Malta: Financial Services Survey - Results

Last Updated: 8 February 2017
Article by Finance Malta

Executive Summary

Following the first publication in June 2016, PwC, in collaboration with FinanceMalta, are publishing the next in a series of semi-annual financial services surveys. This survey was carried out in September/ October 2016 and respondents were invited to give their views on various topics in comparison to their sentiments 6 months earlier.

The survey shows 34% of respondents reporting increased business volumes. This can be compared to the result of 59% reported in the previous survey. Furthermore, 9% of respondents indicated increased optimism on the overall business situation in the sector, slightly down from the 18% reported in the previous survey.

Confidence in the banking sector has remained robust, with 36% of respondents being more optimistic about the overall business situation in the sector and the balance reporting unchanged sentiment levels. This result remains similar to that reported in the previous survey. Additionally, respondents from the banking sector reported an increase in business volumes over the past 6 months and remain bullish about the next 6 month period with 64% expecting further increases in activity. It appears that this increase is expected to stem primarily from commercial rather than retail customers. Growth in net interest as well as non-interest income has continued to be reported in this survey. This growth is driven mainly by increased trading in commercial banking activities. 82% of respondents have reported no significant change in non-performing loans, similar to that reported in the previous survey. Furthermore, although total operating costs have continued to increase, a net balance of 55% of banking respondents expect to report an improvement in profitability going forward.

Within the insurance sector, 36% of firms reported increased volumes of business in the past 6 months, down from 75% reported in the previous survey. In fact, only 18% were more optimistic about the overall business situation in the sector during the past 6 months. With regards to premium income, a net balance of 36% of respondents expect an increase going forward (compared to 42% in the previous survey). On the other hand, there is a reported drop in net investment income. An increase in total operating costs was reported by 75% of respondents, driven mainly by increased levels of insurance claims as well as an increase in the average cost per claim. Staff turnover within the sector has increased with 55% of respondents indicating an increase in the past 6 months. Furthermore, 36% of firms also experienced increased levels of employment and 73% experienced increased payroll costs. Insurance companies are also reporting higher capital expenditure, particularly on IT systems as well as regulatory compliance.

Unlike their banking counterparts, 55% of insurance respondents have indicated a drop in profitability in the past 6 months, with 36% expecting the decline to continue over the coming 6 month period.

Asset management firms have reported no change in volume of business in the past 6 months and in fact, a net balance of 8% expect volumes to decrease going forward. Additionally, a net balance of 23% of respondents report to be less optimistic about future prospects. Furthermore, a net balance of 8% have indicated that income has declined, with 23% expecting further declines in the next 6 months. Notwithstanding this decrease in activity, over the next 6 months, 23% of asset management firms expect staff levels to increase albeit at a slower rate. Furthermore, 62% of respondents have reported an increase in operating costs in the past 6 months, driven mainly by increased levels of employment and therefore increased payroll costs.

Respondents were asked to evaluate Malta's overall competitiveness as a financial centre. The main issues highlighted related to the increasing burden of regulations and the difficulty in finding suitably qualified human capital, with some suggesting that employing non-EU nationals should be made easier. Some respondents also highlighted the need to increase custodian services in Malta. Sentiment was particularly negative in the asset management sector.

While the financial services sector is relatively healthy and buoyant, respondents feel that there are challenges and threats on the horizon. Costs are rising, especially those relating to human capital and compliance, while proposed changes to EU regulations appear to be on most firms' agenda, with many commenting that a onesize- fits-all approach would be a disadvantage to Malta's financial services industry.

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