The Business Observer 26th January 2017 Issue

INTERVIEW

Issue 68

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January 26, 2017

Distributed with Times of Malta

e Memorandum of Understanding signed in China in 2014 promised numerous projects. But what has actually materialised? Qiu Guangling, the Economic and Commercial Counsellor of the Chinese Embassy in Malta, gives an update. see pages 10 and 11 >

NEWS e KPMG annual publication shows that four banks made a loss in 2015 and five barely broke even.

Should we be worried? see pages 5 and 17 >

‘MIA will be forced to raise charges’ – ACI Vanessa Macdonald After a decade of leaving airport charges unchanged, Malta International Airport will probably have to increase them – partly because of the estimated €10 million cost of installing new baggage screening equipment, according to an international expert.

The director general of the Airports Council International, Olivier Jankovec, said that the airport was already facing the need to pay for its considerable infrastructural upgrades and expansion.

“Malta International Airport has kept its charges stable for 10 years. In real terms, with inflation factored in, the cost for airlines has actually gone down. When I look at the upgrading and expansion projects that MIA has embarked on, the investment this will entail and the new security cost that will come in, I don’t think it will be sustainable to expect that MIA can keep charges at current levels.

“To give you a comparison, the top 21 European airports over the past 10 years increased their charges on average by about 25 per cent – which works out to around €3 increase per passenger over the decade. There is a moment when

it is impossible to avoid increases,” he told The Business Observer.

New standards will soon come into force between 2018 and 2022 to improve the detection of explosives in hold baggage but the investment will be massive: apart from the new technology itself, the machines are very large and heavy, and part of the infrastructure will need to be rebuilt. ACI estimates that the cost to the industry will be €10-15 billion. MIA will need to spend €10 million, but to put this into context, Charles de Gaulle Airport in Paris will be spending €400 million.

Mr Jankovec said that security was a “nightmare” operationally because of the negative impact on passenger experience and also because

“ere is a constant expectation from airlines”

it was so unpredictable as it was often a reaction to a terrorist attack.

However, the financial impact is also considerable. Security accounts for around 20 per cent of operating costs, up from five per cent before 9/11 – and in Europe it is paid for by the airports themselves.

“In the US, airport security is done by a federal agency and the cost comes out of the federal budget. But in Europe, it is not publicly funded and we have to pay for it,” he said.

“In Europe, policymakers decided that airports need to be self-financed. This is very different to other regions like the US, the Gulf and China.

This is why European airports are accused of being more expensive.

“There is a constant expectation from airlines, which they very cleverly relay at a political level that airports are expensive and that charges need to decrease. But faced with this sort of pressure, I think we are going to have to face increases in airport charges as the security costs have to be passed on to the users,” he warned.

Mr Jankovec also said that current security systems were expensive to operate and not necessarily as efficient as they should be. continued on page 3

NEWS It is not a foregone conclusion that a successful financial services centre will also have great capital markets activity – or vice versa.

William Wright of New Financials deconstructs some of the myths about London and other hubs. see page 6 >

CASE STUDY Aqubix founder Kristoff Zammit Ciantar will soon present the company’s latest product at Finovate to 1,500 delegates from the financial sector. Is he prepared for the avalanche of enquiries it could generate? see pages 12 and 13 >

e Business OBSERVER

| January 26, 2017

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INTERVIEW

An open sky policy

PHOTO: MARK ZAMMIT CORDINA

continued from page 1

Airports are not only about getting from Point A to Point B: they generate 12.4 million jobs in Europe and add €675 billion in value, around 4.1 per cent of GDP. is is why Airports Council International director general OLIVIER JANKOVEC told Vanessa Macdonald that something needs to be done to add capacity.

The top 20 airports in Europe will be fully congested by 2035 – which will mean €97 billion in lost GDP and two million jobs not created. But there is so much objection to noise pollution, expansion and so on…

The world has changed considerably since 10 or 15 years ago. There has been a global – irreversible – shift and the main drivers of future growth will not be the US or Europe but emerging economies. They now account for more than 50 per cent of world trade and this will continue to grow.

In order for us to have a rosy prospect for our economies and our citizens, we will need to tap into these new future external sources of growth. This is where aviation becomes strategically relevant for economic policy. If you want to sell your products and engage in trade with those countries, you cannot go by car or boat; you will fly.

The EU has already embarked on a new and comprehensive aviation strategic proposed a year ago, which is precisely about this. The EU is clear that we need aviation to grow as it will be instrumental in ensuring economic well-being.

In this context, of course you need more airport capacity. If you want to access those external markets and improve connectivity you need the airport capacity.

Major airport hubs have developed.

Should the strategy be for them to grow larger or should it focus on using more regional airports?

It is not black and white. I think the future will be much more diverse and

Enhancing security

multipolar – in political and economic terms, but also flowing into every sector of the economy, including aviation.

The future of aviation will be very different tomorrow to what it was yesterday. You used to have big hubs and small regional airports but I think things are more hybrid in terms of development and there will be a need for all the segments to grow.

The hub and spoke strategy has proven itself in terms of boosting connectivity and efficiency. It will continue to be a very relevant model. But in terms of long-haul connectivity and access to external markets, it will no longer be the only model.

This will provide a lot of opportunities for secondary hubs or other large airports. This will be facilitated by new aircraft technology like the 787 and A350 which allow 20 per cent fuel efficiency gain and help airlines rethink their network strategy, opening up new markets that were not viable before.

We see low-cost airlines entering the long-haul market too. For example, the development of Norwegian ones has been phenomenal.

“e future of aviation will be very different tomorrow...”

According to a 2014 report, revenue from airport charges covers only two-thirds of overall costs, leaving €10 billion to be raised from other means…

We do not make money from aviation. We make money on non-aviation and commercial activities. We would not be able to run an airport without these extra sources of income

“Our security system since 9/11 is based on the principle of systematic detection: every passenger from a child to a grandmother to a would-be terrorist would be subjected to the same checks.

“The challenge is to move to a system whereby the checks become more targeted based on passenger information, so instead of spreading resources across every single passenger, we actually focus on those passengers that potentially pose a risk and leave the others to go through the airport with fewer controls. But that is about profiling which is difficult as there are stringent privacy laws in Europe and considerable political opposition to it,” he said.

“It would mean airports working much more closely with intelligence agencies and you need to do that on a European basis – not just nationally – because terrorists travel between countries.

“But once a terrorist gets to an airport, it is probably already too late. The challenge is to identify them and stop them long before they get to an airport – or a stadium, or concert hall or public space. We are not necessarily against taking more responsibility to assist states in combatting terrorism but it is a strategy which goes well beyond our remit as airports.”

Referring to recent terrorist attacks, he said that the impact had been local rather than pan-European, which he said was “reassuring in a way as it shows that terrorists are not succeeding in disrupting the way we live”.

A report presented at the recent World Travel Market in Berlin last November showed that it took around a year for the impact of an attack to wear off, something Mr Jankovec was able to confirm: Brussels Airport was attacked in March last year and traffic dropped by eight per cent at the time and was still down in negative territory at the end of the year. Charles de Gaulle Airport in Paris also saw no growth in 2016, even though the attacks were not at the airport.

“Asian and North American tourists are shunning France. Our worry is that as we see more terrorist attacks going forward – which is what we are being told to prepare for – repeated attacks will affect consumer confidence. There is a clear risk that if it continues, it might impact traffic figures more widely and not just locally. If people do not feel secure then they don’t travel.

“We will face major investment on security.”

continued on page 9

See also page 5

And the different airline models are now cascading down to airport level. Today if you ask any airport, it would say it is competing not just with the neighbouring airports but at a pan-European level – and at a global level with hubs.

You mentioned objections to growth. The aviation industry is taking its responsibility very seriously, particularly airports, which are at the vanguard in mitigating their environmental impact through an airport carbon accreditation scheme. It is an ACI initiative but administered independently, providing a common framework for airports to reduce their carbon emissions and a pathway towards carbon neutrality. We started the programme in 2009 and last June we had 154 airports across the world that were certified, most of them in Europe.

There are now 22 carbon neutral airports in Europe and we have a commitment to reach 50 by 2030.

The UN Framework Convention on Climate Change has singled this scheme out as one of the best examples of what an industry can do.

e Business OBSERVER

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January 26, 2017

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NEwS

Interest in banks keeping up There were no fresh bank licences issued last year – unless you count Al Faisal’s acquisition of majority shareholding in Banif Bank and MFC Bankcorp Ltd’s acquisition of Bawag PSK Bank – but there has been no shortage of interest, with what KPMG has described as a dramatic increase in potential interest in acquisitions.

In line with the trend being seen across Europe, Malta is still seeing an influx of enquiries from Asia and the Middle East, although ones from Europe are also picking up again after a “wait and see” period postBrexit, associate director Mark Curmi said.

However, it is just as important for existing banks to do well as it is for new ones to come to Malta. KPMG’s annual publication analysing the local sector show that four banks made a loss in 2015 and five had either zero profit or just €1 million (see table).

