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Worrying signs in bright picture

Publication of the Central Bank’s annual report comes at a somewhat worrying time. Even though it is the Malta Financial Services Authority that regulates the banks, it is difficult to keep out of mind the mounting concern over Pilatus Bank and HSBC, for different reasons, of course.

In the case of Pilatus Bank, the primary concern is over the unfavourable impact its affairs in Malta and that of its former chairman, arrested in the US over charges of violating economic sanctions on Iran, continue to have on the reputation of the financial sector and on the jurisdiction in general.

As to HSBC, reports of its possible withdrawal, for commercial reasons, is worrying too, at least in terms of prestige.

If what has been reported does indeed happen it will rob the island of a bank that has worldwide connections.

Since HSBC lends a good name to Malta and its financial services industry, the general hope is that the big bosses at the bank will reconsider their decision, even if no official confirmation has been given yet. It is the pulling effect of HSBC’s name, within the context of the island’s expanding financial services, that was considered of prime importance when it was first attracted to Malta.

At the launch of the annual report, Central Bank chairman Mario Vella did not comment on either Pilatus Bank or on HSBC, preferring, it seems, not to step into areas that do not fall under the bank’s responsibility. Even so, since the Bank is entrusted with ensuring the stability of the financial system, Dr Vella’s views would have been enlightening.

In its report, the Central Bank confirms, as expected, the country’s continued economic advance. However, except in a few instances, such as the impact of the projected rise in population on the infrastructure, it appears to stop short of highlighting potential areas of concern.

A Bank official did express views on the upward trend in house rental rates, arguing, according to newspaper reports, that the construction boom was good news for housing affordability as more properties on the market would help rein in rising rental rates. That, unfortunately, remains to be seen. Satisfying the demand for new accommodation may keep prices stable but it is most unlikely that it would affect existing rental rates.

True, as the bank official said, landlords were raking in more money, which, in turn, was going to the economy but the sudden sharp rise in rents in the wake of the new inflow of foreigners buying Maltese passports has created a huge problem for tenants unable to afford them. These are now struggling either to meet their new rent or urgently seeking cheaper accommodation elsewhere. The problem might not have been felt so acutely had the rise been gradual.

Meanwhile, the economic indicators remain most encouraging, with growth, described as robust, largely underpinned by the services sector. The expansion in manufacturing is mostly attributed to higher production of rubber and plastics.

Somewhat worrying is a significant decline in the making of pharmaceutical products, a matter that immediately raises the importance for the island to keep diversifying its economic base. The government concentrates on selling Maltese passports but it would seem it is finding it increasingly difficult to come up with new economic niches.

This is a Times of Malta print editorial

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