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Looking Ahead With Caution According to Bank of Valletta Chairman Dr Gordon Cordina, the repercussions of COVID-19 will be felt for a while yet.
T
he economic shock of COVID-19 threatened the quality of credit, at the same time that it necessitated banks to step up their provision of liquidity to affected businesses in times of unprecedented difficulty, says Dr Cordina. “This brought not only a situation of more careful management of capital and risks, but also heighted service delivery challenges especially to meet the demand associated with Government-backed schemes that were essential to sustain the integrity of business in the country. The dampened global economic scenario reduced the possibilities for returns on Treasury assets for banks and tended to exacerbate the excessive intake of liquid deposits which can not be readily transformed into income-earning assets,” he states. The industry has tended to over-provide for the potential negative impacts of COVID-19 on the lending portfolio, driven in good part by regulatory requirements. Borrowers are also overall managing to keep to their commitments as lending moratoria are expiring and support schemes are run down, the BoV Chairman adds. “While this should apparently allow for a release of such provisions, the risks from COVID-19 are far from over, and there could be further setbacks to the speed of economic recovery in Malta for key tourism and consumption sectors.” Bank incomes have over the past year been sustained by home loan growth on account of a satisfactory performance of the real estate market. Demand may in the near future be affected by the expiry of the period for which preferential duty rates were offered by Government. On the other hand, the supply of new property is expected to continue at a fast pace in the coming two years, on account of permits issued up to 2019. This, coupled with the liquidity in household portfolios in Malta may well entice a strong market for home loans over the next year. “The negative interest rate scenario is possibly one of the greatest challenges to the income statements of banks. This is very unlikely to change in 2022, at the same time that economic conditions may be depressed by the general and substantial increases in commodity prices worldwide. Banks will need to manage the resulting risks to their credit portfolios and face their costs.”
“The long-term effects of a long grey-listing could be deleterious to finance-based economic sectors, and to the ability of banks to continue to provide a range of foreign-related services to their customers.”
When asked about the consequences of Malta’s FATF greylisting, Dr Cordina says that the present ramifications are a general increase in the requirements for due diligence when conducting business with foreign counterparts, and a decrease in appetite by certain segments of foreign operators in doing business in Malta. “Most of these effects had already however been provided for in the period running to the grey-listing event itself. It is however now critical to exit this situation in the most rapid way possible, and to build the reputation and credibility of the Maltese economy, financial sector and governance institutions in this process. The long-term effects of a long greylisting could be deleterious to finance-based economic sectors, and to the ability of banks to continue to provide a range of foreign-related services to their customers.” BoV continues to be strongly focused on de-risking and embedding regulatory require-
ments in its day-to-day operational methods in a manner that is as least as possible intrusive to the customer experience. Digitalisation and simplification will continue to be pursued to attain these objectives, within the wider context of the Bank’s 2023 Strategy. The Bank aims to reinforce its strong relationship with the development of the Maltese economy and will focus on the home loan and business loan markets through quality of service and effective pricing. It will also be especially focused on incentivising deposit customers to better utilise their liquidity into longer term, better-rewarding financial assets, including in the pensions space. “The return to a stable and predictable dividend behaviour is a top priority item for the Bank’s board. Similarly important are the Bank’s commitment to its environmental, social and governance obligations, as well as the development of the Bank as an employer of choice for the best talent.” n
