When visiting the rural cooperative at Manikata earlier this summer, Small Business Minister Jason Azzopardi brought to light a motion for the bill to amend the Cooperatives Societies Act with the preposition of the setting-up of a bank for cooperatives. There had already been discussions with the Malta Financial Services Authority, as well as with banks in Italy that work under this model, and lately it has been communicated that this would even be a ‘tonic’ for SMEs.
While some PL-leaning media seems to have criticised the fact that the minister moved ahead without first getting in touch with the cooperative movement in general, PL leader Joseph Muscat very clearly supported the idea of a cooperative bank when he visited the offices of the Cooperatives Board, saying that a PL government would give such a development full backing in the form of the relevant legislation.
A recent conference looked at the matter again, stressing the innovation factor. But does this really mean a new product for customers in Malta and has the local banking industry really ignored these sectors?
Agrobanking
Providing a banking infrastructure for farmers was the idea of Friedrich-Wilhelm Raiffeisen, the founder of the cooperative bank movement, who developed the system to help mid-19th century poverty-stricken farmers in the Westerwald region of Germany. Today, this sector has become one of Germany’s main banking groups, with local area banks (sometimes providing the only physical banking presence in villages and small towns), as well as low-cost banking, mortgage, insurance, corporate customer banking and investment banking arms. While in other countries the cooperative banks form part of the national depositor compensation scheme (DCS) – for example The Netherlands’ Rabobank, not only one of Holland’s leading banks but also a major player in global agro-business finance, in Germany the cooperative banks operate their own DCS.
Special finance for the local Maltese and Gozitan agricultural sector (since this was the context in which it was presented by the minister) is, however, not at all new in Malta: For example, APS Bank (the local ‘church bank’) offers its AgriPlus product line. It provides loans to farmers for the acquisition of fixed assets, in order to make farms more efficient, compliant with legislation as regards their operation, and maybe also to help them expand, while short-term overdraft financing helps to bridge gaps between inflows and outflows (indeed necessary, for example until goods delivered are paid for – it’s better not to mention the bambinella support fund saga here!). Furthermore, APS has also been at the forefront regarding the financing of solutions for alternative energy installations, which are of basic national interest, and also introduced the first ethical retail customer fund.
SME banking
Banif Bank, a joint set-up of Maltese investors and the Madeiran banking brand, whose parent company has experience in this field and in the context of small island economies in its core home markets Madeira and Acores, already at this early stage is said to be strategically aiming at SME customers. A first step was primarily in the consumer goods financing field. Banif, together with BOV and HSBC, now participates in the scheme that allows SMEs to take up credit which, to a very large degree, is guaranteed by the government (so presents little or no risk to the bank) within an EU framework, thus dispelling any impression of a credit crunch for such small enterprises. When it comes to export/trade finance for local SMEs, Fimbank offers a very wide range of solutions – to local firms as well as their global network.
Hence from its product and intended customer profile beyond the deposit-taking and general retail banking operations, there is already a Maltese bank coming very near to the core intention and special fields of the cooperative banking sector, particularly in the view of the agricultural sector. And apart from APS, other banks are also catering for at least part of the market, particularly when it comes to local SMEs. So the product and purpose offered is actually already being catered for.
The organisational form as a cooperative would, however, be something new. In view of the small market, which would mean there will only be one cooperative bank for Malta, one will clearly opt to form part of the national DCS. Competition certainly might diversify opportunities for investors and general retail customers, but also SME and agro customers.
Marketing the cooperative bank
From the marketing point of view, this possible bank should certainly put examples of its intended assets to the fore to show the benefits the system can bring locally by supporting rural areas, thus giving it an “alternative” touch that might appeal to depositing customers.
If, however, strategically such a bank could also develop a low-cost branch network in locations abandoned by HSBC and BOV as the two big network banks will have to be regarded. After all, the “second tier” banks (Lombard, Banif and APS as full-service providers, and deposit-specialist Mediterranean) have also not gone into smaller communities for obvious reasons. Keeping operational costs low must also be a prime aim to ensure success.
The increased use of online banking and increased road mobility make the share of customers really requiring a bank “around the corner” smaller and smaller. One might, however, believe that possibly Rabat (Malta) and Victoria and maybe Zurrieq could be places where such a cooperative bank could have some kind of outlet to provide a physical customer interface. It is interesting to note that APS which, with its product portfolio, is quite congruent to what is intended, has branches also in Victoria (since 1994, the second branch after the branch in Valletta) and Rabat (2011, as a mini branch).
The cooperative bank must see that it can occupy niches and must create a drive that makes people “want to be part of it”, both as credit and depositor customers. Yet for any set-up, costs must be low – locating a head office in a location outside the high-priced Sliema/St Julian’s area can thus mean cutting costs. Furthermore, it must have a clear, not too complex, product structure. Not forming a form of cooperation with APS would mean being its direct competitor in specialist markets, which are not that big in Malta.