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News - Web Releases 2017

22/12/2017

Economic and Financial Affairs Committee

The Governor of the Central Bank of Malta, Dr. Mario Vella, delivered a presentation to Parliament's Economic and Financial Affairs Committee regarding Malta's latest economic and banking sector developments. He explained that the economy continued to grow at a fast rate in the first three quarters of 2017, with real GDP growth exceeding 7%. Employment growth also remained strong while the unemployment rate reached record lows. Despite this rapid economic expansion, inflation remained contained. Economic growth is expected to gradually ease while the fiscal surplus is projected to persist in the coming years.

The Governor gave an overview of the banking sector in Malta. He explained that the banking sector is made up of twenty five banks. Six of these banks are classified as core domestic banks, five as non-core banks and fourteen as international banks. As regards the core banks, which have strong links with the domestic economy, their capital ratios remained healthy and are above the regulatory minimum. In fact, their total capital ratio stands at 15.9%. While the profitability of the core banks weakened it is nevertheless still significantly higher than that of European peers. Dr. Vella stated that EU banks return on equity (ROE) and return on assets (ROA) stood at 4.2% and 0.3% respectively, compared to 8.7% and 0.7% for the core domestic banks. The Governor also informed the Committee members that core domestic banks have ample liquidity buffers as deposits are increasing at a faster rate than loans, with mortgages being the main driver of loan growth in Malta. The Governor also pointed out that non-performing loans continued to decrease during the first nine months of 2017. As regards the asset quality of the core domestic banks, he pointed out that 30% of their bond holdings consists of high rated bonds, while medium quality paper accounts for about half of the portfolio. Only 6% of their bond portfolio consists of holdings in unrated or unlisted bonds. As regards transacted property prices, the upward trend continued during 2017, reflecting continued strong demand.

The Governor concluded his presentation by remarking that Malta is experiencing a positive macroeconomic environment, while the core domestic banks remained sound, characterised by strong capital and liquidity buffers, together with further improvement in asset quality. He highlighted geopolitical factors as a main risk to the domestic economic outlook, while for the domestic banking system sustaining profitability is a major challenge in view of subdued credit developments and a prolonged low interest rate environment.

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