The Times of Malta carried a front page article yesterday about comments the Prime Minister had made on the major banks’ current lending practices.

The article quoted banking observers saying that “comments were more likely directed at Bank of Valletta, which appeared to be adopting a no-risk attitude and was refusing to ease its lending practices”. It also quoted these anonymous observers as saying that I, as chairman of the bank, am a “risk averse banker”.

As these observers themselves stated, banking regulation is becoming increasingly strict and influencing banks’ capacity to lend. Moreover, the banking regulators, which today include the European Central Bank, are directing banks to cap their lending to certain sectors of the economy to which they may be overexposed and, thereby, have a concentration risk. Rating agencies have similar concerns with concentration risk.

So certain lending proposals that fall in these sectors are not being considered by Bank of Valletta in order not to further increase the concentration in certain sectors of our economy. Moreover, the regulators, more than ever before, expect banks to adopt tighter criteria when approving certain types of speculative lending.

The lending process of Bank of Valletta is such that the chairman of the bank has no say in lending, except insofar as he is one of nine directors who have a vote in approving or declining lending proposals at board level.

Lending in Bank of Valletta, as in most other banks, is based on the ‘four eyes principle’ – meaning no one single person can approve significant lending on their own.

Surely we are not expecting banks to be less prudent

Despite all these restrictions, over the last three years, Bank of Valletta has increased its market share in lending to all sectors of the Maltese economy, including business, home loans and personal lending. Put simply, this means we are lending more than other banks are.

We have been selected by the European Investment Fund to promote the Jeremie and Jaime schemes, which provide finance to small and microbusinesses. We have done this successfully for the past three years.

Shortly, a new accounting standard (IFRS 9) will be introduced, which imposes higher provisions for non-performing loans. While the amount of extra provisions that will be needed by Bank of Valletta is still being calculated, it is a fact that this accounting standard will expect a higher quality of loans and higher provisions on non-performing loans.

Regulators are also defining stricter criteria on the definition of non-performing loans. We will, of course, communicate the results of these changes in regulation officially when we know how the bank will be affected.

I have said publicly that one of the challenges facing Maltese businesses is the shortage of equity capital. In fact, Maltese businesses are among the most reliant on bank financing in the EU, because they invest too little of their own money in the business. If local businesses were to invest more equity in their businesses, they would find local banks more inclined to lend them money.

We are in the business of making money by mobilising our depositors’ funds by lending them to businesses and individuals. In the process, we have to manage the risks. Ultimately, we have serious obligations to our depositors to repay them their money in full and with interest and to give a decent return to shareholders.

We also have a grave obligation to our 1,600 staff, whose livelihoods depend on the long-term viability of the bank. This is not about being risk averse but about being prudent in managing depositors’ money.

Contrary to what has been stated by some businessmen, Malta has a vibrant, competitive banking market. Good clients shop around to get the best deal.

Unfortunately, clients with unbankable propositions expect banks to take the bulk of the business risk for their projects and to write off their debts if things go wrong.

What everyone must remember is that Bank of Valletta is bound by the same regulations as all other banks operating in Malta and we cannot be more lenient simply because we are a local bank.

Readers will remember the days, not so far back, when many banking observers were praising local banks for being prudent in their lending practices and, thereby, did not need taxpayers’ money to be rescued from their self-made crises.

Surely we are not now expecting banks to be less prudent.

John Cassar White is chairman of Bank of Valletta.

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