ECB’s asset quality review carves into BOV’s profits

BOV presents its annual results • Video by Ray Attard

The Bank of Valletta Group registered a pre-tax profit of €104.1 million for the financial year which ended on 30 September 2014, compared to €115.8 million last year.

Chairman John Cassar White described it as a satisfactory result achieved in a challenging environment of historically low interest rates, sweeping changes in banking regulation, increasing regulatory and supervisory costs, and rising geo-political risk in north Africa and Eastern Europe.

Core operating profit, which excludes fair value movements and profits from associated companies, increased marginally to €87.9 million.

The loan portfolio rose by 5% year-on-year, standing now at €3.9 billion. Deposits rose by €900 million to €7.1 billion as at end September 2014.

BOV’s Comprehensive Assessment also re-affirmed that the group’s capital base exceeded regulatory capital requirements. At the start of the Asset Quality Review, at 31 December 2013 BOV had a CET ratio of 11.2%. In its revaluation, the ratio was lowered to 10.7%.

 during the AQR, the ratio was lowered to 10.7%, and this was taken as BOV’s opening CET1 ratio for the purpose of the stress test.

“The Board noted with satisfaction the outcome of the Comprehensive Assessment. In our opinion, this result will serve to boost market confidence in the strength and stability not only of BOV, but of the entire Maltese financial system,” Cassar White said.

The AQR also identified an under-provision for doubtful debts amounting to €16.4 million, comprising €13.1 million on collective provisions and €1.8 million on specific provisions.

The Bank’s non-Performing Exposure (nPE) ratio, which relates non-performing exposures to total loans, was calculated under the AQR methodology at 18.3%, up from 11.8% as at December 2013.

“We view the Comprehensive Assessment as a positive experience from which many lessons can be drawn, especially with regards to the improvement of risk policies, provisioning models, data governance framework, valuation protocols and processes in line with best international practice,” Cassar White said.

The total dividend for the year, €0.135 per share, represents a gross yield of 6.05% by reference to the closing share price of €2.23 per share at 30 September 2014 and a net dividend cover of 2.4 times.

“In arriving at its recommendation, the board took account of the under-provision of €16.4 million (€10.6 million after tax) which resulted from the AQR methodology. This amount was carved out of the year’s distributable profits and set aside as a Pillar 2 capital allocation, until more detailed information is forthcoming from the Joint Supervisory Team,” Cassar White said.

The board is also recommending a bonus issue of 1 share for every 11 shares by capitalisation of reserves amounting to €30 million increasing the permanent capital from €330 million to €360 million.

Chief executive officer's message

BOV chief executive officer Charles Borg said that the bank’s performance thrived in an environment where interest rates had reached record lows and euro rates even going into negative territory.

Borg said the €12 million decrease in profits was linked to the regulatory changes and associated costs experienced in 2013,

But core operating profit of €87.9 million, which excludes price movements and profits from our associated companies, was up by 2% from last year. The drop in interest income, attributed to the persisting low interest rate environment, was mitigated by satisfactory growth in commission and trading income.

Operating costs for the year amounted to €93.5 million, an increase of 5%, or €4.4 million, over the previous year in part informed by the Asset Quality Review and an increase in the bank’s contribution towards the Deposit Guarantee Scheme

Total assets stood at €8.3 billion (September 2013: €7.3 billion), whilst equity attributable to the shareholders of the bank increased by a further 6% to €613 million. Liquidity stayed strong with a net advances-to-deposit ratio of 55% and a liquidity ratio of 48.5%.

Borg said that 2014 was a record year with customer deposits increasing by €900 million, or 14% over last year, to reach an all-time high of €7.1 billion.

Total debit and credit card payments also exceeded €1 billion, up from 12% over last year. 

“This solid performance underlines the strength of the BOV Brand and highlights the confidence it enjoys amongst local and foreign retail and institutional customers…

“Concurrently, our credit portfolio registered an aggregate net increase of €214 million equivalent to a year on year increase of 5%. These positive results were registered in both the business and retail arms with increases of around 3.3% and 8.5% respectively.”

The increase in business lending has translated in over €400 million in new facilities provided to more than 1,250 local businesses and entities.

Within the consumer finance segment, the bank was also very successful and managed to advance more than €350 million over a 12 month period.

“The past years have shown that the bank was resilient to the instability in the financial services markets. The bank has emerged stronger and is the bank of first choice in the local market as evidenced by the growing customer base. The trust and confidence shown by our customers will be reciprocated by an even stronger commitment to continue  to develop meaningful, long term relationships built on understanding, support and respect underpinned by a superior customer experience,” Borg said.