Experienced banker Rick Hunkin has been parachuted into Bank of Valletta, which is partly owned by the government, to steady up the ship after a turbulent few years at the bank. He takes Jacob Borg through the challenge and opportunities facing the bank. 

Rick Hunkin is the first BOV CEO to be appointed from outside the bank’s ranks. And he admits he could sense a real nervousness internally about having an outsider coming in and calling the shots.

The new CEO, who has held senior positions in various banks abroad, says his main goal was to stabilise BOV to reduce the “regulatory noise” and other factors dragging down perceptions about the bank.

A confidential report by the European Central Bank concluded that BOV had not dealt with a litany of risk-management failings, despite repeated warnings from the Frankfurt-based regulator stretching back to 2015.

Mr Hunkin said the onsite inspection carried out by the ECB 18 months ago had directed a lot of BOV’s focus on cleaning up its internal controls and governance structures.

Since the inspection, BOV had demonstrated to the regulator that it was taking ownership of requirements to improve its risk controls, Mr Hunkin says.

The BOV CEO is keen to turn the focus back on the bank’s customers rather than on its inward controls.

His aim is to be in a position by the end of 2020 to be addressing growth issues rather than the bank’s legacy issues.

Questioned about the costs of addressing these problems on BOV’s bottom line, Mr Hunkin said there naturally had to be a period where the bank invests in making sure the regulators, stakeholders, customers and shareholders were in the right position, so the bank could then focus on moving forward.

“Do I think the costs (of addressing these problems) will run into 2020? Yes, I do”.

He said the internal reforms were part of a two-stage strategy, the second stage of which was looking at new growth opportunities and servicing the bank’s customers better.

Mr Hunkin says a lot of the bank’s de-risking had taken place in areas which were already expensive and difficult to service, so the net impact on profitability may not be as much as expected.

Cryptocurrency, gaming and cannabis industries

The BOV CEO signals the bank is willing to engage with new industries in a way that does not fall foul of the rules.

It has so far been wary of accepting business from companies operating in the cryptocurrency and cannabis industries, while limiting its exposure to the gaming sector.

“I have a requirement as CEO to meet regulatory requirements. They are still evolving. It is not clear yet where the regulators are going to sit fully on this. They tend to want the banks to drive the strategy, then criticise if they are not happy with it”.

Mr Hunkin said his comment was not meant as criticism towards the regulator, as this was all part of the learning process when dealing with new industries.

He said the more the bank itself learnt about these industries, the more it could learn about ways it could support them in a way which was fully complaint with the social, domestic and economic needs of the local economy.

“Balancing all of those seems to be the trick”.

Ease of opening an account

A common sense approach was needed when it came to dealing with new regulatory requirements vis-à-vis the account opening process, Mr Hunkin says.

He assures that the difficulty encountered by foreigners in opening up an account with the bank “is definitely going to change”.

“I am sure all the CEOs of the banks over here will be looking at this.”

He said the regulatory environment is constantly evolving, leading banks across the world to continually scramble to ensure they are compliant and do not fall foul of new regulations.

BOV has closed a significant number of accounts owned by Maltese passport buyers

Mr Hunkin said a recent upgrade of BOV’s core banking system should provide it with the ability to better respond to regulatory changes.

He admitted the initial “knee-jerk” reaction to new regulations could be an over-reaction.

Experience and practice would then help refine the way the new rules were implemented.

“There is definitely room for improvement across Maltese banks here, there is definitely room to make customer-facing processes a lot quicker and smoother”.

Closing of passport buyer accounts

BOV has closed a “significant” number of accounts owned by Maltese passport buyers, he reveals.

The ECB’s on-site inspection had flagged how BOV’s internal systems classified passport buyers as being Maltese citizens, which would have lowered that client’s risk-profile and hence the level of anti-money laundering checks carried out.

Mr Hunkin says the “initial understanding” of this classification system during the inspection had been incorrect.

While the passport buyers were indeed classified as Maltese, the bank’s internal system retained their high-risk status.

“So, at no point were any of these customers cleared of additional money-laundering controls.”

Mr Hunkin said BOV had closed a “significant” number of accounts owned by Maltese passport buyers.

He said in cases where BOV was unable to obtain information about the passport buyer’s funds, or in some cases could not even trace the customer, the accounts were closed.

The bank would continue to service bona fide passport buyers who were able to demonstrate that they and the source of their funds were genuine, he said.

Branch and staff levels

BOV’s main competitor, HSBC, last year announced it would be closing eight branches as part of a drive to shift services online.

Mr Hunkin says BOV will be carrying out a “site strategy” review, but this would not be tackled from a branch closure perspective.

He said the aim of the exercise was to analyse whether BOV was in the best position to serve its customers.

The BOV CEO points towards potential to move the location of certain branches, rather than close them down.

“We have no branch closure programme. Clearly, a holistic site review programme has got to take place, but that will be coming at it from a customer-based perspective, in terms of how and where we serve our customers”.

Asked if any staff cuts were planned, Mr Hunkin said BOV planned to grow its staff numbers rather than shrink them in the short-term.

“As we develop a strategy for the future, I hope to make processes simpler. I hope to make processes more automated. I hope to make customer propositions better. What that will mean for our operating model, only time can tell.”

He identified the need for staff re-training to cater for skills-gaps emerging.

“I am much more focused on that than I am anything to do with numbers.”

Reputation risk

Mr Hunkin does not mince his words when it comes to Malta’s reputation in the financial world.

“There is no denying that international countries are looking at the Maltese jurisdiction and saying it is high-risk.”

He says this higher risk perception had already translated into a reluctance by a lot of countries to deal with Malta, as evidenced by correspondent banks that have terminated their relationships with Malta. 

German giants Deutsche Bank terminated all its correspondent banking relations with Malta last December.

ING similarly announced it would be cutting its ties with BOV by December, leaving the bank without a US dollar correspondent.

Mr Hunkin reveals that ING has since given BOV some more breathing space, extending its relationship with the bank until March.

The CEO did not rule out discussions about a further extension with ING, but this would be done in tandem with the work to identify other correspondent banking relationships.

Correspondent banks facilitate wire transfers and other business transactions, typically for smaller domestic banks.

Currently, BOV is managing to maintain sufficient relationships with correspondent banks to ensure dollar payments, Mr Hunkin said.

Mr Hunkin says the bank is working with Western Union to put in place a new dollar payment arrangement.

“As long as we can sustain the capability to deliver international trade, then neither us nor our clients will suffer.”

He warns that any further slide in Malta’s reputation would harm the whole country.

If the position were to worsen so far that international trade doors become closed to Malta as a whole, it would have a knock-on impact on BOV clients who trade internationally, as well on all the big international companies that either operate from abroad into Malta or vice-verse, Mr Hunkin warned.

He says there is no quick fix to Malta’s dented reputation.

“Collectively, government bodies, political parties, individuals in senior positions have got to help restore that confidence.

“I don’t think it is down to any one party. The banks also have to play a key part in demonstrating that we are low-risk and strongly controlled.

“All that will start to contribute to confidence factors. I don’t think that is going to be a quick fix and a concerted effort from a number of different areas for that to happen”.

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