Is this a source of concern?

Mr Curmi said that rather than just profitability – for banks especially those which are still in their “start-up” phase, like SataBank and Pilatus which only started operations in 2014 – the most important metrics were capital and liquidity.

“CET 1 ratios in the eurozone averaged 12 per cent, while Malta’s core domestic banks had an average above 13 per cent, which is excellent,” he said, with his colleague Noel Mizzi pointing out that the few eurozone banks with better ratios were often those whose capital had been boosted by government bail-outs.

Of course, profitability can become a concern in the long term as it would eat away at capital, and poor return on equity – it was negative for five Maltese banks – also deters investors. That said, eurozone Significant Banks’ average return on equity was 5.8 per cent in 2015 while for local core domestic banks this averaged at 9.9 per cent.

“A loss does not mean that the bank is not a going concern: some banks have bad years and you cannot draw conclusions from the performance on a single year, just as you cannot say that huge profits are going to be repeated every year as they might be due to one-offs. The issue is whether the banks have a sustainable business model. That is why regulators look at liquidity and capital, rather than profitability,” Mr Mizzi said.

Although a few banks have posted losses year on year, the core domestic banks

remain very sustainable, and poorly-performing non-core domestic banks have seen a dramatic improvement. Even international banks which had posted losses have started to recover as their tweaked business models started to pay off.

Nemea, which is facing withdrawal of its licence, and which is protesting quite vociferously, had not published its results, and had not been included in the 2015/2016 KPMG analysis.

Referring to the improvements registered by a handful of banks, Mr Curmi said that in 2017, one of the main priorities of the European Central Bank was going to be banks’ business model – with the buzzword being “sustainability”.

This is one of the reasons that it takes almost a year for a licence to be approved.

KPMG acknowledges that this time is necessary to ensure that the local regulator understands what the new acquirer or the new bank intends to do, and to get final ECB approval.

Mr Mizzi acknowledged that the market has not been easy for Maltese banks.

“Although the economy has been doing very, very well, banks have excess liquidity and in a service industry, there is a problem transforming that excess liquidity into loans. There are limited opportunities to invest in huge projects – except government infrastructure, which poses other issues because of concentration risk.

“And for every deposit the bank accepts, it has to pay more to the deposit compensation reserves. So if you cannot transform deposits into positive yields, it costs the bank more and more,” Mr Mizzi said.

“What is definite is that banking has become a more difficult profession. The rules of the game have changed and will continue to change. I would say that for the foreseeable future, we will see more regulation and more competition – with IT increasingly the distinguishing factor between one provider and another.”

Of course, it is not only internal factors that affect banks here. Mr Curmi warned of other challenges, apart from Brexit, such as Trumponomics and other elections in EU member states.

“If you have someone outside of Europe deregulating, you have to see what impact continued on page 17

BANK

PROFIT (€ million) RETURN ON EQUITY (%) 2015

2014

2015

CAR (%)

2014

2015

2014

CORE DOMESTIC BANKS APS

10

9

10.1

8.9

16.69

17.50

Banif

1

1

3.3

3.8

9.3

8.39

Bank of Valletta

95

80

16.9

18.4

16.84

13.4

HSBC

29

34

6.4

7.7

14.2

13

Lombard

4

3

4.4

3.8

17.4

16.8

Mediterranean

11

30

6.1

19.7

15.6

14.8

NON-CORE DOMESTIC BANKS MFC Merchant

1

7

0.6

11.8

96.9

34.9

FCM

(1)

(1)

(19.4)

(11.6)

15.27

14.27

FIMBank

(6)

(34)

(3.8)

(24.5)

16.2

13.8

IIG

4

1

18.1

9

15.1

17.1

Izola

2

2

8.6

9.2

40

49

Sparkasse

4

3

16.2

15.4

17.51

13.8

INTERNATIONAL BANKS AgriBank

0

N/A

2.1

(6)

28.34

41.09

CommBank Europe

48

58

13.8

2.7

39

103

Credorax

(1)

(3)

(2.8)

(39.8)

33.7

N/A

ECCM

1

0

1.2

(0.3)

73.2

146

Ferratum

5

2

32.2

19.6

16.77

23.1

NBG

13

12

5.5

4.3

49.65

35.25

Novum

9

(2)

60.1

(34.4)

60

49

Pilatus

3

0

23.9

2.6

30.45

27

Satabank

0

N/A

(0.8)

0

50

N/A

Yapi Kredi

(1)

N/A

(1.1)

(0.21)

67.27

99.84

6

e Business OBSERVER

| January 26, 2017

NEWS

Capital markets v financial centre: the winner is…

Countries should try to deepen their capital markets – rather than trying to “magic a financial centre out of thin air”, founder and managing director of New Financial, William Wright, has warned.

Mr Wright was the keynote speaker at a recent seminar on the outlook for European financial centres organised by Bruegel, the Finance Ministry and the Malta Financial Services Authority in conjunction with the Malta-EU presidency 2017.

New Financial is a capital markets think tank and forum, and Mr Wright presented an in-depth analysis of the activity in various countries – which showed the extraordinary share currently handled by the UK. Unlike commonly available research which is supplied by the countries themselves, New Financial looked at the depth of activity relative to that country’s GDP, and looked at various activities, from a country being a financial centre to having robust capital markets.

The results showed that these activities accounted for 11 per cent of all UK tax receipts, with a quarter of the EU’s stockmarket value listed in the UK. He also explained that two of every three equity trades take place in the UK. Although he did not comment on Brexit, the implication of opportunities for other member states was clear. Mr Wright did, however, make a compelling argument for spreading the capital markets activity more equally across the member states: Malta’s capital markets could grow by four per cent of GDP, with a 38 per cent increase in the value of pensions and insurance assets.

Another speaker, Professor of International Commercial Law at Copenhagen Business School Georg Ringe, continued the argument in favour of better capital markets, stressing that money was much easier to move than manufacturing, and that competition was strong because of “easily comparable products”.

Prof. Ringe admitted that financial institutions were threatening to exploit jurisdictional discrepancies, putting regulators under pressure to ease their approach.

However, he said, studies showed that not all of them were going for low tax and lax rules – the socalled ‘race to the bottom’ – as many actually preferred independent and robust regulation.

“The ideal remains to allow regulators to compete, which will yield optimum results. What we really have is a ‘race to the top’,” he said.

“Poor regulation means higher risk and risk is a threat to both financial stability and to the global public good.”

The issue of regulation was also brought up during the panel debate with Malta Stock Exchange chairman Joe Portelli convinced that US President Donal Trump would usher in “serious deregulation” which would put pressure on the EU regulators.

“I am a supporter of regulation but it is clear that the steps taken after the financial crisis need to be revisited by Brussels. We need to ask whether we are now in a state of over-regulation,” he said.

KPMG’s banking expert, Juanita Bencini, voiced her opinion quite bluntly – so much so that the panel moderator appeared taken aback at her choice of terminol-

“We simply cannot reach the EU growth targets unless things change” ogy: “The banks in some member states – such as France – are pushing back at the European Central Bank and objecting loudly to the level of intrusiveness. I agree that the EU will have to change to react to any steps Trump would take.

“We have allowed politicians to create the monster that is the ECB and now we need to accept that the reaction to the financial crisis has now gone too far. We simply cannot reach the EU growth targets unless things change,” she said.

Mr Wright expressed scepticism that things would change, however.

“It is not clear how much deregulation we will see. But I certainly do not see any appetite in the EU for any level of deregulation,” he said.

The topic of Brexit was tackled by the chairman of the MFSA, Joe

CAPITAL MARKETS BY NUMBERS Depth of capital market relative to GDP: (EU27 = 100) Luxembourg: ....600 UK: .................169 Malta: ..............40 BUT… Luxembourg ranks only 10th by scale of capital markets, and 2nd (after UK) as a financial centre.

UK share of EU27 capital markets 2012-2015 Top ranking – Pensions assets: ..........43% Lowest ranking – Investment funds: ...12% UK share of foreign exchange trading in EU: ..............78% UK share of pensions and insurance assets: ...............30% UK share of investment funds by domicile: .................13% Luxembourg share of investment funds by domicile: ....30% SOURCE: NEW FINANCIAL

Bannister, who said Malta’s government policy was to stay below the radar and not appear to be trying to take jobs from the UK. However, he said that the MFSA had received numerous requests for information from insurance companies intrigued by Malta’s innovative protected cell company structures.

In fact, he added, almost 100 companies had attended an information briefing held at the Guildhall in London some weeks ago.

Although he steered clear of referring to Lloyds of London (which has since ruled out Malta), he did say that several other companies had already “signed up” to move to Malta.

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e Business OBSERVER

| January 26, 2017

INDUSTRY FOCUS

Looking into the crystal ball e economy is booming – or at least so they say. But do different sectors see it the same way? A selection gave us their opinion of how 2017 will affect them.

