Access to finance for firms in Malta : estimating the impact of reduced credit

Abstract

Access to finance is a key challenge for firms particularly in a small economy like Malta. From a demand side, results from the Survey on the Access to Finance of Enterprises (SAFE) indicate that bank financing still remains the most used source, though firms have made greater use of alternative sources of finance. From a supply-side point of view, the Bank Lending Survey (BLS) indicates that Maltese banks have resorted to stricter credit conditions rather than quantity restrictions. The relationship between credit to NFCs and GDP growth appears to have weakened since the crisis, such that an increased level of credit has a smaller impact on real output. This may reflect structural changes in the Maltese economy that have taken place over the last decade, whereby the growth of the services sector, which is highly labour intensive and generally requires lower capital investment, may be contributing to lower demand for credit.