FIMBank plc - Interim Results

Wednesday, August 14th, 2013

On 13 August FIMBank plc published its interim financial statements covering the six months ended 30 June 2013.

Performance Overview

During the period under review, the FIMBank Group registered a 32.6% increase net interest income to USD7.4 million on the back of higher volumes and improved margins achieved for funded business. This also led to an improvement in the net interest margin to 42.6% from 38.5% in the comparable period last year.

Similarly, the Group also registered an 8.3% increase in net fee and commission income to USD10.8 million reflecting the improved business volumes across all Group companies. Meanwhile, net income from foreign currency operations declined by USD0.48 million to USD1.18 million.

The overall improvement in operating income mentioned above was largely offset by net losses from trading assets and other financial instruments amounting to USD8.3 million compared to a USD2 million uplift during the first six months of 2012. The Directors explained that this loss is attributable to unrealised marked-to-market adjustments on specific distressed assets as well as a loss on the Group’s credit linked notes.

As a result, the Group’s total operating for the period under review amounted to just under USD11 million representing a 42.6% drop from the comparable figure during the first six months of 2012.

FIMBank also incurred a 7% increase in non-interest expenses to USD14.2 million largely reflecting the depreciation on the new Head Office which became operational as from 1 July 2012.

Overall, the FIMBank Group registered an operating loss before impairment allowances of USD3.2 million compared to the operating profit before impairments of USD5.9 million registered in the first half of 2012.

The interim financials of FIMBank plc were also impacted by an increase in impairment allowances to USD1.8 million (June 2012: USD0.5 million) due to specific impairment charges taken on the bank’s assets showing signs of non-recoverability or non-performance. This led to an operating loss of USD5 million in contrast to the operating profit of USD5.4 million registered in the first six months of the previous financial year.

The Group’s factoring joint-ventures also returned a collective loss of USD2.5 million which is higher than the loss of USD0.66 million registered in the first six months of 2012. The Directors attributed the widening losses to specific impairments taken in Russia (related to specific assets with a worsening credit outlook) and India (reflecting the general economic outlook).

As a result, FIMBank registered a pre-tax loss of USD7.5 million compared to a pre-tax profit of USD4.7 million in the first half of 2012. After accounting for a tax credit of USD0.5 million (June 2012: tax expense of USD0.2 million), the Group’s loss for the period amounted to just below USD7 million compared to the net profit of USD4.5 million registered in the previous comparable six months. This translates into a negative earnings per share of USD0.048.

The balance sheet showed total assets of USD1.12 billion, representing a 1% drop from the figures as at 31 December 2012 as the 38% decline in loans and advances to banks to USD245.6 million was only partially offset by an increase of USD103 million in Malta Government Treasury Bills (reflecting the Group’s strategy to optimise liquidity and exposure to short-term yields) and a 12.6% increase in loans and advances to customers to USD370.8 million (as a result of improved business activity). Meanwhile, total liabilities were unchanged at around USD1 billion as the 3.4% increase in amounts owed to banks to USD446.5 million (largely reflecting the USD60 million convertible loan advanced by United Gulf Bank)  and the 26.8% increase debt securities in issue (reflecting the independent funding obtained by London Forfaiting Company) was counterbalanced by a 5.5% decrease in amounts owed to customers (as a result of lower callable cash and collateral deposits held by business clients).

The Group’s equity base shrunk by 10.8% in the past six months to USD116.5 million reflecting the loss registered during the period under review and the dividend paid in respect of the 2012 financial year. The Interim Report also noted that the Group remains well capitalised with a capital adequacy ratio of 15.04% and a Tier 1 Capital ratio of 11.44% – well above the regulatory minimum. Similarly, the Group maintains a healthy liquidity position.

Dividend

The Directors did not declare an interim dividend.

Outlook

The Directors expect the operating performance during the second half of 2013 to be in line with the trend registered during the first six months. Nonetheless, the Group should be aided by the effect of the new institutional shareholding with regards to development of new business opportunities, realisation of strategic objectives and overall improved visibility in the market.

Furthermore, while FIMBank’s outlook on recoveries for a number of facilities in its banking book which were impaired during the first half of the year is guarded,  continuous monitoring and appropriate actions are being taken to limit any further downward movements in the Group’s forfaiting and investment books.

Changes to Controlling Shareholders

On 31 January 2013, the shareholders of FIMBank plc approved an multi-staged offer jointly made by Burgan Bank S.A.K. (Burgan) of Kuwait and United Gulf Bank (UGB) of Bahrain. Both banks form part of the Kuwaiti based KIPCO Group. Through this multi-staged offer, Burgan and UGB are expected to become the new majority shareholders in FIMBank plc with combined stakes of more than 50%.

In late May 2013, the Malta Financial services Authority (MFSA) declared that it has no objection to this proposed change in shareholding.

The process started in June 2013 when Burgan and UGB acquired the 52,948,867 shares previously held by Massaleh Investments K.S.C.C. (one of the founders and the former largest shareholder in FIMBank). Simultaneously, FIMBank and UGB signed a USD60 million convertible loan agreement. The convertible loan is split into two equal tranches of USD30 million and are convertible at pre-determined share prices.

Subsequent to the financial reporting date, UGB excercised its option to convert the first tranche of the convertible loan. As such, on 29 July 2013, FIMBank issued 36,254,567 new shares in favour of UGB thereby increasing the latter’s shareholding in the Group to 30.25%.

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FIMBank plc – Interim Financial Statements covering the six months ended 30 June 2013.

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