Government, households borrowing more

The Maltese contribution to the euro area broad money stock (M3) contracted by €48.5 million, or 0.6 percent, in April, compared to the previous month, reaching €8,537.3 million, the Central Bank said.

It said that, as a result, the annual rate of growth of M3 declined to -1.9 percent in April from -1.1 percent in March.

Narrow money (M1) increased by €74.7 million, or 1.9 percent, during the month, driven by a rise in overnight deposits that amounted to €71.4 million.

Deposits belonging to local residents increased by €78.8 million, or 2.4 percent, on the preceding month.

Currency issued also increased slightly. Nevertheless, the annual rate of growth of M1 edged down from 3.5 percent in March to 2.9 percent in April.

Despite the expansion in M1, intermediate money (M2) declined further in April, falling by €48.7 million, or 0.6 percent, on March.

This stemmed almost entirely from a drop in deposits with an agreed maturity of up to two years, which decreased by €122.1 million, or 2.6 percent.

Around two-thirds of this drop reflected a contraction in balances belonging to local residents, mainly households and private non-financial companies.

As a result, the year-on-year growth rate of such deposits belonging to Maltese residents continued to fall, reaching -3.8 percent in April, from -3.0 percent one month earlier. Meanwhile, deposits redeemable at up to three months' notice fell marginally.

On aggregate, deposits belonging to local residents contracted by €2.1 million in April, with the consequence that their annual growth rate decelerated to -0.6 percent, from -0.2 percent in March.

This slowdown partly reflects a base effect as residents' deposits had increased exceptionally strongly during the run-up to the euro changeover during the 12 months to April 2008.

However, a shift into deposits with terms to maturity exceeding two years following the launch of new products by resident banks, as well as the issue of securities by the Treasury and the private sector during the month, also contributed.

On the counterparts side, credit to residents of Malta expanded by €133.2 million. Lending to the Maltese general government sector by resident MFIs rose by €109.4 million, as MFI holdings of Treasury bills and Malta Government Stocks increased.

As a result, the year-on-year rate of growth of credit granted to general government picked up substantially, rising to 20.8 percent from 11.2 percent in March.

At the same time, credit to other Maltese residents expanded by €23.8 million, or 0.3 percent, mainly owing to additional loans taken up by households and non-financial companies.

In turn, this was due to increased lending to households - predominantly to finance house purchases - to the hotels & restaurants sector and to the real estate, renting & business activities sector.

In contrast, lending to the construction sector and the wholesale and retail sector fell. The annual rate of growth of credit to Maltese residents overall slowed down to 11.9 percent in April, from 12.2 percent in March.