25 January 2006

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Business Today

The Palazzo Capua Today seminar

Upbeat description of the economy by HSBC chief

It was a speech which was not only upbeat, but reassuring in terms of the prospects of why devaluation was not on the cards, the value and presence of extensive liquidity in the country, the future of the Maltese economy and HSBC’s outlook on the future.
It also led to an interesting exchange between the speaker and George Schembri as MHRA representative, Green leader Harry Vassallo and veteran economist Karmenu Farrugia, the latter who declared that he was dumbfounded by the ‘overly’ positive outlook.
Shaun Wallis was the speaker at the Palazzo Capua Today seminar, hosted by the MediaToday group publishers of the MaltaToday and Business Today.
The former negotiator in the HSBC takeover of Mid-Med, Shaun Wallis was careful to declare in his preamble at the Palazzo Capua Today seminar that he was not an economist nor an accountant, nor a treasury dealer.
“I am a banker and have been for many years, and the views I will be sharing with you are those from HSBC’s perspective,” the bank’s CEO said.
The thirty minutes that followed illustrated the view as seen by HSBC and effectively portrayed a situation distant from the gloomy outlook many local economists attribute to the Maltese economy.
The HSBC CEO said in spite of its small size, Malta had a dynamic and diverse market economy.
Wallis talked about the global forces at work – including higher oil prices, longer life expectancy, migration of people and ‘wild cards’ like Avian flu, climate change and terrorist acts.
He insisted business needed to be a lot more flexible and quick to respond and adapt to changes whether positive or negative in order to survive.
He then went on to look at what he called Malta’s economic recovery from a banker’s perspective.
The HSBC CEO opined that Malta has an economy mainly based on tourism, manufacturing, property and growing financial services.
Malta has few natural resources apart from its people he reminded the invited guests at Palazzo Capua.
Wallis argued the patterns and sources of tourism have and will continue to change.
“Operators need to adapt and be innovative and they are. New opportunities have arisen in the cruise, conference and English school areas – just as others decline. Still – there has been improvement.”
He quoted third quarter results for 2005 from the MHRA Hotel Survey showing the hotel industry had enjoyed a "good" summer, with increases in occupancy and average room rates, leading to growth in profitability.
“This is what our customers are saying in all sectors,” he reminded his audience.
Turning to the financial sector, he emphasized that it was well placed to meet the country’s needs.
Then he came to the crunch of his speech.
“We, in HSBC, see from our own business there has been a continuing growth in wealth creation and money supply. This has come from a variety of sources but essentially positive economic activity.”
Wallis explained how pegging the Maltese lira to the euro had not dispelled thoughts of a devaluation. He said HSBC saw little risk of a devaluation.
“The only technical reason of significance for devaluing the currency would be a collapse in Malta’s foreign currency reserves, this is unlikely to happen, is not happening, in fact they are growing and will continue to grow and particularly as more domestic borrowers move into Euro.”
Wallis said that convergence of short-term interest rates will happen but it is a matter of timing, probably 2006 to early 2007 as Malta moves closer to the official fixing rate of the Euro, i.e. July 2007.
On the down side he mentioned the advent of the European single currency will result in local, financial services facing stiffer competition in banking and insurance from blow-ins on EU passports.
The market will open up – that is a major point of the EU and Euro – an open, common market leading to greater competition and consumer choice, he stated.
Reminding that FDI had been steady and positive he repeated what he said at the CHOGM seminar that Malta had a hard-working, educated workforce It also had very important English language skills and cultural affinity followed by cost advantages compared to main EU competitors.
Wallis said the country has the characteristics of strong entrepreneurialism, adaptability, competition, a good quality of life and accessible and commercially-minded government administration.
Though he admitted that property prices had increased by over 40 per cent since the year 2000, he asked to the consternation of some of those present, “should we be concerned?”
“No,” he said.
“A rise in property prices is a worldwide phenomenon in a low interest rate environment and anyway they were much lower in Malta than in, say, UK, Ireland, Spain, France and on a par with Italy. House prices are affordable by our criteria and no less than before. Loan to value ratios (51 per cent) are modest and loans are still relatively low. Bad Debt levels non-existent.”
He continued by stating that it did not appear that there is a bubble in the market and the economy is doing reasonably well to sustain these higher prices.
Wallis said HSBC being a large financial services organisation with a 280,000 customer base it had a much closer feel of the pulse of the economy and business community.
He revealed that HSBC has seen good growth in foreign exchange business and a significant increase in HSBC’s turnover.
Continuing he said that during 2005 HSBC experienced strong economic activity. And he added, they continued to experience good growth in customer wealth and in borrowing both on the personal side and for commercial customers.
He talked of HSBC’s bad debts at the lowest levels ever.
“Consumers seem to be more confident when taking out personal loans and using their credit cards for purchases and this is a healthy sign. It is highly likely that the increased equity that people have in property is also seen as a reassurance of their wealth and confidence in themselves and the economy.”
On cash flow, he had this to say: “Too many cash flow problems in our small economy are caused by people dragging their feet in paying what is due.”
At the end of his speech he announced that HSBC had conducted its own poll in January 2006 of 867 different senior executives to obtain the sentiment of corporate customers on how well the economy is performing and at how they rated their performance in 2005 when compared to 2004.
From the companies polled it resulted that about 39 per cent think the economy is doing reasonably well, with 45 per cent responding that the economy was more flat and only 16 per cent doing poorly.
When these companies were then asked to compare their business performance in 2005 with that of the previous year, 65 per cent said they did well or ok and in any event better than 2004 and that prospects looked good. 25 per cent said it was flat.
Shaun Wallis said that HSBC Bank Malta firmly believe in the potential of Malta's economy to continue to develop in a positive and sustainable manner.
Concluding he said, “While challenging times are ahead, HSBC looks forward to continue playing an active part in the improving development of Malta's economy and contributing to its success.”
Shaun Wallis was the special guest at the Palazzo Capua Today seminar held on Wednesday 18 January, 2005.
The next Palazzo Capua Today seminar will be held on the 22 March, and the speaker is leading anthropologist Prof. Jeremy Boissevain who will be making a presentation on the theme Malta: Taking stock after 50 years. Where to now?
To book please contact Gillian Bajada on gbajada@mediatoday.com.mt

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