There is no way of keeping markets performing healthily when industry players feel insecure about their business prospects. Indeed, perceptions play a very important role in bringing about economic growth.
Whereas up until a fortnight ago, manufacturers were signalling discontent at Tonio Fenech’s overly optimistic tone, the MCCEI is now showing signs of a change in the way it views government strategy. The interview featured in this week’s edition says it all.
And once we are on the perceptions issue, the industry expects government to take ownership of Malta’s economic challenges – and rightly so. The Finance Minister is perceived to be that person who should play the main role in resolving any economic emergency. Whenever government is seen distancing itself from economic hot potatoes by throwing them back to the industry, perceptions are not very likely to be bright at all.
But the recent appointment of a task force comprised of an inter-ministerial team along with key industry players seemed to have done the magic to get government back on the manufacturers’ good books – even though employer organisations are so far mum on government’s insistence on not subsidising their utility bills further.
In any case, if employer organisations are now working with government to face the challenges together, this cannot be bad news.
Ultimately, Malta is in a privileged enough position to be able to resolve its problems simply, specifically because although our challenges seem scary, the hurdles are far from insurmountable if we adopt the right attitude.
For instance, we should consider ourselves lucky to have been only hit by an economic downturn and not by a financial crash as witnessed in other countries.
Considering the situation, HSBC’s Q4 results are not bad at all.
That said, there are a number of speculations and hypotheses on the future of banks in Malta. It is being said that with all the luxury apartments on the market, and with so many property speculators taking loans on apartments for resale, if end-buyers’ demand plummets, banks may be facing some serious trouble. But even if the worst happens in that respect, which we augur it won’t, banking in Malta is unlikely to face the same woes as it has in other countries.
Regulation on credit in Malta has always been very tight and, really and truly, it could have hardly been otherwise. While credit is due to MFSA and the Central Bank for keeping a tight reign on local banks over the years, it must be said that because of our country’s dynamics, conservative policies on lending must have come about naturally.
To some extent, the trauma left on regulators by the Bical scandal must have motivated this country to work on never allowing such episode repeating itself.
Also, such a small population and such a small amount of banks makes regulation in Malta much easier to control, and competition between banks less cut-throat. Loan conditions have always been rather tough on the consumer, and this in itself reflected a virtual duopoly as there was very little pressure for either of the two local banking giants to become cost leaders.
Bankers never saw potential in expanding on the sub-prime market anyway, since unofficially, bank managers made unofficial exceptions and increased credit, granted moratoria, opened overdraft accounts and gave small-time loans on personal contact or third-party referral. Customers were happy with that system, banks allowed it, and since it was allowed to happen, regulators must have closed an eye on the practice as long as it was kept in relative control by the banks themselves.
Rightly so, banks in Malta are now becoming more stringent on when to make exceptions and to whom.
Thanks to our smallness, banks and regulators in Malta have consensually agreed on how healthy it is to keep risks at bay when lending out money that is not likely to be repaid.
Another factor that has been on our side is the fact that if there is anywhere in the world where the local bank culture really works it is here. With the traditional village culture in Malta, where social life revolves around the village priest, the doctor, the notary and the bank manager - banks managed to keep informed on their customers’ state of affairs in business, employment and personal life. As invasive as this may sound, bank managers kept abreast with the goings-on of village cores to the extent that they knew whom to trust and whom to turn away. Furthermore, to ensure that this system does not work against them, certain banks have now introduced the policy of rotating bank managers every two years in order to avoid increased familiarity between customers and bankers. But even with new faces at the helm of local branches, banks retained information on their customers. Some branches proved to be better than others at this.
Good practice has also helped a great deal. Prior to the credit crunch, some banks in the UK took their prospective customers’ word on earnings, and loans were granted in bona fide. There is no way of being granted a loan in Malta without the presentation of FS3s or considerable proof of one’s earnings.
The bottom line is that although we may have been hit by an economic crisis, our prospects of facing a financial crisis as has happened abroad, are very remote. For this we should thank our lucky stars.