On the road to recovery

Rene Saliba, Chief Executive Officer of Malta Development Bank.

The last few weeks brought the welcome news that two vaccines have been authorised by the European Union and we look forward to the approaching third and subsequent authorisations. Increasing supplies of the vaccines as we move forward is likely to prove to be the game-changer that kick-starts the road to economic recovery.

As Malta’s first and only promotional bank, we have the capacity to act in a counter-cyclical manner  to help the country achieve a higher level of growth through increased value added while promoting social inclusion, a cleaner environment, provide more opportunities for students and improve the quality of life.

The Covid-19 Guarantee Scheme (CGS) has been our successful flagship facility throughout the pandemic. It has provided loan guarantees, subsidised interest rates and facilitated access to liquidity to a range of businesses, mostly SMEs, in a diverse range of sectors. There is still ample funding left to support the CGS and we will continue to support businesses as we go forward.

We are mindful that small- and medium-sized enterprises are more susceptible to risks and have been more adversely impacted by the pandemic. Since inception the MDB has tended to prioritise support to SMEs and will continue to do so in this envisaged recovery phase.

However, the changing scenario also necessitates new forms of support. Our emphasis will remain focused and we will not depart from our mission to facilitate access to finance for new investments. Covid-19 has revealed that our markets and supply chains are fragile and vulnerable to disruptions. In general, we expect the pace of recovery to be different across the world and across sectors within the same economy. Countries that managed to proactively handle the health crisis, prioritise innovation and mobilise new investment funding are likely to bounce back more quickly. The post-Covid markets are also likely to be different. New trends will emerge after the crisis: increased online shopping, growing popularity of videoconferencing versus physical meetings, a possible shift towards working from home and enhanced focus on innovation.

As we look towards an economic recovery phase, we are underlining the opportunity of the SME Invest initiative, which was launched in May 2019, and to date remains the bank’s main financial instrument supporting SMEs’ new investments. This investment scheme is intermediated through Bank of Valletta, implementing partner of the SME Invest scheme. More information about the scheme can be accessed from: https://www.bov.com/content/bov-sme-invest.

SME Invest targets those SMEs planning new capital investment projects and provides easier access to finance through reduced collateral requirements and finance costs. Enterprises may seek bank financing up to a maximum of €750,000, at attractive interest rates and reduced collateral obligations. This enables enhanced access to investment financing since these loans are both affordable and accessible, even for those SMEs that may have limited assets that can be collateralised. As at end of 2020, SME Invest has injected €29.3m in new investments in the local economy, supporting 96 projects undertaken by local SMEs. During this period, the average sanctioned loan size under this financial product stood at around €305,000. The sanctioned projects include investments related to childcare centres, refurbishment of retail outlets, including hotels and upgrading of the tourist product, digitalisation, renovation of factories and investment in health-related projects.

As has been the case throughout the pandemic, the MDB is looking to provide a strong and innovative stimulus in the upcoming recovery. To position ourselves and to be effective in supporting change, we are looking at our initiatives, analysing market developments and originating new ideas. We are currently progressing on a number of new initiatives. In particular, we are working on a new co-lending scheme that we expect to launch later on in the year.

We are observing that the loan values of SME investments are on the rise and it has become increasingly evident that the investment demands of SMEs can often exceed the upper limit of €750,000 under the SME Invest. This leaves a more pronounced financing gap for larger SMEs. The new co-lending scheme will cater for this market gap within the applicable State aid parameters.

Exciting times are ahead. We will be there to support, encourage and facilitate Malta’s rapid resurgence as a vibrant and fast-growing economy.