Generally, ‘The Malta Independent’ treats economic, fiscal and financial issues more thoroughly and objectively than any other local newspaper. That is why I was shocked to read its leader’s conclusion (6/7/12) on what would likely to happen if one of our 30-odd banks gets “caught up in the mire” as experienced in some bailed-out eurozone countries. Unhesitatingly, the editor pontificates: “it would mean that the whole country would be taken down with it - just like Cyprus”.
Obviously an exaggeration, certainly unworthy of the standard sobriety and balance normally evident in the paper’s analyses of economic events. Read on how the editor supports his view: “The fact that Malta is small, allowed our banks to weather the crisis through micro management, but that can also work the other way round.”
Malta’s size has absolutely nothing to do with the overall performance of our banks. Iceland is smaller and is still struggling hard to overcome its banking fiasco after 3 years. Malta’s banks operate inside the wider realm of its regulated financial services sector which has grown continuously over the last 23 years, primarily because of legislation agreed to and actively supported by government and opposition alike. After only a few years we even managed to merge the domestic with the off-shore, thus avoiding earning the unpleasant nomenclature of a ‘tax-haven’ attracting dubious funds.
Our relatively-high personal savings rate from an increasing disposable macro-income, supplemented with a series of tax amnesties to repatriate hundreds of millions of formerly clandestine funds accumulated for decades, not to leave out the 15% concessionary tax rate on interest from bank deposits whatever their size, all ensured that our banks became awash with liquidity, the envy of other banks elsewhere. This syndrome was in fact responsible for the attraction of other ‘retail’ banks competing with our traditional ones.
Currently, our banks boast of an equity value of € 106 m in balance sheets totalling € 506 m - a very healthy percentage, indeed. Their annual payroll amounts to € 123 m handed to around 4000 employees, averaging € 31,000 which is double the national average salary of € 15,620. Even higher than the average for managerial grades at € 26,360.
More fascinating is the tax the banks pay to the government on their profits - € 133 m, a figure higher than the payroll. Imagine their profitability at around € 400 m per year, 4 times their total equity. An industry in clover, paying € 55 m in dividends to resident shareholders - 50% on their equity value. No wonder the calculation that HSBC bank was able to repay itself the money it paid for Mid-Med in less than 3 years is so credible.
That is why few believed the rumours earlier this year that HSBC was planning to downsize its local subsidiary. On the other hand, more people believed the government’s boast that Deutsch Bank was seriously considering operating here. Someone even suggested that the government was studying how to do an HSBC with its holding (together with the Italians’ 40%) in the Bank of Valletta.
But BoV has been dogged all along by accusations of mismanaging investible funds that not only elicited heavy uncontested MFSA penalties but, worse, lost it many clients and at least a 30% dip in market valuation. It is still searching for a chairman but nobody in the Minister of Finance’s inner circle seems to be willing to take over a pathetic situation.
At least Malta hasn’t experienced the indignity of its retirees and pensioners protesting vociferously outside the Malta Stock Exchange because BoV had tricked them into making risky investments, as the Catalonians did in Barcelona earlier this month against Bankia, a prominent large Spanish bank which came to need a heavy capital injection to survive.
What is needed in Malta is for a more-active MFSA prevailing on the banks to better look after their depositors by raising their borrowing rates in sympathy with ECB’s rate of 0.75 %.