22/06/2026 10:48:00

Maltese financial system remains resilient amid evolving global risks

The Central Bank of Malta has published the eighteenth edition of its Financial Stability Report, covering developments in 2025. The publication assesses the resilience of the Maltese financial system against a challenging external environment, while domestic macro-financial conditions remained sound.

The Report highlights that, despite these headwinds, the Maltese economy continued to grow strongly, outperforming the euro area. While inflation remained broadly stable in Malta, it remained marginally higher than the euro area average. Inflation in the euro area continued to ease, supported by lower external price pressures, while in Malta, inflation was driven mainly by food, services and domestic wage related costs. The outlook to inflation remains subject to upside risks, linked to geopolitical developments, supply chain disruptions, and volatility in energy and commodity markets.

The domestic banking sector remained resilient during the period under review, with banks continuing to maintain strong capital and liquidity positions. The Report also notes a further improvement in asset quality, underscoring the sector's overall soundness and resilience. Profitability developments were mixed, with overall gains driven by the recovery of international banks, while core and non-core domestic banks recorded some declines amid weaker net interest income and rising costs. Resident credit growth increased further, driven by sustained mortgage lending and a strong, broad-based pick-up in lending to non-financial corporates. While this supported economic activity, it also contributed to increased concentration risks, especially in property-related activity, pointing to an expansionary phase in the credit cycle.

The non-bank financial sector continued to expand, supported by developments in both the insurance and investment funds sectors. Insurance firms recorded balance sheet growth, with stronger performance in non-life activities, while life insurers benefited from increased demand for unit-linked and index-linked products. Investment funds registered moderate growth, with portfolio allocations shifting towards equities and more diversified bond exposures. Despite some moderation in profitability, both sectors maintained sound liquidity positions and low leverage, remaining well-positioned to withstand market volatility.

The publication features several articles on analytical and policy-relevant macroprudential topics. These include a financial stability risk heatmap, to support the early identification and prioritisation of emerging systemic risks, as well as the results from the 2025 Bank Lending Survey. Other articles examine the banks' sovereign investment holdings, findings from the Systemic Risk Perceptions Survey, and refinements to the credit risk module of the macro stress testing framework. The Report also includes a preliminary analysis of TARGET2 data and its potential application in identifying cyber-related risks. 

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