Two Maltese banks announced their half-year figures this week or held their AGM. Fittingly, but in a different manner, they both explained how they will focus on the changeover to the euro and how they will each try to derive benefit from it, or at least minimise its impact.

BOV: New products to mop up hoarded money

At a press conference announcing the bank’s half year results (operating profit up 29.2 per cent to Lm24.3 million, announcing an interim dividend of 6.75 cents per share, up 22.7 per cent, with earnings per share at 14.7 cents, up from last year’s 11.7 cents), Bank of Valletta’s CEO, Tonio De Pasquale, said, in reply to a question that the bank will be coming up with further products to mop up what is called the “hoarded money”, which must come out of hiding because of the changeover to the euro.

Bank chairman Roderick Chalmers said the bank will incur a certain amount of costs to change its systems to the euro and also for the physical efforts that must be made as changeover day looms.

Mr Chalmers admitted the banks would lose the money they now make on exchange of the euro but said the bank is studying how it can replace this lost income. However, the changeover to the euro will surely affect next year’s profits.

Mr Chalmers added the bank would now face increased competition as regards loans since after accession to the euro, loans to Maltese citizens will be able to be made from any bank in euroland, especially at the quality end of the market.

Mr Chalmers said the results for the six months under review were underpinned by a number of factors. “We have seen an increase in net interest income of Lm3.5 million, which was driven, primarily, by robust growth in the loan book and a favourable (rising) interest rate environment. Concurrently, we have continued to focus on improving the quality of our loan book. During the first six months of FY 2007, we saw a reduction of Lm3.1 million in the impairment charge – the result of continuing improvement in credit quality and certain recoveries of sums previously provided for,” explained Mr Chalmers.

“We have continued to witness a consistently improving trend, with non performing loans as a percentage of the total loan book reducing to 5.9 per cent as at 31 March, down from 8.4 per cent last year, and 11.7 per cent just 24 months ago” said Mr Chalmers. Net impairment losses amounted to Lm0.8 million, compared to Lm3.9 million in March 2006.

The strong results achieved for the first half of FY 2007 were also assisted by management’s focus to keep costs under tight control. “Total costs, amounting to Lm16.2 million, increased by Lm0.4 million, or just 2.5 per cent, over March 2006. The main components of this increase are higher personnel remuneration, contributions to the community and IT depreciation. Indeed, this focus on effective cost management enables us to report a further improvement in our cost to income ratio from 41.1 per cent in March 2006 to 39.3 per cent for this half year,” said Mr Chalmers, who highlighted that this ratio places BOV among the best performing banks in terms of cost efficiency by any standard.

The chairman observed that overall, operating profit before impairment and associates increased by a satisfactory rate of 15.9 per cent from Lm19.9 million in March 2006 to Lm23.1 million for the current period.

Lombard Bank: Focus on investment opportunities and real estate

Speaking at the Lombard Bank annual general meeting last week, CEO Joseph Said said the bank was on the look out for investment opportunities everywhere in euroland since with euro accession, it will be able to invest some Lm100 million whereas today it is limited to investing just five per cent of its holdings.

The bank’s other focus is on the real estate sector. We have what is probably the best property team on the island, Mr Said said. Real estate is Malta’s real industry, as manufacturing is on its way out. The bank does not think there will be a property crash since one can still purchase properties at the same price as a mid-level luxury car. It could be that pricey penthouses will have to reduce their value in case of no sale but he doubts if the same will happen to mid-level maisonettes and apartments.

During the AGM, the shareholders approved the financial statements of the bank for the year ended 31 December which show a record profit before tax of Lm3.867 million, compared to Lm3.666 million for the 12 months ended 31 December 2005.

Chairman Christian Lemmerich advised the shareholders that while net interest income rose by 10 per cent, largely driven by a 14.4 per cent growth in credit activity, net fee and commission income increased by 10.5 per cent. A very satisfactory Cost to Income ratio of 35.1 per cent was achieved despite the absence of significant economies of scale.

The meeting also approved the directors’ recommendation to declare a final gross dividend of 12c5 per share.

Part of the discussion centred on the bank’s acquisition of a 35 per cent shareholding in Maltapost from Transend. Shareholder Joseph Bonnett suggested the bank should send more letters so as to increase Maltapost’s bottom line but Mr Lemmerich replied the bank looks on this investment as one of strategic importance that, given Maltapost’s various outlets all over Malta, should result in added value to shareholders.