It is difficult to quantify how much Maltese investors have lost as a result of the global financial crisis, MFSA chairman Joseph Bannister told The Times Business in his first interview since the turmoil began two months ago.

Prof. Bannister said the direct impact of the collapse of Lehman Brothers on Bank of Valletta is well known and certain Maltese investors also lost out, but as far as could be ascertained the latter amount was minimal. However, establishing the impact of the world's crisis on Maltese investors is a different story.

"We are trying to quantify how the funds business has been progressing. So far the information we have been getting has not given us a clear picture. We need to collect more information as the data we have so far covers June to September while real turmoil took place in October and November.

"In reality, though, nobody will really know how much money has been lost because there will be funds investing in other funds and new investors will have come in as they take advantage of the situation. The real picture, I believe, will never come out, although we know that funds in general lost between 25 and 45 per cent of their value. These are not Maltese funds but international funds, and in a liberalised market, everybody is free to invest. When I say it is difficult to get the full picture it is because we get information only from Maltese licensed intermediaries," he said.

Prof. Bannister said that people who have invested in private retirement schemes, for example, certainly lost money. "We will know some time in the New Year exactly by how much the value of a fund has decreased. This is important because it shows economic value in a sense," he said.

The global financial crisis has not had a negative impact on Malta's financial services sector and the MFSA expects 2009 to be as good as 2008 for new investments.

"This year we witnessed increased investment and interest in the financial services sector. The crisis has shown that Malta is well placed. We have had various international recognitions. We have seen an increase, particularly in investment companies and insurance companies. We hope that this trend will continue. It has been a good year," he said.

Prof. Bannister defends the MFSA's "silence" in the aftermath of the collapse of Lehman Brothers on September 16 and the subsequent global financial turmoil. Two of the functions of the MFSA, I pointed out, are to help protect the interests of consumers and investors and to provide regular information on local and global developments affecting the industry.

"The MFSA was not silent. It acted with the industry to get a clear picture of what was happening. The MFSA could not come out in the newspapers because largely the question was how much did Bank of Valletta lose. According to Article 17 of the MFSA Act the MFSA cannot divulge information received from third parties.

"However, through the government, there was the issue of a news release indicating to the population that there was nothing to worry about and the financial system was solid and everything could continue functioning. Ultimately, it had to be the bank to release the information which I believe they did during their recent presentation of their accounts," he insisted.

Asked whether he thought BOV's rather scant comments after the collapse of Lehman Brothers were acceptable, Prof. Bannister said: "I don't know what you mean by scant comments. The bank promptly issued a news release. The whole world was in turmoil so they really couldn't judge what their position was. Having said that they knew the amount involved but the question was, what did this mean? Could they get it back? Could they get 60 or 80 per cent back? I think they were being cautious and in the circumstances they probably did the right thing."

Prof. Bannister says Malta's banks have largely not been affected by the credit crunch largely because they have always adopted a conservative approach.

"They never borrowed and used the money to lend again. They always lent money according to their capital. Also, their external exposure was rather limited. On the other hand Malta has good solid regulation and the system is sound. At the higher end there is monitoring of the payment system by the Central Bank. There is a good flow in terms of what is happening in the whole system."

He said it is also important to talk about insurance companies. The story of AIG is well known, he points out, and insurance companies here are well regulated and their investments are very well diversified.

Regarding whether, in the context of the present economic situation, the MFSA has an opinion on the fact that local banks have not fully passed on the ECB's interest rates cuts to consumers, Prof. Bannister said: "Traditionally banks have always passed on the interest rates cuts to consumers. There is no statutory obligation to do this. The whole question is that when you bring down the interest rate then you bring down the deposit rate. Deposit rates were becoming so low that I think you had to keep a certain margin."

Prof. Bannister says the sectors with the most potential for growth in the financial services sector in Malta are insurance and investments, pointing out that this year the MFSA also licensed four new banking institutions and various trustees. Another growth potential is wealth management, and there is scope for trust management companies. "We are looking at the pensions sector, once the necessary legislation is in place," he said.

He also points out that last year the MFSA licensed two banks, one from Saudi Arabia and one from Bahrain, which will be looking at Islamic finance mainly from the corporate side. "We expect to have proper legislation for Islamic finance banking by the middle of next year. As far as investments under Sharia Law, that can be done right now."


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