Requests for home loans to Maltese banks fell sharply during the last three months of 2011 and worse figures are expected for the coming year, a survey has shown.
Significant drop in the building industry might also be a result of oversupply
Malta is among six EU member states experiencing a “significant deterioration” in requests for new mortgages, according to a survey conducted by the European Central Bank (ECB) which polled banks across the euro area. The other countries are Spain, Italy, Belgium, Finland and the Netherlands.
An ECB official told The Sunday Times that although requests for new home loans were down across the eurozone, highlighting an across-the-board economic slowdown, Malta’s report of a 20 per cent drop was cause for concern.
“Malta’s results show the country is heading for some economic trouble if the trend reported by Maltese banks continues,” the official said.
The local construction industry has been in decline for quite some time. Property prices have declined during the past year while new construction projects are also on the decline.
According to the latest figures issued by the Maltese Central Bank and the NSO, the number of building permits issued for residential buildings fell by 24 per cent in the third quarter of 2011 compared with the same quarter of 2010.
Prices fell by an average of 2.6 per cent during the first half of 2011, according to the most recent Central Bank quarterly review.
The Malta Developers Association last year said that permits for new dwellings had also plunged – from 11,343 in 2007 to 4,444 last year.
ECB sources said that although this data pointed towards a significant slowdown in the Maltese building industry, this was not necessarily a reflection of ‘global’ Maltese economic activity.
“Malta’s economy in general last year grew at a higher pace than the euro area. The significant drop in the building industry might also be a result of oversupply and a construction frenzy which took place in the past years. We have the same situation in Spain,” the sources said.
However, the general results of the Euro Area Bank Lending Survey of the ECB continue to highlight the difficult economic scenarios expected to hit the eurozone this year.
The survey shows that across the EU, banks are becoming more stringent in approving lending facilities – both for business and personal loans, while demand for new credit is also on the decline.
The ECB noted that the biggest ‘net tightening’ of bank credit last quarter came in the areas of loans for large corporations and for mortgages – by 19 per cent and 11 per cent respectively, compared with the third quarter.
Half of banks in all euro countries also reported “significant difficulties” in getting other banks to lend them money for day-to-day operations.
According to the ECB, this trend is the result of worries about exposure to bad sovereign debt, “weak expectations” of economic growth in 2012 and new EU rules requiring banks to keep more rainy-day capital in reserve.