V&C Contractors

Christabelle Borg Financial controller The property market has been booming for quite a few years now. However, property sales were always high in Malta, and I am of the opinion that the Maltese culture drives these sales, as it is a norm for Maltese citizens to buy property rather than rent. They prefer to invest their wellearned money on property which will eventually be theirs once they pay off their loan, rather than pay into a property which isn’t theirs to begin with.

The foreign expats in Malta have increased the demand for properties, and therefore several Maltese developers have also been investing in rental properties to lease out to these expats.

I believe that if the work conditions and the ease of setting up companies in Malta remain favourable, the market will keep on flourishing. However, there will be a time when local/foreign banks would need to minimise their risk and decrease the amount of mortgages/loans given out, and I think this would make the market stabilise and/or drop.

Computime Group Sandra Azzopardi HR manager

The indications so far are that the tight labour market for IT will become worse.

We have had a number of vacancies at the end of last year and in the beginning of this year, where the response has been lower than usual. It is a reality that the demand for ICT professionals in the local labour market is continuously on the increase. This is evident from the numerous vacancies published on various job boards in Malta, and it has also been repeatedly confirmed by the recruitment agencies that we deal with. Also, the number of students enrolling on ICT courses at University and other educational institutions is not enough to deal with demand.

Salaries are also on the rise, and as a result, it is rendering Malta less competitive when it comes to international work. This does not augur well for the ICT industry in Malta. The immediate way forward is to continue exposing our vacancies to a wider audience and attracting more foreigners to our shores. In this regard, the authorities are supporting the industry by making the approval of work permit process faster for third-country nationals, which is an important breakthrough for employers. However, on a national level, there is still more work to be done to attract more students to the ICT world, and to be more exposed to what it means to have a career within the IT industry.

At the same time, employers need to continue creating the best possible working environments in order to attract, optimise, and retain talent within their organisations.

Camilleri Preziosi Louis de Gabriele Senior partner

Capital markets are an integral part of the financial services sector. This is a sector that has experienced significant growth in Malta in practically all of its aspects. Our domestic capital markets have also experienced growth with local issuers tapping the capital markets particularly by raising corporate debt whether for specific projects or to finance their growth and expansion. The Malta Stock Exchange has been a significant player in the growth of the capital markets sector and more and more companies today seem to be ever more comfortable to diversify the sources of their financing requirements and to approach the market to raise finance.

The Malta Stock Exchange’s strategic plan now contemplates taking our capital markets experience beyond the strictures of the domestic markets, with a vision to make our capital markets a platform where international issuers can raise capital and to be able to trade instruments other than simply the traditional equity and bonds

that we have been used to so far. This is a very ambitious plan – made even more so by the introduction of yet a new market “Prospects”, intended for the smaller issuers that will be able to tap funding sources on the local capital markets.

I believe this plan energises the market and the players in the market to sustain the further development and growth of the capital markets as another important pillar in the development and evolution of Malta as a financial services centre.

Medserv

Rammah B. Ettir Managing director Malta has seen a significant growth in the aviation sector over the past decade or so, with several operators, new and established ones, acquiring new Air Operator’s Certificates and even setting up MROs (Maintenance Repair Organisation), gearing up to service a wide spectrum of aircraft types ranging from general aviation to wide body aircraft. In this respect Medavia has widened its operation and invested heavily throughout the years to enhance its infrastructure, tooling and resources in order to be capable of adding new aircraft types to its approval list. Particular focus remains on servicing the modern regional sized turbo-prop aircraft.

Medavia Technics’ primary aim remains that of delivering a safe aircraft back to the customer serviced to the highest quality levels on time.

Since Medavia’s core business focuses primarily on servicing the oil and gas industry in Libya, we forecast that our customer base will grow again. This will leave a positive effect on our fleet utilisation resulting in better all-round performance for the company.

Since Libyan oil fields and harbours have now come under the control and guard of the National Libyan Army, oil production and exports have resumed both in the East and Western parts of Libya. Daily production is also increasing. We expect this to contribute significantly to the country’s oil and gas industry recovery.

Re/Max

Jeff Buttigieg Managing director 2016 was another record year for Re/Max where we registered a 40 per cent yearon-year increase in property sales reaching the milestone of €600 million whereas in the letting sector we saw a 37 per cent year-on-year increase – leading the industry in both categories.

The increase has been mainly due to having a solid economy and confidence in the market which continues to grow with the sustained foreign investment from industries such as gaming and finance creating an upward look at both demand and supply across most demographics. Various schemes like the firsttime buyer’s subsidy and foreign investments programmes in the form of the residency and visa and Individual Investor Programme are still proving effective and garnering major interest.

Our first-time buyer sales increased by 25 per cent during the year while the more upmarket sector saw an increase of 40 per cent.

In 2016, besides opening offices close to Pender Gardens, the Strand and Marsascala we launched the Re/Max Collection brand, an upmarket arm while we also introduced property auctions and our commercial brand setting a foundation for further growth in 2017.

Commercial letting, especially of office space, saw an exponential growth in numbers in 2016 and thus we plan to open a fully-fledged commercial office in the first quarter of 2017, located at the Msida University Roundabout at the exAll Care building.

2017 is going to see continued patterns of growth in all sectors with several major mixed developments – including some high rise buildings coming to the fore.

We plan to open six offices by the end of the third quarter namely in Msida, Swieqi, Marsascala, Qawra, Mellieħa and Gozo to keep up with the demand and to further solidify our market share.

e Business OBSERVER

| January 26, 2017

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INTERVIEW

Only half the airports in Europe are profitable continued from page 3 – and they allow us to respond to the competitive pressure from airlines.

Clearly the reality is that the users of airports – the airlines and the passengers – are not paying the full cost of the infrastructure that they use.

Under the present trading conditions, the airlines that are going to give you growth are the low-cost airlines, and that applies not just to small regional airports or medium-sized airports but to airports of any size. After them, growth will come from non-European carriers and only then from EU full-service carriers.

This was not the situation 20 years ago – but this is the new reality. This is why Frankfurt Airport has made a deal with Ryanair.

Who would have thought five or six years ago that Frankfurt would want to attract Ryanair!

It shows you the speed at which our industry has grown.

Trying to boost non-airline revenue has resulted in higher parking fees and airports which resemble shopping malls.

(Laughs) Well money does not fall from the sky – and someone ul-

timately has to pay. Twenty years ago there was still a willingness from public authorities and governments to subsidise airports and to finance their development. But that is no longer the case.

But there are private investors who are ready to foot the bill.

There are corporate and institutional investors who are desperate to find somewhere to put their money. The airport industry is an opportunity – and all we need to do is to ensure that there is the right regulatory and policy framework to give them legal certainty.

They do not want the goalposts to be changed every time there is a new government, for example.

ACI has been pushing for is ‘open sky’ regimes. How would they help?

Clearly the fewer restrictions you have on air traffic rights, the better. Airlines will come to a location if traffic rights are available and unhindered. Old bilateral agreements restricted the number of airlines on a route, the capacity they could have and even the fares… That was meant to protect national flag carriers. It does not make any sense today, not in the least because of pure

airport interest, the connectivity of the region or city, and the support for the economy.

If you look at policy today, you need to ask: who are you regulating for? Governments have realised that they have to put consumers and communities – not the national airline – at the forefront of aviation policy.

Every 10 per cent increase in a country’s air connectivity, GDP per person increases by an additional 0.5 per cent…

This is particularly relevant for a country like Malta, which is isolated within the EU context as it has no alternative to air or sea. Normally

across Europe, aviation accounts for about 4.1 per cent of GDP but in Malta it is more than nine per cent – twice the European average.

You say investors are interested in airports but only half of all airports in Europe are profitable. Doesn’t sound like a very interesting proposition!

And yet in 2010, 80 per cent of airports were fully public – now only 59 per cent are.

There is a financial performance imbalance within the sector, and difficulties mostly with smaller airports. Size matters. The odds are that an airport with less than one million passengers is structurally unprofitable.

And you cannot only look at operating profit but also longterm investment.

Airports need to anticipate future growth by investing in expansion and modernising. But capital expenditure goes in waves and during periods of investment, the airport will often go into a negative financial position. Of course, after the investment, then traffic will grow as a result of the expansion but investors have to have a long-term view and not be in for a quick win. Profits would not be constant and regular.

This is why investors tend to be pension funds, and very conservative institutional investors.

Between 2006 and 2015, overall passenger satisfaction with the 21 largest airports in EU & EFTA increased by +12.4 per cent. Seriously?

Passenger satisfaction is very important to airports as to any consumer-facing sector. But we have limited control over much of the experience, because of regulatory intervention.

