Mediterranean Bank is to open a second branch by the end of the year as it examines the potential of gradual international expansion in Europe and the Mediterranean, chief executive officer Mark Watson told The Times Business.

The new branch will serve to make the Valletta-headquartered bank more accessible to a growing customer base in its savings, wealth management and investment niche.

Internationally, the bank seeks to be present in jurisdictions with a similar customer base to Malta’s, where it will be best able to market and possibly evolve its product offering from its local platform.

Mediterranean Bank, which opened its first branch in Sliema last month, says it increased its customer base to more than 1,000 clients in the year ended last June; deposits increased by over €100 million to €127.72 million.

Established in 2004, Mediterranean Bank was fully licensed by the Malta Financial Services Authority in 2005 but remained little known. Last year, it was acquired by London-based private equity firm Anacap Financial Partners, a financial services specialist with over €1 billion in assets under management.

Following the enhancement of management and operations, Mediterranean Bank rebranded to establish its market presence and introduced a series of investment and savings propositions, and term deposit products in different currencies at advantageous rates. The bank currently has a staff of 65, the majority of whom are Maltese.

Mr Watson said rapid client acquisition ensued, steering Mediterranean Bank into profitability.

The bank currently holds €1.38 billion in high quality (mainly European Union) assets, a Tier I capital ratio of 37 per cent, and a liquidity ratio of 70 per cent.

Earlier this year, Mediterranean Bank acquired 65 per cent of Charts Investment Management Service Ltd, the local stockbroking, wealth management and corporate advisory firm.

Now Mediterranean Bank has launched a €15 million five-year bond issue, bearing an annual interest rate of 6.25 per cent.

Mr Watson described the bond issue, which opens on October 11, as part of the bank’s immediate strategy.

“Over the past year, we have been developing our brand and our presence since the acquisition in the mass affluent, savings and wealth management business,” he said. “We have been very pleased with the momentum that has been built in the business, with our attractive savings and term deposits products principally in euro, sterling and to some extent US dollars, which we will broaden over time. We felt it was a good time to go to the market with a bond offering to broaden our position in the local market and build on that momentum.”

Mr Watson admitted the senior unsecured bond may have caused a little confusion on the local market which is more accustomed to subordinated bond issues.

“Subordinated bonds are really part of the capital structure of a bank. Senior unsecured bonds provide funding for the bank in the same way as deposits. They rank above subordinated bonds, even if the latter do not feature in our balance sheet yet.”

The chief executive pointed out Mediterranean Bank’s primary goal has been focused on turning the institution around from its pre-acquisition loss-making stance to a sound footing with a strategy that is part customer acquisition and part identification of diverse funding sources.

Mr Watson said he was particularly encouraged there were more business opportunities in Malta than was originally envisaged.

“We did not start with a branch strategy,” he added, “but on the back of the success on our products. We are encouraged that we can build a niche, but very valid, business here.

“Our savings and deposits products are focused on the €20,000-plus market – that makes us different from many banks – but still allows us to win customers from a cross-section of Maltese society. In most international jurisdictions, banks would target specific groups. In Malta, there is a broad swathe of society, from top professionals to working people, who have savings. This has been a very interesting experience for me. It is a small country and it is so easy to reach people.”

Mr Watson added Mediterranean Bank was intent on focusing on its core business and, despite a full banking licence, had no plan to evolve into a retail bank.

“We position ourselves as a Maltese bank with a low cost base, with a strategy to become the leading, consistent provider of wealth management and savings. That will mean we will make decisions not to provide other products because we do not have the infrastructure or the expertise. We will leave those capabilities to others. It is being cognisant of our cost base that will allow us to achieve our goals.”

Meanwhile, a major priority over the next three years is to have the bank rated by an international name, he added.

Mr Watson said he was aware of some media speculation about the nature of Mediterranean Bank’s business, particularly after one commentator wrote the bank was “clearly a hedge fund”.

“We are not a hedge fund,” the chief executive insisted. “Hedge funds do not have permanent capital, they do not operate with the type of assets that we have. We do not trade; we do not focus on total rate of return for our investors. We are a bank with high quality assets. I know the hedge fund business very well. We are the antithesis of a hedge fund. It is not unusual for banks to operate investment portfolios. We are not even the bank with the largest investment portfolio in Malta.

“We have a high quality investments portfolio which was born out of some of the dislocations in financial markets over the last couple of years. That treasury management capability is giving the bank a base of profitability around which it can build a much broader customer base.

“We are unusual in the pace that we have grown, but we operate with a very strong regulatory ratio. We have grown in a sustainable way and that gives us the capability to develop a niche market here and beyond. We also think this is good for Malta – we hope to contribute to Malta’s vision for excellence with the international dimension that we bring.”

Asked about concerns Mediterranean Bank was taking Maltese deposits out of the country, Mr Watson explained the bank was engaged in financing EU assets to allow it to offer more competitive rates locally.

“We can obtain high quality assets on the international market paying a better rate than we can on lower quality assets on the local market,” he continued. “Malta benefits from being a member of the EU and the euro system. Our customers benefit from the rates we are able to offer. Our policy is to retain earnings and grow our capital base into the bank for the foreseeable future. The deposits remain in the bank.”

Mediterranean Bank is also hoping to resolve a legal dispute instituted by the Mediterranean Bank Network and its members over its trademark.

There have been a few complaints within the local financial services community over similarities between Mediterranean Bank’s logo and that of Mid-Med Bank (the Maltese bank acquired by HSBC 10 years ago).

“I had never seen Mid-Med’s logo. But after I saw one comment I looked it up,” Mr Watson smiled. “Mediterranean Bank’s corporate colour has always been blue. If a bank is called Mediterranean Bank it would be highly unusual if the corporate colour were bright red. We wanted to be known as a Maltese bank. And we are here to stay.”