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Staying at the Top of the Game
24 Jul 2017
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Over these last two decades, the banking scene in Malta went from being the most predictable and unchanging to one evolving at a fast pace to meet the changing customer needs as well as the needs of the wider economy. Kenneth Farrugia, Chief Business Development Officer (Investments) discusses the upheaval that transformed the financial services scene in Malta, and how the Bank has and is evolving to remain a sustainable and competitive player. 

How is Bank of Valletta evolving to keep up with the market’s changing demands?

Bank of Valletta has always been a pioneer in the banking sector. The Bank has been at the forefront in recognising the opportunities that resulted either as a consequence of the evolution of the market itself, or as a result of new regulatory and/or legal enablers.  The Bank was first in Malta on a number of fronts such as the Bancassurance and fund management business. Of course, over the years, the Bank further widened its service offering through the introduction of various other services such as capital market brokerage business as well as global custody and fund administration services. These new services are today provided through dedicated specialist touchpoints.  Other examples of new services include the setting up of the Bank’s Wealth Management Division and eventually the introduction of six Investment Centres in Malta and Gozo.  The same is true in the area of electronic banking, where BOV was the first to install ATMs around the islands, developed its suite of debit and credit cards, and later on ushered in the era of internet and mobile banking.

Even though the Bank’s core business remains anchored around the domestic market, new services and touchpoints were introduced to cater for the onset of international personal and corporate client segments. In fact the Bank set up an International Personal Banking Centre to cater for international personal banking clients as well as an International Corporate Banking Centre to service corporates undertaking international business.  The Bank’s strategy in this regard continued to evolve to ensure that it is well positioned to service both its existing market segments that have broader demands than the conventional ones of financing and deposits, as well as positioning itself to be able to service new sectors such as maritime, aviation and gaming sectors that are garnering interest from foreign investors.

The BOV Group’s major strength is its drive to be customer-focused. Personally, I always saw the Bank as the entity that services both the asset side of the client through the provision of a range of investment solutions, whilst at the same financing the requirements of its clients be they corporate or personal. In the process the Bank also developed a suite of e-services such as internet and mobile banking, electronic payments solutions as well as a suite of credit,debit  and pre-paid cards.

On the investment service front, our personnel across the branch network, Wealth Management Division and Investment Centre give advice to personal clients, whilst others deployed at BOV Asset Management support and structure financial solutions for institutional clients and equally develop investment solutions for both corporate and personal clients.  On the financing side, the Bank’s Business Centres, Corporate Centre and Trade Finance Centre attend to the business financing requirements of SMEs and larger corporates, whilst personal clients are supported through a suite of personal financing and home loan products.

Within the context of all these developments, one must not forget the challenging market environment that was experienced by all Banks in 2008 as a result of the international banking crisis. Despite the challenges that ensued in the process, the Bank has weathered the storm extremely well and continued to deliver a robust year on year performance. 

To what extent are investments becoming a core offering of the Bank? Are they accessible to the average retail customer?

Before the introduction of its breadth of investment services, the Bank used to service its customers in a relatively homogeneous manner through its retail network. However, in today’s world, there are different investors, with different investment needs where clients require expertise and solutions that cater to their respective needs.

Faced with this reality, the Bank has actively introduced a comprehensive suite of investment solutions for its clients. There are products that have a life assurance element, whilst others are pure investment products, ranging from investment funds to managed portfolios on the basis of an advisory service or discretionary management. In addition, clients have the opportunity to trade stocks and shares in both the domestic and international capital markets. In fact, the Bank has a dedicated Capital Markets Division that executes the requirements of customers who want to purchase bonds and shares directly. More so, last year the Bank entered into a strategic alliance with Saxo Bank, through which it now extends a digital channel that allows frequent traders to buy shares and bonds from across international markets directly, over their mobile, laptop or tablet. In this manner, the Bank has widened the number of service channels available for customers to execute trading in domestic and international securities. 

From a wider client service touchpoint perspective, the Bank has a dense branch network for those who want to purchase specific investments, without requiring any advice. On the other hand, for those clients seeking investment advice, the Bank has a network of six regional Investment Centres that utilise pre-determined asset allocation models designed to reflect the typical risk and investment profile of investors.  Therefore, depending on the risk appetite and profile of its customers, the Bank has in place a choice of asset allocation models be they growth, balanced or conservative in nature. Last but not least, the Bank also set up a dedicated Wealth Management Unit to service its highly affluent clients providing in the process both advisory and discretionary portfolio management on an open architecture basis.    

In January 2017, BOV Asset Management introduced the BOV Investment Funds. In what way are they innovative?

The launch of the BOV Investment Funds represented another first in Malta for the Bank. The portfolio funds have a broader mandate aiming to provide improved risk-adjusted returns and are  designed in such a way that the investor benefits from diversification through one single investment, which essentially means that every portfolio will include different asset classes that exhibit low correlation benefits. In so doing, we are effectively offering retail customers access to a portfolio management service through these Investment Funds; a service that would otherwise be prohibitive to investors with low investable amounts.