The security agenda is a nightmare for us, operationally because of the passenger experience and because it is very unstable, reacting to terrorist attacks somewhere else…

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e Business OBSERVER

| January 26, 2017

INTERVIEW

Understanding what happened Ties between Malta and China peaked a few years ago in 2014 with the visit of Prime Minister Joseph Muscat to Beijing and the signing of a Memorandum of Understanding. Vanessa Macdonald asked QIU GUANGLING, the Economic and Commercial Counsellor of the Chinese Embassy in Malta, for an update to the projects mentioned at the time.

The MOU outlined various projects: what has actually materialised since then?

China and Malta enjoy a longstanding friendship ever since the establishment of diplomatic relations in 1972. The bilateral economic and trade relationship has maintained its good momentum of development and both countries have witnessed fruitful cooperation during recent years.

The MOU on a five-year Medium-Term Cooperation Plan was signed between the Chinese and the Maltese governments in July 2014, witnessed by Chinese Premier Li Keqiang and Maltese Prime Minister Joseph Muscat. On the joint efforts of both sides, there have already been quite a few progresses in various areas since then. Last May, Gao Yan, China’s Vice Minister of Commerce led a delegation to Malta, and together with Chris Cardona, Minister of Economy, Investment and Small Business of Malta, chaired the 10th China-Malta Joint Commission on Trade and Economic Cooperation, during which extensive consensus was reached to further tighten bilateral economic and commercial ties.

Chinese investments in Malta grew rapidly over these years. The cooperation between Shanghai Electric Power and Enemalta has become a new highlight and injected new vitality to the practical bilateral economic cooperation.

Apart from their fruitful cooperation in Malta and Montenegro, they have also successfully taken their first step of seeking renewable energy projects jointly in other European countries.

Huawei, a leading Chinese company in global information and communications solutions market, has opened its local office in Malta and has signed MOUs with the Maltese government on ICT research and development in Malta.

In the field of research and innovation, Chinese and Maltese officials convened their first meeting of the Joint Commission on Science and Technological Cooperation in August 2015, and an agreement has been concluded on the establishment of a Joint Research Centre in Aquaculture.

Both sides have been keeping in touch since then to further deepen the cooperation.

In the field of medical care and health, the Mediterranean Regional Centre for Traditional Chinese Medicine in Paola has played an important role in enhancing mutual understanding and friend-

ship between the two countries and peoples since its establishment in 1994, as a Sino-Maltese medical cooperation project. During the past 22 years, more than 70 experienced and skilled doctors from 12 Chinese medical teams have provided professional medical services to over 160,000 patients. The outstanding work of the Chinese medical teams has been highly appreciated by the Maltese people and valued by both Chinese and Maltese governments. Efforts are being taken by both countries to strengthen and expand the cooperation in medical service and health area.

A delegation headed by Li Bin, Minister of the National Health and Family Planning Commission of Health of China, visited Malta earlier this month and met President Marie-Louise Coleiro Preca and Health Minister Chris Fearne.

A new protocol on cooperation in the field of traditional Chinese medicine was signed during the visit.

In the field of tourism, last year, the Maltese government signed a MOU with Beijing Caissa, an international travel service provider, aiming to attract more tourists from China to Malta.

In the field of education, Shanghai University of Traditional Chinese Medicine and the University of Malta initiated their cooperation project in November 2015, to provide an educational course of studies in traditional Chinese medicine and culture.

In the field of sports, China’s General Administration of Sport signed a MOU with Malta’s Parliamentary Secretary for Youth and Sport Chris Agius in March 2015, providing that the two sides will endeavour to develop sports exchanges and cooperation on the basis of mutual respect, equality, and mutual benefit.

Efforts are also being taken by both the Chinese side and the Maltese side in many other areas, such as promoting the use of Union Pay cards in Malta to further facilitate Chinese tourists who travel to Malta on private vacation or for business purposes, establishing and operating of commercial satellite ground receiving stations in Malta, and cooperation in the field of gene bioinformatics.

Last year, a steering council was established to guide the implementation of the MOU, headed by the Foreign Minister Wang Yi from the Chinese side and Deputy Prime Minister Louis Grech from

“I believe, as long as we keep in contact under the principle of equality and mutual benefit, a way of cooperation could be found [for Air Malta]” the Maltese side, which will surely contribute in further deepening bilateral cooperation.

I also firmly believe that more opportunities will be created along with China’s continuously deepened reform and opening up.

We encourage enterprises of both countries to seek actively for cooperation opportunities under the framework of the “One Belt and One Road” initiative and international industrial capacity cooperation. Looking into the future, I am fully confident in the bright future of our bilateral economic and trade cooperation.

One of the projects was for Huawei to use Malta for research but for quite a while, they only had a small office with a few people.

Has anything changed?

Huawei opened an office in Smart City in July 2015. As usual in these cases, as the business increases, the staff will grow as well.

Let’s take Huawei Italy as an example. Three or four years ago, Huawei Italy had a very small organisation, but today it has over 600 employees of which 85 per cent are hired locally.

Huawei is in talks with the local operators interested in upgrading the infrastructure in view of the

potentialities offered by 5G. The company is also willing to provide various services and support to the government, including sharing of best practices and providing solutions for Digital Malta’s ICT strategy plan. Huawei is also collaborating with the academic environment. As a result of this, Huawei has extended its global flagship education project “Seeds for the Future” to Maltese students. The programme aims at increasing the digital skills of undergraduate students through a training course entirely funded by Huawei at their headquarters in China. The first batch of trainees from Malta will participate in the next session of the programme later this spring.

Another project was the Marsamxett breakwater but in the Budget for 2017, the government announced that the project might be financed through the European Fund for Strategic Investment. Is China no longer going to be involved?

The Marsamxett breakwater was mentioned in the MOU between the Chinese and Maltese governments as one of the key cooperation projects in transportation infrastructure area.

A feasibility study report has been completed by a Chinese company according to the understanding with the government.

The company continues to pay close attention and has strong willingness to take part in the project. I will be very glad to see any progress.

China Communication Construction was supposed to be doing feasibility on the bridge to Gozo.

Has China’s involvement been dropped because of the decision to have a tunnel instead?

The Malta-Gozo bridge project is another key cooperation project in the field of transportation infrastructure listed in the MOU between the two governments.

According to the information that I have, China Communications Construction Company Ltd has completed the feasibility study report on the bridge project and submitted a preliminary design for the undersea tunnel project to the Maltese government. China Communication Construction has been closely following the project and is very willing to continue to participate in it. The company, which has successfully completed the construction of the No. 6 Dry Dock and the Marsaxlokk break-

e Business OBSERVER

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January 26, 2017

INTERVIEW

water, keeps a good construction record in Malta, and the Hong Kong-Macau-Zhuhai Bridge project which is under construction by the company is a world-class cross-sea bridge and submarine tunnel project, with its construction standards and quality at the world’s top level.

China was also going to help Malta with social housing, with the latest report saying that 3,000 units are needed. Is anything happening?

According to the MOU between the two governments, both parties shall seek concrete projects, including housing construction projects, to support the other side’s efforts to improve its infrastructure. We pay close attention to possible opportunities of cooperation in this area. I’m sure Chinese companies will be interested if there’s any potential project in this field.

Former Ambassador Cao Jinbiao had mentioned that Hainan Airlines was interested in Air Malta at one stage – but it appears to have backed off at an early stage. What happened and is there any chance that the interest will be renewed?

In my opinion, there is plenty of room for bilateral cooperation in the civil aviation field, and the willingness of cooperation from both sides is strong. The Chinese government encourages and provides support to enterprises from both countries to seek opportunities in this field in accordance with their actual needs and business development strategies, as well as international business practices and market principles. I believe, as long as we keep in contact under the principle of equality and mutual benefit, a way of cooperation could be found.

There were problems in the past with visas for Chinese willing to visit Malta after cases of abuse were uncovered. Has the situation improved, given that both sides want to grow the number of Chinese tourists visiting the island? There were only around 5,000 in 2016, although this was much better than the 1,100 that came 10 years ago.

Indeed I did hear some complaints about the long waiting period and relatively complicated documents requirement of Malta’s visa granting procedure for those who came to Malta either on business or private trips.

The number of tourists from China to Malta increased continuously during recent years.

I think it’s very important to simplify the procedure of visa

granting, in order to further strengthen the friendship between the two countries by facilitating the travelling of citizens of one country to the other, and to bring economic benefits to both sides by further promoting the bilateral cooperation in various fields such as economy, trade and tourism. I do hope that Malta can adopt a more simplified and faster visa granting procedure, as many other EU countries have already done.

China has been ‘restructuring’ its foreign sovereign debt holdings. It holds the second largest tranche of US Treasury paper – as at October 2016, $1,115.7 billion.

What are the implications of reducing it on the US economy? Is the reduction a subtle way of warning the US not to tinker with trade policy?

According to the State Administration of Foreign Exchange of China, China’s reduction of the US Treasury bonds it holds is just a small tactical adjustment following the principle of market-oriented professional investment operation. Due to its ratings, market depth, liquidity and risk-return characteristics, US Treasury bonds are viewed by many other countries as the most important investment targets in the international financial market. It’s normal for China to dynamically adjust its holdings of US Treasury bonds from time to time in consideration of some short-term factors such as the Federal Reserve rate and the Treasury prices. There’s no need to overinterpret.

