Market Gaps on Access to Finance - Bank of Valletta

More documents

Recommendations

Info

Economic sectors Current financing needs Current financing options Scope for financial instruments Retail/ distribution The local retail sector has been significantly affected by the advent of internet technologies and e-commerce. The 2012 Malta Retail Review found that turnover in 2012 among participants had only increased by 0.4% over the previous year 99 . The local retail sector is stepping up its initiatives to upgrade retail/ shopping outlets to European standards. Some retail businesses and other new entrants in this sector are also investing in the development of related e-commerce sites (e.g. payment institutions, online malls). There is also scope for looking at cost reductions through reaping the benefits of scale economies, such as through bulk buying/ joint importation to reduce transport costs. According to the survey results, this sector expressed less difficulties in accessing finance in all stages, including financing for day-to-day operations as well as specific upgrade projects/ other investments. Threats from external environment – ecommerce Minimal growth and financial difficulties Increased retail supply (e.g. new malls) Upgrading of facilities Reintermediation and Countermediation Restructuring initiatives to cut costs 99 Times of Malta (2012), Retail up but Valletta suffers haemorrhage Traditional sources of finance represent the main sources of finance for this sector. According to the survey results, retail and distribution firms showed the highest sectoral reliance on bank overdrafts and trade credit, possibly indicating temporary financing issues related to cash flow and working capital. In addition, bank loans were another popular source of financing, with the provision of collateral being less of an obstacle compared to manufacturing companies. This is also supported by the fact that this sector is responsible for about one-fourth of the total take-up in the JEREMIE loan guarantee scheme. Grant initiatives are more likely to be focused on the manufacturing sector and sometimes exclude importation agents and distribution as an eligible business activity. In fact, as evidenced by the survey results, retail and distribution firms represented one of the lowest sectoral usages of EU schemes. Reliance on bank lending as main source of finance Strong banking relationship Important take-up of JEREMIE scheme Not main focus of grant schemes Page | 58 Given the potential problems with e-commerce substitution and increased competition locally, firms in this sector might increasingly be facing financial difficulties, and hence there is scope for further bank assistance. In fact, two-thirds of respondents in this sector showed preference for more bank financing. This can also be applied through an extension of the JEREMIE MicroCredit loan guarantee fund, especially since about onefourth of the total current take-up is attributable to this sector. Again, a hybrid approach taking into consideration both grants and loans would also be applicable. The survey clears points towards a majority of this sector’s respondents looking for future opportunities to apply for national schemes and EU financing. The lower growth rates associated with such a mature sector would generally not be deemed attractive for VC funds. Moreover, this sector showed the lowest preference for any equity related initiative. However, a balanced portfolio approach would require investment in both highgrowth high-risk and low-growth low-risk sectors, and hence this sector might also be included in a wider approach to a VC fund. Significant interest in loan guarantee financial instrument Scope for extending loan guarantee product, or combining it with other forms (loan + loan guarantee, risk-sharing, grant + loan guarantee) Minimal scope for VC funds
Economic sectors Current financing needs Current financing options Scope for financial instruments Hospitality The last two years’ (2011 and 2012) tourism figures are encouraging in terms of number of arrivals, but still reflect high seasonality and income volatility, and falling tourist average stays. In addition, competition from nearby Mediterranean countries has further pushed down room rates. The sector often complains of shrinking margins 100 . The sector is currently focusing on improving the tourist experience to reflect a better usage of Malta's historical infrastructure. This is a priority at the various service provision levels, including accommodation, dining and entertainment. In terms of the restaurant sector, there has been strong demand for funding, especially for niche services such as Maltese traditional restaurants and specialised cuisine. Other niche/ specialised tourism services relate to rural tourism (upgrading of town houses and farm houses on our towns and villages, upmarket guest houses 101 ) and medical tourism. Hotels have also