The Bank of Valletta Group announced pre-tax profits for its Financial Year ended on 30 September 2012 (FY2012) of €110.7 million. This is 72% above the €64.4 million figure reported for FY 2011.
The Core Operating Profit of €100.3 million for this financial year is in line with that of the previous year (Sept 2011 – €100.2 million).
Announcing the results, Bank of Valletta Chairman Frederick Mifsud Bonnici said that the BOV Group performed satisfactorily in the challenging economic environment. This year’s results benefited from an improvement in interest income as a result of increased lending activity, from the turnaround in financial markets as well as the non-recurrence of the exceptional charge taken last year relating to the La Valette Multi Manager Property Fund (LVMMPF). These improvements were partly offset by higher impairment charges and higher operational expenses.
Giving external context to the results, Mr Mifsud Bonnici noted that the world economy was not yet out of the woods. Economic growth in Germany and China, which were among the strongest performers during the recovery of the last recession, have slowed down, and both the International Monetary Fund and the European Central Bank (ECB) have revised downwards their original growth forecasts since summer: The former’s global forecast is now 3.5% for 2012 and 3.9% for 2013, and the latter’s forecast for the euro area is between -0.6% and -0.2% for 2012 and -0.4% to 1.4% for 2013.
Pressures have also mounted on the financial sector with banking institutions exposed to increasing rates of Non-Performing Loans (NPLs) reflected by problems experienced in the real economy, including rising unemployment levels in some member states. This, together with relatively low interest rates, has impinged on banks’ profitability levels.
This scenario is further exacerbated by the elusiveness of being able to reconcile an austerity programme in a number of Eurozone countries, which were unable to manage government spending as well as maintain their competiveness in an increasingly globalised and competitive market place, with the need to stimulate growth.
The Chairman gave an overview of the Bank’s main achievements for the financial year, which saw the Bank maintain its core operational profits notwithstanding the increased local competition and the heightened international crisis. In the meantime, the Bank continued to manage its balance sheet in a deliberate and prudent manner, seeking to preserve high liquidity and enhance capital. For the first time, the balance sheet exceeded the €7 billion mark, a significant achievement and an important milestone both for BOV and for Malta.
BOV continues to enjoy strong capital ratios and as at September 2012 Core Equity Tier 1 stood at 10.7%, which is well above the minimum regulatory requirement of 9%. This was confirmed by the European Banking Authority in its last report of the 4 October 2012. The liquidity ratio, which was already strong at 44% in September 2011, improved to 49% as at September 2012.
Mr Mifsud Bonnici announced that the Board of Directors is recommending a final gross dividend to shareholders of €0.13 per share which, taken together with the gross interim dividend of €0.06 per share paid earlier in the year, makes for a total gross dividend of €0.19 per share for FY 2012, and representing a gross yield of 8.4% by reference to the closing share price of €2.265 per share as at 30 September 2012. The Board is also recommending, with effect from 17 January 2013, a bonus issue of 1 share for every 9 shares held, by capitalisation of reserves amounting to €30 million increasing the permanent capital to €300 million from €270 million.
Providing a more detailed analysis of the results for FY2012, Chief Executive Officer Charles Borg explained that several factors affected the final profit.
Net Interest Margin for the year of €147.8 million represents an increase of 7.7% over that of last year. This improvement is attributable to increased volumes of business across the whole product range as well as the recovery of interest previously suspended.
Net commission and trading income increased by 2.1% from €61.1 million last year to €62.4 million this year. FY 2012 was characterised by stronger performance in stockbroking and capital markets business coupled with an increase in our trade-related activities. The Bank experienced higher levels of interest being shown by Maltese and foreign companies wanting to do business in Libya, following the end of the revolution of last year. On the other hand there was subdued demand in insurance activities. The earnings from foreign exchange transactions remained very much in line with those of FY 2011.
The Bank’s card business continued to show satisfactory growth, as more people continue to choose debit and credit cards as their preferred payment instrument. The Bank continued with its IT investment programme for this business area and in September of this year migrated its MasterCard business onto a new platform.
Operating expenses for the year totalled €87.1 million, an increase of 6.0% over the previous year. This was mainly driven by higher personnel costs arising from the new collective agreements that were signed in the first quarter of this financial year, a higher IT spend due to the continued investment in IT infrastructure as well as an increase in the Bank’s contribution towards the Deposit Guarantee Scheme.
