Malta says publication of bank stress tests will reassure investors

The Finance Ministry fully supports the decision taken by the European Union last week to publish the results of stress tests of major banks in the EU as this will reassure investors in the international markets and quell speculation on the future of the euro.

The publication should involve stress tests conducted recently on the top 25 banks in the EU and include HSBC which also operates in Malta. Sources close to HSBC Malta yesterday were not in a position to comment on this latest EU initiative stating that "it is still too early to comment as details on what actually will be published are still scarce."

At the same time, a spokesman for the Finance Ministry stressed that Malta supported the initiative during a recent EU summit in Brussels.

In a fresh attempt to restore confidence in its financial system, EU leaders last week agreed to publish detailed results of tests on the health of 25 large European banks. These should be published by the end of next month.

EU Council President Herman Van Rompuy said that disclosure of the stress test results should help to restore confidence in Europe's banking sector.

"There will be full transparency and all member states will take part," he said. Sources close to the Commission told this newspaper that the idea behind a bank stress test is to look at the bank's financial strength to see how, or if, it can stay afloat in difficult times. Banks have always had to provide information to regulators.

Meanwhile Malta is now also in favour of introducing a new annual banking-levy in order to make sure that the banking crisis which triggered the financial crises in 2008 is not repeated.

Although at first Malta was sceptical about the need of imposing such a levy, particularly on banks which remained robust during the crisis, such as Maltese banks, Prime Minister Lawrence Gonzi said that Malta agrees in principle with the new bank levy proposal as long as this is introduced on a global level.

"We are in favour of this initiative as long as there is a global level playing field," he said following last week's summit.

Banks in Malta are known for the huge profits they declare every year and an annual levy could cost them dearly. During their last financial year, considered to be a bad one due to the financial and economic crises, HSBC Malta declared a pre-tax profit of €71.2 million while BoV's reported profits reached €53.8 million.

According to the Commission's proposals, all EU member states will be forced to levy the new tax on banks to pay for future financial crises. The funds raised would not be used for bailing out or rescuing banks but would only ensure that a bank's failure is managed in an "orderly way and does not destabilise the financial system". This could include a bridge financing operation; total or partial transfer of assets and liabilities, perhaps through toxic asset purchases; and financing a good bank / bad bank split.