MFI contribution to Euro expands
Contribution to euro area monetary aggregates and counterparts
The Central Bank of Malta have said that the contribution of resident Monetary Financial Institutions (MFIs) to the euro area broad money stock (M3) expanded by €81.7 million, or 0.8%, in September to €10.3 billion. Nonetheless, the annual growth rate declined slightly, reaching 6.3% in September, from 6.4% in August.
The month-on-month increase in M3 stemmed entirely from a rise in intermediate money (M2), which went up by €81.9 million, or 0.8%. This was marginally offset by a decline in marketable instruments. A drop of €0.2 million, or 0.1%, in the latter reflected a fall in shares issued by money market funds resident in Malta.
Growth in M2 was driven mostly by the narrow money component (M1), which expanded by €49.4 million, or 0.8%. Narrow money growth was entirely attributable to an increase in overnight deposits, which expanded by €50.4 million, or 1.0%, driven by a rise in balances belonging to households and non-bank financial intermediaries. Conversely, currency issued dipped slightly. Overall, the annual growth rate of M1 remained unchanged at 11.6% in September.
During September, deposits with an agreed maturity of up to two years, which also form part of M2, expanded by €27.4 million, or 0.7%. This stemmed entirely from an inflow of funds belonging to residents of other euro area countries, mainly private non-financial companies (NFCs). Similarly, deposits redeemable at a notice of up to three months, the remaining component of M2, increased, mostly because of a rise in private NFCs’ holdings. Overall, intermediate money grew by 6.6% on a year-on-year basis, down from 6.7% one month earlier.
Turning to the counterparts of M3, credit to euro area residents contracted by €44.8 million, or 0.3%. The annual growth rate of credit turned negative, reaching -0.9% in September, down from 6.2% in August. This swing also reflected the sharp rise in credit to euro area residents between August and September 2011.
Among the counterparts, credit to general government declined considerably, offsetting an increase in credit to the remaining sectors of the economy. The former decreased by €96.6 million, or 2.5%, mainly as a result of lower bank holdings of euro-area government securities. Conversely, credit to other sectors expanded by €51.8 million, or 0.4%, fuelled by loans extended to households and private NFCs. Bank holdings of securities issued by non-bank financial intermediaries and NFCs resident elsewhere in the euro area also rose.
The external counterpart of M3, which reflects transactions between MFIs residing in Malta and residents of countries outside the euro area, contracted by €1.4 billion, or 13.4%. This principally reflected a considerable decline in foreign assets, in particular in loans granted to other MFIs outside the euro area and also in holdings of non-euro area government bonds. At the same time, liabilities to non-residents expanded marginally.
The “other counterparts” category, which is negatively related to M3, fell by €1.5 billion, or 9.3%, in September, driven by a decline in other liabilities (net). In turn, this mainly reflected an increase in claims on other banks in the euro area. A decrease in longer-term financial liabilities also contributed, though to a much lesser extent. In contrast, there was a partially offsetting rise in central government deposits.
Transactions with Maltese residents: deposits and credit
In September, deposits belonging to residents of Malta and held with resident MFIs expanded by €33.2 million, or 0.4%, over the previous month (see Table 2). Annual growth remained unchanged at the rate of 5.7% recorded in August.
Overnight deposits rose by €45.9 million, or 0.9%, in September driven by an increase in balances belonging to households and non-bank financial intermediaries. The rise in balances may reflect the redemption of a significant volume of Malta Government stocks that matured towards the end of the month. Deposits redeemable at up to three months’ notice also rose, putting on €5.4 million, or 3.9%, mostly in the form of higher balances belonging to private NFCs. Conversely, deposits with an agreed maturity of up to two years contracted by €18.2 million, or 0.5%, due to a decline in non-bank financial intermediaries’ holdings.
Credit issued by resident MFIs to residents of Malta contracted by €32.3 million, or 0.3%, in September. As a result, the annual growth rate decelerated to 3.8% in September, from 5.2% in August.
The drop in total credit reflected a contraction in credit to general government, which decreased by €69.5 million, in line with the redemption of government securities that was mentioned earlier. Consequently, the annual growth rate of credit to general government slowed down to 6.4%, from 9.2% in August.
Conversely, credit to residents outside general government increased by €37.3 million, or 0.4%, because of a rise in loans granted to households – mostly to finance house purchases – as well as to private NFCs in the construction and real estate activities sectors. Nonetheless, the annual growth rate of credit to residents other than general government eased to 3.1% in September, from 4.1% in August, given that credit had risen even more strongly between the same two months of 2011.
Net Foreign Assets of Maltese MFIs
Net foreign assets held by resident MFIs increased by €66.4 million, or 0.6%, in September, as a considerable decline in foreign liabilities exceeded a drop in corresponding claims (see Table 2). The former stemmed from a lower level of deposits belonging to non-residents. The drop in foreign claims primarily resulted from lower holdings of securities issued by non-residents and a decline in loans granted to non-residents. Overall, the annual growth rate of net foreign assets gained some momentum, reaching 9.5% from 8.3% one month earlier.
Bank lending and deposit rates
In September, the weighted average interest rate paid by resident MFIs on all deposits belonging to Maltese households and NFCs edged down by one basis point, reaching 1.40%.
Meanwhile, the weighted average interest rate charged by MFIs on outstanding loans to resident households and non-financial companies rose by two basis points, reaching 4.35%.
The average deposit rate was one basis point higher than in September 2011, while that charged on loans was five basis points lower than a year earlier.