Cooperative bank could be ‘tonic’ for SMEs – minister

A cooperative bank could be an added tonic for Malta’s small businesses, with its ability to provide highly favourable products like loans which profit-motivated banks may be reluctant to design, Small Business Minister Jason Azzopardi told The Sunday Times.

Earlier this summer, Dr Azzopardi proposed the establishment of a cooperative bank which would give priority to the needs of cooperatives. Opposition leader Joseph Muscat has publicly backed the proposal. The Cooperatives Board is “exploring all possibilities” where the authorities can help create the necessary environment for such a bank.

Only a minor amendment to the Banking Act would be required to allow the market to take the initiative to establish a co-operative bank. Dr Azzopardi said there were various possibilities, including groups like cooperatives setting up a bank or a local institution converting to the model or even establishing a subsidiary. According to Dr Azzopardi there was also some interest in the local market from international cooperative banks.

In a bid to raise awareness of the concept and to instigate a discussion, a national seminar themed Cooperative Banking – An Alternative ModelFor Banking In Malta will be held at Valletta’s Mediterranean Conference Centre on September 27.

Organised by Dr Azzopardi’s Ministry for Fair Competition, Consumer Affairs and Small Business in collaboration with the Italian embassy, the programme features a line-up of local and Italian experts. They include Prof. Marco Fortis, a lecturer on industrial economy at the Università Cattolica of Milan, Giovanni De Censi, chairman of the Banca Credito Valtellinese and Stefano Zamagni, Professor of Economics at the Università di Bologna. Central Bank Governor Josef Bonnici, MEP Edward Scicluna, Finance Minister Tonio Fenech and Dr Azzopardi will also address the half-day event.

Cooperative banks have a 150-old history in Europe and enjoy an enviable track record, particularly after their positive performance in the recent banking crisis. Across the continent, there are 4,200 cooperative banks with 60,000 branches, 150 million customers – a third of which are members – and 750,000 employees. They have a total market share of 20 per cent.

“The main motive underpinning a co-operative bank is not profit,” Dr Azzopardi explained. “Their main concern is not how much dividends to pay out or how much interest to generate. The spirit of a cooperative bank is principally the wellbeing of the members. It is because of that spirit that no cooperative bank has fallen under nationalisation programmes or been declared bankrupt in the crisis. They are well capitalised and very solid.”

Dr Azzopardi quoted from a recent report of the Association of European Cooperative Banks, whose officials he met in Brussels last year, to underpin his belief in this banking concept’s suitability for the local environment. According to the report, cooperative banks apply a distinctive model in banking that puts the members and customers at its heart with a long-term perspective through good and bad times. Their internal deposit guarantee schemes are proven to be able to withstand the shocks of a crisis. They have very tight bottom-up control mechanisms and the chances of a cooperative bank falling prey to certain speculative behaviour is remote.

In 2010, he added, the European Parliament said the European economy needed a sound network of regional and local banks like cooperative banks, particularly as they had a positive impact on GDP growth in most countries, especially in terms of contribution to regional growth.

“It is important to understand that the fruit of a cooperative bank’s efforts will be seen in the long term, not before at least 10 years,” Dr Azzopardi pointed out. “The Italian experts are coming to Malta to share the experience of 150 years.”

The Cooperatives Board explained that a cooperative bank would be founded on the same principles as any other cooperative society. Such a bank would be owned by customers and follow the cooperative principle of ‘one person, one vote’. Unlike any other business organisation, however, cooperative banks are often regulated under both banking and cooperative legislation and provide products like savings accounts and loans to its members and non-members. Internationally, cooperative banks can participate in the wholesale markets for bonds, money and even equities and some are traded on public stock markets.

“The Cooperatives Board’s role in Malta is not in encouraging either the co-operative movement or the government to ‘create’ a co-operative bank themselves”, an official told The Sunday Times. “We are exploring all possibilities where the authorities can help create the atmosphere and put in place the legal structure that would enable any interested body, whether it would be the co-operatives themselves or other private investors, to set-up a co-operative bank. At this point in time, there is no issue of discussion with members whether to set up a co-operative bank. It is not the case.”

The board underlined how the benefits derived from a cooperative bank would first be to the members themselves – if they succeed in making the organisation profitable. A cooperative bank could, on its own initiative, offer specialised services to either its own members, or to other co-operatives societies, like soft loans and investments and even participate in business projects with co-operative societies, the board added.