Malta’s bank customer deposits and assets fall in 2018, says association

Customer deposits in and assets of all the banks in Malta were down to a respective €24.2b (y.o.y. -4.9%) and €43.5b (y.o.y. -7.4%) in 2018, the most recent assessment of the Malta Bankers’ Association (MBA) on the contribution of its members to the Maltese economy reveals, according to a press statement sent to Business Malta.

While all three categories of banks comprising the local sector continued to be profitable in 2018, the overall levels of profitability were down across all the categories. The banking sector in Malta stayed well capitalised and highly liquid in 2018, despite experiencing some degree of downsizing through de-risking processes, the MBA says in the press statement. The three categories as defined by the Central Bank of Malta are referred to as, core domestic banks, non-core domestic banks and international banks.

Total assets of all the association’s 23 member banks stood at around €43.5b at the end of 2018. The six core domestic banks — APS Bank Plc, BOV Plc, BNF Bank Plc, HSBC Bank Malta Plc, Lombard Bank Malta Plc, MeDirect Bank (Malta) — that have the strongest ties with the domestic economy had a combined balance sheet of €23.7b (€22.5b in 2017). The joint balance of these six core banks represented approximately 196% of GDP, which ratio is below the EU average and decreased further in 2018, figures put out by the MBA show.

Although customer deposits in core domestic banks kept increasing by a further 5.5% and established another record of €19.3b (€18.3b in 2017), total deposits of all three categories of banks dropped to €24.2b, down by almost 5% over the preceding year.
“It is interesting to note that despite the fact that the Maltese economy still displays a very high usage of cash and notwithstanding the historically low-interest rates payable on deposits, the latter still experienced steady growth at the core domestic banks, indicating the continued trust of Maltese households in the local banking sector,” MBA Secretary-General Karol Gabarretta said.

Mr Gabarretta added that the core domestic banks as the main players within the local banking sector are still very much involved in the financing of the real economy, despite several challenges experienced by this cohort in 2018. Such challenges have included the long-term impact of the persistently low interest-rate environment and the inevitable continual increase in compliance and risk management related costs to further mitigate risks to their financial stability, according to the MBA. Credit provided by these banks increased by 8.3% to €11.4b at the end of 2018 (€10.6b in 2017).

“Increase in domestic banks’ assets was driven by faster loan growth, on the back of increased lending to households. Banks have continued to engage in mortgage contracts and now almost 60% of resident loans are property-related,” Mr Gabaretta said in reference to the EU Commission’s Malta 2019 Country Report which highlighted that the overall loan growth to domestic clients is in line with economic growth .

He also remarked that Central Bank of Malta’s (CBM) Financial Stability Report for 2018 (download from the CBM’s official website) underlined that core domestic banks remained supportive of domestic financing needs with lending to resident NFCs [non-financial corporations] turning positive following several years of contraction. Mr Gabarretta added that the report also notes that core domestic banks’ “focus remained towards domestic business, with less than one third (31.4%) of their assets being foreign”.

Based on its figures, the MBA says that the direct contribution of the banking sector to the local economy “remains significant”. The total number of full-time bank employees stood at 4,802, with a payroll of €186.6m. Taxation on profits amounted to €68.1m and a total of €19.9m in dividends were paid to resident shareholders.

In comparison to the core domestic banks, the MBA adds, non-core and international banks have only limited links to the local economy. However, as has been observed by the CBM, the “systemic risks arising from non-core domestic and international banks remained contained, also on the back of strong capital and liquidity levels,” the press statement concludes.