Prime Minister Joseph Muscat has lately hit out at commercial banks, accusing them of acting as glorified money boxes. Briefly, the banks stand charged with adopting restrictive practices in their lending policies. He has gone so far as saying the economy is booming irrespective of the banks, which, in his view, are not doing enough to help small companies get the credit they need for their businesses.

The two main banks – Bank of Valletta, in which the government is the major shareholder, and HSBC – have not taken kindly to Dr Muscat’s sharp remarks, refuting the accusation that they are not supporting the economy.

An HSBC spokesman said that, although regulatory obligations could cause some inconvenience to customers, the bank continued to support the growth of the economy and that of their clients, including small businessmen.

An important contribution to the debate was that made by Bank of Valletta chairman, John Cassar White. Writing in this newspaper, he said, succinctly but clearly, that the bank’s attitude was not one of being risk averse, as it was being accused by some business observers, but about being prudent in managing what is, after all, the depositors’ money.

Banking regulations now in force and others that are coming on stream require tighter criteria in lending than ever before. For example, banks are being directed to cap their lending to certain sectors of the economy to which they may be overexposed and, thereby, have a concentration risk.

Mr Cassar White recalled the time when the local banks were praised for being prudent and, therefore, averting the need of resorting to taxpayers’ money to be rescued from self-made crises. With the 2010-12 debt crisis in Europe still fresh in mind and with the Italian banking system now in turmoil, his warning is most timely.

As the founder and CEO of Sun Global Investments, Mihir Kapadia, said in The Guardian recently, these are dangerous times for banks and for Europe. In Italy, banks are said to have about $400 billion in bad loans on their balance sheet. One bank alone lost 80 per cent of its value in one year. Ahead of the latest stress test, Italy’s third largest lender, Monte dei Paschi, had to sell its entire portfolio of non-performing loans. Under new European Union rules, it is the investors – holders of equity and bonds – that have to pay for bank failures.

Defending the bank’s record, Mr Cassar White said the bank had, in fact, increased its market share in lending to all sectors of the economy. It had been selected by the European Investment Bank to promote two schemes that provide finance to small and microbusinesses and the government is also pitching in with the launching of a new tax credit scheme for start-ups. This is the right way to go about easing the problem.

Mr Cassar White’s parting shot was: “Surely we are not now expecting banks to be less prudent.” In the light of what may be considered as the ill-advised remarks made against the banks, the warning is, as already remarked, most timely and appropriate.

It needs to be well digested by the private sector and, also, by the government, which should, on its part, be prudent enough to ensure it does not exercise, directly or indirectly, any undue influence on the banks because this could work against the national interest.

The alternative to prudent policies is not pleasant to even contemplate.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.