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Malta’s corporate debt is the fourth highest in the world

Malta has the fourth highest amount of corporate debt relative to its GDP, behind its smaller state counterparts Luxembourg, Ireland and Cyprus, a study has found.

Corporate debt in Malta totals nearly 215% of GDP, according to statistics published by UK consultancy Utility Bidder and based on IMF corporate debt data.

Here, corporate debt includes all debt instruments, ranging from loans and bonds to other securities. Restricting the figure to just loans and debt securities, Malta’s corporate debt to GDP ratio stands at 137%, the 11th highest in the world.

Covering data from 1995, the IMF data suggests a long-term upward trend in corporate debt, more so when the figure covers all debt securities. The largest increase in corporate debt took place between 2004 and 2011.

Malta entered the European Union with a debt-to-GDP ratio of 150% and a GDP of €4.8 billion, according to historical figures from the Central Bank of Malta. He estimates that corporate debt then amounted to 7.2 billion euros.

As expected, lending to the private sector has also started to increase. In 2004, loans to the private sector amounted to around €2,500 million. In 2013, these loans reached well over 4,000 million euros.

But the 2008 financial crisis and the years that followed saw GDP and corporate debt falter. Corporate debt peaked in 2011 at 230% of GDP and remained at more than double GDP through the 2010s. As expected, the numbers are in line with the upward trend in GDP.

Utility Bidder suggests that Malta’s low level of GDP, at least compared to other economies, due to Malta’s small size and large number of businesses, means it is easy for corporate debt to exceed GDP. This helps explain how the four most corporately indebted countries are small states.

Economist Gordon Cordina added that Malta’s high corporate debt is the result of businesses turning to local banks, as opposed to bonds and stock markets, for financing. “Part of this is due to banks’ inherent advantages in serving relatively small sized markets,” he said. “I should also add that Maltese companies tend to use internally generated profits more.”

In 2013, the European Commission warned Malta about high levels of corporate debt. In an in-depth review of Malta’s macroeconomic situation, the Commission said that the high level of corporate and government indebtedness warranted particular attention, as did Malta’s large financial sector, given the link between national banks and the local housing and construction market.

Yet even during the COVID-19 pandemic, Maltese businesses remain somewhat resilient, although this is due to government support measures which have helped to cushion the impact of the pandemic.

To alleviate liquidity concerns, the government launched the MDB COVID-19 Guarantee Scheme, through which the Malta Development Bank guaranteed new loans from commercial banks to businesses facing liquidity shortages resulting from the pandemic. . In addition to this, the Central Bank of Malta had issued a six-month moratorium on loan repayments to temporarily suspend borrowers’ repayment obligations.