On 22 April 2021, Lombard Bank Malta plc published its Annual Report and financial statements for the year ended 31 December 2020.
During 2020, net interest income contracted by 4.1% to €18.9 million as gross interest income dropped by 1.5% to €24.9 million whilst interest expense increased by 7.5% to just over €6 million. In this respect, Lombard explained that although credit activity increased, downward pressure on interest rates as well as the impact of competition resulted in tighter margins and reduced income. On the other hand, the increase in interest expense was the result of the growth of 8.8% in customer deposits which reached €941.1 million compared to €865 million as at the end of 2019.
In contrast, non-interest income increased by 3% to €41.5 million reflecting higher income from postal sales as well as the favourable impact of a one-off transaction. Conversely, Lombard generated lower net fee and commission income, dividend income and trading profits, largely due to the impact of COVID-19 on economic activity in general.
Despite the reduction in net interest income, total operating income increased by 0.7% to €60.3 million compared to €59.9 million in 2019.
On the expenditure side, operating costs increased by 3.9% to €45.7 million reflecting higher human resource expenses, investments in technology, as well as increased regulatory compliance costs. As a result, the Group’s cost-efficiency ratio increased to 75.8% (2019: 73.5%) whilst, at Bank level, the ratio deteriorated to 52.4% compared to 47.1% in 2019.
In 2020, Lombard took an expected credit loss of €3.97 million compared to €0.55 million in 2019. In this respect, the bank explained that macro-economic variables were significantly adversely impacted by the pandemic resulting in increased probabilities of default. Nonetheless, the asset quality of the bank’s major assets remained sound as Lombard continued to closely monitor its exposures in line with evolving circumstances.
Overall, Lombard reported a 32.2% drop in pre-tax profits to €10.4 million. After taking into account a tax charge of €3.23 million and minority interests of €0.5 million, the profit for the year amounted to €6.64 million which translates into a return on average equity of 5.42% (2019: 8.2%).
The Statement of Financial Position shows that total assets expanded by 8.5% to €1.13 billion as the growth in customer loans (+12.5% to €621.1 million) and investments (+44.5% to €161.4 million) outweighed the drop in cash and short-term funds (-12.1% to €266.7 million). Total liabilities also increased to €997.2 million (+8.9%), largely reflecting the 8.8% growth in customer deposits to €941.1 million. Given the higher percentage increase in customer loans than the percentage growth in customer deposits, the loans-to-deposits ratio improved to 66% compared to 63.8% as at the end of 2019. Meanwhile, shareholders’ funds increased by 5.8% to €126 million which, in turn, translates into a net asset value per share of €2.853 compared to €2.697 as at the end of 2019. Although the bank’s level of capitalisation eased to 15.8% from 16.3% as at 31 December 2019, this remained above minimum regulatory requirements.
Dividend & Bonus Share
The Board of Directors of Lombard are recommending the payment of a final net dividend of €0.0195 per share. This is in line with regulatory guidelines and translates in a payout ratio of 13% compared to 21.6% for the previous financial year. The dividend is payable on 9 June 2021 to all shareholders as at the close of trading on 26 April 2021 subject to shareholders’ approval at the upcoming Annual General Meeting scheduled to be held remotely on 28 May 2021.
Subject to regulatory approval, the Directors are also recommending a bonus share issue of one share for every seventy-five held which will be allotted on 24 June 2021 to all shareholders as at close of trading on 21 June 2021. The bonus issue will be funded by a capitalisation of reserves amounting to €0.15 million.
Despite the adverse operating and regulatory environment, Lombard explained that its underlying fundamentals remain strong and these also contributed for the Group to achieve satisfactory performance during 2020. Nonetheless, Lombard’s investment horizon seeks to go beyond the pandemic and, as a result, the Group remains determined to pursue its strategic priorities which also include further business expansion especially in the areas of credit and investments, as well as the strengthening of the Group’s outreach in terms of branch network.