There will always be some who believe that in Malta, we can do things differently to minimise the pain of restructuring.
The European banking industry has been experiencing a seismic shift in regulation and supervision in the last decade since the financial crisis. The local banking community is not immune to these changes. There may have been some delays in the implementation of reforms as local banks did not perform so poorly in the last financial crisis. However, now the time is overdue for these banks to adapt to the changes demanded by shareholders or banking supervisors.
HSBC’s announcement relating to the closure of eight branches comes in the context of the group’s decision to improve its profitability in Europe as returns are not meeting shareholders’ expectations. The cost-to-income ratio of HSBC is still higher than that of more efficient European banks that trimmed their costs by closing branches and reducing headcount.
The bank will, of course, sell this significant change in their business model as a positive development that will be done in the interest of their customers. Customers, especially the elderly, may have a different view of how these changes will affect them.
BOV is in an earlier stage of restructuring. With the government still the bank’s largest shareholder that appoints the chairman, there is little doubt that the ECB as the bank’s supervisor will want to break the link between the BOV and government. BOV’s de-risking strategy is being accelerated as the threat of losing all correspondent banking relationships with US-based banks poses an existential challenge to Malta’s largest bank.
The government, as the main shareholder of BOV, must have known about this substantial challenge being faced by the bank. The question that needs to be asked is why did it not signal to the bank’s management, through the MFSA, the need for de-risking much earlier than it did? Is this because this would have obstructed the signing on of more companies engaged in economic activities that are shunned by US regulators?
The Deutsche Bank decision to stop correspondent banking services to all Maltese banks is another severe setback that shows how fragile confidence in a financial centre could be. The Prime Minister tried unsuccessfully to resolve the correspondent banking threat a few years ago at a political level, but politics and international banking do not mix.
This seismic shift in banking will have other profound consequences on sectors of the community and the economy. Older adults, including those living in larger towns like Hamrun and St Julian’s, will struggle to adapt to satisfy their banking needs through internet banking.
Some economic activities, like unlicensed gaming companies and companies offering card payment services to international and local businesses, face the daunting task of convincing a bank that their activities do not pose a high risk from a money laundering perspective. Whether the government is sensitive enough to the risks of money laundering of some economic operations does not matter much to regulators. Banking supervisors will ensure that banks under their watch are not complacent about the risks of financial crime.
Hopefully, any redundancies in the banking sector will be achieved through voluntary retirement schemes. Banks also need to come up with better solutions on how to serve older clients who are not familiar with the technology.