Intervention from the Floor Transcript – Joseph Darmanin

SMEs National Forum 2021 - Report

INTERVENTION FROM THE FLOOR TRANSCRIPT

Joseph Darmanin, Chief Business Development Officer at Malta Development Bank

I’d just like to add a couple of comments to the discussion. I think as we all saw this morning, finally, it all boils down to money, to financing. Without money and financing, we cannot invest. If we do not invest, we cannot achieve our targets; we cannot achieve climate neutrality. And this is where the Malta Development Bank comes in.

My colleague Paul focused on one of the pillars of the Malta Development Bank, which is the access to finance for SMEs. This is very important because ultimately, we need investment by all businesses to achieve our targets. But then there is another pillar that relates to the financing of large infrastructure projects, large projects that have a large impact on the climate. And in the sense, this is another market failure. Whilst we call it a market failure, this doesn’t mean that someone is failing to do something. It’s just a situation that is intrinsic to the banking sector. So basically, when it comes to the financing of large infrastructure projects, as you know, banks are financed by short term deposits. It is always going to be a problem to finance a large project with a long gestation period over a long repayment period. And sometimes if we want these projects to succeed and to make them financially feasible, we need to be providing a longer gestation period. And in Malta, unfortunately, the level of financial diversification and intermediation is quite limited. To give you an example, just a €20 million project, for example, is already within the limits of most banks when it comes to the single large exposure limit, just a €20 million loan. The options are limited, and this is what the Malta Development Bank (MDB) brings to the table. It brings diversification of solutions. The way MDB is funded, as Paul said, from international financial institutions and benefiting from Triple-A rated multilateral borrowings, which can be used to provide funding over a much longer period, 30 even 40 years and with much larger amounts. And we’ve seen this working already. We financed a project recently, a project in the social dimension, but it involved the construction of a large building. But in the construction of this large building, they used a patent patented material, a material that replaces actual concrete. Probably it’s more expensive, so you would have a situation where the initial price, the initial investment would be higher. But then you would need a longer repayment period, a longer gestation period to bring about the financial feasibility of the project.

So these are the types of financial solutions that we need to be thinking about, especially for large projects in this case and which the Modern Development Bank is in a position to support even through syndicated lending with commercial banks.