Bank of Valletta plc - S&P Downgrades BOV’s Long-Term Credit Rating

On 31 July 2019, S&P Global Ratings (“S&P”) downgraded its long-term Issuer Credit Rating on Bank of Valletta plc to “BBB-” from “BBB” and changed its outlook on the bank to “Stable” from “Negative”.

S&P’s action reflects recent operational risk events (including the cyber-attack which took place in February 2019), coupled with the outcome of regulatory investigations as well as ongoing litigation cases. Furthermore, S&P opined that although BOV is addressing these issues, it is uncertain about the bank’s ability to adequately manage the complexities of its operations which are relatively higher than those of similarly-sized banks. S&P also warned about the negative impact that such issues could have on the bank’s profitability and capital targets going forward.

With respect to ongoing litigations, S&P noted that these may require further provisioning in the future, although the successful issuance of the new €150 million ‘Additional Tier 1’ instrument in the second half of 2019 could cushion any potential additional burden on the bank’s capitalisation. On the other hand, S&P acclaimed BOV’s strong franchise, dominant market position and sound liquidity, whilst the presence of the Government of Malta in the bank’s ownership structure enhances depositors’ confidence and contributes towards overall stability.

Explaining its “Stable” outlook on BOV, S&P noted that the risks for the bank from potential additional extraordinary charges against litigation and other events are balanced by the progress that it anticipates that the bank will do in its risk-control oversight and management as it implements its de-risking strategy, as well as the expectation of improved capital buffers going forward.

In conclusion, S&P explained that the possibility of upgrading its rating on BOV is unlikely at this stage. This is largely due to the time-lag needed for the bank’s remedial actions to start producing results, as well as the length of the current litigation cases. Furthermore, S&P noted that although the issuance of ‘bail-inable instruments’ could be positive, it would still require more visibility on the minimum requirement for own funds and eligible liabilities (MREL) for BOV and whether the bank will meet them sustainably through subordinated MREL eligible instruments.