Last Updated on Saturday, 29 July, 2023 at 9:43 am by Andre Camilleri
Bank of Valletta on Thursday announced the BOV Group financial performance for the six months ended June 2023, reporting a profit before tax of €105.1 million, compared to a pre-tax loss of €72.1 million (restated) during the first half of last year. The Group’s 1H 2022 profit has been restated by €4.6 million in profits from associates, following the implementation of IFRS 17 by the Group’s associated companies.
Group Financial Performance
Positive results in the first half of 2023 were led by a significant improvement in the Group’s Operating Revenues to reach €202.5 million, up by €71.2 million, (54%), over the first half of 2022. Net Interest Income remains the leading driver with €159.9 million, an increase of €72.7 million (83%) on June 2022. This was due to the consistent growth in customer lending and investment securities portfolios coupled with further benefits from the upward repricing of interest rates.
Net Fee and Commissions, Exchange and other revenues stood at €42.7 million, down by €1.5 million (3.3%). Net commissions declined by €2.8 million, (7.4%), over the same period last year due to the removal of deposit-related fees and a persisting slowdown in investment-related commissions. An increase was registered in foreign exchange revenues.
Operating costs for the interim period amounted to €93.0 million, up by €5.3 million, (6.0%), compared to June 2022. This was primarily driven by higher employee compensation as the Group continues to invest in human capital, partly offset by lower contributions to the Depositor Compensation Scheme.
Group Financial Position
Total assets for the Group stood at €14.3 billion as at mid-2023, lower by 1.4% compared to the year ended 2022 (2022 as restated: €14.5 billion).
The funding of the Bank remains dominated by customer deposits with close to 70% driven by the retail segment. Balances on customer deposits declined by 2.7% during 2023, resulting mainly from corporate customers. The Bank is supporing its personal and corporate customers to manage their liquidity held in bank deposits, through opportunities in the capital markets. Group’s gross loans to deposits ratio stood at 49.2% up from 46.0% in December 2022, in line with the Bank’s strategy.
Net loans and advances to customers as at 30 June 2023 reached €5.8 billion (Dec 2022: €5.6 billion), a growth of 4.4% on December 2022. The higher increase was in corporate loans as the retail lending portfolio advanced at a slower rate. Excess liquidity in cash and short-term assets dropped by €540.1 million to €2.85 billion by mid-year. Funds were utilised towards the growth in the customers‘ loan book and investments in treasury assets.
Tangible sign that the outlook for BOV is bright – BOV Chairman Dr Gordon Cordina
Speaking during the announcements, BOV Chairman Dr. Gordon Cordina stated that the positive performance registered during this period reflects the activities of the Bank to optimise its performance within the opportunities created by the higher interest rate environment.
“With the goal of curbing euro area inflation, the ECB raised interest rates by 400 basis points over the past twelve months. Further increases are possible, however a normalisation of interest rates is to be expected in the medium term. In this context, the Bank is pursuing opportunities for investment to ensure sustainable returns in the medium to long term from treasury activities and loan portfolio. The Bank maintained its base rate unchanged, continuing to offer mortgages and most business loans at attractive rates. Borrowing clients were shielded from sudden rate changes, avoiding potential financial stresses at a time of high inflation. The Bank commits that should circumstances warrant changes, these will be gradual and timely communicated”.
Dr Cordina moved on to indicate that the Board is now in the process of compiling forward-looking data and analyses in order to consider the payment of a dividend out of the profits realised in 2023H1. As explained at the Bank’s latest AGM, dividend decisions at BOV are not based on a simple calculation but need to meet important risk and other regulatory criteria, which focus on the strength and viability of the Bank’s future business. This is essential to safeguard the best interests of our shareholders and wider stakeholders.
BOV committed to exceed customer expectations – CEO Kenneth Farrugia
BOV CEO Kenneth Farrugia stated that in the first half of 2023, the Bank continued to strengthen its position as a leading financial institution in Malta. “The positive financial results have been driven by more than 50% growth in operating revenues, supported by consistent growth in our lending book and solid returns from treasury investments. Costs increased by mid-single digit as efficiency measures are underway, coupled with paced implementation of our strategic initiatives.
Throughout the first half of 2023, we remained steadfast in our efforts to enhance the overall banking experience for our valued customers. We are investing in business process re-engineering, technology and digital infrastructure to provide seamless and convenient banking services. Our digital platforms are undergoing substantial improvements to offer enhanced security, efficiency, and a wide range of digital banking solutions”.
Talking about the Bank’s strategy Kenneth Farrugia stated that the Bank’s focus has been to drive operational efficiency, ensuring regulatory compliance, embracing digitisation, enhancing customer service experience, and improving the retail network. These efforts aim to position the Bank for sustained growth, profitability, and customer satisfaction.
Both the Chairman and CEO reaffirmed the Bank’s commitment to its core values of trust, integrity, and innovation. The prioritisation of ESG will be inculcated in the Bank’s upcoming strategy. The Bank will continue to sustain its role as a responsible corporate citizen, aiming to meet and exceed regulatory requirements and expectations. The satisfactory results augur well for the year and for the availability of resources to safeguard the Bank’s capital strength. They will also constitute an important consideration in the Board’s approach to the management of the Bank’s capital in the coming months.