The European Central Bank has recently released its Banking Structure Report, and the findings should make one think and reflect. For the vast majority of Maltese citizens, the most interesting fact to emerge is that Malta’s credit culture has experienced what has been described as a “phenomenal growth.” The amount of credit that local commercial banks have been providing to the consumer has increased dramatically over the last five years. In a nutshell, Maltese citizens are borrowing more money.

This is undoubtedly an interesting fact, especially when taking into consideration Malta’s recent convergence with the euro area entry criteria (Maastricht Criteria). The immediate reaction to this statement may lead to the question “What is the connection?” The answer lies in the fact that one of the criteria for an EU member state to join the euro is to achieve convergence with the European Central Bank’s levels of long term interest rates.

European levels of long-term interest rates are traditionally lower than our own, and having to converge with these levels has translated into lower, more stable interest rates on the local market. Considering the fact that interests rates are effectively the “cost” of borrowing money, the benefits of having converged with this requirement becomes immediately apparent.

It is particularly important to note that what can be termed as “economic culture” in Malta, is changing. According to the European Central Bank’s report, it is actually changing at a rapid rate. The main point of interest from the consumer’s perspective is the fact that the monetary value of home loans and consumer credit has surged in recent years and has resulted in a remarkable 97 per cent increase in home loans recorded in the last four years.

This, coupled with the fact that consumer credit lending and loans for “household” objectives has increased by an approximate 138 per cent, means that convergence with the Maastricht Criteria did indeed come at a good time. Low and stable interest rates effectively make it easier to manage one’s loans. This is of significance to those Maltese citizens who are compelled to take out a loan in order to buy, develop and even furnish their own property. Lower interest rates also results in more purchasing power in the hands of the consumer.

At present, the central intervention rate of the Central Bank of Malta stands at 4.25 per cent, a whole 2.15 per cent lower than the reference rate (the maximum interest rate allowed in order to achieve convergence with the Maastricht Criteria). However, success in this regard is not an end in itself. As of 1 January, interest rates will be determined by the European Central Bank, which is likely to result in a further reduction in long-term interest rates, albeit a small one.

The European Central Bank’s track record is one that should boost the confidence of all Maltese, consumers and retailers alike. The European Central Bank has, so far, managed to ensure both price stability and low interest rates in the long term across the euro zone. The importance of this achievement should not be underestimated when considering the fact that stable prices and affordable loans serve to ensure a better standard of living for all European citizens.

Claire Azzopardi is a NECC Information Officer