Wednesday, 8th October 2008 - 17:12CET
UPDATED: Minister explains deposits guarantee scheme
Government considering new schemes to help industry, hotels
Finance Minister Tonio Fenech.
(Adds explanations made in Parliament)
Finance Minister Tonio Fenech insisted in Parliament this evening that the government guarantee on bank deposits for up to €100,000 was a measure meant to reassure the people, because the local banks were safe and not experiencing any liquidity problems despite the international financial turmoil.
Furthermore, should there be any problems, the government could take various other measures such as re-capitalisation, bank guarantees or even partial or total nationalisation.
He told a press conference, and later repeated in Parliament, that account-holders did not need to worry about fallout from the international financial turmoil because the banks in Malta had enough liquidity and are well capitalised to deal with the situation.
EU Finance Ministers on Tuesday agreed to guarantee deposits for at least €50,000 but the Maltese government, like most EU countries, has decided to give a guarantee up to €100,000.
There are €8.5 billion deposited in local banks.
After Mr Fenech repeated his statement in Parliament, Anglu Farrugia, acting leader of the opposition asked if this statement was a screen for other problems the government was having. Would this be used as a reason for the government not to keep its electoral promises in the budget?
He asked what assets and investment losses had been suffered by local banks abroad. He also asked if there were any signs of difficulties in any of the Maltese banks, large or small.
Charles Mangion, opposition spokesman for finance, confirmed that Maltese depositors need not be alarmed. He asked, however, whether the deposit guarantee also protected those people who had deposited their money in collective schemes or other funds.
He also asked what exposure the Maltese banks had to foreign banks which had collapsed or were in difficulties.
Would the government consider partial nationalisation of the banks, if necessary? After all, what was achieved using taxpayers’ money should belong to taxpayers.
Dr Mangion also asked about the economic impact of the current turmoil, particularly in the services, tourism and export sectors. Furthermore, how could the government go ahead with hiking utility charges and thus reduce Maltese competitiveness in such difficult times? Would the government issue new incentives to help industry and the general public, such as by re-issuing the equity sharing scheme for first-time home buyers?
Replying, Mr Fenech said the unexpected sudden collapse of Lehman Brothers had sparked the 9/11 of the financial services sector, and he therefore was surprised how Dr Farrugia was linking this with the forthcoming budget. Indeed, Dr Mangion and others had spoken of the secondary economic impact expected from the current turmoil.
The Maltese banks had no liquidity problems. They had been hoarding liquidity ever since the first problems cropped up at Northern Rock in the UK and they were continuing business as usual and lending money.
Mr Fenech said the only definite loss of assets was that regarding Lehman Brothers paper held by Bank of Valletta, which was modest. There had also been an impact on individual investments made directly by private investors in Lehman Brothers.
He explained that Malta had opted to raise its deposit guarantee to €100,000 because that was the recommendation agreed at the EU finance ministers’ meeting. Neighbouring countries had also opted for a threshold of €100,000 and had Malta not set the same threshold, one risked having money channelled out of Malta.
The guarantee, the minister said, was on money in the bank, not financial products such as shares or bonds, although investments in banks in Europe still enjoyed guarantee protection by those countries.
The guarantee was a measure of last resort and should there be problems, the government could intervene earlier by providing guarantees to the banks or going for re-capitalisation which in some countries had even meant partial or total nationalisation. Bailing out a bank would be even cheaper than the guarantee. If needs be, the Maltese government would not shirk from nationalising banks.
He could confirm again, however, that no intervention whatsoever was needed for any Maltese bank as their base was on local deposits and their lending was also almost exclusively local.
The local banks were also not involved in inter-banking activity with banks overseas. Nor had they made overseas borrowing for liquidity reasons.
What Malta had to keep an eye on, he said, were the economic consequences of this international turmoil, with economic growth projections being revised downwards across the world. Malta depended on exports, which depended on demand. It also depended on tourism. So it would be foolhardy for anyone to think that there would not an impact on Malta in this area.
