Banks saw their loan portfolio deteriorate further this year on the back of a persistent slump in the construction and real estate sectors.

An update of the Financial Stability Report released yesterday by the Central Bank of Malta noted that the ratio of non-performing loans rose to 8.2 per cent in June from 7.3 per cent at the end of last year.

“The construction and real estate sectors contributed to two-thirds of the increase in the overall non-performing loan ratio,” the Central Bank said.

Credit to the construction and real estate sectors accounted for 16 per cent of resident loans with the Central Bank noting the ­“continued concentration” in lending to these sectors and the ­volume of collateral in the form of property.

The Central Bank said its real estate market survey indicated lower sales and a market perception that “property prices were still overvalued”.

In an environment of sluggish economic growth, banks resorted to further loan rescheduling by stretching the repayment period.

Rescheduled loans increased by seven per cent since December last year, amounting to 2.3 per cent of banks’ total loan portfolio.

The construction and real estate sectors continued to account for the highest proportion of rescheduled loan facilities.

The problems in the construction sector were not reflected in the quality of resident household loans. These amounted to 44 per cent of all bank lending and they remained stable with non-performing loans standing at 3.2 per cent.

Concerns over banks’ exposure to the construction industry dampened an otherwise positive assessment of the domestic financial sector.

The Central Bank said the flow of credit continued uninterrupted, supported by “the banks’ sound solvency positions”.

Banks’ balance sheets grew during the first half of this year and loans continued to be financed through customer deposits.

However, the Central Bank recommended banks continue to exercise “the utmost prudence”, especially at a time when economic growth was still contained.