The Bank is once again adopting a cautious approach in provisioning. The charge for the year of €22.8 million comprises both specific and collective impairment charges. The impact of the specific charge of €6.5 million remains manageable and overall the credit quality continues to be satisfactory. Non-performing loans now account for 4.4% of the total loans and advances, an improvement when compared to the 5.1% registered last year.
For the first half of the year to 31 March 2012, the Bank reported a small fair value gain of €0.5 million. The second half of FY 2012 started off with a situation of heightened uncertainty in the financial markets which resulted in a negative effect on our fair value movements. However, during the last quarter of this financial year this was totally reversed. The overall net effect for the whole year is a positive €8.7 million, compared with a charge of €24.9 million reported last year.
The BOV Group results also include a contribution from our Associated Companies operating in the local insurance sector. BOV has a direct equity stake of 50% in MSV Life plc and a 31.8% stake in Middlesea Insurance plc (MSI). BOV’s share of profit from MSV and MSI for this financial year amounts to €6.3 million, a strong increase of 57% over the last financial year.
In respect of the LVMMPF and other issues relating to the sale of certain securities, the Bank continues to cooperate with the Regulator and individuals concerned to attain full closure in a fair and equitable manner.
“On 28 June 2012, the Bank issued a Company Announcement in which, inter alia, it stated that, notwithstanding that irrevocable settlement agreements had been reached with 99% of investors in the La Valette Multi Manager Property Fund, and notwithstanding that it had filed an appeal against a purported Directive of the MFSA, it stood ready to fully cooperate with a file review aimed at identifying any investors who may have been ineligible to invest in the Fund and to pay to such ineligible investors an additional ex gratia compensation of €0.25 per share,” the bank said.
“The amount included in the FY 2012 Income Statement represents the estimated additional ex gratia compensation that will be paid by the Bank upon the completion of the file review, as well as the estimated compensation in relation to claims on other securities, less any recoveries obtained from third parties.”
Bank of Valletta said that it would like to assure its customers and the general public that it is committed to remain the caring and genuine bank it is known to be and that it will always continue to be supportive to its customers.
The CEO stated that the Bank continued to live up to its promise to support the Maltese economy in a responsible manner. Loans and advances to customers at the end of FY 2012 stood at €3.9 billion, an increase of €119.5 million or 3% over 30 September 2011. Growth was mainly driven by continued demand for home loans, particularly in the first time buyers’ segment and by carefully selected increases in the business segment.
Customer deposits reached a new record high of €5.8 billion, an increase of €285 million or 5.2% over the €5.5 billion reported last year. In March 2012, in a bid to diversify funding sources and extending the duration on the liabilities side of the Bank’s balance sheet, the Bank tapped the local market with an offer of €40 million as part of its Medium Term programme. The Offer was fully subscribed, testimony to the confidence and trust that the BOV brand enjoys in the market.
Looking ahead, the Chairman said that the long-running Eurozone sovereign crisis was creating a lot of uncertainty and the austerity measures being adopted by EU member states would take time to have the desired effect.
Notwithstanding this, the Maltese economy remained very resilient and there are some sectors within the economy that are doing better than others and are compensating for the slowdown in certain traditional sectors such as construction and wholesale and retail. Tourism which plays an important role in the Maltese economy has continued to do well and the numbers just published are encouraging.
“We believe however that the Government and the private sector need to continue their investment in order to upgrade Malta’s offering and to cater for the higher end of the tourist market particularly in the shoulder months. Malta has a lot to offer in this sector and it is important that all interested parties work together to ensure the sustainability of this important sector in our economy,” the Chairman commented.
Commenting on regulatory developments, the Chairman said BOV welcomes Basel III, because it believes that risk regulation inhibits reckless risk-taking, and is key to safeguarding financial stability. Given Bank of Valletta’s conservative risk profile, its prudent governance and its high capital and liquidity buffers, the Bank does not expect Basel III to have any significant impact on its current business model.
“At Bank of Valletta, as we have proved in the past, we will continue to support the Maltese economy in a responsible manner – this is our promise. Equally important, we also have to continue to actively and prudently manage both sides of our balance sheet, maintaining high liquidity and strong capital ratios. This has to be done keeping in mind the aspirations of both our depositors and borrowers alike, whilst at the same time being aware of our obligations to all the other stakeholders – shareholders, our employees and the wider community as a whole. This delicate balance has to be managed at all times and we need to project a message of resilience, strength, vision and growth,” he said.