The BOV Group reported a Profit before Tax of €46.5 million for the first quarter of 2023, up by €24 million from the same period last year. Commenting on this result, BOV Chairman Dr Gordon Cordina stated that the Bank is on a positive trajectory, focused on supporting the sustainable and sustained growth of the Maltese economy. He noted that this result was achieved while the Bank kept its main interest rates as stable as possible in a period of exceptionally high inflation, while providing its customers with better choices to manage their wealth and provide for their pension income. BOV CEO Kenneth Farrugia observed a buoyant commercial performance across core banking activities in the first quarter of 2023, underpinned by a reinforced focus on customer service. He emphasised the efforts being pursued centred around the optimisation of the Bank's business and operational service model, compliance with applicable regulations, enhancing the Bank's product suite and digitising the Bank's operations.
Main Performance Indicators
Revenues at €95.5 million were €36.6 million higher than in the first quarter of 2022, almost wholly generated by growth in net interest income. The Bank estimates that around one-fifth of this growth reflected the pass-through of the increase in interest rates effected by the European Central Bank, mainly to Euribor-denominated loans to business customers. Growth in business and home loan portfolios also contributed to the higher net interest income, as did higher effective rates on the home loan portfolio through the repricing of facilities granted at temporary competitive interest rates in recent years. The Bank has also taken opportunities to deploy liquidity at better returns in the securities markets, generating one-fourth of the growth in net interest income. The Bank has furthermore benefited from positive returns on excess liquidity balances held at the Central Bank, reversing a long period of negative returns. This was contrasted by the cost of the 10% Callable Senior Non-Preferred Notes issued by the Bank in December 2022 to meet regulatory requirements.
Net fee and commission income was lower when compared to the same period last year, but this was mainly due to the timing of specific services performed during the year. A strong performance in foreign exchange income persisted in Q1 2023.
Operating costs for the first three months of 2023 were up by 2.8% versus the same period in 2022 due to increases in employee compensation and modernisation of the Bank's technology. Strategy investment costs doubled when compared to the first quarter of 2022. This was in line with expectations, given that, in the previous year, the Group focused resources on regulatory commitments resulting in a relatively slower pace in the delivery of strategic initiatives.
A net Expected Credit Losses charge of €5.0 million was recorded in the first quarter. This net charge was partly a normal consequence of the growth in the loan portfolio, as well as improved coverage levels for riskier exposures.
The share of results from insurance associates further enhanced financial results in the first quarter, largely driven by the volatility of global financial markets during the same period in 2022 caused by the outbreak of war in Ukraine.
Net loans and advances grew by 1.5% when compared with year-end 2022 with growth in both retail and business lending. Customer deposits were lower by 2.3% from December 2022, with continued growth in personal deposits but offset by a decrease in corporate deposit levels. These developments led to a favourable increase in the Bank's loan-to-deposit ratio. The Bank's liquidity ratios remained strong and regulatory capital ratios continued to well-exceed regulatory capital requirements.
Bank Continues Positive Trajectory - Dr Gordon Cordina, Chairman
On announcing the results for the first quarter of the financial year 2023, BOV Chairman Dr Gordon Cordina stated that the Bank's performance is extremely encouraging, and a clear indication of the positive trajectory that the Bank has been on during the past months.
"The international and local economic scenarios within which the Bank operates continue to offer both challenges and opportunities. The uncertainty brought about by the outbreak of the war in Ukraine continues to persist in 2023, bringing about its fair share of instability. On the other hand, the continued forecasted economic growth for Malta offers the Bank further opportunities for development."
Dr Cordina continued by stating that Bank of Valletta continues to play a leading role in Malta and the Maltese Economy, and the Bank will continue to invest in its operations, governance, and people to continue shaping banking in Malta.
"The Bank has kept interest rates as stable as possible in a period of high inflation. It is investing heavily in digital solutions, using the latest technology to provide modern banking solutions, online banking tools and digital portals that make banking more efficient and convenient. At the same time, it is redoubling its efforts on ESG initiatives across all lines of business, to prepare for the regulatory and market requirements coming in the immediate term. These efforts are aimed at providing more value to our customers and other stakeholders, and the results we are announcing today continue to reinforce this drive towards renewal and growth".
Sustained commercial performance - Kenneth Farrugia, CEO
Bank of Valletta CEO Kenneth Farrugia referred to a sustained commercial performance across core banking activities in the first quarter of 2023. "Following the positive results announced a few weeks ago obtained by the BOV Group for the year ending December 2022, I am extremely pleased with the momentum that the Bank has maintained, manifested in a steady growth in revenues and a Profit before Tax of €46.5 million.
As we progress during the year, we will continue our journey, which centres on the optimisation of our business and operational service model, digitialising the Bank's operations while offering a seamless service across all touchpoints through our professional and dedicated members of staff."
Kenneth Farrugia elaborated on the various initiatives, improvements, and investments that the Bank has been making. "We continue to optimise our service offering both in our bricks-and-mortal channels and in the digital sphere. The Bank has a large network of 34 branches and an extensive fleet of over 91 ATMs around Malta and Gozo. We continue to renovate our branch network to offer modern spaces, while making use of renewable materials in line with ESG principles.
We have introduced a number of service enhancements over the past months. These include amongst others, a cashier priority service for the elderly on Fridays and Saturdays, and enhanced the service offered by the 'Meet and Greet Officer'. Other recent developments include the extension of opening hours in ten branches across Malta and Gozo, improvements in the way ATMs manage cash deposits and withdrawals, as well as reengineering and centralising processes to increase efficiency and improve the service delivery to our customers. Other initiatives also include the launch of a chatbot at our customer service centre which is further facilitating the ability for customers to service their requirements.
On the digital front we are investing in completely new digital channels that will see the Bank offer an enhanced mobile and internet banking solution. We have also recently launched a home loan portal that allows customers to apply for a home loan from the comfort of their home, thereby making the experience more efficient and accessible.
Lastly, the Bank offers a variety of products to suit the different financial needs of our customers, from basic deposit accounts to an extensive selection of investment solutions such as investment plans and pension plans, as well as investment advice and portfolio management. This complements our efforts to ensure the financial wellbeing of our customers in their journey towards retirement. We recently also introduced a voluntary occupational pension scheme (often also referred to as a workplace pension), that is an ideal vehicle for employees to save for their retirement. We are currently holding various meetings with our corporate clients in this regard. In addition, we have a strong private banking service proposition offering personalised discretionary and advisory services which is complemented by the presence of a number of Investments Centres across Malta and Gozo."
Kenneth Farrugia concluded by stating that the Bank is now in the last year of its 2023 Strategy where the Bank is taking forward several initiatives across key strategic areas which are all intended to strengthen its position as Malta's Bank of Choice. In parallel, the Bank has initiated the formulation of a new strategy to cover the next three years.