Agribank customers are now covered by the MFSA’s Depositor Guarantee Scheme, two-and-a-half years after the bank got its licence.
Agribank was one of a handful of banks which were licensed in Malta around 2012 – when the scheme was still building up. The MFSA at the time decided that none of the new banks would be immediately covered by the scheme.
“When the crisis hit in 2008, governments introduced the schemes to cover the first €100,000 worth of deposits, in an effort to build up trust in the financial system.
“But the Deposit Compensation Schemes in the EU had to build up and it is no secret that they were not deep enough to cover all the deposits of all the banks.
“The government was afraid to put any more stress on the local scheme, so it decided to put us and other banks ‘on hold’. Was it discriminatory? Did the MFSA have the right to keep us ‘on hold’? We knew before we got the licence that this would be the case – so to be fair, it was not a surprise. But it did not mean that we were happy!
“We were in an awkward position as we were licensed to sell products but our customers would not have been covered by the scheme if we were to collapse,” he explained.
Agribank made the initial contribution to the fund – a flat fee of €20,000 – which meant it complied with the law that says banks must be part of the scheme. But it did not pay the regular contributions based on its eligible depositor base – and its depositors were not covered by the scheme.
Without deposits, it had to sustain its loans through much more expensive wholesale funding from a London bank – and the losses mounted, reaching over £300,000 in 2012/2013
It was an unprecedented and anomalous situation, and one which made it into the foreign media. The Guardian columnist Patrick Collinson wrote an article on the “bizarre banking loophole that has opened up in Malta”. He also quoted from the MFSA’s response to his queries: “On May 16, 2012, the MFSA issued a policy under which it prohibited or limited any newly licensed credit institutions from creating undue liabilities on the local deposit compensation scheme”.
“I do not know of any other jurisdictions which acted this way,” CEO Roderick Psaila said.
“We have a very risk-averse business model – we lend to British farmers, who are very asset-rich and who have extremely low defaults. And we use deposits to fund our advances. So at first we decided to go ahead with the launch of our first deposit products in March 2013, making it very clear to our UK customers that they were not covered by the scheme. We felt that, if the interest rate was a bit higher, it would be attractive enough for customers to accept the additional risk. They were an instant success but, even though customers were told that they were not covered and accepted it in writing, there was always the possibility that it could be challenged. Just five weeks later, we decided to ‘stop’ their take-up by changing the terms and conditions which made them very unattractive to customers,” he said. “It was a kick in the teeth,” he admitted bitterly.
The bank, which works exclusively through price comparison websites, found itself in an awkward position with regards to its customers, but even more so with regards to its operation. It had already committed to premises in Skyparks and had taken on staff. Without a product to offer, the bank’s deposits were more or less mothballed.
Without deposits, it had to sustain its loans through much more expensive wholesale funding from a London bank – and the losses mounted, reaching over £300,000 in 2012/2013. However, last year, it reported a profit, albeit a small one.
In January, it managed to reassure the MFSA that it was robust enough, and was added to the scheme. It is now finally able to go to market again, offering various deposit products and is planning to add two more staff to its current complement of 12.