[WATCH] Updated | Bank of Valletta to lose US dollar transactions provider by December

Dutch multinational bank ING will terminate its correspondent banking relationship with BOV on 14 December 2019

Bank of Valletta set to lose its US dollar correspondent bank in December
Bank of Valletta set to lose its US dollar correspondent bank in December
Joseph Muscat on BOV losing its final US dollar correspondent bank

Updated at 4pm with BOV chairperson comments

Bank of Valletta is set to lose the only bank that provides it with correspondent banking services in US dollars, the company announced today.

BOV said in a market announcement on the Malta Stock Exchange that it was advised by its USD correspondent bank that the relationship will terminate on 14 December 2019.

Dutch multinational bank ING, was the last remaining bank to provide BOV with USD correspondent service after Deutsche Bank terminated its relationship two years ago.

ING has embarked on a de-risking strategy since being fined €775 million last September after admitting that criminals laundered money through its accounts.

The bank has since adopted a de-risking approach, intended also to cut down on costs. Correspondent banking relationships with small jurisdictions are seen as high risk and very costly to maintain.

BOV said that it has intensified its efforts to engage alternative correspondents to “minimise any possible operational disruption to its business and its clients”.

When asked about the development this morning, Prime Minister Joseph Muscat insisted that banks in other jurisdictions had embarked on de-risking strategies because of their own internal problems. This is not the result of BOV having any problems of its own.

The Maltese government holds a golden mean shareholding in BOV with the right to appoint the bank's chair. Muscat was coy on talking about the issue, adding that BOV was working on a strategy for the future.

BOV undergoing transformation programme - chairperson

In a statement released to the media on Monday afternoon, BOV said ING’s decision to terminate its relationship with BOV must be seen in the context of a global scale-down of correspondent banking services.

The bank said small jurisdictions like Malta were being particularly hard hit because the volumes of business they generated were “not sufficient to be of interest to the larger players, given the risks and the compliance costs involved”.

“This is part of a general de-risking which is taking place in the banking industry following a spate of anti-money laundering failures, especially in Europe,” BOV said.

Bank Chairperson Deo Scerri said BOV deemed it critical to have in place a network of correspondent banks that offer clearing services in the main international currencies, such as the US dollar.

“BOV has stepped up its efforts to find alternative USD clearing arrangements. BOV is also undergoing a transformation programme aimed at lowering its risk profile and at strengthening its anti-financial crime structures, systems and policies,” he said.

Scerri explained that a major change programme was being carried out at the bank under the guidance of two global consultancy firms.

“The bank’s board of directors is fully confident that this programme will enable BOV to secure alternative correspondent banking relationships well before the ING accounts are closed down in the coming December,” Scerri said.

What is a correspondent bank?

Given that BOV has no branch or subsidiary in the US it requires the services of another bank that operates in the country to be able to clear dollar transactions for its clients. This other bank is called a correspondent bank.

The correspondent bank holds an account on BOV’s behalf, which it then uses to clear dollar transactions. Without a correspondent bank, BOV will be unable to process dollar transactions.

More in Business News