In 2018, the core domestic banks saw an increase in assets, customer deposits as well as loans and advances to customers and it is evident these banks continued to be very much participant in the financing of the Maltese economy especially in terms of lending to residents.
This emerges from a recent assessment made by the Malta Bankers’ Association (MBA) on the contribution of its members to the Maltese economy.
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. In general during the year the banking sector in Malta continued to be well capitalised and highly liquid, despite experiencing some degree of downsizing through de-risking processes. 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
Total assets of all the Association’s 23 member banks stood at around € 43.5 billion at the end of 2018. Of these, the six core domestic banks, which have the strongest ties with the domestic economy – namely APS Bank plc, BOV plc, BNF Bank plc, HSBC Bank Malta plc, Lombard Bank Malta plc, MeDirect Bank (Malta) – had a combined balance sheet total of €23.7 billion (2017: €22.5 billion), representing almost 196% of GDP, a ratio which although below the EU average, decreased further in 2018.

Customer Deposits
Customer deposits held with the core domestic banks maintained their upward trend, increasing by a further 5.5% and establishing another record high of €19.3 billion (2017: €18.3 billion).On the other hand, total deposits of all three categories of banks now stand at € 24.2 billion, down by almost 5% over last year. Commenting on these statistics, Mr Karol Gabarretta, the MBA’s Secretary General, said: “It is interesting to note that despite 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.”

Loans and Advances to Customers
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. This despite several challenges experienced by this cohort of banks throughout 2018, the long-term impact of the persistent low interest-rate environment and the inevitable continual increase in compliance and risk management related costs to further mitigate risks to their financial stability. During 2018, credit provided by these banks notably increased by 8.3% and stood at €11.4 billion at the year-end (2017: €10.6 billion).
Mr Gabarretta referred 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 and the “…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.”
He also remarked that CBM’s Financial Stability Report for 2018 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”.

Employment, Wages, Dividends and Taxation
The direct contribution of the banking sector to the local economy remains significant, as can be gauged from the 2018 figures.
The total number of full-time bank employees stood at 4,802, with a payroll of €186.6 million. Taxation on profits amounted to €68.1 million and a total of €19.9 million in dividends were paid to resident shareholders.

Non-core and international banks
In comparison to the core domestic banks, non-core and international banks have only limited, to very limited, links to 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”.