[WATCH] Risk of over-exposure to property market ‘mitigated’ – BOV chief executive

Bank of Valletta chief executive officer Charles Borg said the bank had significantly reduced its exposure to the property market, in an interview to World Finance magazine [WATCH below].

Asked whether banks in Malta were over-exposed to the property market, Borg said the question was being constantly asked to BOV and the Malta Financial Services Authority.

He said the issue was also raised during a recent visit the International Monetary Fund had in Malta. "Property has always been important, this is an integral part of a loan book. However, one has to understand the meaning of property. We do invest, and we have let a lot of clients in the property market, however we have taken a conscious decision some years back to restrict ourselves to the top end of the property market," he said.

Borg noted that this has continued to command the price, and there is still the demand for it. "Our exposure to the property market has gone down significantly, and we are in the region of 8% at the moment, of all our loan books, so we have reduced our exposure significantly."

He added that BOV had a 5% exposure to the construction industry, "primarily aimed towards the large EU funded projects," an exposure which was also reduced significantly.

"Basically, therefore, the risks are mitigated significantly in the area of construction and real asset."

Asked whether the Cypriot crisis affected Malta and Bank of Valletta, Borg said the only similarities between Malta and Cyprus lay in the fact that both are islands in the Mediterranean and both were former British colonies.

"But the similarities stop over there. The financial jurisdiction of Cyprus and Malta are both totally different, built on different foundations, and fundamentals. Basically, Malta's financial sector is strong, it's robust, it's liquid, and very well capitalised. The core domestic banking in Malta is about 2.5 times GDP, as opposed to Cyprus which is 5 times GDP, and our core banking system, the core banks, obviously are profitable, the Maltese government's debt GDP ratio is strong and stable, and therefore the similarities are not there."

This was confirmed by a number of institutions, including Fitch, Bloomberg and the IMF, Borg said, adding "the EBA issued its report in April stating Bank of Valletta is one of the highest capitalised banks in Europe"

He explained that financial stability rests on three core fundamentals; a very strong regulatory and supervisory regime, high capitalisation and liquidity.

Borg said that since BOV carries half the Maltese economy, the bank is critically important to the country's economy.

"We are important in terms of the fund-raising activity, because we raise all our funding from the retail deposits, and obviously the utilisation of those funds into the Maltese economy. We are being intrinsically tied to the Maltese economy, obviously we are interested to grow the Maltese economy in a sustainable manner."

BOV will ensure that the old economy, such as tourism, manufacturing and retail, continues to function properly, Borg added.

"But at the same time, we need to continue to identify the new areas of our economy. Like for instance, we are doing extremely well in the IT sector, in the iGaming, in the financial services sector, and so on and so forth. And areas which we haven't tapped into significantly like the aviation and maritime sectors. So when we say Bank of Valletta is a shaper of the Maltese economy, it means basically that we identify these new areas, and that we incentivise them to grow by helping them to identify these opportunities. At the same time, making sure that the old sectors continue to function properly."