The untold story of the Malta Development Bank

At the end of 2017 the Government of Malta set up the Malta Development Bank (MDB). The process to create this new financial institution had started in 2013 when the Central Bank of Malta had presented a proposal to Government recommending the setting up of this type of bank.

International institutions had been somewhat wary of the proposal. The European Commission had asked for a number of studies to prove that there was a need for it, and it took until 2016 to get full approval. Even subsequently the IMF, while noting that the institution could alleviate SME financing constraints, emphasised that “it is important to ensure robust governance structure, prudent risk assessments, adequate supervision, and well-designed origination rules to contain contingent liability risks to public finances”. The worry was that like in many countries, a governmentowned bank could misuse taxpayer money to fund loans for political purposes and loans which were clearly not financially viable. After all many argued Malta is doing so well, banks are so liquid and well capitalised, why do we need to have a development bank?

Well, the onset of the pandemic showed how lucky we were that Malta went through the bureaucratic nightmare of getting the European Commission to get the MDB approved. An economy that was steaming ahead found itself stopping abruptly. A tourism sector that was growing with double digits in one month found itself with the airport and cruise port closed. Households that were consuming huge amounts shied away from shops and instead saved an inordinate amount. The flow of credit from banks stopped as banks were made to offer generous moratoria on existing loans that eroded their income. In sum, all the ingredients for a perfect storm.

At that moment in time, when things looked dire, in stepped the MDB. Shielded by its government guarantee it could provide security to banks who were being asked to provide liquidity to cash-strapped firms. Almost 650 local businesses have been provided with assistance totalling to over half a billion Euro in loans. Nine out of ten of those assisted were SMEs.

MDB-supported loans accounted for three-quarters of all loans extended during 2020. In just one year, MDB-supported loans changed from being an insignificant part of all loans offered by the banking sector to being one in eight of all outstanding loans. MDB-supported loans are benefitting firms employing more than 40,000 employees or nearly a quarter of all private sector employees.

When the Maltese Government was running a surplus, many had asked why this was necessary. Would it not be better to spend this surplus and give it to the people who needed it? Imagine what would have happened if this advice had been followed. Malta would have faced the pandemic like Spain, Greece, and Italy. It would not have been able to help, and the brunt of the shock would have fallen on those most vulnerable at a time when they could least withstand it.

Imagine what would have happened if there had been no Malta Development Bank. Who would have been able to support the 650 firms that today benefit from MDB-supported loans? How many of the more than 40,000 workers employed by these firms would still be drawing a salary? What would have been the impact on the broader economy of so many firms being bereft of cash to operate?

The setting up of the MDB will be a long-lasting legacy of the Labour administration. When the going gets tough, as it will inevitably do at some point in the future, the MDB will be there again. Like an insurance scheme, it will protect the financial system and allow it to continue operating at times of great stress.

Besides this fire-fighting role, the Bank will also be there to help the broader development of Malta’s economy, helping us to finance the green and digital transformation. Truly this institution shielded from the limelight has touched thousands of lives and helped provide the base for the new prosperity of our society.


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