▪ Authorities were informed earlier this month
▪ Withdrawal ‘another blow’ to Malta’s attractiveness
▪ Most banks have ‘alternative arrangements’
Deutsche Bank has confirmed it is pulling the plug on its correspondent banking services to local financial institutions, making it more difficult for them to offer dollar-denominated transactions.
The decision follows on from a hard-hitting assessment by the Council of Europe’s anti-money laundering body about Malta’s failure to adequately combat financial crime.
It is understood the bank will stop offering correspondent banking services in all currencies by the end of December.
A senior banking source with knowledge of the whole sector said most of the banks impacted by the withdrawal will have a second correspondent bank as a contingency.
Deutsche Bank has come under intense regulatory scrutiny across the globe over its processing of dirty money, some of which came about as a result of its correspondent banking relationships.
A Deutsche Bank official told the European Parliament in February that the bank had sharply scaled back its role as a correspondent bank.
In parallel with these Deutsche Bank scandals, Malta has, over the past few years in particular, gained a reputation as a high-risk jurisdiction.
A spokesman for Deutsche Bank told Times of Malta that Deutsche Bank reviews its correspondent banking relationships on a regular basis.
He said the bank factors into consideration, among other things, the cost aspects of a potential correspondent banking relationship and the bank’s overall country coverage strategy.
Correspondent banks like Deutsche Bank help domestic banks access foreign financial markets and conduct transactions in other countries, particularly in dollars.
The dollar is widely viewed as a ‘world currency’ and is essential to international trade.
Deutsche Banks’ decision is expected to mainly impact smaller banks, as neither Bank of Valletta (BOV) nor HSBC rely on the German bank to clear their dollar transactions.
Times of Malta is informed that the announcement was communicated to local banks and authorities during meetings held in Malta earlier this month.
No formal announcement about Deutsche Bank’s decision to withdraw from Malta was made by the government or the Malta Financial Services Authority.
The Deutsche Bank spokesman said over the last three years, the bank has reviewed correspondent banking relationships in many smaller countries in Europe, Asia, Africa and South America.
“Going forward, the bank will focus more on those countries which are key to the bank’s core client base,” the spokesman concluded.
Deutsche Bank had already terminated its correspondent banking relationship with Malta’s largest bank, BoV, two years ago.
A de-risking exercise by Dutch bank ING also saw BOV being given till the end of the year to find another correspondent bank provider in US dollars.
Malta Bankers’ Association chairman Marcel Cassar warned earlier this year that ING’s withdrawal of its correspondent banking services hit at the very heart of Malta’s financial services sector.
Mr Cassar said the Malta Bankers’ Association has been alerting the authorities for years about the de-risking by correspondent banks, as its members are in the line of fire.
The senior banking source said a number of local banks use Deutsche Bank, although not all of them may be using their US dollar banking services.
“Although some banks may be more reliant than others on Deutsche Bank’s services, I do not believe that there is an immediate risk to their operations on account of the withdrawal,” the source said.
The banking source said that most institutions have had alternative arrangements in place for some time.
In recent months, other banks have shown an interest in servicing Malta, and others may be looking to extend their services to Malta in the near future, the source concluded.
‘Blow to country’s attractiveness’
One financial industry insider said that without easy access to dollar transactions, international companies would think twice about coming to Malta.
“Most gaming and trading companies setting up shop in Malta do not come here to service local residents. The fact that such companies may not have easy access to dollars, or local institutions that can bank in dollars, would certainly impact the country’s attractiveness.
“You would start getting these boardroom discussions. Without easy access to dollars they would re-consider their status in Malta. The tax incentives are attractive, but as a standalone attraction, this is not enough,” the source said.
The source continued that attracting other correspondent banks to service Maltese ones will not be easy.
“Some banks do not want to touch high-risk sectors such as gaming, medical marijuana and cryptocurrencies. We are ringing all the alarm bells on this front,” the source said.