The European Central Bank’s asset purchase programme is not having the desired effect in Malta of encouraging more lending to enterprises.

The Bank Lending Survey (BLS), last conducted in October 2016 by the ECB, surveyed four core domestic banks on the credit conditions in Malta during the third quarter of 2016.

However, when asked whether the additional liquidity resulting from the APP was having any spill over effects on the banks’ lending patterns, three of the four respondents stated these effects were negligible.

Only one respondent claimed to have increased its lending to enterprises and improved lending terms and conditions as a result of the ECB’s programme.

The effects on the banks’ capital position and market financing conditions were also considered to be neutral. One bank stated that the ECB’s APP had a negative effect on its assets, while two respondents reported positive effects on liquidity due to an increase in deposits.

“The programme appears to be having adverse effects on profitability, with three of the four respondents claiming declines in their net interest margin. The negative effects on profitability were expected to persist over the next six months,” the Central Bank of Malta said in its quarterly review.

The ECB recently confirmed that the monthly asset purchases of €80 billion under the asset purchases programme will run until the end of March 2017, or beyond, if necessary.

On January 19, the ECB Governing Council released further details of how the Eurosystem will purchase securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility.

Substitute purchases are sometimes needed for national central banks to reach their target. The Central Bank of Malta has been holding reverse auctions on a trial basis for some of its outright purchases since September 2016, to purchase selected Malta Government debt securities eligible for the PSPP. The results can be seen in the table.