Malta & Cyprus: A sea apart (European Commission Report on Malt

Dr. Maria Chetcuti Cauchi | 23 Dec 2013

Ccmalta Default

European Commission Report on Malta’s Financial Position

On the 10th of April 2013 the European Commission circulated its conclusions on Malta’s financial position in a report issued in accordance with Article 5 of Regulation (EU) No 1176/2011 on the Prevention and Correction of Macroeconomic Imbalances (the ‘Commission Malta Report 2013’).The exercise commenced last year after an Alert Mechanism Report in November (the ‘Alert Mechanism Report’) was issued, which Report showed signs of potential macroeconomic imbalances in 13 States, including Malta.

The latest happenings in Cyprus have generated a whole new set of questions related to ‘which country will follow suit’. Public attention has been drawn to other small eurozone nations with considerable banking sectors, since, in the event of a crisis, such countries could be more exposed to depositor/senior unsecured creditor bail-in. Malta has also been placed under the lens of scrutiny mainly due to its geographical location and relatively sizable banking industry when compared to its GDP.

No Fiscal Imbalances for Malta and a Clean Banking Bill of Health

Malta has now been declared by the European Commission as not having excessive fiscal imbalances. The imbalances that were found were deemed to emanate from the way the economy of the country is structured. Malta is one out of the thirteen countries assessed and is one of the eleven countries which have been declared as not having excessive fiscal imbalances. All this has now been further corroborated by Bloomberg Brief and Fitch Ratings in specific reports issued on the island’s financial position in April 2013.

Malta's Central Bank's Governor Declaration

Recently the Central Bank Governor, Josef Bonnici issued a clear and concise statement negating misconceptions that were being spread internationally about Malta. Such international commentators had erroneously bundled Malta with problematic jurisdictions by presenting hasty comparisons to weak jurisdictions, such as Cyprus.  The Governor declared that vis Malta “There were absolutely no abnormal movements.”

The Governor, in his statement listed above, has reiterated that Malta’s banking sector is robust, sound and diversified with high rates of profitability, liquidity and solvency. 

Bloomberg Brief Report on Malta

Bloomberg Brief, in a detailed commentary in its Crisis Watch Section, has recently also reached the same conclusions. The author and economic commentator, David Powell, has shunned any comparison between Malta’s state of affairs and the Cypriot crisis, where depositors in Cypriot banks had been warned of the potential for imminent disaster months before. 

Fitch Ratings Report on Malta

In another very recent Special Report, Fitch Ratings also suggests Malta’s differences from Cyprus far outweigh the similarities, and that Malta’s banking sector does not face the risks of Cyprus’ before its bail-out.

Malta's Suggested Plan for Improvement 

All the above goes to show that the economic condition of the island is deemed to be stable and positive. The Commission adds that “the majority of the very large financial sector is internationally-oriented with very little link to the domestic economy, and therefore does not pose large risks for domestic stability.”

Having said that, despite the positivity of the Commission Malta Report 2013, room for improvement was still highlighted. The Commission Malta Report 2013 provides that potential imbalances for Malta in the financial sector are in particular related to its exposure to the real estate market.

Malta should take these suggestions / remarks on board and work on streamlining these key issues.

Concluding Remarks

Amongst the various key findings, the Commission Malta Report 2013 concludes that “the Maltese economy demonstrated resilience throughout the crisis”. This could be attributed to the domestic macroeconomic circumstances, which have remained supportive of financial stability, and cautious banking methods characterized by healthy solvency and liquidity positions. These factors have jointly ensured that Malta remained resistant to the negative consequences which hit a number of other euro area jurisdictions over the past year. Therefore “Comparisons between Cyprus and Malta continue to appear misplaced” with even the European Commission issuing “a clean bill of health” to the Maltese banking system.

 


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