The Maldivian banking sector demonstrated notable resilience in the third quarter of 2024, maintaining strong capital adequacy and profitability ratios despite challenges such as increased expenses and a seasonal dip in deposits. The sector’s performance highlights its importance as a critical pillar of the domestic economy, navigating shifts in global and local conditions with stability and adaptability. This analysis is based on the Maldives Monetary Authority’s Quarterly Economic Bulletin for the third quarter of 2024.
Capital Strength and Asset Composition
The total Risk-Based Capital (RBC) ratio for the banking sector stood at an impressive 52%, well above the regulatory minimum of 12%. This robust capital position reflects strategic investments in low-risk assets such as treasury bills, which comprised 24% of liquid assets. The sector’s leverage ratio, which measures Tier 1 capital to total assets, remained high at 22%, far exceeding the required 5%.
Despite this strength, the sector’s asset base experienced a 1% decline (MVR 0.8 billion) during the quarter, settling at MVR 91.0 billion. This contraction was mainly driven by a seasonal reduction in foreign currency deposits within the tourism sector during its off-peak season. Foreign currency deposits fell by 7% (MVR 1.9 billion), significantly impacting the overall deposit base.
Loan Growth and Non-Performing Loans
In contrast to the decline in deposits, the gross loan portfolio expanded by 3% (MVR 1.2 billion) during the quarter, reaching MVR 40.2 billion. Loans net of loan-loss provisions accounted for 42% of the total asset portfolio. Tourism and construction remained dominant sectors for private-sector credit, with loans for tourism-related activities making up 37% of the total. Credit extended for construction projects also grew, reflecting sustained demand for property development and renovation.
Non-performing loans (NPLs) held steady at 4%, reflecting effective risk management practices. The ratio of specific loan-loss provisions to NPLs was 122%, demonstrating the sector’s preparedness to manage credit risks.
Profitability Trends
The banking sector reported a slight dip in profitability during the third quarter. Pre-tax profits declined by 3% (MVR 92.1 million) year-on-year, while after-tax profits fell by 1% (MVR 19.7 million), totalling MVR 2.5 billion. This decline was largely attributed to a 24% rise in non-interest expenses (MVR 369.2 million) and an increase in provision expenses (MVR 230.9 million). As a result, the return on average assets (ROA) decreased to 3.7% from 3.9%, and the return on average equity (ROE) dropped to 14.4% from 15.9%.
Sector Outlook
The Maldivian banking sector continues to display resilience despite economic challenges. While the growth in lending and a robust capital position are encouraging, rising non-interest expenses and seasonal fluctuations in deposits remain areas to watch. Strengthening strategies to mitigate these issues will be key to sustaining profitability in the long term.
As the Maldives navigates its evolving economic landscape, the banking sector’s stability and adaptability will remain central to fostering broader economic development. The findings and insights are sourced from the Maldives Monetary Authority’s Quarterly Economic Bulletin for Q3 2024.
