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    CBM Reviews Financial Stability, Issues PSD Reporting & Lending Rules

    December 10, 2021

    The Central Bank of Malta (CBM) updated Directive No. 1 on the provision and use of payment services. The Directive implements the provisions of Titles III and IV of the revised Payment Services Directive (PSD2) and the revisions aim to optimize and simplify the reporting process and the standardized template. Furthermore, the amendments will concentrate on incidents with significant impact to payment service providers and will improve the relevance of the information to be reported. The changes will remove unnecessary steps from the reporting process and reduce the reporting burden for payment service providers. The amendments will come into force as of January 01, 2022. CBM also published an updated version of Directive No. 16 on borrower-based measures as well as the Interim Financial Stability Report, which assesses developments in the domestic financial system during the first half of 2021.

    Directive on borrower-based measures

    This update mainly reflects changes emanating from the transitional provisions that have now come into force as well as the feedback received from banks. The changes include certain drafting refinements and clarifications, with the following being the key amendments to Directive No. 16:

    • Amendments to the definitions for both Category I and II borrowers to clarify that borrowers falling under these two categories are not only limited to those borrowers purchasing a residential real estate property but also include loans for the purpose of construction, restoration, improvement and/or finishing of an residential real estate. In this regard, adjustments to the definition of the terms loan and residential real estate loan have also been affected for consistency purposes.
    • Amendments to the definition applicable only to Category I borrowers have been made in cases where additional loans taken on the same primary residence with an outstanding residential real estate loan, solely for the purpose of construction, restoration, improvement and/or finishing the residential real estate property but excluding independent units, are also classified under Category I, provided that there are no other outstanding residential real estate loans falling under Category II. It was further clarified that the above requirements are also applicable in case of remortgage loans.
    • New definitions have been inserted for the terms independent units and remortgage loan.
    • Minor amendment to the term borrowers in order to widen the scope to prospective borrowers.
    • Reference to the phasing-in arrangements of the loan-to-value at origination ratio has been removed and instead reference is only made to the fully operational 75% loan-to-value at origination ratio.

    Interim financial stability report

    The financial stability report highlights that profitability of banks rose mainly due to lower loan-loss provisions, reversing slightly the extraordinary provisions reported in 2020. Credit to resident private corporates advanced at a slower pace, reflecting the slowdown in demand for loans under the Malta Development Bank COVID-Guarantee Scheme. The report also shows that the banks' healthy capital and liquidity positions enabled them to continue supporting the economy coupled with a number of measures including moratoria. Asset quality remained in check with the overall non-performing loan (NPL) ratio unchanged at 3.5%, as the increase in NPLs following the expiration of moratoria was minimal. However, loan exposures with forbearance measures increased further, though a large part of these loans were reported as performing. The stress tests and sensitivity analyses further confirm that the banking system remains resilient to a wide range of possible economic outcomes. This edition of the Interim Report also features a box on the latest developments on the uptake of moratoria, as well as a special feature on the first attempt by the Central Bank of Malta to quantify the financial systems' exposure to climate-sensitive sectors.


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    Effective Date: January 01, 2022 (Payment Services Directive)

    Keywords: Europe, Malta, Banking, PSD2, Payment Service Providers, Credit Risk, Borrower-based Measures, Financial Stability Report, RRE, Lending, Proportionality, Reporting, Basel, CBM

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