Financial services in good health, minister says of EC warning

Finance Minister Tonio Fenech expressed confidence in Malta's banking sector, against concerns by the European Commission's warnings of a too-big-to-save financial services industry that is now eight times the size of the island's GDP.

"I appreciate the Commission's comments which were made in light of the reality in Spain and other countries. In Spain there was an overreliance on the property market but Malta's situation is different, the scarcity of land helps reduce the volatility of property prices."

The Commission told Malta in its recommendations on the island's national reform programme that the banking system was very large in proportion to the size of the economy, with total assets standing at around 800% of GDP.

"The sheer size of the sector implies that disruptions to financial stability could have a disproportionate impact on the domestic economy. The global economic downturn brought about an increase in problematic loans, which however has not been accompanied by an increase in provisioning.

"In particular the large exposure to the real estate market, which accounts for over half of all loans to domestic residents, is a source of vulnerability especially as a further downward correction in property prices cannot be excluded, while housing units may currently be in oversupply."

Fenech was speaking during the launch of Finance Malta's new 324-page Business Guide, the major reference source on doing business in and with Malta.

"Our financial and economic policy has led to unemployment falling to 5.7% at a time when the eurozone average is at 11%," Fenech said. "Malta has the fifth lowest unemployment rate, and a 1.2% decrease in youth unemployment, the fourth lowest in the EU.

Fenech also said Malta was winning ever-increasing international attention from global companies and advisors, particularly in quality financial services. "Despite a global recession, there was strong growth in 2011 partilularly in funds and insurance as reported in the MFSA's annual report," Fenech said of the industry, which contributes some 12% to GDP.

Kenneth Farrugia, FinanceMalta's chairman, said: "We have been showcasing Malta's financial services industry for 5 years. This is why our government is continuously taking steps to stimulate the economy and create jobs to support Malta's business communities. This publication is a key tool to increase understanding amongst operators of Malta's offering, and our Annual Conference a couple of weeks ago built on this further."