Bank of Valletta plc - Full-Year Results

Friday, October 28th, 2016

On 28 October, Bank of Valletta plc published its preliminary full-year results for the financial year ended 30 September 2016.

Performance Overview

During the period under review, BOV registered a 2.8% increase in net interest income to €148.8 million largely reflecting the 6.2% reduction in interest expense as customers’ preference for short term deposits continued. There was also a marginal decline in gross interest income to €214.3 million reflecting lower interest rates on advances, tighter margins on Treasury operations in the prevailing low interest rate scenario as well as a changing mix of the Bank’s loan book.

Net fee and commission income increased by 5.6% to €66.1 million as the Bank registered satisfactory growth in investment related products, including bancassurance, as well as the card business. Meanwhile, profits on foreign exchange activities dropped by 9.2% to €20.3 million as lower volumes were transacted in line with the Bank’s strategy of de-risking its business model.  Moreover, fair value movements also declined by 8.8% to €13.5 million given less favourable market movements than in the previous financial year.

During the period under review, the BOV Group also registered a one-off gain of €27.5 million related to the sale of its stake in VISA Europe which was acquired by VISA Inc.

As a result, operating income improved by 12.6% to €278.1 million. Excluding the aforementioned one-off item, the Group’s operating profit only increased by 1.5% to €250.6 million as the improvements in net interest income and net fee and commission income were largely offset by declines in trading profits and fair value movements as well as a lower incidence of dividend income.

Operating costs amounted to €112.8 million – an increase of 4.4% over the expenses incurred during the previous financial year ended 30 September 2015. The Bank reported that the increased costs largely relate to the new collective agreement signed in early 2016 and the continued investment in human resources and IT (in line with the Group’s plans to replace its core banking system).

The impairment charge for the year, mainly related to specific exposures, stood at €23.1 million representing a 29.3% drop from the charge incurred in the previous financial year. The Bank explained that the lower charge continues to reflect the Bank’s prudent view towards recovery and the valuation of collateral but was offset by a reversal of the collective impairment allowance taken in previous years. The Bank further explained that the higher charge in the financial year ended 30 September 2015 was due to the new provisioning methodology adopted in that financial year which had a greater emphasis on the assessment of individual exposures deemed to have specific risks.

BOV’s performance during the period under review was adversely impacted by a lower share of profits from its associate undertakings (namely MSV Life plc and Mapfre Middlesea plc) to €3.7 million compared to €11.8 million in the previous financial year reflecting the lower profitability at these two entities.

Overall, the Group’s pre-tax profits stood at €145.9 million, which is 23.7% higher than the profits for the previous period. Excluding the aforementioned one-off gain from the disposal of the VISA Europe shareholding, the Group’s pre-tax profits would have amounted to €118.4 million, up 0.4% from the previous comparable figure.

After accounting for a tax charge of €50.7 million (FY2015: €38 million) and minority interest of €0.5 million (FY 2015: €0.6 million), the Group’s profit after tax amounted to €95.2 million representing a 19.4% increase over the previous financial year’s comparable figure.

The Statement of Financial Position shows total assets of €10.72 billion, representing an 8.3% increase largely due to the 26.7% increase in loans and advances to banks to €2,098.4 million, a 10.7% increase in investments to €3,736.3 million and a 35% increase in balances with central bank, treasury bills and cash to €171.1 million. These offset the 6% reduction in financial assets at fair value and a relatively unchanged loan book at €4,001 million. In this respect, the bank noted that during the year under review it continued to register growth in home loans whilst a number of long outstanding exposures, which were mostly provided for, were written-off.

Meanwhile, customer deposits climbed by a further 7.3% to a record €9,181 million with the loan to deposit ratio sliding to 44% on the back of increased deposits from both retail and corporate customers. Nonetheless, the Bank noted that as part of its strategy to lower the Bank’s risk profile, it is introducing tighter procedures and is terminating a number of institutional deposits which were not considered to be in line with the lower risk business model.

Equity attributable to shareholders increased by a further 8.8% to reach €729.2 million, mainly reflecting the profits generated during the period under review.

Dividend  

The Directors recommended a final gross dividend of €0.0852 (net: €0.0554) per share to all shareholders as at the close of trading on Monday 14 November. Coupled with the interim dividend paid earlier this year of €0.0391 per share, the total gross dividend amounts to €0.1243 (net: €0.0808) per share, representing an 8.6% increase over the previous year’s dividend as the drop in the payout ratio to 33.3% from 36.6% was offset by the increased profitability which in turn was largely driven by the one-off gain on the sale of VISA Europe shares. The dividend will be paid on 16 December subject to approval by shareholders during the Annual General Meeting scheduled to be held on 16 December.

Bonus Issue 

The Directors also recommended a bonus share issue of 1 new share for every 13 shares held which will be funded through the capitalisation of €30 million of reserves. Shareholders as at the close of trading on Thursday 12 January 2017 will be eligible to receive the bonus shares.

Download

Bank of Valletta plc – Preliminary Statement of Results for the year ended 30 September 2016.

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