Malta’s two largest retail banks received a clean bill of health from the European Central Bank yesterday after passing rigorous year-long tests.
Bank of Valletta and HSBC Malta had enough high-quality capital to cover their risky assets under different economic scenarios analysed by the ECB.
These tests were more onerous than previous exercises since the ECB, among others, examined in detail individual loan portfolios and reviewed securities.
The two banks, along with a subsidiary of Deutsche Bank, were chosen to represent the Maltese banking sector since they cover at least 50 per cent of the sector as required by ECB rules.
Deutsche Bank also passed the test. The bank handles vast volumes of cash but has no retail operation in Malta and so is less important to the economy.
The Malta Financial Services Authority and the Central Bank of Malta said that the overall results confirmed the “soundness and resilience” of each of the three banks analysed.
The unprecedented health check by the ECB saw 25 of the eurozone’s 130 biggest banks fail after they ended last year with a collective capital shortfall of €25 billion.
Banks with a capital shortfall will have to say within two weeks how they intend to close the gap.
They will then be given up to nine months to do so.
The ECB’s pass mark was for banks to have high-quality capital of at least eight per cent of their risk-weighted assets in the most likely economic situation for the next three years, and capital of at least 5.5 per cent under a bleaker scenario.
BOV’s capital ratio stood at 13.2 per cent in the most likely economic scenario and 8.9 per cent in the adverse scenario. It passed the test with a significant margin in both cases.
HSBC Malta, analysed as part of the holding company based in the UK, scored 9.3 per cent in the normal scenario and 8.9 per cent in bleaker circumstances.
The exercise, labelled a comprehensive assessment, was a financial health check on banks before the ECB assumes responsibility for their direct supervision next week.
BOV chairman John Cassar White said the results would serve to boost market confidence in the “strength and stability not only of BOV, but of the entire Maltese financial system”.
“BOV will continue to be vigilant in the management of risks and will strengthen its corporate governance to ensure that it continues to perform its role in a sustainable and effective way,” Mr Cassar White said.
Italy’s financial sector faces the biggest challenge, with nine of its banks failing the test.
Monte dei Paschi had the biggest capital hole to fill at €2.1 billion, even after its money raising efforts so far this year.
Three Greek banks, three Cypriot, two from both Belgium and Slovenia, and one each from France, Germany, Austria, Ireland and Portugal also fell short as of the end of last year.
ksansone@timesofmalta.com