MALTA DEVELOPMENT BANK ACT

MALTA DEVELOPMENT BANK ACT

CHAPTER 574

MALTA DEVELOPMENT BANK ACT

AN ACT to make provision for the establishment of the Malta

Development Bank and the determination of its functions and powers

and to provide for matters ancillary or incidental thereto.

24th November, 2017 *

ACT XXI of 2017, as amended by Legal Notices355 of 2017 and Act VII

of 2019.

The short title of this Act is the Malta Development Bank

Act.

In this Act, unless the context otherwise requires

"applicant" means a person who applies to the Bank for

financing, or any other service;

"Bank" means the Malta Development Bank established under

article 3;

"Board" means the Board of Directors of the Bank established

under article 20;

"body corporate" means a body of persons having a legal

personality distinct from that of its shareholders;

"bye-laws" means the bye-laws made in terms of article 22(2)(j);

"Central Bank" means the Central Bank of Malta as defined by

the Central Bank of Malta Act;

"Chairperson" means the Chairperson of the Board appointed in

*See Legal Notice 340 of 2017.

MALTA DEVELOPMENT BANK ACT

accordance with article 21(2)(a);

"company" means a company formed and registered under Part V

of the Companies Act or the Commercial Partnerships Ordinance;

"Chief Executive Officer" means the administrative head of the

Bank appointed in accordance with article 21(9);

"credit institution" has the same meaning assigned to it in point

(1) of Article 4(1) of Regulation (EU) No. 575/2013 of the

European Parliament and of the Council of 26 June 2013 on

prudential requirements for credit institutions and investment firms

and amending Regulation (EU) No. 648/2012, as amended from

time to time, and includes any implementing measures that have

been or may be issued thereunder (CRR);

"debt obligation" means a bond, debenture, note, investment

certificate or other evidence of indebtedness or a guarantee of a

corporation, whether secured or unsecured;

"de minimis Regulation" refers to Commission Regulation (EU)

No. 1407/2013 of 18 December 2013 on the application of articles

107 and 108 of the Treaty on the Functioning of the European

Union to de minimis aid;

"Depositor Compensation Scheme" means the scheme

established by regulation 4 of the Depositor Compensation Scheme

Regulations;

"Director" means a member of the Board appointed in

accordance with article 21;

"emergency" means a force majeure circumstance or a situation

where, as a result of a serious shortfall in income and/or liquidity

suffered by the Bank or of severe disruption in the financial markets,

there is a material adverse effect on the safety and soundness of the

Bank;

"enterprise" means an organised economic activity carried on by

one or more persons;

" e q u i t y " m e a n s o r d i n a r y, c o m m o n o r p r e f e r e n c e s h a r e s ,

warrants, options or debt which, with the passage of time or, as a

result of financial or other conditions, may be converted into equity

at either the issuer or holder’s option;

"European Commission" means the European Commission

established by article 13 of the Treaty;

"European Economic Area" means the area defined by Article 1

of the Agreement on the European Economic Area;

"European Investment Bank" means the bank established by

Article 308 of the Treaty on the Functioning of the European

Union;

the "European Union" means the European Union as referred to

in the Treaty;

"financial institution" has the same meaning assigned to it by

article 2 of the Financial Institutions Act, and includes any branch

in Malta of an institution not incorporated in Malta;

MALTA DEVELOPMENT BANK ACT

"General Block Exemption Regulation" refers to Commission

Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain

categories of aid compatible with the internal market in application

of articles 107 and 108 of the Treaty;

"Government" means the Government of the Republic of Malta;

"interested person" means

(a) the spouse, common-law partner, child, brother, sister

or parent of a Director,

(b) the spouse or the common-law partner of a child,

brother, sister or parent of a Director, or

(c) the parent, sister or brother of the spouse, or of the

common-law partner, of a Director;

"Malta Council for Economic and Social Development" means

the advisory body established by article 3 of the Malta Council for

Economic and Social Development Act;

"Minister" means the Minister responsible for the Bank;

"National Audit Office" means the National Audit Office set up

by article 108 of the Constitution of Malta and enacted by the

Auditor General and National Audit Office Act;

"person" includes a trust, a partnership, an association of natural

persons, corporations, public organisations and public entities;

"politically exposed person" shall have the same meaning assigned to

it by regulation 2 of the Prevention of Money Laundering and Funding

of Terrorism Regulations;

"project" means an investment in an economic activity

undertaken by one or more persons or undertakings;

"resolution" means a resolution of the Board made in terms of

article 22(2)(j);

"securities" means the shares of any class or series of shares,

warrants, options or the debt obligations of a corporation and

includes certificates evidencing those shares or debt obligations;

"shareholders" means the owners of the shares of the Bank in

terms of article 10(2);

"subsidiary" has the same meaning assigned to it by article 2 of

the Banking Act; and

"the Treaty" shall have the same meaning assigned to it by article

2 of the European Union Act.

Part II

Establishment and Conduct of Affairs of Bank

(1)There shall be a Bank to be called the Malta

Development Bank. The Bank may use the designation "MDB" in

commercial and legal contracts.

(2)

The head office of the Bank shall be in Malta.

MALTA DEVELOPMENT BANK ACT

(3) The Bank shall be a body corporate having a distinct legal

personality and be capable, subject to the provisions of this Act, of

entering into contracts, of acquiring, holding and disposing of any

property for the purpose of its functions, of suing and of being

sued, and of doing all such things and entering into all such

transactions as are incidental or conducive to the exercise or

performance of its functions under this Act.

(1)The purpose of the Bank is to support entrepreneurship

and socio-economic development in Malta by providing

promotional investment and financing, financial and advisory

services, and by issuing securities or otherwise raising funds or

capital in support of those services.

(2) In carrying out its activities, the Bank shall give particular

consideration to

(a) the needs of small and medium-sized enterprises,

through State Aid measures that are compatible under

the General Block Exemption Regulation (GBER) or

through finance measures in line with the de minimis

Regulation; and

(b) large infrastructural projects that contribute to important

regional or national development.

(3) The Bank shall, in general, act as a wholesale intermediary

in coordination with and via commercial banks, private investors

and other private financial intermediaries, be they aided or non-

aided within a pre-defined remit based on ex-ante defined market

failures in accordance with article 6(7).

(4) The Bank may undertake direct lending provided it does

not crowd out viable financing from commercial banks, private

investors and other private financial intermediaries.

(5) The Bank may also provide financing on market terms and

achieve returns equivalent to those reached on the market by

comparable benchmarks, provided that in conducting such non-

aided activity, the Bank will not compete with commercial

providers but will address gaps or failures in the financial

infrastructure.

(1)

The Government shall, subject to the provisions of

sub-article (2), guarantee

(a) up to one hundred (100) per centum of all obligations

of the Bank in respect of the aggregate of loans

extended to, and debt securities issued by, the Bank,

forward transactions or options entered into by the

Bank, and other credits extended to the Bank as well as

credits extended by licensed credit and financial

institutions or other publicly owned entities to third

parties to the extent that the said transactions, options

or credits are expressly guaranteed by the Bank; and

(b) up to one hundred (100) per centum of loans, facilities

or guarantees issued by the Bank in the ordinary

course of business as further specified under the

Memorandum of Understanding referred to in sub-

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article (2).

(2) The Government and the Bank shall enter into a

Memorandum of Understanding setting out the amount in euro and/

or the percentage mentioned in sub-article (1), of the guarantee to

be provided to the Bank. The Government’s guarantee shall be

unconditional, irrevocable and at first demand. The amount

referred to in this sub-article shall be communicated to the Bank on

the first working day of each first, sixth and subsequent years at

five-year intervals, but shall always be such that amounts

guaranteed in previous periods and in respect of which the Bank

has outstanding obligations be covered.

