By the time of going to print yesterday, only HSBC Bank Malta and Bank of Valletta, of the many that had been sent questions by this newspaper, had replied to Central Bank Governor Josef Bonnici’s plea for banks to cut their interest margins so as to boost growth.
The Governor made the plea two weeks ago at the Institute of Financial Services’ annual dinner. His speech was carried in full in last week’s issue of The Malta Business Weekly.
In their replies, both banks contend that the setting of interest rates is reliant on a number of factors and both held firm to their current interest rate positions, with BOV citing a recent reduction in its business lending base rate.
In reply to our question, ‘What is the bank's response to the plea made by Central Bank Governor Josef Bonnici for banks to lower their interest rates?’, an HSBC Bank Malta spokesperson explains how the bank, “reviews its pricing on a regular basis, taking into account the needs of both its depositors and borrowers, while being cognisant of the competitive landscape.
“There is no single formula for pricing as this depends on factors like the type of customer - be it retail, small business or corporate – and, most importantly, the risk-rating of the customer and the purpose of the facility required, which varies from case to case.
“It is important to maintain a proper balance in the banking system between deposits and loans to ensure that 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.
“HSBC Malta is very focused on providing support to its customers. In particular, the launch last week of HSBC Malta’s Trade for Growth €50 million fund is specifically aimed at helping local businesses access new markets through a range of incentives such as lower foreign exchange rates, reduced interest margins on import and export transactions and specialist advice on new global opportunities.”
In a similar vein, a Bank of Valletta spokesperson comments, “The price of lending is not arbitrary, but determined by a number of factors. It must also be analysed in the context of a competitive environment.
“One must appreciate that the interest rate margin must be sufficient to cover credit losses when borrowers are unable to repay their borrowings, administrative costs and ensure a fair return to shareholders, who are risking their capital by investing in banks.
“Having said that, Bank of Valletta recently reduced its business lending base rate by 15 basis points. Concurrently, the interest rates payable on deposits with a maturity longer than one year was increased to encourage long term savings.”