HSBC and Bank of Valletta have both defended their interest rate margins, saying the cost of borrowing was based on a number of factors.

Their reactions come after Central Bank of Malta governor Josef Bonnici said Maltese banks should consider reducing the interest rate margin to boost economic growth in a speech at the Institute of Financial Services dinner.

Bank of Valletta chairman John Cassar White said he did not believe the rates in Malta were way off the mark, noting that margins had to account for credit losses, administrative costs and a fair return to shareholders.

The growth rate in Malta has been above average throughout the economic downturn

HSBC’s spokesman explained that it regularly reviewed its pricing, taking into account the needs of both depositors and borrowers, while being aware of the competitive landscape.

“It is important to maintain a proper balance in the banking system between deposits and loans to ensure appropriate support is provided to the local economy, which in turn will facilitate growth.

“The growth rate in Malta has been above average throughout the economic downturn,” he said.

While acknowledging that lower borrowing costs would be welcome, a spokesman for the Chamber of Commerce, Enterprise and Industry said it was important “to ensure a sustainable balance bet-ween lower costs to business and the continued robustness of the Maltese financial system, which is a prerequisite for the country’s future macro-economic prospects”.

Prof. Bonnici told Times of Malta Business that reducing the interest rate margin would not affect banks’ profitability if they exploited alternative funds available from the European Central Bank and became more efficient.

Read the full interview with Prof. Bonnici in Times of Malta or on the e-paper.