Healthy liquidity, local funding profile, shields banks from overseas turmoil

Finance Minister Tonio Fenech said today that while the international financial turmoil was being closely followed, the local banking system was unlikely to suffer a major impact and depositors and investors had no cause for alarm.

Mr Fenech told Parliament that the local banks held liquidity levels well in access of regulatory requirements although they were being extra careful over where they invested. Indeed, the banks had started building their liquidity reserves as far back as the collapse of Northern Rock Bank in the UK.

He pointed out that last month, at a time when the current storm was already brewing, the IMF assessed the Maltese banks and found they had a low risk of direct contagion because of strong domestic franchises.

Domestic banks had liquid assets that were well above the 30 percent prudential requirement and thus they had no need for wholesale money market funding, relying instead on a strong domestic deposits base.

The banks had strong capital levels that are well in excess of capital adequacy requirements.

Overseas investments were mostly in Europe and well diversified. The investments which had been affected were small.

Mr Fenech said the local banks' exposure to overseas subprime exposure, which was the cause of the current turmoil, was negligible.

He said the banks and the authorities would continue to monitor the situation, and while there was no cause for concern, the government would not shirk from taking the necessary action should it be required.

Opposition finance spokesman Charles Mangion said he had made his own inquiries and agreed witht he minister's assurances.