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

Malta has the fourth-highest amount of corporate debt in relation to its GDP, behind its small state counterparts Luxembourg, Ireland, and Cyprus, a study has revealed.

Corporate debt in Malta totals almost 215% of GDP, according to statistics published by British 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. When limiting the figure to just loan 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 sharpest rise in corporate debt took place between 2004 and 2011.

Malta entered the European Union with a 150% corporate debt-to-GDP ratio and GDP at €4.8 billion, according to historical figures from the Central Bank of Malta. This estimates that corporate debt totalled €7.2 billion at the time.

As could be expected, loans to the private sector also began to increase. In 2004, private sector loans stood at roughly €2,500 million. By 2013, these loans increased to well over €4,000 million.

But the 2008 financial crisis and the years after it saw GDP and corporate debt waver. Corporate debt peaked in 2011 at 230% of GDP and remained at over double GDP during the 2010s. As to be expected, the figures are in line with the upward trend in GDP.

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

Economist Gordon Cordina added that Malta’s high corporate debt be the result of firms turning to local banks, as opposed to bonds and stock markets, to obtain financing. “This is partly due to inherent advantages of banks in serving markets of relatively small size,” he said. “I should also add that Maltese firms tend to make more use of internally generated profits.”

The European Commission had warned Malta on its high corporate debt levels back in 2013. In an in-depth review of Malta’s macroeconomic situation, the Commission said that Malta’s high corporate and government debt warrant close attention, as did Malta’s large financial sector, given the link between domestic banks and the local housing and construction market.

Yet even through the COVID-19 pandemic, Maltese businesses remain somewhat resilience, although this is owed to government support measures that helped cushion the pandemic’s impact.

To alleviate liquidity challenges, government had launched the MDB COVID-19 Guarantee Scheme, through which the Malta Development Bank guaranteed new loans granted by commercial banks to businesses facing liquidity shortfalls 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.