BOV records €58.8 million in pre-tax profits

Bank of Valletta Group reported a pre-tax profit of €58.8 million for the six months ended 31 March 2015.

This represents an increase of €8.0 million when compared to the €50.7 million pre-tax profit for the first six months of FY 2014. This result reflects the strong fundamentals of the Bank’s core operations and includes fair value gains from the positive market sentiment experienced during the period. Key performance indicators remain satisfactory with a return on equity of 17.5% (March 2014: 17.5%) and a cost/income ratio of 42.9% (March 2014: 43.4%), which compare favourably with international banks.

Core Profit, which excludes fair value movements and profits from associated companies, amounts to €42.9 million, up by 6% from last year. Core operating income shows an improvement in net interest margin and growth in both commission and trading income.

The higher costs incurred during the period are largely attributable to the regulatory charges while the cautious approach towards provisioning was retained with a view to further strengthen the coverage ratios on non performing exposures. 

Net interest margin for the period of €71.1 million represents an increase of 15%.

The bank experienced a marked shift towards the short term low yield deposit products which impacted net interest income positively. The persisting low interest rate scenario resulted in lower returns earned on both the retail and treasury investments despite the higher volumes. Net interest margin remains the key revenue generator, representing 64% of core operating income.

Net commission and trading income of €40.3 million is up by 14% over the comparative period. Performance experienced across all product lines, particularly in bancassurance, credit card business and investment related services, remained satisfactory. The volume of foreign exchange transactions has also increased, yielding higher exchange earnings.

Operating costs of €54.6 million are €8.1 million or 17% more than the comparative period. The increase in costs is mostly attributed to substantially higher regulatory costs. These were influenced by the increase in the Bank’s contribution towards the Deposit Guarantee Scheme, resulting from the growth in customer deposits and higher contribution rates, as well as the contributions towards the Single Resolution Fund introduced this year.

Increases in HR and technology costs were partly mitigated by caution exercised on the discretionary spend. Substantial investment to transform the Bank’s IT platforms is planned to ensure that the increasing needs of our customers and the escalation of regulatory requirements are met in a satisfactory manner.

The Asset Quality Review and the stress tests carried out by the ECB in 2014 emphasised the need for banks to adopt a more conservative approach towards provisioning and collateral valuation. BOV has consistently applied this approach over these past years. The charge of €13.9 million for the six months under review reflects the cautious view applied to the valuation of collateral. A more circumspect assessment of the credit grading of certain large exposures and an increase in the provision set aside for exposures with business connections in Libya.

International markets remained positive during the first six months of FY 2015. Fair value gains taken to the P&L of €8.1 million include gains registered on local listed equities. This also had a positive impact on the share of results from associates. The Group’s share of profit for the period amounts to €7.8 million, or 44% more than the €5.4 million recognised in the first six months of last year.