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.
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Joe Vella
Oct 1st 2008, 10:36
@ Anthony paris
I am sorry to say that you are talking out of ignorance and do not know what the phrase sub prime mortgage really works. In malta if you do not have a good credit rating there is no way that any of the Maltese banks will forward to you any type of loan.
The only way that any of the Maltese banks would have got hit with sub prime mortgages is if they repurchased them on hte international money market. Most banks that extended these sup prime mortgages re packaged them and re sold on the world money market to other institutional investers.
Gavin Attard
Oct 1st 2008, 09:00
@Anthony Paris
I am not quite sure your statement that the subprime collapse was due to falling prices. From the vast material i have been reading on the subject, the falling prices are due to a lack of easy credit availble for people to buy houses. Therfore driving the prices down to affordable levels in an absence of easy credit.
That would make the price fall a symptom of the collapse not the cause. The supbrime collapse is where lenders have given out mortgages easily to people, who in all probability, should never have benn given a loan. In some cases tehe loans where for 100%. In effect these lenders brought a huige section of the populatoin, previously not able to get on the property ladder due to not having a large enough deposit saved. This brought up the demand for housing, and theefore the prices where inflated due to easy money available. In many cases, the price of the mortgage given, well exceeds the true market value of the house.
Once the subprime market started defaulting en masse - you get the crisis we are currently in.
Jonathan Deeley
Oct 1st 2008, 07:01
I always start to worry when a politician informs the public that there is no need to panic !
D. A . Agius
Oct 1st 2008, 07:00
@ Anthony Paris.
Also add that the subprime crisis also had a bad economy performance to push it further. If people cannot pay up their loans, banks reposses the property and then they sell it. In case where no one can buy property and where the property market is now full with unsold properties, their price will fall and thus banks cannot sell them.
Can we have statistics from banks on what's situation right now in regard to properties which have been taken due to defaulting loans? IF we have situations of a mass layoff, for example if ever ST pulled out, are the banks prepared to a potential rise in loans not being met?
Matthew Gatt
Oct 1st 2008, 00:47
With all respect to all the previous commentators, how can you possibly start to compare the Maltese political economy to the American political economy? Mr. Paris, your comments are equal to comparing lemons with cabages. They not only appear to be different, but lie in different categories. In fact I would like to clear a particular point: while the subprime crises in the US was indeed triggered by the bursting of the house price bubble, the subprime crises and the bursting of the pricing bubble ARE NOT the same thing. How can one possibly come to the conclusion that loans in Malta are "subprime" when one considers the financial profiles of the borrowers? Even if house prices did fall to such amounts as happened in the US, most of the loans are still NOT "subprime" because in most cases the borrowers will still be able to keep up the repayments, one way or another. Therefore depsite the tempation to follow the fear spreading strategy of the US, I ask the majority of readers and columnists to recognise that the Maltese reality is oceans apart from that of the US.
Daphne Caruana Galizia
Oct 1st 2008, 00:16
@Anthony Paris - if property prices plummet by 40% (which is impossible in a restricted land area like Malta's) it's not just the banks we will be worrying about, but the economy as a whole. That kind of decrease will herald a full-blown recession, with thousands of people losing their livelihood. But unfortunately, there are too many people around who think that property prices can fall in a vacuum: the houses get cheaper and they can buy them. I've seen comments from people here and elsewhere actually praying for a fall in property prices, which is beyond insanity. It's not just the value of the houses on the market that will fall, but the value of the houses people own already, and on which they are still repaying loans for the original value at which they bought. But that's not going to happen. You have to compare like with like. Property prices may be falling in parts of the US and UK, but they're certainly not falling in New York City, Boston, Washington, or London. Malta ranks in the capital city stakes, because effectively, that's what it is: the whole of Malta is one urban centre and an EU capital.
Joe Vella
Sep 30th 2008, 23:25
@ Anthony Paris
I think what started the problem in the USA is not the slide in property values but the loose credit mentally that banks and mortgage companies operated under. In other words mortgages were extended to individual home buyers who didn't qualify for one in the first place. The drop in property values is the result of the foreclosures brought about by many homeowners who could not afford to make the monthly mortgage payments.
A Camilleri
Sep 30th 2008, 23:19
Anthony Paris: Have you ever seen any local bank advertising soliciting customers with a poor credit rating, or who have been declined credit by other banks, as we used to see on the UK and USA channels?
Anthony Paris
Sep 30th 2008, 21:31
The Minister of Finance is either trying to pull the wool over bank depositors' eyes or he is naive. The local banks are insulated from the sub prime crisis in the USA, we are being told. But who is to say that we will not have our own home grown sub prime crisis. What started the problem in the USA is the slide in property values. We have not been told what exposure the local banks have to local construction projects and existing property. If property prices were to collapse by 40% where will the local banks stand?
carmen caruana
Sep 30th 2008, 20:44
The end of capitalism is near......
Peter Murray
Sep 30th 2008, 19:56
The immediate action the government should take is to dramatically raise the paltry and derisory Compensation Package currently payable to depositors /investors rather than attempt to camouflage the seriousness of the situation.This financial protection amount payable to depositors in the event of a banks insolvency and ultimate collapse is immensely inadequate and vastly inferior to what otherr EU citizens may expect from their government should a financial institution file for bankruptcy.Never has sleeping on one's savings looked so attractive and that the under the mattress safety deposit box looks as secure,if not more so,as any on offer from a bank!