MFSA publishes ‘Dear CEO’ letter on CRE lending and amendments to Banking Rules

Changes to the internal governance guidelines for banks

Publication
4 minute read
March 01, 2026

The Malta Financial Services Authority (MFSA) recently issued a ‘Dear CEO’ letter presenting the findings of a targeted review of commercial real estate (CRE) lending across a selected sample of banks and issued amendments to two Banking Rules namely BR/01 - Application Procedures and Requirements of Licenses for Banking Activities under the Banking Act 1994 and BR/24 - Internal Governance of Credit Institutions Authorised under the Banking Act, as well as a new Banking Rule BR/32 on Technical Specifications under the Capital Requirements Regulation.

Targeted review of CRE lending

The MFSA’s targeted review assessed banks’ compliance with:

BR/09

non-performing and forborne exposures

BR/24

Internal governance of credit institutions

BR/28

Loan origination and monitoring by credit institutions

CRR

the Capital Requirements Regulation ("CRR")

The key supervisory expectations following assessment include:

Establishment and oversight of strategy, governance, and risk appetite with independent controls, defined limits, and transparent reporting.

Reliable and up-to-date borrower information used in credit assessment and monitoring processes.

Proactive and risk-sensitive credit risk governance.

Forward-looking credit risk frameworks with early warning indicators, borrower analysis, and consistent monitoring.

Data-driven credit monitoring framework incorporating regular reviews and collateral revaluation.

Robust governance, risk management, and operational frameworks for timely identification, classification, and resolution of non-performing and forborne exposures.

Consistent, well-documented, and timely default identification framework.

Maintain board-approved policies with independent, conflict-free collateral valuations, and regular review.

Robust governance, internal controls, and sound methodologies for expected credit losses.

The MFSA reminds credit institutions to comply with the applicable regulatory framework including salient Banking Rules and the CRR and take a proactive approach in review of internal frameworks, gaps/weaknesses identification, and implementation of remedial measures in a timely and effective manner.

Revisions to Banking Rule BR/01

The Banking Rule BR/01 lists out the applications procedures and requirements for authorisation of licences for banking activities. The Rule has been enhanced by including a new section on Fit and Proper Assessments, deletion of obsolete sections and various annexes, and streamlining to MFSA’s framework for Authorisations.

Amendments to Banking Rule BR/24

The Banking Rule BR/24 emphasises on the internal governance requirements of credit institutions. A new Section 6 under Part 2 has been newly added on the regulatory approval for individuals assuming key positions which replicates and expands further on the process, criteria, and obligations of institutions under such circumstances. Primarily, the section highlights institution’s obligations following the resignation of members occupying these positions, such as:

Notification to the Authority immediately after the resignation of key personnel, including interim arrangements, continuity plans, and succession strategies and provide regular updates.

Signed declarations from the resigning individual and the institution must be provided confirming whether the resignation was due to regulatory reasons.

Personal Questionnaire to be submitted once a candidate is identified and the individual must only assume the role after receiving regulatory approval. Until approval is granted, an already approved individual in the next senior role must take executive decisions or if not, decisions are to be made by the relevant Committee or Board.

The new Banking Rule BR/32

Through the new Banking Rule BR/32, the MFSA implements the provisions under the EBA Guidelines on Acquisition, Development and Construction (ADC) exposures to residential property under Article 126a of the CRR.

Article 126a(2) of the CRR specifies that ADC exposures to residential property may be assigned a reduced risk weight of 100% provided that specific risk-mitigating conditions are met. BR/32 elaborates on these conditions and instructs institutions to maintain appropriate documentation outlining the rationale when applying the preferential risk weight.

How can we help?

The MFSA’s latest letter and circulars highlight the importance of having suitable governance structures that can adapt to changing regulations. Our Banking and Financial Institutions team is ready to support you in managing these developments and enhancing your governance practices.

Contact us

Norbert Paul Vella

Assurance Partner, PwC Malta

Tel: +356 9945 3843

Malcolm Debattista

Senior Manager, Assurance, PwC Malta

Tel: +356 7973 6120

Braden Sammut

Senior Manager, Assurance, PwC Malta

Tel: +356 2564 2658

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