Malta’s SMEs buck EU trend in 2020, taking out fewer loans than they did in 2019

According to the Central Bank of Malta’s 2020 Annual Report, Maltese Small and Medium Enterprises (SMEs) took out fewer bank loans in 2020 compared to 2019, while the reverse was true in the EU. 

According to the report, in 2020, 12 per cent of Maltese SMEs took out bank loans, down from 16 per cent in 2019. A proportion of 18 per cent of EU firms took out bank loans in 2020, down from 15 per cent in 2019.

According to the report, 44 per cent of domestic SMEs said they did not use bank loans, an additional 39 per cent of them considered them irrelevant for their enterprise.

This is in contrast with the same figures for EU SMEs, of which 29 per cent said they did not use bank loans, whereas half of them replied that bank loans were irrelevant for their businesses. 

When asked about why they did not deem bank loans relevant, the vast majority of SMEs in both Malta and the EU cited that they did not need this type of financing.

Additionally, 12 per cent of local SMEs reported that interest rates or prices were too high, as opposed to eight per cent of their EU peers. 

A significant proportion of Maltese respondents, (five per cent) reported that no bank loans were available, whereas three per cent of EU respondents reported that this was the case.

The study, which uses data from The Survey on Access to Finance of Enterprises conducted in September and October of 2020 in collaboration with the European Central Bank, also looks at SMEs’ reliance on different forms of financing. 

It found that a smaller share of Maltese SMEs resorted to credit lines and overdraft facilities in 2020 compared to 2019. 50 per cent reported doing so in 2019 whereas 41 per cent did in 2020, though the report points out that this is “still well above the share of one-third in the EU”.

The share of domestic SMEs using trade credit also decreased, to 32 per cent in 2020, from 38 per cent in 2019.

Maltese SMEs were disproportionately likely to have used funding in this category. With 32 per cent of its SMEs using these options, Malta stood in third place in the EU, after Ireland (46 per cent) and Poland (33 per cent).

Another insight from the survey was that a third of SMEs cited a category that included the COVID-19 pandemic, Brexit, and political instability as including their most pressing challenges.

This pattern was seen across the EU, with the survey finding that if COVID had been in a category of its own it would have been the third most pressing challenge.

Access to finance was among the least pressing of obstacles across the EU, and, according to Malta’s Central Bank, as could be expected, in a period of low demand, the previously pressing problem of skill shortages dampened considerably, though it remained the third-largest issue for Maltese firms.

Overall, the report concludes that, “financing conditions for small and medium-sized enterprises (SMEs) remain accommodative”.