One of the things that students studying for their banking diploma or degree must learn are sound lending principles, a universally accepted set of criteria to ensure that losses through bad debts are minimised. One of the critical criteria is that borrowing proposals must be vetted to ensure the borrower has a good business plan to secure repayment of the capital and interest within the term agreed with the bank. Students learn that the collateral offered should not diminish the intensity and intrusiveness of the scrutiny, and no lending should usually be sanctioned solely on the strength of the collateral provided. The role that Bank of Valletta has played over the five decades that it has been under virtual government control shows that it has sometimes ignored sound lending principles. BOV accommodated state-owned entities that were economically unviable but that could provide government guarantees to obtain the needed loans. Over the years, it was mainly parastatal organisations that benefitted from such lending practices. This shows that not much attention was paid to the extra scrutiny regulators expect banks to undertake when dealing with related party transactions, i.e.
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