Asset quality review : its impact on the banking system in Malta

Abstract

This dissertation explores the impact of the European Central Bank’s Asset Quality Review (AQR) on the Maltese banks which participated in this exercise. The study’s objectives were to examine the importance of the AQR on the banking system and in what ways banks prepared for such test; to uncover any hidden issues of the Maltese banks and see ways and ideas how banks will cater for them in the future; and to assess different concerns of AQR and analyse the lessons learned from such a test. The study was implemented by interviewing officials from the four Maltese banks that participated in the AQR test. The local regulator viewpoint was also obtained. The results indicate that the AQR was a very important assessment for the banks and so they needed to prepare for it well. As it was a very detailed assessment, banks’ data requirements had to increase as banks didn’t hold all that information. To address their issues, banks had to optimise their business model such as developments of the IT system. Although AQR improves transparency and maybe also investors’ confidence, it incorporates with it a huge amount of cost. As to conclude, one of the lessons learned for all banks was the importance of having high quality data.