(1)The Bank may

(a) make loans to;

(b) invest in; and/or

(c) give guarantees,

in relation to any person, except a politically exposed person.

(2) The loans, investments and guarantees may be made or

given only where, in the opinion of the Board or any committee

listed in article 22(2)(d) or officer of the Bank designated by the

Board

(a) the person is engaged, or is about to engage, in an

enterprise or project in or for the benefit of Malta;

(b) the amount invested, or to be invested, in the

enterprise or project by persons other than the Bank

and the character of the enterprise or project are such

that the Bank may reasonably expect that those

persons will have a continuing commitment to the

enterprise or project causing it to willingly meet its

obligations in a timely manner; and

(c) the enterprise or project may reasonably be expected

to succeed in providing goods and services in a sound

and viable manner as well as generating sufficient cash

flow to make timely payment of its obligations to its

creditors and other stakeholders.

(3) In any circumstances in which the Bank may make a loan

or investment to a person, or give a guarantee in relation to a

person, under this article, the Bank may

(a) purchase or otherwise acquire real or personal

property or immovable or movables including

accounts receivable; and

(b) subject to any right of redemption that may exist, hold,

lease to the person or subsequently sell, dispose of or

otherwise deal in the said property.

(4) The Bank may

(a) acquire and hold senior or subordinated security or a

security interest or a right in a security, of any kind

and in any form for the due discharge of obligations

MALTA DEVELOPMENT BANK ACT

under a loan, investment, guarantee or agreement that

it makes or gives;

(b) surrender a security, security interest or right in a

security and acquire and hold, in exchange, security or

a security interest or a right in a security, of any kind

and in any form;

(c) realise a security, security interest or right in a security

made, acquired or held by it on the loan, investment,

guarantee or agreement; and

(d) exchange, lease, sell, assign, convey or otherwise

dispose of a loan, investment, guarantee, agreement,

security, security interest or right in a security.

(5) The Bank may acquire and deal with as its own any loan,

investment or guarantee made or given by another person if

(a) the loan, investment or guarantee would meet the

Bank’s eligibility criteria in sub-article (2); or

(b) it is part of a block of loans, investments or guarantees

the majority of which meet those criteria.

(6)

In applying sub-article (1), the Bank may

(a) finance enterprises, businesses and projects of all

sorts, but particularly those that contribute to a high

quality, dynamic, productive and innovative economy;

(b) provide suitable access capital to small and medium-

sized enterprises, the professions, and business start-

ups;

(c) finance projects by cooperatives, social enterprises

and housing projects, particularly where they involve

urban renewal;

(d) fund important regional or national infrastructural

projects, particularly those that enhance Malta’s

competitiveness;

(e) grant loans and other forms of financing for the purpose of

project or projects to authorities, agencies, corporations,

special purpose vehicles, and other entities established

under public law;

(f) grant other financings in the interest of the Maltese

and European economy, such as projects in the interest

of the European Union that are co-financed by the

European Investment Bank or similar multilateral

financing institutions;

(g) provide financial and project advisory services;

(h) carry out other operations to the extent that there is a

direct relationship between such operations and the

performance of its functions described hereinabove;

and

(i) guarantee, whether as primary or secondary obligor, in

whole or in part, loans for economic development

participated in by the Bank.

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(7) In applying sub-articles (1) and (6), the Bank shall limit its

activities to the provision of

(a) aided financing authorised under –

(i)

the General Block Exemption Regulation;

(ii) approved aid schemes;

(iii) approved aid under specific guidelines issued by

the European Commission; and

(iv) EU financial instruments funded from EU funds,

where the Bank will act as a vehicle to channel

and manage EU funds, or as co-investor;

(b) aid that fulfils the conditions of the de minimis

Regulation at the level of the final beneficiaries;

(c) financing on market terms to eligible final beneficiaries

covered by the General Block Exemption Regulation,

where all the conditions of the relevant articles of the

General Block Exemption Regulation are complied with,

except the requirements relating to aid intensities or

maximum aid amounts, subject that, in the cases of

infrastructure projects, participation by private investors

shall be at least fifty (50) per centum pari passu with the

Government;

(d) financing of participation in EU financial instruments on

market terms;

(e) provide such other financing subject to prior approval by

the European Commission.

(8)

The Bank may raise both short-term and long-term

funding by borrowing on a bilateral basis, and issue

(a) certificates of deposit;

(b) fixed or floating rate certificates; and

(c) other securities,

in Malta and elsewhere.

The Bank is not permitted to take retail deposits from the

public. The Bank will not offer deposits covered by the Depositor

Compensation Scheme.

(1)The Bank may offer financing under article 6(1) directly

on its own or in syndication with other financial institutions where

it is determined that -

(a) the financial market is failing to provide adequate

financing to certain lines of business, categories of

clients, or types of enterprises that meet the Bank’s

social and economic mission, or

(b) such financing, though provided by the market, is not

appropriate to reach its purpose further to article 4

Provided that, in general, the Bank’s direct financing

on its own shall -

(i)

not exceed 25 per centum of its overall lending,

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and

(ii)

be provided under schemes tailored for the lines

of business, categories of business, or types of

enterprises concerned.

(2) The Bank’s loans will generally be directly or indirectly

secured by customary banking security or other security acceptable

to the Bank. In taking collateral, the Bank is relying on such assets

as a second form of repayment in the event the project’s primary

cash flow is weakened.

The Bank, its Chairperson, directors, officers and staff

shall exercise their mandate under this Act independently and in an

autonomous manner, and shall not seek nor receive instructions

from any authority, public or otherwise, or from any other

institution.

(1)The initial authorised share capital of the Bank shall be

two hundred million euro (€200,000,000), divided into two million

(2,000,000) shares having a par value of one hundred euro (€100)

each.

(2)

Subject to the authorisation of the Minister for Finance;

(a)

the Government or any institution and, or entity

that is directly or indirectly wholly owned by Government

shall subscribe to one hundred (100) per centum of the

authorised and issued share capital;

(b)

the Government or any institution and, or entity

that is directly or indirectly wholly owned by Government may

subscribe to up to thirty (30) per centum of the authorised and

paid-up capital in the form of moveable and, or immoveable

property that is free and clear of all encumbrances, hypothecs

or other attachments; and

(c)

the Bank shall receive from the Government or

the institution and, or entity that is directly or indirectly wholly

owned by Government a general warranty of title against

claims from all persons, as well as covenants of a right to sell

and of peaceful possession. The value of any immoveable

property transferred to the Bank shall be audited by the

National Audit Office.

(3) (a) The authorised and issued capital shall be determined

by the shareholders from time to time. The initial subscription to

the authorised share capital shall be done in accordance with the

First Schedule to this Act;

(b) The paid-up capital of the Bank shall be determined by

the Board from time to time and shall be paid in by the

shareholders in installments as determined by the

Board with two months’ notice.

(4) The capital paid in and any institution and, or entity that is

directly or indirectly wholly owned by Government, and any

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institution and, or entity that is directly or indirectly wholly owned by

Government,as of the coming into force of this Act and

subsequently as provided in this Act is vested in the Bank as its

paid-in capital and is converted into common shares of the Bank.

For the purposes of this Act, the term "ordinary capital

resources" of the Bank shall include funds raised by the following

(a) issued and paid-up capital of the Bank subscribed

pursuant to article 10;

(b) debt securities issued by the Bank;

(c) borrowings of the Bank by virtue of powers conferred

by article 18;

(d) repayment of loans or guarantees made or returned to

the Bank; and

(e) income from any other funds received by the Bank.

