Profit before Tax for the Lombard Bank Group increased by 7.6% to €4.7m for the first six months of 2017, compared to €4.4m in the same period last year. This result was achieved despite the impact of historically-low and, at times, even negative interest rates and more costly regulatory compliance requirements.
The bank experienced strong activity in most of its business lines but remained cognisant of its prudential limits. MaltaPost, the bank's main subsidiary, also achieved its objectives providing an increase in Profit before Tax of 9.8% during the first six months of its financial year.
The results for the bank in 2016 had included a one-time significant item which amounted to €1.3m and was included under Other Operating Income.
Net Interest Income at bank level for H1 2017 rose by 1.9% from €7.0m to €7.1m.
The unfavourable interest rate environment persisted, putting further downward pressure on Interest Margin. The bank managed these rates, which were absorbed and not passed on to its customers. This cost was mitigated by additional interest earned from a volume increase of 13.5% in Customer Loans and Advances, thus resulting in a positive net interest margin.
Customer deposits decreased marginally by 1.2% since December 2016 with customers opting for shorter deposit maturities, and this contributed to a lower Interest Expense.
The bank remains well funded and supported by a diversified portfolio of retail deposits. The increase of 39.5% in Fee and Commission Income for the bank was mainly attributable to higher levels of credit activity as noted above.
Postal sales and other revenues continued to experience positive trends in international mail services, registered mail and parcel volumes.
Costs relating to Employee Compensation and Benefits reflect the highly competitive labour market and are currently proving to be challenging. Other significant costs associated with Risk Management and Compliance continued to rise resulting in a Cost-to-Income Ratio of 49.0%, up from 43.1%.
The bank increased Impairment Allowances to €24.6m thereby hedging against any possible adverse developments in its lending activity, in line with its prudential financial management practices. Given the high level of tangible security held against the loan portfolio as well as an overall satisfactory asset quality, the bank considers this level of provisioning to be adequate.
Common Equity Tier 1 Ratio (CET1), for which the Regulatory minimum is 4.5% in terms of EU Regulation No. 575/2013, stood at 13.8% while Total Capital Ratio was 14.0%, well above the transitional and fully loaded regulatory requirements.
The bank experienced an expected increase in its Risk Weighted Assets as a result of the expansion in lending and investment activities during the period reviewed. Group Loan to Deposit Ratio stood at 54.8%.
The Board of Directors notes that despite the persistently difficult operating environment, the bank's performance continues to be characterised by robust operating fundamentals, prudent financial management and a high quality customer base.
For the second part of the current financial year, the Board is confident that the current momentum of business growth will deliver a strong earnings performance, as the Group remains committed to increase stakeholder value.