Mortgages grow, but banks see fewer consumer loans taken out

Malta’s strong economic performance and low unemployment is allowing more people to become homeowners and afford mortgages

The rate of outstanding non-performing loans dropped by 18.4% but this was also attributable to a write-off exercise at the end of 2016

Lending patterns have changed slightly, a study of banking data by the Central Bank shows. While Malta’s strong economic performance and low unemployment is allowing more people to become homeowners and afford mortgages, in contrast many Maltese are also making less use of bank loans to fund consumer purchases.

Household mortgages grew in 2016 to 46% of banks’ total credit portfolio, up from 43% the year before, thanks to stable job conditions that ensure borrowers are creditworthy and suffer from lower risks to finance their house purchases.

In contrast, resident consumer credit contracted, down from 7% of total residents loans to 6.5%, a sign that households are funding big ticket-purchases through savings rather than credit, or alternative sources such as hire purchase.

According to the Central Bank’s bank lending survey, Maltese banks experienced an increase in mortgage demand in 2016 thanks to stronger consumer confidence, low interest rates, and “buoyant housing market conditions”.

Even lending to resident non-financial corporates contracted further, by 5.1%, mainly through lower lending to the public sector. 

Resident private non-financial corporates also secured less bank credit, a 3.4% reduction, which was offset by a strong increase in bond issues, indicating a shift away from banking financing towards market financing. 

This was partly driven by high liquidity needs and a search for lower funding costs. Indeed, net bond issues on the stock exchange in 2016 increased by 25% to €950 million.

Banks also reported improved loan performance. 

The rate of outstanding non-performing loans dropped by 18.4% but this was also attributable to a write-off exercise at the end of 2016. 

Resident customer deposits grew at a much slower pace, by 7.3% as against 12.3% a year earlier, although interest rates on deposits are very low.

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