Bank of Valletta announce €64.6 million profits for interim 2013

The Bank of Valletta Group has reported pre-tax profits for the first six months of 2013 amounting to €64.6 million, an increase of 32% over the profits of €49.1 million for the equivalent period ended 31 March 2012. 

The board declared a gross interim dividend of €0.06 per share, which represents an increase of 11% over last year's interim dividend of €0.054 per share.

Core operating profit of €42.8 million, taken before fair value movements and share of profit from associates, is below the €47.5 million registered in the same period last year.

Financial markets performed well during the first six months of this financial year, and the markdowns experienced in 2008 through to 2011 are being recouped. Overall, the group reported a fair value gain of €13.2 million for the six-month period, as compared with a small gain of €0.5 million last year.

The share of profits from the group's insurance interests amount to €8.6 million, compared with €1.6 million for the same period last year.

Chairman John Cassar White said that the results were more than satisfactory in the context of both the international and local economic climate, which remained under considerable pressure by uncertainty in the euro area, particularly due to the inconclusive results of the general elections in Italy and the unprecedented bail-in in Cyprus.

The Group results were presented in more detail by Chief Executive Officer Charles Borg, who noted that during the first half of 2013, net interest margin amounted to €66.2 million, a decrease of €11.1 million or 14% below that of last year. This was influenced by the larger deposit base on the one hand, and lower returns on the bank's financial markets investment book on the other, as funds from maturing bonds were re-invested at lower yields. Last year's net interest income also included receipts of €5.2 million in respect of interest on which provisions had previously been made.

Net commission and trading income improved by 12% during the first six months of this financial year to reach €33.2 million, as compared with €29.7 million for the same period last year.

Demand for credit was muted, mainly as a result of the euro area uncertainties as well as the extended electoral campaign. On the other hand, investment-related activities (capital markets, funds services, stockbroking and wealth management) improved, both in the fixed income as well as the equity sectors.

Operating expenses for the six months totaled €44.7 million, a slight improvement (1%) over the same period last year. Investment in customer-centric innovation continued to feature as a key element of the Bank's operations. BOV Mobile, launched in March 2012, proved to be very popular, with over 11,000 registered users as at the end of March 2013.

The portion of non-performing accounts to the total loans and advances remains manageable. The Group deemed it appropriate to retain the cautious outlook, particularly as regards the values of collateral held on specific large exposures.

The European Commission in its April report on Malta recommends that the Maltese banking system strengthens its non-performing loans coverage. These recommendations are very much aligned with the bank's long-term provision coverage strategy, and an impairment charge of €12 million is being made for the first six months of this financial year.

Turning to the group's balance sheet, Borg said that total assets as at 31 March 2013 stood at €7.2 billion (30 September 2012: €7.0 billion), while equity attributed to the shareholders of the Bank amounted to €544.4 million.

Loans and advances remained at the September 2012 level, reflecting subdued demand for credit particularly in the business segment.

Customer deposits saw very encouraging growth, both in the retail segment as well as in the corporate and institutional segment. Customer deposits stood at €6.14 billion, an increase of €329 million, or 5.7% over the six-month period since 30 September 2012.

The Bank continued to manage its balance sheet in a deliberate and prudent manner, with the aim of strengthening core Tier 1 capital and liquidity ratios in line with Basel III and CRD IV regulatory regimes. Tier 1 capital as at the end of this interim period stood at 10.9% (September 12: 10.7%).

BOV's capital ratios, as they would be computed under Basel III which will be phased in between now and January 2019, are already higher than the average euro area ratios as computed for the sample of banks surveyed by the European Banking Authority.

In the meantime, the bank's liquidity ratio remains strong at 53% with minimal use being made of the inter-bank funding. During the course of these six months, the bank repaid to the ECB its two LTROs amounting to a total of €170 million. This means that the entire Bank's funding is now wholly dependent on customer deposits and long-term senior and subordinated debt, with no reliance on the international money markets, Borg explained.

The strength of the Bank's liquidity situation can be gauged by its loan-to-deposit ratio which, at 63.1% (September 12: 66.7%), ranks among the most sustainable globally. The Bank is also at an advanced stage of transition to the more rigorous liquidity requirements of Basel III, and is already practically in line with the main requirements, covered by the Liquidity Coverage Ratio and the Net Stable Funding Ratio.

"The Bank's conservative business model reflects its status as Malta's largest financial services provider and the critical role it plays in safeguarding the nation's financial and economic well-being. Ever mindful of this vocation, the Board intends to continue to safeguard the quality and quantity of its capital and liquidity resources, through a responsible dividend policy, prudent lending and investment practices, and a cautious risk appetite," Mr Cassar White said.