The resources and facilities of the Bank shall be used

exclusively to implement the purpose and functions set forth in this

Act.

(1)The total amount outstanding of loans, equity

investments and guarantees made by the Bank in its ordinary

operations in favour of a single individual or a group of connected

clients shall not at any time exceed twenty-five (25) per centum of

the total amount of its unimpaired subscribed capital, reserves and

surplus included in its ordinary capital resources, exclusive of other

reserves not available for ordinary operations.

(2) In the case of funds invested in equity capital out of the

ordinary capital resources of the Bank, the total amount invested

shall not exceed ten (10) per centum of the aggregate amount of the

unimpaired paid-in capital stock of the Bank together with the

reserves and surplus included in its ordinary capital resources,

exclusive of the reserves not available for ordinary operations.

(3) The amount of any equity investment shall not exceed such

percentage of the equity capital of the enterprise or company

concerned as the Board shall in each specific case determine to be

appropriate. The Bank shall not seek to obtain by such an

investment a controlling interest in the enterprise or company

concerned, except where necessary to safeguard the investment of

the Bank.

(4) Any equity financing shall be made only after the Board,

by a vote of a majority of the total number of Directors, shall have

determined that the Bank is in a position to participate. The Board

shall approve such equity investment on a case-by-case basis.

The operations of the Bank shall be conducted in

accordance with good commercial and economic practice and the

following principles shall, inter alia, be followed

(a) before a financing is granted, the applicant shall have

submitted an adequate loan proposal and the Chief

Executive Officer shall have presented to the Board a

written report regarding the proposal, together with his

recommendations, on the basis of a staff study;

MALTA DEVELOPMENT BANK ACT

(b) in considering an application for a loan or guarantee,

the Bank shall pay due regard to the ability of the

borrower to obtain financing or facilities elsewhere on

terms and conditions that the Bank considers

reasonable for the recipient, taking into account all

pertinent factors;

(c) in making or guaranteeing a loan, the Bank shall pay

due regard to the prospects that the borrower and its

guarantor, if any, will be in a position to meet their

obligations willingly under the loan contract;

(d) in making or guaranteeing a loan, the rate of interest,

other charges and the schedule for repayment of

principal shall be such as are, in the opinion of the

Bank, appropriate for the loan concerned;

(e) in guaranteeing a loan made by other investors, or in

underwriting the sale of securities, the Bank shall

receive suitable compensation for its risk;

(f) in the case of a direct loan made by the Bank, the

borrower shall be permitted by the Bank to draw its

funds only to meet expenditures in connection with the

project as they are actually incurred;

(g) the Bank shall take the necessary measures to ensure

that the proceeds of any loan made, guaranteed or

participated in by the Bank are used only for the

purposes for which the loan was granted and with due

attention to considerations of economy and efficiency;

(h) the Bank shall seek to maintain reasonable

diversification in its investments in equity capital; it

shall not assume responsibility for managing any

company or enterprise in which it has an investment,

except where necessary to safeguard its investments;

and

(i) the Bank shall be guided by sound banking principles

in its operations.

In the case of direct loans made or participated in or loans

guaranteed by the Bank, the contract shall establish, in conformity

with the operating principles set forth in article 14 and subject to

the other provisions of this Act, the terms and conditions for the

loan or the guarantee concerned, including those relating to

payment of principal, interest and other charges, maturities, and

dates of payment in respect of the loan, or the fees and other

charges in respect of the guarantee, respectively. Guarantees by the

Bank will be issued only with a fixed term of maturity and shall

provide that the Bank may terminate its liability with respect to

interest if, upon default by the borrower and the borrower ’s

guarantor, if any, the Bank offers to purchase, at or below par and

interest accrued (or part thereof) to a date designated in the offer,

the bonds or other obligations guaranteed.

(1)The Bank shall charge, in addition to interest, such

commissions and fees on credits, services or other facilities made

available or participated in as part of its ordinary operations.

MALTA DEVELOPMENT BANK ACT

(2) In guaranteeing a loan as part of its ordinary operations,

the Bank shall charge a guarantee fee, at a rate determined by the

Board, payable periodically on the face amount of the guarantee

outstanding.

(3) Other charges of the Bank in its ordinary operations and

any commission, fees or other charges in its special operations shall

be determined by the Board.

(1)In cases of default on loans made, participated in or

guaranteed by the Bank in its ordinary operations, the Bank shall

take such action as it deems appropriate with respect to modifying

the terms of the loan, including but not limited to the application of

pre-agreed financial penalties.

(2) Whenever necessary to meet contractual payments of

interest, other charges or amortization on borrowings of the Bank

in its ordinary operations, or to meet its liabilities with respect to

similar payments in respect of loans guaranteed by it, chargeable to

its ordinary capital resources, the Bank may call an appropriate

amount of the uncalled subscribed callable capital pursuant to

article 10 and, if the Bank deems that additional capital resources

are required for its operations beyond the subscribed and uncalled

capital, it will recommend such capital increase for the

consideration of its shareholders, provided that any increase in capital

shall be subject to prior consultation with the European Commission.

Without prejudice to the powers specified elsewhere in this

Act, the Bank shall also have the power to

(a) borrow funds in Malta or elsewhere, and in this

connection to furnish such collateral or other security

for such purpose as the Bank shall determine;

(b) buy and sell securities the Bank has issued or

guaranteed or in which it has invested;

(c) guarantee securities in which it has invested in order to

facilitate their sale;

(d) underwrite, or participate in the underwriting of, securities

issued by any company or enterprise for purposes

consistent with the objective of the Bank and in line with

the provisions of article 6(7);

(e) invest funds, not needed in its operations, in

marketable securities;

(f) enter into any transaction for the purpose of reducing

risk in the financial management of the Bank,

including any financial instrument or agreement whose

objective is the management of financial risks, such as

interest rate or currency exchange agreements,

options, forward futures contracts, securitisation

arrangements, and other similar agreements;

(g) pledge or hypothecate any of its assets as security for

any debt obligations issued by the Bank or as security

for the due performance of its obligations under any

agreement;

(h) provide technical advice and assistance which serve its

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purpose and come within its functions, and where

expenditures incurred in furnishing such services are

not reimbursable, charge the net income of the Bank

therewith; in the first five (5) years of its operations,

the Bank may use up to two (2) per centum of its paid-

in capital for furnishing such services on a non-

reimbursable basis; and

(i) exercise such other powers and establish such rules

and regulations as may be necessary or appropriate in

furtherance of its purpose and functions, consistent

with the provisions of this Act.

The Bank may hold any of the following

(a) gold or convertible currencies;

(b) currencies obtained by the Bank pursuant to articles 11

and 16.

The Bank shall have a Board of Directors, a Chairperson, a

Chief Executive Officer and such other officers and staff as may be

considered necessary.

(1)The Bank shall have a Board of Directors of seven

members.

(2)

The Board of Directors shall be appointed as follows

(a) a Chairperson, who shall be a person of high

competence in the economic or financial sector,

appointed by the Minister after consultation with the

Opposition;

(b) four Directors, who shall be persons of high

competence in the economic or financial sectors,

appointed by the Minister; and

(c) two independent Directors from the non-government

sector, who shall be appointed by the Minister on the

recommendation of the Malta Council for Economic and

Social Development, but not being members of that

Council.

