Scheme Overview
The Liquidity Support Guarantee Scheme – Measure A (LSGS-A) is the second emergency liquidity support measure being offered by the Malta Development Bank (MDB) as part of a package of measures in response to the Ukraine crisis. The LSGS-A is a portfolio-capped guarantee scheme intermediated by partner credit institutions to provide working capital loans to undertakings affected by the Ukraine/Russia crisis. The Guarantee covers 90% of each new individual loan, capped at 50% of the portfolio.
The LSGS-A is open to all types of undertakings operating in all economic sectors that have been adversely impacted by the repercussions of the Ukraine crisis. All loans sanctioned under the LSGS-A are eligible for an interest rate subsidy of up to 2.5% on the outstanding amount of the working capital loan, subject to a minimum interest payment by the borrower of 0.1%. The interest rate subsidy is payable during the first two years of the loan starting from the date of first disbursement of the loan.
Information to Beneficiaries
A total loan portfolio of up to €100 million is being made available by MDB and is to be allocated to accredited credit institutions on a first-come-first-served basis. LSGS-A is backed by a Government guarantee of 90% on each loan, capped at 50% of the total portfolio volume. The term of the loans shall be up to a maximum of six years.
Term Sheet showing salient features of the LSGS-A
| Scheme | Liquidity Support Guarantee Scheme – Measure A (LSGS-A) |
|---|---|
| Objective | To offer temporary liquidity support to undertakings affected by the current Ukraine-Russia crisis. Through this guarantee, the MDB aims to provide better access and more affordable working capital loans to businesses. |
| Structure | The MDB provides liquidity support in the form of a portfolio capped guarantee which will be intermediated through accredited commercial banks. The guarantee covers 90% of each loan in the portfolio, capped at 50% of the total portfolio. Loans under the LSGS also benefit from an Interest Rate Subsidy. |
| Type of facility | Guaranteed working capital loans at subsidised interest rates. |
| Eligible costs | LSGS-A covers urgent liquidity needs for working capital purposes, including: Higher prices of imported raw materials and primary goods due to disruption in supply chains; and/or Higher costs related to electricity and gas; and/or An increase in other working capital costs incurred by the undertaking through a direct or indirect effect of the crisis. |
| Eligible enterprises | All business undertakings established and operating in Malta consisting of: 1. SMEs (within the meaning of Commission Regulation (EU) N°651/2014 of 17 June 2014 as amended, and 2. large enterprises. |
| Non-eligible enterprises | Entities that are considered to be within the Excluded and Prohibited Activities as per list in this link. |
| State aid | The measure shall be implemented in line with the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (TCF). |
| Last date for inclusion of loans | Up to 31 December 2023. |
| Total Portfolio Volume | €100,000,000. |
| Maximum loan amount | The loan amount per undertaking will not exceed EUR 10 million per SME and EUR 25 million per large enterprise. In any case the loan amount will not exceed: 15% of the beneficiary’s average total annual turnover over the last three closed accounting periods; or 50% of energy costs over the 12 months preceding the month when the application for aid is submitted; or with appropriate justification and based on self-certification by the beneficiary of its liquidity needs, the amount of the loan may be increased to cover the liquidity needs for the coming 12 months for SMEs and 6 months for large enterprises. The liquidity needs already covered by aid measures under the Covid-19 Temporary Framework shall not be covered by this measure. |
| Term of loans | Up to a maximum 6 years. |
| Interest Benefit | Credit institutions shall provide an interest rate reduction on the average interest rate to beneficiaries as compared to similar facilities prior to the introduction of the guarantee scheme. |
| Interest Rate Subsidy | The interest rate subsidy applicable on LSGS-A loans is up to 2.5% of the outstanding amount of the working capital loan, subject that the borrower shall pay a minimum amount of 0.1% of the interest rate charge during the interest rate subsidy period, provided that the maximum aid per undertaking granted under section 2.1 of the TCF does not exceed: a. €250,000 for undertakings operating in the primary production sector of agricultural products, or b. €300,000 for undertakings operating in the fishery and aquaculture sector, or c. €2,000,000 for other undertakings. |
| Availability Period of interest rate subsidy | The interest rate subsidy is payable over a period of two years from the first disbursement date of the eligible Working Capital Loans approved under the LSGS-A. |
| Security / Collateral | The accredited credit institution may request additional security, but the maximum value of extendible security at the portfolio level should not exceed 20% of the total portfolio value. |
| Application process | The scheme is available through MDB’s partnering financial intermediary – Bank of Valletta. |
Information for credit institutions interested in being accredited as intermediaries
The LSGS-A is open to all credit institutions licensed in Malta that during 2022 were providing banking facilities to local enterprises.
The LSGS-A provides a guarantee covering of 90% of each facility, capped at 50% of the actual portfolio volume.
The loans shall carry the following guarantee premium as set out in the TCF. Guarantee premiums are set per individual loan and shall increase progressively as the duration of the guaranteed loan increases.
| Type of recipient | For 1st year | For 2nd – 3rd year | For 4th – 6th year |
| SMEs | 25bps | 50bps | 100bps |
| Large | 50bps | 100bps | 200bps |
The premium is to be calculated on the daily balance of the loan amount, as part of the interest rate. The fee calculation is the product of:
- the sum of the outstanding principal amounts on each day that the Covered loan is a performing transaction during the relevant Guarantee Fee Calculation Period;
- the Guarantee Fee and
- 1/360.
In view of the credit enhancement and substantially reduced credit risk exposure provided by the LSGS, the benefits are to be passed on to the largest extent possible to the final beneficiaries including in the form of:
- higher volume of finance,
- riskier portfolio,
- lower collateral requirement, and
- lower interest rates
Credit institutions would need to give a significant reduction on the average interest rate to beneficiaries as compared to similar facilities prior to the introduction of the guarantee scheme.
The MDB and each accredited credit institution will enter into a Risk Sharing Agreement and Service Level Agreement, regulating the relationship of the parties in relation to the LSGS-A. Copies of the Risk Sharing Agreement and Service Level Agreement governing the LSGS-A will be made available on-demand from the MDB.
To become an accredited credit institution of the LSGS-A, interested credit institutions need to submit the necessary documentation including the Expression of Interest Form which can be found below: