Going for growth in Capital Markets. An interview with George Vella, Chairman, FinanceMalta

Going for growth in capital markets

Vanessa Macdonald spoke to the FinanceMalta chairman George Vella about current developments in the Capital Market sector – and his ideas for future growth.

The strategy for financial services launched in 2023 by the Malta Financial Services Advisory Council looked not only at new sectors but also at ways to grow the existing ones.  One such sector is Capital Markets, which has already received a significant boost through the establishment of a dedicated unit within the Malta Financial Services Authority, led by Lorraine Vella and supported by a highly capable team.

FinanceMalta chair George Vella is enthusiastic about the potential for this sector, highlighting how much is already being done. His position, both at FinanceMalta and in his own work experience, enables him to get a good overview of the sector, and what might be holding it back.

“There are three magic words in capital markets: speed, trust and liquidity. We may not offer the quick turnaround that some regulators manage to offer, but we are very well served by the MFSA, which is very open to ideas, without compromising on supervision,” he said.

When it comes to ‘trust’, one issue has always been the lack of ratings on the Maltese-listed securities, but he said that the MFSA is working on a solution which is currently at the testing stage and shows considerable potential.

“They have engaged internationally recognised consultants to help them to create an internal rating mechanism for applications they receive. This is backed by work that the consultants have successfully concluded in other jurisdictions, and is based on established financial theory updated to reflect the huge potential of data. The idea is that if this gains traction within the MFSA, it could also be opened up externally,” he explained.

Mr Vella said that the consultants were currently testing their model on the existing listed companies to ensure that the ratings would work well for Malta, examining possible bias locally for certain sectors.

“Historic analysis ensures that the predictive capabilities of the models can truly work,” he said.

The third issue when discussing capital markets is liquidity, which can only come from increasing the number of companies listed, as well as broadening the investor base.

He outlined a number of ways that this could be tackled, one of which is increasing the number of products.

“Why is the Green Bond or the REITs market not wide enough? Why are we not managing to convince companies which have chosen Malta as a base to also opt for dual listing here?” he asked. “Why have we not convinced more funds to list in Malta? Is there innovative legislation that we need to have in terms of tokenisation, for example?”

He believes that although there are a number of companies listed on the Malta Stock Exchange, there is a whole tier of even bigger and stronger companies that are not listed in Malta – but which are listed elsewhere, such as pharmaceutical and gaming companies.  

“Bear in mind that there are many reasons why a company should list publicly and not always because it is seeking financing – such as raising their profile or for tax planning.”

He noted that the recent uptick in the value of Bank of Valletta shares could make it to first local company to reach the €1 billion market cap.

“Malta’s capital market is often classified as a frontier – and not even emerging – market. Breaking through that €1 billion threshold could be one of the factors that can push us into the emerging market box,” he said.

He explained that the normal growth pattern would be from bank finance, to private equity and venture capital, to listing, noting that the middle tier was completely absent in Malta, making investors much more important to keep the wheel turning.

“How can you create a market when you rely on retail investors who – as we all know – tend to ‘buy to hold’… That could be one of the reasons that both local and foreign institutional investors have been conspicuous by their absence,” he said.

The solution: his possibly controversial proposition would be for the Malta Stock Exchange to link up with an international stock exchange.

“A strong strategic partner would help us make the next big step. Whether it is an operating agreement or part-ownership or full-ownership of the Malta Stock Exchange, I am sure that if the door was open, they would be willing to explore the options,” he said.

Mr Vella stressed that this would add more value for the Malta Stock Exchange team who have delivered such major achievements over the years.

“I would compare it to a well-coached football team that has been winning on a five-a-side pitch which has the chance to move to a full-sized soccer pitch and the Champions League... This is where we need to focus,” he said.

And this argument is not only true for the Malta Stock Exchange but across the financial services sector. Mr Vella believes that having an internationally-recognised brand has helped many sectors, from banking to captive insurance, and that efforts need to be made to have such ‘champions’ in other sub-sectors.

“In my private practice, I work for a firm that is affiliated with an international company and the benefits are boundless. There may be concern about its impact on local talent, but the reality is that is valorises them by creating opportunities for growth. For example, my company offers secondments overseas – and whether they come back to Malta or not – the opportunities are amazing,” he said.

He is a firm believer that such brands act as a magnet for others who might be considering coming to Malta, and that their presence would complement the work already being done by the MFSA, the MFSAC and of course FinanceMalta.

He was full of praise for the myriad projects being undertaken following the launch of the strategy, saying that not each and every idea will land on fertile ground but that there were enough ideas out there to ensure that at least some will sprout.

“It would be ridiculous to rely on one silver bullet; what the MFSAC is doing is launching a series of initiatives, some of which will pay off, that will one day lead to our collective dream of seeing the markets grow significantly.”

He also tied his vision for capital markets to financial services as a whole, saying that this had been a success – without putting environmental and social pressure on the island.

“There is a call for a revised economic model for Malta and we have already seen that financial services is where we find value-added activity. We need to increase our share of GDP to 20%,” he said.