He hoped that the reduced rates announced by central banks across the world would be passed on, even in Malta, to economic operators.
Replying to other questions by Dr Mangion, Mr Fenech said the Social Policy Ministry was working on new schemes to help first-time buyers.
As for the utility tariffs, the government had been protecting major industries for years, notably through the capping mechanism which could not be retained any longer because of EU state aid rules.
Mr Fenech said the government had decided to backdate the new power tariffs to October 1 because had it failed to do so, the surcharge mechanism would have had to be renewed, and the new level would have been 160% in view of oil purchase costs.
The government would see how to help industry and hotels to address this challenge by investing to reduce costs, including energy costs.
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Comments
Every time that a PN government., can't say the same for an MLP Government, issued a bond subscription it is swallowed up immediately. That is definetly a show of trust and confidence in the Government. The beauty of it is that interest is paid locally and stays in here. Translated is more money in the hands of Maltese which translate into more disposable income.
If you cannot understand this concept coming from an MLP party stalwart like you, then I wonder why the MLp is in the pits that it is in.
As regards to politicians who are misquoted , misinterpreted , misunderstood or quoted out of contest , we don't care . People measure our politicians with what they do .
I like the way Minister Tonio Fenech tackled the situation with the other EU ministers , giving a guarantee of €100,000 eliminates a run to the banks. In the Mintoff years , things were different : a stampede was created to take over the banks and nationalise them.Barclays Bank was financially sound but still it was taken over to become Mid-Med.
Perhaps red glasses don't let some people see the obvious , let alone start thinking.
Your blue blindfold can't let you think.
Don't you ever think about the Government expenditure alone????
Or how the government is wasting our taxes and growing a deficit each year???
Or how Fenech is not even capable of keeping with his own estimates???
Aren't you aware of all terrible contradictory statements made by Austin and Fenech since the surcharge controversy has started????
Why don't you consider inflation at least??? A first year economics student would tell you that the consequence of such speedy-growing inflation is the result of non-real economic growth. The expenditure alone is not enough, especially when considering that more than half of this expenditure is that of the Government itself.
Malta's economic conditions have gone back to 2004, the same situation that pm Gonzi described as "very bad" in those days!!!
For your information most Maltese Government debt is held by the Maltese themselves. Unlike the gloom and doom that MLP symphatisers would want us to believe, every time the a PN Government issue a call for a bond subscription it is subscribed in full prior to hitting the streets. As a result, any interest paid out stays here in Malta. This is the ultimate demonstration of a vote of confidence and expression of trust in the Government.
Dom Mintoff didn't "ask shareholders to give in their shares". He bullied and blackmailed them into doing his bidding and prevented the Central Bank, a supposedly autonomous institution, of fulfilling its duty. When asked what would become of the National Bank's employees – his beloved workers, remember – Mintoff simply said "[expletive deleted] Jidhlu fil-pijunieri."
Your boast about the ownership of the National Bank's successor rings hollow. I doubt you hold any shares in it yourself.
Property and real estate do loose in value. Land does not. Cash on hand is ok, as long as Inflation does not creep in. .
What Mintoff did do was to illegally and abusively seal off the normal local inter-bank movement of funds, prevent the Central Bank of Malta from discharging its responsibilities towards the banking sector, block the transfer of funds available to NBM from the Midland Bank in UK, and then further limit NBM liquidity by threathening to pull out funds desposited by state corporations justifying that action on the grounds of the difficult situation that NBM was put in by the former actions.
On take-over by government, the NBM accounts were then subjected to questionable audit practices, assets were excessively written down so as to present a negative picture of the bank's state of affairs. Take your politically-tinged glasses off P. Scicluna.
With property prices falling in an unprededented matter, property is the exact opposite of a sure bet right now.
Mintoff's only aim was to take over the National Bank and not protect the depositors. It was a question of liquidity momentarily. The Bank was safe and sound so much so that Barclays told Mintoff it was ready to help National Bank out of its problems encountered at the time. Nothing was wrong with Barclays - yet Mintoff took it over as well. So much for history and honesty.
