Government and households borrow 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.

The Bank said that, as a result, the annual rate of growth of M3 declined to -1.9 per cent in April from -1.1 per cent in March.

Narrow money (M1) increased by €74.7 million, or 1.9 per cent, 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 per cent, on the preceding month.

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

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 per cent in April, from -3.0 per cent 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 per cent, from -0.2 per cent 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 to this.

On the counterparts side, credit to residents of Malta expanded by €133.2 million. Lending to the Maltese 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 per cent, 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 and restaurants sector and to the real estate, renting and 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 per cent in April, from 12.2 per cent in March.