Issue link: https://maltatoday.uberflip.com/i/274219
4 News MATTHEW VELLA MALTA'S two major banks, and a third core domestic bank – Banif Bank – have denied suggestions by European Commission experts who have examined the island's banking sector, that high interest rates are the result of some form of collusion or anti-competitive tactics by the banks. The European Commission's IDR (in-depth report) has not ruled out possible collusive behaviour among banks, after four of the five core do- mestic banks, identified by the Cen- tral Bank of Malta, appeared to have similar interest margins on loans. The IDR found that the interest margin – the difference between interest rates on deposit accounts and loans – was so similar between banks, that it was possible that the limited competition had allowed interest rates on loans to converge between different banks… even if the profits that Maltese banks are mak- ing would allow them to start bring- ing interest rates down, in line with other EU banks. In 2009, the difference between ECB rates and those offered by Mal- tese banks was 2.8%, and in 2013 this climbed to 4.8%. And when it comes to profits, Mal- tese banks also registered the second highest return on assets in Europe, and the highest return on equity, with 24% compared to just 5% for German banks. But the most concrete fact of all is the lack of competition that exists between the five domestic banks – BOV, HSBC, APS, Banif Bank and Lombard Bank – which makes their market concentration the highest in the eurozone. With the Maltese people's propensity for saving giving banks a great deposit base, and super profits, all this could have an effect on interest rates, high banking fees and commissions. Banking denials But here's what the banks that MaltaToday spoke to, said about the IDR. Bank of Valletta "categorically de- nied" the claims of collusion on in- terest rates. "Over the last three years, BOV sanctioned no less than €2.2 billion of credit facilities to the Maltese economy, 60% of which were taken up by local business. Availability and access to finance has been one of the main reasons why the Maltese econ- omy has remained resilient during the recent economical and financial crisis in Europe," a BOV spokesper- son said, referring to such initiatives as the Jeremie programme and Start Plus, which made finance available to so many Maltese SMEs. "The EU Commissioner for SMEs himself, as well as the European In- vestment Fund commended BOV… our Jeremie programme was the model of how other countries in Eu- rope should implement such an im- portant lending programme." Banif Bank also expressed "strong reservations" on the collusion claim. "Rates are set based on the bank's strategy and set targets. In addition the rates change according to various factors including the term, client's risk exposure, and economic trends, among others. Our claims can be substantiated by the fact that during the years that Banif has been operat- ing in the Malta, we have witnessed various competitive moves between local banks to the benefit of the end consumer," a bank spokesperson said. "When Banif entered the market, we challenged the status quo. Obvi- ously Banif had to set its rates keep- ing in mind its objectives and share- holder return. Banif's philosophy is not to compete on price but on high quality service and product innova- tion." Like BOV, HSBC Malta is the other main core domestic bank, which last December launched a €50 million fund for local businesses access- ing new markets, offering lower ex- change rates, reduced interest mar- gins, and specialist advice. "HSBC reviews its pricing on a regular basis, taking into account the needs of both its depositors and bor- rowers, while being cognisant of the competitive landscape. There is no single formula for pricing as this de- pends on factors like the type of cus- tomer – 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 prop- er balance in the banking system be- tween 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 aver- age throughout the economic down- turn," a spokesperson said. maltatoday, SUNDAY, 9 MARCH 2014 Banks' high interest rat es under investigation 'Banks cannot make super- normal profits at the cost of economic growth' – Labour MP Silvio Schembri