@Robert Dimech: If the people are broke how will they pay taxes?
Can the Maltese government afford to give a bailout like the U.S? The U.S has a lot more bailing out to do. They can afford it.
I understand some people are known to wish the U.S.A the worst. But when the U.S does bad financially the world follows, vise versa of course.
Finance Minister Fenech will be wasting time trying to impress you!
To answer your earlier questions: 1. If you default on your loan, the bank will repossess your property. You knew this well in advance. The golden rule is, have a egg nest for a rainy day in case you lose your job.
2. If the bank takes your property, you do not have to worry about selling it. The bank will do it for you and bill you for any deficiency. These are universal rules of lending.
3. The bank will end up with an inventory of homes. There will always be enough bargain hunters who will snap up these properties at bargain basement prices. BUT read 2 again.
4. The deposit guarantee is double the EU recommendation because the Minister is doubly sure that the govt. will not have to bail out local banks.
@ Denis Catania
That question should be addressed to George W Bush first.
@ Nigel Lawrence
If one manages to hold on to his property through a recession, he will always come out smelling like a rose once recovery is complete..
General rule: PANIC creates instant LOSERS.
P Scicluna - You also said that "Mintoff launched the Bank of Valletta ...Totally owned by the Maltese".
Get your facts straight here too, because "1975: BOV sells 20% of its share capital to Banco di Sicilia". (Extracted from: http://user.orbit.net.mt/fournier/MNhistory.htm )
And please don't forget that " 274 shareholders (are) still waiting for compensation and a proper court trial to conclude its finding" (Extracted from the link provided above)
You are also wrong in putting the NBM directors on a par with directors of the failed banks in America. Whilst I know nothing about the latter's lifestyles, I do know a thing or two about the former's, and I can assure you that you certainly cannot compare the two. Please get your facts right.
Writing misleading facts for whichever motivation is acting irresponsibly. Moreover, this is not the appropriate means to give investment advice:
Property ==> any economics student will tell you that supply and demand determines price. And this is why property prices are coming down.
Gold ==> hardly a good investment considerring that it needed over 30 years to reach its previous highs (although some could meanwhile keep their wife happy!)
Cash is King ==>, perhaps kept in an old sock under the mattress. its an option, but guess we know better.
Personally, i m keeping my hard earned savings in a safe place and being Maltese I see no safer place than close to home, in my bank account and in Euros.
Finally, whilst acknowledging that Malta is not entirely immune to the current crisis, annual reports show that Maltese Banks are truly amongst the most conservative and well capitalized in the entire euro area.
"According to the Curmi and Scicluna Stockbrokers report, the NBM applied for help from the Central Bank to meet the cash needed through a temporary advance facility, offering the Bank’s property and part of its loan portfolio (with the best Maltese companies) as collateral. ...
According to court testimonies in the NBM proceedings that commenced years after the takeover, when Major Austin Cassar Torreggiani, one of the NBM directors, asked for the price at which the shares were to be transferred to government, Mintoff replied "naturally without compensation," ...
Mintoff said that if the directors refused the ‘offer,’ he would remove the limited liability of the banks’ shareholders, extending it beyond the bank’s share capital to their personal assets, and that he would withdraw the four million pounds in Government funds which were deposited at the bank."
The rest is history. Please do not try to re-write it, P. Scicluna, because by doing so you insult the memory of those (including my grandfather) who fought so hard and lost so much to preserve the livelihood of others.
P. Scicluna - First of all, get your facts straight. Reading the information on this link would be best:
http://user.orbit.net.mt/fournier/MNnational_bank_scandal.htm
To make things easier for you, here are a few extracts from the link provided:
"On Thursday 6 December, 1973, certain NBM branches reported heavy withdrawals amounting to hundreds of thousands of liri. ...
The next day, as the withdrawals continued, the NBM directors ... were called in for a meeting with Prime Minister Dom Mintoff. ...
On Monday 10 December, Lm900,000 was withdrawn. A board meeting of the NBM was called, and it was assured that the Bank still had 30 per cent liquid assets out of its total deposits. The minimum required by law was 25 per cent. ...
