Bankers say threat to Malta comes from global recession
Maltese banks are weathering the current financial turmoil well. Where news from the international banking sector is consistently bad, with reputed institutions collapsing and many others turning to state-sponsored rescue plans, the domestic sector...
Maltese banks are weathering the current financial turmoil well. Where news from the international banking sector is consistently bad, with reputed institutions collapsing and many others turning to state-sponsored rescue plans, the domestic sector remains robust and continues to grow both deposits and loan books. Domestic liquidity remains strong, and capitalisation is not compromised, three bankers from Bank of Valletta, FIMBank and Volksbank Malta maintain.
The problems Malta will face stem not from the turmoil itself, but from the risk of a global recession it may trigger, they agreed. Any degree of reduced demand for Malta's exports - either of goods or services - will negatively affect the island's growth prospects.
In the meantime, Malta's banks continue to lend. Their strong solvency and conservative loan to deposit ratios mean they are well cushioned from the worst of the crisis, and their customers will be able to benefit from that.
The summit meeting in Brazil this coming weekend should bring countries together to head off the possibility of global recession, as far as is possible. This is in large part a crisis of confidence and perception, Armin Eckermann, FIMBank's new head of banking and deputy president said.
Bank of Valletta, unlike most of Europe's banks, continues to perform well. The reduction in profits from €101.8 million for the group last year to €40.6 million is attributable to the current valuation of its investment portfolio. Since, however, the bank intends holding the instruments to maturity this does not represent a realised loss, Charles Borg, the bank's chief officer, financial markets and investments explained.
Core operations continue to look robust. Deposits and the bank's loan book have continued to grow and capital and liquidity ratios are strong at 11.5 per cent and over 50 per cent. The turmoil has not impacted the bank directly because, with a conservative loan to deposit ratio of under 70 per cent, it is able to fund its lending entirely from its deposits.
Mr Borg echoed BOV chairman Roderick Chalmers, saying that the bank needed to have a strong capital base because it does not have an overseas parent to provide a lifeline if it got into trouble.
The bank follows a conservative investment strategy. "We invest in high investment grade paper," Mr Borg explained. "We have not put anything into high risk securities."
Volksbank Malta may be a local subsidiary, but it is also weathering the storm well. "The bank's risk strategy is to maintain a low risk appetite and cautious lending policies," Joseph Bugelli, Volksbank's senior risk manager explained. With a strong solvency ratio of 25 per cent, the bank seems well capitalised, and the support of its parent in Vienna means that it does not expect to experience any shortage of liquidity.
FIMBank, on the other hand, is a very different bank. Its focus is trade finance, not retail banking and long term lending. "Our credit is typically very short term and this has allowed us to maintain a strong liquidity and capital position," Dr Echkermann said. The bank's liquidity ratios are almost double the regulatory minimum, and capital ratios more than double.
"Our focus on trade finance has protected us from the downturn in the global economy. International trade continues even in times of crisis, as people still need essentials," Dr Eckermann said.
FIMBank, however, will be affected the longer the turmoil continues. The danger is that the crisis will cause a recession, not just a slowdown. If and when the economy shrinks, levels of business drop and trade slows down, then the banks will all suffer.
The problems Malta will face stem not from the turmoil itself, but from the risk of a global recession it may trigger, they agreed. Any degree of reduced demand for Malta's exports - either of goods or services - will negatively affect the island's growth prospects.
In the meantime, Malta's banks continue to lend. Their strong solvency and conservative loan to deposit ratios mean they are well cushioned from the worst of the crisis, and their customers will be able to benefit from that.
The summit meeting in Brazil this coming weekend should bring countries together to head off the possibility of global recession, as far as is possible. This is in large part a crisis of confidence and perception, Armin Eckermann, FIMBank's new head of banking and deputy president said.
Bank of Valletta, unlike most of Europe's banks, continues to perform well. The reduction in profits from €101.8 million for the group last year to €40.6 million is attributable to the current valuation of its investment portfolio. Since, however, the bank intends holding the instruments to maturity this does not represent a realised loss, Charles Borg, the bank's chief officer, financial markets and investments explained.
Core operations continue to look robust. Deposits and the bank's loan book have continued to grow and capital and liquidity ratios are strong at 11.5 per cent and over 50 per cent. The turmoil has not impacted the bank directly because, with a conservative loan to deposit ratio of under 70 per cent, it is able to fund its lending entirely from its deposits.
Mr Borg echoed BOV chairman Roderick Chalmers, saying that the bank needed to have a strong capital base because it does not have an overseas parent to provide a lifeline if it got into trouble.
The bank follows a conservative investment strategy. "We invest in high investment grade paper," Mr Borg explained. "We have not put anything into high risk securities."
Volksbank Malta may be a local subsidiary, but it is also weathering the storm well. "The bank's risk strategy is to maintain a low risk appetite and cautious lending policies," Joseph Bugelli, Volksbank's senior risk manager explained. With a strong solvency ratio of 25 per cent, the bank seems well capitalised, and the support of its parent in Vienna means that it does not expect to experience any shortage of liquidity.
FIMBank, on the other hand, is a very different bank. Its focus is trade finance, not retail banking and long term lending. "Our credit is typically very short term and this has allowed us to maintain a strong liquidity and capital position," Dr Echkermann said. The bank's liquidity ratios are almost double the regulatory minimum, and capital ratios more than double.
"Our focus on trade finance has protected us from the downturn in the global economy. International trade continues even in times of crisis, as people still need essentials," Dr Eckermann said.
FIMBank, however, will be affected the longer the turmoil continues. The danger is that the crisis will cause a recession, not just a slowdown. If and when the economy shrinks, levels of business drop and trade slows down, then the banks will all suffer.