Bank of Valletta plc - Full-Year Results

Friday, March 23rd, 2018

On 23 March, Bank of Valletta plc published its preliminary full-year results covering the 15-months ended 31 December 2017 following the change in the Bank’s financial year end from 30 September to 31 December. It is important to highlight that the comparative figures are not directly comparable since they cover 12 months up to 30 September 2016. Furthermore, during the financial year ended 30 September 2016, BOV had registered a one-off gain from the sale of its stake in VISA Europe amounting to €27.5 million which further distorts the comparison between the two financial years.

Performance Overview

Net interest income increased by 22.9% to €182.9 million largely reflecting the additional 3 months in the financial year under review. In fact, on an annualised basis, net interest income contracted by 1.7% given the significant decline in gross interest income which in turn reflects the changing mix of the Bank’s loan book, continued competitive pressures as well as narrowing margins for the Treasury operations in the prevailing low interest rate scenario and higher liquidity balances which generate negative returns. The continued preference for short-term deposits also led to a 6.8% reduction (on an annualised basis) in interest expense but this only partially offset the aforementioned decline (on an annualised basis) in gross interest income.

Non-interest income decreased by 9.1% to €117.5 million although this was largely due to the €27.5 million one-off gain on the sale of the Bank’s stake in VISA Europe in the previous financial year. Nonetheless, on an annualised basis and excluding this one-off gain, the Group’s non-interest income still contracted by 7.6% mainly reflecting the lower income earned on foreign exchange transactions as well as the lower incidence of ‘net gain on investment securities and hedging instruments’ which offset the satisfactory growth experienced in the card business and investment related products.

Overall, the Group’s total operating income increased by 8% to €300.5 million. On an annualised basis, total operating income contracted by 13.6%.

Administrative expenses increased by 33.5% to €139.2 million largely reflecting the Group’s investment in its IT infrastructure and HR complement. On an annualised basis, administrative expenses increased by 6.8%.

Depreciation and amortisation also increased by 41.5% (equivalent to a 13.2% increase on an annualised basis) to just over €12 million.

The announcement noted that the Bank’s proactive approach towards debt recovery and the management of non-performing loans led to a reversal of €6.2 million compared to the impairment provision of €23.1 million accounted for in the previous financial year ended 30 September 2016.

BOV’s financial performance was also boosted by the uplift in the share of profits from associates (Mapfre MSV Life plc and Mapfre Middlesea plc) which amounted to €19.3 million compared to €3.7 million in the previous financial year. It is important to highlight that due to the change in the Bank’s accounting year, the figure reported for the financial year under review represents the share of profit for an 18-month period.

Overall, BOV reported a profit before tax of €174.7 million representing a 19.8% increase over the figure for the previous financial year ended 30 September 2016. On an annualised basis and excluding the VISA Europe one-off gain, pre-tax profits improved by 18.1%.

After accounting for a tax charge of €55.2 million (FY2016: €50.7 million), the Bank’s net profit for the 15-month period ending 31 December 2017 amounted to €119.5 million representing a 26.1% increase over the €94.7 million recorded for the financial year ended 30 September 2016. On an annualised basis, the Group’s net profit was only 0.9% higher. Based on a weighted average number of 440.95 million shares, the earnings per share for the period under review amounted to €0.271 compared to €0.2256 for the financial year ended 30 September 2016.

The Statement of Financial Position as at 31 December 2017 shows a 10.2% increase in total assets to €11,820.6 million largely reflecting the 63.5% increase in loans and advances to banks to €3,431.4 million and the 4% rise in loans and advances to customers (both personal and business) to €4,162.0 million. On the other hand, total liabilities also increased by 8.7% to €10,858.5 million mainly due to the continued growth in the Group’s deposit base (mostly from the retail segment) with a further 10% increase to €10,100.6 million leading to a loan to deposit ratio of 41.2%.

The Group’s equity base also expanded by 31.9% to €962.1 million following the €150 million rights issue undertaken during December 2017 and to a lesser extent the profits registered during the period under review. This translates into a net asset value of €1.833 per share. The announcement also noted that the Group’s CET 1 ratio now stands at 16.1% (compared to €12.8% as at 30 September 2016) and the Bank will continue to build reserves through profit retention.

Dividend     

The Directors recommended a final gross dividend of €0.08 per share (net: €0.052) which is only slightly higher than the previous final dividend of €0.0791 declared with respect to the previous financial year ended 30 September 2016. Coupled with the interim gross dividend per share of €0.036 (net: €0.0234) [both adjusted for the additional shares created following the €150 million rights issue], the total gross dividend per share for the financial year ended 31 December 2017, amounts to €0.116 (net: €0.0754) representing a payout ratio of 27.8% which is lower than the 33.3% payout ratio adopted with respect to the previous financial year.

Shareholders as at the close of trading on Friday 6 April will be eligible to receive the final dividend subject to shareholder approval during the upcoming Annual General Meeting (AGM) scheduled to be held on 10 May 2018. The dividend will be paid on 18 May 2018 and shareholders will have the right to receive the dividend either in cash or in new shares at an attribution price that will be determined on 12 April 2018. The attribution price will be based on the average of the trade weighted average prices for the trading sessions that will be held on 9, 10 and 11 April 2018 and this will be discounted by 5%.

Outlook

The Directors noted that whilst the results for the financial year ended 31 December 2017 were satisfactory, the coming years are expected to remain challenging particularly in view of the ‘low-for-long’ interest rate situation and high liquidity levels as well as the changing demographics of the local economy and stricter on-boarding procedures. Furthermore, the Directors noted that the Group’s strategic vision focuses on a low risk sustainable business model to ensure long-term stability and viability while providing an equitable return to its investors. In conclusion, the Directors also stated that the strengthening of the capital base will continue in the coming years as the Bank seeks to continue to strengthen its capital buffers. 

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Bank of Valletta plc – Preliminary Statement of Financial Results for the 15-month period ended 31 December 2017.

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