A former Central Bank governor has expressed “grave concern” over the possibility of the government becoming Lombard Bank's largest single shareholder, saying it amounted to the state "interfering in the banking sector".
During his tenure, Francis Vassallo had been responsible for privatising local banks.
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The government is said to be seriously considering using funds from the Individual Investor Scheme to buy up about €50 million worth of Lombard shares, which is 49 per cent owned by the Cyprus Popular Bank.
The shares were put up for sale after the Cypriot Bank was bailed out by the Cypriot government during the financial crisis.
News of the possible purchase was broken by The Sunday Times of Malta and confirmed by Cypriot newspaper the Cyprus Mail, which said on Thursday that the Maltese government had already made a "take it or leave it" offer for the shareholding. The offer was described by the newspaper's source as being "the best possible" price.
Mr Vassallo told the Times of Malta on Friday that although the purchase of Cypriot shareholding would not represent “full nationalisation”, as the government would not have full control, it would nevertheless mean “interference in the banking sector” – which worried him as a former governor.
He disputed the interpretation of the purchase as an “investment” of Individual Investor Programme funds, saying this would be the case if only “five per cent or so” of the bank were bought, as opposed to the 49 per cent up for sale.
He also expressed doubt as to whether the government needed another bank to pursue its social policies, saying that the National Development Bank had been set up with this in mind.
About 20 bids for the shareholding were submitted last year, when the sale process was initiated. Although these were whittled down to a shortlist, the process was stalled as they were never given access to the financial information they required as part of the due diligence process.
Read: Anger mounts as sale of €50 million in Lombard shares stalls
No reason was ever given for this, but a Cypriot newspaper reported a week ago that the Maltese government was behind this delay due to Lombard’s stake in Maltapost, which it deemed “an institution of public interest”.
Lombard controls over 70 per cent of Maltapost – whose privatisation had started in 2002 – through its subsidiary Redbox Ltd.
Even though Lombard is not considered to be systemically important – that is, having an important role in the banking systems of the country – the process would eventually need to be vetted by the European Central Bank.
The ECB’s supervision rules give it the power to “grant and withdraw the authorisation of any credit institution and to assess the acquisition of holdings in credit institutions in the eurozone”, jointly with the national authority – in this case, the Malta Financial Services Authority.
In some cases, the ECB may also consider imposing “additional prudential requirements on credit institutions in order to safeguard financial stability”.
The Single Supervisory Mechanism Regulation has also established a number of authorisation procedures covering the assessment of acquisitions of “qualifying holdings”, although it is not clear whether the Lombard shareholding would fall into this category.