At 3.00pm that day ... (the directors) .. were called in to a meeting with Dom Mintoff ... Mintoff had laid down his cards – he wanted the bank by 5.30pm ...
... Mintoff also refused to let the NBM have another lease of life – borrowing bridging finance from other banks .... What is evidently clear is that the Central Bank did not offer any finance to allay fears of bankruptcy: ...
(Continued on next comment)
I take it when one speaks of property or real estate one means land and not build up property or real estate . Land never looses value, but built up property and real estate does.
If I were you I would be more worried with what is going on in the USA. By the way, how is your 401K account doing?
A death certificate was issued to capitalism as we knew it for decades the moment USA-Congress approved the bailout plan.
We soon will be pummeled by the ongoing financial crisis, if anybody (including both the Minister of finance and PM) think otherwise, please do, think again.
@ luisa abela
I am sorry about that. You can forget about your parents LM800
as Mr. Pace is no longer in banking business.
@ l Galea
Very good web site.
The country was shaken when property dropped by 25% in a very short time. I knew of one guy who had lots of property. He lost them all and even lost his own home.
This could lead to acccount holders rushing to the banks to withdraw all savings.
Very irresponsible indeed.
What if someone has 100,000 euros + lets say 200,000.....he looses 100,000 ???
I trust that the Minister of Finance will keep the shadow minister for finance fully abreast of developments so that decisions are taken by consensus in Malta's best interest. We are on the verge of a financial apocalypse and politicking on the matter is just not on.
Bank guarantee is up to EUR100,000 per depositor, thus amounts less than this figure are guaranteed.
Banks can take control of any assets that are guaranteed on a loan if and only if the borrower defaults on his payments. Thus if you do not default, you are safe at home. Today interest rates have gone down by 0.50%, thus easing the loan burden.
For the comment that property is king, kindly note that the credit crises started because of property in the US!! Ask owners of flats who have their units up for sale if property is king or not currently!!
A guarantee is given so that no panic on banks (bank run) may take place. It does not mean that the Government will incur any costs in giving a guarantee unless there's a bank run. In such remote case, the government can opt for help from the European Central Bank with special arrangements. Remember that these are extraordinary times with extraordinary measures.
Any comments that are not backed by facts are misleading and panic generating. Hope this is not the aim of some of you!!
Do you ever read the Government Gazzette available free at the .gov website?
Apparently not, because if you did you will have met with lists of properties taken over by the Banks due to their owners not being able to keep up with their payments.
@D. Catania, the Malta government is already bankrupt and has been before this financial mess. Remember the accumulated debt and the run away deficits. Where do you think the government makes up the difference by - borrowing? Something you don't want to do in a crisis like this. Watch out for cuts in services in the coming budget or higher taxes, pal.
PS Just have heard from the IMF chief. A dire recession is on its way folks.
@jcaruana
I don't think you need to worry unless you have hundred thousands of Euro at the bank: if you have large sums, it is wise to buy gold as if something really wrong happens, gold will still retain its value (if not increase in it)
If anything, this whole debacle shows that Europe is far from united on the financial level and member states are not acting in unison. In a single market, one would expect a level playing field which means a uniform deposit guarantee, not one for each member state. I am not debunking Europe but asking for more Europe. As the recent Georgian crisis has shown with regards to external relations, member states still tend to behave in their own interest rather than collectively. These crises show the urgency to adopt the Lisbon Treaty and nay-say those who claim (The Economist included) that the EU can get by with its present structures.
The safest way to invest your money was, is and always will be, is real estate
Yeah- Just tell that to the Americans and the British and the Spanish etc., who are seeing their property prices plummet.
Do you actually read the papers?
The share holders of the bank you mentioned have never managed to get a court other in their favour. Mintoff was right.He protected does who had deposits. He asked the shareholder to give in their shares, because they did not manage the bank properly. in return Mintoff launched the Bank of Valletta NOW the primier MALTESE bank. Totally owned by the Maltese. George W. Bush should have asked the shareholders to give in their shares, planes, mega palaces, other investments,ships. They have OVER spent the depositers money. The depositers should have been protected. NOW the USA taxpayers are going to pay for the SHAREHOLDERS lifestyle.
