The construction and real estate sector saw considerably fewer defaults in the first half of 2018, with the percentage of loans showing problems down by 6.6 per cent.

The Central Bank of Malta, in its regular report on the stability of the financial sector, said that overall, non-performing loans held by resident companies went down by 5.6 per cent, thanks to the improvement in the construction and real estate sectors.

The interim report said that the profitability of the five core domestic banks dropped by around 19 per cent during the first half of 2018 owing to one bank which stepped up its provisioning to address potential legal risks.

The profitability is in line with that of their European peers, but the CBM noted that when adjusted to exclude one-off events, profits would have risen by about 12 per cent, surpassing the levels reported in recent years.

The Financial Stability Report - Interim 2018 evaluates the main risks that could possibly affect the stability of the financial system, with the aim of spotting potential systemic risks before they have the chance to escalate.

Risks to the domestic financial system remained broadly unchanged since the 2017 report.

“Overall, risks to financial stability remained low on the back of a sound and resilient banking system, with a positive risk assessment for the second half of the year,” it said.

However, it notes that geopolitical risks went up since 2017 and were expected to rise even further in the second half of 2018.

Geopolitical risks went up since 2017 and were expected to rise even further in the second half of 2018.