A credit register will narrow the information gap that exists in the Maltese banking system by reducing asymmetric information between borrowers and lenders. It also improves risk management thereby contributing to a better performing loan portfolio and as a result, a lower cost of capital. Ladies and gentlemen, let me close with a few concluding remarks. As you are well aware, the banking sector across the Euro area is passing through regulatory and supervisory changes that are sometimes viewed as expensive and imposing unnecessary burdens on the sector. This is a short-sighted assessment. Though dividend pay-outs may be lower in the short-run, their sustainability will be strengthened in the longer term. Similarly, higher bank capital does not necessarily lead to lower volumes of loans over the long run. Instead, a higher capital base mitigates balance sheet risk, lowers bank funding costs, hence allowing banks to charge a lower risk premium on their loans, to the advantage of both lenders and borrowers. The crisis has uncovered various shortcomings in corporate governance in the banking sector, mainly in areas like risk management and internal controls, compensation, corporate structures and transparency. Some Maltese banks have yet to adopt a number of necessary risk oversight practices that would ultimately benefit the banks and their stakeholders. What needs to be stressed is that reputation is a key asset of Malta’s financial system which cannot be taken for granted. Efforts to safeguard financial sector reputation need to be ongoing and undertaken by all concerned in the financial sector.

Though this added flexibility needs to be recognised for the positive effect it has on potential output, the role of retraining programmes by the ETC remains of utmost importance in better matching skills with vacancies and further reducing the rate of unemployment. Turning to the fiscal dimension, government forecasts the deficit to decline to 2.1% of GDP this year and to 1.6% in 2015. This is a financially responsible objective which needs to be truly maintained. The government debt-to-GDP ratio has reached around the 70% level. This ratio needs to plateau and eventually to drop and this requires sustainable management of both budgetary inflows and outflows. Clearly, budgetary performance depends on economic performance as higher growth ensures higher tax revenues. In turn, faster growth is only possible by producing and delivering more goods and services. This can only be attained by being competitive. Moreover, other significant challenges remain. Inefficiencies in public administration processes hamper the development of the Maltese business environment and need to be improved, so as to better support competitiveness and encourage foreign direct investment. As I already mentioned, there is also room for further improvement in the business environment in terms of access to credit. The cost of credit in Malta remains on the high side and further easing would help our businesses to invest at a lower cost. Going forward, various initiatives are envisaged to improve the current situation, including the introduction of  BIS central bankers’ speeches  5  a credit register that will be administered by the Central Bank.