Malta situation 'not preoccupying'

Finance Minister Tonio Fenech yesterday gave an assurance that the financial situation in Malta amidst the volatile global financial situation was "not preoccupying". Depositors and investors had no cause for alarm. The country's financial institutions had been closely monitoring the situation since the first indications of a problem with the collapse of Northern Rock in the UK.

Speaking in Parliament during the debate in second reading on a Bill to amend various financial laws, Mr Fenech said that monitoring was still being done on a daily basis and it did not seem that the issue had had such an impact on Malta's institutions that should make people worry.

From the analyses it transpired that no bank in Malta had debt assets. What they had invested in were government stocks and bonds in highly-rated financial institutions.

Moreover, the banks' policy was to vary their portfolios so that if there was an impact on Malta's institutions, this would be a minor one. The minister said that most of the investments owned by local banks were in European, not American, institutions.

While the US Federal Reserve Bank could not provide as much liquidity as it wanted, the European Central Bank was itself shouldering the responsibility to provide liquidity to European banks as necessary.

Banks in Malta, Mr Fenech assured, had no shortage of liquidity, which they had started storing when they saw what was happening to Northern Rock. Credit risk was assessed by the MFSA and the Central Bank, and they had found this was very low.

Mr Fenech quoted the International Monetary Fund's August report, which made clear declarations on the state of local financial institutions in view of what was happening in the global scenario. The report said that overall "there was low risk of direct contagion in Malta".

It underlined that "banks in Malta had a good funding profile and were not dependent on foreign loans". They also had a high liquidity - over the 30 per cent threshold required by law - and a negligible sub-prime exposure.

Even so, Mr Fenech warned banks to remain cautious.

Earlier, introducing the Bill, he said that this was effectively retaining the basic principle that interest rates higher than eight per cent could not be charged except for a number of exceptions from banks and financial institutions. This was to avoid usury.

The Bill, he said, was replicating what already existed in the Central Bank of Malta Act. It was also amending several financial laws bringing them into line with the EU acquis.

Opposition Leader Charles Mangion said the minister's explanation of the international situation and the local perspective was important and ought to have been given before. The clear explanation of the impact on financial institutions and local banks was important, because this was where Maltese people had their savings. The worst thing that could happen in such a situation would be to politicise it, or to use it as a scaremongering tactic. As the shadow finance minister, he said, he had felt it his duty to request information on the scrutiny the government claimed it was carrying out, and this had been given willingly and he had even been kept updated with developments.

He confirmed that there was no cause for concern, as precautions and surveillance are in place. The exposure of local banks, he said, did not in any way weaken their position. The faith of individuals in the institutions must be present. It was important, he said, to remain cautious as it was more important than maximising profits.

Dr Mangion said that the present situation could be pinned down to the greed of investors, inventing something which showed that a profit was being made, but at the end of the day this was just on paper. The value was not, in the end, what it showed itself to be. Profits had increased phenomenally over the past years, and a lack of caution had come about as a result.

In Malta the system worked differently; banks avoided borrowing from abroad and maintained good credit rating and high liquidity. The need to worry was very remote, if at all.

But Malta is not in isolation, and this financial tsunami might affect other aspects of the economy. In sectors such as tourism, where Malta had admittedly seen progress last year, effects might be felt. It was important, he said, to try to maintain the same number of tourists by providing them the traditional hospitality and maintaining product quality, even if there was a dearth of trained personnel.

It was important to encourage and train students in this sector, as it could provide them with a golden opportunity, as well as help address the lack of human resources in this sector. However, adequate and attractive working conditions should be offered. While it was important to maintain competitiveness, the wages offered must be equivalent to the profits seen by the operators. This sector had to be safeguarded.

The manufacturing sector, he said, depended on what was happening around us.

The government had to assess the international situation, because it was true that the deposits were safe but the impact on the economy would be felt and Malta had to be prepared.

The EU structural funds that the government had boasted of were not being used in the best possible way. Despite electoral promises, the financial situation was deteriorating. Expenditure had tripled. If the government had explained the extra expense as unforeseen it might be acceptable, but to say that the discrepancy was because of the energy surcharge showed an underlying problem. More caution had to be exercised when spending money.

