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21 November 2023
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I never understand why so often we in Malta go against the trend. This is happening in Banking and in a very crude way. While in Europe Banks have been reducing interest rates, here in Malta the banks not only persist not to follow the instructions of the Central Bank and lower rates but they further insist with business owners that, in spite of what is stated in the sanction letter as to the rate chargeable above the bank's basic rate, they now demand at least an additional one per cent. Rather then help they offer the stick. Why are we suffering from this attitude? Why are local banks finding it so hard to give help in a real practical way when banks know very well that adverse economic situations abroad are having their negative repercussions in Malta too? Above all why is the public regulator, MFSA, defending the Banks and not business?
Our businessmen are suffering. Their choice is increasingly becoming tighter, either they go down and throw people out or they get through the hard times provided they obtain the necessary support. They most simply cannot do it on their own. They do not have the accumulated funds to finance their operations during a slowdown which is larger and deeper then what they normally plan for. I also honestly cannot understand why the Central Bank and MFSA, the two most relevant public regulators, together with the Office for Fair Trading are staying so cool about this matter. Public Regulators are needed most when things are bad for business users and customers, yet they are never there when we need them most. The Banks with their attitude are not helping the country to get out sooner from a very difficult period.
Due to the steady economic expansion, supported strongly by public deficit financing, Banks in Malta, over the last years, have enjoyed substantial large profits. Shareholders had an excellent period and the banks had their share in promoting business expansion even if oftentimes they bolstered speculative construction development rather than direct productive enterprise. Now that the crisis is moving so fast abroad it is also hitting Malta. The Banks rather than assisting Maltese businessmen through the most positive way they could best manage, giving the fantastic run of good profitability they enjoyed for many years, they are instead insisting primarily on their own profitability in disregard of that of most of their clients. I say most as, to be fair, they are not resorting to repossessions of houses and properties in a genuine effort not to create further difficulties to many people.
Many small and medium business owners believe that now it's time for all to share the burden. It can't be that businessmen make the Banks rich when the going is right and then the Banks continue to profit when business is down for all. I am worried that unless the Banks attitude changes with immediate effect, there will be serious, unavoidable consequence. The end result will be increased unemployment not only from the larger firms which seem to pre-occupy government most, but even more so from the smaller firms. These are the ones that traditionally do not default. The link between large and small enterprises is too close not to have immediate chain reaction.
Regrettably the world's local Bank, HSBC, has set the trend for Banks in Malta. HSBC has decided to start increasing interest rates even above the normal rates that the Bank used to charge before the crisis began. Now they are sometimes charging even 8.55% or 9% for certain facilities. Their theory with clients is that credit has become costly under current circumstances. This is contrary to what is happening in many countries in Europe. It is contrary to what is being recommended by the European Central Bank. In practice this will mean that we will create more inflation as Bank costs will be higher and businesses will strive to pass the extra cost on to consumers. This is an extremely dangerous economic pit-fall. We already have a high rate of inflation. Countries get out of recession as inflation falls and prices become more competitive and sales start growing again and investors re-stock and production gets moving.
Furthermore, many businesses, especially the smaller ones, have had no direct assistance from Banks by having the repayment of loans decreased with the savings in interests payable. Banks should usually be advising small business owners on how to cut on costs so that they can live through the bad times and help them to have the cash flow to bridge the bad times and survive. When repayments remain the same one is effectively paying a higher capital at a time when earnings are poor or absent. Is this the assistance that Banks have been boosting about in the local media? If small businesses are not going to be helped many will end up cash stripped. They have no option but to start to reduce employees. Some are already doing so. If no action is taken the trend will continue. A spiral effect will result as incomes fall and households spend less, and as a result cause a fall in gross private consumption, which in turn will cause more firms to have greater cash flow problems causing them to increase redundancies, which again further lower consumption thus deepening the recession.
The MFSA should find a way how to cause Banks to give moratorium periods also to small businesses as they now say that they do to hotels and to building contractors. The discrimination against small businesses cannot be understood. If this sector collapses the banks themselves will be in trouble and the whole economy will suffer. This is a sector which employs thousands and thousands of persons and if it is not going to be aided in some direct way, the effect on the economy will be harsh. The Banks will find themselves in very difficult situations as they push to collect their loans. One local Bank is now proposing that firms that will have excesses on their banking facilities will have to start paying penalties and higher interest. This penalty is sometimes up to 11%. This crude approach will surely hammer more small firms to an early death. Such measures will hit hard also other normally stronger companies. HSBC leads on these crude methods. Hopefully BOV will not follow. Lombard and APS have not as yet even considered to follow suit. These are the four major banks in Malta. Banif has retained a low interest rate and they should be applauded for such a serious move.
There are no rules to protect the consumer on various Bank charges. These include commitment fees which normally are charged until you withdrawn any first time facility, review fees which are charged with every sanction letter, and other fees which are loaded for any services given, like bank legal fees, etc… Banks continue to fail in their customer care on many business services, especially in certain local branches. This, in addition to the increased hassle that often small enterprises owners have to endure.
The MFSA, as Public Regulator, fails miserably to protect banking customers, whether business or households. Regulating our Banks, especially as we still have practically a dominant duopoly, is essential. The current economic situation is not so rosy and will get worse before it starts getting better.
Government is under tremendous pressure to protect the economy and protect jobs. This is not an easy battle. Government cannot win on its own. They need the support of all public regulators. The regulators are more prone to spend their efforts on chasing the smaller firms. Hardly ever do they bother the banks and other state corporations who do little, if anything, to help government and the country move out of adverse bad times in the shortest possible period.
Government can do with a little help from the Banks and the Public Regulators.
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