Deiulemar litigation settlement leads BOV to net loss of €76m in first six months

Last Updated on Thursday, 28 July, 2022 at 3:58 pm by Andre Camilleri

Bank of Valletta announces financial results for the first six months of 2022

Bank of Valletta Group today announced the financial results for the first six months of 2022, which the bank said highlighted an encouraging commercial performance in the bank’s core banking activities.

This was driven by volume growth, solid customer activity and continuing strength in credit quality. The bank’s main income lines continue to show steady growth and the capital position remains strong, with resulting capital ratios maintained well above regulatory requirements, the bank said in a statement.

While Bank of Valletta today announced a pre-tax operating profit of €26.1 million, when taking into account the final settlement of the Deiulemar litigation, this resulted in a net loss of €76.6 million for the first six months of the year 2022. The reported net loss post tax was €51.1 million.

In May, Bank of Valletta had announced that it has settled a massive €363 million claim by bondholders of a defunct Italian shipping company for €182.5 million without admitting any liability on its part. The news came as the bank was appealing the forfeiture of a €363 million precautionary security last December, when it engaged with the curators of the bankruptcy of the Deiulemar group, to look into reaching an out of court resolution to the dispute.

In a statement issued today, the bank said its financial performance was led by strong underlying gross profit, derived from an increase of €17.5 million or 15.4% in Group’s revenue over the comparable period in 2021. Net interest income continued to be the main revenue driver with €87.2 million, an increase of 18.8% versus the same period in 2021.

Total assets for the Group stood at €14.4 billion as at June 2022, which was in line with December 2021 levels. Net loans and advances as at end June 2022 stood at €5.3 billion, a growth rate of 4.3% over December 2021, while the liquidity position remained very strong with cash and short-term funds decreasing moderately by €226.1 million or 4.9%

The Board has decided that, notwithstanding the resolution of the Deiulemar litigation and the sustained commercial performance of the Bank during the first half of 2022, no interim dividend is being declared. This decision took account of the net loss reported for the period arising from the settlement of the Deiulemar litigation, and the need to remain aligned with regulatory expectations within this context.

“Grounds being set for a bright future for BOV”– Dr Gordon Cordina, BOV Chairman

On announcing the interim results, BOV Chairman Dr Gordon Cordina stated that these results are a clear indication that the grounds are being set for a bright future for BOV. He also argued that the Bank’s mid-year performance, albeit impacted by the out-of-court settlement of the Deiulemar case, remained strong.

Cordina made reference to the announcement that Malta will no longer be subject to the FATF’s increased monitoring process. “This has eliminated the risk of a prolonged grey listing status, which could eventually have impacted BOV’s performance and our ability to service clients effectively”. He also highlighted Malta’s progressive economic recovery from the downturn caused by the pandemic, which in his own words has enabled the Bank to release most of the remaining credit risk provisions associated with COVID-19. Despite this, commented Dr Cordina, “this impact was outweighed by the additional credit risk provisioning which the Bank has prudently undertaken to cater for the new risks created by the war in Ukraine”.

Cordina made reference to the announcement by the European Central Bank that it intends to progressively raise interest rates. “While this development offers BOV the opportunity to save the costs incurred due to the negative rates that were charged to banks when depositing excess liquidity with the Central Bank, BOV will be evaluating how financial and liquidity conditions evolve internationally and in Malta, to consider the appropriate interest rates on the loans and deposits offered to our clients.”

In his concluding remarks Cordina commented on BOV’s ESG strategy. “BOV will strive towards net zero emissions in its operations, gradually shift towards greener loans and financial asset holdings, and focus on improving financial literacy and the preservation of cultural heritage.”

“Encouraging commercial performance in BOV’s core banking activities” – Mr Rick Hunkin, BOV CEO

Rick Hunkin, BOV CEO, made reference to an encouraging commercial performance in BOV’s core banking activities in the first half of the year. “Our main income lines continue to show steady growth, despite the negative interest rate impact. Offsetting this, we continue to face rising costs driven in particular by rising staff costs and the increasing contributions we have to make to the Deposit Compensation Scheme, which grew in line with our significant deposit growth”.

With regard to the Bank’s strategic priorities throughout the first six months of 2022, Hunkin pinpointed the necessity to balance the delivery of regulatory and compliance requirements whilst continuing to progress initiatives aimed at improving customer service and efficiency. Good progress has been made in streamlining and simplifying the home loans process, with anticipated automation aimed at making the customer service delivery much quicker.

Bank of Valletta’s branch modernisation programme also continues. “Following the changes we made in 2021, a further three branches have been given a refreshed, eco-friendly, and customer-centric layout. Renovation work will now be extended to additional branches across the network.”

In his concluding comments Hunkin stated that the Bank is very conscious of the need to continually evolve, adapting to the ever-changing world and working towards a more sustainable and stable outlook. “Our key focus remains on streamlining and simplifying processes for our clients through continued digitalisation, together with process re-engineering across customer journeys to deliver service improvements and efficiencies.”

Both Cordina and Hunkin thanked shareholders for their continued support, as well as the Executive Team and staff for their valuable work and commitment to support the Bank’s performance.

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