APS Group registered a pre-tax profit of €15.8 million for the year that ended 31 December 2020, down from the €26.8 million pre-tax profit registered the year before.
The Bank posted a pre-tax result of €15.5 million in 2020.
The Annual Report and Audited Financial Statements were approved by the Board of Directors on Thursday.
Net interest income grew by 9.4% to €48.9 million, driven mainly by the continued growth in the Bank’s lending book.
Interest receivable on loans and advances increased by €5.8 million to €56.5 million, counterbalanced by a €1.5 million contraction in interest receivable on debt securities used for liquidity purposes.
This was largely the result of maturing fixed-income securities repricing at lower rates of return and was compounded by the pandemic-related financial market volatility. Other operating income totalled €7.9 million, dropping by 34.4% from the €12.0 million reported in 2019. This was mainly a result of the performance of the APS Diversified Bond Fund and the APS Global Equity Fund, which during 2020 recorded net gains on financial instruments of €0.5 million as opposed to the €4.0 million for 2019. Fees, commission and other operating income remained flat on the preceding year.
Operating expenses increased by 15.8% to €35.2 million which, on the back of slower revenue growth and lower business volumes as from 2Q2020, raised the cost-to-income ratio to 61.9%. But the higher overheads were largely due to the continuous investment in human capital, in technology and various projects, including to the physical infrastructure and branch network, that are ultimately contributing to an enhanced customer experience. There was an increase in costs related to regulatory requirements and COVID-19 preventive measures. The Group has placed cost optimisation as one of the pillars for its sustainable growth and continuously aims for higher efficiency but not at the expense of quality, service or safety.
Impairments against expected credit losses for the year amounted to a net charge of €5.5 million, a five-fold increase over 2019. This is attributable to a) the general growth in the lending portfolio, as well as b) the classification of a higher level of Stage 2 assets reflecting the increase in credit risk due to uncertainty in the current economic environment. Notwithstanding, the Group’s risk appetite has yielded its expected results as no new loans of significance were transferred to Stage 3/Default status. The Group continues with its vigilant approach to risk management, ensuring adequate quality of its obligors and collaterals, whilst increasing monitoring of credits which have faced the biggest impact during the ongoing crisis.
Financial Position
Group total assets as at 31 December 2020 expanded by a further €252 million, or 11.6% reaching €2.4 billion. Lending activity grew by 13.8% to reach €1.8 billion, with over 60% of the growth coming from households and mortgage financing. In terms of liquidity management, debt securities stood at €316 million, up by 32.7% on 2019 while balances held at the Central Bank of Malta reduced as planned to €108 million.
Funding grew by 12.0% to reach €2.2 billion, resulting from increases in both customer deposits and €55 million from the 10-year 3.25% Subordinated Bond issued during 4Q2020. The year closed with Group equity of €206 million, an increase of €14.3 million compared to prior year. The Group’s CET1 ratio stood at 15.1% (2019: 16.2%) and the Capital Adequacy Ratio at 19.5% (2019: 16.2%) – both ratios well above the regulatory minima including buffers. The Directors will be recommending the payment of a scrip dividend of €3.7 million (net dividend of €2.4 million) (2019: Nil) in line with the ECB and MFSA recommendations, and subject to regulatory approval.
Strategic outlook
Marcel Cassar, Chief Executive Officer, commented: “Unlike the 2008 financial crisis, we are experiencing a catastrophe of the real economy not of banks, which are stronger and more resilient today. While an effective vaccine may signal the start of a rebound in terms of human health, a return to business normality is still way off. As governments and banks continue to extend their assistance and loan moratoria into 2021, the coming months are critical to assess the scale of risk and how robust the economic recovery will be. All this poses on APS Bank added challenges and responsibilities as an increasingly important player in the Maltese system. In 2020 we continued to strengthen our product range, technology platforms, market reach and governance standards but our priority was to be a pillar of support for Maltese businesses and families. As a leading community bank, our 3-year rolling Business Plan 2021-2023 charts the way to deliver all that in the right balance of prudence and optimism of brighter times ahead.
We posted the best possible results in what are probably the most challenging circumstances, considering European peers and benchmarks and even our own forecasts. 2021 will see us making progress for the next phase of our capital development plan, targeted for 2022. Our campaign to raise what would be the largest ever round of capital for APS Bank will demonstrate our long-term commitment to the Maltese economy, underpinned by a strategy and business model that are always true to our values.”