Personal credit hits half billion mark as savings plunge

Central Bank figures have revealed that overall personal lending reached its highest volume in March, amounting to Lm516,722,000 - a rise of Lm8,827,000 from February. Of these, bank loans for house purchases set a new record when they exceeded the January mark to rank at an all-time high at Lm372,824,000.
Total deposits in Maltese banking institutions, including international banking institutions based in Malta, have decreased by Lm288 million since September 2002.
This state of increased debt should be easily explained by those ingredients which usually inform a sound economic situation. These include low interest rates, rising house prices, and a strong GDP. Interest rates are currently at a historically low level while house prices have been benefiting from a steady increase for years now.
Yet labour force survey figures still reveal high rates of unemployment, which during the period in question stood at 6.6 per cent, with the female workforce still just a third of the total workforce. GDP figures also registered a decrease of Lm3,157,000 for the first quarter of 2003, although net investment from abroad was substantially higher than March 2002.

Interest rates at March were at a historically low 5.46 per cent, down by 0.24 percentage points since last December. As of March 2002, interest rates stood at an average of 6.05 per cent, and since 1998 rates have been decreasing by an average of 0.5 per cent every year.
Personal deposits with banks in Malta for the period in question have decreased since November 2002, which at Lm2.138 billion registered an all-time high for personal deposits. The figure has decreased to 2.114 billion for March this year. Corporate savings have also decreased in the period in question, from an all-time high at the beginning of the year with Lm455 million to Lm446 million in March.
Total deposits in Malta have been decreasing at an average rate of Lm41 million every month since September 2002.
Commercial lending has remained over the billion mark, with March’s Lm1,065,167,000 representing a decrease of 0.46 per cent from December 2002. The highest rate of borrowing in the private sector emanated from the wholesale and retail trades, which at Lm297 million for March represented 29.7 per cent of all commercial loans.
The highest rate of loans in the public sector was in the energy and water utilities sector, with Lm92 million. The public sector accounts for Lm251 million (13.7 per cent) of all total lending figures, which in March stood at Lm1.82 billion.
Low rates have been influencing greater household debt if people are assuming that interests rates will be remaining low. In the corporate scenario, the low interest rate environment could entice companies to take no new debt, as present affordability provides relief for these liabilities.
In March 2003, loans with a value of over Lm500,000 were valued at Lm993 million with an average interest rate of 4.53 per cent. Companies are probably now looking to service their debts and cutting down to a reasonable level before taking on any new debt which might also stimulate growth.
Critics believe much of the high levels of debt have been informed by unrealistic profit assumptions. In the midst of future reforms in the social services, pension and health sectors, pay-as-you-go schemes would affect Maltese spending patterns drastically, especially with current low saving patterns.