S&P issues positive report on Malta’s financial services sector

On 26 April, 2013, Standard & Poor's Ratings Services, like Fitch Ratings a week before it, has praised the credit quality of the Maltese banking sector and cautioned against comparisons between Malta’s banking system and that of Cyprus.

In a report entitled: “Small Countries, Big Banking Systems: How Malta And Luxembourg Differ From Cyprus”, S&P said that the combination of factors behind Cyprus' difficulties is not currently likely to be replicated elsewhere in Europe.

The Crisis in Cyprus

On one hand, the exposure of Cypriot banks to Greece and Greek customers became too large for the government to maintain. Also, non-resident deposit financing of domestic banks was disproportionately supporting other economic sectors, mainly business services and real estate. Together with financial services, these sectors accounted for around half the country's GDP and a substantial part of the country's exports, catering to Russian and CIS-based clients. Further complicating the picture, the distinction in Cyprus between resident and nonresident has always been blurred. However, Cyprus' banking and business services sectors had both long been major employers, with intricate links to the tourism industry.

S&P reported that no other economy in Europe matches Cyprus' profile of constrained fiscal flexibility together with a financially concentrated economy. Only Ireland comes close in terms of the scale of its banking crisis and the connection between the banks and domestic real estate and private-sector employment.

The Differences in Malta

The domestic banks based in Luxembourg and Malta are considerably smaller as a proportion of GDP than the large headline figures suggest. Malta's entire banking sector holds assets worth 789% of its Gross Domestic Product (GDP). However, international