On 20 April 2022, Lombard Bank Malta plc published its Annual Report and Financial Statements for the year ended 31 December 2021.
Net interest income increased by 3.6% to €19.6 million (2020: €18.9 million) as the 3.3% growth in gross interest income offset the 2.4% increase in interest expense. In this respect, Lombard explained that despite the adverse interest rate scenario and the downward pressure on interest margins, customer demand for new lending (including home loans and personal loans) extended further at a steady and healthy pace. On the other hand, the increase in interest expense was due to the continued growth in customer deposits which are now close to the €1 billion mark compared to €941.1 million as at the end of 2020.
The Bank also recorded growth in activities that generate non-interest income, including revenues from postal services (+9.4% to €37.4 million) as well as net fee and commission income (+10% to €5.21 million). In aggregate, non-interest income increased by 4.9% to €43.5 million (2020: €41.5 million) despite the non-recurrence of a material one-off transaction which took place in 2020. As a result, total operating income increased by 4.5% to €63.1 million compared to €60.3 million in 2020.
On the expenditure side, total operating costs surged by 12.9% to €51.6 million (2020: €45.7 million) reflecting additional investments in human resources and technology, as well as increased regulatory and compliance costs. Given the sharper increase in costs than the growth in income, the Bank’s cost efficiency ratio deteriorated to 81.9% compared to 75.8% in 2020. Excluding the operations of MaltaPost plc, the Bank’s cost-to-income ratio increased to 60.8% compared to 52.4% in 2020.
Following the credit impairment loss of almost €4 million taken on in 2020, during the period under review Lombard recorded an impairment release of €1.46 million reflecting the further improvement of the quality of the Bank’s loan book, as well as the evolving micro-economic indicators.
Overall, Lombard reported a 21.6% increase in pre-tax profits to €12.6 million compared to €10.4 million in 2020. After taking into account a tax charge of €4.76 million and minority interests of €0.4 million, the profit for the year amounted to €7.48 million which, in turn, translates into a return on average equity of 5.68% (2020: 5.42%).
The Statement of Financial Position shows that total assets expanded by 3.9% to €1.18 billion as the growth in customer loans (+3.5% to €642.9 million) and investments (+40.9% to €227.5 million) outweighed the drop in cash and short-term funds (-23.3% to €204.6 million). Total liabilities also increased to €1.03 million (+3.3%), largely reflecting the 3.8% growth in customer deposits. Given the stronger increase in customer deposits than the growth in customer loans, the loans-to-deposits ratio deteriorated slightly to 65.8% compared to 66% as at the end of 2020. Meanwhile, shareholders’ funds expanded by 9% to €137.3 million which, in turn, translates into a net asset value per share of €3.067 compared to €2.815 as at the end of 2020. The Bank’s Total Capital Ratio edged higher to 16.2% (31 December 2020: 15.8%) and remained well above the minimum regulatory requirement.
Dividend & Bonus Share
The Board of Directors of Lombard are recommending the payment of a final net dividend of €0.0195 per share which is marginally higher than the net dividend of €0.0192 per share paid for the 2020 financial year. This translates in a payout ratio of 11.5% compared to 13% in the previous financial year. The dividend is payable on 8 June 2022 to all shareholders as at the close of trading on 22 April 2022 subject to shareholders’ approval at the upcoming Annual General Meeting scheduled to be held remotely on 26 May 2022.
Subject to regulatory approval, the Directors are also recommending a bonus share issue of one share for every seventy-five shares held which will be allotted on 23 June 2022 to all shareholders as at close of trading on 20 June 2022. The bonus issue will be funded by a capitalisation of reserves amounting to €0.15 million.
Despite the adverse operating and regulatory environment, Lombard noted that its strong brand and sound fundamentals are the basis on which the Group looks at the future with optimism. Notwithstanding this, prospects depend on the resilience of the economic recovery in a rising interest rate scenario and heightened geopolitical tensions in Europe, as well as the general operating environment for banks.
Meeting with these challenges will require further investment in technology and human resources. Moreover, Lombard will continue building on its business plan which focuses on sustainable growth (especially in the areas of home loans, credit cards, and investment services); governance, risk-management, and compliance; as well as extending further its presence across the local community.
Meanwhile, an important challenge having capital-absorbing implications is the forthcoming introduction of new Basel III standards focused on asset risk-weighting, particularly involving exposures secured by real estate and equity holdings. Another standard that will impact the manner in which the Bank’s business is conducted relates to the evolving ESG requirements. In this context, while innovative solutions will be sought, Lombard reiterated that it will continue to maintain its selective approach to onboarding depositors and borrowers, and also avoid exposure to economic sectors that, over the years, have proved to be inherently risky.