Malta: An island apart

Malta does not want to be tarred with the same brush as Cyprus and is defending its credentials as an international business centre


It is an island in the Mediterranean and a member of the EU known for attracting foreign investment and corporate structures, but Malta, as its lawyers, businessmen and politicians are at pains to point out, is not Cyprus.

While the size of the Maltese banking sector is large compared with its GDP, many banks operating on the island have little connection with the local economy. Unlike its larger rival some 1,000 miles to the east, Malta, they assert, is not at risk of financial collapse.

In a Times of Malta article in March, Central Bank governor Josef Bonnici was quoted defending the Maltese banking sector. Bonnici said that banking assets of less than 300 per cent of GDP was within normal international limits and included a number of institutions that “virtually had no economic or financial links with the economy”.

“The problems facing Cypriot banks included losses made on their holdings of Greek bonds, whereas Maltese domestic banks have limited exposure to securities issued by the programme countries,” Bonnici added.

Malta’s largest bank is the Bank of Valletta, with a local franchise of HSBC second, together providing much of the core domestic banking work. The Central Bank’s annual report notes that the size of the core banking sector in Malta is only about two times GDP – much lower than the EU average.

Bank of Valletta’s chief risk officer Mario Mallia noted in Finance Malta’s April newsletter that the size of the banking sector in Malta is “manageable and can in no way be seen as being ‘too big to fail’”. He added that Maltese banks had little exposure to foreign economies.

While the international banking sector amounts to around six times GDP, Mallia said the contribution of these banks to the domestic economy was marginal.

Perceived wisdom

The island’s lawyers back up the bankers’ assertions.

“The fuse that made Cyprus blow was the fact that the two biggest banks’ balance sheets were also the two biggest banks in the local economy – that’s not the case here,” points out Aequitas founding partner Georg Sapiano.

Sapiano praises the “cautious” stance of the local branch of HSBC and says that if anything happened the bank would be able to absorb it.


“The big issue is perception,” says Ganado Advocates managing partner Max Ganado. “That’s the only risk I see. That perception tends to drive some national attitudes towards us – not in the EU but in some national governments. That’s something we need to work on because perceptions can be damaging.”

He says Malta’s history as a British colony and its location in the Mediterranean skew perceptions.

“The problem that Malta has is that because of its size, location and history it’s put in a category it isn’t really in,” Ganado adds.

“We’ve been quite picky in the type of business and clients that practices have taken on,” says Camilleri Preziosi partner Louis de Gabriele. “Malta’s strategy has always been to look at the long-term steady growth of our industry.”

Political continuity

One way in which Malta is like Cyprus is that it has recently gone through elections. In December 2012 the Nationalist government led by former lawyer Lawrence Gonzi, prime minister since 2004, was dissolved in a row over budget proposals.

In March the Labour party was elected to power with 55 per cent of the vote and Joseph Muscat took over as prime minister.

Ganado thinks the new government is a good thing for the island.

“The policies have remained the same – there’s not much change in direction,” he comments.

De Gabriele agrees. “Since Malta was launched as an international business centre there’s been bipartisan support,” he says. “There’ll be renewed energy with the new government.”

Ganado adds that the change in government meant Malta was a bit slow in responding to criticisms that it was like Cyprus, but believes the government has now got its message clear. The Labour government has maintained the stance held by its predecessor on issues such as keeping low tax rates while pledging to work with other countries on information-sharing.

“We’re not a tax haven and we’re not worried in terms of the progress that’s being made in trying to control abuse because abuse happens when you can’t get the information, not when you can,” argues Ganado.

Geraldine Noel, managing partner at recently established firm Acumum, says Malta remains an attractive jurisdiction for financial services businesses including fund administrators, custodians and funds themselves.

“There’s been a big increase in financial services providers coming to the island, moving from the traditional tax havens onto a more legitimate footing in Malta,” she says. “We’re handling a few fund administrators and so forth moving from the Caribbean.”

