Maltese banks play it safe in euro crisis
European banks fear ratings cut
Photo: AFP
Banks in Malta are safeguarding their liquidity by depositing surplus cash with the European Central Bank, against no interest, rather than going for a profit with international financial institutions.
Sources close to the ECB said deposits by Maltese banks increased substantially over the past months.
“There is no doubt that, in view of the evolving euro crisis, Maltese banks are being much more cautious with their deposits,” they said.
“Over the past months, deposits by Maltese banks with the ECB increased substantially and are continuing to grow steadily.”
Officials from Bank of Valletta and HSBC – the island’s two leading banks – confirmed they were diverting most of their extra money to the ECB.
The decision to minimise risks on deposits follows a recent pattern set by other European banks.
Those in countries with extra liquidity – particularly Germany, Luxembourg, France and Austria, where the economy is still growing – are also opting to store money in the ECB’s “safe haven”.
The ECB sources said the fact Maltese banks were producing extra liquidity was a good sign.
“Only countries with sound economic activity have extra liquidity at their banks,” the sources noted.
“Countries in a real recession normally won’t have enough cash to sustain their local activities. This will lead to a deeper recession.”
Malta technically fell into a recession in the first quarter of this year. However, various economic indicators, particularly low unemployment, increase in job generation and higher imports and exports, are positive counterweights.
At a recent meeting of its board of governors, the ECB took the unprecedented decision to slash the inter-banking interest rate to zero per cent, meaning that depositors, normally banking institutions, earn no interest rate on their deposits.
The decision was taken to push banks with extra liquidity, such as Malta’s, to lend money to other commercial banks and make more profit.
Unwilling to take risks, banks have stopped lending to other banks, clogging the system and aggravating the euro crisis, particularly in countries where banks are already overexposed to non-performing debt.
Recent developments in the euro area do not point towards a rapid solution.
Moody’s – one of the world’s leading credit rating agencies – warned Germany, The Netherlands and Luxembourg, three of the strongest members of the eurozone, that they might lose their triple-A rating due to rising uncertainty.
According to Moody’s, risks that Greece could quit the eurozone and an “increased likelihood” that Spain and Italy would need more financial assistance weighs down on the three top-rated countries, as Germany is the main contributor to the EU’s bailout fund.
Moody’s kept a triple-A rating for France and Austria but warned this could change by the end of September. Both countries were downgraded earlier this year by Standard & Poor’s.
The president of the eurogroup, Luxembourg Prime Minister Jean Claude Juncker, said he took note of Moody’s rating decision, “which confirms the very strong rating enjoyed by a number of euro area member states”.
“Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole,” he said.
His words were strongly bolstered by ECB president Mario Draghi who said last week that the euro was “irreversible” and promised action to reduce countries’ borrowing costs if they were prepared to put in place tough deficit-reduction measures
Financial analysts have taken this as a sign that Europe is at last getting to grips with its problems.
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Emanuel. Vella.
Aug 6th 2012, 18:57
jien ghalija il-poplu malti s'issa zewg zbalji kbar aghmel kemm ili insegwi il-politika f'pajjizzi,l-ewwel li fin-1998 rega tella fil-gvern lil partit nazzjonalista,u l-ohra li aghzel li jidhol f'EU,jien fil-kuxjenza personali tieghi ma ghandi xejn hazin,ghax fin-1998 jien ivvotajt ghal PL,u ivvotajt LE ghal UE,u illum iz-zmien taghni RAGUN 100 fil 100 u izjed min HEKK,jien kont tajjeb 100% u IZJED.
Tony Camilleri
Aug 6th 2012, 15:58
These say it all.
http://euobserver.com/economic/117159
Monti: Europe shows signs of 'psychological meltdown'
http://uk.finance.yahoo.com/news/shell-pulling-cash-europe-eurozone-054940481.html
Shell 'pulling cash out of Europe on eurozone fears'
http://uk.finance.yahoo.com/news/shell-looks-pull-cash-europe-020856158.html
Shell looks to pull some cash from Europe due to crisis -report
Rod Enderby
Aug 6th 2012, 15:06
Nothing (including all the bail outs under the sun) and nobody, can save the Euro. The longer the politicians put their pride before common sense, the worse the eventaul and inevitable collapse will be!
Charles Muscat
Aug 6th 2012, 13:59
They are playing it stupid too. I tried to open a current account with HSBC last time I was in Malta in Bugibba but it became difficult because I did not have an ID NO. By the way I was only depositing not borrowing. I have a property in Malta as well. Very silly out of touch and laid back.
Charles Muscat
Aug 7th 2012, 14:07
Dear Mr.Tony Gatt, I showed them my passport and my ID NO. but not the ID card. cause I do not live in Malta. I also receive pension from Malta. The bank in Malta wanted information from my bank in Australia so they get to know who I am. The bank in Australia would not give information to anyone. This is still pending.
I hope HSBC Bugibba will read this letter cause I'm still waiting. Application took place in January this year while I was in Malta.
