Finance Minister Tonio Fenech was upbeat about the economic results achieved despite the international financial crisis, saying the economy had grown by 3.5 per cent and unemployment was 6.2 per cent.
Introducing the second reading of the Banking Act (Amendment) Bill, Mr Fenech said countries were still going through the aftershocks of the international financial crisis because of the way international financial institutions had been administered.
While supervisory authorities had not had the necessary tools to monitor these financial institutions, a need had been felt to strengthen the banking structure to prevent a repetition of this situation.
Although local banking had remained strong during the crisis, it still faced ride-downs. Meanwhile, the Maltese economy had increased by 3.5 per cent while the EU average was 1.5 per cent.
But while Malta’s position was stable, it still needed to be cautious of the instability in its region.
The IMF report confirmed the way the government had directed its aid. Malta was portrayed as having a strong economy, which had also managed to create employment. Indeed Malta’s unemployment rate was 6.2 per cent while the EU average was 10 per cent. The government was determined to keep attracting foreign investment to Malta.
The Maltese financial services sector had been described as being strong in several reviews. Indeed the World Economic Competitive Index had placed Malta in the 11th place in local financial development. It was considered as a leading innovator. Meanwhile, it had also placed Malta in the 10th place with regard to the soundness of Maltese financial institutions. In the past, Malta had placed in the 13th place in both cases.
This showed that the government’s policy was correct. Moreover, this had increased Malta’s reputation when attracting foreign investment.
Speaking on the stress tests that had been conducted on some 90 banks in the EU member states, Mr Fenech said that only seven had failed the tests.
Malta’s Bank of Valletta had achieved a positive result; it had shown a capital ratio of 9.3 per cent while the threshold was six per cent. Measures to sustain regulatory authorities were important to keep up to date. “We are a step ahead,” he said.
There were 25 credit institutions in Malta, 22 of which were foreign having more than €40 billion worth of assets.
The financial services sector offered several employment opportunities ranging from economics to legal employment. Even Mcast had courses related to this sector. He encouraged students to choose careers within this sector.
The Bill’s aim was to transpose an EU directive into domestic legislation to have supervision on financial institutions even at EU level. A consolidated supervisor would determine where supervision was needed.
Coordination was needed to strengthen the crisis management framework. A college of supervisors was, therefore, set up to ensure effective supervision.
All these measures were being taken to prevent what had happened two years ago from happening again. Such measures would ensure more attention and control on financial institutions, Mr Fenech said.
Charles Mangion, opposition spokesman on financial services, said the Bill was in line with EU directives issued in 2009 which ensured capacity adequacy and sought for regulations to be put in place in order to minimise uncertain and risky investments by banks.
The opposition agreed with the Bill because it would make stringent rules on investments and impose obligations on bankers to be more cautious when selling products to consumers. There was an obligation for bankers to comply and take sound risks.
There was a question whether the element of commission could lead to misselling, where a banker would choose to invest in a financial instrument which was tagged with a higher risk than another one, in order to go after higher profits. But if the investment failed, it would lead to lower returns due to the higher risks entailed.
Dr Mangion believed it was important to go for self-discipline, and he felt the Bill made the obligation more onerous on banking officials taking decisions on which instruments to invest in. This added an obligation on the legislator to keep his eyes open for non-compliance, and the government needed to be certain how it was to proceed in such cases.
The college of supervisors would help self-discipline and would make it easier for financial institutions to avoid a crisis which would then be paid for by taxpayers’ money.
Moreover, subsidiary banks were prohibited from moving to a non-EU country and carrying out banking secretly. The aim behind sharing information was surveillance, and thus compliance with the caution clauses in the directives.
Referring to the conclusion of an MFSA investigation into the depletion of a BOV property investment fund by €50 million, Dr Mangion said while it was important to respect the institution, there was the need for conclusions to be made public and followed up for the common interest. The need was to instil trust between the institutions and consumers. There was no doubt one needed increased focus on the financial and services sectors.
The model in discussion had been a success due to a strong element of political stability. Effectively, he said, this was an ongoing phenomenon, and he applauded the fact that the regulating authority was efficient and provided excellent advice.
What was lacking, Dr Mangion added, was manpower in the educational sector. One needed to acknowledge that, in this regard, there was a need for the Institute of Financial Practitioners to strengthen vocational guidance in schools. Currently, one needed to import manpower. He called for serious consideration for primary and secondary educational sectors to do so in an endeavour to avoid illiteracy, which he deemed shameful.
Malta had managed to maintain competitive taxes. It was important that one bore in mind the impact these taxes would have on the international sector.
Dr Mangion asked whether Malta could further make the most of the competitive streak it already enjoyed. Should Malta remain generic or go deeper and delve further in specialised services? Development was occurring at a speedy rate and other countries were enjoying increasing investments.
He called for Malta to be more aggressive, both politically and diplomatically, and introduce more bilateral agreements.
Winding up the debate, Mr Fenech said there was a huge responsibility for ensuring that regulating bodies protected consumers responsibly.
The MFSA was dealing with claims made over the BOV property management case and called for its decisions to be respected. The government was a shareholder of the bank in question in this particular case. The government was not attempting to influence the authority. The MFSA would act independently of the government. It had an important function and bore the legal strength and competence to reinforce legislation, while ensuring the safeguarding of financial institutions.
The Bill was unanimously approved.