Chinese investment is sometimes viewed with scepticism about its real motives. Why? Firstly I would like to mention that China starts its overseas investment relatively late. China’s outward investment maintains a good trend of development and grew rapidly since 2010, especially in recent years.

From January to November 2016, Chinese non-financial overseas direct investment totalled $161.7 billion, an increase of 55.3 per cent year on year.

China’s non-financial direct investment to EU totalled $70.69 billion, up by 13.2 per cent comparing with the same period last year.

Till the end of 2015, the stock position of China’s overseas direct investment was $1,097.86 billion, 80 per cent of which was in developing economies. EU was China’s largest investment destination among developed economies, followed by the US.

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e Business OBSERVER

| January 26, 2017

CASE STUDY

AQUBIX MANAGING DIRECTOR KRISTOFF ZAMMIT CIANTAR

A very important date How much can you get done in seven minutes? It is about the time it takes for the average person to fall asleep and the time it takes to empty the dishwasher.

But for Kristoff Zammit Ciantar seven minutes could change his life – and that of his employees at Aqubix.

In a few weeks’ time he will be standing up in front of 1,500 delegates from banks and financial service providers at Finovate Europe in London, hoping to entice them to find out more about Aqubix’s latest product: KYC Portal.

Until a few years ago, the term “KYC” – know your customer – was hardly ever heard, but with anti-money laundering laws tightening up, it has become one of the biggest headaches for anyone dealing with transactions, from banks and e-gaming companies to insurance companies and real estate agents.

Mr Zammit Ciantar estimates that compliance efforts are going up by 18 per cent every year, but most companies have been throwing people at the problem as it evolves, resulting in a disjointed, hodge podge of systems which do not correlate their data – and which do little to help either the customer faced with long delays in opening accounts and making transactions, or the staff trying to detect red flags.

“We started working on KYCP last year, after clients told us about the problems they were having,” he said.

“When clients ask for a solution it is either because what there is on the market is very expensive or because there is nothing available. And we found that it was the latter. So we started focusing on the product we were already working on and clients’ reaction was fantastic.”

Aqubix set up a separate team to work on it, drawing on expertise from their offices in Spain and Poland, and KYCP started to take shape.

It was not long before clients outside Malta started to take notice, and a client in Gibraltar suggested that Aqubix should try to get into Finovate, something which is notoriously difficult to do.

“At that time, KYCP was under 90 per cent done, although we already had quite a few orders from banks, insurance firms, legal firms and audit firms. But the reaction of this client in Gibraltar encouraged us to contact clients abroad and we found it was as unique overseas as it was here.

It was described to us as the ‘Rolls Royce’ of compliance.”

Finovate is the largest showcase of innovative technology for the fintech industry.

Mr Zammit Ciantar thought there was nothing to lose – seeing it as the opportunity to gauge interest.

“What can I say?” he grinned. “We got chosen!”

KYCP has three unique features which contributed to the decision, which makes

its approach much more holistic and automates the risk-assessment process.

The first is its ability to create organigrams – showing the complex relationships across entities –of, say, 200 links in just 10 seconds.

“This is something that banks have teams of people to design,” he said.

The second feature – which is unique not only in fintech but also across the technological world – is the ability to interview your subjects through the system, recording the interview in real time within the system, and with facial recognition.

“At present, most of these interviews have to be conducted in person – which is not always easy and could be quite costly.

However, the anti-money laundering directive for 2017 onwards considered the technology as equivalent to meeting the person face-to-face, he said, which was a huge benefit for organisations.

“Now, as you are actually conducting the interview, the system – which we built from scratch – verifies the identity of the person.

We are only the fourth company worldwide to create this technology. Facebook was the

“It is raising a lot of hype; in fact, we are thinking of releasing it as a separate product in the coming year”

first but it has not released the system for commercial use. Two others have a system but they do not offer the recording.

“It is raising a lot of hype; in fact, we are thinking of releasing it as a separate product in the coming year.”

The third innovation is that compliance is usually done at jurisdiction level, but companies that operate across borders can use KYCP’s ‘global dashboard’, which enables the head office to monitor activity across these different jurisdictions – in real time.

“The dashboard links up the different KYCPs and detects fraudulent activities by identifying patterns or trends across the different users in the organigram that would otherwise have been missed. Say, it would notice that an amount was deducted from one company and the same amount was deposited in another by someone else.

“It also applies facial recognition across jurisdictions, which means that if someone is using a false passport or has a record of some sort, it would flag this,” he said, admitting that all this has tremendous potential for law-enforcement agencies, passport and immigration departments and even igaming companies.

“We have been caught off guard since November as the reaction was much quicker and wider than we thought. Now it is interesting to see where it could lead…”

Holistic automation has all sorts of benefits. Take, for example, a jurisdiction which goes sour due to a political change. Not only can the system be easily customised for the new risk parameters but it will also flag all the clients or transactions which were previously compliant but no longer are.

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CASE STUDY

“Until now, this would have to be done manually by compliance officers. Imagine what peace of mind this would give – as long as you feed in the information.”

Since the news of its presence at Finovate broke, interest has accelerated. Aqubix is already having talks with Gartner, which heard about the product and think that KYCP could find a place on its risk advisory aspect, and other companies.

The product was designed to be configurable for all jurisdictions and industries – and can be updated if and when regulations change.

“This was key to the success of the product. If we created a product for the Maltese jurisdiction, we would have really limited our market. We wanted to create something that was incredibly flexible which gives the client the full remit of what they need to do.

“It has been planned in a way that we can increase customer support to cope with whatever customer base we have. The biggest challenge was technical; we wanted to have a product that we could scale up to 1,000 clients, from a law firm with a few clients, to a bank which handles thousands a day.”

The company is already marketing KYCP in Spain and will start in Poland in August, once the product has been translated.

One important aspect was to get the business model right and Aqubix has opted for a reasonable price – Mr Zammit Ciantar is convinced that they could charge much more had they wanted to – which will give them sufficient profit margins but allowing a hefty share for marketing and for research and development. And for smaller

“If we created a product for the Maltese jurisdiction, we would have really limited our market. We wanted to create something that was incredibly flexible which gives the client the full remit of what they need to do” companies, they are offering a pay-per-use more basic model which will be much more cost-effective.

“I prefer to have clients who are happy and who then keep coming back to us for additional services,” he said, shaking his head.

But right now, business models are the furthest thing from his mind. Mr Zammit Ciantar is thoroughly focused on those seven minutes at the moment.

Still, you have to wonder, what if his presentation were so successful that Aqubix is flooded with enquiries?

He smiles.

“That we are ready for.”

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e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every fortnight.

Editorial Vanessa Macdonald, Assistant editor, Times of Malta.

EDITORIAL

Illogical logistics There are a handful of government projects in Malta which are potentially so important that they simply cannot get off the ground. The logistics hub could very well join that unfortunate group.

There are a number of reasons for this and, if we were kind, we would assume that it is because the government is holding out as long as possible for the best deal in the public interest. Of course, the reality is that the larger the project, the larger the private interests at stake – and therefore the larger the pressure put on the government.

This means you could see the still-on-the-drawing-board White Rocks project after decades as being a sign of a responsible government trying to get it right, insufficient private interest, or – heavens forbid! – not enough done by investors to smooth their way.

With the Marsa Shipbuilding site, several bidders over the decades have dissipated into thin air. Now Ablecare has won the concession for the whole site, although the terms are not known as, rather than being subjected to parliamentary scrutiny, this particular concession was handled through Malta Industrial Parks.

With the logistics hub, the government once again talked and talked and talked. What is not evident, however, is whether it listened at all.

Last October, when the request for proposals was first published, The Business Observer had raised a number of questions, concluding with the sentence: “It remains to be seen whether the government, after all this time, has got the elements right”.

There were many questions about the RFP. Why was the government going to give the site to one operator rather than to Malta Industrial Parks? Had that happened, then instead of one operator putting up the €80 million investment, different operators could have bid for parts of

Publishers Allied Newspapers Ltd. Content House Group Ltd.

the site, if necessary with different financing options, and with different international partners.

Giving it to one bidder spooked local operators, who speculated whether there was already someone earmarked for the site, so that even the €10,000 submission bond was enough of a deterrent and, it seems – although the Economics Ministry has steadfastly ignored requests for information – no one actually submitted a bid.

The operators who might have had an interest in the hub fall into two categories: those who already have warehouses at Ħal Far and those who would love to. There was a compelling argument for operators from either category to form a consortium and jointly seek an international player as the main user: rumours of Amazon and Lidl being interested have been flying around since the RFP was issued last October.

