Insight

Banks need to keep it simple, says Sparkasse’s Paul Mifsud

Banks are redefining what business they want to pursue and are increasingly choosing niche services to compete in global markets, Managing Director Paul Mifsud tells MaltaProfile.

Sparkasse Bank has been growing rapidly in Malta, doubling up on both office space and staff over the last year. The bank, which forms part of the Austrian Savings Banks and the Erste Group Bank AG network, provides various services from private banking to wealth management, but has fund custody at the core of its business. Sparkasse is rapidly growing into a key player in custody services to UCITS, AIF and PIFs offering seamless banking solutions with a personal touch.

Sparkasse has recently expanded its operations, could you tell us what is spurring all this growth?

It is down to the accumulation of various things. We are gaining momentum on projects that started a few years ago and were in an incubation stage, but are now progressing. There are also new business opportunities coming in from managers on the custody side. Malta is picking up on that front, as well as in corporate service provision, and we are providing more accounts and fostering banking relations with corporate service providers. Malta is a hub for international businesses looking for secure EU banking facilities, which has given us a boost.

How would you describe your typical client profile?

The clients that approach us directly are usually referrals, word of mouth basically. However, most of our business comes from corporate service providers and professionals, such as audit and legal firms, fund administrators and tax consultants, looking for banks who can still provide them with a private banking approach, where you have a relationship manager who understands the nature of your business and can immediately tell you whether a client or a business is bankable or not. Our staff are professionals who are trained to be able to make an assessment immediately through a due diligence process and give feedback within 48 hours.

What differentiates you from the other banks?

We are very concentrated and have kept our products rather simple. In our business there are various kinds of risk to manage, such as credit risk, which is what the bulk of the banks actually want to manage. Credit risk is something that we have tried to stay miles away from, simply because we do not provide credit to third parties. We focus on managing other risks, which other banks may not be keen on providing, such as operational and reputational risk. There is a big void in the market to cater to the sub-100-million managers and smaller boutique asset managers, they just don't fit in anymore. We have slotted into this void, and there is a lot of demand. We have no issue with taking on a customer as long as we understand the nature of their business, are comfortable with the jurisdiction and licence, and know their investments and funds.

What are your key markets, and are you looking at any strategic locations to expand your business?

We mainly deal within the European Union and other jurisdictions that are renowned for funds. We try to avoid anything too exotic, as it is not worth the complications. There is enough work within the EU area and enough low hanging fruit to pick.

Banks worldwide are going through turbulent times, how do you see this impacting your industry and Malta?

There are several hurdles and challenges ahead – all regulation related. The new compliance and tax measures imposed by the EU and OECD have a serious impact on our industry, especially the new common reporting standards kicking in from January 2016. Regulation is the biggest challenge within banking at the moment for the simple reason that you must continuously upgrade your IT to produce necessary reports. All these measures constitute cost. Also finding experts is a challenge, because every time there is new regulation, we need an expert on that regulation to guide us accordingly. So compliance and regulation have become a cost factor on its own.  These are serious challenges, and I am unsure how it will affect Malta in the long run, because one of our unique selling points is our tax efficiencies. We are a fully onshore and EU-regulated jurisdiction, but the low tax factor is something that could be affected. Today, you should not even dream of finding some Machiavellian structure to mitigate taxes because it just does not work anymore, it is not worth it. I am interested to see how this will affect Malta in the future as our main offering is corporate services and tax planning. These are the challenges we will face post 2016.

With all these regulatory and cost implications, will banks change the way they do business?

Banks will become clearer about what their identity is and what business they want to pursue. Gone are the days of the ‘jack of all trades’, a bank that does retail and commercial banking, as well as trade finance. You will have niches of experts as well as consolidation, firms being bought out or merged into other firms. Most of the big retail banks have already sold their advisory and private banking branches. Banks do not want the risk anymore and are going back to basics by keeping it simple. Banks have and will continue to weed out the risks on their books. Every time you open a newspaper, you see consolidation happening, prime brokers merging with other prime brokers, banks selling their derivative teams, and they have been doing this since the crisis hit in 2008.

Could the Maltese government be doing more to support or promote your industry?

Not really, subtlety is the key to winning real business. Overselling is what kills it. I think Malta has done a good job to date, and we should respect what we have and not be over zealous in pulling in more business. Being selective and cautious has helped us in the past, and especially in today’s economic climate being selective about what business we accept will protect our position as well as our cost efficiency. We should concentrate more on quality rather than quantity. It is important to promote and inform what Malta has to offer the international business community, but overselling is not the way to go about it. Something Malta could develop is a physical business centre, a City if you like, a financial hub where you could congregate all the business sectors, banks and administrators. This would be good for business, as long as it was in the right location and makes logistical sense, especially for foreign clients who could easily meet with all their advisors without running across the island for a day or two.

Do you think Malta will continue to grow as a fund jurisdiction, and do you see new opportunities on the horizon?

I do not see any reason why it would not continue to grow, but I am unsure whether we will be able to attract the bigger names in the foreseeable future. We are exploring new opportunities, such as the new Capital Markets Union and using capital markets to raise finance. The tradition has always been for businesses to approach a bank for loans and debt instruments, but there is a shift happening. The next big thing will be capital markets and securitisation of assets. Malta has always been proactive in launching new regulation. The gaming industry is a good example. Until about 10 years ago gaming carried a stigma, but Malta was bold enough to say we are a jurisdiction ready to regulate you – a move that put us at the forefront of this global industry. Electronic money institutions and payments services providers are seeing massive growth, and there are new banks for solely money transmission, not for holding. Now we need to look at what we can regulate next.

How do you see the banking industry developing in the next five years?

These are interesting times. What will develop in the market will be purely driven by the fact that regulators and politicians will put on a certain amount of strain on the banking industry. This will produce new business, which will be born purely by virtue of the fact that it becomes unsustainable to provide the service you were previously providing.

Sparkasse Managing Director Paul Mifsud gained his experience in finance at the Centre International De Glion in Switzerland, where he graduated in Management and Finance. He furthered his education in securities from the Chartered Institute for Securities & Investment in London and went on to achieve a Chartered Banker MBA from Bangor University. He also holds a Masters in Banking and is a member of the Chartered Institute of Bankers. He joined Sparkasse in 2006 as Managing Director after the bank acquired a majority stake in Quest Investment Services. Paul is responsible for the implementation of company strategy and overall management of the bank’s business and was instrumental in developing the bank’s business and presence in Malta, developing the Investment services / wealth management division as well as steering the bank to becoming a major player in fund custody in Malta. 

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