Malta's banking sector reputation 'could be at risk' - Standard & Poors

Standard and Poors on Wednesday highlighted increased reputational and operational risks for Malta's banking sector,  moving its risk score up two notches on its 10-point scale.  

In a statement, S&P Global Ratings referred to allegations of money laundering against Pilatus Bank and its "perception of poor transparency at some banks" on the island.

Malta previously scored a four on the S&P Global Ratings banking industry risk score, but this has now been raised to a six-out-of-ten rating. A score of one on the index is the lowest risk, with 10 being the highest.

Malta's enhanced risk, as perceived by S&P Global, means the credit rating agency's anchor for banks operating primarily in Malta is now at BBB-, rather than BBB.

The credit rating agency said that even if potential weaknesses at "internationally oriented financial institutions" did not pose a direct risk to domestic financial stability, Malta's banking reputation "could be at risk".

Last month, the European Banking Authority found that Malta's FIAU failed to impose effective sanctions against Pilatus Bank.  

The agency said that the steady operating environment would continue to support local banks' profitability and that it expected banks to keep a solid funding profile, with customer deposits that "more than cover" their funding needs.

Central Bank says sector is strong and profitable

In reaction, the Central Bank of Malta said that Malta's banking sector was "sound, resilient and profitable" with non-performing loans at historic lows and below the eurozone average.

It said that it had no concerns about core domestic banks, saying the quality of their assets continued to improve and that a "rigorous de-risking process" which was already underway would continue and mitigate any "perceived reputational risk".

Small international banks "like Pilatus Bank" posed no systemic risk on domestic financial stability, the Central Bank said.

The credit ratings agency also lowered Bank of Valletta's long-term credit rating to BBB from BBB+ while affirming its A-2 short-term rating. It maintained its negative outlook of the bank.

S&P said that it saw risks for BOV's business, capital and risk profiles from potential reputational damage and litigation charges, with the agency highlighting the bank's legal battle concerning failed shipping giant Deiulemar.

BOV has had €363 million frozen by an Italian court as precautionary warrant, and on Tuesday the bank informed shareholders that it was setting aside €75m for litigation costs and would not be issuing an interim dividend.

S&P said that if BOV were to lose that lawsuit, "the financial effect could be substantial" relative to its total equity of €962 million, though it noted that the bank could well have time to build up a capital buffer to plan for that eventuality.

In a brief statement, BOV acknowledged the downgrade but noted that the credit rating agency had highlighted its resilient profitability and improved asset quality. 

"The bank's CEO Mario Mallia reiterated the commitment towards the long-term stability and sustainability of the group through the build-up of strong capital buffers and other measures related to the on-going process of de-risking," BOV said. 

from The Malta Independent https://ift.tt/2OAaK6J
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