René Saliba Chairman MDB Working Group. EIB CBM Conference 31 October 2017

Transcription

1 René Saliba Chairman MDB Working Group EIB CBM Conference 31 October 2017

2 Objectives of Malta Development Bank Background to establishment of MDB Vision and purpose of MDB Strategic direction Governance structure Capital and funding Business model Possible contribution of MDB to the economy

3 Background to establishment of MDB (1) In 2012 CBM delegation made familiarisation visits to European Association of Public Banks, KfW and NRW. In 2013 CBM presented Cabinet Memo proposing MDB. Pre-2013 general elections, the two major political parties included MDB in electoral manifesto political consensus.

4 Background to establishment of MDB (2) In July 2014, Deputy Prime Minister set up MDB Working Group with wide representation. In November 2014 MDB Working Group visited EAPB, DG Competition and Eurostat for preliminary consultations. In June 2016, Bill on MDB Act was published after extensive consultations with European Commission and Eurostat

5 Background to establishment of MDB (3) In August 2016, Commission published its decision that MDB is in line with State Aid rules and in conformity with internal market (within state aid envelope of 255m, subject to review after 3 years, i.e. in August 2019) In August 2016 Eurostat informed NSO that MDB should be classified outside general government sector - subsector 125: Other Financial intermediaries, except insurance corporations and pension funds In May 2017, Parliament passed MDB Act (Act XXI Of 2017).

6 Vision and Purpose

7 MDB Vision and Mission To contribute to sustainable economic development in line with public policy. To encourage inclusive and environmentally sustainable economic growth. To support infrastructure development. To link entrepreneurship, investment and economic growth to improved living conditions, a higher quality of life, and better social inclusion.

8 Purpose of MDB Article 4 MDB Act (1) (1) To support entrepreneurship and socio-economic development in Malta by providing promotional investment and financing as well as advisory services. (2) To give particular consideration to (a) the needs of SMEs through state aid measures and (b) infrastructural projects that contribute to important regional or national development;

9 Purpose of MDB Article 4 MDB Act (2) 3) To act in general as a wholesale intermediary in coordination with and via commercial banks and other investors within remit based on ex-ante defined market failures; 4) To undertake direct lending provided it does not crowd out viable financing from banks or other investors; 5) To provide financing on market terms provided it does not compete with commercial providers, and to address gaps or failures in the financial infrastructure.

10 Strategic Direction

11 Strategic direction (1) The MDB will perform a promotional role in line with public policy. It will address market failures and financing gaps through facilities that will enhance investors access to bank financing. It will support productive and viable operations where the market fails to do so (due to higher credit risks, insufficient collateral, size of project, duration of loan requirement, concentration risks, etc).

12 Strategic direction (2) In terms of EU State Aid rules, MDB cannot conduct business in competition with credit institutions: It is precluded from accepting retail deposits. It will be complementing and supplementing the operations of market players rather than offering any form of competition. While MDB will operate in line with international best practice and sound banking principles, it is an instrument of public policy - MDB primarily committed to support socio-economic objectives in public interest, rather than driven by purely commercial considerations and profit maximisation.

13 Strategic direction (3) MDB is filling in an institutional gap. It will be operating as a lender of last resort as well as performing a countercyclical role in support of the national socio-economic objectives.

14 Strategic direction (4) The MDB will operate, inter alia, in the following sectors. It will aim for a balance between the different sectoral priorities, in line with national public policy objectives. Private Sector Development: SME support, innovative financing, credit enhancement, venture capital, advisory function. Skills and Technology: sustain competitiveness by investment in innovation, skills, knowledge-generation and technology.

15 Strategic direction (5) Infrastructure development: support infrastructure projects especially those enhancing competitiveness. Green Economy: support clean energy and energy efficiency projects, sustainable transport, and water resources. Community Services: Support enterprises operating community services in sectors as education, health and housing.

16 Governance Structure

17 Eurostat Manual on Government Deficit and Debt under ESA 2010 (1) Main issues determining sector classification of NPBs: (a) Governance structure especially: composition of Board government officials? What extent of Government control on decision-making? (b) Nature of business model, especially: are operations prone to loss-making? what extent of sound banking business?

18 Eurostat Manual on Government Deficit and Debt under ESA 2010 (2) Main issues determining sector classification of NPBs: (c) What constraints on assets and liabilities? - limitations on NPB s mandate vs wide objectives? reliance on funding from government vs market sources? extent of risks assumed by NPB vs heavy dependence on government guarantee?

19 Governance structure (1) Board of Directors (7 members) consisting of: Chairman (appointed after consultation with Opposition) Four other Directors appointed by Government (persons of high competence in the economic or financial sectors) two independent Directors appointed by Government on the recommendation of MCESD (not members of MCESD). All Directors must not be from the public service, banks or Parliament.

20 Governance structure (2) Independence and autonomy of MDB: MDB Act provides that MDB shall: exercise its mandate independently and autonomously, not seek or receive instructions from Government or from any other entity, public or otherwise.

21 Governance structure (3) Term of office: Chair - 6 years and may be reappointed, maximum overall term 10 years; Independent Directors - 6 years and may be reappointed, maximum overall term 8 years; Other Directors: 5 years and may be reappointed, maximum overall term 8 years.

