Finance Minister Edward Scicluna yesterday chose to skirt around a direct question by The Malta Independent  on whether he thinks the statement made by Prime Minister Joseph Muscat, that he "saved the banks from collapse", was true.

Replying to questions on TVM's Dissett some two weeks ago, the Prime Minister had said that "thanks to my pro-business intervention that soon after becoming Prime Minister I saved the economy from collapse, saved the banks from collapse and I will repeat that had we not intervened depositors would have lost everything." 

This had been followed by comments to the contrary by the Central Bank and other financial institutions when they were asked for their reaction by The Malta Independent on Sunday a few days later.

When asked yesterday whether the Prime Minister's statement could have certain consequences and could have damaged the reputation of Maltese banks, Prof. Scicluna chose to shrug off the seriousness of Dr Muscat's proclamation.

"Honestly I think it's a storm in a teacup. The point was that Enemalta was left in a state of near bankruptcy. What is bankruptcy? It's not paying your 25-year loan on time, or even interest, one day late. One minute late and you declare bankruptcy. Enemalta in December 2012 owed the German Development Bank millions and didn't have the funds to pay them. Because of the rescheduling with project vaults, Enemalta was saved, with the cooperation of the opposition at the time. That's the point that needs to be made. Bankruptcy sounds outlandish but it's simple. You don't pay your debt on time and you're bankrupt".

The Finance Minister chose to turn his focus on Enemalta's link to the banks, rather than answer directly about the PM's categorical statement. "The fact that the entities which were mentioned are interlinked is true. What do you mean by collapse? It's a question of definition. But definitely it would have been severely downgraded. The exposure of a bank, if it's quite overexposed to an entity and that corporation collapses, it would have an impact on its assets. Look at what happened in Cyprus. I'm not saying it would lead to bankruptcy, but you must understand the context in which it was said, in that the banks would have been severely affected, Bank of Valletta especially was quite exposed to Enemalta's debt at the time".

Last week, this newsroom contacted a number of local Finance authorities on the Prime Minister's statement.

Malta Financial Services Authority's Chairman, Professor Joe Banister said that "in Malta the banking system is very good and had the banks needed any sort of state intervention or bail out, Malta would have had to go to the EU Commission and the European Central Bank to inform them that they needed help". 

Asked to confirm or deny if the banks in Malta needed any assistance from the state during the period, the Central Bank said that "in some other countries, government subventions to troubled banks were a big burden on the public sector's finances. The resulting downgrading of government debt jeopardised the banks' balance sheets, which in certain instances required further government help. In Malta, this vicious circle never happened and no government assistance was needed. However, the financial situation of state-owned Enemalta could have raised serious concerns on the banks and the government itself. The main domestic banks had very high exposures on Enemalta and losses from a potential default by Enemalta would have wiped a very sizeable part of their capital and reserves.

"If Enemalta's trading performance had not been turned around it would have required the lending banks to make provisions for non-recoverability or to claim under the sovereign guarantee where this was held as collateral. It is worth noting that a Credit Rating Agency (CRA) had already downgraded Malta on the basis of the contingent liability posed by this corporation. The government took measures that strengthened the financial position of Enemalta, improved its business performance and mitigated the contingent liability risk on the government. This has averted any further downgrades by CRAs which would have had serious consequences on the economy."

So were the savings of depositors at any time in jeopardy? "No," the Central Bank replied. "But policies implemented by the Government, the Malta Financial Services Authority (MFSA) and the Central Bank were essential for the preservation of financial stability."

Professor Scicluna, when told that the Central bank effectively had said that the sector was stable, said - "Of course, but there are always risks and that's why now, the European Central Bank is asking banks to lower their exposure to sovereign debt, in order to lower their risks. As I said previously, it was considered an advantage that local debt was taken up by our banks and individuals. Now there are certain risks attached and banks are lowering their exposure. At that time, the bank's exposure to Enemalta was quite extensive, so it was significant yes, that saving Enemalta would save us lots of big headaches".