The Central Bank of Malta has published on its website the Update to its Financial Stability Report, which covers developments in the first half of 2012. The Update observes that although the external macro-financial conditions remained challenging, the domestic economy continued to show signs of resilience and thus remained supportive of financial stability.

The analysis contained in the Update indicates that in recent months no new risks and threats have emerged for the financial system in Malta. On this basis the risk outlook as contained in the Financial Stability Report 2011 remains valid. Against a background of uncertainty in international markets and global economic activity, this Update reaffirms the importance of exercising the utmost prudence.

The Update shows that during the first six months of 2012 core domestic banks continued to expand, mainly through additional lending to households. Banks’ customer loans continued to be fully funded through customer deposits, thereby supporting funding resilience. “Meanwhile banks continued to maintain strong liquidity ratios. Their mid-year profits were also higher than a year earlier, on account of higher net-interest income. This contributed to maintain solvency ratios well above the regulatory requirements.”

“Risks from the other components of the financial sector, namely non-core domestic banks, international banks, insurance companies and investment funds remained low, supported by the generally positive performances of these institutions during the first half of the year. The links with the domestic economy of non-core and international banks remained limited, despite their relatively large balance sheet size.

“Credit risk remains a key risk for the financial sector in Malta. Owing to exposures to certain economic sectors that continued to experience weak business activity, in particular the construction and real estate sector, a main challenge facing the core domestic banks is the level of non-performing loans in certain sectors.

“On the other hand the quality of mortgage loans remained stable and higher levels of loan-loss provisioning and capital buffers were reported by banks,” the CBM Report Update said.

The Financial Stability Report Update can be downloaded from the Central Bank of Malta’s website – www.centralbankmalta.org.

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