Bank of Valletta reports interim profits of €68.5 million

Bank of Valletta Group reports a profit before tax of €68.5 million for the first half of the financial year 2016 (FY 2016). This compares with a profit of €58.8 million for the corresponding period last year. Pre-tax return on average equity is of 19.9% p.a. (2015: 18.4%), while pre-tax return on average assets amounts to 1.4% p.a. (2015: 1.3%).

The Group generated operating income of €134.5 million, up by 12.5% over the corresponding period last year. Operating costs amounted to €58.4 million, a growth of 7%. The cost-to-income ratio is of 43.3%, compared to 41.8% last September.

Growth in income was driven by investment services, including stockbroking, bancassurance and wealth management services, as well as credit card transactions. Growth in costs is mainly attributable to higher HR costs following the signing of the Collective Agreement in December 2015.

Net impairment allowances, at €8.1 million, are lower by 41.8% compared to the corresponding period last year, due mainly to a more positive view being taken of certain economic sectors, which led to a lower charge for collective impairment.

The Board of Directors has approved a gross interim dividend of €0.0391 per share (2015: €0.036 as restated for bonus issue), which works out at €0.0254 per share net of tax (2015: €0.0234). This dividend represents a pay-out ratio of 22% of profit after tax, compared to a ratio of 23% in 2015.

Group Chairman John Cassar White expressed satisfaction at these results, but also sounded a note of caution. “The Group’s performance is coming under increasing pressure from low interest rates, escalating costs and capital requirements. Negative rates imposed by the European Central Bank and other prime banks, as well as negative yields on certain sovereign debt, mean that the Bank is being penalised for its high levels of liquidity. Regulatory requirements and increasing investment in IT are pushing costs upwards. At the same time, banking regulation is increasing capital requirements, especially for banks like BOV, which are deemed to be significant to their host countries.”

“The Bank,” continued Mr Cassar White, “is giving priority to strengthening its capital buffers and lowering its risk profile. Capital management is a priority, especially in the wake of the Bank Recovery and Resolution Directive (BRRD) of 2015, in terms of which, sovereign support for failing banks is no longer possible. We are focusing on raising both Tier 1 and Tier 2 capital, and have this year made two offers of subordinated notes totalling €125 million, of which around €112 million was taken up. The next step is to increase Tier 1 capital, an objective which we expect to meet by increasing our profit retention and also by considering the issue of fresh equity on the market.”

CEO Mario Mallia stated that in addition to raising capital, BOV is reviewing its business model, seeking to lower its risk profile by discontinuing non-core business lines where the level of inherent risk assumed is not justified by the return. “In this regard, the Bank has reviewed its Trusts business with the assistance of independent consultants, and it was decided that the risk/reward trade-off was insufficient for this business line. The Bank has accordingly resolved to withdraw from this line of business and has defined a winding-down strategy.”