Malta ratings barely impacted by greylisting – Fitch Ratings

Fitch Ratings did, however, note that the greylisting exposed foundational cracks in Malta’s AML framework. This requires the country to make changes to certain aspects of its system

In a recent report, Fitch Ratings has said that the Financial Actions Task Force’s (FATF) greylisting of Malta will have no immediate repercussions on the island’s ratings or those of its domestic rated banks.

Following the greylisting by the FATF, the Maltese government reiterated their intentions to up their AML efforts and get back on the whitelist.

In their report, Fitch Ratings reasoned the ‘contingency planning, combined with the banking sector’s sound credit metrics and its generally reduced risk appetite, will contain the overall impact of greylisting’.

“However, this is difficult to assess at this stage. Malta’s net FDI and portfolio flows are exceptionally large but highly distorted by special-purpose entities and their tax-planning activities.’

The fact that Fitch Ratings gave the operating environment for Maltese banks at ‘bbb’ could be an indication that the ‘A+’/Stable sovereign rating is not as great as it seems.

Reputational damage is also an issue, as this can decrease investors’ interest in the country, something the FATF highlighted through their decision. Considering Malta’s gambling industry contributes a massive 12% to the GDP, the companies’ financial security may be in jeopardy.

Fitch Ratings still insisted that ‘Malta’s international banking sector has inflated the country’s banking assets-to-GDP ratio’.

“Given that international banks almost exclusively conduct business with non-residents, their substantial downsizing over the past decade had no impact on the financing of Malta’s real economy. Malta reported strong GDP growth pre-pandemic, averaging 6.5% in 2015–2019.”

Interestingly, mixed evidence comes out of studies done on Panama and Iceland on how greylisting impacts capital growth.

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