Depositors lose out on new interest rate

So BoV and HSBC have decided (The Times Business, April 14) to leave unchanged their base rate notwithstanding the 0.25% increase in eurozone interest rates. This means long-standing depositors will not benefit from the rise after having waited for this for three years.

Both banks came up with the excuse that they “will continue to monitor developments in the local market”. Of course, the real truth is that they would be adversely hit because of their high customer deposit base.

One can make only a rough calculation as (a) figures will have changed since their annual accounts were published; (b) not all customers’ deposits are denominated in euro; (c) a good part of deposits are on fixed interest rates and for fixed periods; and (d) an element of loans (especially house mortgages) are probably at a fixed interest rate for a defined period. I have also excluded from my calculations the banks’ balances with the Central Bank of Malta and Treasury Bill holdings.

With these reservations in mind, I reckon that were the two banks to raise their interest rates by 0.25% for the euro denominated assets/liabilities on their books, BoV stand to lose out annually by over €4 million and HSBC by over €1.5 million. The reason why the former would have been harder hit is because BoV held, at their last financial year end, in excess of €2 billion in financial assets and investments, i.e. more than double HSBC’s holdings. These assets, one assumes, would not be affected by any local interest rate changes. Moreover BoV have a higher ratio of customer deposits to loans and advances to banks and customers.

What are the smaller local banks waiting for? This is a good opportunity for winning over business from the two banks that dominate the local banking scene unless, of course, BoV and HSBC have second thoughts.