Bank of Valletta plc - Interim Results

On 31 July 2018, Bank of Valletta plc published its interim results covering the six-month period ended 30 June 2018.

Performance Overview

During the first half of the current financial year, BOV registered an 8.3% increase in net interest income to almost €79 million when compared to the corresponding period last year on the back of a 4.1% growth in gross interest income as well as a 5.9% drop in interest expense to €28.7 million. This reflects both a healthy growth in the bank’s loan book as well as a contraction in customer deposits.

BOV also registered a 15% uplift in non-interest income to nearly €49 million, mostly driven by a much higher net fee and commission income (+€6.95 million) which, in turn, reflects higher volumes of business in card issuing and acquiring, as well as credit and investment services. On the other hand, income from foreign exchange activities was lower reflecting further de-risking actions in this area of business. Overall, the bank’s total operating income expanded by 10.8% to €127.9 million compared to €115.5 million in the corresponding period last year.

On the expenditure side, BOV registered a 2.4% increase in operating costs to almost €64 million mainly attributable to further investments in I.T. (including the continued implementation of the multi-year Core Banking Transformation project) and human resources. In contrast, the bank’s financial results were positively impacted by an impairment reversal of €20.2 million related to further recoveries of previously impaired loans (January to June 2017: impairment reversal of €5.92 million).

BOV’s financial performance was dented by a €75 million litigation provision. This consists of a prudential provision against potential losses arising out of ongoing litigation cases. In particular, the bank explained that it is currently involved in three material litigation cases, namely the cases related to the Deiulemar Trust, La Valette Multi Manager Property Fund and the Falcon Fund SICAV. The case of the Deiulemar Trust whereby BOV is being sued for the amount of €363 million, the bank also stated that although it continues to believe that it has a strong legal defence on the merits of the case, changing circumstances have led BOV to revisit its previous stance and resolved to recognise a provision to reflect a higher probability of an eventual outflow of funds in connection with the case.

Meanwhile, BOV also reported a 51.4% drop in the share of results from equity-accounted investees (namely Mapfre MSV Life plc and Mapfre Middlesea plc) to €4.31 million. Overall, the bank posted a significant drop in pre-tax profits to €13.5 million compared to €67.8 million in the previous comparable period. After accounting for a tax charge of €0.81 million, BOV’s net profit for the period under review amounted to €12.6 million (H1 2017: €46.76 million). This translates into an earnings per share of €0.024 (H1 2017: €0.107).

The Statement of Financial Position as at 30 June 2018 shows slight changes in the total amount of assets and liabilities. In this respect, however, it is worth highlighting the 2.3% (or +€95.8 million) growth in customer loans and advances to €4.26 billion on the back of additional business in mortgages, personal as well as business lending. On the liabilities side, customer deposits dropped by 0.6% (or -€63.1 million) to €10 billion as the growth in retail customer deposits was offset by the decline in international corporate deposits in line with the bank’s de-risking strategy.

Shareholders’ funds contracted by 1.7% to €945.6 million as the profit registered during the period under review was offset by the final dividend paid out in respect of the previous financial year ended 31 December 2017. This translates into a net asset value per share of €1.7815 compared to €1.8325 as at 31 December 2017.

The interim report also noted that the Bank has a core tier 1 equity ratio of 16.8% and a capital adequacy ratio of 19.8% compared to 16.1% and 19.4% respectively as at 31 December 2017.

Dividend     

In view of the €75 million litigation provision as well as extensive discussions with regulators, the Directors of the bank resolved not to declare an interim dividend. Furthermore, the Directors also stated that they do not intend recommending a final cash dividend with respect to the current financial year ending 31 December 2018.

Outlook

The Directors noted that the long-term feasibility and financial stability of the Bank, including the ongoing strengthening of the Bank’s capital position, will remain in focus. In this respect, the business restructuring programme with the aim of lowering the institutional risk profile will continue. Concurrently, the Board will focus on strengthening the robustness of customer onboarding and transaction monitoring by upgrading its technological framework whilst also strengthening the compliance and anti-financial crime structure as well as enhancing governance procedures.

Download

Bank of Valletta plc – Interim Report covering the six months ended 30 June 2018.