DBRS confirms Malta’s credit rating at A

Rating agency DBRS has confirmed Malta’s high credit rating but foresees major risks to the economy from an escalating global trade war and Brexit’s impact on tourism.

The Canadian rating agency on Friday evening maintained Malta’s A rating with a stable outlook.

It noted that Malta continued to outperform EU average growth rates while producing budgetary surpluses and maintaining a steadily declining public debt ratio.

External trade pressures

However, Malta’s open economy could be vulnerable to external shocks from the global trade war fuelled by the US decision to impose import tariffs on goods from various countries.

DBRS also cautioned that for the medium term, changes to corporate taxation at an international level could have “a disproportionate impact” on Malta. The agency also lists rising pension and healthcare costs as long-term concerns.

DBRS said it was prudent for the government to stick to its medium-term objectives on maintaining a surplus in central government’s public finances without considering income from the Individual Investor Programme.

The passport-sale programme has boosted the general government surplus over the past two years.

The agency commented positively on Malta’s declining debt as a ratio of GDP, which is one of the lowest in the EU, but noted that the central government’s outstanding guarantees on debt held by public agencies remained high at 9.6% of GDP last year, even though this declined from 13.7% in 2016.

Housing market

DBRS said although pressure is mounting on the housing market with prices rising at 9.1% last year, it did not see any immediate risks given the favourable labour market conditions and increasing housing supply.

Some Maltese characteristics such as the high level of financial wealth held by households, high levels of home ownership and banks’ conservative lending practices, lessened the risks emanating from the housing market.

Pilatus Bank

The agency noted the concern of reputational risk to the banking sector from “alleged shortfalls in the implementation” of the EU’s anti-money laundering rules in relation to Pilatus Bank.

Describing Pilatus as a small bank with no systemic implications, DBRS said that a risk assessment showed that the government has presented a series of “strategic initiatives” to enhance the anti-money laundering framework.

At the start of August, Standard & Poor's, a rating agency, increased the Maltese banking sector’s risk score on the back of money laundering allegations against Pilatus Bank and expensive litigation issues concerning Bank of Valletta.

DBRS said Malta’s institutions were stable despite noting that the country’s Rule of Law ranking has been dropping since 2007. However, DBRS also took note of the recently concluded Egrant inquiry, which it said found “no evidence of corrupt practices, money laundering or suspect financial transactions”.