BOV announces strong 2021 financial results despite challenges

The Bank of Valletta Group reported a profit before tax of €80.7 million for the financial year ending 31December 2021.

The Group’s results were announced by BOV Chairman Dr Gordon Cordina and Chief Executive Officer Rick Hunkin through an online press conference.

Financial performance of the Group

• Profit before tax of €80.7 million (2020: €15.2 million)
• Pre-tax return on equity of 7.3% (2020: 1.4%) and earnings per share of 9.6 cents compared with 2.4 cents in the same period 2020.

The underlying operating performance of the Bank demonstrates a resilient income stream with good recovery from the impact of the pandemic in 2020 and growth in some areas, partly offset by higher costs. The much stronger profitability benefited from a net release of Expected Credit Losses (‘ECLs’) reflecting better economic conditions relative to 2020 and individual client asset improvements.

Total operating income was up 4.9% to €242.9 million (compared to €231.6 million in 2020). The Bank’s revenues mostly recovered from 2020 lows as net interest income held up overall and net commission income grew strongly; however foreign exchange income was down due to continued lower turnover.

• Net interest income of €156.3 million increased by €9.5 million versus prior year.
  • Net Commissions at €74.6 million was up by €7.3 million, or 10.9% on financial year 2020, and overall exceeded pre-pandemic levels

Total costs were €195.6 million, increasing by €25.2 million or 14.8%, inclusive of Strategy costs which were up by €7.3 million year over year.

This was driven by:

• Employee compensation increased by €2.2 million, which reflected the need for the Bank to meet regulatory requirements across its functions such as Risk and Compliance, and to reinforce ongoing investments in digital based capabilities.
  • The Bank incurred a total of €6.1 million in specific items such as the €2.6 million fine imposed by Financial Intelligence and Analysis Unit (‘FIAU’) and €1.4 million disbursements on card fraud.
  • Furthermore, costs payable to the Deposit Guarantee Scheme (‘DGS’) increased by €4.8 million during the year as the growth in retail deposits continued.
  • Excluding the impact of items that are not expected to recur and an increase in contribution to the DGS, underlying operating costs increase was €5.7 million, or 3.7%, mainly driven by IT investments due to the Bank’s constant efforts to modernise and digitise key systems.

Net release of ECLs amounted to €18.9 million, compared to the 2020 substantial net charge of €65.1 million which was driven by COVID-19 and Legacy Non-Performing Loans (‘NPLs’).

The Group’s share of the insurance associates’ results was €14.5 million, up by €4 million on prior year, attributable to strong economic recovery, solid growth in our investments business and significant liquidity in the local market.

Financial Position of the Group

• Group total assets reached €14.4 billion as at the end of 2021 – an increase of 11.2% over the previous year. Customer deposits grew by €904.6 million (8.0%).
• Cash and short-term funds increased by €827.7 million or 21.8% over the prior year with the extraordinary increase arising from the Bank’s participation in the TLTRO III Eurosystem funding during the first quarter of 2021.
• The Group’s investment portfolio increased by €260 million year on year and is composed of highly rated securities.
• Net loans and advances increased by €335 million, or 6.9%, during the year and stood at €5.2 billion as at 31 December 2021.
• The ECLs coverage of the credit impaired assets also improved year on year from 50.0% to 54.1%.
• Liquidity ratio stands at 444% reflecting the high deposit growth over the year which outpaced the demand for loans. The Group’s net advances to deposits ratio stood at 44.1%.
• CET 1 ratio increased from 20.9% to 21.9%, and the total capital ratio improved from 24.5% to 25.5% as at end of December 2021.

Dividends

During 2021, a gross interim dividend was authorised of €0.0264 per share amounting to €15.4 million (net ordinary dividend of €0.0172 per share amounting to €10.0 million) which was paid on 28 January 2022. The Board of Directors does not intend to recommend a final dividend for Financial Year 2021. This is in line with the continuous efforts of the Board to maximise long term shareholder value in the Bank.

Deiulemar Update

The Deiulemar claim remains outstanding and continues to be significant. Post year end, a judgement against the Bank was granted by the Tribunal of Torre Annunziata with regards to this case. This outcome does not change the Group’s expectations, based on the opinions of independent legal experts, that the case against the Bank will be found to carry no merit in the higher Court. It thus did not impact the financial results, and the Bank since appealed the judgement. Furthermore, the Bank still considers that it makes commercial sense to seek to resolve this claim at a level not exceeding the potential cost impact. For this reason, the Bank has retained the same settlement offer to the counterparty (the offer was not accepted), without prejudice and with no admission of liability. No further litigation provision was deemed necessary for the year ending 2021.

Update on the Strategic Plan – BOV 2023

In 2020 the Board approved a strategy which plans to take BOV on a digital transformation journey over the coming years. The Bank has embarked upon a major transformation programme for our branches, both operationally, with staff re-training and re-skilling, and with new improved branches that saw the launch of the new Sliema branch and with other branches being converted from the more traditional layout to a new service model that is designed to meet the needs of the 21st century.

We have also focused on migrating transactions towards more efficient electronic means of payment which has resulted in significant volumes of transactions processed electronically and cheques processed down by more than 50%.

Although we have made good progress in a number of areas, we have had to balance the pace of change we would like to make with both managing our staff through a major transformation and the need to ensure our risk and control environment is continually improved to meet current, new, and emerging regulatory requirements. The Bank invested significantly in its credit management and wealth management back-office processes to deliver stronger controls without impacting customer service.

Alongside the transformation we have been significantly enhancing our internal data capabilities, to improve customer understanding and enable us to make better and more informed decisions. We currently have a number of data quality enhancements underway, which will support future product development and customer value propositions.

“The Bank is going through a significant and necessary period of transformation which will leave it better placed for a more sustainable future. This transformation places a significant workload upon our teams. We take this opportunity to thank all employees who face these challenges and are responding so well, reflecting their loyalty to BOV. We remain confident that our ambitious strategic plan, which has started showing early signs of marked improvement in the way we operate and in the quality of service that we offer to our customers, will transform Malta’s largest bank into a more effective, efficient and sustainable Bank for the future.” remarked CEO Rick Hunkin.

In his concluding statement the Chairman of the BOV Group Dr Gordon Cordina remarked that “2021 was another challenging year in which the Bank continued to provide its support to Maltese households and the business community. In 2022, we expect the Maltese economy to continue on its path to recovery, and consequently business sentiment to pick up, particularly in the tourism related sectors. This recovery period will present an opportunity for all stakeholders to embark on the implementation of their post-pandemic plans, and as such, further strengthening the recovery momentum albeit tempered by the wider economic impacts of the war in Ukraine.”