Fitch Ratings Rates Malta A+


Fitch Ratings issued a statement regarding a special report Fitch published titled ‘Malta Does Not Face Same Bank System Risks as Cyprus’. Here, Fitch highlights the main differences between the Maltese and Cypriot banking systems. Fitch concludes that such differences far outweigh the similarities, and that the Maltese banking sector does not present the same level of risk that was seen in Cyprus. A statement by Fitch states that’ Malta Does Not Face Same Bank System Risks as Cyprus’

The report compared the size of the Maltese and Cypriot banking sectors, their funding sources, asset quality, and capitalisation. It is understood that Malta and Cyprus seemingly have large banking sectors that substantially exceed the size of their economies and that rely to some degree on funding from non-resident depositors, a closer examination reveals substantial differences.

Malta’s whole banking sector has assets worth 789% of GDP, making it the eurozone’s second largest (after Luxembourg) and outstripping Cyprus, where total banking assets accounted for 672% of GDP in H112.

However, using the Central Bank of Malta’s categorisations, “international banks” with negligible links to the domestic economy have assets worth 494% of GDP. “Core domestic banks” that have strong links with the domestic economy and are considered systemically important account for 218% of GDP. “Non-core domestic banks” with smaller operations and links with the domestic economy account for 77% of GDP.

The Maltese banking system is also less vulnerable to a destabilizing withdrawal of non-resident deposits than its high proportion of non-resident deposits suggests (68.8%, compared with 37% in Cyprus). The majority of these deposits are in international banks, mostly the deposits of the parent banking groups, which present a lower risk of capital flight than other types of foreign deposits (such as deposits of wealthy foreigners). Only 17% of deposits in Malta’s core domestic banks are from non-residents.

Looking ahead, the possible long-term shift in the stance of the European (and global) authorities towards offshore financial centres spells some danger for Malta’s financial services “business model”. Financial and insurance activities represented 8% of Maltese value added in 2011 (9% in Cyprus; 5% for the eurozone on average), but this figure does not take into account other sectors supporting this activity.

Malta was also rated ‘A+’ with a Stable Outlook; Cyprus at ‘B’ on Rating Watch Negative.