When the January 13 deadline came and went, there was a deafening silence from the ministry, and the only reply obtained by the Times of Malta was that a second RFP would be issued. Stakeholders, ranging from operators to business associations, merely shrugged, clearly having anticipated that there were too many reasons why it would fail, but hoping that the second one would make more commercial sense.

And yet, instead of getting feedback from them, instead of seeing what it could do to improve the chances of success, within just a few days, the Privatisation Unit has issued a fresh call, closing in nine weeks.

None of the concerns raised by the stakeholders has been taken into consideration. It still requires a €80 million investment, constructing 400,000 cubic metres of warehousing space – with all the turnover of imports and exports that this would require to make it feasible.

Sometimes, you just don’t know whether to laugh or cry.

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Printer Progress Press Ltd.

BUSINESS OPINION

Preparing for a post-euro world

Joe Zammit-Lucia When something is unsustainable it must come to an end.

The euro is not currently in acute crisis. The disease is in remission but it is still there, festering in the background and waiting for the next acute episode.

As currently designed, the euro is clearly unsustainable. There is widespread agreement about that.

What is not clear is how the issue will be resolved.

There are several options. The first is that the EU will collectively manage to keep the euro going as a chronic European disease.

Nothing much will change. We will lurch from one crisis to the next and some eurozone economies will continue their steady relative decline.

Another option is that the eurozone will shrink to a few countries for whom a single currency may be sustainable. However, beyond Germany and the Netherlands (and possibly Finland, Luxembourg and, at a push, Belgium), it is hard to see many more countries that would fit into this category.

A third option is an orderly or disorderly collapse of the currency. This could be triggered by a number of factors. A revival of the Greek crisis followed by an unsustainable rise in interest rates for Italian, Portuguese and Spanish government bonds; the election of Marine Le Pen and/or Beppe Grillo; an aggressive protectionist policy in the US; or a myriad other potential unpredictables.

Some will argue that this is all too pessimistic. Those who believe that should try sitting in the chair of the president of the European Central Bank – the ultimate defender of the euro. The bank has launched and is maintaining a substantial quantitative easing programme in an attempt to kick-start stagnant eurozone economies.

Yet the impact of this programme in Germany is becoming politically toxic. German inflation has jumped to 1.7 per cent (and we all know Germans’ deep-seated angst about inflation). House prices in Hamburg have soared by 70 per cent in the last five years and Munich is now the fifth most expensive housing market in the world.

Prudent German savers are earning zero interest and are seeing the value of their savings being inflated away. Germans are convinced that their steady and reliable economy is now being forced by others into boom and bust cycles.

“The perception is that we are being dominated by foreigners” according to Clemens Fuest of the IFO Institute in Munich. It will not be long, maybe, before this translates into the German version of “Take Back Control” – the powerful slogan

“Currency hedging will be an important element to bring a degree of stability” that drove the Brexit campaign. The political consequences may become uncontainable over time.

But the ECB is in an impossible position. It is not possible for the bank to run a monetary policy that fits Greece, Italy and Spain as well as Germany and the Netherlands.

The only policy question that it can possibly address is which approach will be the least politically damaging at any one time: running a monetary policy for Germany and letting Southern Europe stagnate (and possibly collapse); or supporting Southern Europe and letting the Germans get ever angrier. The latter seems to be the current choice. Reasonable. In the short term it seems the less risky option.

For those who believe that this will all come right in the end, a few numbers. Professor Hans-Werner Sinn of Munich University estimates that it would require inflation averaging 4.5 per cent in Germany and zero in Southern Europe for 10 years to rebalance monetary union. Good luck with that.

For policymakers this is a headache of gigantic proportions.

There are ways it could be approached but none that would not generate significant political resistance somewhere.

But what are the implications for business?

The first is inflation. The inflation rate in Malta averaged two per cent from 2005 until 2016, reaching an

all-time high of 5.74 per cent in October of 2008 and a record low of 1.08 per cent in April of 2007.

Currently inflation is running at around one per cent or so and is forecast to fall slightly. But that may not come to pass. Inflation may well rise significantly with consequences for some sectors of the economy such as tourism.

Second, business needs to prepare itself for further episodes of euro crises. That will have implications for public expenditure (more bailouts) and for exportrelated industries.

Third, euro exchange rates will likely remain volatile and unpredictable. For businesses with significant contracts in non-euro currencies such as the pound and the US dollar, currency hedging will be an important element to bring a degree of stability.

Finally, in the medium to longterm, it may be worth going through the exercise of working out what life would look like in a post-euro world. That will not happen tomorrow or the day after. But eventually something is bound to give. The only questions are what and when.

Sadly, these questions are unanswerable so businesses need to be prepared for all eventualities.

Malta will be hoping that the next euro crisis does not happen during the six months of its presidency. But happen it almost certainly will.

Some time.

Joe Zammit-Lucia is a trustee of radix.org.uk, a think tank for the radical centre, and co-author of The Death of Liberal Democracy?

e Business OBSERVER

| January 26, 2017

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NEWS/APPOINTMENTS

Farsons appoints CFO Anne Marie Tabone is taking over as chief financial officer designate at Simonds Farsons Cisk with effect from March 1. Ms Tabone will be taking over from Charles Xuereb, current CFO of the Farsons Group and CEO Designate of Trident Developments Ltd, a fully-owned subsidiary of the Farsons Group.

Ms Tabone will be reporting to the group chief executive Norman Aquilina and she will assume responsibility for the finance function of the Farsons Group, also including responsibility for IT and general administration.

She takes over the finance function at a time when the Farsons Group is planning a proposed spinoff of its non-operational property assets into a newly listed public limited company, conditional on the shareholders’ approval by the general meeting.

At Middlesea Insurance plc, she rose to the position of vice president operations, having fulfilled the position of group CFO earlier in her career. She more recently occupied the position of director for finance & risk management at the MFSA.

Calleya re-elected to banking association

‘Sufficient legwork needs to be done on capital markets’ continued from page 5 that will have on banks in the EU,” Mr Curmi said.

KPMG partner Juanita Bencini is, however, optimistic that the drift in investor base to new regions will help to diversity the jurisdiction.

“New investors bring a new client base to Malta, for example, the Turkish banks which do not operate in the domestic market. And we will probably see a diversification of Banif’s customer base to clients from that region. There is also a very clear emphasis on wealth management going forward, not only for international banks and non-core domestic banks, but also core ones like BOV, according to the latest interviews given,” she said.

It remains to be seen whether Banif’s Qatari investors will

attract clients seeking Islamic finance, but Ms Bencini remains to be convinced whether it would take off.

“Currently the demand is not that obvious, if there is any.

However, to be fair we are not actually sourcing or encouraging it either. Our regulatory environment in that space is still unclear and, as typically happens, we need the regulator to push a set of regulations that encourages the setting up of such business.

Hopefully, the fact that some of the shareholders come from jurisdictions where this is prevalent may be the push we need to look at seriously,” she said.

Islamic finance was one of 23 points in the Malta Stock Exchange’s strategic plan for the capital markets, which will require the MSE and the

MFSA to pull on the same rope on various points.

“That is obviously important.

The financial services sector is much more evolved than the capital markets one. Sufficient legwork needs to be done on capital markets before we can achieve the same level that we have in financial services. There could be potential, and certainly MSE chairman Joe Portelli believes there is.

“However, I will say that we cannot be everything to everybody. We have to decide what niches we want to go for, particularly since we have limited resources and cannot dissipate all our energy across too many things. Better to choose two or three, to make sure that they make sense for our country, that there is potential for growth, and go with them.”

IFS-Malta committee member Peter Calleya has been re-elected to the board of directors and executive committee of the Brussels-based European Banking and Financial Services Training Association (EBTN) for the period 2017-2019.

First elected in 2010, this is his third consecutive three-year term.

Over the years, Mr Calleya has been responsible for EBTN’s finances and has also coordinated the development of its strategic plan.

Mr Calleya, a financial services professional for over 30 years, was instrumental in achieving EBTN membership for IFS-Malta some 10 years ago.

EBTN is an international not-for-profit association, aiming to become the standard-setting body for accreditation, certification and qualifications in the European financial services sector.

MD for Boston Multi Family Office Boston Multi Family Office has appointed leading Maltese trust lawyer Andrew Chetcuti Ganado as the new managing director of its Malta operations.

Outgoing MD Chris Borg is moving to a new role at Deloitte Malta.

Dr Chetcuti Ganado spent more than 15 years with Bank of Valletta, progressing from legal advisory positions to becoming the executive

head of the Trustee Services Unit.

Since leaving the bank in 2015, he has continued to work in law through his own firm, AC Ganado Legal.

“I’m very keen to expand the role of the Malta office in servicing Boston’s existing global network of clients, as well as branching out and bringing entirely new, high-value business to Maltese shores,” he said.

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STOCK MARKET REVIEW

The rehabilTaTion of The old farsons brewhouse in mriehel is envisaged To commence in mid-2017, wiTh a €10 million invesTmenT

What’s in store for 2017?

