Nemea Bank, one of the first ‘direct banks’ in Europe, provides banking and investment services to individuals, businesses, institutions and high net worth individuals. The bank offers its products and services to clients in all 31 countries of the EU/EEA region by virtue of the European Union’s “single passport” regime. This system allows financial services operators legally established in one EU/EEA Member State to establish and provide their services in all other Member States.
As a direct bank, Nemea Bank does not operate any physical bank branches but provides all its products and services online. Nemea Bank is credited with developing the Nemea Instant Payment (NIP) product, which enables real time global money transfers between Nemea clients at no cost. On 27 April 2016 the bank was put under administration by the Malta Financial Services Authority due to “serious regulatory shortcomings” identified by the MFSA and the European Central Bank (ECB) in joint on-site inspections.
History, ownership and business model
Nemea Bank was founded on 2 September 2008, upon its licensing as an EU-regulated bank by the Malta Financial Services Authority (MFSA).
Nemea plc., is as a parent company owner of Nemea Bank. The largest shareholder of Nemea plc is Nevestor SA, a European investment company based in Belgium. The bank is ultimately jointly owned by its founders, Finnish bankers Heikki Niemelä and Mika Lehto. There are no other interests, financiers, investors or other institutions involved in Nemea Bank
Nemea Bank is an online-only bank; it does not operate brick and mortar bank branches and its clients subscribe to and manage all their products and services through an online banking platform. As a direct bank, Nemea operates with lower costs and overheads than traditional banks’ relative cost base.
Nemea Bank earns income by generating interest, fees and commissions, and financial income. When clients transfer and deposit money at the Bank, their funds are invested by the Bank in loans, deposits, other fixed income instruments and other low risk securities, generating income for the bank.
On 14 February 2013, Nemea Bank launched its first major deposit products for both retail and business clients. These comprised a collection of short and long term deposit products as well as treasury cash management services for small and medium-sized enterprises. These products were increased to cover eight term deposit options, ranging from 1 month to 5 years, in July 2014.
As mandatory in most EU memberstates, the bank participates in the domestic deposit guarantee scheme. The Bank is a member of the Maltese Depositor Compensation Scheme, which is based on EU Directive 94/19 on deposit guarantee schemes and protects client deposits up to 100.000 Euro per individual client. It is also a member of the Malta Investor Protection Scheme, which covers invested funds up to 20.000 Euro per individual client.
MFSA puts Nemea bank under resolution
On 27 April 2016, the Malta Financial Services Authority announced that following joint on-site inspections with the European Central Bank serious regulatory shortcomings were identified, which subsequently led to its decision to appoint PwC as administrators. Following this decision, clients were informed that daily withdrawals were limited to €250 daily, and opening of new accounts or new client deposits into accounts were prohibited.
Following the injection of new capital and various exchanges of correspondence between the shareholders and the Malta Financial Services Authority (MFSA) in relation to the outstanding regulatory issues that the Bank must address, the Authority has taken the decision to ease the daily deposit withdrawal limit imposed on the Bank’s clients, from EUR 250 per day to EUR 2.500 per day. The new daily deposit withdrawal limit shall be effective as of Monday, 18 July 2016.
The MFSA is presently in discussion with the Bank’s shareholders and has outlined a number of pending measures that the Bank is expected to implement for it to be in a position to gradually ease other restrictions that are currently in force within the Bank.
The direction given to the Bank by the MFSA, not to accept further deposits, from current as well as new customers, as well as not to allow term deposits to be withdrawn before their stated maturity dates, shall remain in force for the coming period.
Until further notice, the competent person appointed by the MFSA – PricewaterhouseCoopers Malta – shall continue the mandate granted to it by the MFSA on 26 April 2016, and support the Bank in coming in line with regulatory requirements.
The Bank reiterates its commitment to its clients and to the successful implementation of all regulatory measures with a view to resuming normal operations as quickly as possible.
Unfortunately, historic events show that banks that are closed for too long lose their grip on customers and the financial markets. Additionally, allowing only withdrawals and no deposits ultimately creates disbalance.
Anticipated bank failure, deposit guarantee scheme and withdrawal limits
Although future prospects for Nemea bank look better than we’ve seen in other bank failures, there are still some uncertainties. Obviously a number of customers will take their money out once they can. Depending on the capital control measures imposed by the MFSA, the banks’ administrator or the bank itself, there might be a bank run. A bank run almost always results in liquidation, bankruptcy, sale or nationalisation of the bank. It is therefore needless to say that the management of Nemea Bank will do everything possible to avoid such a situation.
As mentioned before, Nemea Bank participates in the Maltese Depositor Compensation Scheme. It means that when the state of bank failure is announced by a competent authority (MFSA, administrator or court), the banks’ customers can file their claim at the administrator of the deposit guarantee scheme in Malta.
After the capital injection by the shareholders, the daily withdrawal limit for customers of the bank was raised from 250 Euro to 2.500 Euro. We are in a critical phase that determines the future of the bank, that was placed under resolution the 27th of April 2016.
Although we currently don’t expect a bank run and it is premature to start a claim, customers of Nemea bank can contact us free of any obligation. As long as there is no binding verdict, there is not much to do at this stage. Meanwhile, questions and remarks can be directed to Nemea Bank at +356 2570 8100. The customer service reps are more than willing to answer any question you might have.