Deutsche Bank has made the decision to stop offering its banking services in Malta by the end of the year.
The decision to pull the plug will mainly affect smaller banks in foreign financial markets while HSBC and BOV will remain, for the most part, unaffected by the decision, as they do not rely on the German bank to clear their dollar transactions.
Correspondent banks assist local lenders in accessing foreign financial markets and carry out cross-border transactions in foreign countries. These transactions are carried out primarily in US dollars.
Therefore, the decision by Deutsche Bank is likely to impair partner Maltese banks' capabilities to conduct dollar-denominated transactions.
However, most of the impacted banks will have a second correspondent bank to conduct such operations, a source familiar with the matter told the publication.
The decision follows on from a hard-hitting assessment by the Council of Europe's anti-money laundering body about Malta's failure to adequately combat financial crime.
As a result, Deutsche Bank has scaled back considerably and has decided to withdraw from Malta as part of its new strategy.
Deutsche Bank has come under intense regulatory scrutiny across the globe over its processing of dirty money, some of which came about as a result of its correspondent banking relationships.
The German lender has pulled out from five eurozone countries so far. "Deutsche Bank's withdrawal from business with Malta and other euro countries shows that the Banking Union must finally take the fight against money laundering seriously," the Greens/EFA group's financial spokesperson said.
MEP Sven Giegold said it was "an embarrassment" for the European Banking Union when credit institutions withdraw from euro countries because of money laundering allegations.
"A large-scale withdrawal of correspondent banks from Malta and other risky countries would be dangerous, as payments could then increasingly shift to channels that are more difficult to control," Giegold said.