Bank of Valletta plc - Interim Directors’ Statement

On 4 February, Bank of Valletta plc published its Interim Directors’ Statement covering the first quarter of the current financial year between 1 October 2010 and 31 December 2010. During the period under review the Bank experienced a slowdown in demand for loans both from the retail and corporate sectors. Moreover, deposits remained flat mainly due to the substantial issuance of government paper during November and the usual volatility experienced in the international deposits sector. Nonetheless BOV reported that net interest income during the period has been satisfactory.

Meanwhile commission and trading income was marginally ahead in comparison to the first quarter of the previous financial year but below anticipated levels. The Bank incurred an undisclosed amount of fair value mark downs as credit spreads on sovereign debt widened due to the current lack of confidence on the eurozone’s ability to sustain its debt levels.

The Directors of BOV also noted that operating costs are in line with those forecasted. In the 2010 Annual Report, the Bank’s Chairman Roderick Chalmers had indicated that costs should increase during the financial year ending 30 September 2011 due to the increased technology spend and selective specialist recruitment.

During the first quarter of the 2010/11 financial year, BOV’s income statement was also hit by impairment charges in line with the difficult environment experienced by certain sectors of the economy.

Overall the Group’s net profit for the three months ended 31 December 2010 was in line with that reported in the previous comparable quarter but below expectations mainly due to the fair value markdowns.

Looking ahead, the Directors expect austerity measures across European countries to continue to impact consumer confidence thus resulting in sluggish growth. BOV’s Directors expect spreads to remain elevated thus negatively impacting capital values unless a lasting resolution to the Eurozone debt crisis is found.

The Bank maintained prudent funding, asset quality, liquidity and capital adequacy during the quarter. The Directors also stated that BOV will very probably be invited to participate in another set of EU-wide stress tests in the coming weeks.