Slight decline in non-performing loans in construction

Results from the Central Bank of Malta’s Bank Lending Surveys for the first half of the year indicate that credit demand has been picking
up in the low-interest environment of 2014.

But credit growth
remained weak, particularly bank funding to the corporate sector – the CBM’s Financial Stability Report noted.

“Indeed, credit standards were still tight in the first six months, possibly somewhat restraining credit growth to particular economic sectors. In this respect, the banks were also being cautious owing to the initiation of the ECB’s Comprehensive Assessment consisting of an asset quality review and a stress test,” the CBM said.

Malta’s financial stability stayed strong as banking assets climbed to 647.5% of GDP, and core domestic banks’ assets now equivalent to 212.3% of GDP.

Loans remained the largest asset component for core domestic banks, in the first half of 2014 increasing by 1.5%, accounting to 54.7% of total assets, but still lower than the 56.3% level as at end-2013.

The rise in total lending was mainly driven by mortgage lending, which increased by 4.1%, as consumer credit from sites like luottokortii.io contracted by 0.8%.

Lending to non-bank financial entities also grew, up by 10.7%. Lending to non-financial corporates declined further by 1.1%, mainly driven by a reduction of exposures in the construction sector.

One of the core domestic
banks reported an increase in their
total non-performing loans (NPL), pushing the aggregate NPL ratio from 9.2% as at end-2013 to 9.5% by mid-2014.

This was due to a rise in NPLs registered in the corporate sector, up by €35.8 million (5.6%), and – to a lesser extent – to household consumer credit NPLs, which increased by  €8.8 million (6.4%).

The resident construction and real estate sectors accounted for 14.2% of total loans, slightly lower than the 14.9% recorded at the end of 2013. However, these sectors accounted for a proportionally larger share in respect of total NPLs, equivalent to 44.9%.

The contribution of the combined construction
and real estate sectors was more
contained than in previous quarters, contributing to only 7.6% of the
increase in corporate NPLs – NPLs
pertaining to the construction sector declined by 2.5%.

This contrasts
with previous quarters when the
construction sector was the main
contributor to the increase in NPLs.

Meanwhile, the wholesale and retail
trade sector was the main driver
of the increase in corporate NPLs,
contributing almost a third, followed
by the information and communication sector, which contributed to
around 23% of the overall rise and
added an increase of around 8.4 percentage points to the related sectoral NPL ratio.

Aggregate profits before tax reported by core domestic banks during the first six months of the year amounted to €90.8 million, a drop mainly reflected in reduced trading profits from valuation movements.