Malta tops list of EU candidates in money held outside credit institutions

- credit cards for 19 in 20 Maltese

According to the European Central Bank’s Blue Book on banking systems in EU candidate countries, Malta has more money in circulation outside credit institutions per capita than any of the other EU candidate country.

While, according to the ECB, such holdings in Malta amount to 2,634 Euros per head, Cyprus the closest runner-up-only held 920 Euros per head. Malta also leads with 34 ATM transactions carried out per head in 2001, with an average value of 45 Euros per transaction.

Malta was also found to have a large proportion of debit and credit cards, which have seen dramatic growth recently. The ECB cites that already over 344,000 cards are held by the public - about 19 cards for every 20 inhabitants - with the younger generation holding the bulk of them.

The data was divulged in the ECB’s Blue Book, a review appraising the banking sytems of the EU candidate countries. The report comprises a description of payment and settlement systems in the 12 accession countries, including the related statistical data.

ECB head Wim Duisenberg stressed that the importance of payment and securities settlement systems in modern economies has been growing considerably over the past decades. "Central banks not only face the task of steering the monetary conditions in the economy, but also have a direct interest in the prudent design and operation of the payment and settlement systems processing their currency. Payment systems play a pivotal role in a modern economy, as most economic activity relies on them," he said.

Different structures

An official of the ECB said that "The variety and structure of payment and securities clearing and settlement systems differ from country to country, both for historical reasons and on account of differences in the legal, regulatory and institutional environment. Furthermore, payment and settlement systems are not static in nature. They are dynamic systems which have evolved over time and which will continue to do so. In view of EU accession, a large number of reforms are taking place in the countries concerned. It is one of the priorities of accession countries to develop modern, robust and efficient market infrastructures which serve the needs of their economies, facilitate the development of safe and efficient financial markets and allow a smooth integration into the Single Market."

As payment and securities clearing and settlement systems are part of the market infrastructure, many projects in accession countries are related to them. For example, real-time gross settlement (RTGS) systems are being introduced, and progress has been made towards implementing systems and procedures allowing the introduction of delivery versus payment (DVP) mechanisms and the effective management of collateral. "The aim is twofold: first, to ensure that accession countries’ payment and securities clearing and settlement systems infrastructure is sufficiently robust to avoid systemic risks and possible contagion effects across the EU in the event of problems. Second, to ensure that accession countries’ domestic infrastructures are efficient enough to allow local market participants to compete with other EU market participants."

The ECB Blue Book revealed that most infrastructures and procedures have been or are being brought into line with EU requirements, a process which often involves substantial investment.

The information in the accession country Blue Book shows the extensive restructuring work that has been undertaken in payment and settlement systems in Malta and other accession countries in recent years. It also provides information useful in assessing whether further preparatory work needs to be undertaken in these countries in order to ensure their smooth entry to the EU and the smooth functioning of their payment and settlement systems in an EU environment.

Financial systems

"When compared with other financial systems, the number of participants in Maltese payment systems and the volumes that flow through them are relatively small. So, much of the focus when upgrading the payments infrastructure has thus been devoted to increasing the efficiency of the system via the dematerialisation and electronic transmission of payment instruments," the official continued.

"The fact that cheques still occupy a significant share of the market in volume terms, has forced the pace of the electronic development of domestic payment systems to a point where there is now a virtually dematerialised cheque clearing system."

The Blue Book observes that it is encouraging to note that rapid progress has been made in the use of other forms of payment, such as credit transfers. The continued expansion in the use of credit and debit cards has helped to achieve greater flexibility in the way that retail payments are handled.

Almost there

"More has to be done when it comes to having a clearing system. Various banking directives over time have brought the prudential supervision of banks in Malta virtually in line with EU requirements. According to the Central Bank of Malta Act of 1967, the Bank is empowered to promote the establishment of a bank clearing system and to provide facilities for it."

Other than this generic statement, however, there is no specific legislation concerning the regulation of and criteria for accessing the payment system. These are determined by the Rules of the Malta Clearing House which is chaired by a Central Bank of Malta official. It is envisaged that this shortfall will soon be remedied since the Central Bank of Malta Act of 1967 will be amended to provide for the setting up, oversight and regulation of payment systems and for reducing systemic and legal risks. Since the beginning of 2002 the MFSC has been the competent authority to oversee certain financial aspects and institutions.

Payment Systems Group

The blue book notes the existence of the Payment Systems Users’ Group. This is composed of the four licensed Credit Institutions providing services to residents, the MSE and the Central Bank of Malta. The Group has to date discussed the various EC Directives concerning payment and securities settlement systems, electronic payment instruments and cross-border payments in view of their adoption in Malta.

"Discussions have also covered the European Code of conduct for electronic payments, finality and other issues related to the field of payments. Cheques are still the most widely used means of payment." It is estimated that 9.8 million cheques were drawn in 2001, the equivalent of 25 cheques per person for that particular year. The total value of these cheques was Lm2.6 billion Maltese liri.

Credit cards

Credit and debit cards have gradually gained in popularity in Malta as a means of payment over the past ten years. However more recently growth has been dramatic and already over 344,000 cards are held by the public (about 19 cards for every 20 inhabitants), with the younger generation holding the bulk of them.

"The debit card is more popular than the credit card in Malta, as is the case in most countries. In fact, while at the end of 2001 there were around 249,000 debit cards, the figure for credit cards was just 94,000," The ECB official said. Over 13.6 million transactions were effected by means of debit cards for a total value of around Lm247 million (€ 622 million).

By the end of 2001 there were 139 ATMs in Malta, and their use is gaining in popularity every year. In fact, the volume of transactions effected using ATM machines almost doubled during 2001 compared with the previous year: in 2000 there were 7.5 million ATM transactions and in 2001 there were 13.6 million, with a total value of MTL 246.8 million (617 million).

MaRIS Settlement System

A new development in the field of payments is the introduction of MaRIS, the Malta Real-Time Interbank Settlement System. The system is to be used for the same-day real-time settlement of interbank obligations and customer payments. It will be operated by the Central Bank of Malta and managed by an association of participants such as the banks and the Malta Stock Exchange.

The system will accept only credit transfers with same-day value in Maltese liri between participants.

These can originate both from customer transfer orders or payments and from any other interbank obligation and monetary policy operation, provided that the order is unconditional and irrevocable. This includes the settlement of obligations arising from participation in the Malta Clearing House and the Malta Stock Exchange.

Clearing house

The ECB points out in its review that there is no specific legislation concerning the clearing process for cheques in Malta. The system is based entirely on agreements, rules and regulations established by the Malta Clearing House. These rules specify the participants, the decision-making mechanism and associated voting rights, and the operational rules for the clearing of cheques drawn on the respective banks. The Central Bank of Malta has been given the necessary authority by the Central Bank of Malta Act to promote the establishment of a bank clearing system and to provide facilities for it. The Clearing House was set up in the early 1970s and its running costs are still borne in full by the Bank. The tasks involved in the processing of cheques through the Clearing House are shared between the participating institutions, with the Clearing House only facilitating the exchange of the instruments and the associated electronic information.

Developments which were recently welcomed in this area mainly concern the introduction of a new standard for the exchange of credit transfers in electronic format between the domestic credit institutions. The standard was implemented in December 2001 and is used by six participants. These are the five credit institutions offering retail services to residents, and the Malta Stock Exchange.