This level will still provide solid profitability for many investment projects in the petroleum sector and continued large surpluses on the current account and in government finances. The krone exchange rate, measured against our most important trading partners, has appreciated by about 7 per cent since the spring of 2000. However, the krone exchange rate is about 2.5 per cent weaker than in 1990 and at the same level as in the mid-1990s. Traditional merchandise exports remained high in the first half of 2001 but exhibited a weaker trend in the second half of the year. Foreign trade figures for the fourth quarter of 2001 indicate that the decline in export volumes may have come to a halt, although export prices are still falling. Consumption indicators suggest strong growth in private consumption. Credit growth has slowed somewhat due to reduced borrowing by enterprises. Household borrowing, on the other hand, has increased further. Developments in debt may also influence financial stability. Although borrowing by enterprises appears to be declining, their debt burden remains high. This reduces enterprises’ ability to cope with downturns. The household debt burden is increasing, but the level is low. These developments are due in particular to the housing market, with high turnover and high price rises. Experience shows that private sector debt tends to increase at a particularly fast pace during upturns. Higher asset prices may be a driving force.
In a recent report, the Malta Competition and Consumer Affairs Authority made a number of recommendations to address issues primarily related to price transparency, barriers to expansion and consumer mobility in view of improving competition and borrowing costs for SMEs. Bank charges on SME loans and charges for credit transfers need to be revised downwards to facilitate access to finance and also to encourage the use of electronic money, which would ultimately result in lower processing costs to banks. BIS central bankers’ speeches  7  Chart 9 – Credit growth to households and businesses  In keeping constant focus on maintaining competitiveness, the Government took a significant step by committing itself to set up the Malta Development Bank. Preparatory work on the establishment of the Bank is well advanced. The development bank will strengthen and diversify the local financial base and will contribute to economic growth by funding sectors and projects that are not catered for by commercial banks on their own. It will provide attractive wholesale financing and risk sharing facilities. It will be a powerful tool to bring to realisation more economically feasible projects. The delay in tackling non-performing loans (NPL) on the bank’s books is another factor that puts a drag on credit growth and reflects a dimension of credit risk that should be resolved. An efficient judiciary system that deals with insolvency cases in a timely and cost efficient manner facilitates credit risk management by bringing down the stock of NPLs.