The exposure Maltese banks have to stressed countries in the eurozone is equivalent to 24 per cent of their capital, according to a Central Bank of Malta report.
Portugal, one of three eurozone members that sought an EU bailout, is the country where banks have the largest exposures. This amounts to about 16 per cent of banks’ Tier 1 capital and consists mainly of interbank loans.
The figures are found in the Financial Stability Report published in June by the Central Bank, covering the period up to March this year. It covers Greece, Ireland, Portugal and Spain.
Domestic banks are largely exposed to private sector bonds and interbank loans with exposure to sovereign debt amounting to about 11 per cent of exposures in the stressed countries.
A spokesman said the Central Bank would be issuing an update of the report towards the end of September and was in the process of gathering and analysing information, including that related to sovereign debt risk.
Exposure is determined by the amount of money banks have in securities and loans in the countries identified in the report. Loans include money loaned to other banks.
According to the European Banking Authority, Tier 1 capital is the amount of funds held by a bank for general solvency purposes.
Exposure to Greece and Ireland, the first eurozone countries to seek a bailout last year, is much less, with the exposed amounts accounting for almost five per cent and three per cent respectively. Exposure to Spain accounts for eight per cent of Tier 1 capital.
Although Spain has so far avoided a bailout, it is tottering on the brink like Italy, as markets are uneasy with the level of public debt.
The report does not include Italy, where market pressure over the past few weeks has forced the country to adopt severe austerity measures to avoid collapse, and Cyprus, which is increasingly being touted as the next country to need a bailout.
According to the Central Bank, exposure to countries under stress accounts for about five per cent of total exposure to foreign countries, down from over eight per cent in 2009.
“This indicates cautiousness on the part of the banks, which considered the risk-reward ratio as insufficiently high despite the higher yields offered by these countries,” the Central Bank commented.
Exposure to sovereign debt amounts to about 11 per cent of all exposure in the stressed countries with much higher exposures reported in private sector bonds and loans to banks.
The report says that more than two-fifths of exposures consist of securities such as bonds issued by the private sector, including banks. A similar proportion consists of loans extended to credit institutions in these countries, including substantial interbank transactions with parent or sister companies.
The financial stability analysis focuses on those institutions that the Central Bank considers important for the domestic financial system, covering various issues, including the risks associated to sovereign debt exposures.
The banks featured in the report are APS, Banif, Bank of Valletta, Bawag, HSBC, Lombard and Volksbank.