(3) No individual is eligible to be appointed or to continue as a

Director or Chairperson if the individual is

(a)

a Member of the House of Representatives; or

(b)

employed in the public service; or

(c)

is a director or officer of another credit institution; or

(d)

has been adjudged bankrupt under the law of any

country.

(4) The Directors, except for the Chairperson and the independent

Directors appointed in accordance with sub-article (2)(c), shall hold

office for a term of five (5) years and may be re-appointed for a period

of three (3) years, but may be removed for cause pursuant to sub-article

(7).

(5) The Chairperson shall hold office for a period of six (6)

years and may be re-appointed, but shall not serve for more than

ten (10) years and may be removed for cause pursuant to sub-article

MALTA DEVELOPMENT BANK ACT

(7).

(6) The independent Directors shall hold office for a period of six

(6) years and may be re-appointed for three (3) years, but may be

removed for cause pursuant to sub-article (7).

(7) Conduct worthy of removal may include but is not limited

to the person concerned becoming of unsound mind, being

convicted of any crime punishable by imprisonment, or being

declared bankrupt during his term of office, breach of confidence,

breach of fiduciary duties, undisclosed conflicts of interest, serious

breaches of the Bank’s Code of Ethics, or in the case of a Director

appointed pursuant to sub-article (2)(c) if the Minister, on the

advice of the Supervisory Board, as defined in article 37, is of the

opinion that he no longer qualifies as an independent Director.

(8) The Chairperson and the Directors are entitled to be paid

by the Bank the remuneration fixed by the Minister for their time to

attend meetings of the Board and to perform their duties under this

Act.

(9) The Directors shall appoint a Chief Executive Officer for

such period and on such terms and conditions as they deem fit, and

subject to any agreement entered into in any particular case, may

revoke such appointment. The Chief Executive Officer shall attend

meetings of the Board if asked by the Chairperson, except when the

Board discusses his conditions of service, his performance, the

revocation of his appointment or any disciplinary procedures

affecting him, and shall not have a vote.

(1)All the powers of the Bank shall be vested in the Board.

(2) The Board shall be responsible for the direction of the

general operations as well as the administration of the affairs and

the business of the Bank and, for this purpose, shall, in addition to

the powers assigned to it expressly by this Act

(a) take decisions concerning loans, guarantees,

investments in equity capital, borrowing by the Bank,

furnishing of technical assistance and other operations

of the Bank;

(b) authorise the conclusion of agreements for co-

operation with international organisations;

(c) determine the salary and other terms of the contract of

service of the Chief Executive Officer;

(d) establish a Risk Committee, an Audit Committee, an

Ethics and Governance Committee, and a

Remuneration Committee and such other committees

as the Board considers advisable, and determine their

composition, authority, duties and the tenure of their

members. These Committees, which may be presided

by one or more Directors as the Board shall decide,

shall give non-binding opinions to the Board so as to

facilitate the decision-making procedure. The Committees

may be presided by one or more Directors as the Board

shall decide, provided that in the event that any of the

Committees is presided by one Director, that Director shall

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be an independent Director;

(e) delegate power to act in all matters that are not by this

Act or any bye-law or resolution specifically reserved

to be done by the Board

(i)

to such person or committee;

(ii) by such means (including by power of attorney);

(iii) to such an extent;

(iv) in relation to such matters or territories; and

(v) on such terms and conditions;

(f) authorize further delegation of the directors’ powers

by any person to whom they are delegated, and may

revoke any delegation in whole or part, or alter its

terms and conditions;

(g) approve the budget of the Bank;

(h) approve, after reviewing the auditor’s report, the

general balance sheet and the statement of profit and

loss of the Bank;

(i) determine the reserves and the distribution of the net

profits of the Bank;

(j) make, by resolution, bye-laws to regulate the business

and affairs of the Bank;

(k) accept deposits as security for the due performance of

any arrangement or agreement with the Bank;

(l) determine and charge interest and any other form of

compensation for services provided by the Bank in the

exercise of its powers under this Act;

(m) procure

the

incorporation,

dissolution

or

amalgamation of subsidiaries and acquire or dispose of

any shares in them;

(n) acquire and dispose of any interest or right in an entity

by any means;

(o) acquire, hold, exchange, lease, sell or otherwise

dispose of any interest or right in real or personal

property or immoveables or moveables and retain and

use the proceeds of disposition; and

(p) exercise such other powers as are necessary for the

proper performance of the Bank’s business under this

Act.

(1)The Board shall meet when convened by the

Chairperson on his own initiative or at the request of one of its

members, provided that it shall meet not less than six times per year

and shall decide, on each occasion, the date of its next meeting.

(2) Any member of the Committees referred to in article 22(2)(d)

may be invited to attend the meetings of the Board.

(3) Notice of meetings of the Board must be issued not less

than seven (7) working days before the date set for each meeting.

(4)

To the extent possible, the members of the Board must be

MALTA DEVELOPMENT BANK ACT

in possession of the agenda and related documents not less than

five (5) working days before the meeting. The Bank may employ

electronic means to transmit the documentation.

(5) Each Director may require the inclusion of items on the

agenda for a meeting of the Board, provided that he conveys his

requirement in writing to the Chairperson not less than three (3)

working days before the meeting.

(6) The time limits laid down in sub-articles (3) to (5), both

i n c l u s i v e , m a y b e w a i v e d , i f a l l t h e D i r e c t o r s c o n s e n t o r,

exceptionally in the event of an emergency, by the Chairperson.

(7) The quorum at any meeting of the Board shall be four

Directors, one of whom shall be an independent Director.

(8) Save as otherwise provided elsewhere, decisions of the

Board shall be taken by a majority of the Directors.

(9) The Board may, where necessary, adopt decisions by tacit

approval, provided that this occurs at a meeting attended by at least

one of the independent Directors. A decision by tacit procedure

shall be deemed to have been adopted within two weeks from

notification thereof and shall be attached to the minutes of the

Board meeting immediately succeeding the meeting where the

decision has been taken

Provided that the decision shall not be adopted if during

the two weeks from notification thereof, four Directors have

indicated that they do not agree with that decision

Provided further that each Director may require the tacit

procedure to be interrupted.

(10) Each Director may receive written authorisation from not

more than one of his colleagues to act as his proxy at a meeting of

the Board and to vote in his stead.

(11) Minutes shall be kept of the meetings of the Board. They

s h a l l be s i g n e d b y t h e C h a i r p e r s o n of t h e m e e t i n g a n d t h e

Chairperson presiding over the meeting during which they are

approved as well as by the secretary of the meeting.

The appointment or replacement of the secretary and the

conditions of holding office shall be determined by the Board. The

secretary shall be responsible for

(a) preparing the agenda for, and taking minutes of, board

meetings;

(b) ensuring that proper notice be given of all meetings;

(c) maintaining statutory books;

(d) monitoring changes in relevant legislation and the

regulatory environment;

(e) paying dividends and administering changes in shares

and transfers thereof; and

(f) such other duties as he may be required to perform by

the Board.

(1)The Chairperson shall preside every meeting of the

MALTA DEVELOPMENT BANK ACT

Board, or if there is no such chairperson, or if he shall not be

present within twenty (20) minutes from the time appointed for the

commencement of the meeting, or is unwilling to act, the Directors

present shall elect one of their number, to be chairperson of the

meeting.

(2) The legal and judicial representation of the Bank shall be

vested in the Chairperson or, without prejudice to the powers of the

Chairperson, in any person or persons deputed and authorised for

this purpose by the Board.

(1)The Bank shall not accept loans or assistance that may

in any way prejudice, limit, deflect or otherwise alter its purpose or

functions.

