13.12.2017  “The relationship with bank customers” Opening Session of the 13th Banking Industry Meeting “Competitive Banking in a New Society”, IESE (Madrid) Javier Alonso Deputy Governor  Good morning. It is a pleasure to open this 13th edition of the Banking Industry Meeting and I thank the organisers, and IESE in particular, for their kind invitation to join this eminent gathering today. The information disseminated by the organisers states, by way of introduction to the programme for today’s conference, that “following an intense shake-up of the industry, the banking sector must address challenges and problems that place its operations at a critical juncture.” This has, indeed, been the central tenet of my public addresses throughout the year. In previous speeches I have stressed that the banking business is facing far-reaching changes whose implications are still difficult to foresee. And I have paid particular attention to what I consider are the main challenges the industry must address. I have shared my thoughts on the challenges posed to banking at the current juncture as regards: (i) maintaining appropriate profitability levels to ensure the viability of banks in the medium and long term; (ii) adapting to new and demanding regulations in response to the financial crisis; (iii) technological developments and the so-called fintech firms; and (iv) restoring the customer’s confidence.
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.