The presence of affluent investors and of a highly skilled (and highly paid) expatriate workforce, together with a more discerning local customer base, has given a huge impetus to investment-related services, such as wealth management and stockbroking. The ‘new economy’ may be less dependent on credit, but it is making new demands in the areas of digital banking, payment processing, innovative financing and other areas which, up to a few years ago, were not considered as core activities by local banks. Their needs may vary from those operating in the established sectors. Their emphasis is on human capital, rather than financial capital. However, we also recognise that the operators within the ‘new economy’ – mainly IT-based services – are not as capital-intensive as the more established players. Indeed, the competition between them is intensifying in this sector. Banks in Malta will continue to perform their traditional role as lenders, as intermediaries between savers and entrepreneurs. There will be no paradigm shift in the coming two or three years. In view of Malta’s consistent economic growth, what are you envisioning within your bank and the banking system at large in 2017? Maybe more importantly, we achieved a strong level of capitalisation, with a core equity Tier 1 ratio of 12.8 per cent, which will ensure the stability and sustainability of the Bank in the long term. Take-up has been strong, and pipeline business interesting.Īt the end, BOV reported a satisfactory profit which, when adjusted for a onetime windfall gain, was marginally above that reported for last year. Following a competitive call between banks, BOV was entrusted with the management and administration of the SME Initiative for a total fund of €50 million. During 2016, BOV continued to support SMEs through the launch of BOV JAIME (Joint Assistance Initiative for Maltese Enterprises) Financing Package, a new financing tool arising out of the agreement that was signed between the European Investment Fund (EIF) and Bank of Valletta. Nevertheless, we continued to witness vibrancy in the local SME sector. Investment services, bancassurance and credit cards also turned in particularly strong performances.ĭemand for business credit was, overall, moderate, and focused primarily on property development. We experienced solid demand for personal finance, especially for home loans an investment properties. The Maltese economy continued to grow at a far stronger rate than the rest of the Euro area consumer and investor confidence remained strong, while unemployment fell to record lows. But we had also our fair share of opportunities. Like all other Maltese banks, BOV encountered the challenges that I referred to – low interest rates, high liquidity, increasing costs and a good dose of political uncertainty arising from Brexit and the US presidential election. How did Bank of Valletta fare in 2016 and which sectors within the bank have performed particularly well, and which sectors less so? On a national level, Maltese banks have been reporting healthy performances overall. While good liquidity is an essential ingredient for financial stability, too much of it becomes yet another source of pressure on the sector’s profitability. De-risking and capital build-up make for safer, albeit less profitable, banks.įinally, the sector is highly liquid, thanks to a vibrant economy and to the interest rate environment, which entices savers to ‘park’ their savings with the banks while searching for higher yields elsewhere.
At the same time, banks are building up their capital buffers, driven by European banking regulation. They are taking a second look at those sectors of the economy where they may be overly exposed, and are moving to control high concentration areas. Banks are reviewing their business models and questioning why they should be undertaking certain activities which carry a certain level of risk which is not compensated by an equitable return. The local banking sector is undergoing a strategic process of de-risking. Low rates put pressure on banks’ profitability, particularly on banks which are very reliant on net interest income. The fact that Maltese banks, like most of the sector in the Euro area, have chosen not to pass on negative policy rates to deposit customers means that their interest margins, and consequently their profitability, are coming under pressure. We seem to have entered an era of long-term low-to-negative rates. It was quite a challenging year for the sector, both in Malta and in the larger Euro area. How has the banking sector fared in 2016?
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