INTERVIEW | The Church’s bank... its mission and vision

APS Bank CEO Marcel Cassar discusses the dramatic changes in the banking landscape and how the bank is gearing up to face challenges ahead

APS Bank CEO Marcel Cassar
APS Bank CEO Marcel Cassar

APS Bank is a church owned bank. What makes it different from other local banks?

In terms of its structure, authorisation and general fabric as a credit institution, APS Bank is no different from any other bank. It is licensed and supervised by the MFSA and subject to all the applicable laws and regulations in Malta. Because of our growth in recent years, we are becoming increasingly systemically important in Malta, although falling short of coming under the direct supervision of the ECB; in fact we’re classified as “high priority” amongst the category of banks that come right after those supervised by the ECB.

I would say that what makes APS different is the fact that our ethos, culture and market interests are very community-based. Our mission statement says it best: “to be the community bank in Malta”. Founded in 1910, APS is the oldest bank in Malta in terms of uninterrupted history. Our origins lie in a project started in Valletta by a Jesuit priest who set up a mutual help society aimed at forming casse di risparmio (savings chests) in aid of the agricultural class and the needy. So this is how the bank started, and that character continues to imbue our philosophy and set of values.

But we are also a commercial bank and so we support not only individuals and families, but also the business community. Nowadays, the bank is increasingly present in the business sphere, because we felt there was a space – and an opportunity – for an alternative bank that has an interest in the community, which also includes the business community.

I should also add that the bank’s board of directors is appointed by the main shareholders - the Archdiocese of Malta and the Diocese Gozo. It is a high-calibre board with the members, all lay persons, chosen for their professional track record, competence and expertise.

Earlier this year APS Bank completed its transition into a public liability company and subsequently announced that it was raising €13 million in capital through a one-for-12 rights issue. You had also mentioned that there would be two subsequent “phases” through which the bank would be raising capital in the future, through either rights issues or other instruments. What does the bank have in mind, and what is the importance for APS of raising additional capital?

A bank’s ability to grow is directly related to its access to capital. This is mainly because of regulation, especially so since the 2008 financial crisis. Unless a bank is able to increase its Own Funds, and therefore the amount of risk and size of exposures it can take on, it will be limited in expanding its revenue. This is something I learnt very early in my career and it’s always at the back of my mind: unless you grow, your customers will outgrow you! It’s common sense really. And growing means being able to scale up our activities and revenue, which in turn fuels further growth. So this is what the capital raising exercise is aimed at – to support our growth.

The exercise is happening in three phases over a four to five year span, allowing also time for business to be scaled up since the capital has to be put to use and rewarded. Phase 1, which consisted in a 1 for 12 rights issue, has just been completed and the capital received. Between 2018 retained earnings and new equity we raised just under €25 million, as projected.

Phase 2 is planned for the second half of 2020 or early 2021 and we will be targeting another scaling up of capital – possibly €70 million or more – part of which can again come from retained earnings. In this Phase, however, we expect to see the existing shareholders diluting their shareholding while retaining control. There is interest from a number of institutions, religious orders and even foreign banks with a similar DNA to ours, in having an equity investment in the bank. This is encouraging but the exact formula – and also the type of financial instrument to be issued to these investors - will be determined in due course. We are still in very early days but there is a good possibility that our Phase 2 requirements will be met in this way.

Phase 3 should then come in 2022 and will see us raising another €60 to €70 million. So it’s a five-year capital development plan.

As can be expected, this pre-supposes a certain momentum of expansion in the bank, which we are confident we can achieve, precisely because we have a plan to develop the business of the bank. APS will continue to be predominantly active in the Maltese market: you won’t be seeing us opening branches or subsidiaries abroad, it’s not our business model and we don’t have such plans. This does not mean we don’t take overseas risk in our books, we do that and it’s also necessary for diversification; but that’s different from embarking on a cross-border development strategy, which is not in our plans. We feel there is further potential in the Maltese economy, which is not only growing but also transforming. We are seeing opportunities and positioning ourselves to be in the right place at the right time following a very clear strategy.

