Bank lending rates are not a major concern for businesses as “some organisations” have made them out to be, according to a leading employer organisation.
David Curmi, president of the Chamber of Commerce, Enterprise and Industry, said the relatively high lending rates and bank charges did not figure among members’ top four concerns.
“Our members have not indicated lending rates as a major obstacle to growth and investment,” he said, when asked about a recent European Commission in-depth report on macroeconomic imbalances that highlighted the high interest rate margin on bank loans in Malta.
The surprise declaration contrasts with repeated criticism over the “high” interest rates charged by banks on loans by another employer organisation, the Chamber for Small and Medium Enterprises – GRTU.
Mr Curmi adopts a cautious approach, insisting any decision on interest rates has to be accompanied by an impact assessment.
“The good financial standing of Maltese banks is one of the reasons why the country weathered the financial crisis and we should do nothing to undermine this,” he said.
Banks financed their lending operations through customer deposits, which was a different model to the one adopted by most European banks, he insisted. This ensured more stability but meant the underlying cost of loans was higher than in other EU states.
“Let us not rush to change the system how banks operate here because our lending rates appear higher,” he cautioned.
Despite a constant reduction in interest rates by the European Central Bank over the past five years to stimulate the eurozone economy – the rate now stands at 0.25 per cent – Maltese banks have been reluctant to follow suit.
The EU report also highlighted the lack of competition on lending rates in a market dominated by two large banks. Bank of Valletta and HSBC Malta hold nearly 90 per cent of the total assets of the five core domestic banks.
Let us not rush to change the system how banks operate here because our lending rates appear higher
“A look at the income structure of the core banks suggests some indications that there could be anti-competitive behaviour,” the report said, noting this could be “indicative of collusive behaviour”.
According to economist Malcolm Bray, interest rate announcements by the ECB only offer guidance, as, ultimately, the setting of bank rates is a commercial decision.
Writing in tomorrow’s edition of Times of Malta Business, Mr Bray will argue that judging by the corporate non-performing loans ratio – 15.4 per cent in June last year – the domestic credit market does not look so attractive. “If this were the case, the ‘high’ price charged to borrowers would represent the correct pricing of risk.”
But GRTU president Paul Abela insists lending rates and bank charges are too high, especially for small businesses represented by his organisation.
“They can be a hindrance to growth for small businesses, especially loan interest rates that are vital to the viability of certain projects,” he said.
His members have no other option but to accept the rates charged by the banks, he added.
“Interest rates should be reasonable and, although banks tell us they have to keep depositors in mind when making decisions, my interest lies with small businesses and they are suffering.”
His position is similar to that of economist Karm Farrugia who insists banks should take a cut from their super profits, either by giving depositors a higher interest rate or by reducing the interest on lending.
The two major banks have so much liquidity between them that they could do as they pleased, Mr Farrugia said.
“I do not think they are colluding [as the EU report suggested] but we certainly have a duopolistic state of affairs and the banks are profiteering from the situation.”
Mr Farrugia said the cash injections middle and high income earners received through the cut in income tax over the past two years resulted in higher savings. “This has provided banks with surplus liquidity, which is not unhealthy but which can also be used to leverage the economy,” he said.
ksansone@timesofmalta.com