“Weaknesses in Malta’s transparency and accountability persist” – S&P report

Tista' taqra bil- Malti.

S&P Global Rankings have insisted that weaknesses in the transparency and accountability of Malta’s institutions still persist. The report also analysed the effects emerging from the Pilatus bank scandal, Malta’s Citizenship Scheme, and BOV’s cyber-attack.

S&P Global Ratings provides high-quality market intelligence. It affirmed its ‘A-/A-2’ long- and short-term Malta ratings.

Read: Maltese short and long term credit rating ‘positive’ – S&P

Pilatus Bank

The report explained how in 2018, the United States Justice Department accused the owner of a small Malta-based international bank, Pilatus Bank, of having previously set up a scheme to evade U.S. economic sanctions against Iran. S&P stated that it believes this event was among the main factors leading to the country coming under increased scrutiny by the European Commission and the European Banking Authority (EBA). The EBA recently concluded a formal investigation against the Maltese Financial Intelligence Analysis Unit (FIAU). The report added that the EBA said that the FIAU imposed neither effective, proportionate, and dissuasive sanctions nor any other supervisory measures to correct the defects the FIAU had identified to ensure Pilatus Bank’s compliance with EU anti-money-laundering (AML) rules.

The EBA has also pointed to some inefficiency in the Malta Financial Services Authority’s (MFSA) supervisory practices and effective responsiveness, specifically in due diligence regarding AML systems and controls during the license authorization process.

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The citizenship programme

Cyclical tax revenues and proceeds from the Individual Investor Program (IIP; the citizenship program) should continue to support the government’s fiscal position, but less so than previously, added the report. IIP proceeds are estimated to have reached about 4.5% of GDP cumulatively in 2014-2017.

The report projected general government surpluses slightly below 1% of GDP in 2019-2022.

Read: Top US official says his country is ‘concerned’ about Malta’s IIP

Malta’s commercial banks; BOV cyber-attack

The cyber-attack in February 2019 on Bank of Valetta, Malta’s largest bank, has also raised questions about the potential risks related to the Maltese financial system’s reputation, stated the report.

The cyber-attack involved the transferring of some €13 million in Euros and US Dollars to other banks and accounts.

In his brief to parliament, Prime Minister Joseph Muscat had said that the attack had caused half of the economy to grind to a halt.

We also view the concentration of loans (about 75% of total resident system loans) with just two banks as a risk to the system.

S&P noted that the National Development Social Fund, currently maintained as a government deposit at the central bank, has invested in Bank of Valletta and Lombard Bank.

Read: BOV resumes operations after cyber attack

Overview

The agency expects Malta’s economic growth will average about 4% in 2019-2022, while general government debt to GDP will decline.

As a small and open economy with a financial sector several times GDP, Malta is more vulnerable to financial market volatility as well as other idiosyncratic external shocks (including Brexit) compared to peers, added the report.

S&P affirmed its ‘A-/A-2’ long- and short-term ratings on Malta, while the outlook remained positive.

The entire document can be accessed here.