The Maltese finance industry has gone from strength to strength, built on the impressive ability of the locals to manage their savings, plus a well-regulated financial services sector creating healthy competition
The Malta finance industry has been an important part of the Maltese economy. There is a strong propensity to save in Malta, and while the market is buoyant, competition to maintain market share is intense.
There are six credit institutions transacting with residents and non-residents - the largest being HSBC Bank Malta, part of the HSBC Group. Bank of Valletta is HSBC's major competitor with Lombard Bank (Malta) and APS Bank making up the top four in this sector.
In addition, there are other credit institutions that transact only with non-residents - eight in number - including AKBank TAS and Disbank (Malta). Aside from these banks, there are a number of licensed financial services intermediaries selling a wide range of investment products, both internationally and locally based in Malta.
Barclays Bank is the only representative office, but also has a Maltese subsidiary company, Barclays International Investments (Malta), that markets Barclays International Fund Group products. In addition, major international funds such as Lloyds TSB, Fidelity and UBS are sold through local licensed intermediaries. HSBC and Bank of Valletta offer local funds, nominated in Maltese Liri.
With a population of 400,000, and an area of only 316 sqkm, Malta is densely populated. In some way, the number of financial institutions, both banking and investment based, reflects this density. With the EU membership looming and with a continuing propensity to save and invest on the part of the population, there is evident reason to assume the Malta finance industry will continue to grow.
The per capita income is just over $10,000, however, an official savings ratio of 20% - unofficially said to be nearer 30% - together with strong family networks encouraging inter-generational savings, these savings are estimated at being in excess of £250m a year. This amount mirrors the assumed annual flow of offshore savings mentioned above.
The high offshore savings and investment propensity in Malta, is particularly among the middle aged. Younger generations of wealthy Maltese are likely to inherit overseas investments, but will typically seek to establish themselves in Malta before investing new funds offshore.
The stock of offshore funds in the country is calculated as being in excess of £3bn, a figure that has tripled in the past 10 years. This indicates an annual flow of funds offshore of some £250m. The government has promoted two repatriation of fund schemes encouraging the return of assets to Malta or the registration of overseas investments. This repatriation scheme has had some success in reversing this flow of funds. However, with generous exchange control allowances, and the certainty that exchange control regulations will be phased out when Malta joins the EU next year, the willingness of Maltese investors to place funds in overseas investments will continue to make Malta an attractive venue for companies with international fund offerings.
Malta has an extensive network of treaties for the avoidance of double taxation, so it is a good base for international trading and holding companies - owing to these double taxation agreements and other matters of tax deduction. Malta is also a key centre for shipping/ship-owning companies.
The local's ability to save remains the cornerstone of the financial industry in Malta with an abundance of investment funds, both international and local, together with numerous saving products available from local banks.
Additionally, the property market in Malta remains buoyant with a bullish optimism that entry to the EU will serve to see further house price inflation.
With mortgage finance being readily available from local banks, and with no recent history of a downturn in property prices, property remains an attractive competitor for savers funds. Up-market properties, based in attractive new developments such as the Portomaso development and the Tigne Point development, are encouraging foreign buyers who in turn become targets for the financial services industry.
The finance industry in Malta remains well regulated, with the Malta Financial Services Authority (MFSA) ensuring the strict guidelines laid down to obtain the necessary licenses to operate in the financial sector are adhered to. Despite its size, Malta gives us the impression of being much larger than it really is, with its bustling towns, congested traffic and vibrant social life. The finance industry mirrors this, being competitive, lively and forward looking.
Malta's entry into the EU in 2005 is seen as having a positive impact on the local economy and this should impact positively on the finance industry in Malta. While the economic malaise that has been evident worldwide over the past 18 months has affected Malta too, the finance industry still remains buoyant and competitive.
The government has had amnesties encouraging Maltese investors to either return funds held overseas to Malta or to register these funds as being held overseas. This has led to some increased activity in the local financial services market.
A recent study by the International Monetary Fund (IMF) reports that "Malta's financial system appears to be healthy and well supervised, but very concentrated and exposed to the country's narrow economic base. Financial soundness indicators and stress tests indicate that the domestic banks are profitable, liquid and well capitalised.
"Malta has a comprehensive legal framework and strongly adheres to most of the international standards and codes." The report also notes the authorities have undertaken major efforts in strengthening the supervisory framework in line with international standards and codes. The minister of finance and economic affairs, the Hon. John Dalli, has commented this positive assessment of the stability of the financial system in Malta is a confirmation of the commitment of the government in the development of Malta as a credible international financial centre. The IMF report acknowledges the work undertaken by the Central Bank and the MFSA in ensuring the stability and sound supervision of the financial sector.
The Governor of the Central Bank of Malta, Michael C Bonello, commented: "Our decision to volunteer for an Financial Sector Assessment Program (FSAP) has been fully vindicated. After a thorough examination by a team of international experts, Malta's financial system has been certified as being healthy, well supervised in the context of a comprehensive legal framework, and strongly compliant with most of the relevant international standards and codes. Insofar as the Central Bank's specific areas of responsibility are concerned, the conduct of price stability - oriented monetary policy and the preservation of financial stability - the report is positive and the recommendations constructive. This report should put to rest once and for all any lingering misconceptions about Malta's status as a reputable international financial centre."
The FSAP is a joint IMF and World Bank initiative introduced in May 1999 following the Asian crisis. The FSAP aims to increase the effectiveness of efforts to promote the soundness of financial systems in member countries by a deep and thorough on-site assessment of compliance with international standards and codes. The Maltese Authorities volunteered to undertake a full FSAP assessment in March 2001. The interim period between March 2001 and the first on-site visit in October 2002, demanded extensive preparatory work by the authorities.
Professor Joe Bannister, chairman of the MFSA, noted that the IMF's assessment provides yet another endorsement that the Malta Financial Services Authority has made significant progress in creating a financial services supervisory framework that is independent and effective. The assessment has been well supported by qualified and experienced staff. Bannister also noted that almost two years after the creation of the single regulator (the MFSA) it is encouraging to receive confirmation from the IMF that the regime is strong and effective.
The finance industry remains well regulated, with the MFSA operating in line with the UK Financial Services Authority and with all necessary legislation being EU compliant.
The stock of offshore funds in Malta is calculated at being in excess of £3bn.
Malta has an extensive netowrk of treaties for the avoidance of double taxation.
Malta's finance industry is competitive, lively and forward looking.
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