Banks’ conservative lending policies cut risks from real estate

Risks from the residential real estate market have been reduced as banks maintained conservative lending policies, the Central Bank of Malta said.

In its interim financial stability report for the first half of 2017, the CBM noted that loans channelled to the domestic construction and real estate sector by the core domestic banks declined to 11.6% of their overall loan portfolio.

“Risks from the residential real estate market have attenuated… credit standards remained relatively tight as evidenced by the weighted average loan-to-value and debt service-to-income ratios for residential real estate loans which stood at 72.7% and 23.8%, respectively,” the report said.

The report said the financial sector “remained sound and resilient”, evidenced by healthy capital levels and ample liquidity buffers.

“Financial institutions remained prudent limiting excessive risk-taking despite a challenging environment of low interest rates coupled with pressing external challenges,” the CBM said.

It said the outlook for the rest of the year was positive but financial institutions were encouraged to “actively mitigate any emerging vulnerabilities”.

The report noted that in June this year, the insurance sector in Malta consisted of 62 companies with total assets of €11 billion, of which only eight firms had a systemic footprint - they write risks situated in Malta.

These domestic insurance companies had assets of around €3.9 billion and accounted for 38.2% of GDP, expanding only marginally in the first half of the year.

The report noted that the size of the three domestic life insurance companies expanded by 1.4% to €3.5 billion, whereas the non-life business grew by 6.7% to €406.6 million in the six months to June 2017.

The report said that in the first quarter of 2017 there were 469 investment funds in Malta with assets totalling €7.7 billion, down from €8.5 billion at end-2016.

Only 12 investment funds were considered to be the most systemically-relevant since they mainly transacted with residents. These were six collective investment schemes and six professional investor funds, holding €1.6 billion assets or 15.8% of GDP.