Some banks’ interest rates at present are 0% per annum for savings accounts and about 0.5% per annum for deposits fixed for 12 months. The banks say this is partly because the Central Bank of Malta charges them a negative rate of interest on the surplus funds they place with it. Moreover, banks cite among other factors, increasing administrative and compliance costs.
The balance sheets of the two largest banks show that customers’ accounts in these two banks amount to a staggering €15,000 million, which is almost 12 times the banks’ own money of €1,300 million (share capital and reserves). Without all this money deposited by customers, banks would not be able to fund all the loans and advances to their borrowing customers, standing at about €7,500 million.
This vital contribution by depositors to the economy is not fully appreciated, and with interest rates at 0.5% or 0% it is not even adequately remunerated. Yet, it is the money of the present and of the older frugal generations that oils the economy.
In Malta we had no need to bail out banks or face any deep recession during or after the 2008 financial crisis, which necessitated the dramatic fall in interest rates from 2% and 5% per annum to present levels.
We are, as a result, living with an interest rate structure designed for European and other jurisdictions when these were in times of crisis. This structure does not cater for the needs of the Maltese society, which includes thousands of small depositors and pensioners. The question therefore arises: Can banks in Malta increase rates paid to depositors without infringing some local or ECB directive? Can we adopt a revised interest rate structure that factors in the booming money-spinning activity of the construction industry? As far as I am aware, they can.
But this may require that lending rates are tweaked upwards, a measure that would have to run the gauntlet of powerful lobbies, groups and associations that are close to the political parties whom they prop up financially; foremost among these that of the developers.
We are constantly reminded by developers that a lot depends on the building industry, which indirectly provides work for all other related trades and suppliers. With a liberal Planning Authority, an accommodating government, and with the ODZ and other regulations in desuetude, they are practically untouchable. Without them, the developers claim, the economy would slip into recession.
We are living with an interest rate structure designed for European and other jurisdictions when these were in times of crisis
Depositors may understandably retort by saying that without their money there would be no building industry. In this scenario, depositors may be forgiven if they feel it is they who are indirectly financing some of the mega high-rise buildings and most of the other projects going up under every tower crane.
Since depositors get next to nothing on their money, which banks loan to developers, they could stretch the argument a step further and claim that part of the profits made morally belongs to them. Not by way of dividends but by way of a fair interest rate on their money in the bank.
Irrespective of how interest rates are worked out by banks, and whatever European Central Bank or local directives or market conditions are invoked to justify the result, if the effective interest rate payable to depositors on their savings remains at present levels, then there is something manifestly wrong and unjust.
It cannot be that depositors’ and pensioners’ money has no market value at all. No smooth, legalistic explanation can right this injustice. Zero is zero from whichever angle you look at it.
Pensioners can no longer look forward to periodic interest payments on their savings bank accounts to offset the ever-increasing cost of food and medicines which are eating into their pension.
At the other end of the social spectrum we find developers and speculators who double up as contractors (or vice versa). The latter are being handed a cash gift of €200,000 to maintain or buy new machinery, while tax on property sales has been reduced to five per cent, enabling them to pocket a further €12,000 to €20,000 per unit of €400,000 sold.
In addition, the government is prepared to issue a guarantee in favour of the lending bank on behalf of those contractors who cannot fork out their ten per cent contribution of the project cost.
As if this is not enough, a respected economist said on television that the government is tacitly (‘bil-pulit’) requesting banks to be more accommodating to contractors. Could there be silent partners in high places?
But depositors cannot be taken for granted. They cannot be kept waiting indefinitely for steps to be taken to remove this gross injustice while watching property magnates getting richer on the back of their money.
Surely there are solutions that do not at the same time impact negatively those who borrow to buy their first home. Still some argue that we are living in a wider global market and there is nothing one can do about it.
Not necessarily! In life there is always another option. Only if the will to find it is there.
Joe Pace Ross, retired bank manager