When COVID-19 reached Malta, significant portions of our economy came to a virtual standstill. The Malta Development Bank was quick to react by launching its COVID-19 Guarantee Scheme to provide access to working capital bank loans with reduced collateral requirements, subsidised interest rates, and a moratorium on repayment of capital and interest.
The MDB found itself in a key role to mitigate the immediate impact of the crisis on businesses and reduce the risk of commercial banks – both crucial elements in stabilising the economy. This fits in perfectly with our main role, which is to fill financial gaps in the market and help stabilise the economy.
The government allocated a guarantee fund of €350 million for the MDB to develop, administer and implement the scheme. The underlying guarantee provides risk reduction and capital relief to the nine accredited commercial banks and enables them to leverage these funds and mobilise up to €777 million of new working capital loans to businesses.
We are encouraged by the initial results, confirming that the scheme responds well to business needs. So far, over 250 businesses have been supported with over 90 per cent being SMEs, ensuring the retention of 15,000 jobs. The greatest share of beneficiaries were enterprises operating in tourism and catering (more than 25 per cent) while wholesale and retail operations were a close second (22 per cent). Other significant beneficiaries were construction, transport and storage and the manufacturing sector.
In total, the nine commercial banks that serve as intermediaries of the scheme approved over €200 million in facilities by the end of June. We have successfully supported businesses of all sizes: The greatest share of businesses benefitting from the scheme, 160 entities or 64 per cent of the total, took out loans smaller than €250,000. But we also supported 16 businesses with loans greater than €2 million.
The COVID-19 Guarantee Scheme makes credit accessible to many businesses that otherwise may not have been able to tap bank credit during these extremely challenging times.
This scheme will remain available to receive new applications until the end of the year. Our commitment is to continue to provide relief while there is an ongoing process of economic recovery. We will continue to support commercial banks to provide an additional €600 million in new loans under this scheme.
Besides these measures to safeguard employment, the MDB took action to support the stability in the capital market. The definition of working capital was widened to include the coupon payments of listed bonds within the coverage of the guarantee scheme. The MDB also provided a temporary Bond Subscription Facility to support the rolling over of a listed entity’s bonds that were soon maturing.
The European Commission provided clearance of this measure due to the COVID-related uncertainty in the capital market and the possibility of some consequent instability in the corporate bond market. As it turned out, there was no need for the MDB to take any further action as the market responded well to the bond issue.
Post COVID-19, the MDB has also a set of schemes to facilitate the funding of investments in the case of financial gaps arising out of the reduced appetite by banks to fund such projects on their own. Fortunately, the MDB was in a position to quickly come of age at the right time for the worst economic downturn that we have seen for decades.
Josef Bonnici, chairman, Malta Development Bank