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Malta’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

In 2018, economic growth in Malta remained robust, with real GDP growth at 6.6%, nominally lower than the 6.7% registered for 2017. The expansion remained largely underpinned by the services sector, although the manufacturing and construction sectors also posted an increase in gross value added. However, during 2018, exports of goods and services increased by 2.1%, compared with 5.6% in 2017. The seasonally adjusted unemployment rate published by Eurostat averaged around 3.8% in 2018, while labour productivity improved by a further 0.9%. Meanwhile, the situation in public finances improved further, with the general government debt falling to 45.7% of GDP and a budget surplus equal to around 3.6% of GDP. Notwithstanding the fast pace of expansion and tight labour market, the annual inflation rate based on the Harmonised Index of Consumer Prices remained moderate, averaging 1.7% in 2018. Although higher than the 1.3% registered in 2017, inflation remained contained from a historical perspective.

Over the past two decades, the banking sector in Malta has grown from four retail banks serving the local population to 24 licensed banks as at the end of 2018, only three of which are Maltese majority-owned. The ownership of the other banks originates from various EU and non-EU jurisdictions, including Austria, Australia, Belgium, Greece, Kuwait, Turkey and the United Kingdom. As such, 65.7% of the banking sector’s total assets of around € 44.4 billion are foreign-owned.

The sector is very diverse in terms of inter-linkages with the domestic economy, and can be split into three groups, according to the extent of linkage with the Maltese economy: core domestic banks; non-core domestic banks and internationally-oriented banks.

There are six core domestic banks, whose assets (around €24.1 billion) represented 196% of Malta’s GDP. The core banks employ 82% of the sector’s workforce numbering around 4,688 employees. Two of these banks are the local market leaders, holding around 74% of this group’s assets, and operating 64 of the 96 core bank branches in the Maltese islands. The core banks exercise a conservative business model consisting mainly in the raising of deposits and the granting of loans mainly to Maltese residents. Resident deposits and loans within this sector increased by 6.6% and 6% respectively in 2018.

The core domestic banks rely predominantly on resident deposits for their funding, and have a stable deposit base, thanks to the high propensity to save by Maltese households. Their loan-to-deposit ratio increased from 59% in 2017 but remained low at around 61%. On the asset side, over 85% of their loans are to Maltese residents, with the banks applying prudent lending norms and loan-to-value ratios, as well as a cautious valuation of collateral. Their investment portfolios also continued to be widely diversified in well-rated securities.

Overall, the core domestic banks are characterised by a sound capital base (Tier 1 capital adequacy ratio of around 15.2%), high liquidity and a healthy profitability. These positive features were acknowledged in the EU Commission’s Country Report Malta 2019.

There are five “non-core domestic banks”, whose assets of €2.6 billion represented around 22% of Malta’s GDP. These banks undertake some business with Maltese residents, but not as their core activity. As such, the linkages with the domestic economy remained limited, with resident assets and resident liabilities each accounting for less than one-fifth of the banks’ balance sheet size. With a Tier 1 capital adequacy ratio well in excess of the required numbers, these banks have a good shock-absorbing capacity to cover a potential deterioration in asset quality. Considering also their limited exposure to the domestic economy, these banks are not deemed to pose a threat to domestic financial stability.

Thirteen internationally-oriented banks, which are mainly subsidiaries and branches of large international institutions, have almost no links to the domestic economy. Their combined assets of around €17.5 billion, represented around 142% of Malta’s GDP. They fund themselves mainly through the wholesale market or through their parent banks, and deal mainly with intra-group activities. Overall, this group is also very well capitalised, has strong liquidity and is profitable.

The Malta Financial Services Authority (MFSA) is the sole regulator for all banking, investment and insurance business carried out in or from the Maltese islands. The Central Bank of Malta is primarily responsible for maintaining price stability through the formulation and implementation of monetary policy. It is also responsible for the promotion of a sound financial system and orderly capital markets.  A Joint Financial Stability Board, set up between the MFSA and the Central Bank of Malta, focuses on macro prudential aspects of financial stability, extending its remit to the entire financial sector.

During 2018, the IMF conducted Financial System Assessment Program (FSAP) at the government’s invitation to analyse the country’s financial system within the context of the local regulatory and supervisory framework, as well as within the broader European framework. In February 2019, the IMF published a Financial System Stability Assessment Report summarising the findings.

Contributor: Karol Gabarretta