APS has launched a new omni-channel banking app, myAPS. What is behind the bank’s strategy to improve its customers’ experience?

The launch of the app forms part of our programme of transformation as we grow. It means providing a number of channels through which we offer a banking experience to our customers - branch, internet and mobile. Omni-channel means that a service may be started at a branch, continued on mobile and finished via internet - or in whichever other order or combination a customer wishes.

I always emphasise that the community character of the bank has to remain, however. We believe that for the foreseeable future we will still have customers who want to experience the bank physically, not just digitally. And the physical experience will remain important for certain types of services, such as investment or general financial advice, which is also why we are transforming our branches to make them more contemporary.

The bank has launched, in collaboration with the government, a new government equity-sharing scheme to help individuals buy property. Why does the bank feel it is important to be involved in this sector?

This links to APS Bank’s tradition of community banking and involvement. Financing home ownership and housing are key areas of our business. We have a lot of experience and play a leading part in the home lending sector, as we also support sectors like education, care, health and retirement. So home ownership is core to our ethos.

The equity-sharing scheme had existed years back, then Government decided to revamp it. It was a privilege for us to work with Government in supporting this revamp, which also came at a very appropriate time as it coincided with our market development programme in the 2019-2021 Business Plan.

This scheme looks good, but it only applies to over 40s. What is the bank doing to help young couples and first-time buyers trying to get a bank loan to buy a property, considering the current property prices?

APS is already strong in its offering of home loans for young people and especially first-time buyers. We have different schemes and products as well as incentives, such as refunding of contract costs and certain fees and charges for first-time buyers.

In 2017, we launched a Social Loan scheme in conjunction with Government, which was a first for Malta. This loan opened a corridor for persons who are on low income levels – practically at the margins of society – but who aim to own their property. It does not require the borrower to make a front contribution, i.e. it’s 100% financing, has an incentivised rate of interest, charges are waived and there is a realistic capping on the amount that can be borrowed. Of course this product addresses social cases and also limits the type of property that can be acquired. We also note that the scheme created a certain awareness amongst developers about the need for property that caters for this segment of society.

So, between the Home Equity Sharing, the Social Loan and our general Home Loan offerings, we believe we have quite a range of financing schemes and products that should address the market requirements. And we are always working on new products and ideas, so – watch this space.

A bigger role in pensions-related solutions for the bank is also being floated. What will this entail?

APS follows all the pensions-related developments, such as Government incentives, and we are always quick on the uptake to promote and to package them as products which we offer to our customers – sometimes using third party products.

We are now following closely the framework announced by Government for the equity release scheme. Put simply, this would enable individuals and couples in their retirement years to supplement their income by releasing equity, i.e. value, from their property. It’s a useful solution which provides income and allows a certain living standard to be maintained at a time when this is best needed. In a sense it’s like the reverse of a home loan and in fact such products are known as ‘reverse mortgages’ in the US.

In today’s world of rapidly developing technology, the banking industry is facing challenges from newcomers such as Revolut. How does APS counter this challenge?

Banks have traditionally provided the technology and channels for payments services, it’s been like that for ages. But payment mechanisms are not exclusive to banks and we’ve been seeing more and more players arriving in recent years. So banks should focus on the activities that they are best at servicing. This doesn’t mean we will abandon the payment space - far from it - but I accept that newcomers such as Revolut will come and offer technology which could be cheaper and faster.

That said, I believe that our myAPS app is a response to show that we are modernising our payment technology and offering our own solutions. And of course it complements our other banking services.

Is the bank developing or evolving in light of new technology such as blockchain and Distributed Ledger Technologies?

First, let’s distinguish between blockchain and cryptocurrencies, which run on blockchain technology. From what we know, blockchain and DLT can bring efficiencies to banking systems and procedures and there are examples of applications being developed in a number of jurisdictions. These include both internal/back-office procedures - such as bank reconciliations, procurement and accounting - as well as front-office procedures, which benefit customers directly, such as in on-boarding and compliance processes.

