Gordon Cordina cuts a no-nonsense figure as he enters the boardroom where we are to hold our interview, a relatively new fixture in a building sitting atop the Valletta bastions battered by the four winds.

Appointed to the role of Chairman only a year ago, Dr Cordina last served as a Director on the same Board around a decade ago. Since then, much has changed.

As the country’s largest bank with a majority shareholding owned by the Government, BOV’s fortunes always reflect those of Malta.

Benefitting hugely from a booming economy after the sovereign debt crisis that rocked Europe in the early 2010s, both bank and nation could seemingly do no wrong, attracting foreign investment at unprecendented scale on the back of gambling, a construction boom, and the sale of Maltese (and therefore EU) passports, with little attention paid to where, exactly, the money was coming from.

The release of the Panama Papers implicating sitting Government officials in illicit offshore accounts, the assassination of the investigative journalist Daphne Caruana Galizia that saw international media put a spotlight on Malta that has yet to be switched off, and the laundry list of reports, investigations and warnings on an assortment of maladministrative practices, culminated in Malta being placed on a list of countries subject to enhanced monitoring by the Financial Action Task Force (FATF).

While Malta was facing the uncertainty Dr Cordina, a leading economic consultant, was appointed by the Government to steady the ship and oversee BOV’s transformation during these troubled times.

WhosWho.mt sat down with Dr Cordina, who was eager to cut to the chase and discuss practical business issues currently affecting the bank.

On staff confidence and team spirit

BOV’s entire staff complement is “doing its utmost” to cope in the new regulatory environment, Dr Cordina says, adding that the downturn in the bank’s reputation had affected workers “significantly”.

Referring to the €2.6 million fine handed down by the Financial Intelligence Analysis Unit (FIAU) for over 2,000 corporate accounts with missing client information that meant the bank was “essentially unaware whom it was ultimately servicing”, Dr Cordina says that “the whole collectivity of bank staff” is “very disappointed” with the result.

“They have worked very hard over the last years to address the shortcomings found by regulators,” he says. “The social reputation of many people working at the bank is intrinsically tied to the bank’s reputation. They’re tired of seeing it dragged through the mud.

“But,” he continues, “we have to see that as a strength. There’s a strong sense of team spirit. For our people, the difficulties we are going through are personal. They are strongly invested in BOV as a way of working and feeling.”

In any case, Dr Cordina believes that the bank now has sufficient systems in place to avoid a repeat of such a penalty.

“We have accepted the fine and remedied the issue. The facts were what they were and the bank will not contest the decision.”

On BOV’s first dividend in two years

Earlier this month, BOV announced that it would be issuing a dividend of €0.0264 per share, payable in January 2022.

This follows the lifting of the European Central Bank’s directive to banks to avoid paying dividends due to potential instability caused by the COVID-19 pandemic. This means that shareholders have not received any dividends since 2019, after BOV shareholders’ final dividend for the year, of €0.026 per share, was cancelled by the onset of the pandemic.

“That money had been put aside and left untouched, so the resources were still in the bank. As a Board, we took the responsibility on ourselves to say it is affordable – and of course an amount set aside two years ago is eminently affordable.”

Sharing his vision for shareholder compensation, the Chairman expresses his preference for stable and predictable dividends, even if low.

The divident is in fact the lowest paid out by the bank since at least 1991.

“Despite my appointment by the majority shareholder, I make it a point to listen to all shareholders. From the suggestions and recommendations, I push forward those that are in the long term interest of the collectivity of all shareholders.”

This, Dr Cordina stresses, is his duty, and one which he is judged on not only during the annual general meetings but also by the regulator.

On BOV’s potential downgrading by Fitch

“The truth is that BOV has never incurred actual losses. Not even in the worst of the pandemic. Thanks to this, we have very strong capitalisation, as we never needed to absorb losses. Similarly, our liquidity is very strong – our depositors will never not find their money.”

The real risk is rather due to the obligation for banks to have large illiquid deposits from institutional investors – in BOV’s context, foreign ones – which could become more expensive for the bank if the downgrading goes through.

Nonetheless, Dr Cordina believes any such risk is “minimal”, and notes that the potential downgrading is due to internal administrative processes undertaken by Fitch Ratings, and not due to any changes in BOV’s performance.

On greylisting and correspondent banking relationships

Correspondent banks for US dollar transactions cut their ties with BOV amidst the reputational fallout, with the result that Malta’s largest bank now has limited connections with the top global currency.

Asked about plans to build new relationships, Dr Cordina admits that the combination of jurisdictional issues and Malta’s small size “makes things difficult”.

“We need to keep in mind that we are a tiny bank in a tiny country. Even without the ECB’s report on our shortcomings and the FATF’s greylisting, it is difficult for us to present an attractive business case to potential partners.”

This makes the maintenance of existing correspondent banking relationships, with banks transacting in the US dollar, Canadian dollar, and British sterling, for example, of paramount importance.

“We have intensified our relationships with our partners. We maintain an open dialogue of mutual trust in the interest of broadening and deepening knowledge.”

What this means in practice is that BOV makes an effort to ensure that the banks it depends on to continue offering international payment services are kept abreast of the latest news.

“Obviously, in the case of the FIAU fine, we reached out to our banking partners, explaining the reason, the context, and the resolution. In times like this, open channels of communications are a must.”

For BOV, the effects of greylisting have been limited “so far”, Dr Cordina says, with partners asking more questions and demanding more assurances but relatively few relationships changing substantially.

“Although the ECB’s report back in 2019 came as a rude awakening, we must be grateful – the regulator did a great service to this bank and the wider economy by bringing up issues that were eventually further scrutinised by the FATF. Thanks to them, we were able to get a head start on the de-risking transformation.”

He believes that people, businesses and institutions abroad are still looking forward to Malta getting out of the greylisting.

“The stability we, along with foreign investors, will enjoy after successfully getting off the greylist will be a very welcome respite. For some five years now, controversy has raged around Malta. Once this is over, everyone will be able to breathe a sigh of relief.”

On future hopes

Dr Cordina points to BOV’s extensive network of branches as one factor that can be leveraged for future growth, and is hopeful that the resolution of longstanding court cases frees up capital to invest in a lucrative, long-term, pension-based investment portfolio.

Currently, the bank’s deposit/loan ratio rests at a paltry 40-50 per cent, which Dr Cordina describes as “a big drag on profitability”. Other banks manage to loan out some 70 to 80 per cent of deposits.

“Once we get through the storm, and the real value of BOV’s capital can be valorised, we will be in a very good position to invest in new opportunities, especially digital ones.”