P. Camilleri - Banks giving mortgages which were too expensive for their clients, is what started this global credit crisis. Invest in Real Estate when your property is worth less than your mortgage???? Simply crazy.
Hope there is no race in the offing.
We as depositors who made the banks rich expect a firm guarantee not a play with words from the Government.
Let us watch how the friends of friends react towards the benk and follow their example.
"The Scheme covers 90% of a bank’s net liability (see below) to a depositor in respect of deposits which qualify for compensation subject to a current maximum payment to any one person of EUR20,000.
A bank’s net liability to a depositor is the aggregate of all accounts in the name of that depositor in the currencies covered (see below), including the depositor's share in a joint account or a client account, less any amounts due to the bank (such as loans).
Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits described above."
I am assuming it is Euros 100,000 per account. If it is a jiont account it still remains as one account to the Bank, so once again I would think its Euros 100,000.
@A. Attard
It is obvious that if you have anything less then Euros 100,000 they are guaranteed too.
Im sure thisis a step in the right direction by the Eu and transposed very past by the government.
@j caruana
And no ,it does not mean we are in trouble, but people need assurances. If your next door neigbour goes to the bank to close his deposits and the word goes round, then a financial institution of any size could have problems. So this guarantee came at the right time. Once again were seeing EU really at work and the government has acted rightly fast in adhering to a decision taken by an EU institution .
With some good brains we could come out of this turmoil with a few scrathes only. Time will tell!
Why the hysterics? do you have more then 100,000 euros in the bank? don't worry I'm broke so I could do with the surplus which is not guaranteed.
How refreshing to hear that the govt will guarantee deposits to prevent a run on the banks! It's a far cry from December 1974, when a run on the National Bank of Malta was instigated by Labour sympathisers, facilitating the forceful take-over of such bank by Mintoff.
Incidentally, when will the shareholders of such bank be compensated for their financial loss (since no price can be put on other damage) caused by such takeover?
Guys, good luck with your so called "secure" savings at the banks and other cash "invested" with financial institutions!!!!!
The decision is one reached by ALL EU states who had started tp go own way.
It is important that all EU states have a uniform rule. otherwise depositors in a non-Government guaranteed economy may want to transfer to a guaranteed regime.
The decision is therefore not Malta induced and is no reflection on Banks in Malta but an initiative to create uniformity within EU.
Your money is guaranteed up to E100.000. That means, if you have less than E100.000 than your funds are guaranteed. But don't take my word for it,get in touch with the Central Bank, they should be able to give you the right information.
@ Mr Catania - if the government goes broke, all Malta will go broke.
"Six central banks, including the Bank of England, have cut interest rates by half a percentage point in an effort to steady the faltering global economy.
No decision on UK rates had been expected until Thursday - and the move puts the interest rate at 4.5% from 5%.
The US Federal Reserve has cut rates from 2% to 1.5% and the European Central Bank (ECB) trimmed its rate from 4.25% to 3.75%. ........"
---------------
Central banks' official statements
http://news.bbc.co.uk/2/hi/business/7659145.stm
EUROPEAN CENTRAL BANK STATEMENT
The minimum bid rate on the main refinancing operations of the Eurosystem will be reduced by 50 basis points to 3.75%.
In the euro area, upside inflationary risks have recently decreased further. It remains imperative to avoid broad-based second-round effects in price and wage-setting. Keeping inflation expectations firmly anchored in line with our objective and securing price stability in the medium term will support sustainable growth and employment and contribute to financial stability.
Now that something was announced it still leaves questions unanswered such as
1) is it per customer or per account
2) if joint account, how does system operate ie are 200,000 euros covered.
Maybe the local newspapers could help to inform the people of this country with some more financial news, local mainly. Information here is very hard to come by and everything seems to be a secret.