A study of the utilisation of the bank overdraft in selected local companies

Abstract

This dissertation studies the utilisation of bank overdrafts in selected local companies with respect to: • how selected companies in the small and medium range have been utilising bank overdrafts in the past ten years; • the perspectives of main local banks on such utilization of the bank overdraft. Research was conducted through personal interviews with three main local banks, and fifteen local small and medium enterprises from different industries. Companies have been actively using a bank overdraft mostly as the only source of short-term finance in the past decade. It was being used correctly for working capital purposes, but incorrectly for capital investment. Frequent excesses over the agreed overdraft limit have often been taken. Most companies had a portion of their bank overdraft that had become hardcore. The banks were aware of the way in which the bank overdraft was being used or abused by companies. They have taken active measures to put right this situation. As the Maltese economy continues to embark upon its financial restructuring exercise in light of enhanced competition, it is desirable that relations between banks and small and medium enterprises with respect to bank credit facilities continue to evolve and improve in the future.