Maltese banks still to decide on base rate reduction
Charlot Zahra
It looks like the majority of Maltese banks will be taking their time before adopting the latest interest rate cut decision taken by the European Central Bank (ECB) last Thursday.
During the meeting of its Governing Council on 15 January 2009, the ECB decided to slash its main refinancing rate from 2.5 per cent to 2.0 per cent with effect from today.
Of the five major banks, only HSBC Bank Malta plc has announced that it will be reducing its base rate by 0.5 per cent. However this time, HSBC will be passing the ECB interest rate decrease in full to all its borrowing customers.
Therefore, the bank’s Lending Base Rate will be reduced from 3.0 per cent to 2.5 per cent, and its Home Loans Base Rate (HLBR) will be reduced from 2.75 per cent to 2.25 per cent per annum. This comes into effect from 21 January 2009, in line with the ECB decision.
When the last ECB rate cut decision was announced on 4 December 2008, HSBC Bank Malta had reduced its base rate for all lending rates to 3 per cent from 3.75 per cent according to the ECB decision.
However the rate on its home loans had not reflected fully the ECB’s decision, with the HLBR being reduced only from 3.35 per cent to 2.75 per cent, a decrease of 0.60 per cent.
The bank said it would also be reducing its interest on the Online Banking Account by 50 basis points for balances less than €5,000 and 100 basis points for balances of €5,000 and over.
Last month, the Bank had not reduced its interest rates for online banking, citing the “the bank’s drive to push online deposits”.
HSBC Malta Chief Executive Officer Alan Richards said: “Given the increasingly challenging economic environment we have passed on the full benefit of this latest round of rate reductions to all of our borrowing customers.
“Interest rates for borrowing customers have never been lower and we believe this move will benefit the Maltese economy,” he added.
HSBC said that it would also be reducing its deposit rates by an equivalent amount.
“However, the ordinary savings rate and 7-day and 1-month term deposits are only being reduced by 25 basis points and not 50 basis points,” the Bank said in a statement issued on Monday, four days after the ECB decision was announced.
Furthermore, there has been no change to the 3.5 per cent interest rate on the 15-month Advance Bonus Account which was currently on offer.
“Savings customers have also benefited with competitive pricing on selected accounts such as HSBC’s savings account, 7 days and 1 month term deposits, and Online Banking accounts,” the Bank said in its statement.
The interest rate cuts will come into effect as of today, 21 January, 2009.
The other four major retail banks – Bank of Valletta, Lombard Bank, APS Bank and Banif Bank – have not reduced their interest rates yet.
Asked by Business Today whether the Bank was going to reduce its base rate following the ECB interest rate decision and by how much, Edwin Callleja, Head of Advances for APS said: The Bank is reviewing its position in response to the recent change in the ECB’s main reference rate.
“An announcement will be made in the press immediately after a decision is taken by the Bank.”
On 19 December 2008, APS Bank had reduced its Base Rate by 0.60 per cent from 3.45 per cent to 2.85 per cent, therefore not fully reflecting the ECB interest rate cut in December 2008 of 75 basis points.
Likewise, Charles Mizzi, Manager – Marketing, Banif Bank Malta, told Business Today: “Banif Bank (Malta) plc will act in accordance with the local market”.
“In the meantime, the matter is being discussed at Board level,” he added.
On 12 December 2008, Banif Bank (Malta) had reduced its base rate by 0.5 per cent to from 3.5 per cent to 3 per cent, therefore the bank did not reflect fully the ECB interest rate cut in December last year.
However, Mizzi told Business Today that that the base rate was “not the final rate of Banif products. “When comparing rates between banks you have to look at the APR rate,” he explained.
“A bank might have a lower base rate but a higher spread which makes the APR rate higher than that of another bank with a high base rate,” Mizzi told Business Today.
On their part, Bank of Valletta and Lombard Bank Malta did not reply to our questions on the interest rate cut by the time we went to print yesterday evening.
On 15 December 2008, BOV had reduced its base rate applicable to lending such as personal loans, overdrafts, credit cards, and business lending by 0.5 per cent from 3.45 per cent to 2.95 per cent, therefore not fully reflecting the ECB interest rate cut.
Likewise, BOV’s base rate on house loans was reduced to 2.65 per cent from the previous 3.25 per cent – a drop of 60 basis points – however still not fully reflecting the ECB rate cut.
The Bank had explained that as from the first week of January, the base rate applicable to the manufacturing industry was set at 2.85 per cent with the aim of supporting the sector in this “highly volatile” economic environment.
The savings rate had been revised to 0.6 per cent and term deposit accounts from one year to five years would carry an interest rate of 2.5 per cent. The bank had also decided to retain its existing rates on all e-savings accounts, which are operated solely through internet banking and ATMs.
Of the emerging banks, Izola Bank Limited said that it would be reducing its base rate from 2.5 per cent to 2.0 per cent as from today, thus reflecting fully the ECB decision.
Some of the other banks do not use a fixed interest rate such as the ECB’s, but adopt a variable base rate such EURIBOR or LIBOR.
