2 % at the time of the global financial crisis to over 4 % today. this partly reflects a steady increase in the labour supply, coming from higher female participation in the work force, measures to increase the effective retirement age and the influx of foreign workers, mainly from eu countries. apart from the increase in labour supply, the quality of human capital has also improved. at the same time, a pick - up in investment, partly driven by developments in the energy sector, has boosted the capital stock. however, there is ample scope for improvement of labour productivity in the coming years. indeed it is critical that it must improve. a sound and stable financial system is an essential pre - condition for strong and sustainable economic performance. the performance of the domestic financial system, especially the core domestic banks, which have the strongest linkages to the domestic economy, remained sound with strong capital ratios, high liquidity and remained very profitable despite the challenges of a prolonged low interest rate environment. asset quality continued to improve, as non - performing loans, especially to the non - financial corporate sector declined by almost 12 %, mostly reflecting improved creditworthiness and an increased commitment by borrowers to honour their loan commitments. as a result the non - performing loan ratio declined to 6. 5 % by mid - year and is expected to decline further to below 6 % later on this year. while banks have continued to adopt a prudent stance by increasing provisions, and while such loans are generally covered to a significant extent by collateral, nevertheless they need to build further coverage and exercise restraint in dividend distribution to shareholders to preserve further the soundness of the banking system. in this regard, the authorities, namely the central bank and the malta financial services authority through the joint financial stability board, have taken policy measures to ensure that by preserving its soundness, the overall banking system remains supportive of economic growth. during 2016, the authorities introduced the other systemically important institutions capital buffer, to preserve capital in those banks that are the most systemically important for the domestic economy. we have also launched the countercyclical capital buffer, although this has been currently set at 0 % as credit growth has not been excessive relative to economic growth or contributing to asset price inflation. page 4 of 8 other decisions to maintain the soundness of the banking system relate to addressing the stock of npls, which is incidentally also high on the agenda of the single supervisory mechanism. in this regard the authorities launched a consultation process with the stakeholders involved

france, they managed to cater for smes as well as for other environmental and infrastructure investment through promotion or development banks. a development bank would contribute to economic growth by funding sectors and projects that are not catered for by commercial banks on their own. the central bank looks at such an initiative as a necessary diversification of our financial base. i understand that progress is being made on this initiative and i find this to be a very positive development. the road ahead against a rapidly changing economic landscape, malta needs to be attentive to take advantage of its flexibility and adaptability. in the past years, the maltese economy went through significant structural change. not only by diversifying into a number of new growth sectors such as aviation services, pharmaceuticals and internet related activity, but also by upgrading its investments in the traditional sectors. for example, the tapping of new source markets for tourists in european cities that were newly serviced by low - cost airlines allowed the hospitality sector to overcome the recession - driven weak demand in already serviced markets. similarly, the financial and other services sectors continued to expand, thanks to the right conditions for growth, including the appropriate legislative environment. there are a number of reasons for being positive and optimistic about malta ’ s potential growth in the future. in contrast to various developed countries, malta has some structural issues that, if addressed, can provide opportunities for an on - going momentum to growth. take for example the labour participation rate in malta. although it is among the lowest in the euro area ( as shown in chart 4 ), malta has gone a long way in achieving progress on this issue. over the past ten years, malta registered the largest increase, among the member states, in the female activity rate, which rose from 36 % in 2004 to over 50 % this year. the recently introduced incentives for female participation will continue to steer our labour market in the right direction, also boosting malta ’ s potential economic growth. at the same time, we also observe a higher number of foreigners who are contributing to economic activity in a variety of sectors. first, it has to be remarked that an expanding labour force through this route is in itself a sign of malta ’ s strong rate of economic growth relative to other areas of the eu. secondly, it reduces the likelihood of skill gaps in the labour market. 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