Optimal structure of the Malta Development Bank

Abstract

Development banks are very common throughout the world. In Europe institutions such as the KfW have been operating since the 1950s and are today located all over the world. However, although Malta is a relatively developed country, it has only recently launched its National Development Bank. While this institution offers enormous potential to Malta, given the number of market failures and present issues in its economy, there are risks which the state bank presents as well. Indeed, the proper use of the powers of this institution will determine whether it becomes a vehicle for further long term economic development and growth. Through in-depth research on different National development banks and after consultation with various experts in the field of economics and finance, I have gathered a wide range of information regarding the situation of the Maltese economy as well as the workable solutions which a Development Bank may offer to Malta in light of its particular circumstances. The context of the Maltese financial sector is a stable one, but it does have a funding gap, particularly in SME funding and large infrastructural projects. Maltese banks also have a considerable amount of excess liquidity which is not being invested. The MDB must be structured in such a way that it complements the private sector without limiting its operations in the best interests of the Maltese economy. By acting as a guarantor, the MDB can allow commercial banks to finance projects which they deem too risky due to a lack of collateral, even though they may be viable. The MDB can also help the government deal with its fiscal limitations by giving it an option to fund certain investments in a more sustainable manner than traditional debt financing.