will contribute nothing new to the hotel industry because the likely beneficiaries would be those clients already in the banks' good books and who would, anyway, be granted breathing space if required.

"When a client is favourable to the bank it has always been the case that arrangements are made for alternative methods of payment if the going got tough," Karm Farrugia, a veteran economist and consultant to various hoteliers, said.

The agreement between the government and representatives of the commercial banks, through which it was announced that hotels would be given a one-year moratorium on their loans, was hailed as an important measure by the Malta Hotels and Restaurants Association in view of the negative outlook for the tourism sector this year.

It was public knowledge that the moratorium would not apply automatically and banks were going to deal with the applications on a case by case basis. But the banks' discretionary powers in applying eligibility criteria was criticised by Mr Farrugia.

He insisted that, whereas in a recession those on the fringes of the economy were most in need of a breathing space, the "case by case scenario" being prospected would most probably not benefit them.

"The measure is a positive one. But it means nothing if the banks do not help those most in need or impose ulterior conditions on those who benefit," Mr Farrugia said.

For him there was "absolutely no justification today" for banks to charge a higher interest rate in return for the respite they will be giving hoteliers.

"Unfortunately, they can do this because of the quasi-monopolistic position they enjoy. Banks are the heart that pumps oxygen into the economy. They have a crucial role to play and the government must ensure that the banks play their part in supporting the economy, especially during a recession that has all the markings of the 1930s Great Depression," Mr Farrugia said.

He also lamented the fact that the moratorium agreement was only limited to hotels when there were other companies in the manufacturing sector that could do with a breathing space in such a difficult year.

ksansone@timesofmalta.com