Bank of Valletta registers 21% drop in interim profits

The Bank of Valletta (BOV) Group has recorded a profit before taxation of €50.7 million for the six months ended 31 March 2014, a decrease of 21% compared to the pre-tax profit of €64.6 million earned during the first six months of the previous financial year.

The bank said that during the first six months of this financial year, the global economic situation and market outlook had improved for the United States and Britain, but that the picture in continental Europe remained subdued.

“The flow of credit to the real economy remains slow and problematic. Unemployment remains at record high, especially amongst the young population, and the austerity measures imposed in the peripheral countries is leaving little room for growth prospects,” the bank said.

During the period under review, gains attributed to external factors, namely fair value gains and contribution from our insurance business, were €11.7 million below those earned during the comparative period. Core profit for the period was down – a decrease of €2.2 million when compared to March 2013. Return on Equity (ROE) for the period was 17.5%, down from 21.1% for FY 2013.

During the first half of FY 2014, net interest margin amounted to €61.6 million, a decrease of €4.6 million over that of last year. This was influenced lower revenue generated from interest on advances as a result of the bank’s decision to lower its lending base rate in November 2013, as well as competitive pressures; and lower returns on the bank’s financial markets investment book as funds from maturing bonds were re-invested at lower yields.

Net commission and trading income improved by 7% during the first six months of this financial year to reach €35.4 million, as compared with €33.2 million for the same period last year.

Operating expense for the six months totalled €46.5 million, an increase of 4% over the same period last year. The major contributors to this increase relate to cost of human resources, IT investments and depreciation. The significant increase in regulatory and supervisory fees was largely offset by the curtailment of an equivalent amount in discretionary expenses.

The impact of the difficult economic conditions of the last few years on the overall quality of the credit book was described as modest and manageable. The bank said it was taking into account recommendations by the European Commission and the ECB, to strengthen non-performing loans coverage ratios and exercise tighter control over the loan-to-value ratio in the real estate and construction sectors. An impairment charge of €9.9 million was made for the first six months of this financial year.

The board has resolved to declare a gross interim dividend of €0.0425 per share, which represents a decrease of 22% on last year’s interim dividend of €0.0545 per share (as restated for the bonus issue of January 2014).

“The bank continues to operate a conservative business model which reflects its status as Malta’s largest financial services provider, and hence a decisive contributor to national financial stability. Mindful of this responsibility, the Board intends to continue to safeguard the quality and quantity of the Bank’s capital and liquidity resources, through a responsible dividend policy, prudent lending and investment practices within its cautious risk appetite framework,” the Group said.