One of the challenges faced by any institution providing investment management services is to dedicate the necessary resources to develop a diversified portfolio for a small investor. It is also very difficult to reach a high level of diversification with a small portfolio. The Bank launched this novel concept in order to address different levels of risk designed to match distinct risk profiles. In fact, the BOV Investment Funds are the first risk-driven investment funds available in Malta, where a volatility ceiling is set for every portfolio fund. Although the three funds operate similarly, the element of risk, and likewise the reward, increases as one moves from the Conservative Fund to the Balanced and ultimately the Growth Portfolio Fund. The Asset Management team actively managing the funds bring a wealth of experience and synergies to the table.  They evaluate the funds constantly, so as to ensure that the volatility of any given fund does not exceed the predetermined threshold at any point in time.

Over the past months, both Valletta Fund Management (VFM) and Valletta Fund Services (VFS) were rebranded. What was the reasoning behind this decision?

VFM (now BOV Asset Management) and VFS (now BOV Fund Services) are entities that were set up in 1985 and 2006 respectively. After more than 20 years for VFM and 10 years for VFS, the BOV Group felt it was time to rebrand them. The change in name for both organisations further strengthens the Bank of Valletta brand, while reinforcing the fact that fund services and fund management are core to the suite of services offered by the Bank to its clients. As Malta’s leading banking group, the Bank provides its clients with an array of complimentary services, including global custody, international brokerage, foreign exchange and asset hedging services as well as general banking services. In fact, Bank of Valletta is uniquely positioned to provide asset management clients with a one-stop shop holistic service.  BOV Asset Management’s focus is the local market, and services primarily personal customers. On the other hand, BOV Fund Services is oriented primarily towards international customers. In addition to their respective services, ancillary complementary services like custody, brokerage and hedging foreign exchange are offered through the Bank. As a result, executive management felt that the proposition of both subsidiaries would be much stronger if the BOV brand is more pronounced in the corporate brand names of its respective subsidiaries thus adopting a mono branding approach.

The BOV Investment Centres are already celebrating their 5th anniversary. What is clients’ response?

In the beginning, there was a bit of hesitation among clients, particularly since they were used to the convenience of being serviced from a branch close to their home or office. However, surveys we conduct regularly show that the Investment Centres are scoring highly with the Bank’s clients on a spectrum of variables driven by the professional and dedicated service that is being extended through these centres.   

The Investment Centres are in effect ‘Centres of Expertise’. This statement is underpinned by the presence of professional investment advisors that have both the required academic qualifications and expertise to provide investment advice to the Bank’s clients. The advisory service is based on a ‘fact find’ which is a very detailed assessment compiled for every investor based on information provided by the client to the advisor. The activities of the Investment Centres are further supported through the Bank’s House View Committee and the Research and Analysis Committee. The House View Committee evaluates international economies based on market research setting a macro-based investment position. On the basis of this information, the Research and Analysis Committee establishes key investment opportunities at the micro economic sector level. These opportunities are relayed to the Investment Centres for the consideration of the investment advisors. 

The sustained year-on-year growth that the Bank’s Investment Centres register is driven by the value added that they are providing to the Bank’s clients seeking to dynamically invest in the world’s capital markets.

How real is the Digital Divide today?

In Malta, the acceptance of alternative banking channels as a means to process transactions has strong scope for further growth. In fact, on a year-on-year basis, the Bank is witnessing a stronger level of client penetration in the use of digital channels such as credit and debit cards as methods of payment, mobile banking as an efficient means of transferring funds and the wider use of internet banking that offers broader functions to manage one’s finances. 

The Bank has always been at the forefront of digital innovations in Malta, and has ambitious plans to further strengthen its leadership position in the market driven by the very evident opportunities that the market presents in this regard. In fact, despite the growth achieved so far, one still finds a number of clients, who continue to use, in tandem or sometimes to the complete exclusion of digital channels, traditional methods such as the use or rather abuse of cheque usage despite the presence of digital alternatives which are more efficient and secure.

In countries like the UK and USA, plastic money is used extensively, even for petty transactions, like buying a cup of coffee. However, this shift in mind-set still needs to happen in Malta, not only among customers, because merchants also have a role to play. They need to facilitate and be more open to the alternative payment methods.

I also believe that more coordination is required among banking institutions locally to introduce policies that minimise the use of traditional payment methods. Case in point, Malta still ranks in the top three countries in Europe for the use of cheques per capita, with around ten million cheques processed annually.

What is your medium-term vision for Bank of Valletta?

Over this last decade, banking regulation across the EU has increased considerably. This has compelled banks to review their business models and operational procedures to ensure that they are operating in line with the requirements of the new regulations. Bank of Valletta’s leadership and market position in Malta means that the Bank is inherently intertwined with the developments shaping the domestic economy. Consequently, in addition to our responsibility towards the Bank’s depositors and shareholders, the Bank has an important role to play to ensure it remains relevant and supportive to clients, both personal and corporate, within our national economy. It is therefore highly critical to ensure that in providing its breadth of services, the Bank remains sustainable and on an ongoing basis able to support and concurrently ensure that it is compliant with the applicable rules and regulations whilst appropriately managing the risks inherent in running the business.

The Bank attributes significant importance to the service experience of its customers and actively carries out surveys to ensure that its service delivery meets the expectations of its customers and to position itself accordingly in this regard. Consequently, in the process of remaining relevant to its customers, the Bank’s strategy will remain anchored around the needs of its various customer segments and in the process, evolve its suite of products and services to ensure that they address the changing requirements of our customer base. It is only in this manner that we can sustain our market leadership position and remain firmly positioned as Malta’s preferred bank.     

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).