Lawrence Fenech
Aug 6th 2012, 13:06
Il-Euro kienet id-disastru tal-EU. Flok svilupp u gid kull ma tistma' il-problemi tal-Euro u austerita u talb ghal-"bailouts" dak-kwadan!
Mario Busuttil
Aug 6th 2012, 15:41
Il problema mhux il munita euro hija imma il banek u fl ewwel post il Grecja!!!!!...kieku tajjeb mexjin
Mr Tony Gatt
Aug 6th 2012, 21:37
@ Charles Muscat
What about your passport? That's all I use.
Eddy Privitera
Aug 6th 2012, 12:58
ECB president Mario Draghi said that the euro was "irreversible ". THE ONLY THINGS, IN MY VIEW, WHICH ARE IRREVERSIBLE, ARE OLD AGE AND DEATH !
Anthony Scicluna
Aug 7th 2012, 10:34
and your constant use of caps lock
John Benner
Aug 6th 2012, 12:52
I am not sure that anything done by HSBC reflects on Malta in the way this report seems to imply , anything this bank does is decided from London and not Valletta , its not the first time I have heard this bank referred to as a Maltese bank , HSBC has branches in Malta as they have around the globe and its seems to be the bank of choice for the Maltese public , whether it is their first choice I am not sure . Regarding Mr Briffa comment only countries with a sound economic activity have extra liquidity in their banks is dubious, then the two countries in the world with the largest banks the USA and the UK would not be in the mess they are in , take the UK the government are furious that money is piling up in their coffers and they wont lend , there is plenty of liquidity in UK banks but it aint helping the economy to get out of recession .Even figures posted by your own government in March does not back up your theory of sound economic activity and the credit rating agencies certainly do not .
M Sciberras
Aug 6th 2012, 18:09
Banks are considered domiciled in the countries where they operate. It is national jurisdictions which issue banking licences, regulate banks and enforce liquidity parameters, besides offering deposit protection schemes. The balance sheet of a bank that offers a full bank service in a particular country will reflect their activity in that country alone or activities emanating from that country. So it is perfectly correct to describe HSBC Malta as a Maltese bank with a foreign shareholder (HSBC) which received the dividend.
Elvin Muscat
Aug 6th 2012, 12:33
This is bad because it means Europe will remain in a recession for longer, less cash on the market.
C Borg
Aug 6th 2012, 13:11
Exactly Mr Muscat.
It also means that the banks are not confident that things are going to get any better in the short term and maybe they are also expecting another round of defaults.
j brincat
Aug 6th 2012, 12:31
@Joseph E Briffa
"Only countries with a sound economic activity have extra liquidity in their banks, and the Maltese banks have it. Need one say more?. Hope the doom and gloom crowd get the message once and for all and stop posting ridiculous comments"
What has 'gloom & doom' (a phrase so close to your heart) got to do with the way the local two big banks are currently operatin?
They are depositing excess funds (customers' deposits) in safe ECB - loosing interest in the process even though they pay interest on their (customers') deposits. They operating so because of lack of 'safe' investment opportunities brought about by the eurozone crisis! So what's your point?
This has NOTHING to do with the financial soundness of Malta in case you took it to mean so!
(jb)
J Busuttil
Aug 6th 2012, 13:35
" This has NOTHING to do with the financial soundness of Malta in case you took it to mean so! "
Skond Joseph Muscat, il-PL u nies bhalek.
Hallina tridx.
M Cassar
Aug 6th 2012, 11:35
Another superficial analysis that encourages the culture of complacency.
Both the IMF and the European commission have been warning the government that some Maltese banks are very exposed to the property market that at present is jammed. The stress tests conducted some months ago are just morale boosters because real risks often lurk in banks' operations and we only get to know about them when they explode into a major crisis.
Cypriot banks used to be considered as amongst the best in the Mediterranean until rating agencies realised that they were heavily exposed to the Greek economy. So please stop trying to talk up the economy and ignoring the hard economic realities. Until we slim down our public sector, improve our educational standards and invest in the real priorities of the infrastructure our economy will continue to be weak
Peter Murray
Aug 6th 2012, 10:48
How safe is this action in any event and why only is it being deployed at this late stage of the financially toxic turmoil ?
Joseph Apap
Aug 6th 2012, 10:42
@ Mr. Josep[h E. Briffa
The Doom and Gloom crowd will not understand the meaning
Banks in Malta are safeguarding their liquidity by depositing surplus cash with the European Central Bank, against no interest, rather than going for a profit with international financial institutions
You don't have to say more They will never understand
Joseph Grech Attard
Aug 6th 2012, 10:09
Again this is something that the banks are doing because there are no better things to do! One would have been happier if there were at least 2 good and safe things to do and one choses the best. As it is now, it seems to be the only safe thing.
Joseph E Briffa
Aug 6th 2012, 10:27
It's never plain sailing in life. If one has two options one chooses the better of the two or the less harmful of two bad things.