(2) The Bank, its Chairperson, officers and staff shall not

participate in any political activities and shall not be influenced by

any political party in their decisions. Only economic considerations

shall be relevant to their decisions. Such considerations shall be

weighed impartially in order to achieve and carry out the purpose

and functions of the Bank.

(3) The Bank shall not make any financial contribution

directly or indirectly to any political party.

(1)The Board shall determine annually what part of the

income of the Bank shall be allocated, after making provision for

reserves, to surplus and what part, if any, shall be distributed to the

shareholders.

(2) Payments shall be made in such manner as the Board shall

determine.

In an emergency, the Board may temporarily suspend

operations in respect of new loans and guarantees, pending an

opportunity for further consideration and action by the Board.

(1)The shareholders may terminate the Bank’s operations

on advice of the Board or on their own initiative.

(2) After such termination, the Bank shall forthwith cease all

activities, except those incidental to the orderly realisation,

conservation and preservation of its assets and settlement of its

obligations.

(3) The Minister, acting on the advice of the Supervisory

Board, shall appoint liquidators and give them instructions for

carrying out the liquidation.

(1)In the event of termination of the operations of the

Bank, the liability of all shareholders for uncalled subscriptions to

the share capital of the Bank shall continue until all claims of

creditors, including all contingent claims, shall have been

discharged.

(2) All creditors holding direct claims shall first be paid out of

the assets of the Bank and then out of payments to the Bank or

unpaid or callable subscriptions. Before making any payments to

creditors holding direct claims, the Board shall make such

arrangements as are necessary, in its judgment, to ensure a pro rata

distribution among holders of direct and contingent claims. Holders

MALTA DEVELOPMENT BANK ACT

of equivalent claims shall, as far as possible, be paid concurrently.

No distribution of assets shall be made to the shareholders

on account of their subscriptions to the share capital of the Bank

until all liabilities to creditors have been discharged or provided

for. Moreover, such distribution must be approved by the Board by

a vote of two-thirds of the total number of Directors.

The Bank, its assets, property, income and its operations

and transactions, shall be exempt from all taxation under the

Income Tax Act and duty on documents and transfers under any law

for the time being in force.

(1)The annual financial statements, the management

report, and the consolidated financial statements must be prepared,

audited, and disclosed in accordance with any applicable

regulations referred to in article 35.

(2) Directors will approve the annual financial statements

within three months from the end of a financial year.

(3)

The financial year is the calendar year.

(4) The Annual Report and Consolidated Financial Statements

shall be tabled in the House of Representatives not later than four

months after the end of the Bank’s financial year, shall be published in

the media as determined by the Board and on the Bank’s website, and

copies shall be made available by the Secretary when requested by the

public.

The Minister will ensure that the Bank complies with the

Laws of Malta, the Bank’s bye-laws, and other regulations.

(1)The Minister shall have the power to determine by

regulation that the Bank shall be required to conform mutatis mutandis

with certain banking supervisory laws and regulations, in whole or in

part, in order to safeguard the conduct of proper business operations by

the Bank.

(2) Regulations under sub-article (1) may also introduce

provisions concerning disclosure, reporting and submission duties

of the Bank to the competent authorities, as well as information,

inquiry and auditing rights of the Auditor General.

(1)Directors are entitled to be paid by the Bank reasonable

travel and living expenses incurred in connection with the

performance of their duties under this Act while absent from their

habitual place of residence.

(2) Officers, employees, advisors and consultants are entitled

to be paid by the Bank the remuneration, expenses and benefits that

the Bank may determine.

(3) The Bank shall not grant a loan, investment or guarantee to

a Director or officer of the Bank.

(4) (a)An applicant for any of the Bank’s financings or

services, as defined in article 2, must disclose in writing to the

Bank whether the applicant is an interested person, as defined in

article 2 or, if the applicant is a company or body corporate,

whether a shareholder, director or officer of the company or body

corporate, is an interested person or a Director or officer of the

MALTA DEVELOPMENT BANK ACT

Bank.

(b) A Director must not be present at a meeting of the

Board when the Board is considering an application, or

a vote on a resolution relating to it, if the applicant is -

(i)

a person related to the Director as described in

the definition "interested person", or

(ii) a company or body corporate of which the

Director, or a person referred to in sub-paragraph

(i), is a partner, shareholder, director or officer.

Part III

Supervisory Board

(1)The Minister shall appoint a Supervisory Board that

oversees the policy pursued by management and its implementation,

reviews the general state of affairs of the Bank either on request or on its

own initiative and issues directives including directives relating to the

prudential conduct, capital adequacy and risk strategy of the Bank.

(2) In performing its duties, the Supervisory Board shall act in

accordance with the interests of the Bank and those of its

stakeholders (including the Bank’s shareholders, employees,

customers and suppliers).

(3) The Supervisory Board shall draw up its own rules of

procedure, which rules shall be approved by the Minister, and shall

also have the power to regulate its meetings.

(1)The Supervisory Board shall have no executive powers

w h a t s o e v e r o v e r t h e B a n k , i t s o ff i c e r s , m a n a g e m e n t a n d

employees.

(2) Within the framework of its monitoring, advisory, and

regulatory activities, the Supervisory Board shall have the power to

request from the Bank any information it deems necessary for

performing its tasks, and the Bank shall ensure to keep the Supervisory

Board informed on a regular basis, and in a timely and comprehensive

manner, on the course of the business, developments in individual

business segments and capital adequacy.

(3)

The Supervisory Board shall have the right to

(a) request, and have access to, any documents, minutes

and, or data it requires in performing its duties;

(b) request the internal and, or external auditors to carry

out special ad hoc investigations or risk assessments;

and

(c) recommend to the shareholders the removal of

Directors.

MALTA DEVELOPMENT BANK ACT

(4) The Supervisory Board shall receive from the Board

monthly management accounts, and advance copies of the annual

financial statements and the auditor ’s report. The Supervisory

Board shall receive a written and verbal presentation by the Board

of Directors on the Bank’s performance and situation, as well as

any risks and issues, twice a year.

(1)The responsibilities of the Supervisory Board shall include

the supervision of, among others

(a) the development, alignment and execution of the

Bank’s business strategy;

(b) the realisation of the Bank’s strategic and financial

targets;

(c) the capital adequacy of the Bank;

(d) the Bank’s risk bearing capacity and risk strategy as

quantified in the Bank’s risk model as approved by the

Supervisory Board;

(e) the structure and management of the Bank’s internal

risk management and control systems;

(f) the Bank’s financial reporting process;

(g) corporate social responsibility aspects which are

relevant to the Bank;

(h) the management of the Bank’s relationship with its

shareholders;

(i) the Bank’s compliance with legislation and

regulations;

(j) the corporate governance structure of the Bank;

(k) the remuneration policy of the Bank; and

(l) reported conflicts of interest or breaches of the Code

of Ethics applicable to the Board and the staff of the

Bank.

(2) The Supervisory Board shall submit its analysis,

observations and recommendations to the Board and to the Minister

in writing and as often as it determines, and shall require written

submissions from the Board if and when its recommendations are

not implemented.

(3) (a) The Supervisory Board shall give the Board general

instructions and directives in respect of prudential conduct, capital

adequacy, and risk policies of the Bank, including the risks inherent

in its business activities for the purpose of the effective prudential

supervision of the Bank in accordance with articles 35 and 41, and

t h e B a n k ’s B o a r d s h a l l c o m p l y w i t h s u c h i n s t r u c t i o n s a n d

directives.

(b)

If the Supervisory Board is not satisfied that its

instructions and directives are being complied with, it shall refer the

matter to the Minister so that the Minister may issue any regulations

that may be necessary to ensure such compliance in accordance with

article 41(1).

