The two major banks yesterday announced in quick succession that they were going to reduce their interest rates after the European Central Bank (ECB) decision reduce its interest rate from 3.75 per cent to 3.25 per cent on Thursday.
HSBC Bank Malta plc announced shortly after 3 pm yesterday announced that they will be reducing the bank’s base rate with effect from today “as a result of the ECB interest rate change and to reflect current market conditions”.
This time, however, HSBC has fully reflected the ECB rate cut in its decision, reducing its base rate for all lending rates to from 3.95 per cent to 3.55 per cent except for home loans.
However the Home Loan Base Rate (HLBR), which is the base for the Bank’s variable mortgage lending, has been reduced by 3.75 per cent to 3.35 per cent, a decrease of 0.40 per cent.
HSBC Bank Malta also reduced term deposits rates in line with the ECB rate cut, but savings accounts have been reduced by less than the ECB rate cut. The bank also retained its higher rate on the HSBC On Line Savings Account which includes a 3 per cent annual rate for balances over €5,000.
Less than three hours later, Bank of Valletta (BOV), announced that it will be changing its interest rates with effect from Friday as a result of the ECB decision.
The mortgages base rate will be reduced by 0.50 per cent a year to 3.25 per cent a year while the base rate for commercial loans, overdrafts, personal loans and credit card accounts is being reduced to 3.45 per cent annually.
With effect from Friday, the savings accounts rate will be reduced by 0.25 per cent, resulting in an effective interest rate of 1 per cent yearly.
Interest rates on all other deposit accounts denominated in euro will also be revised downwards, the Bank said in a statement issued ay 6pm yesterday evening.
Of the others, a spokesperson for APS Bank said telegraphically: “I have been directed to inform you that following the ECB’s recent decision, APS Bank is currently considering the appropriate action.
“The Bank will notify the public once a decision is made,” the APS Bank spokesperson told Business Today in response to a series of questions about the matter. APS’s current base rate stands at 3.95 per cent.
Lombard Bank plc was rather economic in answering to this newspaper’s questions about whether they were going to cut their base rate as a result of the ECB, when and the base rate adopted.
Anthony Spiteri, Chief Officer Credit at Lombard Bank, said simply: “As a company listed on the Malta Stock Exchange and an institution regulated by the Malta Financial Services Authority, Lombard Bank issues appropriate media releases and announcements whenever it wishes to communicate with the public.”
Their base rate remained unchanged even when the previous interest rate cut was made on 9 October this year.
Of the new kids on the block, Banif Bank Malta said that they were still discussing the matter at board level. Charles Mizzi, Marketing Manager, Banif Malta said: “With reference to your email, please note that Banif Bank (Malta) plc will act in accordance with the local market.
“In the meantime, the matter is being discussed at Board level,” he told Business Today. Banif Bank Malta’s current base rate stands at 3.95 per cent.
Bawag Bank Malta explained that as central European group, it does not work with the concept of a base rate but links all its business to the EURIBOR. “In fact, BAWAG links its deposits and loans closely to the money market rates in the Euromarket.
“Due to the rate cut of the ECB, we have seen a further easing of money market rates in the Eurozone, so automatically all transactions, which are linked to the EURIBOR, will be adjusted in the wake of this rate cut,” Otto Karasek, a spokesperson for the bank, told Business Today.
Likewise, Volksbank Malta does use its own base rate does not use its own base rate, nor the base rate established by the ECB. “The bank uses the EURIBOR, defined as “the rate at which a prime bank is willing to lend funds in euro to another prime bank.
“The EURIBOR is calculated daily for interbank deposits with a maturity of one week and one to 12 months as the average of the daily offer rates of a representative panel of prime banks, rounded to three decimal places,” Joseph Zammit, Senior Manager, Customer Accounts and Finance Acquisition, told Business Today.
Marcel Cassar, Senior Vice President, FIMBank plc, explained that as a trade finance banking group active mainly internationally, the bank references its pricing (interest rates) to EURIBOR, i.e. Euro Interbank Offered Rate, and LIBOR – i.e. London Interbank Offered Rate, mainly for US Dollar and Sterling.
“Consequently, our pricing is a dynamic variable which changes with these benchmarks as well as other factors (e.g. cost of funding under prevailing market conditions) and which include, but not solely, ECB rate decisions,” he told Business Today.
A spokesperson for Izola Bank said they will be reducing their base rate by 0.50 per cent later on this week in line with the ECB decision and will be communicating this decision to customers accordingly.
Finansbank Malta Ltd said that the Bank will not alter its interest rates just yet. “We would like to see the effects on Main Street to decide a further reduction,” Managing Director Cenk Kahraman told Business Today.
Asked when this decision will take place, Kahrahman explained that the effects of the ECB decision still had to take place. “We expect it to happen in early 2009,” he told Business Today.
Kahrahman said that ECB’s decision for a rate cut will stimulate the financial world in Europe. “However customer deposit rates are still keeping their volatility and at these times it is more of a trust issue then a price issue in general
“All (foreign) banks suffered from large withdrawals because of financial turbulence thus turning their faces to ECB to fund their balance sheets. And this is a good thing, but a temporary solution.
“Until this sentiment changes back, when deposit rates will settle on agreeable levels, I don`t believe European banks will alter their lending rates,” he told Business Today.
He explained that Finansbank does not use a base rate for its lendings. “We acknowledge every case as specific and apply unique spreads over EURIBOR or LIBOR.
“So in that essence you can think our base rate as EURIBOR or LIBOR rates. However there is more to it,” he told Business Today.
Finally, CreditEurope, a Dutch bank which recently opened in Malta under the EU free trade regulations, said that the bank does not base its rates on the LIBOR or the EURIBOR.
Mert Ozden, Country Manager, Credit Europe Bank NV Malta, told Business Today: “A bank cannot base their rates only on one currency. This is definitely a matter of how the bank is specialized in different sectors and directly related to its borrowing/lending strategy and needs.”