The Bank of Valletta Group reported operating profits for the first six months of the Financial Year 2009 amounting to €10.1 million. This compares with an operating profit of €21.9 million for the equivalent period ended 31 March 2008. The final net profit for the period was reduced by the sum of €3.8 million, being BOV’s share of the results of its Middlesea group insurance associates (2008: profit of €3.1 million). The board declared an interim dividend of €0.035 per share (gross).
Announcing the results, BOV chairman Roderick Chalmers said that the period between mid-September 2008 and the end of February 2009 was “unquestionably, the toughest six month period in the history of modern banking and finance” with major banks across both Europe and the United States that were hitherto pillars of the financial establishment being either nationalised or obliged to seek very substantial financial assistance from governments by way of guarantees and/or additional capital.
The chairman stated that a semblance of calm appeared to have been restored to the markets since the beginning of March, and, although sentiment remained cautious and fragile, the hope was that the beginnings of what was likely to be a long drawn-out period of recovery were being seen. He added that, as was generally forecast, Malta’s wide-open economy had not been immune to the global recession, although the impact to date has been relatively mild. However, Mr Chalmers opined that “a cautious expectation must be that the situation could become more challenging in the short to medium term”.
Looking forward, Mr Chalmers said that conditions have improved somewhat since early March, after a six-month period of extreme stress in the global financial markets. He pointed out, however, that sentiment remained “fragile”, and, in his view, any lasting recovery will inevitably be something of a gradual process, with setbacks occurring from time to time. He stated that BOV’s core retail and corporate banking businesses are soundly based, and are operating satisfactorily, and that the board expected to see a gradual improvement of the net interest margin, with interest rates coming close to the bottom of the cycle.
“A cautious expectation must be that the impact of the global recession will increasingly influence the local economy – and this may be reflected in some deterioration in asset quality, something that is being watched with extreme vigilance,” the chairman said, going on to remark that “ BOV’s Financial Markets book remains of good quality and moderate duration and, whereas some losses will be incurred, the board is confident that a significant proportion of the unrealised Fair Value markdowns booked to date will be recovered over time, as the investments concerned are held through to redemption.”
Roderick Chalmers reiterated that BOV would continue with its conservative funding, liquidity and capital ratio policies – policies which the chairman said, had enabled it over the past 18 months to “navigate through some of the toughest conditions experienced in the banking markets for many generations, while at the same time continuing to provide credit and liquidity to the Maltese economy and to our customers in the retail and business communities”.
He said that whereas the market conditions that had been experienced have inevitably had a short-term impact on the profitability of the bank, any stabilisation of conditions will be “quickly reflected in improved results”.
Ending the press conference, Mr Chalmers defended the bank’s decision not to follow the ECB rate cuts the last two times. The bank now operates in a pan-European competitive area, he said, and any further decrease in the bank’s interest rates would put the bank at a disadvantage compared to international banks. In the US, for instance, Mr Chalmers added, where the Fed rate is 0, the main banks’ rates are five per cent, as it is in Europe.