Malta may benefit from financial crises

While banks collapse and the world faces a financial crisis, Malta seems to have avoided liquidity problems thanks to conservative banks and a well-regulated financial services sector.

Despite the obvious negative consequences of a global recession, the crisis may have long-term benefits for Malta's economy, according to some experts.

Economist and management consultant Adrian Said feels that, while no economy will be left unscathed, now is the time to take the opportunity to further strengthen and grow the local financial industry on the basis of "the seriousness and robustness of our jurisdiction".

"If Malta comes out clean after the global financial crisis, it will show that the Maltese people should stop placing their money in banks overseas because the local system has proved to be safer and more robust in a time of crisis," he said, adding that a number of foreign companies, especially medium-sized ones, may also be looking at Malta as a stable financial haven.

He said Malta's situation contrasts starkly with that in Iceland, where a banking system built on a "shaky foundation of foreign debts" has resulted in it having liabilities which dwarf its gross domestic product.

"On the other hand, Maltese banks have always taken a conservative approach to lending. This, coupled with the fact that the financial sector is well regulated by the MFSA, has kept our banking system well under control and in a state of health."

Financial adviser Alfred Mifsud agreed that Malta's financial system is very stable and can withstand this external shock. But even though he agreed that local banks do not have the same problems as foreign ones, the notion of turning this into an opportunity is "a bit stretched".

"While Malta's conservative and heavily-regulated banks have ensured a safer situation, if the world falls into a recession Malta will feel the ripple-effects because it is a very open economy."

He explained that many hedge-funds found in offshore centres such as the Cayman Islands are loosely regulated. Following this crisis it may lead to the hedge-funds losing some of their freedom. In turn, this will result in such funds being directed to well-regulated EU jurisdictions such as Malta instead.

Mr Mifsud shares the opinion that Malta will not become another Iceland, mainly thanks to not having so much foreign debt and a less aggressive financial sector.

However, he warned that Malta's economy will have other worries, namely the new utility bills. But these are of "our own making", he argued, saying that the taxpayers will now have to pay for something they should have been paying long ago but never did due to political convenience. Facing the shock of higher utility bills concurrently with the shock of an on-setting recession will make the economy doubly vulnerable, he concluded.