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Lending to private, parastatal sector
declines in August
A sharp increase in the net
foreign assets of the banking system was the main factor contributing
to monetary growth in August. Domestic credit, on the other
hand, contracted as the banking system’s net claims on
the government fell following a new issue of government stocks.
Lending to the private and parastatal sector also declined in
August. Consequently, broad money, M3, which consists of currency
in circulation and residents’ deposits with the banking
system, rose moderately, expanding by Lm7.8m, or 0.3 per cent.
The build-up in narrow money, M1, which was reported in July,
was completely reversed in August. A contraction of Lm15.8m,
or 2.4 per cent, was recorded, with the annual rate of growth
dropping from 9.1 per cent to three per cent as a result. Demand
deposits largely accoun-ted for the decline in narrow money,
shedding Lm14m, as the increase in corporate current account
balances reported in July was entirely reversed. To a limited
extent, the auction of government stocks on the primary market
at the beginning of the month may explain the drop in such deposits.
Meanwhile, currency in circulation, which is the other component
of narrow money, decreased by Lm1.8m, the first fall in six
months.
Quasi-money, which is the sum of savings and time deposits,
expan-ded by Lm23.6m with the annual growth rate accelerating
to 8.4 per cent. Strong growth in foreign currency deposits
drove up savings deposits, which added Lm14.4m in August. Corporate
foreign currency deposits increased strongly, with international
trading companies and one fund management company accounting
for a large part of the rise. In contrast, as in July, growth
in time deposits was relatively muted, with fixed account balances
increasing by Lm9.2m, or 0.7 per cent.
Domestic credit contracted by Lm22.7m in August with the ann-ual
rate of credit growth dropping by a full percentage point to
8.8 per cent. The issue of government stocks early in the month
and the timing of government wages and salaries probably contributed
to a reduction in net claims on government, which fell by Lm13.1m.
Meanwhile, claims on the private and parastatal sectors contracted
for the fourth consecutive month,
shedding Lm9.6m. Consequently, their annual rate of growth decelerated
further, to 5.5 per cent. Claims on public sector enterprises
and on the private sector decreased by Lm3.7m and Lm5.9m, respectively.
The drop in bank credit was spread across most economic sectors,
but was especially significant in the case of lending to the
tourism industry and to the wholesale and retail trades. In
contrast, credit to the construction industry and to the personal
sector expanded.
As noted earlier, the net foreign assets of the banking system
rose strongly in August, putting on Lm33m, or 3.3 per cent.
At Lm1,027m they stood 3.7 per cent above the year-ago level.
The Central Bank’s holdings expanded for the second consecutive
month, rising by Lm11.7m as the Bank bought foreign exchange
from the rest of the banking system. As a result, the Bank’s
net foreign assets recovered from their trend decline and returned
to the level recorded a year earlier.
The net foreign assets of the remainder of the banking system
expanded by Lm21.3m, with those of the domestic banks, including
their international banking subsidiaries, rising by Lm6.2m,
or 5.3 per cent. The seasonal rise in tourism receipts probably
contributed to this increase. Meanwhile, the net foreign assets
of the other international banks added Lm15.1m, with four institutions
accounting for most of this amount.
Further economic and monetary information can be obtained from
the website of the Central Bank of Malta at www.centralbankmalta.com.
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