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Risks to financial stability remain low - Central Bank

Positive outlook for second half of the year

Risks to financial stability in the funds sectors for first half of the year in Malta remained low with a positive outlook for the second half of the year, according to a Central Bank report released today.

No new risks have emerged, whereas credit risk and exposures to the domestic sovereign have abated further as non-performing loans (NPL) continued to decline while the credit rating of the domestic sovereign was upgraded by credit rating agencies.

The conclusions emerge from the Central Bank of Malta's Financial Stability Report, which covers developments in the banking, insurance and the investment funds sectors, making references to the economic backdrop within which these institutions operated during the first half of 2016.

The Maltese economy continued to show resilience in the face of a challenging international environment and continued to outperform most euro area countries and remained supportive of the domestic financial system.

The profitability of the core domestic banks remained strong and grew further

The report says that the core domestic banks reported further growth in their balance sheet, buttressed by the sustained flow of resident customer deposits.

Lending growth remained subdued, mortgages continued to be the main driver of resident credit growth, albeit decelerating somewhat, whereas lending to non-financial corporates contracted further, though showing signs of an incipient recovery.

The resilience of the core domestic banks was sustained through higher provisioning levels and prudent lending practices.

The profitability of the core domestic banks remained strong and grew further on the back of lower non-interest expenses coupled with higher non-interest income.

Net interest income, which remained the prime source of revenue, stood broadly unchanged despite the low interest rate environment and subdued overall credit growth. The capital and liquidity positions of the core domestic banks remained strong and well above the regulatory minimum. The robustness of the capital and liquidity positions was also confirmed by the results of the stress tests conducted by the Central Bank of Malta.

The financial conditions of the non-core domestic and international banks remained healthy and no systemic risks have been identified, mainly on account of their limited links with the domestic economy. The domestic insurance companies and investment funds continued to report sound capital positions, despite lower returns because of the prolonged low interest rate environment, the report concluded.

 

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