Central Bank governor Josef Bonnici this evening called on Maltese banks to 'align their margins' with those of other European countries.

Speaking at the annual dinner of Institute of Financial Services, Prof Bonnici said that although various indicators placed Malta’s banks with the stronger groups, there was room for further improvement.

“Interest rates on loans to businesses are currently around two to three per cent higher in Malta as compared to Germany, Netherlands, Finland, Austria, and Luxembourg. In contrast deposit rates offered by Maltese banks are broadly in line with those across the euro area.

“As a result, bank interest margins are higher in Malta. A closer alignment of margins with those of our peers appears to be warranted. The recently proposed Budget measure to conduct a review of bank charges to businesses makes sense. The benefits of having a robust banking sector would then be passed more fully to the rest of the economy,” he said.

Prof. Bonnici said this would be reflected in faster growth in the volume of credit, which recently has been trending downwards. He pointed out, however, that credit growth in Malta continued to outpace that in the euro area.

“The expected setting-up of the Development Bank will also contribute to fill a funding gap that currently exists in the financial sector in Malta, which could provide relief to the cost and difficulty of access to finance, particularly for SMEs and may serve to compliment the core banks in the funding of larger projects.

He said that an important step in the preparation for the Single Supervisory Mechanism was the establishment of the Joint Financial Stability Board, set up jointly by the Central Bank and the MFSA, and now part of the Central Bank of Malta Act.

The issues being discussed by the board include the proposed revision of the banking rule which dealt with provisioning for non-performing loans, the governor said.

Prof. Edward Scicluna

The IFS was also addressed by Finance Minister Edward Scicluna who listed a number of priorities for the government, the main one being fiscal sustainability.

“Starting with this budget we are requiring that all budgetary measures have to respect one important principle. They will not distribute more than is available at present. Public borrowing will need to decline until it vanishes. Any other way is to compromise our own children’s and grandchildren’s future,” he said.

His ministry, he said, was asking the fiscal departments of the World Bank and the IMF to look into certain aspects of Malta’s budgetary process and make recommendations.

The second priority was the diversification of energy sources and the third was to raise the output potential of the economy allowing the country to achieve the highest possible rates of economic growth. This could be done by improving the labour force, its capital stock, and its productivity.

Another priority was for the economy to continuously diversify into new markets, new continents and new sectors and new products. This applied to manufacturing, utilities, and financial services and next year a special focus would be placed on the maritime industry which had ample space to develop further.

“We cannot afford to rely on any particular country; region or product for even a small shock will become a tsunami for this small island. The EU will remain our family but this should not preclude us in looking elsewhere to do business,” he said.

Prof. Scicluna said that another government priority was to attack bureaucracy with all its might. This, he said, would be an ongoing battle.

The government also wanted to place every social service on strong foundations to ensure its sustainability.

“Our programme for the coming year will see this new way of thinking taking root by tapering benefits rather than cutting them abruptly when taking up a job.

“Beyond that we then ensure that real poverty should not be tolerated by the state. Again here the complex problem needs to be tackled on many fronts. Let us not go for simplistic solutions. There aren’t any,” he said.

The minister said that despite having entered the excessive deficit procedure earlier this year, the government was determined to achieve a deficit for 2013 that was below the three per cent threshold. In fact, the deficit is forecasted to decrease to 2.7% from 3.3% in 2012, and will drop further 2.1% in 2014.

It was of serious concern that the calculations of the government and the European Commission were not tallying.

“Somebody is making a mistake. In my intervention in the Eurogroup meeting I stated that I just hope that the end of the year financial data for Malta as reported by the Treasury would resolve the issue. Then we are dealing with factual data and not forecasted one. If we are proved right then the whole base will shift and the Commission’s forecasts will be revised in the winter forecast next February,” he said.