The launch of the MDB marks an important event in the development of financial intermediation in Malta. During the height of the sovereign debt crisis, it became clear that Malta lacked an important institution that acts counter-cyclically to mitigate the adverse impacts of the prevailing economic cycle. In the period after the sovereign debt crisis, notwithstanding the excess liquidity characterizing local banks the volume of bank lending to corporate borrowers in Malta remained subdued, and lending rates remained relatively elevated. This market gap was more evident in respect of SME access to finance. As a result, the prevalent financial conditions at that stage marked a strong case for a promotional institution to promote entrepreneurship and investment.
The need to create a promotional bank to address such an institutional gap originated a few years earlier when the Central Bank of Malta discussed the benefits associated with the establishment of such an institution with Government authorities. After obtaining better insight into the institutional and organizational aspects of promotional banks and their business model, in 2013, the Central Bank of Malta presented a proposal to the Government recommending the setting up of a national promotional bank.
A Working Group with wide representation was set up, mandated to prepare recommendations for the setting up of the new institution and the related legislative and operational framework. At the request of the Commission, the Ministry for European Affairs in 2015 commissioned two studies.
The first was a Market Study on Potential Existence of Market Failures in Malta. This study concluded that taking into account both SME finance and infrastructure financing, the total funding gap was estimated at between 29% and 39% of GDP over a period of five years, equivalent to between €2.3 billion and €3.1 billion. The second report provided a Blueprint describing the role of the Bank, its business model, products and financial projections. These market studies also entailed extensive consultations with a wide range of domestic stakeholders.
On 19 April 2016, Eurostat determined that the Malta Development Bank should be classified outside the general government sector for the purposes of classification by sector under ESA 2010. On 24 August 2016, the EU Commission published its decision that the legislation, business plan and proposed measures pertaining to the Malta Development Bank are in line with State Aid rules and in conformity with the rules on the internal market.
The Bill on the Malta Development Bank Act was published on 24 June 2016. On 5 May 2017, the Malta Development Bank Act, 2017 (Act XXI of 2017 CAP 574) was passed and came into force on 24 November 2017 through Legal Notice No 340 of 2017.
On 11 December 2017, the Minister for Finance appointed the members of the Board of Directors and the Supervisory Board of the Malta Development Bank. On the same day, the Board of Directors held its first meeting and the Bank officially commenced operations.