22 Governance structure (4) Due to its special promotional nature, MDB will be subject to ad hoc national regulatory and supervisory framework. MDB is currently awaiting exemption from CRD/CRR in terms of article 2 (5) of CRD. Supervisory Board: maximum 6 members (non-executive powers) appointed by Government, as follows: CBM (macro banking regulator) MFSA (micro banking regulator) Ministry for Finance Ministry responsible for MDB (currently MFIN) Two independent professionals with banking and/or regulatory experience

23 Governance structure (5) SB Chair must be one of the two independent professionals, appointed after consultation with Opposition Supervisory Board shall exercise monitoring, advisory and regulatory powers to ensure sound governance and best practices by: Overseeing the policy and general state of affairs of MDB; Monitoring and requesting any information deemed necessary;

24 Governance structure (6) Supervisory Board powers (cont d): Supervising MDB s corporate governance, compliance with regulations, effectiveness of management systems and internal controls, business performance, asset-liability management, remuneration, etc ( as per Part III of MDB Act and Supervisory Board Regulations). Issuing directives on prudential conduct of business, capital adequacy, and risk strategy Submitting analysis and recommendations to Board of Directors and Minister.

25 Governance structure (7) Internal committees of MDB: Audit Committee Risk Committee Ethics and Governance Committee Remuneration Committee Other committees as Board may decide

26 Capital and Funding

27 Capital and Funding (1) Equity: initial authorised capital: 200 million (MDB Act) initial subscribed capital: 60 million (MDB Act) Initial paid up: 30 million rising to 100 million within 5 years (Business Plan) Additional equity over 200million requires prior Commission approval.

28 Capital and Funding (2) Funding sources: Primarily public bond issuance (local). Bilateral long term loans from international development institutions. Other funding (private placements; short/medium term bilateral credit lines; long term loans/co-financing from National Development and Social Fund?).

29 Government guarantee MDB Act provides for guarantee of up to 100% of the Bank s assets & liabilities (100% is NPB norm in EU) MFIN and MDB will conclude MOU on limit of guarantee expressed in euro and/or % of Balance Sheet: preferably limit below 50% of Balance Sheet. Probably guarantee will be predominantly on the assets side (lending operations).

30 Business Model

31 Business model (1) MDB's financing operations: primarily second-tier lending (about 60% - 75%) through financial institutions which will handle the due diligence process - focus is on SMEs who cannot be accommodated by banks in spite of having feasible projects. First-tier operations by way of direct lending and co-financing will play a less prominent role (about 25% - 40%), normally limited to the bigger social/economic infrastructure projects;

32 Business model (2) Constraints on MDB's financing operations: Direct lending by MDB on its own cannot exceed 25% of total lending; Equity investments cannot exceed 10% of own funds; Facilities to one company or group cannot exceed 25% of own funds; All must be bankable projects banking principles (viable, revenue-generating). and assessed according to sound

33 Business model (3) Lending may be aided as specified by Article 6 (7) of MDB Act : a) aided financing authorised under: i. the General Block Exemption Regulation ii. approved aid schemes iii. approved aid under specific Guidelines issued by the European Commission; and iv. EU financial instruments funded from EU Funds, where the Bank will act as a vehicle to channel and manage EU funds, or as co-investor; b) aid that fulfils the conditions of the de minimis Regulation at the level of the final beneficiaries;

34 Business model (4) Lending may also be on non-aided terms, as specified by article 6 (7): c) financing on market terms to eligible final beneficiaries covered by (softer) General Block Exemption Regulation, where all the conditions of the relevant articles of the General Block Exemption Regulation are complied with, except the requirements relating to aid intensities or maximum aid amounts, subject that in the case of infrastructure projects participation by private investors shall be at least fifty per centum pari passu with the Bank;

35 Business model (5) d) financing of participation in EU financial instruments on market terms; e) such other financing subject to prior approval by the European Commission. In case of infrastructure on MEO terms, MDB will only be prepared to provide financing facilities if there is documentary evidence of a market failure. This ensures noncrowding out.

36 Contribution to Economy

37 MDB contribution to economy (1) Primarily credit enhancement by providing guarantees to financial intermediaries, thereby helping intermediaries to expand the size and range of SME loans; Contribute to Additionality by stimulating financing of riskier investments through guarantees and risk sharing; Providing loss protection and capital relief (release of regulatory capital), facilitating higher leverage.

38 MDB contribution to economy (2) Catalyst for promoting domestic group of local banks; syndicated lending by Borrowing from international institutions for on-lending to smaller projects under an umbrella fund; Participation in Pan-EU securitisation platforms set up through collaboration between EIF and NPBs to stimulate purchase and guarantees of SME loan securitisation portfolios (ENSI set up in July 2016; EFSI Investment Platform in December 2016).

39 MDB contribution to economy (3) MDB can act as a vehicle to channel and manage EU financial instruments funded from EU funds. MDB can act as co-investor and participant in risk-sharing in EU financial instruments such as EFSI (including lnnovfin) and COSME products (including EIF Loan Guarantee Facility and SME Initiative), besides participations in European Social Fund and Cohesion Fund. For instance : Through EFSI, the EIB could lend to MDB without necessarily relying on a government guarantee. MDB can contribute to a greater generation of EFSI projects (so far EFSI in Malta is limited to an SME loan scheme by a small local bank under the InnovFin Programme).

40 MDB contribution to economy (4) MDB can facilitate blending of EFSI (European Fund for Strategic Investments) with ESIF (European Structural and Investment Funds) at project level, or investment platform or financial instrument. For instance, a grant from the Structural Funds could meet a possible shortfall in the cash-generation potential of an infrastructural project. In case of joint initiatives between Government and MDB under EFSI, the Government s contribution would be excluded from computation of government deficit and debt.

41 MDB contribution to economy (5) Financing of participation in EU financial instruments on market terms; MDB can participate in venture capital, co-investing with business angels and in VC Fund-of-Funds. MDB can negotiate collaborative arrangements with: Business Enhance Grant Schemes ( 51 million for 6 schemes under ERDF) Malta Enterprise SME incentive schemes Other NPBs and international development institutions.

42 Thank you for your attention