Despite progress in the fight against Covid-19 regarding the availability of tests and vaccines, Managing Director of Sparkasse Bank Malta plc Paul Mifsud predicts that full economic recovery will be a long journey that requires the help and hard work of all the banks.
Mifsud notes that the impacts of COVID and the slowdown in the economy in 2020/21 was of concern to several banks locally that could have had significant exposure to the direct local economy. This is usually felt amongst local retail banks due to their credit risk exposures to the local economy. During this period, banks in general adjusted their strategies around credit applications and requirements in line with the new risks that the pandemic brought with it.
When asked about the effects on Sparkasse Bank Malta plc, Mifsud confirmed that the Bank remained relatively unaffected by possible credit risk mainly due to the fact that its business model is more focused on the provision of Custody and Depository Services rather than credit. “This is a comfort our customers look for” adds Mifsud – the high liquidity that the Bank retains is a quality that our custody customers seek in us.
In this respect, the fear of holding on to impaired assets during this period was negated by the fact that the Bank holds most of its assets directly with the Central Bank or in High Quality Liquid Assets and available at any time.
While being positive on the manner in which the Bank has stood up to the pandemic, one cannot negate the inherent risks in the market, adds Mifsud.
If Malta can stand up to the challenges of this year, we may see improvement more quickly than anticipated. Overall, Mifsud predicts that the main challenges for the local banking industry in the year ahead will remain that of dealing with Euro Negative interest rates and the adaptability of banking IT infrastructure and scalability.
1. Negative Interest Rates
Negative interest rates are meant to encourage lending and spending rather than hoarding cash, so interest is paid to borrowers rather than lenders. This is an unusual monetary policy that has become somewhat commonplace after the ECB introduced it in 2014. This means that central banks charge commercial banks on reserves in an effort to reduce cash position hoarding. Banks had initially avoided passing these negative interest rates on to customers, instead, taking the hit themselves, however as a result of the economic downturn leading to and as a result of COVID-19, this cannot be sustained any longer. Therefore, banks have started to consider their strategy in this respect by applying a charge to customers holding significant liquid balances.
2. IT Scalability
Many financial institutions do not have IT systems in place to support rapid growth. They are unable to grow and adapt with changing needs, which is a particular challenge in times of economic uncertainty. Banks may be faced with a rapid onslaught of customer and regulatory needs without warning, and technology systems can easily become overwhelmed.
Investment in IT infrastructure is inevitable and here Mifsud confirms the substantial investment in IT that the Bank is committed to in developing and automating key functions such as depository functions and regulatory reporting obligations and business continuity and cyber security. Indeed, automation has improved efficiency and quality while reducing the burden on employees to complete tasks manually. This reduces limitations when unexpected change arises.
Overall, this will be an important year for Malta to regain traction in its march towards economic progress. With a deep understanding and a rich history in Malta, Sparkasse Bank Malta plc understands the nuances of the local economy without being overly reliant on it. In this way, the Bank and its expert employees are poised to assist clients return to a trajectory of success regardless of economic factors.
About Sparkasse Bank Malta plc
Sparkasse Bank Malta is authorized by the Maltese Financial Services Authority as a credit institution and investment services provider, providing banking, investment, depositary, and fund custody services. The Bank offers securities services, including depository services, custody services, custody and clearing services, and trading desk services. Its solutions include both domestic and cross-border services including, trading, clearing and settlement services, cash management, and general banking services. It is uniquely prepared to serve international clientele with multi-currency accounts.
The Bank holds multiple licenses that allow it to fully service its Customers. It acts not only as a credit institution but also as an investment services firm for both individuals and corporations. Most notably, the Bank also offers custody and depository services to fund customers. These are not services typically offered by most financial institutions. Of these licenses, three are issued by the Malta Financial services authority, and one is issued by the central bank of Ireland. Most recently, the Bank was authorized by the MFSA to start acting as a Custodian to Retirement Schemes.
Sparkasse Bank Malta plc also expanded to Ireland in 2018, a move that was part luck and part strategic genius. According to Paul Mifsud, “Ireland was a natural choice for the Bank due to its membership in the EU and its English-speaking environment. The Bank had already established relationships and contacts with several service providers in Ireland, which made the move and the decision all the more feasible.” Dublin has since become an attractive choice for many financial institutions because of the English language, access to the EU, and private fund-friendly rules. This move is just one in a long list of smart decisions Sparkasse Bank Malta plc has made ahead of its time to differentiate itself and remain insulated from competitors.