Stress test results have confirmed the resilience of the domestic banking sector, indicating that the banks have adequate capital buffers and a strong liquidity profile, largely supported by funding through retail deposits, the Central Bank has reported in its Financial Stability Report, 2008.

It added, however, that as a result of the global financial crisis and the deepening recession, the domestic financial system has become more vulnerable to secondary shocks, and financial stability conditions have generally become more uncertain.

“This suggests that banks would do well to strengthen capital buffers further beyond statutory ratios.”

The report surveys the financial system in Malta, identifying potential risk factors that could impact on the stability of the system while assessing its resilience to shocks.

It describes the external and domestic macroeconomic and financial conditions within which the financial system operated during 2008, and assesses the adequacy of capital, quality of assets, liquidity and profitability of the various components of the system. The financial stability analysis is complemented by stress tests of the banks’ capacity to withstand extreme but plausible shocks.

The Financial Stability Report 2008 is available on the Central Bank of Malta’s website at www.centralbankmalta.org.