21/11/2025 09:21:00

Interim Financial Stability Report 2025

Strength in a shifting global landscape

The Central Bank of Malta has published its latest Interim Financial Stability Report covering the first half of 2025, highlighting the continued resilience of the Maltese financial system amid a complex global environment.

Global geopolitical risks continued to dominate, amid heightened uncertainty driven by new tariffs and ongoing conflicts. The recent trade agreements shifted concerns away from the near-term tail risks to the potential medium-term economic and financial impact. Inflation in the euro area moderated, prompting the ECB to ease further its monetary policy stance until June 2025. Malta's economy continued to outperform that of the euro area, supported by robust domestic demand, although recent indicators show some signs of moderation. Inflation in Malta edged up slightly during the first half of 2025, driven by food and tourism-related services, with projections indicating convergence to around 2% in 2026 and 2027. The overall risk outlook remains challenging, reflecting shifting tariff and peace agreements, together with persistent cross-cutting risks related to climate change, cybersecurity, and AI.

The domestic banking sector remained resilient, supported by strong capital and liquidity buffers, as well as sound asset quality. The findings are consistent with stress test results, which evaluate banks' ability to withstand extreme but plausible shocks to their solvency and liquidity standing, under different scenarios. Overall profitability declined, mainly due to lower net interest income and losses by foreign bank branches. Nonetheless, core domestic banks remained highly profitable, outpacing their European peers. Credit growth was primarily driven by resident mortgage lending and property-related loans to non-financial corporations, raising concerns about sectoral concentration risks.

The insurance and investment fund sectors recorded moderate growth. While liquidity conditions weakened slightly, reflecting reduced sovereign holdings, buffers remained adequate. The domestically-relevant insurance sector remained well-capitalised and supported by relatively stable liquidity levels, while premia increased for both life and non-life insurers. Investment funds leverage rose but remained limited as per the UCITS requirements.

The Report also includes four boxed articles. The first box examines the impact of CRR3 implementation on banks' risk-weighted assets. The second box presents a credit-risk based clustering of Maltese banks whilst the third article analyses the evolution of payment transactions by banks, payment institutions and e-money institutions, highlighting potential systemic effects. The last box explores linkages between economic growth and insurance premia of domestically-relevant insurers.

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