Juanita Bencini. Photo: Chris Sant Fournier

Juanita Bencini has been involved in the banking sector for over a decade – but it is clear within minutes of sitting down to talk to her that she still finds it as exciting now as she did then. No; actually a lot more exciting.

The partner for risk consulting services at KPMG in Malta has been seeing considerable growth in this sector not only in terms of balance sheet size but also in the number of banks, with three new banks in 2014 alone.

Yet with 28 banks now licensed here, she still anticipates more activity. Why? Partly because it is one of the few jurisdictions in the EU still open for business.

“Other European jurisdictions are not keen to license new banks – especially if they are small or niche banks. Promoters essentially find a closed door as regulators view banking as being heavily-demanding of resources. New banks create new risks,” she said.

“But our regulator, the Malta Financial Services Authority (MFSA) has, thank heavens, still kept an open door policy. This is not to say, of course, that it will allow anybody to set up a bank – it has if anything heightened its due diligence procedures this last year. But it is not a closed door and the MFSA will meet you to discuss whether your business model makes sense.”

Even a cursory look at the three banks which opened last year – retail bank Satabank, wealth management bank Pilatus Bank and Yapi Kredi Bank Malta, a subsidiary of a Turkish bank – shows how much banking business models have changed over the past 20 years.

A close analysis reveals that the new banks are very entrepreneurial in spirit and seeking to tap particular niches.

“The profile in the sector has totally changed over the last two years. Ten years ago, it was mainly driven by Austrian banks here because of the double taxation agreements and the tax benefits that gave to them. Now there are very few still here. The banking model that we saw a few years ago now no longer has a reason to exist.

The shareholder base, which has till now been mainly European, is now shifting eastwards to the Middle East, Hong Kong, Singapore and China

“Today setting up a business for tax optimisation purposes is frowned upon and banks would definitely not set up in a jurisdiction because of tax reasons. They would be lambasted big time by their home country jurisdiction!” she said.

“But there are so many innovative models. It is a very dynamic environment with drivers of change coming from it at all angles.”

She admits that it is difficult to say what lies ahead. The three banking licences last year were issued before the Single Supervisory Mechanism (SSM) came into force and the MFSA will now have to interact with the ECB on authorisation of new licences.

“Obviously the ECB will probably expect to be involved at all stages of the application process, to give its opinion on the due diligence done by the MFSA, and on whether the licence should be granted.

“Will the ECB have a veto at the end of the progress to overrule an MFSA decision? We are obviously all looking forward to having the first licence issued to see how it is going to work,” she admitted.

It is now taking about a year for a banking licence to be issued – considerably longer than before – but KPMG in Malta is certainly not arguing for the process to be speeded up.

“The MFSA is very thorough and keeps asking questions and coming back for more information. I for one, would not want it to be any other way. It can be frustrating for us and our clients but we don’t begrudge them the time it takes until they get comfortable. We have to really, really make sure that we never get it wrong,” she said.

She sees this year as a watershed for banking as a result of SSM, with banks split into ‘significant’ and ‘less significant’ banks. The ECB directly supervises the significant banks in a jurisdiction while the rest are still left at the discretion of the local regulator with oversight from the ECB.

“What we are seeing is that local regulators are noting what is happening with significant institutions, trying to impose some of that on the less significant institutions – as far as possible within the concept of proportionality – but you have to be very careful how to whittle that down to something that makes sense for the smaller banks,” she said.

For local retail banks, the limited market poses challenges but the sector is far from dormant.

“There is a very active mergers and acquisitions market in Maltese banking and there are deals being negotiated as we speak. I can see that continuing in the near future,” she confirmed.

“It makes a lot of sense if there are synergies between what the new owner wants to do with the bank and the current operations. Retail banking is very saturated and operating a branch network is very expensive: if you took it over, you would do so knowing that it would have to be reviewed and for more efficient channels to be pursued.”

One thing that has changed is that the shareholder base, which has till now been mainly European, is now shifting eastwards to the Middle East, Hong Kong, Singapore and China.

“They are looking to set up in Europe and Malta is an entry. I see tremendous growth and huge potential,” she said.

The sector is certainly booming: the National Statistics Office recently reported that financial services and insurance represent 98 per cent of stock of FDI on the island. But she does not see this as having all our eggs in one basket.

Banking is a business like any other. It needs an entrepreneurial spirit with small banks that tap into niche areas

“I don’t see it as alarming. Malta has still got untapped potential in the financial services industry... Even though people say that financial services can come and go – just as gaming can – I don’t believe it. It has much stronger roots than the gaming industry, for sure.

“We now have such a good track record with both the players and regulators. It can only grow although of course, there are things we need to do as a country to overcome the parochial mentality that sometimes takes over.

“But I think there is awareness within different associations like Finance Malta, the Institute of Financial Services Practitioners and the Malta Bankers Association, for example. We are in constant discussion about the need to come together and not have everyone pulling their own way and for their own agenda. It needs to be more of a concerted effort,” she lamented.

Her comments shed quite an optimistic light on a sector where headlines are often about doom and gloom. Heavy regulation has been throttling profits in banking – and entrepreneurship. But this is precisely why she believes that Malta’s open door approach is timely.

“Banking is a business like any other. It needs an entrepreneurial spirit with small banks that tap into niche areas. To me business is all about trying to meet your clients’ unmet – and even unknown – needs. And the larger banks are often too big to move. You need these entrepreneurs who see a gap in the market and just go for it,” she said, referring to innovations like peer-to-peer lending and crowdfunding that were created from client frustration with the current system.

“Payment institutions have gnawed away at one of the most lucrative parts of banks’ operations: wire transfers and payments.

“Today, if your business is heavily involved in transferring payments between countries, most go to payment institutions rather than through banks. Cards were historically issued by banks but even that is not the case any more.

“I still think that there are unmet needs that can only be met by an entrepreneur looking at something and coming up with solutions to make it happen.”