Mario Draghi, president of the European Central Bank which revised the rate to a record low.

Are local bank euro interest rates heading for zero level or even negative territory? Not an impossibility following the European Central Bank’s unexpected decision to take down the euro interest rate to 0.25 per cent, the lowest level on record since the currency’s launch and after having peaked at 4.75 per cent in October 2000.

The local banks have been paying between 0.1 per cent and 0.25 per cent on savings accounts when the ECB rate was 0.5 per cent. So the effect on local interest rates of this further fall in the ECB rate to 0.25 per cent remains to be seen.

It is worth noting also certain elements of Bank of Valletta’s recently published financial statements for the year to September 30, 2013. These show a seven per cent rise in customers’ deposits and a one per cent fall in loans and advances to customers resulting in excess liquidity which the bank could not employ profitably.

Indeed the bank’s profitability from its core operations took a setback with net interest income falling by nearly €17 million (-11.38 per cent). Only due to higher trading profits was the bank able to show only a slight drop (-0.22 per cent) in operating profits. Part of the fall in lending to customers was compensated by a 27 per cent increase in loans and advances to banks – a questionable strategy in the increasingly turbulent world of banking.

So it would seem that this unpredicted fall in the ECB rate to a record low is bound to have an effect on local bank interest rates. This will render MGS and local corporate bond issues more attractive for one’s hard-earned savings and proves how timely was the MFSA Listing Authority’s decision to revise its previous insistence on the creation of a 50 per cent sinking fund for corporate bond issues (excluding those issued by the banks and Government).