Edward Rizzo In my first article this year, I reviewed the developments across the equity market during the course of 2016 and I concluded by stating that many investors would rightly be more interested to understand the outlook for the next 12 months.

In today’s article, I am trying to highlight what I believe could be the most important developments that could influence the performance of the local equity market this year.

Unfortunately, one of the first major events expected this year is the delisting of the equity of 6PM Holdings plc. Last week, the company confirmed that shareholders who in aggregate hold approximately 92.95 per cent of the issued share capital of the company have accepted the conditional

voluntary public takeover offer made by Idox plc of £0.88 per share, payable in cash or a combination of cash and shares in Idox plc.

Since the level of acceptances has gone beyond the 90 per cent threshold, the offeror (Idox) will be squeezing out other shareholders and subsequently delisting the company. This is exactly what happened with Crimsonwing plc following its takeover by KPMG and Island Hotels Group following the acquisition by International Hotel Investments plc.

In the retail banking sector, the main highlight of the year could be the capital raising exercise by Bank of Valletta plc. At the end of November 2016, the international credit rating agency, Fitch Ratings, downgraded BOV’s rating to ‘BBB’ from ‘BBB+’ and in its commentary, Fitch stated that: “The downgrade reflects our view that its [BOV’s] capitalisation is under pressure from increasing regulatory requirements and that its current capital ratios are not fully reflecting operational and market risks. We believe that although the bank is considering strengthening its capital through a new share offer, this would not be sufficient to meet all future requirements and for the bank

to maintain its current rating”. Meanwhile, during its most recent annual general meeting on December 16, 2016, BOV’s outgoing chairman announced that the bank needed a €150 million to €200 million capital injection over the next few years.

Moreover, the long-awaited process for the sale of shares by the largest shareholder of Lombard Bank Malta plc could also gather momentum following the announcement on March 22, 2016 that the Special Administrator of Cyprus Popular Bank Public Co. Ltd, approved the disposal of its shareholding in Lombard Bank.

In the case of HSBC Bank Malta plc, the main focus from the investing community when the bank publishes its 2016 annual financial statements on February 21 will be on the declaration of the final dividend to shareholders.

HSBC Malta maintained a higher

dividend payout ratio in recent years than the other retail banks and a confirmation of the distribution policy to shareholders could help sustain the recent upward trend in the equity which recovered by over 27 per cent from its 12-year low of €1.55 reached in July 2016.

The internationalisation strategies of some of the companies listed on the Malta Stock Exchange could also gather momentum during the course of 2017.

Last week, RS2 Software plc confirmed that it concluded three major agreements for its managed services subsidiary. RS2 explained that it signed a contract in Europe with one of the largest acquirers in payment processing and technology apart from other contracts with a Latin American company and with a Canadian company. RS2 indicated that the benefits of these three agreements will materialise in the latter

“e highlight of the year could be the capital raising exercise by Bank of Valletta plc”

part of 2017. Last week’s announcement follows on from the various declarations made by senior management during the course of 2016 in relation to the strong business pipeline held.

The market also awaits further news from Medserv plc following the submission of a tender for shore-based activities in Trinidad & Tobago as well as other potential business developments in Cyprus and the Middle East. Medserv has also indicated that it will likely be tendering for some significant work offshore Egypt during the course of 2017.

Although the development programme of International Hotel Investments plc now includes substantial investment in Malta following the acquisition of Island Hotels Group, the overall ambition of the group is to continue to pursue hotel management opportunities in various corners of the world. During 2016, IHI concluded the purchase of a property in Brussels and signed an agreement with United Arab Emiratesbased Meydan Group for the provision of technical services as well as for the management of a luxury beachfront resort for a 20year period currently under construction in Dubai. In addition, the Meydan Group also engaged

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19

STOck MArkeT revIew

IHI’s fully-owned subsidiary CHI to provide consulting services to its two existing hotels in Dubai. Meanwhile, investors await news on other potential openings such as Rome, which has reportedly been under discussion for several years.

Another very interesting development that is expected to take place during the course of 2017 is the spin-off of the property subsidiary of Simonds Farsons Cisk plc. Similar to the corporate action in October 2015 when Malta Properties Company plc obtained a listing on the MSE and all shareholders of GO plc were given an equivalent shareholding in the separately-listed entity, the same is expected to materialise with the property subsidiary of Farsons.

Meanwhile, last week, the media provided coverage following the planning approval of the rehabilitation project of the old Farsons Brewhouse in Mrieħel. The project covers the restoration and conversion of approximately 7,000 square metres of industrial space which will include a visitor centre experience as well as food and beverage and other retail outlets apart from other amenities.

The project is envisaged to commence in mid-2017 and is expected to be completed within two years with an investment of around €10 million.

Another long-awaited development is Midi’s Manoel Island project. The company has repeatedly confirmed that it is in discussions with third parties who have expressed an interest in the Manoel Island project. In the first half of 2016, Midi indicated that it had engaged the services of an international consultancy firm to establish a vision for the Manoel Island development project. Midi selected a master planner and was then scheduled to prepare a

business plan for the project ahead of an international search for investors which was expected to commence by the end of 2016.

Malta International Airport plc is the company that issues the most announcements since it publishes its traffic statistics on a monthly basis.

While investors will continue to follow the monthly traffic statistics since these are an excellent indication of the overall financial performance of the company, the more important announcement expected in 2017 would be the planning approval of the master plan that includes the development of ‘Sky Parks 2’ as well as a business hotel.

Following the delistings of Island Hotels Group and Crimsonwing over recent years and the imminent one of 6PM, the most

“e priority for the MSE, the Malta Financial Services Authority and all market participants is to reverse this trend and encourage other companies to list on the MSE” important priority for the MSE, the Malta Financial Services Authority and all market participants is to reverse this trend and encourage other companies to list on the MSE. The fiscal incentives announced by the Minister of Finance in the 2017 Budget speech will hopefully instigate several other Maltese companies to look into the potential benefits of a stock

exchange listing and carry out a share offer to the general public.

Other initiatives being rolled out by the MSE as part of the National Capital Markets Strategic Plan including the extension of trading hours beyond the current closure of 12.30pm should also assist in this respect.

2017 is likely to be another interesting year for equity investors given the wide ranging developments that

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (Rizzo Farrugia) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2017 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

are likely to take place. Companies listed on the MSE should ensure regular and timely publication of information related to these various developments mentioned in order to maintain a consistent flow of information to the overall investing community.

Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Ltd.

Asset purchase programme not working

THE EUROPEAN CENTRAL BANK HEADQUARTERS IN FRANKFURT. PHOTO: RALPH ORLOWSKI/REUTERS

Total Amount (nominal value)

The European Central Bank’s asset purchase programme is not having the desired effect in Malta of encouraging more lending to enterprises.

The Bank Lending Survey (BLS), last conducted in October 2016 by the ECB, surveyed four core domestic banks on the credit conditions in Malta during the third quarter of 2016.

However, when asked whether the additional liquidity resulting from the APP was having any spill over effects on the banks’ lending patterns, three of the four respondents stated these effects were negligible.

Only one respondent claimed to have increased its lending to enterprises and improved lending terms and conditions as a result of the ECB’s programme.

The effects on the banks’ capital position and market financing conditions were also considered to be neutral. One bank stated that the ECB’s APP had a negative effect on its assets, while two respondents reported positive effects on liquidity due to an increase in deposits.

Settlement date

06/12/2016

09/12/2016

22/09/2016

26/09/2016

No offers were received during the third trial reverse auction.

14/09/2016

16/09/2016

No offers were received during the second trial reverse auction.

07/09/2016

12/09/2016

No offers were received during the first trial reverse auction.

Allocated

200,000

200,000

Security

MT0000011164

MALTA 5% 08/08/2021

Price

Auction date

Offered

ISIN Number

“The programme appears to be having adverse effects on profitability, with three of the four respondents claiming declines in their net interest margin. The negative effects on profitability were expected to persist over the next six months,” the Central Bank of Malta said in its quarterly review.

The ECB recently confirmed that the monthly asset purchases of €80 billion under the asset purchases programme will run until the end of March 2017, or beyond, if necessary.

On January 19, the ECB Governing Council released further details of how the Eurosystem will purchase securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility.

Substitute purchases are sometimes needed for national central banks to reach their target. The Central Bank of Malta has been holding reverse auctions on a trial basis for some of its outright purchases since September 2016, to purchase selected Malta Government debt securities eligible for the PSPP. The results can be seen in the table.

Min.

Mean

Max.

122.37

122.37

122.37

No offers were received for the other ISINs

20

e Business OBSERVER

| January 26, 2017

BUSINESS UPDATE

Paving the way for electronic payments Digitalisation is changing the banking landscape at an unprecedented pace.

This translates into important benefits in terms of convenience and seamless service, not only for personal customers, but also for corporate ones, irrespective of their size.

