How big, exactly, is the problem?

HSBC yesterday came out with a whole raft of reasons why it is downsizing its branch network, foremost amongst which is today’s more digitally-orientated clients and their changing lifestyles and banking habits.

Seen in isolation, this is a perfectly understandable business decision – trimming costs and focussing on the bank’s core business.

But whatever gloss the bank, and the government for that matter, may put on the development, it remains concerning and it should absolutely not be seen in isolation from everything else that is happening in the Maltese banking and financial services sphere.

In fact, of even more concern is the fact that the bank, one of the two largest in the country, would not commit to the bank’s long-term future in Malta.

The bank’s CEO insists it is in an ‘incredibly strong position’ and it is simply realigning its business model for this new and improved, technologically-connected world. He also says that the bank has conducted its own comprehensive risk management programme over the past few years.

Also, it is not as though the bank is failing, and it continued to pay a clear dividend to shareholders but, at the end of the day, it should be appreciated that HSBC is not Bank of Valletta. It is a much bigger fish in a much bigger pond and the reasons behind their actions could very well be very different.

But even if there are no ulterior motives behind the branch downsizing, it nevertheless does little to restore faith in our banking system or financial services sector, which has admittedly taken a beating lately.

As such, this may not be entirely about its Malta bottom line, it could also have to do with a lack of faith in the financial services sector after all that has come to pass of late.

The government, through Parliamentary Secretariat for Financial Services, Digital Economy and Innovation, which had been advised of the bank’s move well in advance, was quick yesterday to cushion the potential blow, saying that it ‘welcomes the pro-active stance in embracing and adapting to new trends within the digital scenario, which complement the government’s own digital policy’.

This is all very well and good but when it is considered against the backdrop of other ailments within our financial services sector, it gives one cause to wonder.

Bank of Valletta is currently scrambling to recruit another US dollar correspondent bank after others pulled out due to risk concerns. The government had sugar coated the development but the fact of the matter is that no amount of gloss will cover up the fact that trust in the country’s financial services sector has been decimated to the point that the big banks on the global stage do not want to do business with it.

The truth in this case may have less to do with Bank of Valletta’s credentials and more to do with the country’s lost credentials as a serious financial services centre, which had been carefully crafted up until 2013 and which, since then, has been brought into no insignificant amount of disrepute.

One of the world’s leading credit rating agencies, Standard and Poor’s, had recently, and quite uncharacteristically, slammed the financial services situation in Malta, reporting that allegations of money laundering at Pilatus Bank, the arrest of its chairman in the United States, where he is facing up to 25 years in jail for money laundering and sanctions busting, as well as the perception of poor transparency at some banks, have increased reputational and operational risks for the Maltese banking sector as a whole. Those risks, according to the agency, increased the Maltese sector’s overall risk rating for the entire sector from a four to a six-out-of-10.

HSBC downsizing its branches or not, there is very clearly a malaise affecting our financial services sector, the daily bread and butter of tens of thousands of Maltese.

Something is clearly very wrong on the banking front. Prime Minister Joseph Muscat inherited a flourishing financial services sector, replete with top professionals, an allencompassing legal regime, a strong regulatory arm and an excellent reputation. Sadly, his government, through its actions and inactions, the industry’s very foundations appear to be at risk.

Malta had established itself as a financial services centre of excellence. Today, that reputation is being put into question. The government cannot win the battle to restore our country's reputation because the government itself is implicated in cases which harmed our country.