Main robust and above average
2016, up from €4.5 billion twelve months earlier.
The low-interest environment continued to weigh on net interest income, which decreased slightly over the previous year. Nevertheless, operating profit before transfers to provisions and reserves edged up to €76.4 million, from €75.0 million in 2015.
The bank added €20.0 million to its provisions and €6.4 million to reserves, leaving an unchanged amount of €50.0 million payable to the Government of Malta.
As part of its mandate to ensure financial stability, the bank continued to monitor the health of the financial system, assessing systemic risks and imbalances and formulating relevant policy recommendations.
A number of policy measures were undertaken in 2016: • Three banks were identified as domestically systematically important and required to maintain higher capital buffers. • The countercyclical capital buffer announced on quarterly intervals was set at 0% • Reciprocation of other EU countries’ systemic risk buffers subject to materiality thresholds; and • MFSA Banking Rule 09 was amended whereby banks with a NPL ratio exceeding 6% to draw up a plan to reduce NPLs below this threshold over a five-year period. It also remained active in the Joint Financial Stability Board, which brings together senior officials from the bank and the Malta Financial Services Authority.
The bank also launched a Central Credit Register containing granular information on bank credit to households and firms and, together with the Ministry for Finance, carried out preparatory work on EU legislation related to the financial sector ahead of Malta’s EU Council Presidency.
The bank also stepped up its efforts to monitor and assess economic and financial developments in Malta and abroad, including through enhanced direct contact with large companies and public sector entities.
Its economic publications were overhauled, with more prominence given to research findings. A collection of papers on the Maltese economy was launched during an international symposium on small euro area countries, which the bank hosted in June.
Meanwhile, the bank pursued further its capital investment programme, which included upgrades to the IT infrastructure in several departments and works on a new building that will host the Library, conference facilities, offices and a data centre.
The low interest rate environment, the bank warned, continued to weigh on the bank’s earning capacity: • Partly reflecting liquidity injections relating to the PSPP the bank’s balance sheet expanded to €5.5 billion, up from €4.5 billion in end 2015. • Net interest income decreased slightly over the previous year as low-interest rate environment continued to weigh on the bank’s financial performance. • However, operating profit before transfers to provisions and reserves edged up to €76.4 million, €1.4 million more than in the previous year. • The bank added €20.0 million to its provisions and a further €6.4 million to reserves, leaving an unchanged amount of €50.0 million payable to the Government of Malta Brexit and Malta The bank has carried out a report on the possible effects of Brexit on Malta.
There is a high degree of uncertainty on the terms of the UK exit from the EU.
The negotiation process may lead to a number of possible outcomes: • EEA membership – the Norwegian model allows the UK to retain access to the single market. In turn, the UK would accept free movement of people. • Bilateral agreements – the Swiss model, free-trade within specific categories of goods, but does not feature trade concessions in financial services. • WTO rules – Default agreement that would come into place should negotiations fail, where two parties would trade at fixed maximum tariffs established by WTO. A recent study by the CBM has explored two scenarios: • Scenario 1: the UK remains part
of the EEA • Scenario 2: UK and EU trade at WTO rules. The main impacts will be through trade and exchange rate channels. The Annual Report 2016 is available on the Central Bank of Malta’s website at www.centralbankmalta.org.