Financial services play an important role in the Maltese
economy. In 2018, they directly accounted for around 6% of
gross value added, while also generating activity in other
professional services, such as law, accountancy, audit and
The banking sector, which lies at the heart of the Maltese
financial system, is resilient. At the end of 2018, there were
24 banks in Malta, with total assets equivalent to over 350% of
GDP. Six core domestic banks mainly provide retail banking
services to the Maltese economy, while 13 banks predominantly
serve international customers. Five relatively small
institutions are considered to be 'non-core' domestic
The Maltese banking system is well-capitalised, with an
average total capital ratio of almost 22% at the end of 2018.
At these levels, the banking system is sufficiently well
capitalised to be able to absorb losses even in the event of
severe adverse shocks. Maltese banks are also highly liquid,
while profitability remains healthy. A Financial Sector
Assessment Program by the International Monetary Fund confirms
this state of affairs.
Growth of bank lending to residents strengthened during
2018, driven mainly by mortgage lending, while credit growth to
firms turned positive. Meanwhile, asset quality improved
further, with non-performing loans falling to around 3% of the
total loan portfolio. This improvement is mainly attributable
to regulatory requirements that oblige individual banks with a
non-performing loan ratio above 6% to adhere to a multi-annual
reduction plan, although a buoyant economy is also contributing
Rapid growth in demand for mortgages has led to an increase
in the concentration of banks' exposures to property-related
lending. In response, in July 2019 new borrower-based measures
aimed at strengthening the resilience of lenders and borrowers
to developments in the residential real estate market were
Despite its underlying strengths, the Maltese banking system
faces a number of challenges. A prolonged low interest rate
environment will continue to erode profitability, which will
also be weighed down by increasing regulatory costs. Maltese
banks are also facing competition from alternative sources of
external finance, including the capital markets. Competitive
pressures may also arise from technological developments
allowing payments to bypass the banking sector entirely. From
an operational perspective, Maltese banks are increasingly
aware of risks posed by cybercrime.
The authorities are stepping up their efforts to combat
fraud, tax evasion and money laundering, while encouraging the
development of innovative technologies in the financial sector.
A comprehensive update of the National Risk Assessment was also
carried out to identify related threats and vulnerabilities and
form the basis of Malta's National AML/CFT Strategy.
As regards other market players, Maltese insurers and
investment services firms focus mainly on serving foreign
customers, taking advantage of the freedom to provide services
across the EU. Nevertheless, the local market is also well
served by a wide choice of domestically-oriented firms.
At the European level, the completion of Banking Union and
of the Capital Markets Union would strengthen Europe's banks
and deepen its financial markets, enhancing efficiency while
promoting financial stability.