BOV welcomes Fitch confirmation and stable outlook

Fitch Ratings today affirmed Bank of Valletta's long-term and short-term issuer default ratings (IDR) at 'BBB ' and 'F2' respectively, its viability rating at 'bbb ', support rating at '2' and support rating floor at 'BBB'. The outlook is stable.

Bank of Valletta Chief Executive Officer Charles Borg welcomed the ratings report as yet another confirmation of the strength and resilience of the BOV Group.

"The affirmation by Fitch of BOV's ratings and stable outlook assume even greater significance at a time when many large financial institutions and EU sovereigns have been hit by downgrades," Borg said.

"The latest ratings action by Fitch underlines the strong capital base and liquidity position of Bank of Valletta as well as the Bank's ability to sustain adequate profitability despite the challenges resulting from falling financial markets.

"The focus of the Bank's management on sustaining the prudent funding model adopted by Bank of Valletta has, without doubt, proved to be a core element of the Bank's success, enabling it to continue to play a leading and active role within the Maltese economy even during the economic recession and the international financial crisis," Borg said.

Fitch confirmed BOV's position as the largest bank in Malta with large volumes of stable customer deposits. As loans only account for just over half of the Bank's total assets, liquidity is also satisfactory, with the balance of assets largely invested in relatively highly rated EU sovereign bonds.

At end-September 2011, the bank had €1.1bn of unencumbered securities eligible for ECB refinancing.

In its ratings report, Fitch stated that BOV's ratings affirmation reflects the bank's strong funding base, satisfactory liquidity and adequate profitability. The ratings also reflect the bank's reliance on the country's small and concentrated economy and its asset quality.

Fitch said that given the bank's strong market shares, its ability to price risk has remained relatively unaffected by competitive issues.

Its net interest margins continues to be high despite the low interest rate environment, allowing it to absorb the larger loan impairment charges generated by subdued credit conditions. It has also enabled it to report adequate profitability despite lower non-interest income resulting from falling financial markets.

Fitch commented that asset quality deterioration during FY11 has been more contained than in the previous two years, acknowledging management's efforts in improving reserve coverage of problematic loans in recent years.