Fighting The Impact Of Financial Shocks Post-COVID

Fighting the impact of financial shocks post-COVID

sTM Malta Ceo & Managing director deborah schembri warns that careful financial planning is needed if the financial services industry is not to suffer adverse consequences in the future.

The COVID-19 pandemic has caused unprecedented challenges to the global economy, not least to the financial services industry, says CEO & Managing Director of STM Malta Deborah Schembri.

“The net impact of the pandemic on market participants operating in the industry culminated in heightened liquidity, credit, solvency and cybersecurity risks, to name a few. Similarly, the sound capital positions of the insurance sector prior to the outbreak of the virus provided insurance undertakings with certain buffers which came in handy to fight the impact of financial shocks on the sector, although the uncertainty around the medium- and long-term economic consequences of the pandemic on insurers - and the industry in totality - remains,” Ms Schembri elaborates.

The pandemic prompted liquidity challenges in certain areas of the investment services and funds industry, particularly for firms trading in fixed income securities and less liquid assets, such that in the initial stages of the pandemic, entities faced an uphill struggle to maintain adequate liquidity levels as a result of depreciation in asset value and surges in volatility, coupled with substantial redemptions from customers invested in various asset classes. “By and large, the industry confronted the challenges posed by the pandemic in a remarkable manner. Over the years, Malta has been able to cope with challenging times and it is apt for this perseverant mentality to steer the industry in a direction which will lead to enhanced standards and increased resilience, even more so considering that the financial services sector has been a major contributor to the sustainable growth of the Maltese economy. The stage is set for stakeholders to grab the bull by its horns,” Ms Schembri states.

Malta’s open economy, however, makes it vulnerable to external factors that are largely beyond the control of local economic policymakers.

“The pandemic’s worst phase is probably over. But there are evolving international economic issues that call for prudent fiscal planning in the medium term so as to avoid having to make unpleasant corrections in the coming years,” she says.

The IMF has advised central banks to be “very, very, vigilant” about rising inflation and to take early steps to tighten monetary policy should price pressures prove persistent. “Food prices and the cost of energy are increasing at a fast rate. These will affect the pockets of families in Malta and in the source markets of our tourism industry. Consumer behaviour could change,” she warns. The fiscal support given to local businesses to guarantee their liquidity during the pandemic will soon come to an end. Malta’s fiscal authorities have been among the most generous in supporting local business in the last two years. “But we now need to start thinking about how the cost of this support will be repaid without kicking the can down the road, leaving future generations to solve the problem. We also need to look at our education system and have a strategy in place to ensure that the supply of human resources for businesses is somewhat near the demand,” Ms Schembri concludes. n

“Malta has been able to cope with challenging times and it is apt for this perseverant mentality to steer the industry in a direction which will lead to enhanced standards and increased resilience… The stage is set for stakeholders to grab the bull by its horns.”