Local banks are not seeing a demand for properties in high-rise buildings despite the many developments popping up around the island, according to the APS Bank CEO and current chair of the Malta Bankers’ Association.

In a wide-ranging interview with Times of Malta, Marcel Cassar echoed the banking sector’s concern over several issues, from unsustainable mass tourism to overdevelopment and Malta’s ballooning debt.

The interview took place two weeks after Malta Developers’ Association president Michael Stivala underlined the need for more construction and less bureaucracy, a strategy which was shot down by Finance Minister Clyde Caruana.

Cassar admits that the intensity and scale of certain developments, and the public outrage over them, are making local banks rethink the projects they support.

“We look increasingly at the kind of development and score it in terms of aesthetics, sustainability, social and reputational impact. Do we want to be associated with a project that is likely to attract the wrong type of reaction? Banks must become more and more selective of the type of development they are being asked to finance,” he said.

Cassar argues that these concerns are also driven by the incoherence in Malta’s planning sector, citing high-rises and developments in or around Urban Conservation Areas and Outside Development Zones as examples.

“APS Bank’s policy is to not finance development projects higher than 10 floors, not least because of a lack of an overarching planning vision for high-rises,” he said.

He points out that high-rise buildings also present an unknown risk for banks as there is no track record or evidence of the likely demand.

“There is no track record. As a bank, we haven’t yet seen sufficient demand and we haven’t been approached to finance the acquisition of units in high-rise towers,” he said.

“It might be that prospective buyers don’t require bank finance, but it would be rather odd that you have such big developments and banks aren’t being approached for acquisitions. I don’t have the sense that other banks are being approached.”

‘Why would a tourist want to come back?’

Reflecting on the broader impact of Malta’s development spree, Cassar warns about dire consequences on its tourism industry.

“The banks are heavily exposed to the tourism sector. At this rate of unbridled development, not to mention population and traffic density, we need to ask: would a tourist want to come back and spend good money here? Take Gozo – if Gozo loses its special charm and tranquillity, what does it have to sell?”

Cassar cautions that the banking sector will also be facing the brunt of unsustainable development if this trend is not bucked.

“As bankers, we want to see quality tourism being repeated and strengthened, year in, year out. This isn’t only for our clients – hotels, restaurants and other operators - to repay their loans but for business to flow and for the thousands working in the industry, and their families, who are also our clients. We are also outpricing ourselves. And it would be short-sighted if over-development suffocates what tourists come back for.”

Describing a “sense of déjà vu”, Cassar warns that we are once again letting ourselves believe that infrastructural improvements enable us to take on more and more tourists.

“This approach didn’t work in the past when we had a million tourists with a population that was two-thirds of today’s, can it work now? When we talk of ‘sustainability’, this is what it’s about after all.”

Diversifying Malta’s economy

Cassar echoes the recent call by Finance Minister Clyde Caruana for the country’s economy to diversify. Describing Caruana’s mention of the need to invest in manufacturing as “refreshing”, Cassar argues that investing in new industries needs to be accompanied by broader social and infrastructural investments in order to be sustainable.

Cassar draws a parallel with the beginning of the financial services sector in the early 1990s, when a favourable taxation programme was established to kick-start our attractiveness for international firms to come to Malta.

“Unfortunately, we continued to extract more and more out of our taxation advantage, rather than focusing long term on things that would enable Malta to become a centre of excellence, such as education and training, quality of regulation and professional services, the efficiency of law courts, reducing bureaucracy, and so forth.”

Cassar believes that Malta needs a long-term strategy to identify industries that add value to Malta’s economy and train young people to develop the necessary skills within the country’s workforce.

“Look at the aircraft maintenance industry. The arrival of the industry to Malta incentivised more young people to become engineers, creating new career opportunities in the workforce.”

Cassar also argues that aside from looking to new economic sectors, there is also scope for more sustainable growth sectors already present in Malta, such as financial services and gaming.

“When we talk of ‘gaming’, for instance, we think of online betting, but there is more to it than that to explore. Take the video game industry, for instance, where the sky seems to be the limit!”

Malta can ride out utility price storm

Looking to the future, Cassar believes that Malta is relatively well-placed to ride out the current wave of global increases in utility prices, despite the government’s decision to subsidise utility costs ringing in warnings from global credit agencies about the country’s ballooning debt.

“The Maltese are traditional savers and during the pandemic bank deposits increased because people were spending less on travelling, eating out, grooming and attending fewer functions. This savings cushion is now experiencing a new phenomenon, as interest rates rise and people see an opportunity to invest their money in government and other bonds.”

Cassar, whose career included a spell in financial regulation and supervision, argues that Malta’s generally conservative and prudent approach to banking remains intact, however, policy changes over the past years allowing the licensing of start-up banks have put this to the test.

“There is nothing wrong in licensing start-up banks in itself, but the requirement for the people who run the bank to be fit and proper is at the heart of sound banking regulation and supervision. Malta relaxed its standards quite a bit in this regard over a period of time when it was trying to open up to new banks and new players in the market,” he said.

Cassar points to the licensing of banks such as Nemea, Pilatus and Satabank – banks which he describes as “on the fringes” – as instances which may have dented the public’s trust in the banking sector. However, he insists that we still have “a generation of level-headed and professional people running our banks and regulatory authorities”.

Greylisting and reputational damage

Cassar plays down the impact of Malta’s FATF greylisting on Malta’s banking sector, saying “it had already been factored in before it happened, so nothing really changed, it was business as usual for us”.

Nevertheless, Cassar says it is “undeniable” that Malta has suffered reputational damage over the past years.

“It certainly did not help that Malta ended up on the grey list. I was honestly expecting it to come and when it came, I was not surprised at all. But equally, I was also aware of what was going on behind the scenes to get out of this.”

Faced with criticism of the banking system’s bureaucracy, Cassar admits that many customer complaints, including about account opening, are justified, but concludes with a parting shot towards other professions.

“Sometimes complaints come from firms and businesses that should have gone through more rigorous filters and onboarding tests of their advisers in the first place. But they lead them on, charge their fees and eventually say ‘It’s the bank that refused you, not us’. It’s not only the banks that have obligations when it comes to onboarding, but also others.

“Ultimately banks are in competition for business. If there is a business that is bankable, it will be taken on.”

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