Banks in Malta are in a privileged position when it comes to feeling the pulse of the local economy. They can see which sectors are growing and which are waning, forecast property trends and spoon-feed SMEs.
They are also able to pick up the warning signs from sectors in trouble and influence the government’s debt management through their treasury operations.
It is therefore always insightful to see what they have to say about the past and present years.
Sparkasse, which focuses on private banking, investment services and custody/depository services, benefitted from Malta’s growing reputation as a financial services jurisdiction.
Managing director Paul Mifsud said that the bank’s financial figures for 2015 were very positive, “exceeding all expectations” but he fretted about the lack of momentum in the sector.
“So 2015 was yet another year to boast about. However, looking back at the sector in general, it is sad to admit that the sector hasn’t done much in terms of innovation. On the contrary, banks have become more ‘particular’ – for lack of a better word, on taking up new initiatives.
“This mainly stems from the fact that banks have had to cope with the onslaught of regulation landing on their desks year on year since the financial crisis of 2008. As a result, banks have been busy realigning their resources by shrinking their business, ridding themselves of non-core services and redirecting these energies towards developing their legal, risk, reporting and compliance departments. Deleveraging risk in the banking sector will certainly remain high on the agenda for the foreseeable future,” he said.
He believes that this has created a vacuum that has not gone unnoticed by entrepreneurs.
“The industry has seen the development of other financial institutions such as payment service providers, electronic money institutions as well as card providers emerge and enter the market to fill in the void banks have left ripe for cherry picking.
Looking back at the sector in general, it is sad to admit that the sector hasn’t done much in terms of innovation
“There are also serious attempts being made on creating alternative currencies such as cryptocurrencies. It is an inevitable phenomenon in business, that one man’s loss is another’s fortune. We will see more of this develop in the future as banking risk appetite will continue to diminish and new providers emerge. It will be a matter of time for this phenomenon to manifest itself more in the lending space too,” he warned.
One aspect that particularly worries him going forward is Malta’s negotiating capabilities vis-à-vis certain key proposed EU measures.
“What will be our position if these fiscal measures are adopted – and what will be their effect on the financial services sector in general? This reinforces the argument that innovation should be encouraged rather than restricted.”
Valletta Fund Management reported good growth in the fund industry in 2015, with Mark Vella, the head of marketing and business development, noting that the aggregate assets under management of funds managed by Malta-based asset management companies reached the €70 billion mark.
“Considerable growth was registered in the funds investing in real assets. Some of the main recent developments in the local funds’ sector include the passporting of Ucits funds into other EU domiciles, the cross-border mergers of Ucits 4 funds of Luxembourg and Swedish origin into Malta-based Ucits and a continued strong and growing presence of fund administrators, fund managers and custodians,” he noted.
Given VFM’s international involvement, he was also able to give a global view of what 2016 could bring.
“The G7 economies are expected to grow faster than two per cent in GDP-weighted terms, which would be the fastest pace since 2010. In contrast, the E7 emerging economies will grow slower than their trend rate, which is still faster than the G7.
“Three geopolitical issues will continue to dominate the news headlines: first, the migrant crisis in Europe; secondly, the response of the international community to the crisis in the Middle East; and thirdly, the referendum on the fate of the UK’s membership of the European Union.
“Commodity prices are also expected to remain lower for longer. This will be good news for most businesses, households and policymakers in commodity importing economies but a challenge for countries that rely heavily on commodity exports.”
HSBC Bank Malta’s CEO Andrew Beane has only been in the hot seat for a few months but he is already gushing about the local situation: “Malta is a vibrant and diversified economy, with growth rates higher than the EU average,” he enthused.
However, he was pragmatic about the pressures on banks, which he said would make 2016 another challenging year for the banking sector.
“HSBC Bank Malta looks forward to the potential that the new year will bring with it as the bank connects its customers to growth opportunities.
“While continuing to play a key role in supporting the Maltese economy given the increasing number of projects, new businesses and FDI, the bank believes there are significant prospects for its customers to grow internationally as a result of the increasing opportunities resulting from global trade, as well as the funding being made available by HSBC Malta through the €75 million Malta Trade for Growth Fund launched in 2015,” he said.
The new regulatory regime is also exerting cost pressures on the banks, as they need to build teams to monitor and manage their compliance and risk profiles
Mario Mallia, the chief executive officer of Bank of Valletta, was upbeat about the banking sector in Malta, saying it remained a healthy one – but said that this had nothing to do with luck.
“This is a result of the prudent banking practice adopted by the main banks in Malta, which focuses on maintaining healthy capital and liquidity levels,” he said.
Mr Mallia believes that in 2015 Malta’s economy continued to grow at a very significant rate, especially when compared to other EU member states.
“The regulatory environment was pivotal in 2015. It was the first year during which Bank of Valletta, along with other banks deemed to be systematically important in the eurozone, fell under the direct supervision of the European Central Bank. This supervision will continue to grow tougher and more intrusive, spearheading important changes in the banking sector over the coming year. Having a sound corporate governance, strengthening one’s capital base and managing risks consequently became more critical, and banks, both locally and internationally, are evolving to be able to respond to these demands.
“This new regulatory regime is also exerting cost pressures on the banks, as they need to build teams to monitor and manage their compliance and risk profiles,” he added.
Looking ahead, he said the growth in the Maltese economy was expected to be driven mainly by private consumption.
“As a result of the tighter banking regulation, banks are becoming safer, but consequently there is less appetite for ‘riskier’ lending that demands more capital. SME financing will naturally remain the backbone of the Maltese economy, and in this regard Bank of Valletta is committed to continue supporting the players by providing financing.”