The Central Bank of Malta have issued statistics for April 2009 advising that the Maltese contribution to the euro area broad money stock (M3) contracted by EUR48.5 million, or 0.6%, in April, compared to the previous month, reaching EUR8,537.3 million. As a result, the annual rate of growth of M3 declined to -1.9% in April from -1.1% in March.

Narrow money (M1) increased by EUR74.7 million, or 1.9%, during the month, driven by a rise in overnight deposits that amounted to EUR71.4 million. In particular, deposits belonging to local residents increased by EUR78.8 million, or 2.4%, on the preceding month. Currency issued also increased slightly during the month. Nevertheless, the annual rate of growth of M1 edged down from 3.5% in March to 2.9% in April.

Despite the expansion in M1, intermediate money (M2) declined further in April, falling by EUR48.7 million, or 0.6%, on March. This stemmed almost entirely from a drop in deposits with an agreed maturity of up to two years, which decreased by EUR122.1 million, or 2.6%. Around two-thirds of this drop reflected a contraction in balances belonging to local residents, mainly households and private non-financial companies. As a result, the year-on-year growth rate of such deposits belonging to Maltese residents continued to fall, reaching -3.8% in April, from -3.0% one month earlier. Meanwhile, deposits redeemable at up to three months’ notice fell marginally.

On aggregate, deposits belonging to local residents contracted by EUR2.1 million in April, with the consequence that their annual growth rate decelerated to -0.6%, from -0.2% in March. This slowdown partly reflects a base effect as residents’ deposits had increased exceptionally strongly during the run-up to the euro changeover during the twelve months to April 2008. However, a shift into deposits with terms to maturity exceeding two years following the launch of new products by resident banks, as well as the issue of securities by the Treasury and the private sector during the month, also contributed.

On the counterparts side, credit to residents of Malta expanded by EUR133.2 million. Lending to the Maltese general government sector by resident MFIs rose by EUR109.4 million, as MFI holdings of Treasury bills and Malta Government Stocks increased. As a result, the year-on-year rate of growth of credit granted to general government picked up substantially, rising to 20.8% from 11.2% in March. At the same time, credit to other Maltese residents expanded by EUR23.8 million, or 0.3%, mainly owing to additional loans taken up by households and non-financial companies. In turn, this was due to increased lending to households – predominantly to finance house purchases – to the hotels & restaurants sector and to the real estate, renting & business activities sector. In contrast, lending to the construction sector and the wholesale & retail sector fell. The annual rate of growth of credit to Maltese residents overall slowed down to 11.9% in April, from 12.2% in March.

In contrast, credit to residents of other euro area member states declined. Thus, overall credit to euro area residents contracted by EUR338.1 million, or 2.7%, in April as increased credit to general government was outweighed by a drop in credit to other sectors.

The external counterpart of M3 declined by EUR1,314.7 million, or 20.3%, in April as resident MFIs’ claims on non-euro area residents decreased while their liabilities to them rose substantially. Specifically, on the assets side, resident MFIs reduced their deposits with credit institutions outside the euro area and also cut down on the amount of loans granted to them. Meanwhile, on the liabilities side, time deposits belonging to private non-financial companies resident outside the euro area as well as loans taken up by resident banks from non-euro area credit institutions increased considerably.

As regards movements in other counterpart balances, these mainly reflect interbank transactions across the euro area. In April these balances contracted by EUR1,604.3 million, or 15.5%. This mainly reflected a drop in time deposits belonging to euro area credit institutions and a decline in loans taken up by resident banks from them. An increase in resident credit institutions’ time deposits held with other euro area banks also contributed.

Meanwhile, weighted average interest rates applied by resident credit institutions to customer deposits and loans declined during the month. Thus, the weighted average deposit rate declined by 9 basis points to 2.03% while the corresponding lending rate fell by a mere basis point, reaching 4.48%.

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