applied for various schemes to upgrade their premises. This is especially the case for three and four star establishments. Year-on-year growth in sector Falling average tourist stay Significant competitive pressures pushing down prices and squeezing margins Upgrading initiatives underway Focus on niche tourism Costly refurbishment Similar to the manufacturing sector, commercial bank overdrafts/ loans represent the current main source of finance for this sector. This is facilitated by the fact that the premises would be used as collateral. Start-up restaurants are also generally funded through this traditional source. In addition, the local market has also provided soft loans, interest rate subsidy schemes, and loan guarantees. Given the significant importance of tourism for the local economy through direct and indirect multiplier effects, Government has also stepped in at various stages to provide direct assistance to the hotel sector and the related airline sector (e.g. Interest Rate Subsidy Scheme for the Refurbishment of Hotels, Accommodation Facilities & Restaurants, Soft Loans for Energy Efficiency, MTA ERDF schemes). Given the dynamic external environment, Government is likely to continue adopting this policy in order to safeguard local jobs. The Maltese tourism policy also provides scope for further assistance to niche areas within this broad sector. A few hotels have also sought financing from the capital markets (equity and corporate bonds). Reliance on bank lending Strong banking relationships Significant take-up for JEREMIE product Various earmarked national/ EU funded schemes Use of capital markets Page | 59 Rapidly changing environmental factors make it increasingly difficult for hotels to obtain the necessary bank financing, and hence they may need to look elsewhere for additional (cheaper) financing. Some establishments have had to postpone their investment decisions, leading to a deterioration of the Maltese tourism experience. The c. 20% take up in the MicroCredit scheme by hotels and restaurants is a clear indication of the continuous financing needs of this sector. There is therefore scope for further bank assistance, possibly through a replication of the JEREMIE MicroCredit loan guarantee fund. Moreover, a hybrid approach taking into consideration both grants and loans would also be applicable. There is doubtful scope for additional equity financing – many large Maltese entrepreneurs have moved away from SME hotels and restaurant investments, leaving banks as the main source of financing. This is also reflected in the survey results, where this sector expressed the lowest willingness to seek additional equity injections. Significant interest in loan guarantee financial instrument Scope for extending loan guarantee product, or combining it with other forms (loan + loan guarantee, risk-sharing, grant + loan guarantee) Minimal scope for VC funds and other third party private equity 100 MaltaToday (2010), Three-star hotels’ income squeezed by recession, competition; Times of Malta (2010), Tourism on the road to recovery but sector still very fragile; MaltaToday (2011), Tourism in 2012 will require additional funding; Times of Malta (2012), Restaurants report higher sales but slower growth 101 For example, the MTA Palazzini scheme is a pilot project aimed at encouraging the conservation and rehabilitation of historic properties to incentivise their adaptive reuse as luxury heritage accommodation (http://www.mta.com.mt/template.aspx?id=276)
Page 2 and 3:
Page | 2 Ernst & Young Limited Regi
Page 4 and 5:
Malta Business Bureau - Mar
Page 6 and 7:
Malta Business Bureau - Mar
Page 8 and 9: Malta Business Bureau - Mar
Page 60 and 61: Economic sectors Current financing
Page 62 and 63: Table 7: Mapping of financial instr
Page 64 and 65: Lifecycle stage Current financing n
Page 66 and 67: Few financial instruments were co-f
Page 68 and 69: 6.2.2 Agri-food processing firms De
Page 70 and 71: 6.2.3 Fisheries and aquaculture The
Page 72 and 73: 6.3 Best practice examples Followin
Page 74 and 75: Structural Funds. Specifically, the
Page 76 and 77: consideration the importance of “
Page 78 and 79: 6.3.5.1 Risk capital instruments su
Page 80 and 81: 6.3.6.5 Credit guarantees: In many
Page 82 and 83: European Economic and Social Commit
Page 84 and 85: D5 - How would you classify the cur
Page 86 and 87: Please provide your comments for Qu
Page 88 and 89: 9. Appendix B: Survey (Maltese) Dan
Page 90 and 91: B Normal day to day operations -ext
Page 92 and 93: - Oħrajn (Speċifika) ____________
Page 94 and 95: Q1 - Who are the owners of your fir
Page 96 and 97: B: EU funds- Economic Sector Manufa
Page 98 and 99: E: Trade Credit- Firm Size 1 - 9: M
Page 100 and 101: G: Leasing/ hire-purchase/ factorin
Page 102 and 103: A: National Grants/Pu blic aid C: B
show all

Market Gaps on Access to Finance - Bank of Valletta

Create successful ePaper yourself

Delete template?

Save as template?