Josef Bonnici: Strengthening economic resilience Address by Professor Josef Bonnici, Governor of the Central Bank of Malta, at the Annual Dinner of the Institute of Financial Services, Saint Julian’s, 20 November 2015. *  *  *  Honourable Minister, members of the Institute, distinguished guests, I would like to thank the President and Committee of ifs Malta for once again organising this Annual Dinner and giving me the opportunity to share my thoughts with such a distinguished audience. Mr President, I am pleased to hear you speak about the Institute’s commitment towards raising the standards of financial services education, as this is exactly what we need for our dynamic financial sector to remain successful and a key contributor to our economic development. Over the years, the Central Bank of Malta has worked closely with the Institute, and more recently participated in the successful ifs Annual Conference on The Future of Pensions. This national conference acted as a catalyst to rekindle the debate on private pensions in Malta. I commend the Institute for this important initiative. I wish you success in all the Institute’s future endeavours. Introduction The current international economic environment poses a number of key challenges, including the weak recovery in the euro area, the slowdown in emerging economies, the enduring geopolitical tensions, and possible spill-overs from the US monetary policy that could affect financial conditions on a global scale. Clearly, our economy is not immune from developments beyond our shores.
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.