The International Monetary Fund's annual Article IV report on Malta confirmed the stability of Malta as a financial services jurisdiction. The Fund observed that the financial sector remains stable and welcomed the progress in strengthening the regulatory and supervisory frameworks.
While noting the successful performance of Maltese banks at the ECB's recent Comprehensive Assessment, the Fund called on the authorities to implement the action plans resulting from the same Assessment Continuing to aim for high standards in the AML/CFT framework will be important as well. Directors supported the authorities' intention to request an update of the Financial Sector Assessment Program.
In general terms, the IMF noted that Malta's economic outlook is stronger than that of the euro area as a whole. Real GDP growth exceeded the EU performance, and the external position remained strong. This reflects a relatively diversified economy and a stable banking sector, which withstood well the economic slow-down and shocks from international financial markets. The stronger than expected growth pushed the fiscal deficit in 2013 below 3 percent of GDP.
A similar assessment was made by credit rating agency Fitch. The agency also highlighted the importance of the comprehensive assessment results, remarking that no capital shortfalls under the baseline and adverse scenario of the stress tests were found. The adjustments required as a result of the Asset Quality Review were limited.
Fitch pointed out that the core domestic banks reported a loan/deposit ratio of only around 66% and have not been drawing significantly on ECB liquidity facilities. Their Tier 1 capital ratio stood at 11.08% in June 2014, well above the regulatory minimum threshold (8%). The ratio for the whole banking sector (including non-core domestic and international banks) was 25.8% in June 2014. The government has not had to provide capital or liquidity.
The agency noted that the Maltese economy is outperforming its eurozone peers. Fitch estimates real GDP grew by 3.4% in 2014, better than in 2013 (2.5%) and higher than both the eurozone average (0.9%) and the 'A' median of 3.1% over five years. Fitch expects potential growth to average 3% in 2015-16, continuing above the eurozone average. The agency expects domes-tic demand to be the main engine of growth.
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