Malta's domestic financial sector remained resilient with banks continuing to operate with headroom above regulatory capital and liquidity requirements, providing capacity to absorb shocks, a Central Bank of Malta report has shown. 

At the same time, profitability rose through higher net interest income, buoyed by higher interest rates as well as sustained credit demand. The latter, however, remains largely driven by property-related loans, thereby increasing further concentration risk on domestic banks’ loan books.

The report also warns that external macro-financial environment continues to be characterised by elevated geopolitical risks which could adversely affect financial stability.

The CBM published its 16th edition of the Financial Stability Report, which discusses the domestic and global macro-financial developments and their effects on the Maltese financial sector in 2023.

While central banks tightened their monetary policy stance, inflation expectations started to point towards a continued slowdown, with market participants expecting monetary authorities to start lowering interest rates in early 2024.

This positively impacted financial markets, as equities and bonds rallied strongly, especially late last year.

Central Bank of Malta.

Credit quality indicators remained benign as reflected in lower NPL (non-performing loan) ratios.

The domestically relevant insurance firms remained well capitalised, with life insurers reporting increased demand for unit and index-linked products, reflecting financial market improvements throughout the year.

On the back of such recovery, domestically-relevant investment sub-funds recorded their first growth in two years, while operating on limited leverage.