13 - 19 April 2000

Central Bank announces full liberalisation of property interest rates

by Franco Aloisio

A major step towards the total liberalisation of banking sector's interest rates was announced yesterday, when the Central Bank of Malta declared that it was removing the provision relating to the maximum rate of interest that banks may charge for loans and advances on residential units for the owners' use.

This amendment represents the removal of the last remaining control that the Central Bank had over interests rates. From now on these rates will be determined by market conditions.

Until the provision was lifted yesterday, the maximum rate of interest on loans and advances up to the first Lm15,000 for one residential unit stood at 6.25 per cent. According to a Central Bank notice, the maximum interest rate was 1.5 per cent above the bank's minimum discount rate which, at present, stands at 4.75 per cent.

This provision has been done away with and the banks can now adjust their interest rates according to their own will. However, the Central Bank said it is unlikely that existing margins charged for housing loans will change in the short to medium term. The Central Bank added that the move will provide potential for the expansion of the range of house loan products that banks will be able to offer in the future.

"The potential benefits to borrowers include not only improvements to the floating loan products that the banks currently offer, but also new products based on fixed-rate financing for the period of the loan," the Central Bank said.