Bank of Valletta plc - Interim Directors’ Statement

On 3 November 2022, Bank of Valletta plc issued an Interim Directors’ Statement providing information about its performance during the nine-month period ended 30 September 2022 when compared to the same period in 2021.

BOV explained that revenue increased by 16.8% to €202.3 million reflecting the impact of higher eurozone interest rates coupled with increased lending activity (particularly in the home loan segment) as well as growth in the payments and cards businesses.

On the expenditure side, operating costs increased by 6.7% mainly due to higher employee compensation costs driven by human capital requirements in specialised areas, growth in average salaries, as well as higher contribution towards the Deposit Guarantee Scheme reflecting the higher level of customer deposits. Costs were also impacted by non-recurring specialist support related to Environmental, Social and Governance (“ESG”) matters.

BOV’s financial performance was also impacted by a net impairment charge of €10.1 million which takes into account the evolving risks due to geo-political instability, higher levels of inflation, and lower GDP growth forecasts. Moreover, the share of results from the Bank’s insurance associates decreased materially when compared to the same period in 2021 largely driven by the volatility of the global financial markets.

Overall, BOV recorded a pre-tax loss of €55.7 million. However, BOV explained that when excluding the effect of the settlement of the Deiulemar claim in May this year, the Group’s profit before tax would have amounted to €47.8 million, which is 3% higher than the same period in 2021.

In terms of financial position, during the first nine months of 2022 customer loans increased by 5.8% to €5.4 billion whilst customer deposits grew by 4% to €12.7 billion. As a result, the loan-to-deposit ratio improved to 42.6% compared to 41.9% as at the end of 2021.

In their commentary, the Directors of BOV referred to the recent approval in respect of a Base Prospectus for the issuance of a medium-term Programme of Notes of up to a maximum aggregate principal amount of €500 million, which will allow the Bank to increase its lending book and expand investment horizons of its treasury operations.

BOV also explained that during the course of 2022 a number of automation initiatives were introduced to improve internal efficiencies as part of the BOV 2023 Strategy. Moreover, BOV noted that as part of its continued climate and environmental risk monitoring, it commissioned an energy audit and carbon footprint assessment and also joined the Malta ESG Alliance.

Commenting on the Maltese economy, BOV recognised the recovery in economic momentum characterised by strong real GDP growth and historically low unemployment levels. However, BOV recognised that the surge in inflation is a global economic shock that have been partially cushioned through energy subsidies. BOV noted that this is a temporary solution and stated that it would be prudent to anticipate the eventuality that the international increases in energy prices may persist in the long term.

Meanwhile, BOV remarked that the recent interest rate increases by the ECB impacted the Bank positively as it is no longer paying negative interest rates when depositing its surplus liquidity. BOV will continue to monitor the situation, as well as the actions of other major banks in Malta, with an aim of striking the right balance when setting up its interest rate structure.