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12/02/2019

Central Bank of Malta’s clarification regarding New York Times article of 7 February 2019

The New York Times article of 7 February 2019 (Where Europe Would Be Hurt Most by a No-Deal Brexit) features a chart with the title Share of lending by banks located in Britain and a legend that reads (quote) "Households and businesses in Malta rely on British-based banks for almost 40% of foreign lending".

The link in the source that the journalists have inserted below the chart indicates that they have used data from the BIS Consolidated Banking Statistics (CBS). However, the positions reported in the BIS CBS do not refer to banks located in Britain but to banks headquartered in Britain. The BIS CBS positions referred to by the journalists include not only the cross-border claims of UK banks on residents in Malta, but also claims of subsidiaries and branches in Malta of banks headquartered in the UK.

The 40% share reported in the New York Times article is totally misleading as it incorporates lending to households and businesses by locally-incorporated subsidiaries of UK banking groups, which lending cannot be considered as foreign lending.

Central Bank of Malta estimates show that the share of borrowing needs from households and non­financial corporates sourced from the UK is only around 5% of total foreign borrowing as opposed to the 40% reported in the article. Furthermore, according to Malta's Financial Accounts Statistics (from Whom-to-Whom Accounts), the share of total non-consolidated borrowing of households and businesses sourced from the rest of the world stood at just 12.9% in 2016. In fact, the Bank does not expect disruptions in the operations of domestic subsidiaries of UK parent banking institutions from Brexit. The New York Times article significantly overstates the impact of Brexit on the financial sector in Malta, even in the event of a No-Deal Brexit.

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