GRTU fi­nally proven right in its claims against ex­ces­sive bank in­ter­est rates and charges

The Malta Business Weekly - - NEWS -

In a state­ment is­sued on Fri­day, GRTU strongly wel­comed the con­clu­sions of the in­ves­ti­ga­tion car­ried out by the Malta Financial Ser­vices Author­ity and the Malta Com­pe­ti­tion and Con­sumer Af­fairs Author­ity into lo­cal bank lend­ing prac­tices to busi­nesses.

This is a fight GRTU has led on its own for many years. It is only just re­cently that GRTU's con­cerns were echoed by the Euro­pean Com­mis­sion and the Gover­nor of the Cen­tral Bank of Malta and now the un­de­ni­ably damn­ing con­fir­ma­tion by the MFSA and the MCCAA through their re­port.

GRTU has al­ways main­tained that com­mer­cial banks, as the only ve­hi­cles of­fer­ing ac­cess to fi­nance in Malta, had an obli­ga­tion to en­able lo­cal busi­nesses to grow and com­pete. On the con­trary, how­ever, the banks have for years been act­ing in­con­sid­er­ately se­cur­ing ex­ces­sive prof­its in to­tal dis­re­gard of the pres­sure they were putting on lo­cal busi­nesses par­tic­u­larly SMEs. This is be­sides the pre­vail­ing trend for lo­cal banks to lend on "safe" prod­ucts like home loans and per­sonal credit in lieu of fi­nanc­ing for lo­cal busi­nesses.

Not only have they been act­ing greed­ily and tak­ing pol­icy mak­ers for a ride with their talk of how frag­ile the banks are and how they are do­ing their ut­most, but they have had the nerve time and time again to point their fin­ger at busi­nesses them­selves as be­ing the rea­son ac­cess to fi­nance is so ex­pen­sive in Malta, be­cause of the level of risk they ex­pose the banks when lend­ing to them.

In busi­nesses there is al­ways risk but the bank is the only player in the equa­tion that is in­vari­ably more than ad­e­quately cov­ered for the worst case sce­nario. God for­bid some­thing goes wrong in your busi­ness and you found your­self at the mercy of the banks. Mal­tese banks are so risk averse that they do not even pur­sue bal­ance sheet lend­ing but de­mand ex­ces­sive lev­els of liq­uid and illiq­uid se­cu­rity far in ex­cess of their lend­ing.

In­deed, as GRTU has been say­ing all along, bank-lend­ing poli­cies are detri­men­tal to Mal­tese busi­nesses and their loan in­ter­est rates are among the high­est in the EU. The re­ports not only con­firm that the in­ter­est cuts by the Euro­pean Cen­tral Bank, aimed at en­cour­ag­ing lend­ing to busi­nesses to grow and gen­er­ate jobs, have only been par­tially passed on to busi­nesses, but, adding in­sult to in­jury, the banks also took their time to lower their rates and did so af­ter be­ing placed un­der pres­sure.

The MFSA re­port also delves into the is­sue of bank charges. Bank charges are grossly ex­ces­sive and one of the ma­jor sources of in­come of banks, es­ti­mated at around 40% of to­tal rev­enue. The Reg­u­la­tor rightly points out that there is no plau­si­ble rea­son to jus­tify the level and even the ex­is­tence of cer­tain charges, men­tion­ing in par­tic­u­lar the charges im­posed on re­tail out­lets for us­ing debit and credit cards on their EPOS ma­chines. GRTU has been re­lent­lessly ar­gu­ing against this per­cent­age charge that is so truly not based on ac­tual trans­ac­tion cost that it can be ne­go­ti­ated.

GRTU will not stop in its strug­gle to in­sti­gate ac­cess to fi­nance to be­come af­ford­able. The cur­rent re­al­ity is that the author­i­ties have fi­nally wo­ken up af­ter a long sleep and banks are still mak­ing ex­ces­sive prof­its at the ex­pense of the econ­omy. Such an im­por­tant re­port con­cluded in July has al­ready wasted three months ly­ing on the shelf wait­ing for Bud­get day. When will the author­i­ties wake up to the ur­gency of the sit­u­a­tion?

Each and ev­ery day, busi­nesses are pay­ing for costs that they could in­stead rein­vest in their busi­ness and en­gage more em­ploy­ees.

They are pay­ing for costs that their coun­ter­parts in other EU coun­tries are not. It is per­ti­nent to note that Mal­tese busi­nesses have been pay­ing loans at an in­ter­est rate of 5-6% on av­er­age. How can they com­pete with busi­nesses in coun­tries in which in­ter­est rates on com­mer­cial fi­nance can be as low as 2%?

For years, banks have been mak­ing ex­or­bi­tant prof­its. GRTU does not ex­pect lo­cal banks not to be prof­itable, how­ever, it con­demns re­stric­tive prac­tices to­wards com­mer­cial lend­ing and any po­ten­tially abu­sive prac­tices should be sub­jected to the com­pe­tence of lo­cal author­i­ties like any other busi­ness would.

The re­ports have con­cluded that prof­itabil­ity in­di­ca­tors for the core do­mes­tic banks in Malta were per­sis­tently higher than the EU av­er­age.

The time has now come to cre­ate a level play­ing field with our Euro­pean coun­ter­parts.

The author­i­ties have al­ways showed their re­luc­tance and fear to con­front banks and the con­clu­sion of the MCCAA and MFSA re­ports are an im­por­tant first step. The Reg­u­la­tors are how­ever not there to sim­ply in­ves­ti­gate and make rec­om­men­da­tions, they are there to im­ple­ment their find­ings and take the nec­es­sary mea­sures. Our Reg­u­la­tors need to show their mus­cle not only in re­la­tion to small busi­nesses and SMEs but also in re­la­tion to the big fish.

GRTU will con­tinue to mon­i­tor the sit­u­a­tion closely and will not so­journ in its ef­forts and rep­re­sen­ta­tion of the in­ter­ests of SMEs both lo­cally and at EU level as it will deem fit un­til im­me­di­ate re­vi­sions and the ap­pro­pri­ate re­me­dial ac­tion is taken.

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