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“Alleluia”, sang the Prime Minister when HSBC published their very good results some days ago. Surely, if our major banks are registering such good profits the economy must be performing well, argued the Prime Minister. A closer examination of the source of our main banks’ recent results together with anecdotal evidence, available to unbiased diagnosticians of our economy, as to what is really driving our banking sector will reveal a reality which is not quite what the Prime Minister would like us all to believe.
Well-managed banks usually do well both in times of recession and in economic booms. Banking is one of the most highly regulated industries and risk management has been developed in a highly effective science. When things go wrong in the economy well managed banks have sufficient buffers to cushion the impact with little effect on their shareholders.
The banking industry in Malta continues to be dominated by a virtual duopoly. While there is no doubt that competitive pressures have increased since HSBC entered the scene, banks are still uninhibited from raising their fees despite formal vigilance against abuse from dominant financial operators. Of course, it would be silly to assume that in such a scenario, increase in ‘fees’ in banks’ results necessary mean an improvement in the underlying economy.
It is important that our banks remain profitable irrespective of the state of the economy in which they operate because confidence in the banking system is an essential prerequisite for investment and the economic growth of any country.
So what is really driving the good profits being registered by our major banks? Those who keep their ears to the ground to try and gauge where the lending activity of our banks is focused will surely know that in the past four years, our banks have been mainly lending for property development projects. Hardly any new money is going into manufacturing and the service industries.
A low interest rate scenario, a succession of attractive capital repatriation schemes, and lack of investment opportunities have fuelled a boom in property development. We all know how the price of property has sky rocketed in the last few years with banks keen to finance both the developers and the eventual buyers to hit the ambitious performance targets that they set for themselves.
Is this a bad thing? Possibly not, unless the property bubble suddenly bursts. But one can hardly argue that this phenomenon equates to a well performing economy. Our open economy’s real success will continue to be gauged by our ability to sell our goods and services to overseas clients. Selling property amongst ourselves will generate some internal activity for some time, but it hardly guarantees sustainable economic growth.
Roughly, one-third of our main banks’ operating income comes from various commissions mainly associated with the sale of financial products like banc assurance, collective investment products, purchase and sales of stocks and shares, and trading of securities for bank’s own or clients’ accounts.
Both our banks registered very good results in these areas. No doubt their clients are keen to save more in innovative investment schemes, possibly because they feel less secure about their future and want to save for a rainy day, a habit that was slowly dying in the boom days of the nineties when ‘money was no problem’. Is this a bad thing? Of course not. But that is not the same as saying that because people are saving rather than consuming more, the economy is by definition doing well. In fact quite the opposite may be the case.
Finally, banks are renowned for their prudence in providing for risky lending. In fact they often over-provide in one specific period only to reverse those provisions some years later. In fact HSBC results indicate that in 2005, rather than provide a few millions for new bad and doubtful debts as usually happens, this bank reversed Lm143,000 worth of provisions. In the previous year the net reversal of impairment losses was a hefty Lm4.3 million.
What does this mean? Possibly, or rather probably, that the provisions made in previous years were too high and through the realisation of security, or sustained pressure on defaulting borrowers, such prudent provisions proved to be unnecessary. Does this equate to the economy performing well? Of course not!
If the Prime Minister wants to convince the rest of us that our economy is still alive and kicking, then he has to come up with more convincing arguments than asking rhetorical questions about the implications of our banks’ financial results.
Like the pilot in the cockpit of an aeroplane, the Prime Minister cannot afford to look at only one instrument on his panel, but should check the multitude of gauges which should give him a clear indication of how well the economy for which he is responsible is flying.
No room for art
Art students do not have where to practice art as part of their studies leading to a university degree…unless they leave the country. Since the late 1980s, the Faculty of Education has been the only university faculty in Malta providing students with several credits in practical areas of the visual arts, like painting, printmaking and sculpture. Art students say: “Back then, we actually had a workshop where students could go in their free time. This was demolished to make way for the new Gateway building. In the last ten years or so, the situation deteriorated so badly that now we have to borrow spaces whenever we need to work. We regularly borrow a drama studio, which needs to be cleared up after every lecture. Some lecturers ask the students to go to their personal studios during the weekend.”
Their lecturer Raphael Vella explains: “We have no serious facilities for most media and absolutely no storage space for students’ work. I cannot even order easels because I don’t have a place where to put them! When I was appointed Art Coordinator at the Faculty of Education two years ago, I started making claims for art workshops: spaces to work in three-dimensional and mixed media or printmaking, storage spaces and possibly a small, experimental exhibition space. I made changes to the programme, introducing new credits in photography, digital media, video and installation, contemporary art theory and criticism. I handpicked individuals with doctorates or master’s degrees in art and with experience in foreign institutions.”
Raphael feels that the students and Malta are being let down. “We have a national responsibility, because nobody else will help to bring art into the 21st century if we don’t.” He says that a visiting Finnish lecturer came to the Faculty and was disappointed to see the complete lack of respect for art practice here. “She wrote back to me, reassuring me that at least we have the two most important ingredients: vision and a passion for art.”
evaristbartolo@hotmail.com
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