Relationship-based banking

David Lindsay speaks to First International Bank General Manager Ray Busuttil on the bank’s performance to date, its relationship-based business philosophy and its prospects for the future

Of course the bottom line is very important, especially for the shareholders, but from the viewpoint of the internal management it is how effective you are in building the bank and generating business growth.

Last year we had a 20 per cent growth in our volume of business and in commercial income, which is a reflection of how effective the actual business is. Unfortunately interest rates, due to the international scenario and the tragic events of 11 September, decreased drastically last year. Following these cuts, which numbered 11 in all, we saw a substantial reduction in interest generated from our equity and shareholders funds.

This development affected profitability to a remarkable extent, as we had always had a forgone interest element of USD940,000.

However, there is a positive element in this and, looking forward, last week Alan Greenspan admitted that the US is coming out of recession and that prospects for this year are positive.

Although we were to a certain extent occupied with matters relating to our five-year strategic plan – such as recruiting additional staff - the bank last year nevertheless grew by 20 to 25 per cent.

What is this five-year plan comprised of?
We’ve realised that our primary strength lies in trade finance and we are not out to compete with the large local commercial banks. Instead we see ourselves as more of a regional and international player than as a local bank.

As such, we have identified our main strength as our expertise in trade finance and we feel that over the initial years we succeeded in building up gradually and consistently. Over the last six years we have made a good name for ourselves both locally and with some important international trading clients.

Looking forward, we feel that over the next five years we will try to capitalise on what we’ve done over the last six years and continue building on our trade finance operations.

However, this does not mean we would forego any opportunities that we see for the business. In fact, we are very proactive and we try to anticipate what our clients would need and as such we would be introducing any services that are in demand, while not pushing services that we feel would deviate us from our core activities.

How active is Fimbank in the ship scrapping industry, has this area of Fimbank’s business decreased?
We’re still very active in this area but the industry is demand-based. There is a large demand for steel in the sub-Asian continent - namely in Bangladesh, Pakistan and India. So when the demand is there, we are always active.

I recently confirmed with our London-based people, the team co-ordinating this area of our operations, that our substantial presence in the market has made us the world leaders in this sector.

We have built on the experience of 17 years. Prior to the inception of Fimbank, our team was specialised in the area and we have retained the loyalty of our customers.

At the moment there is a large demand, partially due to the great deal of pressure in international markets when it comes to old ships and safety regulations in the maritime sector due to recent incidents.

As such, a lot of ship owners are considering scrapping as an alternative to retaining their fleet since, in the wake of 11 September, there has been a decline in the freight business. Reflecting these developments, there are now ships being scrapped that have served for only 17 years, while five years ago, ships were being scrapped only after 25 to 30 years of life.

This holds especially true for cruise liners. The cruise industry has been hit severely by the events of 11 September and many companies and operators are seriously considering scrapping as an option at the moment.

Also, although we specialise more in steel scrap, we have had approaches from the airline industry, particularly for military aircraft and vessels, which contain a high percentage of aluminium in their structures.

To give an example, over one week in February this year we were active in the scrapping of eight vessels in just one week, one of which was a cruise liner.

Fimbank was the only equity on the Malta Stock Exchange to have remained relatively stable over the second half of last year. How would you gauge the equity’s performance?
First of all we had entered the market at a rather difficult time. Following the highly optimistic situation in 1999, 2000 started showing the downward trend. At the beginning of 2001 we were seeing a lot of pessimism in the market, but a decision was taken by the board in February that we should go public. We decided to follow the decision through, even though the local scene was not improving and was, in fact, deteriorating.

We felt that our issue would offer a respite to the market, as it was hedged against the local currency and that whoever bought Fimbank shares came in with a long-term view seeking capital growth rather than an immediate return.

I believe the market has reflected that. Most of our shareholders have retained their holdings, there hasn’t been much trading but the local scene is what it is and there hasn’t been much trading in any equities. Yes, there have been a number of trades but if you really analyse the volume of each trade, these have been on a relatively small margin to what we had over the previous two years.

So I would say the lack of trading reflects both the local equity market scene plus the medium to long-term view of the investor.

What had initially attracted Fimbank to base its operations in Malta and how has the choice been advantageous to the bank?
Back in 1993 the individual investors in Kuwait started vetting several markets in the region – namely Cyprus and Beirut – and they also appointed international consultants who recommended they look at Malta as well.

At the time Malta was drafting the infrastructure for launching itself as an international financial centre, while moving away from the offshore legislative structure.

We saw the result of this in 1994 when 14 new laws were passed setting up a solid infrastructure for the financial market. Through these developments Malta became viewed as a viable option.

Following that, the investors undertook an in-depth study of Malta, where they found they could find well-trained, multicultural and multilingual people. Although Malta is not particularly cheap, comparatively speaking, to operate from – especially in terms of telecommunications – the bank’s promoters found a friendly environment and the full support of all the institutions they met with. Given these factors, they decided that Malta offered the best solution at the time.

Time has proved them right. From my discussions with the chairman and the board of directors, most of which are the initial original promoters of the bank, it is evident that they are very pleased with their choice and have excellent relations with all the institutions in Malta.

What are Fimbank’s projections for next year?
We are now in the second year of our five-year plan and we have employed people to market our services on an international basis. Local players have also been approached, from whom we have received a good deal of custom and I feel that we have a very positive return from our clients in the sense that even they are marketing our services by relating their positive experiences with us to others.

Our intention is to continue giving our customers the best service we can and to let them market us, while hopefully we will also have our name marketed through our efforts in the new areas where we identify business opportunities - especially with overseas banks.

For the time being it will be business as usual but we are very receptive to our customers’ needs. Given that, there is the possibility that we would, in the near future, introduce financial products as a channel for investing for any excess funds that our customers may have.

We are licensed to act as a credit institution in Malta and our only self-imposed restriction is that we deal with foreign currencies and not in Malta pounds. But otherwise, we are licensed to operate with residents and non-residents.

The bank is always looking for opportunities for doing business and our hallmark is, and always will be, the service we provide. I believe that, looking forward, the secret to our success will lie in our practice of giving our customers the best service we can provide by recognising their importance and not treating them as numbers.

We achieve this aim by offering a very personal service and the one to one meetings we conduct with our clients, whether they are based locally or overseas, make us very much approachable as a bank.

I believe that in today’s increasingly hectic world, business is becoming more and more impersonal but many institutions are realising they cannot do away with the traditional aspects of meetings, during which one is able to feel what the customer’s problems are and understand his position. This type of relationship-based service simply cannot be replaced.