No signs of speculative attacks on Maltese economy – Central Bank governor

Josef Bonnici: core domestic banks operate a traditional business model.

Central Bank governor, Prof. Josef Bonnici (right)
Central Bank governor, Prof. Josef Bonnici (right)

Central Bank governor and European Central Bank council member Josef Bonnici dismissed any suggestion that the island's economy may be subject to any external speculative attacks in the wake of the Cypriot crisis.

Speaking to MaltaToday, after he presented the Central Bank's annual report, Bonnici however claimed that while the Central Bank of Malta has no evidence of any speculative attacks on its economy with regular capital movements being registered over the last few weeks, the institution will remain vigilant.

Bonnici stressed that Malta's economic fundamentals remain strong on the back of positive performance throughout the past years notwithstanding a delicate external economic environment.

He said that the island's banking and financial sector is "sound and robust" with high solvency, profitability and liquidity. 

"The Maltese banking sector is composed of domestically-oriented banks and international banks, the latter having very limited and contained links to the local economy.  Most of their activity is in fact focused on non-resident business and they account for more than three-fifths of the total assets of the banking sector," he said.

Bonnici explained that statistics have clearly shown that the Maltese banking sector compares very well to the European averages. 

"This performance of the banking sector is backed by strong macroeconomic fundamentals.  Malta's economy continued to register growth, moderate inflation and a much lower unemployment rate than the euro area.  Government renewed its commitment to fiscal consolidation and its determination to reign in the deficit below the 3% threshold and to bring its debt-to-GDP ratio on a downward trajectory," Bonnici said. 

The Capital Adequacy Ratio of Maltese banks is well above the 8% regulatory minimum confirming that the sector is well capitalised, he said.

The profitability of the sector is also high, especially when measured by the return on equity, with the core domestic banks achieving double-digit results.  The same can be said when analysing the liquid assets to total assets ratio. 

"The core domestic banks are deeply integrated to Malta's economy and operate a traditional business model.  This is confirmed by the customer loan to deposit ratio which stands at 70% as compared to the Euro area average of 110%.  These banks also have very limited exposure to troubled euro area securities and in its latest Article IV Report on Malta, the International Monetary Fund confirmed that Malta's banking sector is one of the least sensitive to the Greek market risk. The way ahead is to build on the banks' strengths, reinforcing their resilience by allocating further profits to provisioning," Bonnici said.