Regenerating the Maltese economy post COVID-19: MDB’s supporting role

By Josef Bonnici

Prof. Josef Bonnici is Chairman of the Malta Development Bank

The Malta Development Bank (MDB) was set up to contribute to socio-economic development and to support the Maltese economy, especially in times of social and economic disruption. Our ethos is to counter the prevailing trend in the economic cycle, hence protecting the economy in times of slower activity.

The MDB has put thinking and effort into creating a package comprising different schemes to offer support wherever it identifies financial market gaps. This is achieved through the identification of opportunities, launching of schemes, working with commercial banks as implementing partners to bring them to market, and engaging with the business community to understand the challenges they face and whether any of the schemes can be improved. This is how the schemes are refined to better serve the needs of the economic operators.

MDB’s role in the implementation of Government’s economic support and regeneration packages, including the COVID-19 Guarantee Scheme (CGS) and the complementary Interest Rate Subsidy Scheme (CIRSS), have been a case in point. By facilitating the injection of up to €777.8 million in new liquidity, with reduced collateral requirements, highly subsidised interest rates on loans, as well as a moratorium on repayments of both capital and interest, the MDB is providing assurance that credit will keep flowing to where it is needed.

Since its launch in April, the strong take-up of this facility has showed that it is meeting the needs of businesses during this difficult period. To date, the MDB has sanctioned a cumulative value of €238.0 million in new facilities, 16% of which in July alone.

We emphasise that there is still a considerable amount of uncommitted liquidity, that remains available. With the collaboration of commercial banks as our implementing partners, we will continue to welcome new applications in order to support economic productive capacity.

In all our interventions we take a market-driven approach through constant dialogue with stakeholders in pursuing our objective of narrowing financing gaps. This is an on-going process that does not end with the product launch. We keep monitoring, through the close links we have with the business community, to ensure that our schemes address the needs of local businesses.

Our analysis of developments in the initial couple of months after the launch of the CGS helped us to identify an area which necessitated additional intervention: it was determined that the MDB needed to reduce the personal guarantees requested by the banks extending facilities to SMEs for loans below €250,000.

The Commission has approved MDB’s proposal for a sub-scheme under the CGS (called the MDB COVID-19 Small Loans Guarantee Scheme) where the MDB will subordinate its collateral recovery rights to that of the commercial banks against the reduction in personal guarantees.  In addition, those beneficiaries who already took out loans under the CGS prior to this new scheme, can now also benefit from the lower level of personal guarantees through a revision of their credit terms.

This is a balanced measure that addresses the concerns of smaller businesses regarding the high levels of personal guarantees requested, while giving due regard for the risks faced by the intermediary banks. Given the fact that more than 60% of the beneficiaries under the CGS so far took out loans smaller than €250,000, this new measure is expected to have a significant impact.

In addition to the MDB’s COVID-19 response package of schemes, we are delighted that the SME Invest product has been very well received in these troubled times. The purpose of this MDB programme is to assist SMEs, including start-ups, by enhancing their access to bank finance for new investments.

By the end of July, a total of 48 businesses borrowed €22.6 million to finance new investment under the SME Invest Scheme. We are also encouraged by the fact that, despite Malta’s traditional subdued activity during August, our understanding is that applications are still being submitted. SMEs make up the bulk of our economic enterprises: this is a sector that can be innovative, entrepreneurial and dynamic.

We believe that it is excellent that the business sector has reacted so positively to these programmes. At the same time, while in the prevailing economic landscape cashflow remains the most pressing priority, the MDB is determined to further instil entrepreneurial spirit by maintaining favourable investment facilities accessible to businesses.

This is a key element in the post Covid-19 strategy for the regeneration of our economy.