Bank of Valletta recently announced record profits of €115.8 million but with core operating profit dropping to €86.5 million. Vanessa Macdonald spoke to chairman John Cassar White about where the bank was heading.

You are the third chairman in as many years. Does that have a negative impact on the strategy of the bank?

Not really. We have a very good executive management team which guarantees continuity when there is change in the leadership. It is obvious it is not just the chairman of the bank that influences the results. A big percentage of the success has to be attributed to the executive team and to the employees who know where the bank wants to go and who work hard to ensure that we get there...

One of the first things you declared when you were appointed six months ago was that you wanted to set the bank’s strategy. The implication was that a bank which represents half the Maltese economy didn’t already have one in place. Isn’t that rather worrying?

There are two ways of looking at strategy. Passive strategy usually reacts to forces in the market. Active strategy is about trying to interpret what is going on in the economy and trying to see the future direction of financial services sector in Malta. There are always times when you have to react to developments in the market but I think a good organisation always tries to plan ahead and not only react to what happens in the market. I would like to see more active planning.

So what has emerged as a strategy?

It is a continuous process. We have set up the infrastructure needed in the bank – a strategy unit – which is also responsible for reviewing of processes.

Processes are an integral part of strategy. These are the mechanisms which help us to deliver our strategic objectives. At the moment, we are creating awareness among staff that strategy is the responsibility of everyone.

We have meetings practically every week trying to come up with strategies for our different areas. This time around we have a bottom -up process and are consulting our people at the front end of our business to tell us what direction they think the bank should be taking.

It is not because we do not know what the ideal direction should be but we want to test whether our projections are realistic and we want to hear first hand from the people on the front end what our customers expect from us. Obviously we will then put all of this together and present it to the board for approval – with revisions every now and then.

Whereas your two pre-decessors were clearly defined in the Company Announcements as being ‘non-executive’, your role was not. Do you have executive powers? And if so, doesn’t that go against current governance models?

I do not have executive powers. I have a non-executive role but obviously consult constantly with my executive team about what needs to be done. I take an active interest and ensure that I am informed about what is going on. I know the bank, having worked here for 36 years before I returned. So I think I know what questions need to be asked so that in my new role with my new responsibilities I get the right answers to the right questions.

In the recent results, the bank reversed its focus from collective impairments to specific ones, reacting to comments by the IMF and rating agencies among others. Could you explain why?

We are expected by our local regulators and eventually by our international ones to be more prudent in the provisioning policy that we adopt.

Banks usually have two types of provisioning. One is collective which means that when particular sectors of the economy are not functioning as well as they should, then a bank that has exposure to that sector should take note and, if there is a need, create a collective provisioning. That is one way of putting prudence into practice.

The other way is to stress-test every single account to see whether the prospects for the future of that particular account are good or less good. If the need is felt, we then create specific provisions.

The trend is now to concentrate more on specific provisioning as you are going to the micro-level of a business. After speaking to the managers, reviewing their results and asking the right questions, you get to know what needs to be done to ensure there are no surprises in the future.

Now that you have reviewed the properties held as collateral, what did you find?

We have a concentration of risk in the sense that most of our lending is secured by either residential or commercial properties. We know that these, as with any other assets, can have swings in their valuation. In Malta it is particularly difficult to value property as the market is not very transparent; the indices there are have all got major weaknesses. So we stress-tested our property portfolio and decided to increase the provisioning just in case property falls by a bigger margin than we anticipated up to some time ago.

Of course, it does not reflect on whether prices are really falling at that rate or not. It is just a mechanism we use to make sure that we are being as prudent as possible with the valuation.

How does BOV stand with regards to the forthcoming Asset Quality Review of the European Central Bank?

This will help us to show that the criticism levelled in general at the banking sector by the IMF is being heeded. These rating agencies, although they have no executive powers over what banks should do in Malta, are a very valuable source of advice on what we should be doing.

We still do not know how the asset valuation will be conducted. What we know is that they will be very granular and will be going to look at the bank’s major accounts individually. Hopefully we will be able to show that wherever there is a concern about the ability of a certain customer to pay in full and on time, that we have made provisions. It should add to the credibility of our management team’s efforts.

You said at the presentation of the results that the bank is losing clients to smaller banks that offer higher interest rates but also winning some. Have you lost market share?

In a free market, sometimes customers decide they want to move to another bank, whether it is because of pricing, better service or simply because they want to do business with another bank. So yes, there are movements.

The BOV market share in the past year has remained stable – practically half of the local market – but our ambition is to keep increasing it.

The bank’s core operating profits are dropping and you are looking at ways to diversify. One strategy the bank was pursuing was to raise your international profile. What happened to the plans to open a representative office in London?

We are still reviewing this plan. There are advantages to setting up offices abroad. London is still on our radar. We are trying to see what kind of business we can undertake from there. Whether a physical presence is needed for some types of business or not is debatable.

We are also working closely with Malta Enterprise, which is very active in trying to attract business from Europe. If we see that a London office is needed then we will go ahead.

As you know we already have an office in Brussels which is mainly there to build good communications with the EU institutions to ensure that opportunities can be exploited. There was a time when we had more branches in Australia, America and Canada. In North Africa, where we also had representative offices, things are not as good and we no longer have a presence in Egypt and Tunisia. Our office in Libya is not fully functional because of the political upheaval there. If things improve, we will reconsider our presence in North Africa because we believe that it is a natural area for expansion.

What new initiatives can we expect in the coming year?

We are seeing an interesting renewal of interest in tourism-related projects like boutique hotels in Valletta. There are also a number of public projects like the new gas-generating plant. We are speaking to the consortium which is likely to be awarded this contract.

There are other projects like the building of a new yacht marina in Gozo, which we are very keen to get involved with. More importantly, we will be working closely with Malta Enterprise to make BOV once again an important partner in attracting foreign direct investment.

There was a time when the bank did not see this as a particularly interesting area as it believed that this was not its primary function.

But we do believe that this is a core value for us. Putting it simply, we want to be there to reassure potential investors that BOV is there if they need money to set up their businesses.

And operationally? Any changes to the branch network? Did the investment centre model work?

At the moment, we are reviewing certain decisions which were taken recently, especially with regards to investment centres.

We are also taking a very close look at our branch network. I think the time has come to modernise our branch network in the sense that every so often you need to look at the physical layout of the branch to make sure that it is customer-friendly, that it is serving the kind of customer that we want. Obviously we will be offering a lot of self-service outlets, maybe even adding new ones in areas where we are not represented at the moment.

We are completely revamping our internet banking services and will soon be launching our new website which will be more customer-friendly. We realise that people now want to get service not only through branches – although they remain a very important delivery channel – but also through internet, telephone and mobile banking services. We are also introducing new services through our card system which is being upgraded. So we are looking at the whole spectrum of delivery channels.

More importantly, I have instructed our executives to make sure that we get feedback from our customers. We consult them before we make the changes, but we must also keep in constant touch with them to see whether the changes are delivering the results we had in mind.

This is not rhetoric. This is a real business strategy for us. We need to be closer to our clients because otherwise we will not know whether we are satisfying their needs and in a competitive market, unless you do so, someone else will.