APS Bank plc - Quarterly Update

On 27 October 2022, APS Bank plc published details about its financial performance and position covering the nine-month period ended 30 September 2022.

Net interest income surged by 15% to €46.7 million as the further strong growth in the loan book was also supported by the continued efficient management of the bank’s funding base. In fact, gross interest income rose by 12.5% to €57.3 million compared to just under €51 million in the corresponding period in 2021. On the other hand, interest expense only increased by 2.5% to €10.6 million despite the marked increase in customer deposits.

APS also recorded growth in net fee and commission income (+2%) reflecting the general increase in local and foreign banking activities, card related commissions, and the Bank’s wider customer base which outweighed the drop in investment services income amid the prevailing volatility across international financial markets. The latter also had a huge negative impact on non-interest income as the Bank recorded a loss of €8.41 million related to the performance of APS Funds SICAV. Excluding these negative unrealised movements, APS recorded strong growth of 12.5% from its other non-interest income activities.

On the expenditure side, total operating costs increased by almost 10% to €33.5 million reflecting continuous investments in HR, technology, and operations/processes, as well as higher regulatory, compliance, and insurance costs. Nonetheless, in view of the sharper increase in income (when excluding the unrealised losses on financial assets), the cost efficiency ratio improved to 63.4% compared to 65.3% in the same period in 2021. Meanwhile, APS recorded a marginal net impairment reversal of €0.1 million reflecting the performance of customer loans and the Bank’s high credit underwriting standards. Elsewhere, APS recorded a net loss of €2.58 million from its share of results of associates (including IVALIFE Insurance Limited) compared to the positive contribution of €0.08 million in the first nine months of 2021.

After accounting for a tax charge of €7.54 million, APS reported a net profit of €0.9 million. However, on a standalone basis, the Bank registered a net profit of €14.2 million (which translates into an annualised return on equity of circa 8.4%) which is 37% higher than the net profit of €10.4 recorded in the corresponding period in 2021.

The Statement of Financial Position as at 30 September 2022, when compared to the end of 2021, shows that total assets increased by 10.9% (or +€305.5 million) to €3.1 billion reflecting higher levels of customer loans (+€217.2 million), investments (+€127.6 million), as well as syndicated loans (+€29.5 million).

Similarly, total liabilities expanded by 10.5% (or +€269.3 million) to €2.84 billion largely reflecting the 10.5% increase (or +€254.1 million) in customer deposit to €2.69 billion. As a result of the sharper increase loans than deposits, the loan-to-deposit ratio improved to 86.1% compared to 85% as at the end of 2021. Meanwhile, the Bank’s Capital Adequacy Ratio and the CET 1 Ratio stood at 18.8% and 15.2% respectively.

Commenting on the performance, APS Bank CEO Mr Marcel Cassar explained that: “As we enter Q4 2022 and look ahead to 2023, the global economic outlook remains clouded by heavy uncertainty. Following three straight negative quarters, the first since the 2008 financial crisis, the prospects of a strong, post-Covid rebound continued to experience serious shocks that are stretching the resilience of even the strongest nations. The build-up of inflationary pressures, impacting especially energy and food prices, coupled with ongoing supply disruptions, the prolonged conflict between Russia and Ukraine and ensuing geopolitical tensions, are perfecting the conditions for a recession with cross-border implications.

Such international developments are felt also in our widely open economy through higher costs of inputs and imported goods which are being cushioned by Government policies aimed at striking the right socioeconomic balance. In this difficult environment, Malta is experiencing higher economic growth, milder inflation and lower unemployment than its EU counterparts, aided in no small way by a stronger than expected tourism recovery and buoyant property market. The lifting of the FATF grey listing in June also helped create a more benign outlook for the Maltese economy. But the challenges of sustainable economic growth, and of skills and job attrition, are weighing in heavily and are not to be under-estimated.

While rising interest rates should generally benefit banks by providing greater opportunity for margins, we shall be managing this new scenario with the concerns of all our customers in mind. As policy makers and central bankers persist in fighting inflation notwithstanding the implications for the capital markets, we remain confident that our investment portfolios are underpinned by sound credit quality and that the slide in valuations will be reversed in due course. We are also reassured by the fact that customer confidence in our model and opportunities to gain market share continue to grow.”