Dr Mangion referred to the limit of eight per cent on interest rates. It was important to ensure that those who charged more did not have any form of protection. Anyone who did charge more risked being charged with usury, but the matter ought to be given further attention.

Parliamentary Secretary Jason Azzopardi said that both sides of the House had always seen big potential in the financial services sector.

It was ironic that, at the same time, the US Congress was divided because they could not agree on what intervention their government should make to melt down the climate.

He hoped that the historical interventions of recent days in the US had taught people a lesson. Unfortunately, it seemed that no lessons had been learnt from a similar experience in 1929.

Dr Azzopardi said that the Maltese government believed in a market economy with a human face and not in extreme capitalism. It was thanks to unity between the two political parties that the country had a strong financial sector. This did not mean, however, that it was sheltered from any waves which could come from overseas.

Confidence in a financial sector took a long time to build but could easily be lost, he warned. The Maltese should consider themselves lucky that the sector in Malta was a serious one. But there was always room for improvement.

Dr Azzopardi said that new sectors identified in recent years were being developed for their growth potential. These included capital insurance companies, trusts and outsourcing.

Productivity in financial mediation grew by six per cent and jobs by three per cent. The sector contributed 12 per cent of the GDP.

The MFSA also promoted training programmes aimed at different employees and professionals for the sector to continue progressing and creating jobs and for specialisation in new sectors.

Finance Malta was working to attract more companies to Malta. Its work was bearing results and included the registration of six new operators in investment sectors, 70 new investment funds, a new insurance manager, five new insurance companies and more than 1,400 new companies.

In the past 12 months a number of laws and regulations had been introduced for the sector to develop on stricter lines. He said it was important that the MFSA continued working towards greater consumer protection.

Michael Farrugia (MLP) said it could be misleading to contend that the country's finances were on a sound footing.

It would be wrong to ignore the problem of usury, which could very badly harm the victim and his family. Other major problems that encouraged usury were drugs, gambling, alcoholism and redundancy while repaying a bank loan.

In spite of the various government, Church and other philanthropic initiatives the problem seemed to be growing. All too often a drug addict was always short of money to indulge in his addiction, many times borrowing money in usury. This often led to the addict turning to trafficking to finance both his addiction and his debts.

Gambling did not take place only in casinos. The losers often turned to help from usurers in the hope of making good for their losses, ending up in worse situations than ever.

Dr Farrugia said usury also attracted people who lost their jobs and ended up short of money. When and if they finally got a new job the wages or salary were never enough to make ends meet.

All victims of usury needed help, badly and urgently. Caritas was already doing its best in this regard. All efforts should be made to cut the legs from under usurers.

The families of people who were unemployed or had very low wages could only be regarded as below the poverty line. Until a few years ago it was held that the minimum wage should be enough to help a family to live decently without luxury. This was no longer so.

Families with schoolgoing children were especially vulnerable due to the expenses for uniforms, besides high utility charges and other problems.

All these were reasons driving so many people to take second jobs, in their efforts to make ends meet.

Concluding, Dr Farrugia said it was important to look at national finances, but not at the cost of overlooking such family problems.

Winding up, Finance Minister Tonio Fenech said it was evident that both sides of the House agreed on the Bill, in keeping with past apolitical history. It was also salutary that Dr Mangion, as MLP spokesman on financial matters, was being kept constantly updated on what was happening in current world financial markets, which gave cause for grave concern.

The debate had shown the need for supervisory measures, which were different between those of the EU and those in the US. In this context the EU seemed to be better equipped than its trans-Atlantic counterpart, as the latest developments in Europe had shown. Indeed, these measures were being strengthened.

Replying to Dr Mangion's comments about the governance of the government's expenditure, Mr Fenech said Enemalta had already had to fork out €48 million more in fuel costs, besides the subsidisation of less affluent families' utility bills.

The current situation could yet adversely affect the growth of the world's economy, but the government was set to have enough clout to address very difficult situations locally, such as the prices of oil, without giving public finances a shock. These measures should be lauded, not criticised as they sometimes were.

The Bill was approved unanimously.