By the end of August, outstanding resident loans subject to moratoria had peaked at € billion, equivalent to almost 17% of resident lending, with households accounting for the lion’s share, though these represented 10.1% of lending to households. By September, the amount of loans subject to moratoria started to decline, falling to 15.6% of resident lending, as some of these borrowers were in a position to resume their loan repayments, signalling a recovery in economic activity. At the same time, around € million loans were disbursed under the Malta Development Bank’s COVID-19 Guarantee Scheme, accounting for almost 4% of the resident corporate loan book to support working capital Page | 3 Document Classification: Public  requirements of businesses. A further € million have been sanctioned but not yet disbursed. Such loans were mainly granted to the wholesale and retail trade, accommodation and food service activities, and the transport and storage facilities, which were the sectors that were worst hit by the pandemic. Banks worked hard to activate such schemes within a relatively short period of time. The support provided by domestic banks was made possible because of their prudent business models coupled with the implementation of a stronger post-global financial crisis regulatory framework, which over the past years strengthened the overall resilience of the financial system. Although, as with other banks around the globe, domestic banks posted significantly lower profits – with a few registering losses in the first half of 2020 – their financial standing remains sound.

Other services were deeply impacted by the shutdown of non-essential services, and other sectors – such as manufacturing – were adversely affected by disruptions to the global supply chain. Although GDP still posted positive growth in the first quarter, the contraction in the second was broadly at par with that registered in the euro area. Incoming data suggest that economic activity began to recover and sentiment improved in the third quarter as the most disruptive containment measures were lifted, Page | 1 Document Classification: Public  but rising positive cases and newly introduced restrictions will likely weigh on activity in the fourth quarter, so that confidence among consumers and business is likely to take longer to recover than previously anticipated. During these uncertain times, projections have become increasingly difficult, as economic activity is intrinsically linked to the evolution of the pandemic, its impact on confidence of consumers and businesses, and very importantly to policy support and prospects of a medical solution. Unlike the great financial crisis of 2008-2009, the fiscal response has been prompt and significant, aided by the fiscal space accumulated in recent years. Liquidity measures such as tax deferrals, moratoria on loan repayments and the Malta Development Bank COVID-19 Guarantee Scheme, have all been fundamental in limiting bankruptcies by providing liquidity support. In addition, the Wage Supplement Scheme has been very successful in avoiding higher unemployment. Additionally, the voucher scheme has been a welcome boost to support domestic consumption, and provided some relief to the retail and hospitality sector during summer.