The International Monetary Fund gave Malta’s banks a clean bill of health on Friday, possibly putting to rest once and for all previous controversy and concern regarding the size of the country’s banking sector. In its final statement following its Article IV consultation with Malta last month, the IMF’s board of directors noted: “The banking system is sound and risks from its large international bank segment appear contained because of limited balance sheet exposures to the domestic economy”.
However, the IMF did call for “stronger efforts to monitor developments in all banks, given the size of the banking sector relative to GDP, some weakening in asset quality, and concentration of loans to the real estate and construction sectors”. The IMF board welcomed progress in strengthening the regulatory framework for banks and the recent establishment of the Joint Financial Stability Board, and encouraged “additional steps to shore up the resilience, including by tightening rules on loan loss provisioning and boosting the funding of deposit insurance”. It also noted that the increasing complexity of Malta’s financial sector “warrants further strengthening of the anti-money laundering regime” and encouraged the authorities to participate in the IMF’s Financial Sector Assessment Programme.
Malta “has shown remarkable resilience in the face of a major crisis in Europe” according to the IMF’s statement. “Since the beginning of the crisis, the average growth of the Maltese economy has been one of the best in the euro area and the unemployment rate remains one of the lowest. “This resilience,” it noted, “was underpinned by robust service sector export growth and a sound banking sector, which resulted in the current account balance having improved gradually in recent years, turning into surplus in 2012”. The IMF added: “The performance of Maltese banks has been satisfactory, despite turbulence in the euro area. All banks report adequate capitalisation, liquidity, and profitability and are well positioned to transition to the Basel III regime. In contrast to many European countries, domestic banks’ deposits and credit to the private sector continued to increase in 2012, albeit at a slower pace than in 2010-11”.
It did, however, sound a note of warning on the banking sector’s exposure to the local property market: “These banks are heavily exposed to the local property market and loan loss provisions are low. The large international banking segment and smaller group of non-core domestic banks have limited balance sheet exposures to the Maltese economy, but recent events in Europe have heightened perceptions about risks of hosting a large banking segment in a small country. In response, the authorities have strengthened supervision and monitoring of banks’ liquidity positions.”
Click here to view full article http://www.independent.com.mt/articles/2013-07-14/