Negative sentiment of global markets could impact BOV’s annual financial results

“Whereas the first half of the year saw a sustained improvement in the international credit and equity markets, Q3 has seen a reversal of sentiment and the return of risk aversion,” the Bank warned.

BOV explained how the “marked change in mood” resulted from “heightened concerns relating to the debt burden of certain eurozone countries and the need for greater fiscal discipline”.

The Bank insisted that the implementation of austerity measures by various governments had served “to steady the markets somewhat”.

However, these had, at the same time, “raised concerns as to whether these measures will impact negatively the incipient economic recovery that was seen earlier in the year”.

“The return of risk aversion referred to above has caused a widening of spreads in parts of the credit markets, and this has resulted in the reversal of the modest fair value gains reported at the half year,” the Bank warned in its company announcement.

The Bank announced that as at the end of June 2010, “the cumulative fair value movements for the year to date are showing a modest negative position, much of which relate to Interest Rate Swaps which it is expected will reverse over time.”

A further small gain had been recorded during the March to June 2010 quarter on the Bank’s available for sale portfolio. Looking forward, BOV said the results for the full year “will be influenced by the behaviour of the credit markets in the last quarter... The expectation is that profits from the core retail and corporate operations will be satisfactory and ahead of those achieved in FY 2009."

In the company announcement, BOV explained how the Bank had “continued to manage its balance sheet in a prudent manner, maintaining strong liquidity and capital ratios” during the Third Quarter of FY 2010. Moreover, a further increase in customer deposits was experienced during the April to June 2010 quarter.

BOV’s retail and corporate businesses had continued to “perform well” during the third quarter of 2010, while net interest margin had “improved further”, and the contribution to profits from commission and trading activities remained “strong and ahead of expectations”.

The Bank’s operating expenses were “on track”, during the third quarter of FY 2010, and overall credit quality remained “satisfactory”.