Bank of Valletta plc - Interim Results

Friday, April 29th, 2016

On 29 April, Bank of Valletta plc published its interim results covering the six months ended 31 March 2016.

Performance Overview

During the period under review, the Bank registered a 5.4% increase in net interest income to €74.9 million (H1 2015: 71.1 million) largely reflecting the 16.1% decline in interest expense to €30.4 million (H1 2015: €36.2 million). The growth in interest margin is wholly attributable to higher asset volumes. Lower yields on loans and investments were offset by lower funding costs, as margin income remained under pressure in a context of high liquidity and negative benchmark interest rates.

BOV also reported double-digit gains in non-interest income with a further 23.1% uplift to €59.6 million – the highest level ever reported by the Bank in the first six months of its financial year. This growth was driven by investment services, including stockbroking, bancassurance and wealth management services, as well as increased volume in credit card transactions. Net gains on investments of €10.7 million (H1 2015: a loss of €0.45 million) constitute fair value gains on investment securities which had been recognised in reserves and have been accounted for through the Statement of Profit and Loss upon realisation.

On the costs side, BOV registered a 7.0% increase to €58.4 million (H1 2015: €54.6 million) mainly attributable to higher HR costs following the signing of the Collective Agreement in December 2015. Conversely, net impairment allowances, at €8.1 million, are lower by 41.8% compared to the corresponding period last year (€13.9 million), due mainly to a more positive view being taken by the Bank of certain economic sectors, which led to a lower charge for impairment.

The contribution from BOV’s associate companies, MSV Life plc and Mapfre Middlesea plc., reduced significantly from the €7.82 million registered in the first six months ended March 2015 as they came in at just €0.54 million – the lowest since 2010 – mainly reflecting the lower value of in force business which was negatively impacted by continuing falling interest rates.

Overall, BOV reported a pre-tax profit of €68.5 million, representing a 16.5% increase over the previous comparable figure (€58.8 million). After accounting for a tax charge of €23.6 million (H1 2015: €18.3 million) and minority interest of €0.28 million, the BOV Group’s net profit for the period under review amounted to €44.6 million compared to €40.2 million during the six months ended 31 March 2015. Post-tax return on average equity is of 13.2% (H1 2015: 13.1%) while pre-tax return on average assets amounts to 1.4% p.a. (H1 2015: 1.4%).

The Statement of Financial Position shows a 6.0% increase in total assets to just €10.5 billion following a 8.0% increase in investments to almost €3.64 billion and a 4.5% increase in total loans. Loans and advances to customers eased slightly to €3.98 billion (-0.48%) while loans and advances to banks grew by 16.4% to €1.93 billion. Total liabilities also increased by 6.0% to €9.78 billion mainly reflecting the further 5.2% growth in total deposits to €9.21 billion. In view of the increase in customer deposits and the decrease in loans and advances to customers, the loans to deposits ratio dipped to 44.8% from 46.8% as at end of September 2015.

The Group’s total equity grew by 5.4% to €0.71 billion which translates into a net asset value per share of €1.811 compared to €1.718 as at September 2015.

Dividend

The Directors declared an improved gross interim dividend of €0.0391 per share (net: €0.0254) which the Directors believe balances dividend expectations with the need to continue building up the Bank’s capital base through profit retention. At 22.2%, the payout ratio was maintained in line with that of the corresponding period last year (22.7%). The interim dividend is payable on Friday 27 May to those shareholders as at close of trading on Tuesday 10 May.

Capital

The Bank indicated that it is considering issuing fresh Tier 1 capital over the coming years. It explained that this may take various forms including rights issues, scrip dividends, hybrid instruments or a combination of all. The Bank stated that such issues will supplement the capital buffers built up through profit retention, which remains the Bank’s preferred source of capital generation.

The Bank also noted that another way of recapitalising is to reduce the risks inherent in its business, and, consequently, to reduce the amount of regulatory capital required to be held. Such a “de-risking” strategy entails a review of its business model. Indeed, the Bank confirmed that it is seeking to lower its risk profile by identifying non-core business lines where the level of inherent risk assumed is not justified by return, and considering their discontinuation. One such line is the provision of Trust services. Following an in-depth review carried out over the past year, the Bank has taken a strategic decision to wind down the Trusts business. A number of possible options for winding down this business line are being evaluated and further communications will be made to the market in this regard in due course.

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Bank of Valletta plc – Interim Financial Statements for the six months ended 31 March 2016.

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