The editorial entitled ‘Claims of lending malpractice at BOV’ (April 5) refers to allegations of irregular lending practice made in Parliament by MP Kristy Debono.
Bank of Valletta has already commented on these allegations but I can confirm that the bank’s internal audit department has compiled an interim report of its findings so far.
This report has been discussed ata meeting of the board of directorsand has been forwarded to the bank’s external auditors as well as the localand European banking supervisors, for their perusal.
The bank has already commented in detail about the other two issues mentioned in the editorial, namely the Electrogas facility and the early retirement of (former parliamentary secretary) Michael Falzon and I do not feel there is anything of relevance which may be added to what has already been stated.
The editorial rightly calls for greater transparency and more checks and balances to prevent fraud and malpractice in both public and private sectors.
In this regard, the bank has in placean internal control framework ofthe standard required by European banking regulation.
I feel that it is important that the main features of this framework, insofar as lending is concerned, is highlighted to readers.
One of the main controls over Bank of Valletta’s lending business is the ‘dual sanctioning’ system, introduced in 2014, in terms of which all business loans are sanctioned jointly by the relative business unit and by the risk function.
The role of the latter is to challenge all business credit proposals and ensure that all sanctioned facilities lie within the bank’s risk appetite.
The internal audit department has compiled an interim report of its findings
Any business facility sanctioned by Bank of Valletta has therefore to pass the dual filters of both business and risk.
The functioning of this system and of other controls is subject to the ongoing scrutiny of the bank’s internal auditors and of its external auditors as part of the statutory annual audit.
This system is known in risk management as the ‘three lines of defence model’. The first line of defence lies in the front office, or the business unit, which makes the initial evaluation of lending proposals. The second line lies with the risk function, which ensures that all proposals sanctioned are within the bank’s risk appetite.
The third line lies with the internal audit function, which provides assurance to the board of directors regarding the efficacy of internal controls.
It is also relevant to note that, as a Euro bank deemed to be “significant” for its host country, Bank of Valletta is subject to the European single supervisory mechanism.
The bank is supervised by a ‘joint supervisory team’, comprising officials from the Malta Financial Services Authority and the European Central Bank, in a framework described by the president of the ECB supervisory council as “intrusive, tough but fair”.
These multiple layers of internal controls, external audits and supervisory reviews all contribute to making European banks, including Bank of Valletta, safer and much less risky than they were before the financial crisis of 2008.
They also ensure good systems of governance, which today are articulated in EU directives and regulations and which are scrupulously adhered to by Bank of Valletta.
Detailed disclosure of our risk management framework can be found in the bank’s annual report, available online.
Mario Mallia is Bank of Valletta’s CEO.