Malta has felt “no impact” from the Cyprus crisis, proving the crucial differences between the two Mediterranean islands, according to the governor of the Central Bank of Malta.
Banking sector is diverse, sound and robust
“We are monitoring the situation everyday and what we have seen is normal activity.
“There were absolutely no abnormal movements,” Josef Bonnici said during his presentation of the Central Bank’s annual report for 2012.
He dedicated a substantial part of the presentation to highlighting the strength of Malta’s financial sector and dispelling any myths arising from comparisons with the likes of cash-strapped Cyprus.
Malta’s banking sector was “diverse, sound and robust”, with “high rates of profitability, liquidity and solvency”, he said, comparing each key indicator with those of the more sober Eurogroup averages.
He said Malta had three types of banks: five core banks that attract local deposits and issue conservative loans; non-core domestic banks that offer limited services to residents; and international banks with “virtually no link to the domestic economy”.
The core banks were well-capitalised, with a very prudent model and high profitability by international standards, Prof. Bonnici said.
The international banks, he added, were very well-funded and focused on international transactions, contributing to the economy through their activity on the island.
“Does this mean we have no work to do? Not at all,” he said, pointing out that core banks should still increase their loan loss provisions and their capital buffers while diversifying their collateral base.
‘Economy doing well’
The “high level of profitability” creates ample opportunity to strengthen resilience, especially when it comes to lending particular sectors such as the commercially oriented construction sector, he said.
Outlining the reasons behind Malta’s optimism, also due to the country’s favourable economic performance, Prof. Bonnici advised against unwise comparisons that do not distinguish between the particular characteristics of different countries.
This was the second time he criticised international reports speculating about whether Malta could follow in the footsteps of Cyprus, which required a bailout to save two troubled banks due to exposure to Greece.
Prof. Bonnici pointed out that Malta had the lowest exposure to Greece according to a chart by the International Monetary Fund, while Cyprus had the most. Malta also had very little exposure to other troubled countries such as Italy, Spain and Portugal.
Instead, most of Malta’s exposure was spread out over the UK, France, Australia, Germany and the US.
Malta’s overall economy was also doing well, he said, with the number of gainfully occupied increasing even though unemployment figures were also rising slowly due to the rate of economic growth.
Prof. Bonnici also referred to the revised deficit figures, saying this was “not good news” and efforts were needed to reverse the deficit and move towards a balanced budget and surplus.
He spoke about the importance of more efficiency in government expenditure.
He pointed out that Malta’s female participation rate had increased by 10 per cent in the past five years, with the Government committed to continuing this growth through incentives and family-friendly measures.