Maltese Banks Reject EU Suggestion of Collusion on Loan Rates
Malta’s two largest banks rejected the European Commission’s suggestion that high interest rates on loans in the country may indicate collusion.
In a report issued earlier this month, the European Union’s executive arm said “the interest margin on loans in the core banks appears to be converging,” and this “could be indicative of collusive behavior.”
Bank of Valletta Plc, Malta’s largest, “categorically denied” the suggestion in an e-mailed statement today. HSBC Bank Malta Plc “reviews its pricing on a regular basis, taking into account the needs of both its depositors and borrowers, while being cognizant of the competitive landscape,” the lender said.
The Maltese government began an investigation of interest rates in November. “Based on indicators produced by the central bank which could be interpreted as signs of anti-competitive behavior,” the government asked the country’s bank regulator and competition authority to look into the matter, Finance Minister Edward Scicluna said. “Both institutions are currently undertaking this evaluation.”
Scicluna said in a written reply to questions from the Maltese parliament that the domination of two banks on the domestic market “makes the local market somewhat duopolistic. This does not, however, prove that there is collusive behavior taking place.”
The Brussels-based commission said converging interest rates “could reflect the broadly similar loan books across the institutions,” or it could indicate collusion. Bank of Valletta and HSBC Malta hold nearly 90 percent of the total assets of core domestic banks, it said.
One core bank is an “outlier” and charges higher rates on average, the commission said, reflecting “the higher level of credit and concentration risk on its books.”
“Excluding the one outlier, banks charge broadly similar interest margins despite possible differences in the risk profile of their assets,” according to the commission.
“Moreover, there is notable divergence in the levels of fees and commissions, particularly fees related to retail services, between the top two banks and some smaller domestic banks,” the commission said. “The former thus appear to have been able to exercise their market power and charge higher fees than their peers.”
Bank of Valletta said it “sanctioned no less than 2.2 billion euros of credit facilities to the Maltese economy” in the last three years, “60 percent of which were taken up by local business.”
HSBC Malta said there’s “no single formula for pricing as this depends on factors like the type of customer — be it retail, small business or corporate — and most importantly, the risk-rating of the customer and the purpose of the facility required, which varies from case to case.”
Credit: Business Week