A Communication from the College of Commissioners of the European Union confirmed that it has approved the setting up of Malta's Development Bank and found it to be in line with EU state aid rules.

In welcoming the decision as a "fundamental step in extending Malta's financial structure", Deputy Prime Minister, Mr Louis Grech said that "the country will now have a financial institution that specialises in development and which will not be guided solely by the profits of the shareholders."

The Deputy Prime Minister explained that the principal aim of the Bank will be to promote socio-economic development through non-commercial activities to finance different sectors, the main ones being Small and Medium Enterprises and Infrastructural Projects, without distorting competition unduly.

Mr Grech added that "the Government is expecting the Bank to have a prominent role in stimulating investment and growth, making access to finance easier and, wherever possible, on easier terms.  It will fill a long-felt void."

The Malta Development Bank will act in the main as a second-tier financial institution crowding-in established credit institutions. This means that it will primarily operate when the private commercial banks fail to make appropriate financing available or, if it is available, it is not offered at normal market terms.

The approval of the Bank by the Commission's Directorate-General Competition came about after months of prolonged negotiations between it and the Office of the Deputy Prime Minister, which was assisted by a Working Group under the chairmanship of Mr Rene Saliba.

The negotiations were also complemented by various technical studies commissioned by the Government with a view to establishing the magnitude of market failure as well as to draw up a Business Plan for the Bank.  This was also complemented by a series of consultations that were held with various stakeholders and also together with the Opposition.

The scope of the Bank is twin-pronged.  On the one hand, it will finance commercial enterprises, particularly small and medium sized ones, which have sound and   plans for new businesses or wish to expand existing ones.  On the other hand, it will also be involved in financing medium and large infrastructure projects.

The Bank will have an authorised capital of €200m, allowing it to leverage this to around €1bn of loans in due course.  However, the initial paid-up capital is expected to be around €30m, with further capital pay-ups depending on the growth of the Bank's business.  The Bank will be owned 100 percent by the Government.  It will have a guarantee from the Maltese Government on both the assets and liabilities side, the extent of which will be negotiated between the Bank and the Ministry of Finance.

The Commission's Decision lays down the agreed parameters for the Bank's operations, including its compliance with various rules relating to State Aid and General Block Exemption Regulation.  It also specifies the financing envelopes approved for the Bank for the first three years of operation, following which these will be reviewed in the light of developments.

The Bank will be considered as a non-profit making institution, but its Statute lays down that it will follow prudent banking practice and only finance projects that are commercially viable.  It will initially operate mainly through guarantee schemes provided to the private commercial banks, who will continue to inter-relate directly with their clients and carry out due diligence and project sustainability studies.

The Bank will be an unregulated financial institution, but its operations will be monitored by a strong Supervisory Board.  The Bank will not take retail deposits, but its capital can be augmented by loans from other financial institutions.  In due course, it may be authorised to issue bonds to the public.

The Union's Eurostat had already informally advised that the Bank will not be considered as part of the Government's finances, and therefore will be excluded from the deficit calculations.

Mr Grech said that "the setting up of the Bank is another Electoral Manifesto proposal we are implementing.  It will enhance the country's financing structure and contribute to economic growth, and we now join the other European Countries that have a national development bank," said Mr Grech.

He added that, subsequent to the First Reading of the Act, he would be presenting the Second Reading of the MDB Act some time after Parliament's summer recess.

(Source: PRESS RELEASE ISSUED BY THE MINISTRY FOR EUROPEAN AFFAIRS AND IMPLEMENTATION OF THE ELECTORAL MANIFESTO)

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