The Bank of Valletta Group today announced a profit before tax of €54.3 million in the first six months of 2019, representing a pre-tax annualised return on equity of 10.7%. For the comparative period of the previous year, the Group registered a pre-tax profit of €13.5 million, which included a litigation loss provision of €75 million.
Group operating income, which has remained at last year’s level, amounted to €127 million. Recurrent costs amounted to €81 million, an increase of 27% over the comparative period. The increase in costs arose mainly on fees and expenses related to the Bank’s ongoing transformation programme and on the substantial recruitment of resources in the Group’s control functions. The impairment charge for the period is just under €1 million, compared to reversals of €20 million booked for the corresponding period.
Customer deposits grew by €223 million over December 2018, to reach €10.6 billion. Net advances at amortised cost increased by €126 million over the same period and stand at €4.5 billion. Shareholders’ funds, comprising capital reserves, has topped the €1 billion mark for the first time in the Group’s history.
Concurrently, the Standard & Poor long term credit rating for the Bank has been lowered from BBB with a negative outlook, to BBB- with a stable outlook. Short term rating was revised from A-2 to A-3. The agency attributed its decision to perceived weaknesses in the Bank’s internal control frameworks and to the potential impact of ongoing litigation cases. It then cited the Bank’s sound franchise, customer confidence and ample liquidity as being among its major strengths.
When commenting on the results, BOV Chairman Deo Scerri explained that the Group is now operating “in full transformation mode”. He stated that Bank of Valletta has embarked on a two-year transformation programme, in agreement with its supervisors, with the assistance of two international consultancy firms. “The aim is to ensure the long-term sustainability of the institution, by reducing the risk profile of the business model, strengthening capital buffers and enhancing the anti-financial crime framework. The increased costs reported in these results primarily reflect the costs of this programme. We do not see these costs as recurring overheads, but as a solid investment in the future.”
Scerri expressed his satisfaction at the operating income reported for the six months. “We are in the process of exiting a number of businesses and closing down a large number of higher-risk relationships, all of which naturally result in a loss of income. The situation is further impacted by heightened competition from non-traditional players and by the persisting low interest rate environment. Despite all this, the Group has managed to maintain the same income levels as last year. This shows the resilience of our core operations.”
Turning to the S&P rating action, the Bank Chairman stated that this had not been unexpected, in view that the rating outlook had already been set as ‘negative’ last year. He affirmed that the main factors underlying the rating decision - notably the need to strengthen internal controls, governance and oversight - were already being addressed through the transformation programme and expressed confidence that these be reflected in future rating actions.
Scerri referred to the Bank’s USD clearing situation, and announced that Raiffeisen Bank International had recently opened accounts denominated in US dollars for BOV. The Bank’s short term objective - which is on the verge of being achieved - is to put into place the necessary mechanism to enable it to offer full USD services. The longer term objective is that the Bank will have access to a wider network of USD correspondents.
The BOV Chairman also commented on the Board’s decision not to distribute an interim dividend. “The Board has chosen to retain its prudent stance, and has resolved not to declare an interim dividend, with the aim of further strengthening the Bank’s capital buffers, especially in the context of its status as a systemically important institution. This is in line with our strategy of foregoing short term benefits in the interest of long term stability. The situation will be re-assessed at the year end, in consultation with supervisory authorities.”
Scerri expressed his full confidence in BOV’s future as a strong, secure and profitable institution. “The ongoing transformation programme will result in a stronger and safer bank, that will continue to play a leading role in tomorrow’s economy, while delivering fair and sustainable returns to its shareholders,” concluded the Chairman.