Issue link: https://maltatoday.uberflip.com/i/860911
8 MATTHEW VELLA BUSINESS is booming in Malta's property sector: the towering cranes dotting the skyline mark the map at every inch gained by the construction industry. But watchful eyes at the Central Bank are mindful of what would happen if property prices were to drop, and how this would affect Malta's domestic banking sector. In their latest Financial Stabil- ity Report, Central Bank experts have measured what would hap- pen when property prices fall, dropping the value of collateral that accompanies loans, as well as a corresponding increase in defaulters – or non-performing loans (NPLs). Two scenarios were considered: a 7.5% shock based on historical deviations, and a worst-case sce- nario of a 30% drop. Firstly, the drop in prices would fully translate into lower prop- erty-related collateral values. Remember that when ordinary home buyers take out loans, the vast majority of collateral for the banks is the house itself. The CBM's test actually excludes non- property loans from its exercise. The "stress test", as the exer- cise is called, assumes that when the collateral values decline, the banks will have to set aside more money for an increase in NPLs, as they prepare to take the hit for the money they loaned out on collateral that now has a lower value. Since property prices are crash- ing, so then will property owners' wealth be on the downside, since their asset value is now decreas- ing. These negative wealth effects are likely to increase non-per- forming loans, as mortgages now become more relatively expensive to the value of their homes. Tier 1 capital rules require banks to have a core capital that is substantially higher than the value of assets held by loans: Malta's core domestic banks have substantial reserves that are 13% over and above these asset values. According to the Central Bank, under a 7.5% price drop, NPLs would increase by 4%. As banks will have to rely on their capital reserves, this would knock off less than 1% of the banks' capital re- serves. Under the 30% scenario, NPLs would increase by 18% and banks' capital would be eroded by some two percentage points. "Results show that core domes- tic banks at the aggregate level would comfortably withstand the assumed shocks, both under the baseline (7.5%) and adverse sce- narios (30%)," the Central Bank says in its report. "During 2016, core domestic banks continued to improve their loss absorption capacity by in- creasing loan loss provisions as well as improving their capital stance. Given the increase in loan loss provisions, the impact of the test on banks is milder." The Central Bank said that Mal- tese banks' risk outlook remains similar when compared to the 2015 stress test, where the prob- ability of other scenarios – a dete- rioration in credit quality, repeat- ed deposit withdrawals – were considered to be low. "Core domestic banks are in a better position to absorb poten- tial losses following an overall in- crease in loan loss provisions and strengthening of capital ratios. The stress tests reveal that the banking sector is resilient to the different scenarios." maltatoday, SUNDAY, 13 AUGUST 2017 News THERE has been a lot of re- search into how long antibiotic courses should be to determine the shortest possible length of course needed to completely kill all bacteria. The World Health Organi- sation says that if you are be- ing treated for an infection, the kind of antibiotics your doctor prescribes and the length of the course should be based on the best evidence. Feeling better, or an improvement in symptoms, does not always mean that the infection has completely gone. Your doctor has had years of training and has access to the lat- est evidence – so always follow their advice. But evidence is emerging that for some infections shorter courses of antibiotics may be just as effective as longer courses. Shorter treatments make more sense – they are more likely to be completed properly, have fewer side effects and also likely to be cheaper. They also reduce the ex- posure of bacteria to antibiotics, thereby reducing the speed by which the pathogen develops resistance. But Prof. Martin Llewellyn, of the Brighton and Sus- sex Medical School, argues that there is little evidence that failing to complete a prescribed antibi- otic course contrib- utes to antibiotic resistance. "The idea that stopping antibi- otic treatment early encourages antibiotic resistance is not sup- ported by evidence, while tak- ing antibiotics for longer than necessary increases the risk of resistance. Without explicitly contradicting previous advice, current public information ma- terials from the US Centers for Disease Control and Prevention (CDC) and Public Health Eng- land have replaced 'complete the course' with messages advocat- ing taking antibiotics 'exactly as prescribed'." The origins of this well-worn advice stems from a treatment first administered in 1941, when Howard Florey's team treated Albert Alexander's staphylococ- cal sepsis with penicillin, eking out all the penicillin they had (around 4g, less than one day's worth with modern dosing) over four days by repeatedly recover- ing the drug from his urine. When the drug ran out, the clinical improvement they had noted reversed and he subse- quently succumbed to his infec- tion. There was no evidence that this was because of resistance, but the experience may have planted the idea that prolonged therapy was needed to avoid treatment failure. Dr Michael Grosso, chairman of the depart- ment of pediatrics and chief medical officer at Huntington Hospital in Huntington, New York, has propped up the in- sight of Llewellyn's re- search. "The reason there are no six- or eight-day reg- imens is that all of these protocols started out as educated guesses: very few studies have ac- tually been performed to define 'minimum necessary' durations for the treatment of infections. Of course, where there are ex- ceptions (such as with strepto- coccal sore throat) the literature should drive our practice. Ad- ditionally, we should wonder why, biologically, a severe skin infection should need exactly the same duration of treatment as the mildest version of the same condition. Not only is evidence for this approach lacking, but the practice doesn't really make con- ceptual sense." Countering, Marc Mendelson, Professor of Infectious Diseases at the University of Cape Town says that all the evidence so far is largely anecdotal, based on the fact that "if you ask almost anyone, they'll tell you that they don't generally finish a course of antibiotics." But an extremely large percent- age of people taking the antibi- otics also didn't have a bacterial infection in the first place. And doctors do not necessarily know who had a bacterial infection – and therefore needed an antibi- otic – also had a return of their symptoms which required more antibiotics. "Despite the opinion of many experts that stopping antibiot- ics when the patient feels better may reduce the overall use of an- tibiotics and therefore reduce de- velopment of resistance in a safe way, this advice remains just ex- pert opinion – the lowest form of evidence," Prof. Mendelson says, insisting on proper clinical trials – not debates – when reopening the argument on antibiotics. Does stopping a course of antibiotics early lead to antibiotic resistance? MaltaToday explains Making sense of the news ? Send us your subjects on dailynews@mediatoday.com.mt WE ARE RECRUITING Are you looking for a career in the following areas? Visit our careers page to find out more! landsauthority.org.mt/careers FINANCE HR IT LEGAL CUSTOMER CARE +MORE ENFORCEMENT Lands Authority St. Sebastian Street, Valletta C M Y CM MY CY CMY K A nugget of medicinal wisdom from the 1940s What would happen in a property crash? There's a test for that