Malta’s efforts to become a financial centre have yielded good results, according to details published recently by the Malta Financial Services Authority. The long road embarked upon 15 years ago continues to lead to a well defined objective. At the time a package of financial legislation tuned to the requirements of the times was passed through the House of Representatives with bipartisan backing.
That became an important selling point in the promotional activities of the authority and of the professional practitioners, coupled with a good and growing set of double-taxation agreements. In time the legislation package had to be amended to take into account international developments. Each time the House of Representatives continued to discuss and approve in a strict spirit of mutual cooperation between the government and opposition, reflecting a positive and proactive understanding which remained in force when there was a change of government in the 1996 general election.
The most significant change in the international environment came along when Malta joined the European Union and adopted its legislation and procedures. The reputation of our islands as a tax efficient and, perhaps even more important, well-regulated destination continues to grow. Enquiries and successful conclusions rewarded the indefatigable efforts of Joe Bannister, the long-serving chairman of the MFSA, and his team, efficient in all the sectors they operated in.
The efforts of the practitioners and the broader financial services sector were no less vigorous and consistent, and achieved quite remarkable results. That happened well before the global financial upheaval started being felt, making operators consider flights to sounder financial centres. Early on, Malta managed to win location bids which, in other times, would have gone to Luxembourg or Ireland.
The building process continues even though Malta already hosts a large number of banks, insurance companies and funds. Nor will there be any respite as satisfied clients spread the word that the MFSA, our legal and accountancy professions and back-office services providers are second to none and competitively priced.
Meanwhile, amidst this consistent growth, the backbone of the financial services sector in Malta remains our domestic main players, Bank of Valletta and HSBC Malta, supported by a handful of much smaller domestic and expatriate banks which have been offering strong competition for both deposits and loans and advances. How strong was suggested by the recent calling in of facilities of over €42 million made by one of the foreign banks now operating in Malta.
The most up-to-date confirmation of the strong role played in the financial services sector and directly in the Maltese economy is to be found in the results for the 12 months to September just published by Bank of Valletta. Chairman Roderick Chalmers, presenting the results, resorted to a spicy understatement, calling them “a good set of numbers”.
Among those numbers the one to hit the main headlines was that of the €98.9million profit before tax realised by the Bank of Valletta Group, more than a fifth higher than reported a year ago, and the handsome dividend to be paid to shareholders, plus proportionate bonus shares. The Finance Minister will be pleased at the government’s 25 per cent share of the dividends, at a time when the outturn of public finances remains strained, though improving. The smaller shareholders of the bank will be no less delighted.
The headline figures are striking. To me, more striking is the fact that the bank passed through its recent stress test with flying colours, that its capital and liquidity ratios confirm why, and the substantial increase in lending during the year despite credit quality pressures evidenced by the bank’s decision to increase its impairment charge, mostly on a collective rather than a specific basis. The sharp rise in deposits, notwithstanding the competition from the rest of the banking sector and the strong issuing of government and private bonds during the year is another significant factor.
In recent years the household propensity to save has fallen off quite sharply, leading the Finance Minister to stress the need for higher savings in his 2011 Budget Speech on Monday week. BoV and the other banks add their bit to encourage a higher savings ratio, notwithstanding the prevailing regime of low interest rates as the ECB continues to focus on stimulating the eurozone economy without any fear of an early inflation surge.
Mr Chalmers in his statement noted the turnaround in the bank’s investment in the insurance sector, which helped the year-to-year comparison, as well as the early execution of plans to transform Middlesea-Valletta life insurance company, which BoV owns jointly with Middlesea Insurance, into a wholly sufficient, stand-alone company.
The Bank of Valletta chairman also dwelled on judicial protests relating to La Vallette Multi Manager Property Fund. He cited counter-protests filed to categorically rebut the allegations contained in the protests as being without foundation. He called for an early outturn of the review undertaken by the MFSA regarding the allegations stressing that no damage should be inflicted on Malta’s aspirations to establish itself as a professional and mature financial services jurisdiction.
Certainly, the sooner this matter is carefully put to bed, the better.