The inception of the Payment Business Unit, which will be marking its fifth anniversary this year, was very closely linked to the preparations leading to the bank’s conformity to Sepa regulation. The preparatory work and ongoing communication with business clients led to a plethora of changes.

As a result, BOV Internet Banking now offers a suite of standardised file formats, making electronic payments for businesses simpler and more user-friendly.

Generally the first time a business contacts the bank is to migrate its wages from a manual to an automated system. The BOV 24X7 Services suite offers an automated file uploading system that makes this task as painless as clicking a button.

Another important benefit accrued to the business is the segregation of duties.

Through the use of the bank’s Securekey, the company may appoint different users

to input data and to authorise payments, thereby adopting the ‘four-eye’ approach.

As the company grows and broadens its horizons, its financial requirements grow exponentially. Credit transfers constitute another requirement where electronic channels provide efficient solutions to corporate clients that want to do away with manual intervention. Although it is primarily companies with high volumes of payments that seek this type of service, Bank of Valletta has customised it to suit the needs of a wide cross-section of clients, from those needing to process an isolated payment to those requiring regular batch payments.

Bank of Valletta’s prerogative is to ensure our solutions are simple and hassle-free. In fact, BOV corporate clients may use the same file to upload payments using the BOV24X7 platform, irrespective of the number of different currencies involved. Furthermore, they get the option to receive Swift statements on a daily basis via secure e-mail enabling automated reconciliation of their accounts.

Corporate clients are also after direct debits, primarily in relation to subscriptions, such as utility payments and

TONIA NAUDI, MANAGER PAYMENTS & DEVELOPMENT, BOV.

settlement of insurance premia. With the introduction of Sepa, creditors may choose the bank through which to process any type of Sepa payments within any jurisdiction across the EU. For us at Bank of Valletta, the client, whether personal or corporate, is at the heart of everything we do. Going forward, we shall continue to work hard, harnessing technology to offer our clients the innovative and user-friendly services that will continue to make banking as easy and painless as possible.

To discuss electronic payment solutions offered by Bank of Valletta, please call 2275 1568 or 2275 1154 or send an e-mail to paymentsbusiness@bov.com Bank of Valletta plc is a public limited company licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta). Registered Office: 58, Zachary Street, Valletta VLT 1130 -Malta Registration Number: C 2833

e Business OBSERVER

|

January 26, 2017

21

BUSINESS UPDATE

e case for green roofs Frank Muscat We live in a country where nature is unfortunately quite scarce, and where land is a very expensive commodity. The urban sprawl is replacing the natural environment with paved and concrete structures at an alarming rate, leading to a loss of the drainage layer found in nature, and contributing to more frequent and intense flooding events. Furthermore, traditional roofing materials absorb the sun’s radiation, raising the temperature of the roof surface faster than the surrounding air temperature, making the overall ambient temperature soar and leading to the heat island effect.

One way of reversing the negative effects of these two phenomena is by reducing the amount of hard surfaces on our buildings and replacing them with landscaping and roof gardens, which our flat and accessible roofs are ideal for. Green roofs can help with controlling storm water runoff which is the main cause of flooding, reduce storm water runoff and enable the rainwater management system to be reduced in capacity, resulting in a reduction of construction costs.

Other benefits of green roofs include: Water retention The drainage layers in a green roof system consist of water retaining troughs which collect and store water that is available for the plants to grow.

Drainage elements can store up to 27 litres of water or more, depending on the type.

Improvement of microclimate As rainwater evaporates, it humidifies the air above it, cooling the air.

Ambient air temperature is reduced, improving the microclimate and significantly reducing the heat island effect, and making life more comfortable for residents.

Reduction in energy costs A green roof buffers temperature extremes and improves the building’s energy performance. As the rooftops become cooler, the building’s AC units become more efficient, and electrical demand is reduced.

Dust and toxic particles binder Green roof vegetation helps purify air by filtering out 10-20 per cent of dust and smog particles from the air. Additionally, nitrates and other harmful materials found in rainwater are absorbed by the plants or bound in the substrate, improving the quality of the storm water.

Protection from noise pollution Planted areas are natural sound insulators, absorbing more sound than hard surfaces. Green roofs have the capability to reduce the reflective sound and improve sound insulation. This is very effective for buildings near airports, nightclubs, factories or busy roads.

Reduced renovation costs A green roof protects the waterproofing from climate extremes, UV exposure and mechanical damage, greatly increasing the life expectancy of the waterproofing and

resulting in reduced maintenance and replacement costs.

Recyclable materials Recycled and recyclable products such as rubber, polyethylene, expanded polystyrene rigid foam, and more recently, biomass materials such as sugar cane are used in the production of drainage elements.

Provide natural biodiverse habitats Landscaped roofs compensate for the green spaces lost to building

development acting as breathing spaces for the urban areas. Green roofs also provide natural habitats for wildlife and help bring nature back into the cities and to our lives.

As society strides relentlessly towards larger urban centres with taller bigger and more complex buildings, green roofs represent one of our best hopes of an environmentally friendly and sustainable architecture.

Frank Muscat is RIBA chartered architect – International Green Roof Association Member.

22

e Business OBSERVER

| January 26, 2017

BUSINESS UPDATES

His heart stopped!

Will you save him?

Sudden cardiac arrest (SCA) is the most common cause of death from heart disease, accounting for more than 63 per cent of all cardiac deaths. In SCA, the heart suddenly stops beating normally. Without a blood supply, oxygen-starved organs are irreversibly damaged and will quickly fail... within a few minutes.

The only effective treatment for SCA is defibrillation. External defibrillation provides a brief, effective therapeutic electric shock through the person’s chest to the heart, restoring the heart’s normal rhythm.

While people with heart problems are at high risk of death from SCA, it can strike anyone, anywhere, at any time without warning, and in some cases is the victim’s only symptom. Even young people who appear to be healthy, extremely fit athletes and people with no history of heart problems can be victims of this silent killer.

The definitive survival treatment for an SCA victim is a defibrillation shock. Cardio Pulmonary Resuscitation (CPR) or ‘chest compressions’ and ‘mouth-tomouth’ breaths only temporarily circulate blood to vital organs, and on their own do not restore a patient’s heart into a healthy rhythm – a shock is needed… and fast!

The average national response time for the arrival of emergency personnel equipped with defibrillators is usually greater than 10-15 minutes – this is too late! This is why immediate access to defibrillators on-site is extremely important. Each minute of delay in delivering a defibrillation shock to a cardiac arrest victim reduces

the chances of survival by 10 per cent, meaning that, if a casualty is not shocked within five minutes of collapse, he/she will have less than 50 per cent chance of survival!

When a sudden cardiac arrest (SCA) strikes, the first few minutes are critical to survival. In the chaos and confusion surrounding the event, it can be challenging for the average rescuer with only minimal training in CPR and AED use to remember and follow the correct procedures. It’s during these critical minutes that the Powerheart AED G5 becomes priceless.

For further details contact Technoline Ltd. T: 2134 4345

Customers Can get #onestepCloser to enjoying the good life by winning up to €500 baCk on their Credit Card.

Offers with HSBC #OneStepCloser Looking into the future campaign

As we look to 2017 and beyond, we at EuroBridge know there are many challenges ahead. We will embrace such challenges and make sure that we continue towards our aim to offer complete customer satisfaction. In fact, there are three main projects we are already working on with the customer in mind. Our first is to move into our new state-of-the-art office in Qormi, which will occur over the next few months. Second, we want to make as many of our procedures as paperless as possible, increasing our efficiency throughout. Finally, we have also

started the process to digitalise the local delivery process which will give our customers the opportunity to know in real time when their next delivery will take place.

We are already renowned for our efficiency when dealing with our customers and their shipments but we know there is always room for improvement. This can only be achieved by staying on our toes, listening and discussing issues with all our partners, be they colleagues, customers or suppliers. We always sign with our motto ‘Yours to count on’ and it is our intention that you feel you can always count on us for your shipping needs.

Eurobridge Malta. T: 2248 7000; E: sales@eurobridge.com.mt; W: www.eurobridge.com.mt

HSBC Malta has just launched its #OneStepCloser campaign with special offers on home loans, personal loans and a chance for credit card users to win their money back.

During this campaign which follows last year’s campaign, #StartsToday, HSBC will help customers who are buying their first home by providing a special fixed interest rate of 2.5 per cent until June 30, 2019 on home loans up to €300,000. Customers taking up a personal loan will not be charged any processing fees, while customers who use their credit cards to pay for their shopping or bills, will participate in a competition

with the chance to win one of 10 cash prizes up to a maximum of €500 each. These campaign offers will be available till the end of February 2017.

HSBC Malta head of retail banking and wealth management Daniel Robinson said: “When it comes to banking we are always there for our customers and this campaign champions a sentiment that best sums up our role in helping people achieve their goals.”

Customers interested in learning more about this campaign and further information can be found on hsbc.com.mt/onestepcloser, by calling 2380 2000, or visiting the nearest branch.