The sale of 72 per cent of Banif Bank as part of the conditions for the Portuguese bailout of its parent company could not have come at a worse time for the Maltese economy. The country needs a strong and more competitive banking sector, and the last thing it needs would be to lose a retail bank, especially one which was meant to revitalise the loan sector as a low-cost bank.

Banif set up in 2008 with ambitious targets: Within four to five years, it wanted to capture 10-20 per cent of the local market and have 22 agencies.

In fact, Banif only has 12 outlets after six years, nonetheless an impressive expansion. But the self-inflicted target of 10-20 per cent market share proved to be a harder nut to crack than it expected. People are reluctant to change banks, unless there is a clear added value for them. So it aimed for new business, with some success.

It would be easy to assume that a buyer would be found for it. But the reality is that this is a much harder bank to sell than Volksbank was. The net asset value of Banif is only around €25-28 million, compared with almost twice that for Volksbank. Even then, Volksbank sold for roughly half its value to Med Bank, which was interested in its strong corporate loan book, and the immediate foothold it gave it into the retail market.

What has Banif got to offer and who would be interested?

It has around €12 million invested in properties and intangible assets, as many of its branches and headquarters are leased. The bank made a profit of €124,000 from operating income of €12 million. It had €343 million in loans and advances to customers. Deposits stood at €554 million, as the bank backpedalled from its aggressive campaigns for term deposits with higher interest rates and went for retail deposits.

It was meant to seek a capital injection of €17.5 million last year in order to meet regulatory requirements – now planned for the second half of 2014 –but in the interim had to transfer some of its assets into less risky sectors, affecting its returns and, of course, profitability. Its Capital Adequacy Ratio was 8.26 per cent in December 2013 while its liquidity was 39.33 per cent.

Who would be interested? With Volksbank, there was a clear hook for its buyer – Med Bank. Bank of Valletta only sniffed it out because they felt it might not be in its interest to let Med Bank get their hands on it. Clearly in the end BOV did not feel the threat merited €24 million. Med Bank is currently eyeing higher net worth individuals and would not be interested in customers attracted by Banif’s low-cost approach.

BOV and HSBC have no interest in Banif’s assets because it is likely that many of Banif’s customers are already their own. APS has a very different and conservative business model. Lombard already has its Maltapost interests (if only it could leverage the extensive high street presence without raising regulatory eyebrows) – and may have the same pressures as Banif at shareholder level.

Which means a buyer would have to come from overseas. But given the current economic scenario and the regulatory challenges coming soon, who would be bothered with a small bank in a small market?

The Banif experience is a cautionary one for any bank assuming that the impressive profits registered by the main banks are easy money. The low-lying fruit has all been picked.

The danger is that Banif will be targeted by less than savoury operators, still roaming the financial world trying to find a place for the dubious funds left homeless after the collapse of the Cypriot banks just over a year ago. Just as local banks were wise enough to reject the money, the Malta Financial Services Authority as our gatekeeper is there to ensure only suitable suitors come forward.

And the local investors who hold the remaining 28 per cent of the shares – all experienced businessmen – should also be careful whom to get in bed with.

Let us keep our fingers crossed.