The Malta Business Observer, 30th April 2020

Page 12


e Malta Business OBSERVER


April 30, 2020


MDB’s COVID-19 Guarantee Scheme offers easy and affordable access to financing – Chairman The CGS is a comprehensive package of support, and in my view, it cannot be dissected to identify those components, which are more, or less, favourable. In its totality, the CGS comprises enhanced access to otherwise-unavailable credit; a moratorium on repayments of both capital and interest; a very significant reduction in interest rates; and a significant reduction in collateral requirements. This scheme is meant to aid local businesses on two levels: first, the enhanced access to bank liquidity, together with the lower collateral requirements, make it easier for business to access financing. Secondly, the moratorium on repayments and the lower interest rate make the repayments much more affordable for businesses. It is the synergy of access to financing and the affordability of financing that make the CGS such a powerful and helpful instrument for local businesses.

The Chairman of the Malta Development Bank (MDB), Prof Josef Bonnici, outlines the benefits of the entity’s COVID-19 Guarantee Scheme (CGS) to local businesses, and how the programme aims to provide enhanced access to capital in an affordable format, by providing credit risk mitigation and capital relief through Malta’s commercial banks, enabling them to provide liquidity to local businesses. What is the aim of the COVID-19 Guarantee Scheme (CGS) and how was it put into place? Malta is a small and open economy. This openness means that we are highly dependent on the economic well-being of our trading partners. The lion’s share of our tourism originates from Western European countries, while most of our trade is with our EU partners and a large portion of the expatriate community, resident in Malta, originates from our European neighbours. Moreover, many items critical to our quality of life - food, furnishings, clothing, educational materials, medicines and medical supplies – also originate from Europe. This means that, when COVID-19 hit Europe, we were very exposed to the risk of the pandemic spreading to Malta, and likewise, to the spreading economic shocks. For the past weeks, most of our population has lived in partial lockdown, and huge portions of our economy have been suspended. Thankfully, we are now increasingly talking about removing some restrictions in view of the apparent receding threat of the pandemic,


“At MDB, we want to provide credit risk mitigation and capital relief in order to support commercial banks in unlocking credit to Malta’s businesses at favourable terms.” but the economic shock in Europe will not recede at the touch of a button, and our economy needs to rely on an infrastructure of support in order to re-emerge. Financial inter-

mediation is a critical element of this support infrastructure. With so much economic activity disrupted by the pandemic, a flexible supply of credit is crucial for our recovery.

This is the economic logic underlying the COVID-19 Guarantee Scheme. At MDB, we want to provide credit risk mitigation and capital relief in order to support commercial banks in unlocking credit to Malta’s businesses at favourable terms. The CGS is part of the wider package of Government’s COVID19 Response Support Programme. A Guarantee Fund of €350 million has been allocated by Government to the MDB in order to develop, administer and implement the guarantee scheme through the intermediation of the local commercial banks. The Government guarantee provided under the scheme will provide the necessary reassurance and capital relief to the commercial banks which will enable them to mobilise over €777 million of new working capital loans to businesses at favourable terms. In your view, which aspects of the scheme are the most helpful to local businesses?

How does the MDB plan on liaising with the accredited bank/s in order to ease the process? From the very start, the MDB was in consultation with Malta’s commercial banks when deciding the features and operation of the CGS. We are now going ahead with the accreditation process for commercial banks so that they can participate in the CGS. The list of accredited commercial banks can be viewed on the MDB website. Are there any companies which would not be eligible for this scheme? The rules of the CGS effectively make all companies and self-employed people in Malta eligible for the scheme, with different limits on the maximum loan amounts that can be applied for. Small and medium-sized enterprises (SMEs) can apply for a loan up to a limit of €4 million, while larger enterprises can apply for loans up to €8 million, and even these limits can be extended on a case by case basis subject to appropriate justification. Are there plans to increase the number of accredited banks? The scheme is open to all banks operating in Malta. The MDB’s objective is to magnify the outreach of its promotional role by collaborating with all commercial banks so that they can diversify the financing options to SMEs. The MDB is proceeding with the accreditation of more