integration. the liberalisation process of the 1990s saw the gradual removal of interest rate restrictions, the easing of capital controls and the privatisation of most of the financial sector. the legal framework was entirely overhauled, bringing it in line with eu standards and laying the foundations for the growth of new areas of financial activity, such as investment services and trusts. eu membership in 2004 opened up the maltese financial market to service providers from other member states. conversely, our financial institutions gained access to the single european market, a factor which encouraged additional inward foreign investment into the sector. at the same time, the last exchange controls were removed. the adoption of the euro last january was a further step in the integration process into the single market. financial transactions across the euro area can now take place without incurring exchange rate risks. furthermore, maltese banks now have access to the eurosystem facilities available to credit institutions within the euro area. these include a variety of instruments designed to provide short - term liquidity, as well as standing deposit and lending facilities. at the same time, euro adoption entailed a reduction in the minimum reserve requirements that maltese banks had to comply with, resulting in the release of additional funds into the banking system. euro adoption also led to improvements in the financial infrastructure supporting the maltese economy. in november 2007, malta formed part of the first group of countries that joined target2, the payment system used by the eurosystem for the settlement of large value interbank transfers in euro. maltese banks can use target2 to carry out transfers with other banks in malta and throughout the euro area rapidly, safely and effectively. the single euro payments area ( sepa ), launched in january this year, is a further step towards closer financial integration and aims at making retail payments across the euro area as easy as they currently are within national boundaries. liberalisation and integration into the eu have underpinned the rapid growth of the maltese financial sector. the number of banks rose from 16 in 2004 to 23 in september this year. during the same period, the total assets of the banking system more than doubled to eur45. 1 billion. nor was growth restricted to the banking sector. the number of local and foreign - based collective schemes climbed from around 70 in 2004 to nearly 400 today, partly reflecting legislative changes that spurred the formation of professional investor funds. total assets under management have also increased exponentially to over eur8 billion. more moderate growth was recorded in the insurance sector, though

kept inflation in malta closer to the ecb target and it also boosted competitiveness on the exports side. countries with high openness to trade with non - euro area countries have been more sensitive to the depreciation of the euro. in malta exports of goods towards non - euro area countries represent around 72 % of total goods exports and around 87 % in the case of service exports. the wealth effect is another transmission channel of the app that has been evident in malta. the malta stock exchange has gained 32 % since the beginning of the year, while the property market continued to perform buoyantly. a higher level of wealth positively affects consumption and general consumer confidence. on other fronts, however, malta can position itself better to reap more benefits from this unprecedented scenario of accommodative monetary policy, particularly in the area of access to finance. as just mentioned, the ecb ’ s monetary policy has enabled significant reductions in lending rates across the euro area. bank lending rates in malta did go down but still remain higher than in other euro area countries, as shown in chart 8. bis central bankers ’ speeches chart 8 bank lending rates and ecb rates the transmission of central bank policy rates to retail bank rates is an essential condition for the monetary policy transmission mechanism. this is especially important in malta where the predominant types of businesses are smes, which use banks as a main source of financing. in fact, although malta outperformed the euro area on the main macroeconomic indicators, credit to the non - financial corporate sector has remained subdued, although this partly reflects deleveraging in certain sectors, particularly in construction and real estate. apart from the impaired transmission of ecb policy rates to retail rates, charges and commissions of commercial banks are found to be relatively high. in a recent report, the malta competition and consumer affairs authority made a number of recommendations to address issues primarily related to price transparency, barriers to expansion and consumer mobility in view of improving competition and borrowing costs for smes. bank charges on sme loans and charges for credit transfers need to be revised downwards to facilitate access to finance and also to encourage the use of electronic money, which would ultimately result in lower processing costs to banks. bis central bankers ’ speeches chart 9 – credit growth to households and businesses in keeping constant focus on maintaining competitiveness, the government took a significant step by committing itself to set up the malta development bank. preparatory work on the establishment of the bank is well advanced. the development bank will strengthen and