MALTA DEVELOPMENT BANK ACT

(4) The Supervisory Board shall prepare an annual report on

its functioning and activities and submit it to the Minister and the

Bank.

(1)The Supervisory Board shall consist of a maximum of

six (6) members, of whom one shall be an officer of the Malta

Financial Services Authority, one of the Central Bank of Malta, one

of the Ministry of Finance, one of the ministry responsible for the

Bank from time to time, and two independent professionals with

banking and, or regulatory experience. The Chairman of the

Supervisory Board shall be appointed by the Minister from amongst the

independent professionals, after consultation with the Opposition.

(2) Each member of the Supervisory Board shall be appointed

for a maximum period of five (5) years, or for a shorter period as

may be determined by the Minister and may only be removed by

t h e M i n i s t e r. M e m b e r s o f t h e B o a r d c a n n o t s e r v e o n t h e

Supervisory Board. Ex-members of the Board cannot serve on the

Supervisory Board before three (3) years have elapsed since their

last day of service at the Board.

(3) The members of the Supervisory Board shall comply with

the Code of Conduct applicable to the Board.

(4) The remuneration of the members of the Supervisory Board

shall be fixed by the Minister and shall be paid by the Ministry. The

Bank must refund the Ministry for the supervisory costs incurred.

(5) Any costs for staff or other support services required by the

Supervisory Board shall be borne by the Bank.

(1) Without prejudice to the autonomy of the Bank, the

Minister may make regulations to enhance the prudential regulation

of the Bank.

(2) The Minister may, by regulations, amend the First, Second

and Third Schedules of the Second Schedule (Malta Development

Bank Supervisory Board Regulations).

Part IV

General

Five years after this Act comes into force, and every five

years thereafter, the Minister must undertake a review of the

provisions and operation of this Act, including the conclusions of

any State Aid reviews conducted during the period, and submit it to

Parliament within six months from the conclusion of the review.

(1)Subject to the provisions of sub-article (2), all

information obtained by the Bank in relation to its customers is

privileged and a Director, officer, employee or agent or mandatory

of, or advisor or consultant, to the Bank must not knowingly

communicate, disclose or make available the information, or permit

it to be communicated, disclosed or made available, except if it is

already in the public domain.

(2) Privileged information may be communicated, disclosed or

made available

MALTA DEVELOPMENT BANK ACT

(a) for the purpose of the administration and enforcement

of this Act and legal proceedings related to it;

(b) for the purpose of prosecuting an offence under this

Act or any other Act of Parliament; and

(c) with the written consent of the person to whom the

information relates.

First Schedule

Initial Subscriptions to the Authorised Share Capital

of the Malta Development Bank

The Government of Malta shall subscribe an initial capital of sixty

million euro (€60,000,000).

Second Schedule

Malta Development Bank Supervisory Board Regulations

BY VIRTUE of the powers vested in the Minister in terms of

article 41 of the Malta Development Bank Act, the Minister

responsible for the Malta Development Bank has made the

following regulations.

1. The title of these regulations is the Malta Development

Bank Supervisory Board Regulations.

2. In these regulations, unless the context otherwise requires

"Act" means Malta Development Bank Act;

"Bank" means the Malta Development Bank established under

article 3 of the Act;

"Board" means the Supervisory Board as established by article

37 of the Act;

"Board of Directors" means the Board of Directors of the Bank

established under article 20 of the Act;

"Chairperson" means the Chairperson of the Supervisory Board

appointed in accordance with article 40(1) of the Act;

"Chief Executive Officer" means the administrative head of the

Bank appointed in accordance with article 21(9) of the Act;

"meeting" means a meeting of the Board held in accordance with

regulation 7; and

MALTA DEVELOPMENT BANK ACT

"member" means a member of the Supervisory Board appointed

in accordance with article 40 of the Act.

3. (1)The Supervisory Board is responsible for overseeing the

policy pursued by the Bank’s management, the implementation of

this policy and the general state of affairs of the Bank, and advising

the Board of Directors regarding the conduct of business, either on

request or on its own initiative.

(2) In performing its duties the Board shall act in accordance

with the interests of the Bank and the business connected with it,

taking into consideration the interests of the Bank’s stakeholders

(including the Bank’s shareholders, employees, customers and

suppliers). In addition, the Board shall take its supervision

responsibility with respect to the environmental, social and

governance aspects relevant to the Bank. The Board is responsible

for the quality of its own performance.

(3) In pursuance of its responsibilities in accordance with

article 39 of the Act, the Board shall regularly examine and submit

its recommendations to the Bank’s Board of Directors and the

Minister as it deems appropriate in respect of

(a) the Bank’s monthly management accounts and its

rolling six-monthly projections;

(b) the appropriateness of the Bank’s growth or its growth

strategies, its management effectiveness, changes in

asset quality, levels of risk concentration, capital

adequacy, effectiveness of the Bank’s policies,

procedures, and internal controls, timelines in the

identification of prospective losses and the creation of

loss provisions, charge-offs, and recognition of

securities impairment, the quality of liquidity

management and interest rate risk exposure;

(c) the effectiveness of management systems and

processes addressing Credit Risk, Interest Rate Risk,

Operational Risk, Liquidity Risk, Price Risk,

Compliance Risk, Strategic Risk, Reputation Risk, and

Political Risk as defined in Schedule 1;

(d) the internal risk model adopted by the Bank and

approved by the Board on an annual basis;

(e) the regular updates of Key Measures of Business

Performance as defined in Schedule 2;

(f) the effectiveness of controls and internal audit

procedures addressing the risk inherent in major policy

areas as defined in Schedule 3.

(4) The Board shall review the Bank’s financial performance

measures in the context of similar ratios in the European banking

industry and, in particular, in similar institutions as the Bank.

(5) The Board shall specify the minimum requirements that the

Bank must meet at all times, so that the Bank may -

(a) conduct its business in a prudent manner by having the

appropriate financial and non-financial resources,

MALTA DEVELOPMENT BANK ACT

(b) be considered fit and proper to conduct such business,

and

(c) be effectively supervised by the Board.

For the purposes of this sub-regulation -

(i)

the requirements referred to in paragraph (a)

shall specify, amongst others, that -

1. the Bank’s assets must be appropriate given

its liabilities,

2. the liquidity of the Bank’s resources must be

appropriate given its liabilities and when

they fall due or may fall due,

3. the Bank must value its assets and liabilities

appropriately,

4. the Bank must have resources to identify,

monitor, measure and take action to remove

or reduce risks to the safety and soundness of

the Bank,

5. the Bank must have resources to identify,

monitor, measure and take action to remove

or reduce risks to the accuracy of the Bank’s

valuation of its assets and liabilities,

6. the effectiveness with which the Bank’s

business is managed must meet a reasonable

standard of effectiveness, and

7. the Bank’s non-financial resources must be

sufficient to enable the Bank to comply with

any requirements imposed by the Minister in

accordance with regulations 34 and 35;

(ii) in determining whether the Bank is satisfying the

requirements in paragraph (i), the Board shall

consider -

1. the nature (including the complexity) of the

activities that the Bank carries on or seeks to

carry on,

2. the nature and scale of the business carried

on or to be carried on,

3. the risks to the continuity of the services

provided or to be provided by the Bank,

4. the effect that the carrying on of the business

carried on or to be carried on by the Bank

might be expected to have on the stability of

the financial system in Malta, and

5. the effect that the Bank’s failure might be

expected to have on the stability of the

financial system in Malta;

(iii) in determining whether the Bank is a fit and

proper person with respect to the prudential

objective specified in paragraph (b), the Board

shall consider whether -

1. the Bank has complied with and is

MALTA DEVELOPMENT BANK ACT

complying with its obligations under articles

6, 8, and 14 of the Act and regulation 5,

2. whether the persons who manage the Bank’s

affairs have adequate skills and experience

and have acted and may be expected to act

with probity;

(iv)

in determining whether the Bank can be

effectively supervised as specified in paragraph

(c), the Board shall consider -

1. the nature (including the complexity) of the

Bank’s activities,

2. the complexity of any products that the Bank

will provide,

3. the way in which its business is organised,

and

4. if the Bank has close links with another

person such that the nature of such links is

likely to prevent the effective supervision of

the Bank.

