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BOV Argues Malta’s Small Size In A Risk-Averse World Makes It Tough To Find A New US Correspondent Bank

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Bank of Valletta has argued Malta’s small size in an increasingly risk-averse financial world has left it struggling to find a new USD correspondent bank.

BOV is currently making use of Raiffeisen Bank International as its sole correspondence bank for the US dollar, the main currency in global trade. However, this relationship with the Austrian bank is set to expire in May, with the termination deadline recently extended by two months.

In a brief statement last week, the bank said it is making progress to source alternative arrangements for its USD correspondent transactions.

Questioned by Lovin Malta, a BOV spokesperson confirmed discussions are ongoing with a number of foreign banks in order to secure the continuation of cross-border payment in US dollars.

“We will continue to keep the market informed of any developments on this issue.”

However, it warned that securing such relationships has become harder, seeing as international banks are still cutting down on their correspondent banking services worldwide as part of a de-risking exercise.

“Small jurisdictions like Malta are particularly hard hit, since the volumes of business such small banks generate are not sufficient to be of interest to the larger players, given the significant compliance costs involved.”

The Bank is working hard to secure alternative correspondent banking relationships in the near future. In the meantime all operations and business in US Dollar remain unchanged as are all other operations and business in all currencies in which Bank of Valletta has clearing arrangements in place.”

Correspondent banking allows people and companies to safely move money around the world and is crucial for international trade. However, it’s also a risky business for banks, seeing as the risk exposure of their counterpart banks becomes their own.

With the rising cost of compliance and increasing regulations to combat money laundering and terrorism financing, many banks have decided to pull out of jurisdictions they consider to be vulnerable.

Banks like Deutsche Bank have sharply scaled down their correspondence relationships (Photo: Nordenfan)

For example, after it was dragged into the infamous Danske Bank money laundering scandal because of its role as a correspondent bank, Deutsche Bank significantly scaled back its global correspondent banking portfolio by around 40 percent. 

However, financial analyst Paul Bonello has poured scorn on BOV’s claims that its correspondent banking problem is due to Malta’s small size, warning that it is actually a reputation issue. 

“This is nothing but hogwash,” Bonello wrote last October in reference to the bank’s stance.

“Malta’s international payments business is not small and is in fact much larger than one would expect for its size.  And then, how have the much smaller banks like Lombard, APS, Banif and ME managed to have their own correspondent facilities?”

“The reason, of course, lies in the reputation BOV has managed to build for itself, with one episode after another leaving its mark with their overseas bankers who continually monitor the risks of doing business with it.”

“Do you remember the accounts with cash-laden Gaddafi troves exceeding €80 million, the Falcon Funds debacle, the Dieulemar Trust nightmare, BOV controversially acting as lenders for the Electrogas consortium and bankers for Pilatus bank, the clearing of Venezuela’s PSDA billions, the dirty oil bank accounts, the recent hacking episodes?” 

Malta’s anti-money laundering regime is currently under the microscope like never before, with the country facing a crucial Moneyval test and results expected in the first half of this year.

Failure to pass this test could place Malta in the grey list, which will likely deal a further blow to BOV’s correspondent banking crisis.

Are you concerned over the correspondent banking issue? Comment below

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Tim is interested in the rapid evolution of human society brought about by technological advances. He’s passionate about justice, human rights and cutting-edge political debates. You can follow him on Twitter at @timdiacono or reach out to him at [email protected]

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