Fitch: Stable Outlook on Maltese Banking Sector


Fitch Ratings have maintained a Stable Outlook on the Maltese banking sector, in a report published in December, supported by domestic banks ‟traditional business models that are fully funded by resident clients.”

The Stable Outlook is also supported by outperformance of the Maltese economy versus the euro zone average in recent years, with a relatively resilient labour market and an unemployment rate of 6% in July 2013. While Fitch expects asset quality to deteriorate in 2014, it expected this to remain manageable, and considered that the banking system is sufficiently capitalised in view of the forthcoming AQRs, also in light of an asset quality assessment conducted by local authorities on core domestic banks in 2012.

The agency expects LICs to remain high in 2014, but below 2012 and 2013 levels when the central bank called for additional provisions against exposures to the real estate/construction sectors. Profitability is expected to remain relatively good in 2014, benefiting from a low cost/income ratio of around 45% and competitive funding costs. Capitalisation is assumed to remain high and of good quality, sustained by net income generation. The banks‟ funding and liquidity profiles are supported by a healthy LTD ratio (around 70% at end-2012) and limited reliance on wholesale funding.

Fitch Ratings said its outlook for southern European banks is mixed for 2014. Of its rated financial institutions in Spain, Italy, Portugal, Greece, Cyprus, Andorra and Malta, 60% are currently on Negative Outlook.

However, the picture varies markedly by country, with all banks in Malta and Greece on Stable Outlook, all Portuguese banks on Negative Outlook, and the majority of Spanish and Italian banks on Negative Outlook.