Again, this was by far a higher percentage than anywhere else in the EU, where on average only around 6% cited high costs as a reason for turning down a loan. In the same vein, the proportion of Maltese businesses replying that interest rates charged on loans had decreased was among the lowest. These results support the information obtained from an analysis of bank interest rates. In general, while domestic banks have reduced interest rates charged on loans to households by more than the average in the euro area following the cumulative cut of 325 basis points in official rates by the ECB since 2008, the opposite is true for loans to NFCs. This suggests that domestic NFCs, most of which are small enterprises, are finding it more expensive to obtain or service a loan than their counterparts in the euro area. This apparent relative rigidity of domestic interest rates charged to NFCs merits further analysis as it could harm the recovery process, particularly if businesses continue to postpone their investment plans. Other constraints faced by small enterprises in Malta The same survey also provides an insight into the broader range of concerns faced by domestic micro and small enterprises. These include the limited purchasing power of customers, obstacles faced in trying to expand market share and competitive pressures. In addition, a disproportionately high percentage of these businesses reported higher costs in 2009.
In addition, only 12% thought that the willingness of banks to provide a loan had deteriorated, while the number of those replying that banks were actually more willing to extend credit was among the highest in the EU. At the same time, however, the demand for bank loans by domestic small enterprises last year was weak. Only 10% of respondents applied for bank loans compared to 22% in the EU. The indication of a subdued demand for loans is confirmed by information derived from the Bank Lending Survey and from other intelligence collected by the Central Bank of Malta. One possible explanation could be the fact that small businesses in Malta rely on a mix of internal and external finance to a greater extent than their European counterparts. Another is  5  Flash Euro Barometer No. 271. BIS Review 50/2010  3  the reported postponement of investment plans in the light of the slowdown in both domestic and external demand. Albeit to a lesser extent, supply side factors also seem to have been present. For example, according to the joint EC/ECB survey more than half of the small businesses in Malta considered the interest rate as the most limiting factor for obtaining a bank loan, a higher proportion than in any other country surveyed. And about one fifth reported that they had actually refused the loan offered because they considered the interest rate as too high.