Malta’s position as one of the key EU jurisdictions for funds has been growing over recent years. As a result, the implementation of the alternative investment fund managers directive (AIFMD) is on lawyers’ agenda right now. The Maltese Financial Services Authority is undertaking a consultation to clear up uncertainties over how the legislation will play out on the ground.

“We’re finding that the world is splitting into two: those who are moving away from Europe because of AIFMD and those planning to align,” says Ganado. “Our sense is that in the short term it’s going to be bad for Europe, with lots of Americans and Asians walking away. Eventually people will realise that it’s useful to work within the system rather than walk away from it.”

Ganado says this problem is EU-wide rather than restricted to ­Malta, but hopes the island’s flexible and approachable regulatory system will be an attraction.

Beyond funds

Malta is not only about funds. Other sectors are performing well too, with lawyers picking out areas such as securitisation finance, capital markets and aviation as growth sectors.

“There’s quite a lot of interest in setting up aviation operating companies here,” says Noel.

“We’re seeing it gaining momentum and there’s good progress in that area,” notes Ganado.

De Gabriele agrees that aviation is a growth sector, but thinks it is more long-term.

“We’ve done at least two aviation finance deals this year,” he says, adding that the industry has potential for growth outside the core work of financing and registering aircraft.

“Once you start getting aircraft registered here that creates a multiplier effect with charterers and brokers setting up in their wake.”

de Gabriele
de Gabriele

Similarly, de Gabriele says the more mature e-gaming market is generating its own sub-industries, with software development, gaming platforms and similar ancillary businesses being set up.

Another area of growth, following last year’s joint venture between the Irish Stock Exchange and the Malta Stock Exchange to create the European Wholesale Securities Market (EWSM), is capital markets. Ganado partner Richard Ambery admits that transactions are still on the fringes but says a start has been made.

“We’re a small player in a truly global market,” he admits. “We’re picking up bits and pieces from a deep sea bed. Two or three years ago there were no real international capital markets transactions happening here. Every transaction we do is a great triumph.”

But Ambery believes that with time Malta can break into the market alongside more established players such as Ireland and Luxembourg. The oil sector is one he thinks has potential, as oil companies from regions such as the Nordic countries look for new sources of finance.

A calm legal market

While there are plenty of new areas of work for Maltese law firms, the legal market itself has seen little change. There was a small merger between Hugh Peralta & Associates and Iuris Malta in January, and Acumum launched in autumn 2012. Noel says the firm is seeking to target international business and its staff, including barristers, solicitors, accountants and other professionals have experience practising in a number of jurisdictions.

At Ganado, Malta’s largest firm by size, the major change was February’s rebranding from ‘Ganado & Associates’ to ‘Ganado Advocates’. Ganado says this came along with a move into a single building and is part of ongoing efforts to develop a brand and ensure the firm’s succession. The firm also rationalised its practice areas into three main “pillars” – corporate, shipping and financial services – which Ganado thinks helps the focus of the firm’s lawyers. The firm is now likely to continue to grow at a slower pace.

For Camilleri Preziosi, de Gabriele says the future seems bright. The firm almost doubled its partner count this year when it made up three associates, bringing the number of partners to seven. De Gabriele thinks Malta’s law firms will continue to thrive independently, with international firms unlikely to move in due to the price model on the island.

Despite this, Ganado reports an increasing number of approaches by and meetings with European firms in recent months.

Sapiano also predicts a stable legal market, with no radical developments. “It’s not rocket science – we’re not doing huge M&A here,” he says.

But he adds that the efforts made this year will pay off for Malta.

“In 2014, when Cyprus is an event of the past, Malta’s credentials will rise,” he concludes.

Key figures: Malta

GDP (Q4 2012): $2.2bn

Inflation (2012): 2.4%

Population (2011): 415,700

Life expectancy at birth: 84

Unemployment (Apr 2012): 4.3%

Source: World Bank, Eurostat, National Statistics Office of Malta