This is an extract from the paper delivered by Bank of Valletta chairman Roderick Chalmers at the FT conference at the London Stock Exchange on the theme "Banking on Malta" last Tuesday.
Our view is that, looking ahead, Malta needs to establish a stronger service economy. Part of that is already happening in terms of the IT and software industry, where there are already in Malta very substantial skills and where progress, much of it quiet, is rapidly being made - the recent announcement of the SmartCity@Malta project by Tecom Investments of Dubai is a very interesting development in this direction.
But we also believe there is a role for Malta in the financial services sector. At a macro level, therefore, BoV sees the vital need for Malta to establish a vibrant third leg to its economic platform - and we believe that a successful financial services centre can constitute that third leg. It would also support the general economic direction that the country is taking in moving the economy up market to the higher added value sector.
Indeed, as the main financial player in the Maltese economy, we see Malta's wider national economic needs and aspirations and the potential opportunities for Bank of Valletta's business coinciding and aligning themselves in the field of financial services. The question is whether we can develop this sector in such a way that it becomes a substantial contributor to the economy, with the desired trickle-down effect. I firmly believe that we have got the skills and the right environment.
The message to potential investors in financial services is that our greatest asset is our people and their professional expertise. We are extremely competitive in terms of price and, even more so, in terms of the ability and availability of our professionals - accountants, lawyers and bankers. And proof of this is that we are increasingly seeing foreign financial institutions coming to Malta to recruit our young professionals.
Developing Malta as a financial services centre
It is in the context of developing Malta as a financial services centre that BoV is in the process of completing a broad-based, externally focused strategic review of where the opportunities lie, and how well or otherwise Malta may be positioned in terms of the wider financial services business.
This strategic review, which has been carried out with the help of Booz Allen Hamilton, renowned strategy consultants, has sought to develop a comprehensive understanding of Malta's and BoV's competitive advantage, with our relative value propositions. In doing so, we specifically looked at higher value niche areas in which Malta and BoV can best compete.
Our strategic review was in part also undertaken in view of the bank's strategy to broaden our revenue base, to secure the continued development of BoV as a financial institution, and in preparation for the response to the challenges the bank will face with the adoption of the euro, possibly as soon as January 2008.
Joining the Eurozone will have costs as well as advantages. The costs are clear - IT costs relating to systems changes and foregone revenues from euro-denominated transactions. We also expect increased competition on the credit side of the business when all lending is made in euro.
But there are also significant advantages - advantages to the economy generally to be part of the single market, wider investment choices right across our business range - and most relevant for our discussions today, a chance, an opportunity, to develop Malta as a meaningful and reputable financial services centre, competing successfully with established jurisdictions such as Luxembourg, Ireland and the Channel Islands.
Now, why do we believe that Malta can develop and compete in this sector and in which areas? There are a number of factors that we believe come together to provide this opportunity.
First and foremost, Malta has a resilient, highly educated and motivated professional workforce - and one that is price-competitive in the EU and that is highly productive. Insofar as price-competitiveness is concerned, whereas Malta, like many other countries, is finding it increasingly difficult to compete with China and other low cost locations in the manufacturing sector, Malta's professionals are very competitive indeed in terms of costs, well below costs experienced elsewhere in the Eurozone.
Cost, of course, is not the only criterion - competence and quality are also important - and here I can say without hesitation that Malta's professionals are among the best in class. So, competitiveness and competence come together. But there are a number of other significant advantages working in Malta's favour.
These include:
¤ Malta's membership of the EU which gives products and organisations duly authorised and regulated in Malta passporting rights and instant access to EU markets;
¤ Language skills - most of Malta's professionals are (at least) tri-lingual and are therefore well equipped to communicate with ease across the EU;
¤ A responsible but responsive regulator, which is highly regarded by its peer group in Europe and elsewhere;
¤ A comprehensive and advantageous network of double tax treaties;
¤ A growing professional class of highly trained and qualified individuals - and a well-established cadre of professional advisors. To give you a sense of the human professional resources our country is producing, over the past three years we had over 300 students graduating from the faculty of law and nearly 2,000 students graduating from the faculty of economics, management and accountancy at the University of Malta;
¤ Excellent telecommunications; and
¤ Last but not least, a nice place to live and work.
What does BoV have to offer in this context?
There is no question that we see a role for ourselves in the process of developing Malta as a financial services centre. One of the things that has happened to BoV over the past decade is that from merely being a bank that takes deposits and provides loans, it has become a financial services organisation involved in bringing financial products to an increasingly sophisticated marketplace.
This market that used to be content with pretty plain vanilla retail banking products has increasingly grown in sophistication. And we have, over the years, built the capability of meeting such demands. It is now the time for BoV to focus on new areas including efforts to promote Malta as a financial services centre.
Captives
One of the first sectors to recognise Malta's attractions has been the captive insurance industry. It has been encouraging to note that the larger captive insurance management companies such as Marsh, AON, Heath Lambert and Willis have all moved to establish a presence in Malta, and their clients are starting to follow.
The legislative framework is in place, and we can handle new captive management companies. Professor (Joe) Bannister went into some detail on this legislative package in his presentation.
While BoV is not looking at the area of captives administration directly, through our Middlesea interests, our group has built the necessary administrative and other core capabilities to offer efficient, scalable administration services to captives set up in Malta.
These capabilities include billing, processing and contact management and we can leverage specific expertise in the areas of compliance, reinsurance, underwriting and claims management. We feel that providing for the administration in the same domicile as the captive brings with it advantages and is simpler and more efficient than outsourcing to a major EU provider.
Bank of Valletta is, however also looking at servicing the banking needs of corporate captives. We have developed a specific package for corporate captive banking services. Indeed, all banking facilities required by captives are today within our core expertise.
Competitive pricing, excellent international network for funds transfer and the BoV approach that is solution-oriented to ensure fast set-up are also key elements that underpin our value proposition. In line with our brand promise, captives can be assured of a high quality, responsive, flexible and truly local service.
Hedge funds administration
The funds administration business is also a growing sector in Malta - based on a value proposition that has regulatory responsiveness, cost-effectiveness and speed as its main drivers. Through the fund administration activities our subsidiary, Valletta Fund Management, we already have a track record of providing services in this area to professional investor funds.
Our projections are that the number of funds established in Malta will continue to grow at a very satisfactory rate , and it is our intention that BoV should continue to increase its market share in this area, while also increasing the average size of the funds managed.
Looking ahead, therefore, we are seeking to consolidate our capabilities to position ourselves to service the full spectrum of funds domiciling in Malta, particularly in view of our expectation that the regulator will, in due course, be requiring domiciled funds also to be administered locally. In this regard, we are also exploring the possibility of setting up a fund administration company to offer its services to foreign funds. We are currently examining several options and models to take us in this direction, considering how best to attract larger businesses and bolster our market positioning.
Other areas
Longer term, we feel that there are also other sectors that will present opportunities which match with the domestic capabilities that we at BoV are developing. Among these, we are actively following developments in international pensions where we expect momentum to build up in Europe over the next five to seven years. Sufficient growth in the funds sector over this period would contribute to position Malta as a credible location for international pensions administration.
Finally, there is also scope for back office operations for trusts to be developed in Malta, an area in which we are progressively building service capability and capacity. This development is proving to be an interesting proposition for the bank and we are setting up the necessary structures to be able to meet the increased demand in this area.
It is our view that Malta has untapped potential that is waiting to be mobilised. We have a strong value proposition for hedge funds and corporate captives built around a number of natural advantages that I have referred to, but also in terms of regulation and government policy.