Hoteliers affected by banks’ verdict on interest rates
Hotel owners who over recent years took massive loans complained that the local banks’ decision not to follow the European Central Bank’s lead to lower interest rates may threaten their operations.
Although banks in Malta have, sooner or later, followed the downward trend led by the ECB over the last months, the latest curtailment to 1.5 per cent has only been respected by new players Banif – who lowered their interest rates on home loans only, by 30 basis points.
Maltese banks are justifying their decision to keep interest rates unchanged to protect depositors. In fact, bank sources claim that moneys have shifted towards state coffers in preference to the recently issued government bonds, which carry a higher coupon. This may have somehow threatened the amount of deposits required by banks to be able to issue more loans.
But forecasts send warning signals of a dismal tourism season for 2009, so hoteliers need all the help they can get. Recently in fact, government and banks have offered tourism industry players the possibility of applying for a moratorium on bank loans, with the intention of helping the hospitality sector pass through the tough times ahead, and at the same time create an incentive to reorganise and refurbish, thus improve the national tourism product.
But those who have already invested in bettering their business prior to the introduction of the scheme said they need banks to support them now more than ever, principally by reducing loan interest rates along with the ECB.
“The European Central Bank put rates down to help those people who invested in big loans over the recent years, so that they can be helped through the credit crunch,” hotelier Michael Zammit Tabona told Business Today. “The tourism industry employs a large number of people in Malta and the ECB realises that it needs to protect jobs. In Malta banks refused to adjust rates for us, thus putting jobs in danger.”
Zammit Tabona, who owns the Fortina Hotels, called on local banks to make their interest rates adjustments in the context of helping the industry “rather than that of helping themselves to more profit”.
“Another point is that the ECB allowed for this adjustment to help out families with their loans – and banks not responding to it is absolutely criminal,” he charged.
The hotelier also lashed out at the banking regulators – the MFSA, as he deems the authority “should act in the interest of the industry, and not just that of the banks’ bottom lines.”
But every other time (bar last week) the ECB curtailed rates, sooner or later, all banks followed suit. To this, Zammit Tabona replied: “Yes but whenever this was reduced, we did not get the full benefit – every time they take a bit for themselves.”
AX holdings Chairman Angelo Xuereb, who has recently built The Palace Hotel, said that although his bank’s decision to lower interest rates would have certainly helped, the viability of his hotels remains so far unaffected.
“Tourism at the moment is not passing through a good phase so we need all the possible support we can get,” Xuereb told this newspaper. “We contribute to the local economy by our turnover and we’re employing people, so lower interest rates would certainly help. But this does not mean that if banks stick to their decision my feasibility is affected.”
Xuereb described the schemes available for bank moratoria as “very helpful”, since the economy is stimulated once hotels refurbish while they take a break from loan repayments.
Tumas Group Chairman George Fenech said that although he is in the process of discussing the issue with his CEO and negotiating with banks, he feels that “it would make a huge difference, financially, if interest rates were to be reduced”.
“Not everyone will comply in the same way to the ECB’s lead, since this is only indicative. Then there’s the margin (risk premium), which is applied differently to different customers – so clients here will need to negotiate. Needless to say, any increase in margins will affect us negatively.”
Grand Hotel Excelsior General Manager Norbert Grixti said that although the hotel is in the process of applying for a moratorium, “the owners of the hotel did not particularly require massive loans to set up the Excelsior.”
Grixti said that since their loans are relatively small, “interest rate fluctuations will not make much of a difference. We have not been affected.”
At the time MHRA President Kevin de Cesare was contacted yesterday, he was overseas. He said he could not comment on the matter at this stage, but will do so during the forthcoming MHRA quarterly presentations.