A continuing low interest rate regime, a strong competitive environment and an ever-increasing regulatory burden made 2018 a challenging year for the banking sector, APS chairman Frederick Mifsud Bonnici said in the bank’s latest annual report.
Frederick Mifsud Bonnici: “There needs to be constant and regular constructive dialogue between the regulator and the regulated”.“All this coupled with the objective of strengthening and promoting the Bank to retain existing customers and as an attractive alternative to potential new customers and to meet future challenges and growth made it even tougher,” Mr Mifsud Bonnici said.
However, Mr Mifsud Bonnici said he believed the Bank’s senior management “ably led by the chief executive officer”, Marcel Cassar, have done a remarkable job.
In 2018 APS Bank’s Group Operating Income expanded by 4.6 per cent, from €42.8 million to €44.7 million (Bank: by 6.3 per cent to €45.7 million) and Pre-tax Profit increased by 1.5 per cent, from €18.4 million to €18.6 million (Bank: by 7.7 per cent to €19.7 million).
The APS chairman emphasised that the costs of compliance with new and changing regulation “are increasing unrelentingly”. He said he had no doubt that regulation has many benefits and beneficiaries, however, to be effective and efficient, a regulatory regime and detailed regulations need to be developed “in the context of constant and regular constructive dialogue between the regulator and the regulated”.
Mr Mifsud Bonnici said the current review of the main regulator in financial services is welcome and that he had no doubt attention would be given to recommendations made by international bodies “to improve on our current performance”.
He added, however: “Certainly, appropriate dialogue will result in more effective compliance than as at present. I would like here to address briefly the issue related to customer on-boarding. A regulated entity has to take cognisance of AML and CFT regulations promulgated by the regulator, its own risk appetite, the standards and risk appetite of the international banks it deals with on behalf of its customers and, last but not least, the effect that all this has on the customer who is only interested in getting on with his transactions.
“I believe most of these issues can be addressed more effectively if there is a better dialogue between regulators and regulated.”
Mr Mifsud Bonnici said Malta’s economy remained buoyant with an enviable growth rate, driven particularly by the property and tourist sectors; the former, no doubt, also spurred by the gaming industry. These conditions helped APS Bank achieve and exceed its operational targets, he said.
“Our lending portfolio grew by 28 per cent compared with last year resulting in an increase in market share.
The deterioration of Malta’s reputation internationally will not turn away unless quick and drastic action is taken
“This has been complemented by our success in sourcing new deposits including from outside the country at competitive rates. Furthermore, our cost to income ratio increased only marginally which is very satisfactory considering the pressures outlined already, i.e. increasing salaries and compliance costs, and the ambitious programme we have embarked on to improve the Bank, particularly with regard to the customer experience.”
He said that at the end of the year, a new three-year Business Plan covering the period 2019-2021 was approved encompassing an emphasis on customer centricity, the development of human resources, process re-engineering, digitalisation, the strengthening of the Risk and related control functions and various upgrades to the IT infrastructure.
“The strong financial position of the Bank at December 31, 2018 is a good starting point for the implementation of the new Business Plan and gives us the confidence to meet future challenges. The Plan also includes a capital development programme to ensure that the Bank remains well capitalised and comfortably above the required statutory capital ratios,” he said.
He also said the dividend for the yearis also being increased, reflecting the improved performance and to align it better with expected investor considerations.
Mr Mifsud Bonnici said the recent decision by the European Central Bank to offer again cheap loans to eurozone banks, signalling that it would keep interest rates at historic lows until next year, suggests a perception of mounting risks to the global economy.
“Malta has in recent years managed to avoid the extremes of the global experience and therefore, perhaps, one need not be unduly concerned. However, if there is a pull back arising from such uncertainties as Brexit, trade wars and a slowdown in China, some impact on tourism and financial services may be expected.
“One also needs to comment on the practical consequences of the deterioration of Malta’s reputation internationally which, in a globalised economy, will not turn away unless quick and drastic action is taken. Furthermore, the expected completion of substantial property developments over the next year or two may dampen some of the growth drivers of the recent past, in terms of speed of growth in property rentals and sales,” he said.
The APS chairman said he expects some of the more important customer-oriented IT projects to be completed during 2019, helping to enhance the Bank’s competitive offering.
“Today, we have a highly-dedicated, well-qualified and experienced workforce, sharpening our commitment to improve our service levels to our loyal customer base. This places APS Bank in a position to ensure that its performance in 2019 will again be satisfactory,” he said.