Last Updated on Monday, 23 August, 2021 at 10:54 am by Andre Camilleri
The next months will be crucial for Malta’s recovery from the pandemic, however, the sound financial position of the country, the right economic incentives and the strong willpower of local entrepreneurs will provide the right foundations, the Chairman of the Malta Development Bank Josef Bonnici told The Malta Independent. He also spoke about the initiatives that are planned to be launched.
After months of restrictions amidst an unprecedented pandemic, the country is now talking about recovery and regeneration. First, let’s rewind to 2020. What was the most tangible role of the MDB throughout the pandemic?
The economic shock to the Maltese economy caused by the Covid-19 pandemic quickly saw the Malta Development Bank transform into a key channel for the delivery of anti-crisis measures.
Among the various initiatives, the most impactful was without any doubt the Covid-19 Guarantee Scheme. Through this scheme the MDB leveraged a Government guarantee of €350 million by mobilising commercial banks’ liquidity to ensure a sustained flow of credit to the real economy during such a crucial period.
Nine accredited commercial banks are being provided with very substantial credit risk reductions and capital relief through a guarantee of 90% on loans extended under this MDB Scheme, which enables them to generate a portfolio of up to €777.8 million in new guaranteed working capital loans.
This made cashflow much more easily accessible and affordable to all firms impacted by the pandemic which also benefit from an interest rate subsidy on such loans. In slightly more than a year, we have facilitated more than €470 million in working capital loans through commercial banks, supporting close to 590 businesses which together employed more than 40,000 employees. These were all jobs that could have potentially been at risk without such assistance.
We have seen businesses of all sizes and from practically every economic sector on the island seek and get assistance from our various products. At the same time, we are also making it easier for the banks to continue providing new loans which will be crucial in supporting the economy not only to survive, but to regenerate itself and deliver growth in the months ahead.
To give context of the huge impact of this assistance, it has been calculated that lending to non-financial corportations in Malta expanded by an annual rate of 9% during 2020. Without this MDB’s intervention, such lending to companies would have contracted by 2.5%.
What impact has the Covid-19 pandemic had on the financing of SMEs? Has the bank noted more people coming to the MDB for funding now than pre-pandemic?
With the exception of the Further Studies Made Affordable Scheme, which targets students intending to continue their studies, all MDB schemes in operation are mainly addressed towards the commercial community. The Bank was established in late 2017, and the current schemes were only in operation for a few months before the osnet of the pandemic. However, it is clear that the MDB’s role changed significantly with the onset of the pandemic, with the Bank assuming the role of a major channel for the delivery of anti-crisis measures.
Now that the worst is, hopefully, behind us, going forward, what is the MDB’s role in the regeneration phase?
The MDB is not only a key player in offsetting the pandemic’s effects but it is also laying the fundamentals for more sustainable, longer-run growth. We will remain true to our key mission, that of facilitating access to finance for new investments. However, it is important that our objectives are also aligned with the wider national and European objectives.
At the same time, I believe that countries that manage to proactively handle the health crisis, prioritise innovation and mobilise new investment funding are likely to bounce back more quickly.
Through its schemes, the MDB intends to facilitate investment in green infrastructure projects, innovation and digitalisation, as well as projects with a social dimension and hence will strive to contribute to the achievement of the country’s ambitious targets in various priority areas.
In this sense, we plan to launch new funding initiatives that can be made available to various projects that fall within these priority areas. We are currently discussing a number of initiatives – we had various consultations with both public and private sector entities in relation to an array of projects relating to, for example, the area of renewables, others in green mobility and also in relation to waste management solutions. These are areas which both the national Government and the European Union are pushing forward as key elements of the recovery.
The EU is providing significant funding to support recovery. How does the role of the MDB fit in?
The available support at the EU level can enable the MDB to take on additional risks and provide even more attractive financial instruments that reflect the market needs post-pandemic.
Through the InvestEU Programme, the EU is expected to enable the mobilisation of an unprecedented €400 billion to be invested across Member States from 2021 to 2027.
Unlike similar schemes implemented in the past, promotional banks such as ours can apply to become direct implementing partners of the EU Budget. Given the specific expertise and enhanced knowledge of their local market, national promotional banks are in a better position to design financial instruments that cater more adequately for the domestic economy.
As Malta’s promotional bank, our aim is to mobilise EU guarantees in order to strengthen the Bank’s role as an enabler of growth.
The process may take a few months to get off the ground. Businesses need urgent support to re-ignite their activity. Are any specific products in the pipeline on the shorter time frame?
Yes, we are looking at a number of initiatives, analysing market developments and originating new ideas. In particular, we are working on a new guaranteed co-lending scheme that we expect to launch later on in the year.
To this end, we are also exploring potential instruments offered by the European Investment Fund, more specifically the Pan-European Guarantee Fund, which will help the MDB to enhance its risk absorbing capacity and ensure a more intensive benefit pass-through to the ultimate beneficiaries.
One of the initiatives will consist of a financial product where the MDB would be making available a portfolio of around €100 million through co-lending with commercial banks on a 50-50 basis, as well as providing a partial guarantee on the commercial bank’s share of the loan.
We expect the co-lending scheme, along with other guarantee schemes, to facilitate investment in green infrastructure projects, innovation and digitalisation that can provide further support to sustainable growth, and these are areas in which we will be pushing forward in the coming months.
In its recent forecast, the EU is projecting that the Maltese economy will grow in 2021 and 2022. When you look at the interest in your schemes over the past few months, do you share this positivity?
Malta’s business community has shown remarkable resilience during the pandemic.
Besides the schemes which supported businesses to stay afloat, we had other entrepreneurs seeking financial assistance to keep growing. These regenerative qualities provide us the necessary confidence that as an economy we are moving on the right track.
The next months will be crucial; however, the sound financial position of the country, the right economic incentives and the strong willpower of local entrepreneurs will provide the right foundations for a strong and sustainable recovery.