Euro adoption - A cost benefit analysis of the banking industry
The adoption of the euro and the entry into the economic and monetary union is certainly one of the most important challenges that the Maltese and Cypriot banking industry would be facing during the next 12 months.Furthermore, the banking industry is...
The adoption of the euro and the entry into the economic and monetary union is certainly one of the most important challenges that the Maltese and Cypriot banking industry would be facing during the next 12 months.
Furthermore, the banking industry is facing the challenge of connecting to the European gross real time payment system known as TARGET II and the role out of Single European Payment Area (i.e. SEPA) compliant products in the retail area. SEPA mainly concerns cash direct debits, credit transfers and card related products. The transition to have a full range of SEPA compliant products will end by 2010.
Certainly, like all other entities, the adoption of the euro involves a significant amount of both capital and recurrent expenditure that the banking industry is undertaking. The banks are investing in the upgrading of the IT infrastructure and in the purchasing of new cash recycling machines, which are European Central Bank (ECB) compliant. A significant amount of investment is taking place in the area of cards with the anticipated launch of new chip and pin cards that have enhanced security features.
With the run-up to the adoption of the euro, Maltese banks have already seen an intensification of competition both in the area of interest rate spreads and foreign exchange margins. The increase in competition is particularly evident in the corporate and private banking market. Over time and with the removal of the final technical barrier, we are anticipating more competition enter the retail market particularly through the establishment of more financial institutions in Malta and via the internet by the Single Passport offered by European legislation.
Through a considerable number of framework directives, the EU has been taking a considerable number of measures to open up European retail financial markets to increased pan European competition. The recent initiative taken by the Council of Ministers of Economic and Financial Affairs (ECOFIN) and the European Parliament was the adoption of the Payments Services directive. Within this scenario, the Maltese banking industry is taking a number of important strategic measures to remain ahead of competition. These include offering a wide product range with an important focus on customer requirements, further development of private banking and wealth management services, centralisation of back office operations and increased investment information technology with increased automation and the diversification into new streams of revenue.
Like any other commercial enterprise cost efficiency, the optimal utilisation of resources, competitive pricing and placing the customer at the centre of the organisation is core to a successful competitive strategy. Within the long term, euro adoption has a significant number of important advances for the Maltese banking and financial services industry, which include:
An improvement in Malta's credit rating that will lower the cost of funding by local banks on international markets;
Easier access to the eurozone capital and money market resulting in a wider access of financial instruments to invest in;
The adoption of the second most traded currency world-wide which will enhance foreign direct investment, employment generation and enhance financing requirements in Malta. This will further increase Malta's GDP growth rate, which presently stands at 2.9 per cent in real terms;
Strengthen fiscal and monetary economic planning;
Encourage more international banks to operate in Malta.
In the short term euro adoption will have a certain amount of costs for the banking industry but certainly the long-term benefits are larger both at the macro and micro level.
• Mr Cassar Torreggiani is the executive head responsible for the euro changeover programme at Bank of Valletta.
Furthermore, the banking industry is facing the challenge of connecting to the European gross real time payment system known as TARGET II and the role out of Single European Payment Area (i.e. SEPA) compliant products in the retail area. SEPA mainly concerns cash direct debits, credit transfers and card related products. The transition to have a full range of SEPA compliant products will end by 2010.
Certainly, like all other entities, the adoption of the euro involves a significant amount of both capital and recurrent expenditure that the banking industry is undertaking. The banks are investing in the upgrading of the IT infrastructure and in the purchasing of new cash recycling machines, which are European Central Bank (ECB) compliant. A significant amount of investment is taking place in the area of cards with the anticipated launch of new chip and pin cards that have enhanced security features.
With the run-up to the adoption of the euro, Maltese banks have already seen an intensification of competition both in the area of interest rate spreads and foreign exchange margins. The increase in competition is particularly evident in the corporate and private banking market. Over time and with the removal of the final technical barrier, we are anticipating more competition enter the retail market particularly through the establishment of more financial institutions in Malta and via the internet by the Single Passport offered by European legislation.
Through a considerable number of framework directives, the EU has been taking a considerable number of measures to open up European retail financial markets to increased pan European competition. The recent initiative taken by the Council of Ministers of Economic and Financial Affairs (ECOFIN) and the European Parliament was the adoption of the Payments Services directive. Within this scenario, the Maltese banking industry is taking a number of important strategic measures to remain ahead of competition. These include offering a wide product range with an important focus on customer requirements, further development of private banking and wealth management services, centralisation of back office operations and increased investment information technology with increased automation and the diversification into new streams of revenue.
Like any other commercial enterprise cost efficiency, the optimal utilisation of resources, competitive pricing and placing the customer at the centre of the organisation is core to a successful competitive strategy. Within the long term, euro adoption has a significant number of important advances for the Maltese banking and financial services industry, which include:
An improvement in Malta's credit rating that will lower the cost of funding by local banks on international markets;
Easier access to the eurozone capital and money market resulting in a wider access of financial instruments to invest in;
The adoption of the second most traded currency world-wide which will enhance foreign direct investment, employment generation and enhance financing requirements in Malta. This will further increase Malta's GDP growth rate, which presently stands at 2.9 per cent in real terms;
Strengthen fiscal and monetary economic planning;
Encourage more international banks to operate in Malta.
In the short term euro adoption will have a certain amount of costs for the banking industry but certainly the long-term benefits are larger both at the macro and micro level.
• Mr Cassar Torreggiani is the executive head responsible for the euro changeover programme at Bank of Valletta.