Lots of pilot projects have been undertaken between banks, banking associations, universities and fintechs aimed at using blockchain to improve efficiency and make banking safer, more authentic and efficient. As a bank we are following all the developments and we receive demos from solution providers. They are interesting times indeed.

Cyber attacks are an ever-present threat facing banks, with one of Malta’s biggest bank having suffered a cyber attack in February which saw €13 million stolen by hackers and sent to foreign accounts. What measures does APS Bank have in place to protect itself from such attacks?

After the cyber attack on BOV, it emerged that the activity had actually taken place several months before. The threats which eventually came to light at BOV had been sent to other banks and financial institutions. APS Bank was also subject to that attack but our systems repelled the threat on that occasion. I think that the seriousness of the matter cannot be overemphasized, cyber risk is now recognized as one of the major threats facing banks so much that international supervisory bodies fear that a future financial crisis might well be triggered by a cyber incident at a systemically significant bank. 

We continue to fortify our defenses and we have many systems and measures in place for that purpose, including carrying out regular penetration testing and simulated or ‘controlled’ attacks. And of course we invest a lot in training, education and raising awareness amongst our staff and customers.

But there is no sure solution and if I’m asked whether we can guarantee that we will never be a victim of an attack, I will not guarantee that. The success of a threat is always dependent on a bank’s weakest link, and that link can be a human factor. As long as there are individuals involved in the chain, the threat remains. So it is a journey without a finish and our duty is to continue strengthening our walls of defence, sharpen our detection systems and heighten awareness.

Criticism has recently been levelled at local banks - including from the Prime Minister - over complaints that it is increasingly difficult for foreigners or foreign companies to open bank accounts with local banks, with some gaming companies insisting that they need alternative banks in Malta since local banks refuse to open bank accounts for them. What is behind this reluctance to open such bank accounts? Is it that the bank is still skeptical of the gaming industry? At the end of the day, these are foreign workers with families who are finding difficulties in having access to financial services.

Banks are in business and I would find it very hard to come across one that likes to decline business. As for APS Bank, we are on a growth trajectory and the results of recent years especially confirm that. We are in business and growing – no question about that. And the banks have financed the bulk of economic expansion in Malta, for many years.

But the banking landscape has been changing dramatically, not least with the introduction of new laws and regulations which impact also our international correspondents. There have also been incidents involving large global banks which have caused politicians and regulators to take actions which, in turn, cause those banks to review their business models and general attitude to risk. There are also risks out there more challenging and elaborate than what we ever saw in the past, partly as a result of Malta’s much more open economy, faster telecommunications capabilities and greater interaction and linkages with other financial systems.

All of this requires banks to be on top of their risk appetite statement, which essentially defines what type of risk (and business) they want to take. This means that banks may have to be selective as to the activities they want to service. Think about it: we see specialisation and focus in more and more industries, professions …. so why should it be a surprise that banks too are selective in the business they want to do, reasons being various?

For example, APS Bank has traditionally not been keen to service international business because, precisely in view of our local, community character, we tend to have better knowledge and understanding of the local business environment. So we look for local substance or relevance in the relationships we pursue and this means that we service international clients with a substantive connection to Malta. But we do not presently service gaming companies. There is no ingrained ideology behind this, it’s simply because there are particular risks and requirements in this segment which we are not the best equipped to service. Still we have nothing against the gaming industry and we regularly open accounts for employees of gaming companies. Of course there may be exceptions but one has to look at those and understand the reasons – which would have nothing to do with the employer being a gaming company!

It’s quite straightforward in my view: we cannot be everything to everybody and we should be transparent in that regard.  I would much rather focus on the many activities that we service rather than those that we don’t.

And here I want to highlight our support for new areas of economic activity where, contrary to what may be at times reported, we actually service. For example, we recently approved the onboarding of our first VFA Agent authorized by the MFSA and we are following developments closely to see what other licensable activity we can support. So this idea that we are antagonistic to risk is not correct. But it’s a delicate and complex balancing act and we need to be mindful also of the risk appetites of our correspondent banks, whose

More in People