michael c bonello : validating malta ’ s strategy to create an international financial centre remarks by mr michael c bonello, governor of the central bank of malta, at the opening of the mediterranean bank plc, valletta, 29 september 2006. * * * i should first of all like to thank the management of mediterranean bank plc for inviting me to officiate at the opening of these premises. mediterranean bank is a welcome addition to malta ’ s growing financial sector. its focus on private banking, in particular on portfolio and wealth management services, represents a niche activity which offers much scope for further development. on this occasion i would like to reflect on two particularly significant aspects of mediterranean bank ’ s decision to locate in malta with a view to servicing clients in the mediterranean basin. the first is that it represents a further validation of malta ’ s strategy to create an international financial centre as a major pillar of its economy. here, i would like to salute the vision and pragmatism of those politicians and technocrats who in the early 1990s steered this project to a successful conclusion. today, financial intermediation activities alone directly contribute between 6 % and 7 % of the country ’ s gdp. this success is a unique example of what a bipartisan approach to strategic economic choices can achieve. it should indeed serve as an encouragement to our political leaders to tackle to - day ’ s much needed reforms in a similar manner. allow me to recall some facts to underline the impressive growth of the financial sector. there has been steady expansion all along, but especially since eu membership. 31 new licences for financial services operators were issued during 2004, 93 in 2005 and a further 61 up to june of this year. membership of the eu is contributing to this growth also as a result of the adoption of the single passport regulations and the right to provide cross - border services. there are 99 institutions with passporting rights in malta today, and two maltese credit institutions have passporting rights in the eu. the banking sector is composed of 18 banks, of which 6 are domestic and 12 foreign controlled. the combined balance sheet of the domestic banks has grown by an average annual rate of 7 % in the past two - an - a - half years and their assets to gdp ratio, at 280 %, is comparable to the average for the euro area. for the entire banking system, this ratio is closer to 750 %. in the area of investment services, there are currently 21 professional investment funds targeting institutional investors and high

of that year. initially the movement took root in the agriculture and fisheries sector, which in those times employed a significant part of the population. but later, as malta developed socially and economically, the movement continued to flourish and to expand, and new cooperatives were set up in practically every sector of the economy. indeed, there are currently some 60 cooperatives in malta, with over 5000 members, spread over a wide range of activities. these include the traditional agriculture and fisheries sector, transport and media, management and marketing consultancy services, wholesale, health, maritime, archaeology, restoration, fair trade, tourism, youth services and community care. our cooperatives are affiliated with the international cooperatives alliance ( ica ), and so abide by the seven basic principles established by the alliance mentioned previously. banks too have been with us for a long time. indeed one can trace the origins of banking in malta to the times of the knights of st john, though more rapid development took place under british rule, helped by the island ’ s strategic and central position in the british empire. in 1826, the anglo - egyptian bank started operations here, and through a series of mergers and acquisitions this later became barclay ’ s bank dco ( dominion, colonial and overseas ), which soon established an extensive branch network on the island. a number of smaller maltese - owned banks were also established, and some of these eventually merged to become the national bank of malta, which also established a branch network. there followed a period when these two major banks were nationalised, but following the subsequent bis central bankers ’ speeches liberalisation of the economy they were again privatised, with the government retaining only a 25 % share in bank of valletta. more banks began to operate here after malta joined the european union, but these were all commercial, joint stock banks. no one, till recently, seems to have thought of setting up a cooperative bank in malta. the distinctive characteristic of cooperative banks, as previous speakers have explained, is that they are banking entities that, for the most part, are owned by their members. the latter are both owners and customers of their bank. but this is not their only characteristic. generally, cooperative banks are deeply rooted in their regions or communities. they are very much involved in local development and contribute to the sustainable development of their communities, because their members and officers generally belong to the communities in which they operate. their main concern is not to make spectacular short - term gains for a small group