Fifty-nine per cent of respondents in a Financial Services Survey carried out by PwC in collaboration with Finance Malta have reported increased business volumes. The report said this outcome is a reflection of Malta’s economic performance where real GDP growth of 6.4 per cent in 2015 continued to outperform that of the EU28 average (two per cent in 2015).

The survey was carried out between March and April and was directed at regulated banking, insurance and asset management institutions. The survey will be held on a semi- annual basis and will serve to gauge trends and industry developments over time.

Forty-three per cent of firms across all sectors reported an increase in employment, while competition was identified as the main limiting factor among all service providers that will hinder the ability to increase the level of business in the coming year.

The survey also invited respondents to give their views on Malta’s competitiveness as a financial services centre. Respondents flagged a number of issues such as the impact of the proposed Base Erosion and Profit Sharing (BEPS) tax rules, the introduction of the Common Reporting Standard, Malta’s international repute coming under attack as a result of Panama Papers, eurozone uncertainty, Malta’s new Arbiter law, as well as the Brexit referendum.

Concern was raised with regard to the difficulty in opening and maintaining bank accounts required by financial services practitioners.

While banking sector respondents found competitiveness to have improved, insurance and asset management firms found Malta’s competitiveness to be facing stiffer challenges.

Optimism remains robust within the banking sector

Optimism remains robust in the banking sector, with 33 per cent of respondents being more optimistic about the overall business situation in the sector with the balance reporting unchanged sentiment levels. There is reported growth in net interest as well as non-interest income driven mainly by increased trading in commercial banking activities.

Ninety-two per cent of respondents reported no significant changes in non-performing loans. As much as 70 per cent of banking sector firms have re­ported increases in total opera­ting costs driven mainly by in­creased employment and payroll costs as well as increasing levels on capital expenditure particularly for IT systems as well as marketing efforts. A net balance of 25 per cent of banking sector respondents expect to report an improvement in profitability.

In the insurance sector 75 per cent of firms reported increased volumes of business. However only 17 per cent were more optimistic about the overall business situation in the sector during the past six months. There is strong growth (75 per cent respondents) in premium incomes, and a reported drop in net investment incomes.

All respondents have reported increases in total operating costs driven mainly by increased levels of insurance claims (92 per cent of respondents) as well as an increase in the average costs per claim (67 per cent of respondents). Although staff turnover in the sector is reportedly stable, 33 per cent of firms have also had to deal with increased levels of employment and payroll costs (67 per cent of respondents).

“One also notes the need for increased capital expenditure particularly for IT systems, as well as increased spending on regulatory compliance in relation to the Solvency II Directive reporting requirements. As much as 42 per cent of insurance sector respondents have indicated decreased profitabi­lity for the previous six months,” the survey states.

Fifty-five per cent of asset management firms report increased volumes of business and as much as 60 per cent are expecting business volumes to continue increasing over the coming six months.

Most respondents reported unchanged levels of optimism when compared to the previous six month period. Staff turnover in the sector has increased and 65 per cent of companies have reported an increase in total operating costs over the past six months once again driven mainly by increased levels of employment (45 per cent of respondents) and payroll costs (45 per cent of respondents).

Forty per cent of asset management companies indicated increased profitability for the past six month period.

Kevin Valenzia, PwC Malta Territory Senior Partner, commented: “Malta is today recognised as a leading European financial services centre, combining high regulatory standards and rigorous enforcement. However, it is a highly sensitive and volatile industry and there are challenges and threats that need to be addressed by policy makers and regulators in order to sustain Malta’s competitiveness.”

Kenneth Farrugia, chairman of Finance Malta, commented: “This survey will surely prove to be an important indicator of the business confidence and sentiment of the financial services industry in Malta. Its results will also allow policy makers and other stakeholders of the industry to strengthen the success factors that are deemed as key drivers of growth of the sector and to better manage the challenges that the industry faces from time to time.”

The survey can be accessed at www.pwc.com/mt/fss2016

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