On 22 March 2022, Bank of Valletta plc published its Annual Report for the financial year ended 31 December 2021.
During 2021, net interest income increased by 6.5% (or +€9.5 million) to €156.3 million as gross interest income increased by 2.4% to €194.8 million whilst interest expense dropped by 11.4% to €38.5 million. In this respect, BOV explained that the strong growth in the loan book was offset by the declining average returns on treasury investments as well as the negative interest charges on persistently high liquidity levels. Moreover, the Bank took a number of steps to lower its cost of funding which resulted in an improved net interest margin.
Similarly, BOV also recorded growth in non-interest income as this increased by 2.1% (or +€1.79 million) to €86.6 million. This was driven by the substantial growth in net fee and commission income which increased by 10.9% (or +€7.3 million) to €74.6 million reflecting higher income across the main business pillars – primarily credit and investment related services, as well as payments. Moreover, dividend income also increased notably to €1.45 million compared to just €0.22 million in 2020. On the other hand, income from foreign exchange business contracted by 36.8% to €10.5 million compared to €16.6 million in 2020.
In aggregate, the Bank’s total operating income increased by a 4.9% to €242.9 million compared to €231.6 million in 2020.
On the expenditure side, total operating costs surged by 14.8% (or +€25.2 million) to €195.6 million reflecting increases across all lines of expenditure. In particular, HR and general administrative expenses increased by 8.3% to €175.5 million reflecting higher employee costs (+€2.18 million), fees related to specific items (which in aggregate amounted to €6.1 million) such as the €2.6 million fine imposed by the FIAU and €1.4 million in disbursements on card fraud, as well as the higher contribution to the Deposit Guarantee Scheme (+€4.8 million). BOV noted that excluding the impact of items that are not expected to recur, underlying operating costs increased by €10.5 million as the Bank continued with its drive to transform, modernise and digitise its business model.
In view of the sharper increase in total costs than the growth in operating income, the cost-to-income ratio deteriorated to 80.5% compared to 73.6% in 2020. Excluding non-recurring cost items, the cost-to-income ratio stood at 76.2%.
Meanwhile, the Bank’s financial performance was boosted by a net release of Expected Credit Losses (“ECLs”) amounting to €18.9 million compared to a net charge of €56.6 million in 2020. In this respect, BOV noted that its focus on legacy non-performing loans (“NPL”) during 2021 resulted in a slight increase in recoveries whilst the improved economic conditions led to a reversal of ECLs. In fact, the NPL ratio improved to 4.1% as at the end of 2021 compared to 4.7% as at 31 December 2020. Elsewhere, BOV also recorded a 37.8% increase in its share of results from associate investments (namely Mapfre MSV Life plc and Mapfre Middlesea plc) which amounted to €14.5 million compared to €10.5 million in 2020.
Overall, BOV reported a profit before tax of €80.7 million. After accounting for a tax charge of €24.5 million, the Bank’s net profit amounted to €56.2 million which, in turn, translates into a return on average equity of 5.1% (2020: 1.29%).
The Statement of Financial Position as at 31 December 2021 shows that total assets grew by 11.2% (or +€1.45 billion) to €14.4 billion mostly due to the increases in liquid assets (+€827.6 million), customer loans (+€356.2 million), and investments (+€289.3 million). Similarly, total liabilities increased by 11.8% (or +€1.4 billion) to €13.2 billion largely reflecting increases in customer deposits (+€904.6 million) and amounts owed to bank (+€472.1 million). Given that the increase in customer deposits outweighed the growth in customer loans, the loan-to-deposit ratio eased to 41.9% compared to 42.1% as at the end of 2020. Meanwhile, BOV’s equity base expanded by 4.6% to €1.13 billion which, in turn, translates into a net asset value of €1.929 per share (31 December 2020: €1.845 per share). The Bank’s CET 1 ratio strengthened to 21.9% compared to 20.9% as at the end of 2020 whilst the Total Capital Ratio climbed by 100 basis points to 25.5%.
Following the payment of a net interim dividend of €0.0172 per share in January 2022, the Directors of BOV elected not to recommend a final dividend in line with the Bank’s continuous efforts to maximise long term shareholder value.
In their commentary, the Directors explained that during 2021, the Bank continued with the implementation of its strategy which, amongst other factors, focuses on digitalisation, branch network modernisation and staff re-skilling. In this respect, BOV noted that although good progress in a number of areas was made, the pace of change needed to be balanced taking into account transformation needs as well as regulatory requirements. Meanwhile, the Bank invested significantly in its credit management and wealth management back-office processes, as well as in the enhancement of internal data capabilities.
Update on the Deiulemar Case
On 8 February 2022, BOV announced that the Tribunal of Torre Annunziata has delivered its decision against the Bank for an aggregate amount totalling €370 million including legal interests and fees. In this respect, BOV noted that this outcome does not change its expectations, based on the opinions of independent legal experts, that the case against the Bank will be found to carry no merit in the higher Court. As a result, the Court’s decision did not impact the financial results and since then, the Bank appealed the unfavourable judgement. Furthermore, BOV still considers that it makes commercial sense to seek to resolve this claim at a level not exceeding the potential cost impact. For this reason, the Bank has retained the same settlement offer to the counterparty (the offer was not accepted), without prejudice and with no admission of liability.