"SMEs have a critical role in ensuring and sustaining growth of the Maltese economy. Bank of Valletta is highly committed to assist small and medium-sized enterprises (SMEs) in their financing needs," Albert Frendo, BoV's executive head, Credit Risk, told a conference hosted by the Chamber for Small and Medium Enterprise (GRTU) and Forum Malta fl-Ewropa.
Mr Frendo highlighted the impact that SMEs have on Malta's economy: out of a population of business enterprises close to 31,000 units in 2005, 95.8 per cent are micro enterprises, employing fewer than 10 people.
He explained the issues that small businesses encounter within this sector, especially since an equity gap is very much evident in Malta where providers of risk capital are absent. In general, retail banks cannot fill such a void because they are fundamentally lenders not investors and they have to ensure that the depositors' funds are adequately safeguarded.
Private equity and venture capital are critical sources of finance to provide investment especially at the start-up stage, hence complementing commercial banks in providing finance throughout the entire business cycle. Similarly, the government also plays a vital role as a catalyst in promoting and encouraging financing through different measures and schemes, he pointed out.
Mr Frendo referred to a survey he carried out recently in collaboration with GRTU among a number of local SMEs. The results were compared to a similar survey carried out among 15 countries within the EU. The survey clearly highlights that the challenges faced by Maltese SMEs are similar to those faced by their EU counterparts.
For instance, priorities of Maltese SMEs to ensure the development of their company are in the same order of that of the EU15 average. The need for sector-specific social and fiscal regulations is considered to be the most important, followed by the need for a better-qualified labour force, with easy access to finance being the third in priority rankings.
"The Maltese economy is highly reliant on banks as the main source of SME finance with overdrafts remaining the most popular means of finance opted for by SMEs locally," Mr Frendo pointed out.
"In fact, 78 per cent of those interviewed make use of overdrafts as their predominant type of financing compared to an EU15 average of 49 per cent. Although banks are also the most popular source for finance within the EU15, leasing and renting companies and government-backed finance schemes are also popular in the EU, whereas the percentage in Malta is relatively low."
Mr Frendo added that venture capital is still generally low in Europe - and non-existent in Malta. It is comforting to note that, in general, Maltese SMEs consider banks as supportive in terms of financing needs and understanding of sector activity.
It is expected that Malta would be able to tap on EU initiatives, such as Joint European Resources for Micro to Medium Enterprises (JEREMIE), as a means of encouraging wider and more encompassing sources of finance to promote growth of high potential SMEs albeit with a lack of sufficient own capital.
"Banks, however, will undoubtedly remain important intermediaries for SMEs," he said. "Banks have recently geared themselves better to focus on this important segment. BoV has a dedicated unit focused on SMEs with advisory services and tailor- made packages for micro-financing."