Bank of Valletta, Malta’s largest bank, has been employing a de-risking scheme over the last few months, which has resulted in plenty of companies having their bank accounts closed down without reason.
The banking sector in Malta has suffered over the last few years, with plenty of foreign banks opting to withdraw their services from Malta, resulting in BOV becoming the major bank in the country that is also prepared to offer its services to firms.
However, due to BOV wanting to lower its risk profile, whilst also strengthening its anti-financial crime structures and policies, it has inexplicably started to close clients’ accounts. This follows the termination of the correspondence that Dutch bank ING had with the Maltese bank, which is set to take place in the coming December. Speaking on the matter, the Maltese bank made it clear that the shortcomings were on its part, not on the part of ING.
The main reason that the de-risking is taking place is because of “a spate of anti-money laundering failures, especially in Europe,” according to a spokesperson from BOV.
An official BOV statement read that “Smaller jurisdictions like Malta are being particularly hard hit, since the volumes of business they generate are not sufficient to be of interest to the larger players, given the risks and the compliance costs involved.”
This decision to suddenly close down the accounts of many clients has disgruntled plenty of company owners, as they will now have to relocate their services abroad.
An owner of an unnamed foreign company which until recently was operating in Malta told Maltawinds that “A very large company that has been operating in Malta for 20 years has closed all its accounts and cannot operate,” with it having to “close and unload all its Maltese employees and transfer all the Maltese ships to another flag.”
The most shocking fact is that when asked for justification or whether it had a solution to the problem, BOV simply told the owner to “look for another bank.”
He also added that “Not only are banks killing businesses because they are discriminatory with regard to foreign customers, but they are also now closing good deals that have been ongoing for years.”
To make matters worse, the way that BOV is dealing with foreign companies is also driving away foreign investors, particularly with the way that it is classifying foreign customers as potential financial criminals.
Speaking on the matter, he added that “The fact that our meeting should be with an analyst from the anti-financial crime department is also an insult in itself. Therefore, since maritime trade involves foreigners, it is deemed as a criminal activity.”
Whilst all of this is appalling, it is not all too surprising since the banking sector in Malta has been on a downward spiral for the last few years.
However, the Central Bank of Malta has refuted these claims in the past, stating that the sector remains “sound, resilient and profitable”. Whilst the Central Bank stated that there are no concerns with regards to Malta’s core domestic brands and that small international banks such as Pilatus Bank were of no danger to the country’s financial stability, it is still evident that there are major problems in the banking sector.
To put this into context, Standard and Poors (S&P Global Ratings) rated BOV as having a negative outlook, with there is increased pressure on the jurisdiction’s reputation, with the main concern being the bank’s long-term future. The Central Bank of Malta added that S&P Global Ratings’ score of the bank industry in Malta was “essentially based on the rating of Bank of Valletta,” with the Maltese bank being the major bank in the whole sector.
Late in 2018, one of the most controversial banks in Malta’s history, Pilatus Bank, had to officially close down after several alleged breaches of money laundering. The ECB made the final decision in closing the bank down, by revoking its license completely.
Several other banks have been hit with such punishments when it comes to money laundering, one of which being Satabank, which was hit with a record €3 million fine in July, after it was jointly-inspected by the Malta Financial Services Authority and the FIAU. The inspection found that the bank had extremely weak structures, which could potentially allow clients to conduct criminal activities.
HSBC, which was the main competitor for BOV for several years, is no longer an active participant in the market, with the bank registering a 23% decrease in profitability by the end of 2018.
Several foreign clients have been forced to take their operations abroad or else start working with e-money institutions, with there being extremely limited options locally.
The chairman of the Malta Bankers’ Association, Marcel Cassar, is extremely concerned with the ongoing situation, saying that “there are no straightforward solutions, but more needs to be done to preserve the hard-earned reputation of Malta’s financial services industry.”
Mr Cassar’s statement comes after there was an insufficient number of banks that were keen to take up the service of processing transactions in US dollars for BOV after ING completely terminated its correspondence relationship with the Maltese bank.
BOV have until December 14 to find a new bank which will allow it to process transactions in US dollars. If it fails to do so, then the Maltese banking sector will end up in an even worse situation than ever before.