Issue link: https://maltatoday.uberflip.com/i/1161128
29.08.19 3 MASSIMO COSTA BORROWERS are increasingly taking on larger property loans compared to their income, creating economic pock- ets of vulnerability if an economic downturn takes place, a Central Bank report said. In its eleventh Financial Stability Re- port for 2018, published on Wednes- day, the Central Bank found that al- most half of all housing loans were concentrated in the range of three to five times of borrowers' gross income. However, the share of loans within the five to six times gross income cat- egory increased through the period as- sessed in the report. is, the Central Bank said in a press release, indicates that some borrowers are increasingly taking on larger loans compared to their income, resulting in higher loan repayments, and possibly indicating increasing pockets of vul- nerability in case of a downturn. is, the Bank noted, "could be exac- erbated if credit standards are eased during an upswing - thus encouraging risky behaviour which could lead to a deterioration in the resilience of both borrowers and lenders to potential fu- ture shocks. In light of this, it said it had earlier this year issued Directive No. 16, which imposes limits on lenders with the aim of strengthening the resilience of lend- ers and borrowers against the poten- tial build-up of vulnerabilities which could result in financial losses both to lenders and borrowers stemming from potential unfavourable economic de- velopments. Studies conducted by the Central Bank of Malta indicate that the Direc- tive will only impact 2.7% of those buy- ing their primary residence and 13.2% of all buyers of residential property. "However, the Directive gives lending institutions sufficient discretion to en- able, where appropriate, some borrow- ers to provide lower upfront finance than the minimum prescribed in the Directive," the Bank said. A special feature of the Central Bank's report focused on banks' exposure to the real estate market, finding that that whilst house prices picked up recently, the monthly average repayment com- pared to the average wage was much more contained and below the levels reported in 2006-2007, when house prices grew at double-digit rates. The composition of the core domes- tic banks' exposure to the real estate market shifted considerably in the last 10 years, away from construction and real estate towards mortgages, which grew by 8.8% in 2018 or 0.6 percent- age points faster than in the previous year. Despite this increase, growth was still significantly lower than the dou- ble-digit growth rates recorded in the pre-2008 boom period, and it was still proportionate to nominal GDP growth. In terms of the wider picture, the report established that buoyant do- mestic economic activity continued to buttress the resilience of the financial system. Credit growth by core domestic banks accelerated whilst asset quality improved further on the back of low- er non-performing loans. Although still in line with other European peers, bank profitability weakened, largely re- flecting increased provisions, the Bank underscored. Despite the low interest rate environ- ment, net interest income from inter- mediation trended upwards owing to a larger loan book. e capital position of banks remained sound and within regulatory requirements, even follow- ing rigorous stress tests, and they con- tinued to operate with ample liquidity. e Central Bank of Malta added that it "remained vigilant for any emerging systemic risks, recommending that banks and other financial institutions continue pursuing prudent business models whilst at the same time pre- serving profitability through cost con- tainment and the exploitation of tech- nological enhancements." Borrowers taking on larger property loans compared to their income, report finds Central Bank financial stability report says higher repayments on housing loans could indicate increased vulnerability in case of economic downturn SMARTPHONES can now also be a digital banking hub with 'BOV Signatures', the latest addition to the BOV Mobile suite of servic- es that replaces the physical 'Securekey' currently used to log on to BOV Internet Banking and authorise trans- actions. With BOV Signatures you will be able to log on and au- thorise your internet bank- ing transactions by using this new feature through your smartphone. All you need to do is down- load the BOV Mobile Bank- ing App free of charge from Google Play Store or App Store to start using your BOV Signatures. Current BOV Mobile App users can already make use of this ser- vice, and users who have not logged on to the BOV Mobile App for some time will be prompted to update their ap- plication on first login. 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New digital internet banking securekey from Bank of Valletta