APS Bank plc - Quarterly Update

On 31 October 2024, APS Bank plc published a Quarterly Financial Update providing information about its performance during the nine-month period ended 30 September 2024.

Net interest income dropped by 11.6% to €49.1 million (3Q 2023: €55.5 million) as the continued growth in gross interest income (+9.7% to €84.7 million) was offset by higher interest expenses (+64.5% to €13.9 million). The Directors explained that interest income growth was across both retail and commercial product lines. Meanwhile, the surge in interest expenses reflect the higher cost of MREL funding and the Bank’s policy of passing through the interest rate benefits to its depositors.

Net fees and commission income increased by 2.8% to €6.4 million reflecting the general increase in insurance intermediation, pensions, investment services and cards. APS also registered gains of around €2.6 million reflecting fair value gains on financial assets, foreign exchange and other income, which is higher than the gains of €1.1 million recognised in the same period last year.

Meanwhile, the financial performance was dented by a €1.1 million (3Q 2023: €0.25 million) charge over the three Expected Credit Losses (ECL) stages and across a growing local commercial book and the international syndicated loan portfolio. In this respect, the Directors highlighted that the quality of the loan book and the strength of the Group’s credit underwriting standards can be noted from the decline in the non-performing loan ratio to a multi-year low of 1.7%.

Net operating income amounted to €56.9 million, which is 9.1% lower than the comparable figure of €62.6 million recorded in the first nine months of 2023.

On the expenditure side, total operating costs increased by 4.1% to €41.1 million reflecting continuous investments in human resources, technology, regulatory and compliance requirements as well as general inflationary pressures. As a result, the cost to income ratio increased to 70.8% compared to 62.8% in the same period last year.

Net operating profit fell by 31.6% to €15.8 million from €23.1 million in the same period last year. APS also recorded a contribution of €0.7 million (3Q 2023: €0.2 million) from its share of results of associates.

Profit before tax amounted to €16.5 million, which is 29.2% below last year’s comparable figure of €23.3 million. After accounting for a tax charge of €4.9 million, the Group reported a net profit of €11.6 million (3Q 2023: €15.0 million), which translates into an annualised return on average equity of 5.3%.

The Statement of Financial Position as at 30 September 2024, when compared to 31 December 2023, shows that total assets increased by 7.2% (or €265 million) to €3.93 billion, principally composed of customer and syndicated loans of €3.11 billion (+€227 million), treasury investments of €459 million (-€36 million), and cash balances of €206 million (+€75 million).

Similarly, total liabilities expanded by 7.6% (or €256 million) to €3.63 billion largely reflecting the 9.7% increase (or €305 million) in customer deposits to €3.44 billion which offset the reduction (-€47 million) in amounts owed to banks to €33.4 million. As a result, the loan-to-deposit ratio eased marginally to 90.2% compared to 91.7% as at end of 2023. Shareholders’ funds increased by 2.6% (or €7 million) to €280.1 million, which translates into a net asset value per share of €0.738.

In terms of capital position, the Bank’s s CET1 ratio stood at 14.4% as at 30 September 2024 (31 December 2023: 14.6%) and the Capital Adequacy Ratio at 20.0% (31 December 2023: 20.6%).

Commenting on the performance, APS Bank CEO Mr Marcel Cassar stated that: “The easing of monetary policy and roll-out of interest rate cuts continue to contrast with heightened geopolitical risk and conflicts in various areas, a slowdown in economic growth in China and uncertainty around the outcome of presidential elections in the United States. As banks across Europe, including Malta, have benefited from a profits bonanza thanks to higher interest rates, retail banking strategies will now turn more defensive in the face of increasing headwinds: cost inflation, including from technology and fraud protection, rising customer expectations, uncertainty about interest rates and higher credit risk as post-pandemic economic boosts are now wearing off. At the same time, economic activity in Malta is resilient, although growth is expected to moderate from the high rates experienced in recent years while employment, inflation and debt/GDP indicators remain at healthy levels.

The APS Bank strategy remains focused on delivering simpler banking, by strengthening our products and digital offerings and enhancing the experience for all consumers. We are also taking a broader view of the interest rate cycle, noting that the measures we implemented in 2Q 2024 to ease margin pressures are helping us keep our pricing competitive while supporting profitability. As we continue to see steady growth in our customer and business base, along with improvements in efficiency and revenue potential, the Bank’s and Group’s strategy is focused on gaining scale and scope from the substantial, transformational investment we have been making in technology, talent and systems. We are confident that this will not only consolidate our market position and sustain our competitiveness but will also be in the best interests of all our stakeholders.”