Guest contribution by Rudolph Psaila, Chairman FinanceMalta

There is no doubt that the pandemic has hit the world in an unprecedented and forceful way. No country, no economy, no industry has escaped the clutches of its effect – the difference lies only in the extent or severity of the pandemic on the different sectors.

Malta’s financial services industry has so far weathered the storm that has had a huge impact on the hospitality and tourism industries.

The Government has launched several initiatives to support the local economy and banks are playing a crucial role in this. The assistance, which local banks are providing to businesses in the light of the disruption caused by the COVID-19 pandemic, is imperative. To address the impact on banking, financial institutions must craft a strategic response across the immediate-, short- and medium-term, by adopting the appropriate digital technology enablers and innovations underpinned by agile delivery models.

It is also important that the capital markets continue functioning in an orderly manner by providing liquidity to the system and thereby continue enhancing market confidence. The prices of securities trading on the Malta Stock Exchange have fallen, and there are a number of investors who are actively trying to exit the market.

However, these are counter-balanced by a number of investors who are viewing the current market as an opportunity to invest in securities at discounted prices. Nevertheless, the drop in the prices of listed securities in Malta has been less than the drop registered in foreign markets. In such circumstances, the MFSA has acknowledged the fact that since the full implication of the COVID-19 pandemic on their business issuers’ businesses may not be easy to predict, some company announcements may seem vague.

Furthermore, FinanceMalta appreciates the Regulator’s reiteration that in uncertain times such as these, proper disclosures by issuers are an important way of providing investors sufficient information to help them make proper and informed decisions.

Auditors are consequently expected to pay more attention to the uncertainty surrounding events or conditions which may cast significant doubt upon a company’s ability to continue as a going concern. In this regard, the COVID-19 pandemic may also impact publication schedules.

From an insurance perspective, Malta is witnessing a hardening of the insurance market particularly in financial lines and property and reductions in capacity for lines like cyber and professional indemnity markets.

This is partly attributable to certain insurers withdrawing operations completely or ceasing to underwrite certain lines of business and also due to insurers becoming much more prudent (and selective) with regard to where they deploy their capacity.

The uncertainty and economic pressures brought about by COVID-19 will, in all likelihood, further exacerbate the situation which includes an added restrictor at the level of companies and that is their requirement to have available cash to see them through this challenging time. This situation has resulted in an increase in enquiries for setting up captives in Malta; however we now need to see whether the capital restrictor could make this less attractive or delay this until the situation becomes clearer. It is probably also worth highlighting that as a domicile Malta has managed to establish itself as an onshore hub, not just for the captives but also for other types of niche underwriters.

These include companies operating in the run-off space who tend to thrive in this sort of environment because they would typically be on the lookout for distressed portfolios and companies.

FinanceMalta is pleased to note the Government of Malta’s commitment and support towards the regeneration of the economy following the impact of COVID-19 on the country.

On 8 June, Prime Minister Dr Robert Abela announced the fourth financial package aimed at reducing business costs, enhancing domestic demand; and supporting employment, which, together with the lifting of restrictions, is expected to achieve positive results.

Nevertheless, it is important that companies continue focusing on finding solutions to this complex scenario and to treat this as an opportunity to reposition their business and to focus on innovation to revamp, if necessary, their existing models to adapt to the new norms.