Malta has also adopted the European Directive of 4th April 2001 on the reorganisation and winding up of credit institutions and their branches in Member States, which should facilitate the harmonisation of any eventual measures that may have to be taken in this regard. In compliance with EU legislation on the promotion of international payments, the Central Bank has meanwhile brought into force the Directive on Cross-border Credit Transfers. Another Directive, on Electronic Payments Services, which seeks to ensure a high level of consumer protection in the field of electronic payment instruments, came into force on May 1st this year. Looking forward, we believe that Malta’s financial system is well placed to benefit from EU membership. While the banks may face some challenges from increased competition, there will also be opportunities for growth. In particular, Malta is well positioned to serve as a bridgehead between Europe and North Africa, and some Maltese banks have already been exploiting this market niche, participating actively in the Mediterranean Bank Network set up after the Barcelona Declaration of 1995. The recent emergence of Libya on the international scene, a country with considerable potential with which Malta has long maintained close commercial ties, should also open up further opportunities in this direction. Malta’s inherent qualities, moreover, make it an attractive location. The island has a stable economic and political environment as well as a highly qualified and motivated workforce in the legal, accounting and consulting services professions and in banking and finance.
In addition, the level of non-performing loans has been on the high side, and certainly higher than the EU average, even though it has recently started to decline. Here I should perhaps point out that in Malta we adopt a relatively conservative definition of non-performing loans. The expanded economic role of the banks has been accompanied by significant progress in creating an independent and effective regulatory framework in line with international standards. In 2002 the Malta Financial Services Centre was renamed the Malta Financial Services Authority, and took over from the Central bank the responsibility for supervising the banks and the Malta Stock Exchange to become the single supervisory and regulatory body. The division of responsibilities between the Authority and the Bank requires effective cooperation, and for this purpose a Memorandum of Understanding has been signed. At the same time, the Central Bank was given formal independence in the conduct of monetary policy, in overseeing payment systems and in safeguarding the overall stability of the financial system. The Bank uses a number of approaches to identify possible threats to the system. It analyses data from prudential returns submitted by the banks and other financial institutions. This, coupled with further analysis of the corporate sector in terms of leverage, profitability and liquidity, complements the monitoring of credit risk within the banking system. Stress testing is also carried out in order to identify potential losses resulting from abnormal market conditions.