(6) The Board may be assisted by experts as it deems

necessary in any of the above described duties.

4. (1)The Board is entitled to obtain all information from the

Board of Directors, its officers and the Bank’s external advisors

required to enable it to carry out its duties properly. The Bank shall

provide the necessary means for this purpose. The Board may

require that certain officers and external advisors attend its

meetings. In exercising their duties, the Board and its committees

may obtain advice and assistance from its own external advisors if

deemed necessary at the expense of the Bank.

(2) The Board is entitled to request that on a timely basis the

Bank provides it with information (if possible in writing) on all

facts and developments concerning the Bank which the Board may

need in order to function as required and to properly carry out its

duties.

5. (1) The Chairperson of the Board shall be appointed by the

Minister from amongst the independent professionals after

consultation with the Opposition.

(2) The Chairperson shall be responsible for the proper

functioning of the Board and its committees. He shall chair the

meetings and determine the agenda for the meetings and shall act

on behalf of the Board as the main contact for the Board of

Directors on all matters related to the responsibilities of the Board.

(3) The Chairperson’s responsibilities shall include among

others

(a) ensuring the adequate and timely submission of

information to the members as necessary for the proper

performance of their duties;

(b) co-ordination of the Board’s decision-making process

MALTA DEVELOPMENT BANK ACT

and ensuring that there is sufficient time for

consultation, consideration and decision-making by

the Board;

(c) steering, and procuring the adequate performance of,

any of the committees of the Board;

(d) maintaining close and frequent contact with the Board

of Directors and ensuring that the results thereof are

communicated to the other members in a timely and

prudent manner; and

(e) deciding on reported potential conflicts of interest or

breaches of the Code of Ethics as referred to in article

39(1)(l) of the Act.

(4) If the Chairperson is prevented or is unavailable for any

meetings of the Board, the Chairperson’s tasks shall be performed

and his powers exercised by a chairperson selected by the members

present.

(5) The Board may be assisted by a Secretary, who is

appointed by the Board and may be removed by it.

(6)

The responsibilities of the Secretary are to

(a) assist the Chairperson in the logistics of the meetings

(convocation,

agenda,

minutes,

information,

evaluation, meeting schedule);

(b) follow up on action items resulting from the meetings;

(c) support any committees and/or experts of the Board, as

required.

6. Any committees appointed by the Board shall consist, in

the majority, of members, but may include experts appointed ad

hoc. The full Board remains responsible for all decisions.

7. (1)The Board shall meet at least six times per year in

accordance with an annual meeting schedule or whenever the

Chairperson, one or more of its members, or the Board of Directors

requests a meeting. Meetings will generally be held at the offices of

the Bank, but may also take place elsewhere or by telephone or

video conference, provided that all participants can hear each other

simultaneously.

(2) Members of the Board who are frequently absent during

meetings of the Board will be asked to explain their absence.

Frequent absences shall be reported in the Board’s report and may

eventually lead to resignation.

(3) The Board may invite the Chairperson or Chief Executive

Officer or chairpersons of any of the Committees listed in article

22(2)(d) of the Act to attend sittings of the Board to provide further

information required by it or to discuss issues relating to its duties

under article 39(1) of the Act and regulation 3.

(4) Minutes of the meeting shall be prepared by the Secretary.

They shall be adopted in the next meeting. The minutes shall be

s i g n e d b y t h e C h a i r p e r s o n a n d t h e S e c r e t a r y, a n d s h a l l b e

distributed to all Board members as soon as practically possible.

MALTA DEVELOPMENT BANK ACT

8. (1)The Board can only validly adopt resolutions in a

meeting at which at least the majority of its members are present, it

being understood that members who have a conflict of interest shall

not be taken into account when calculating this quorum.

(2) The Board may also adopt resolutions outside a meeting,

provided the resolution in question has been submitted to all of its

members and none of them has objected to this form of decision-

taking. In such case the Secretary will record in writing such

resolution of the Board and have this document signed by two

Board members.

(3) Resolutions of the Board can only validly be adopted in or

outside a meeting of the Board if a majority of the Board members

has voted in favour of the resolution. If all members are present,

either in person or by telephone or video conference, and agree

thereto, the Board may resolve on issues not on the agenda. In case

there is a tie vote, the Chairperson shall have a casting vote.

(4) A declaration signed by the Secretary that a resolution has

been adopted serves as evidence to third parties of that resolution.

9. (1)Members must avoid undisclosed actual or potential

conflicts of interest with the Bank. A member with an actual or

potential conflict of interest shall disclose the conflict to the Board

and not participate in the discussions and, or decision-taking

process on items concerning such a conflict of interest. Such

transaction, if approved, must be concluded on terms that are at

least customary for arm’s length transactions in the sector

concerned. The Chairperson shall see that any transactions where a

conflict of interest of members occurred be included in its Annual

Report.

(2) A member of the Board shall in any event have a conflict of

interest with the Bank if

(a) he has a personal financial interest in a bank, other

financial institution or intermediary with which the

Bank has entered or intends to offer a financing

programme or scheme or enter into a transaction;

(b) he has a material amount of securities or risk exposure

in an economic sector, companies or activities in a

related industry, or directly in enterprises or projects

with which the Bank has entered or intends to enter

into a business relationship;

(c) he has a relationship under family law (wife/husband,

registered partner or other life companion, foster child

and relatives by blood or marriage up to the second

degree) with a member of the board of directors of a

bank, enterprise or project with which the Bank

intends to enter into a material transaction;

(d) he is a member of the board of directors of, or hold

similar office with, a bank, enterprise or project with

which the Bank intends to enter into a transaction;

(e) the Chairperson at his sole discretion shall have ruled

such conflict of interest exists or is deemed to exist.

MALTA DEVELOPMENT BANK ACT

(3) The member concerned shall immediately report any

potential conflict of interest to the Chairperson and to the other

members. A member with whom such (potential) conflict of

interest exists must provide all information relevant to the conflict

of interest, including information relating to the persons with

whom he has a relationship under family law, to the Chairperson. In

all circumstances other than the ones listed in sub-regulation (2)(c)

and (d), the Chairperson will determine as to whether or not a

reported (potential) conflict of interest qualifies as a conflict of

interest pursuant to which sub-regulation (1) shall apply.

10. Each member shall, during his membership of the Board

and afterwards, refrain from disclosing in any manner to any

individual any information of a confidential nature concerning the

Bank or subsidiaries, which has become known to the member as a

result of his position in the Board and of which he knows or should

know to be of a confidential nature, unless required by applicable

law. A member is allowed to disclose the above information to

members of the Board of Directors and Board.

11. Any amendments to these regulations and any bye-laws

drawn up by the Board shall only come into effect subject to

approval by the Minister.

