The local commercial banks have recently adopted a voluntary Code of Conduct which sets out minimum standards and principles of good banking practice when they deal with cheques that are dishonoured due to non-availability of funds. The objective of this Code of Conduct is to encourage a greater understanding of the roles, rights and responsibilities of the banks, their customers and third parties for their mutual benefit.

The banks are firmly committed to reducing the number of dishonoured cheques in circulation, as unpaid cheques clearly undermine public confidence in the cheques system in general. The banks therefore held consultations among themselves, as well as with the authorities, the regulators and the Malta Association of Credit Management, in order to discuss ways and means of addressing this issue. The drawing up of a Code of Conduct to deal with dishonoured cheques ensued from this process.

The code reaffirms the banks’ commitment to continue to exercise great care and attention when opening current accounts, at which point banks will, ordinarily, issue the minimal number of cheque forms to the customer.

When a customer has had three or more cheques dishonoured in a single calendar month, his bank will, in the first instance, immediately initiate discussions with the account holder and insist that he/she refrains from engaging in such practice forthwith.

If these customers continue to issue cheques, which are dishonoured, or the number of dishonoured cheques of any one customer exceeds six in a single calendar month, the banks will have to consider other action. Where circumstances permit, the banks will consider restructuring the customer’s finances, or possibly granting a credit facility to meet these payments. Failing this, action could include withdrawal of the cheque-book from customer, and closure of the account / withdrawal of credit facilities. Alternatively, the cheque-book could be withdrawn and customer informed that all payments to third parties will have to be made by bank drafts, which will only be issued against available funds.

James Bonello, secretary general of the Malta Bankers’ Association, is confident that the measures contemplated in the code will yield positive results. He also referred to the practice some suppliers have of accepting post-dated cheques in payment, often over extended periods. “This is contrary to good banking practice and obviously complicates matters in cases where a bank opts to withdraw a customer’s cheque-book” he said. Mr Bonello also emphasised that all those allowing credit and accepting cheques in settlement are expected to have in place adequate due diligence processes and credit risk management procedures to control and to limit the risks involved.

The administrator of the Malta Association of Credit Management, Josef Busuttil, expressed satisfaction at the launching of this Code of Conduct, which he views as a timely step in the right direction. Mr Busuttil said: “My association has been voicing its concern at the incidence of dishonoured cheques for quite some time now, and we note with satisfaction that our concerns have been met with this response by the banks. We shall continue working closely with the banks to monitor the effectiveness of the Code of Conduct, so that together, we can discuss and agree on any improvements which may be appropriate to better achieve the aims of the Code”.

The full text of the code is available on request at any of the commercial banks; it can also be viewed on their respective

websites.