Lombard Bank Malta plc - Interim Results

On 27 August 2020, Lombard Bank Malta plc published its interim financial statements covering the six-month period ended 30 June 2020.

Performance Overview

During the period under review, net interest income dropped by 9.1% to €9.25 million as gross interest income contracted by 7% to just under €12 million (H1 2019: €12.9 million) whilst interest expense increased by 0.6% to €2.71 million (H1 2019: €2.69 million). In this respect, Lombard explained that persistent low interest rates continued to exert downward pressure on interest margins whilst the increase in the interest expense reflects the notable increase in the amount of customer deposits which, year-on-year, grew by 12.3% to a record of just over €900 million.

Non-interest income also declined, albeit by a marginal 0.3% to €19.6 million (H1 2019: €19.7 million). The bank recorded lower net fee and commission income (-13% to €2.28 million) as well as dividend income and trading profits (-€0.36 million to €0.33 million) largely due to the impact of ‘COVID-19’ which resulted in lower volume of transactions amid a subdued economic background especially in Q2 2020. On the other hand, revenues from postal activities increased by almost 4% to €17 million compared to €16.4 million in the first half of 2019.

In aggregate, the total operating income of the bank dropped by 3.3% to a three-year low (at interim stage) of €28.9 million.

On the expenditure side, operating costs increased by 4.6% to €22.7 million (H1 2019: €21.7 million) reflecting additional investments in HR (particularly within the compliance and risk functions) as well as additional depreciation and amortisation charges (+€0.35 million to €1.13 million). On the other hand, Lombard recorded a lower credit impairment loss of €1.13 million (H1 2019: €1.95 million) as it continued to experience an increase in alignment by its borrowing customers to the terms and conditions of sanction. In this respect, the bank also noted that the quality of its lending portfolio remained sound and that it did not observe an increase in credit risk.

Overall, Lombard posted an 18.6% drop in pre-tax profits to €5.04 million compared to €6.19 million in the first half of 2019. After accounting for a tax charge of €1.72 million and non-controlling interest of €0.26 million, the bank’s net profit for the period under review amounted to €3.05 million compared to €3.8 million in H1 2019. This translates into an annualised return on average equity of 5.27% (H1 2019: 7.22%).

The Statement of Financial Position as at 30 June 2020, when compared to the corresponding figures as at 31 December 2019, shows that total assets grew by 3.4% to €1.08 billion mostly driven by the increases in liquidity (+€15 million to €318.4 million) and investments (+€10.7 million to €122.5 million) whilst customer loans only increased by €5.02 million to €557.1 million. Total liabilities inched 3.7% higher to €949.7 million largely on the back of the 4.1% increase (or +€64.3 million) in customer deposits to €900.7 million. As a result of the larger increase in customer deposits when compared to the growth in customer loans, the advances-to-deposits ratio deteriorated to 61.8% compared to 67.4% as at 31 June 2019 and 63.8% as at the end of 2019.

The bank’s equity base expanded by 1.1% to €120.4 million which, in turn, translates into a net asset value per share of €2.725 (31 December 2019: €2.70). The bank’s capital ratios eased slightly to 15.9% compared to 16% as at 31 December 2019 but remained well above the regulatory minimum levels.

Dividend

Following the previous announcement issued on 7 April 2020 relating to the postponement of the dividend for the 2019 financial year, Lombard explained that in line with the guidelines issued by the European Central Bank, it has now resolved to withdraw its recommendation for the payment of a dividend for 2019.

Outlook

In their commentary, the Directors of Lombard explained that ‘COVID-19’ had a major impact on its business as most economic sectors in Malta experienced a substantial disruption to business with negative consequences that could well take years to recover from. Although the bank had a good start to 2020, as the year progressed and uncertainty unfolded, stress on margins on most operational lines became more prevalent.

Despite the above, Lombard noted that its performance has been resilient, satisfactory and also in line with its revised targets. Furthermore, the strategies implemented by the bank provide a solid basis for continued strong growth. Although the uncertainty that ‘COVID-19’ brought with it calls for continuous fine-tuning and swift judicious action, Lombard expressed its confidence in its robust financial fundamentals and setup which will serve in good stead for the future.

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Lombard Bank Malta plc – Half-Yearly Results covering the six-month period ended 30 June 2020.