C Muscat
Aug 6th 2012, 10:07
Thanks to the 1996 1998 PL government administration up to the present day (PN Government); banks (BOV managed by the party in government) have to abide by all banking guidelines that include many parameters such as the liquidity pecentage; the back up (excuse my words because I am just a common person)..
Mr Michael Debono
Aug 6th 2012, 10:06
Once banks will not pay interest on money deposited it is safer to withdraw the capital and keep safe at home until position changes.This usury not paying interest on money loaned to the Bank. It amounts to robery. This is hapening in the much acclaimed E.U.
N Azzopardi
Aug 6th 2012, 10:33
Here we are not talking about deposits into the Banks by the public. So commenting on something which you do know nothing about is a waste of time.
Peter Murray
Aug 6th 2012, 10:51
exactly so sir and I have been advocating your suggestion for a number of years now-but people are inexplicably indifferent and by and large demonstrate inertia.
Mr Tony Gatt
Aug 6th 2012, 10:52
The best home for money is property.There has never been a better time to buy, if you can get a tenant on a long-term let.
The problem in Malta is the 'developers' are storing huge problems for the future. Ireland went through a building boom some years ago and now you can buy properties there for half the price they were going for only 4 years ago. In fact the government which took on builders' debts is considering demolishing whole estates which were never sold, as a cheaper option to maintaining them.
C Cassar
Aug 6th 2012, 11:29
The only property worth investing in Malta are the newer quality developments. Many of the tiny crowded developments inland (which make up the majority) will always have problems selling. Those that have good design and are located by the sea will always sell at good prices.
Malta simply can't be compared to Ireland or Spain due to the very restricted development space in comparison. This fact alone will, again, always benefit quality developments in Malta.
Mr Tony Gatt
Aug 6th 2012, 21:45
@ C. Cassar
Modern flats are rabbit-hutches compared with some older properties. I have seen flats half the size of my one built in the 70's for sale at Tigne for a ridiculous asking price. Whoever buys there will regret it when they come to sell.
Mr Tony Gatt
Aug 6th 2012, 09:54
I was looking at the course of the euro for the last 12 months against sterling. Lat July it was up to 88 pence sterling; this July it was 78 pence. Not a very good omen.
C Cassar
Aug 6th 2012, 10:38
Why? What's the relevance of Sterling and the Euro? Malta has visitors mostly from teh Eurozone, so no problem for hem, no currency exchange necessary. Also makes Eurozone exports much more competitive than those from the UK.
Mr Tony Gatt
Aug 6th 2012, 11:28
@ C. Cassar
If you have faith in the euro, that's fine. Some people think the euro is toast. Many Germans want to get back into their old currency, and out of the euro, and to stop supporting basket cases like Greece.
Actually, I was more thinking of people transferring money from Malta into sterling, and for visitors to the U.K.
Peter Murray
Aug 6th 2012, 09:26
Could you elaborate on how exactly you define a Maltese bank-as you include HSBC in this apparent blanket cover statement?Are yiou referring in fact to banks operating in Malta and,if so,how many banks in total are included in this ECB fund depositing scheme?
Anthony Scicluna
Aug 6th 2012, 09:41
Good questions. Presumably, HSBC (Malta) has sufficient autonomy to dictate its deposit strategy. HSBC and BoV own the blanket majority of Maltese bank market share.
matthew tanti
Aug 6th 2012, 11:24
it's not a scheme!
Joseph E Briffa
Aug 6th 2012, 09:25
Only countries with a sound economic activity have extra liquidity in their banks, and the Maltese banks have it. Need one say more?. Hope the doom and gloom crowd get the message once and for all and stop posting ridiculous comments..
Frans Aguis
Aug 6th 2012, 10:36
Your reasoning leaves much to be desired. So if two banks are not going bankrupt then the economy is fine. Go tell that to the central bank I'm sure they'll appreciate your sound economic indicator.
J. Debono
Aug 6th 2012, 14:05
@ Frans Agius,
yes you are right.
the banks are not going bankrupt because the economy is fine.
M. Spiteri
Aug 6th 2012, 14:47
Joseph, when banks choose to deposit more money with central banks as they sense problems, means that less money is injected into the economy. In short, banks prefer to hold their money in safe mode rather than giving out loans to the general public/businesses as they sense the peril of a degenerating situation.
This article shows a deteriorating indicator rather, as you say, a sound economic situation
Please for God's sake, stop thinking with your partisan minds and check your facts. Intelligent people choose the best politicians for their country, not the funny parliament we currently have
M. Spiteri
Aug 6th 2012, 14:53
and to pursue my argument (assuming the time posts my previous one), of course it is a good indication that the maltese banks have extra money. However, the article very rightly says that extra money doesn't deepen one country's recession NOT that it pulls it out of one. The situation is precarious, not only in Malta, but as we are an extremely open economy susceptible mostly to the EU/euro area, then yes, as the euro area is in deep trouble then we are as well.
These are facts. No PN vs PL, this is Malta. And in difficult situations we need to act as one country not blattering old, boring and childish partisan stuff
Please choose the reason of your report below: