The new changes will only affect Bermuda dollar loans for commercial purposes or conventional loans.

Unaffected are mortgages, consumer loans and credit card charges.

The lenders were allowed to attach the two percent fee because of the statutory seven percent ceiling, providing them an opportunity to make money when interest rates were artificially prevented from rising.

Government, on Budget Day February 14, announced an intention to remove the seven per cent ceiling, allowing banks to soon be able to establish a base lending rate.

Bank officials have said that the changes will be transparent to the average borrower, but under the new system, interest rates will be quoted directly, with no more reference to a service charge or administrative fee of two per cent. Individual applicants will obtain a rate based on the quality of their credit.

That quality of credit will be determined by risk adjustment factors that include term of loans, purpose of the loan, security of the loan or what type of collateral is put forward, together with the nature of the borrower.

Officials say that the criteria are much the same for loan applicants at the moment.

The Bank of Butterfield executive vice president for banking, Mr. Colin Furr, said that he did not expect that there would be any adverse change for the bank's clients.

He said: "I believe that it will be simpler for our clients to understand what it will cost them and what they have to pay.'' Other bank officials could not be reached for comment.

Mr. Michael Collier.