Standard & Poor's Ratings Services has affirmed that the collapse of Cyprus’ banking system has very limited direct implications for small financial-services-focused countries like Malta and Luxembourg. Whilst the size of Malta's financial system is large, relative to the economy's output, domestic banks in Malta are considerably smaller as a proportion of GDP, with a stronger and more stable asset quality.
In a recent report issued by Standard & Poor's Ratings Services (entitled "Small Countries, Big Banking Systems: How Malta And Luxembourg Differ From Cyprus"), S&P has affirmed that the collapse of Cyprus’ banking system has very limited direct implications for small financial-services-focused countries like Malta and Luxembourg. Whilst the size of Malta's financial system is large, relative to the economy's output, domestic banks in Malta are considerably smaller as a proportion of GDP, with a stronger and more stable asset quality.
The difficulties currently faced by Cypriot banks are mainly the result of their lending schemes, particularly the impaired loans to the Greek public and private sectors. The value of the Cypriot banks’ assets is significantly less than the banks' liabilities. In contrast, Malta's financial system encompasses a relatively clear segregation between international and domestic banking activity, which results in almost no spill-over from international activities into Malta's domestic economy. International banks mainly use Malta as a booking center for foreign-exchange loans, yet they neither take local deposits, nor lend to Maltese residents.
Malta's domestic banks' are mainly funded by retail deposits of Maltese customers, and they supply loans to diversified sectors of the Maltese economy. Assets in Malta have maintained their credit quality, whilst exposures to insolvent borrowers are sparse and under control. Moreover, domestic banks are not exposed to high and deteriorating credit risk to the extent of Cyprus' banks. What is more, no banks in Malta currently depend on financial support from the Emergency Liquidity Assistance (ELA).
S&P provide as follows: "In our view, no other economy in Europe matches Cyprus' profile of constrained fiscal flexibility together with a financially concentrated economy", " assets in Malta and Luxembourg have retained their credit quality, and exposures to insolvent borrowers have remained low and manageable" and "no banks in Malta or Luxembourg currently rely on financial support from the Emergency Liquidity Assistance (ELA)".
S&P concludes by stating that it sees limited direct implications from the Cypriot banking failure for Malta and Luxembourg.