Schedule 1

Risks to Bank

Credit risk. The risk arises any time Bank funds are extended,

committed, invested, or otherwise exposed through actual or

implied contractual agreements, whether reflected on or off the

balance sheet.

Interest rate risk. The risk to earnings or capital arising from

movements in interest rates.

Liquidity risk. The risk to earnings or capital arising from the

Bank’s inability to meet its obligations when they come due

without incurring unacceptable losses.

the value of either trading portfolios or other obligations that are

entered into as part of distributing risk.

Operational risk. The risk to earnings or capital arising from

inadequate or failed internal processes or systems, the misconduct

or errors of people, and adverse external events.

Compliance risk. The risk to earnings or capital arising from

violations of, or non-conformance with, laws, rules, regulations,

prescribed practices, internal policies and procedures, or ethical

standards.

Strategic risk. The risk to earnings, capital, or enterprise value

arising from adverse business decisions, improper implementation

of decisions, or lack of responsiveness to industry changes.

MALTA DEVELOPMENT BANK ACT

Reputation risk. The risk to earnings, capital, or enterprise value

arising from negative public opinion.

Political risk. The risk to earnings or capital arising from

domestic or international political decisions, events, or conditions

will significantly undermine the profitability of a business actor or

the expected value of a given economic action.

Schedule 2

Key Measures of Business Performance

Return on average assets (ROAA). A ratio that is significantly

above banks in similar markets offering similar products can be one

indicator that the Bank is taking above average risk.

Return on equity (ROE). From the shareholder’s perspective, the

higher the ROE the better. From the Board’s perspective, however,

the Bank should not seek an attractive ROE that is based on

inadequate capital or unwarranted risk.

Net interest margin (NIM). This ratio reflects the traditional

business of banking, that is, the results of the Bank’s efforts to buy

funds and reinvest them profitably.

Net non-interest expense to average assets. This ratio indicates

the impact of all non-interest expenses (such as personnel or other

costs) on the Bank’s earnings and can provide a measure of the

Bank’s efficiency in generating earnings.

Leverage ratio. Confidence in the Bank’s condition is a critical

factor in its ability to support further business. A well-managed

bank typically operates with more capital than the minimum

requirement. The Board should be alert to any declines in the ratio,

should determine the cause and recommend necessary action to

ensure that adequate capital is maintained.

Non-performing loans to total loans. A high level of non-

performing loans may suggest poor underwriting practices or

inadequate monitoring of changes in borrowers’ financial

conditions.

Net losses to average total loans. This ratio is another indicator

of asset quality. The Board should determine the cause of the

increased losses and recommend appropriate corrective actions.

Schedule 3

MALTA DEVELOPMENT BANK ACT

Major Policy Areas

LOAN PORTFOLIO MANAGEMENT

The Board of Directors should oversee loan portfolio

management to control risks and maintain profitable lending

operations.

LOAN POLICY

T h e B a n k ’s l o a n p o l i c y s h o u l d a d d r e s s l o a n p o r t f o l i o

composition and should have standards for individual credit

decisions. Risk tolerances and limits should be specified.

LOAN REVIEW PROGRAMME

In addition to the general loan policy, the Board should direct the

Board of Directors to establish an internal loan review programme

that is independent of the lending function. This programme, which

is essential to managing credit risk, should monitor asset quality,

adherence to established loan policy and credit standards, and

compliance with laws and regulations.

ALLOWANCE FOR LOAN LOSSES (ALL)

The Board must ensure that the Bank has a programme for

developing, maintaining, and documenting a comprehensive,

systematic, and consistently applied process for determining the

amounts of the ALL and the provision for loan losses.

LOAN PORTFOLIO MANAGEMENT - AREAS OF CONCERN

When considering the Bank’s lending activities, the Board of

Directors should scrutinize the following practices or conditions

Failure to have systems that properly monitor compliance with

legal lending limits. Violating lending limits can lead to excessive

concentrations of risk, and may present an opportunity for abuse of

the Bank’s resources.

Failure to institute adequate loan administration systems. An

inadequate system to administer its loans may lead to unnecessary

losses.

Over-reliance on collateral or character to support credit

decisions. Undue reliance on factors other than cash flow or other

repayment capacity to support credit decisions may increase its

illiquid loans and its level of credit risk and may expose the Bank

to loss.

Uncontrolled asset growth or increased market share. The Board

of Directors should be alert to any activity that could indicate that

loan officers are relaxing credit standards. Such practices may

result in increases in illiquid assets and unwarranted losses to the

bank.

Generation of large volumes of loans for resale to others. If the

MALTA DEVELOPMENT BANK ACT

bank plans to generate a large volume of loans to sell to others to

increase income, the Board of Directors should ensure that the

Bank’s systems and controls are capable of handling the volume.

ASSET/LIABILITY MANAGEMENT

The asset/liability management policy provides the framework

f o r ba n k m a n a g e m e n t t o ca r r y o u t t h e B o a r d of D i r e c t o r s ’

objectives for the composition of on- and off-balance sheet

positions.

Excessive growth objectives. A bank with excessive growth

objectives may engage in activities that unduly increase its

exposure to various risks. Excessive growth also may lead to undue

leverage and capital inadequate to support the bank’s activities.

Heavy dependence on volatile liabilities. Excessive holdings of

volatile liabilities, such as large certificates of deposit and other

interest rate sensitive and credit risk sensitive funding sources may

pose problems to the Bank.

Exposure to a significant number of products with embedded

options. Holding significant amounts of assets, liabilities, or off-

balance sheet products with embedded options can expose the Bank

to unwarranted interest rate and liquidity risks.

Gaps between asset and liability maturities or between rate-

sensitive assets and liabilities at various maturity time frames.

Excessive gaps resulting from differences in the re-pricing dates of

assets and liabilities leave the Bank vulnerable to impaired

earnings and liquidity concerns if interest rates do not move

according to projections.

Asset/liability expansion, both on- or off-balance sheet, without

an accompanying increase in capital support. Engaging in

excessive leverage activities may have a bearing on capital

requirements. Inadequate capital also may make the Bank unable to

fund or absorb potential exposures.

Failure to diversify assets or funding sources. Concentrations of

assets or funding sources can expose the Bank to risks including

credit, interest rate, liquidity, and reputation.

Inadequate controls over securitized asset programmes. If the

Bank uses securitized assets to fund banking activities, it improves

the marketability of its assets and enhances liquidity. To control

risks associated with such programmes, however, management

should monitor how sales of its high-quality assets affect the

strength of the remaining portfolio.

Lack of expertise or control over off-balance sheet derivative

activities or other complex investment or risk management

transactions. The Board of Directors should be aware of potential

risks and ensure that adequate risk monitoring and control

procedures are in place before the Bank uses the products. The

Board of Directors and management should understand the role

such leverage transactions play within the Bank’s overall business

strategies.

MALTA DEVELOPMENT BANK ACT

INVESTMENT ACTIVITIES

Investments should generate quality earnings, allow a bank to

diversify its asset base, and provide liquidity. The Board of

Directors must ensure the Management’s investment activities

comply with the policy it adopts.

INVESTMENT ACTIVITIES - AREAS OF CONCERN

When considering investment activities, the Board of Directors

should scrutinize the following practices or conditions

Failure to select securities dealers carefully.

Efforts to obtain higher yields without regard for other portfolio

objectives.

Purchase of low-quality investments to obtain higher yields.

Purchase of structured securities without appropriate due

diligence.

Failure to adequately diversify investments.

Failure to consider pledging requirements in investment

decisions.

Failure to institute adequate internal controls for investment and

trading activities.

Failure to ensure the investment portfolio complies with current

accounting standards.