loan - to - value ( ltvs ) ratios range from 60 % to 90 % ( and lately we have observed a shift to the upper bound ) the banks have largely kept to their cautious approach when extending credit for buy - to - let purposes. we think that their prudence bears witness to the maturity of our financial institutions, though more caution in mortgage credit for secondary residences is called for. the need for long - term investment let ’ s now shift to a more critical gear. at present, financial institutions deposit with the central bank close to four times the average of the previous ten years. in essence, all the growth this year in deposits from maltese residents has ended up being deposited with us page 6 of 10 at the central bank. loans to the private sector have essentially remained flat. taking a longer term perspective, bank lending to nonfinancial corporations has fallen from 62 % of gdp in 2009 to 31 % in the first half of this year. from a situation where credit to the nonfinancial sector amounted to more than half of all bank loans, the share has fallen to slightly more than a third. now, the usual explanation is that banks welcome any feasible projects that comes forward, and that the decline is therefore demand and not supply driven. moreover, stricter regulation on bank capital and liquidity has made life tougher for bankers, and this, it is argued, has warrants a higher level of caution regarding which projects are financed. permit me, however, to submit some other facts for your consideration. the recent imf mission concluded that the cost of bank borrowing for corporates in malta is among the highest in the euro area, and the spread has been widening in recent years. in their forthcoming report in january 2018 they will furthermore show that credit supply constraints impact smes disproportionately. while surveys do not suggest that access to finance is the private sector ’ s main concern, this is probably due to the fact that firms have been able to finance projects through their own funds. over the last decade, companies shifted to intragroup loans and intercompany lending instead of bank loans as a main source of financing. one, of course, needs to distinguish between intragroup loans ( parent to subsidiaries or subsidiaries to other subsidiaries ) which we think make up the bulk of “ intercompany ” lending and other intercompany lending undertaken through factoring, trade credit and loan funds. also bear in mind that the financial institutions act related companies

. there is, however, no room for complacency, particularly at this time of renewed financial market turmoil. it is clear that further difficult policy choices remain to be made. the lessons from the ongoing sovereign debt crisis should serve as a stark reminder that the benign neglect of accumulating imbalances, especially in the context of a monetary union, will have serious economic and social repercussions, sooner rather than later. allowing short - term considerations to delay the timing of reforms, therefore, only serves to make the inevitable corrections more painful. this challenge should be faced with pragmatism. rigorous fiscal consolidation and structural reforms may well cause some pain and even keep growth subdued, but this is a temporary phenomenon as the ensuing gains in efficiency and competitiveness should improve the economy ’ s ability to take fuller advantage of new export opportunities. on their part, businesses need to respond flexibly to changes in global demand, especially in a likely scenario in which foreign markets will be characterized by more efficient competitors and more cost conscious consumers. in these circumstances, innovation and the quality of human capital will be of paramount importance. malta ’ s ability to compete internationally will depend increasingly on a more cost - effective use of human and physical resources and sustained efficiency gains in both the public and the private sectors. finally, at an eu level, the efforts of individual countries to correct macroeconomic imbalances – and malta is not alone in facing such a challenge – would be greatly facilitated by an early completion of the single market project, particularly in the area of services, and by a strengthening of the economic component of emu, including the stability and growth pact. in this regard, it should not be forgotten that the economic rationale of a monetary union foresees an important role for surplus countries as well in redressing imbalances within the union.