An evaluation of the capital adequacy ratios in the Maltese banking sector, 1980-2000

Abstract

This dissertation seeks to take a historic look at the evolution of capital adequacy in the Maltese banking sector. The focus of the research was the period 1980 - 2000. The dissertation briefly describes the development of the local banking sector since the 1980s, and also outlines what were the main causes for these changes in banking. This is analysed both locally and in an international context. The dissertation also discusses the evolution of capital adequacy rules, with particular reference to the work carried out by the Basle Committee at the Bank for International Settlements. In this analysis the solvency ratio of both Bank ot Valletta and Mid-Med Bank (HSBC) were analysed over the period 1980 - 2000, and compared to the capital rules in force at that time, if any. Initially the findings of the research were somewhat contradictory: notwithstanding that the solvency ratios for both banks are in line with the statutory minimums, international rating agencies are still cautious when rating Maltese banks. Thus further analysis was required to reconcile this fact, given that banks are much more well capitalised now than they were 20 years ago. Following the discussion on the role of credit rating agencies in capital adequacy regulation, the dissertation deals with the likely impact ot EU membership on the local banking sector and what advantages, if any, this might bring.