Reports that APS has been in discussion for some time on the potential acquisition of HSBC Bank Malta’s banking business have elicited comments from financial analysts as well as from those, much better placed than I am, to comment on the theological aspect of the Church’s involvement in banking. At present the Church (Archdiocese of Malta 55.2% and the Gozo Diocese 12.7%) owns nearly 68% of APS’ shareholding.

I was among those who expressed reservations on the Church retaining full ownership, or even a smaller shareholding when this was diluted later, of a bank that had shed its former role of being a pure savings bank and opted for a full commercial banking licence.

My view was that, once the bank entered the field of personal and commercial lending, the Church was open to criticism for getting involved in a business sector that could conflict with its traditional pastoral role.

My firm views even led me to turn down an offer by the then archbishop to be appointed the bank’s chairperson.

It remains to be seen if such a takeover is likely to be viewed positively from a regulatory point of view and if this is considered to be in the interests of shareholders of both the banks involved.

Meanwhile, the scope of this article is to point out certain aspects that, in my view, are most likely to place the Church in a more awkward situation than it is at present even if, as has been stated by the Curia administrative secretary, the Church plans to dilute further its shareholding. This, he admitted, is “beneficial both from a pastoral and a financial point of view”.

The disparity of the financials of APS and HSBC

The accompanying table illustrates the disparity of the financials of these two banks; how the situation would change were the acquisition to materialise, and also how the combined bank would compare with Malta’s largest bank, Bank of Valletta.

HSBC is a bank with twice the capitalisation (€543 million) of APS and with deposits from customers and banks totalling €6.1 billion, also double that of APS.  An important consideration is the amount (85.40%) of such deposits that are on-lent by way of loans and advances to customers. This is much higher than the norm and the levels of competitor banks. Moreover, over 96% of APS’ advances are term loans, nearly 70% (€1.9 billion) of which are classified as being to households and individuals.

To my mind, the above factors are most likely to be behind APS’ main interest in acquiring HSBC Malta. APS is unable to grow unless it increases its customer deposits base while its main competitors (BOV and HSBC) have no difficulty in attracting such deposits.

It has been stated that the Archbishop’s Curia does not interfere in the bank’s operations as such matters are left in the hands of the board of directors (the majority of whom are appointed by the Church as a ‘Qualifying Shareholder’). This is arguable. Even were the Church to dilute its total shareholding to a minority interest of below 50%, I venture to suggest that serious consideration should still be given to a number of important issues.

Among these:

• In their published audited accounts, all banks are obliged to show a sectorial analysis of bank advances. APS’ lendings to the construction, retail estate and hotel/entertainment sector exceed €317 million, and HSBC’s figure is about double. Is it possible that the Church is happy to be seen to be a shareholder in a bank lending such substantial sums to commercial entities engaged in these sectors when, in some cases, the purpose could be against the Church’s principles? A merger between APS and HSBC would take this figure to over €1 billion!

• This equally applies to HSBC’s substantial holding of local and foreign financial investments (€1.3 billion of which €14 million are stated to be unrated i.e. junk bonds) some of which could be in companies engaged in activities that run counter to the Church’s teaching.

• Presently APS’ advances exceed 85% of deposits by banks and customers. This is sharply higher than that for HSBC (61.89%) and even BOV’s 50.62%. Is APS being pushed by the regulatory authorities to lower this percentage even at the cost of adversely affecting the bank’s profitability?

• In all, the Church holds approximately 256 million ordinary APS shares out of about 378 million fully paid-up shares in issue. At the time of writing, APS’ shares are trading at €0.58 making a total market value of, say, €148.5 million. From this investment, the Church received in 2024 by way of dividends, net of tax, a little over €5 million.

However, one should not overlook the fact that dividends are not an assured source of income, and the level could well decrease (or even disappear as happened in 2020) as and when euro interest rates resume a declining trend or, for regulatory reasons, there will be occasions when banks may well be precluded from paying any dividends.

Therefore, by realising its substantial gain by divesting itself completely from its shareholding in APS, the Church could kill two birds with one stone i.e. ridding itself of a link with commercial banking and ensuring a steadier, and possibly higher, source of income through a change in investment strategy.

These are just some off-the-cuff thoughts. I conclude by saying that I hold in high esteem both APS’ chairperson and CEO.

However, independently of my misgivings regarding the Church’s involvement in the business of commercial banking, I must say that I see a rough road ahead in the negotiations for a buyout by APS of HSBC Bank Malta.   

Anthony Curmi is a former banker.