At least 11 banks from six European countries are set to fail the Asset Quality Review carried out on 130 banks by the European Central Bank, the results of which are due to be unveiled on Sunday.
Maltese banks are not expected to be among them – but does this mean that the sector has escaped the recession unscathed? With 26 banks and an EU bank branch licensed in Malta as at the end of 2013 (2008:23), the sector has remained fairly stable.
Compare this to the eurozone experience as a whole: there were 2,609 banks in 2013, down from 2,920 in 2008.
And total assets also took a huge knock, down 19 per cent from 2008 to €26.8 trillion at the end of 2013 – while Malta saw an increase of 13 per cent, according to the ECB’s Banking Structures Report.
The banking sector in the eurozone has also been hit by a trebling in non-performing and doubtful loans, and operating profits also declined. The average decline in operating profits was due to drop in Austria, Greece, Malta, Portugal and Slovenia,
But this notwithstanding, banks in Malta seem fairly – if pragmatically – optimistic. This may be due in part to the fact that many of them are finding their own niche and going for innovation, long a buzzword for the local regulator, the Malta Financial Services Authority.
For example, Sparkasse Bank Malta has become very strong in the provision of custodian services.
“A service provided by a few specialist credit institutions – not known to many but increasingly discussed in Malta – is the provision of custody and depositary services as defined by the Undertakings for Collective Investment in Transferable Securities Directives (UCITs) and Alternative Fund Manager Directives (AIFMD),” managing director Paul Mifsud said.
“This is a highly specialised service provided by banks specifically licensed by MFSA to safekeep financial and other assets for funds and to provide monitoring and oversight functions over the fund’s manager and portfolio. As the fund industry in Malta develops, it is inevitable that this service within banks will grow too,” he said.
Another bank which has a fairly unique offering is Fimbank, which uses Malta as the hub for operations in trade finance, factoring and forfeiting which is spreading slowly but surely across the globe.
But apart from international opportunities, Fimbank president Margrith Lütschg-Emmenegger also sees exciting developments locally. “Malta’s geographic location at the centre of the Mediterranean has conditioned the island’s past and will continue to influence the future.
Malta’s geographic location at the centre of the Mediterranean has conditioned the island’s past and will continue to influence the future
Malta has the potential to become a main hub as a logistics, warehousing and distribution centre from where international companies can service target markets.
“As a member state at the southern frontier of the EU, Malta can continue to play a significant role as a crossroad between the EU on the one hand, and North Africa on the other.
“One key competitive advantage is the fact that the Malta Freeport is just seven kilometres away from Malta International Airport, so sea and air links can be combined in order to provide efficient and cost-effective solutions ideal for companies trading in time-sensitive cargo.
“What is needed is a long-term vision that inspires stakeholders to make Malta a trading hub for the rest of Europe and the Mediterranean,” she said.
However, new opportunities bring new challenges and one of those is the sourcing of appropriately qualified and experienced personnel. The recent EY Attractiveness Survey of Maltese foreign direct investors found that 11 per cent of banking respondents could not source local talent for their needs.
Ms Lütschg-Emmenegger had words of caution: “Malta’s financial services sector continues to rank as one of the world’s top financial jurisdictions and is positioned in the top 10 of the WEF Global Competitiveness Report.
“This position must be maintained and if possible also improved.
“The financial services sector is one of the most important employers of trained professional staff and it is therefore essential for central government to continue its investment in the University of Malta and to drive its transformation into a 3rd generation University. At the same time, it should broaden accessibility to, and to augment the percentage of, students pursuing tertiary education.”
The banking sector in Malta is dominated by HSBC Bank Malta and Bank of Valletta. This means they have an important role to play in the economy. Bank of Valletta, which has government shareholding, considers itself to be the ‘local bank’ and as such has long recognised the value of the SME sector as a driver of the economy.
“This led us to accentuate our efforts to assist SMEs in gaining access to affordable financing, whilst injecting more funds into the economy,” chief executive officer Charles Borg explained.
Its first success was Jeremie, the first risk-sharing instrument of its kind, through which 650 SMEs benefited. The bank has now launched the BOV 4 SME Financing product, which provides financing to SMEs at highly attractive interest rates.
Malta’s financial services sector continues to rank as one of the world’s top financial jurisdictions and is positioned in the top 10 of the WEF Global Competitiveness Report
“The BOV Start Plus program complements our solution by facilitating access to financing to micro-enterprises and start-ups, primarily by reducing the collateral requirement which constitutes the main hurdle for this sector. BOV is truly the bank of choice for SMEs.”
In a market with such heavyweights, there is still, however, place for other banks seeking growth. Over the seven years that Banif Bank (Malta) has been in operation, it has established a strong market share comparable to that of a number of its peers.
A characteristic of Banif has been to approach the local market with new and innovative products. One of the latest examples is the bank’s lifestyle personal loan proposition, designed to allow customers to realise projects knowing their debts will not come to haunt them should things go wrong.
“The take-up of this new product has been high as clients have realised they can purchase cars, consumer goods and other products or services at a very reasonable interest rate and with the comfort of cover for payments in case of instances such as accidental death, disability or redundancy,”CEO Joaquim Silva Pinto said.
“At this point in time, Banif Bank has consolidated its business model that includes a network of 12 branches across Malta and Gozo, most of which are owned, and seven business teams in its three corporate business centres.
“We now look forward to concluding our next investment phase which will see the bank strenghten its position further, and come to the market with an even wider portolio of products and services.”
On Sunday, Bank of Valletta, HSBC Bank Malta and Deutsche Bank will find out the results of the Banking Book Audit and, where relevant, an appraisal of the real estate collateral held.