Shortly after the European Central Bank (ECB) cut its base rate by a further 0.5 per cent last week, HSBC in Malta not only left its base rates unchanged, but upped the premium on its interest rate on loans by one per cent.
The bank is not obliged by law to publish adjustments made to its risk premium rates.
In fact, it was economist Lino Spiteri who first revealed that HSBC Bank Malta increased its interest rate by 1 per cent, stating that the bank had raised its base rate with effect from 2 March 2009.
“That means that operators who borrow from HSBC began to pay one per cent more, at a time when the interest rate trend is sharply downwards,” Spiteri wrote in his column last Monday.
But a spokesperson for the bank rebutted Spiteri’s claims, arguing that the “article is not correct”.
“We have spoken to the author of the article to correct it,” he told Business Today.
Shortly after, the bank confirmed its decision to leave its base rate unchanged for the time being in spite of the recent ECB interest rate cut.
When Spiteri was contacted to comment on HSBC’s accusation that his claim was wrong, the economist said that the bank had “raised the risk premium rate by 1 per cent, not the base rate,” which would have the same effect as a base rate increment.
The bank was confronted again yesterday on Spiteri’s rebuttal.
“The statement by Spiteri is still incorrect,” a spokesperson for HSBC Malta said. “HSBC does not recognise the term ‘risk premium rate’ which you refer to.”
The base rate is generally the key market-trend setting rate. It may be established by a central bank or – as in the case of LIBOR or EURIBOR – by specific participants in a market, for instance, the inter-bank market. But most of the time it is set by central banks.
On the other hand, the “risk premium rate” is that rate which a bank effectively applied to a loan taking into consideration all elements, particularly the specific risk factors applicable to a particular loan issue.
In its replies in fact, HSBC hinted that a risk premium was still applied and reviewed on an ad hoc basis.
“It has always been standard practice for selective individual business accounts to be reviewed on a case-by-case basis to ensure that terms and conditions of specific facilities are appropriate,” the Bank’s spokesperson explained.