As the news emerged about the possibility of APS Bank plc taking over HSBC (Malta) plc, I felt proud both as an academic as well as a member of the accountancy profession.

I augur that the deal does go through for a number of reasons, which I will explain in this article.

I hope my contribution will trigger off a more objective discussion, eliminating any scaremongering by both ecclesiastical members as well as selected financial advisors, which, undoubtedly, could only do harm rather than good, especially if certain assertions are incorrect.

Taking stock of the current situation

Through my professional interactions I’ve come to learn that HSBC has been somewhat reluctant in financing local businesses, especially start-ups.

The size of the local market is what it is, and I do recognise that, being a commercial bank, profit maximisation is the main objective.

So it is evident that Malta is simply another drop in the ocean. Increased operational costs, coupled with decreased interest rates, will surely induce an international bank such as HSBC to fly its capital someplace else and, possibly, earn a higher margin elsewhere.

The fact that negotiations are under way suggests that HSBC is definite in its decision to exit from Malta. So, without engaging in scaremongering myself, one surely needs to reflect on the scenario that HSBC decides to call it a day tomorrow, surrendering its existing banking licence and laying off the current cohort of 940 employees.

One might suggest that the government intervenes. Well, possibly, but one must keep in mind that the government is already exposed through its 25% shareholding in BOV, alongside other specialised banking operations such as MDB.

I have my doubts whether the European Central Bank would allow the government to take up HSBC’s shareholding and convert HSBC into another nationalised bank.

So, isn’t there a moral obligation on the local archdiocese to assist in any way, possibly through APS plc?

In doing so, while the local archdiocese keeps an arm’s length from those entrusted with running APS plc, the bank would be able to extend its banking facilities to an even wider community through the existing branch network owned by HSBC.

While assisting start-ups that are environmentally friendly, APS would be able to deliver the much-needed community banking to our elderly society who are currently struggling with the ongoing technological advancements.

The dilution of the archdiocese’s interest in APS Bank

As things stand, the local archdiocese owns 55% of the current shares in APS Bank, undoubtedly making it the major shareholder and having a controlling interest in the bank. As banking regulation becomes ever more onerous on the ultimate beneficiary owners, responsibility lands on the episcopal conference as the owners of the bank, and with their little to no banking competences, APS stands to lose its banking licence. So, some form of dilution is necessary.

APS taking over HSBC could be a golden opportunity to achieve this and eliminate the risk of APS losing its banking licence.

The existing equity base of APS does not permit that it takes over HSBC.

Even if negotiations are concluded, the suggested deal will be subject to the scrutiny of the European Central Bank- Ivan Grixti

So, a fresh issue of shares will have to take place for APS to have the necessary funding to finance the takeover.

The consequential effect will be that the archdiocese will be reducing drastically its interest in APS Bank, possibly keeping a 25% interest; just enough to continue to transmit its ethos through the bank’s operations.

Trust in the board and senior officers of APS

When APS Bank went public just about two years ago, all the shares offered for sale were fully subscribed.

I have no doubt that, in any eventual exercise to further strengthen its capital base, all shares will be fully subscribed yet again. Why?

For the simple reason that the people running the show on a day-to-day basis are seasoned professionals who have, over the years, proved themselves within the banking community.

Together with the appointed chairman and board of directors they represent the crème de la crème in all the necessary competences necessary to run a serious financial institution.

I am more than sure that none of them would risk engaging in a silly move that would harm the local archdiocese’s reputation.

Church’s sources of income

For a good 45 years, the Church has been rendering an account of its finances to the community, without any legal obligation to do so. Like any other non-profit-making institution it needs to source income to finance its diverse operations, which assist the local community in various aspects, such as Id-Dar tal-Providenza, Siġġiewi and the existing Church-run homes for the elderly.

Undoubtedly, the dividend payout from APS contributes significantly to make ends meet.

Notwithstanding that the Church will be further reducing its shareholding in APS, there is a possibility that its eventual 25% share of any dividend payouts will be larger.

As long as there is good stewardship in the application of such funds, surely there shouldn’t be anything inappropriate in the possible takeover of HSBC Bank (Malta) by APS Bank plc.

There remains an important hurdle to overcome, which I feel most are forgetting about.

Even if negotiations are concluded favourably, the suggested deal will be subject to the scrutiny of the European Central Bank in Frankfurt.

So, there is still a long way to go but I urge all to be objective in their arguments as we engage in a healthy discussion; that healthy discussion should not be messed up with any personal agendas.

Ivan Grixti is a senior lecturer in financial accounting at the University of Malta.