On the 16th April 2013, Fitch Ratings issued a statement regarding a special report published by Fitch, highlighting the main differences between the Maltese and Cypriot banking systems and concluded that these differences far outweigh the similarities and that, as such, ‘Malta Does Not Face Same Bank System Risks as Cyprus’ meaning the Maltese banking sector does not present the same level of risk to the sovereign that was seen in Cyprus.
The report compares the size of the Maltese and Cypriot banking sectors, their funding sources, asset quality, and capitalisation and acknowledges that, whilst both jurisdictions appear to have large banking sectors that substantially exceed the size of their economies and that rely to some degree on funding from non-resident depositors, a closer examination reveals substantial differences.
Fitch noted that whilst Malta’s whole banking sector has assets worth 789% of GDP, making it the eurozone’s second largest (after Luxembourg), the contingent liability that potential bank support places on the Maltese sovereign – around 128% of GDP – is significantly lower than in Cyprus, where the domestic banking sector, accounting for 466% of GDP, proved too big for the sovereign to support. The Maltese banking system is also “less vulnerable to a destabilizing withdrawal of non-resident deposits than its high proportion of non-resident deposits suggests”.
Fitch rates Malta ‘A+’ with a Stable Outlook whilst Cyprus is rated at ‘B’ on Rating Watch Negative.
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