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News - Media Releases 2018

05/12/2018

Publication of Financial Stability Report: Interim 2018

The Central Bank of Malta is publishing its Financial Stability Report - Interim 2018, in which it assesses developments in the financial system in the first half of 2018. The Report evaluates the main risks that could possibly affect the stability of the financial system, with the aim of pre-empting the build-up of potential systemic risks. It highlights recent domestic and international regulatory developments together with a box on the Minimum Requirement for own Funds and Eligible Liabilities (MREL). The analysis covers the banking, domestically-relevant insurance and investment funds sectors and is supplemented by a number of stress tests.

Despite headwinds from the international environment dominated by geopolitical uncertainties, the domestic financial system remained resilient, supported by the positive local economic climate. Core domestic banks continued to strengthen their CET1 capital buffers and operated with ample liquidity. In spite of the low interest rate environment, profitability remained generally healthy in line with their European peers. For the first time since 2014, lending to resident non-financial corporates rose while growth in mortgages slowed down somewhat.

Against this background, credit risk stabilised with the total non-performing loans (NPL) ratio of core domestic banks hovering at just above 4%. A marginal increase in non-resident NPLs in part reflecting the introduction of IFRS 9 - Financial Instruments, was compensated by a drop in resident NPLs. The latter, dropped somewhat on account of lower resident corporate NPLs in the construction and real estate sector, a sector traditionally characterised with high levels of legacy NPLs. Furthermore, taking into consideration total provisions and collateral backing the loans, NPLs are more than covered.

The operations of the non-core domestic and international banks remained healthy on the back of strong capital buffers and liquidity levels. Despite increasing slightly, links with the domestic economy remained contained as their operations remained largely focused with non-residents, with limited potential systemic implications. The domestic insurance companies reported strong underwriting performance whilst domestically-focused investment funds continued to adopt conservative investment strategies. The analysis shows that systemic implications from the non-core domestic and international banks and insurance and investment funds remained contained.

Since the publication of the Financial Stability Report 2017, risks to the domestic financial system remained broadly unchanged. The macro-prudential measures remained unchanged with the Bank retaining the counter-cyclical buffer rate at zero and keeping its stance with respect to reciprocity measures. Furthermore, the authorities made no changes with respect to the extent of the Other Systemically Important Institutions (O-SII) buffers applicable to the identified banks for the year. However, the Bank continues to be vigilant for any new emerging trends and challenges to the Maltese financial system that could undermine financial stability. Overall, risks to financial stability remained low on the back of a sound and resilient banking system, with a positive risk assessment for the second half of the year.

The Financial Stability Report - Interim 2018 can be downloaded here.

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