Bank of Valletta plc - Interim Directors’ Statement

On 30 April 2020, Bank of Valletta plc issued an announcement updating the market on its performance during the first three months of the 2020 financial year. In this respect, BOV explained that mainly due to the ‘COVID-19’ pandemic, its financial performance was somewhat below expectations as some adverse effects started to emerge towards the end of March.

Net interest income eased marginally when compared to the same period last year as volume growth in the loan book and the continued preference by customers for very low yield deposit products were offset by the lower returns from the bank’s treasury function amid greater emphasis on lower risk investments. Furthermore, interest margins remained under downward pressure due to the negative interest rate environment in the euro area as well as the bank’s very high levels of liquidity exceeding €4 billion. On the other hand, positive trends in asset balances and customer deposits were in line with expectations whilst the loans-to-deposits ratio improved marginally to 44.5% compared to 44.2% as at 31 December 2019.

BOV noted that commission and trading income were initially in line with expectations, but following the outbreak of the ‘COVID-19’ pandemic in March and the ensuing restrictions which negatively impacted economic activity and trade in general, indications are pointing towards potential reductions in commission and exchange income. BOV added that costs have been kept below targets as while it continued to make solid progress in de-risking its business, it has also enhanced its in-house risk management and compliance capabilities so as to minimise costs. In fact, de-risking costs in the current financial year are expected to be below 2019 levels which amounted to €23.9 million.

Although the situation on impairment provisions remained favourable to date, the current difficult trading environment for customers is likely to necessitate further provisions. The bank also highlighted its efforts aimed at supporting its customers and the economy, and welcomed the various initiatives taken by the Government of Malta and regulatory authorities to assist both consumers and businesses with supported loan facilities and grants. Nonetheless, the duration of the ‘COVID-19’ pandemic remains the key determinant of the extent to which any ultimate credit losses may arise, and therefore any forecasts at this stage would be speculative.

With respect to the two major litigations related to the cases involving the Deiulemar Trust and the Falcon Funds SICAV, BOV explained that these are clearly being impacted by the current situation and final conclusions may be deferred to 2021. The Board is confident, however, that the amount of provisions taken to date amounting to €100 million will prove sufficient and do not consider, at this stage, that any further charges will be necessary.

Capital buffers continued to strengthen in the period under review. However, lower income and potentially growing credit losses will lead to reduced profitability this year. BOV also reiterated its commitment to continue supporting its customers and that its primary focus is maintaining resilience in the face of the serious challenges posed by the current economic crisis.