Working capital loans: Banks agree to cap interest rate at 3.5%
Government covering first 2.5% for first two years
The government has reached an agreement with all commercial banks to limit the interest rate on capital working loans to 3.5%.
The government has already announced a scheme whereby it will be covering the first 2.5% of the interest rate for the first 24 months.
The Parliamentary Secretary for Financial Services and Digital Economy, Clayton Bartolo, has told The Malta Independent on Sunday that the interest rates given out by the banks will vary between 2.5% and 3.5%.
The participating banks are: Bank of Valletta, HSBC, APS Bank, MeDirect, BNF, Lombard Bank, Izola Bank and FCM Bank.
The Central Bank of Malta, the Malta Financial Services Authority and the Malta Development Bank are working with banks to put this into operation over the next weeks and monitor the scheme take-up and effectiveness, Bartolo said.
The scheme is the latest government measure to help businesses overcome the effects of the COVID-19 pandemic. The government has launched several initiatives, including a tax deferral scheme, payments to cover the first €800 of salaries of employees in the hardest hit sectors and the enforcement of a directive for banks to provide moratoriums on bank loans and interest.
It has also provided a €350 guarantee fund, through the Malta Development Bank, for commercial banks to offer up to €780 million in loans to businesses affected negatively by the pandemic. The government said that, with this measure, it is enhancing access to bank financing for the working capital requirements of businesses in Malta facing a sudden acute liquidity shortage as a result of the COVID-19 outbreak.
Parliamentary Secretary Bartolo explained on Thursday that this scheme will be assisting businesses during these difficult times. “By this scheme, businesses shall be benefiting from a 2.5% subsidy on the interest rate on working capital loans obtained from local banks. This scheme will be injecting €40 million in the businesses’ pockets while assisting families to ease the financial burden.”
In each case, the client must pay a minimum of 0.1% of the said interest rate, Bartolo explained.
This means that if a business receives an interest rate of exactly 2.5% – the government will subsidise 2.4% while the business will pay the remaining 0.1%. If the interest rate is, for instance, 3.5% – hence exceeding the maximum threshold of the subsidy – the government will subsidise 2.5% while the business will pay the remaining 1%.
The latter will now be the highest amount of interest paid by private companies, since banks have agreed to limit their interest rate to 3.5%.
The scheme applies only to working capital loans, which are aimed at helping businesses continue with their day-to-day operations. The reasons for taking out such loans may include: the paying out of salaries, payment of leases and rental costs, energy and water bills, unpaid invoices due to a decrease in business revenues, the acquisition of material and stock for continuation of business, expenses directly related to contracts which were cancelled or postponed because of the COVID-19 outbreak and maintenance costs.