Maltese banks ‘safe and sound’

Malta’s banking system is one of the soundest in the EU and will not need any additional capital injections as a precaution to withstand unannounced sovereign debt trouble, according to the European Banking Authority.

The EBA said Malta was one of seven EU member states whose banking system did not require any recapitalisation.

The authority is closely monitoring the European banking system to avoid a repetition of the Greek debt crisis. It issued an assessment following last week’s deal for the recapitalisation of major European banks in view of a partial Greek debt default.

According to the EBA, Maltese banks are in a sound position to resist any fresh sovereign debt trouble – even though last week’s ‘comprehensive’ solution by eurozone leaders should, at least theoretically, avoid further contagion to other member states.

Malta’s sound banking position is equivalent to that in Hungary, Finland, Luxembourg, the Netherlands, Ireland and the UK, although in the case of the latter two, governments had to dig deeper into their pockets in the past months to save some of their banks from collapse.

Giving details of the recapitalisation programme needed, the EBA said a total of €106 billion was needed to be injected as fresh capital in the European banking system, with the bulk – €30 billion – needed by the Greek banks. Spain, Italy and France also need substantial new capital to the tune of €26 billion, €18bn and €9bn respectively. On the other hand, the lowest recapitalisation is needed by Slovenia, at €300 million.

Although officially Malta’s two major banks, Bank of Valletta and HSBC, are reluctant to reveal how much ‘risky’ sovereign debt they are exposed to, sources told The Sunday Times “it amounts to a very small part of their portfolio”.

It is estimated that BoV had a €9 million exposure to Greek sovereign debt, which will lose its value by some 50 per cent due to the agreed ‘haircut’. On the other hand, according to its last annual report HSBC reduced its risk exposure through the sale of holdings in higher risk eurozone countries from the available-for-sale bond portfolio at a net loss of €4 million.

Both banks refused to provide details when asked by The Sunday Times about their exposure to peripheral sovereign debt – which includes Greece, Italy, Ireland, Portugal and Spain. The banks said they were not heavily exposed.

“We can state that the bank’s exposure to ‘peripheral’ Europe (Greece, Italy, Ireland, Portugal and Spain) sovereign debt is very modest, and that there will be no requirement for the bank to ‘boosts further its capital’ as a result of this exposure,” a BoV spokesman said.

An HSBC spokesman said the bank’s management of both its capital and risk positions had always been conservative and the bank was very well placed to meet the current challenges.

Last summer, the EBA, in collaboration with the European Central Bank, carried out a series of ‘stress tests’ on 91 leading European banks, and BoV was selected to represent the Maltese banking sector.

The results showed that the Maltese bank enjoyed strong capital buffers and when its balance sheet was ‘stressed’ in accordance with the ‘extreme but plausible’ parameters set by the EBA, which included a severe economic downturn, the Tier 1 ratio (which is an international benchmark indicator of balance sheet strength), decreased by just 0.1 per cent, reaching 10.4 per cent.

According to the EBA, these results confirmed the strength and resilience of BoV as a well-capitalised bank by all international standards.