Lombard Bank half-yearly results for 2020

Updated on

During a meeting held on 27 August, the board of directors of Lombard Bank Malta plc approved the Interim Unaudited Financial Statements for the six months ended 30 June for the Lombard Bank Group, consisting of the bank and Redbox Limited (the company holding the bank’s shares in MaltaPost plc). Profit before tax for the six months amounts to €5m (June 2019: €6.2m).

  • Group Profit before Tax was €5m (H1 2019: €6.2m).
  • Profit Attributable to Equity Holders was €3.1m (H1 2019: €3.8m).
  • Group Operating Income was €28.9m (H1 2019: €29.9m).
  • Bank Cost-to-Income Ratio stood at 59.6% (H1 2019: 47.4%).
  • Customer Deposits stood at €900.7m (FYE 2019: €865m).
  • Loans & Advances to Customers reached €557.1m (FYE 2019: €552m).
  • Group Total Assets stood at €1,077.6m (FYE 2019: €1,042.3m).
  • Bank Advances to Deposits Ratio was 61.4% (FYE 2019: 63.5%).
  • Total Capital Ratio stood at 15.9% (FYE 2019: 16%).

Directors’ Report

The first half of 2020 has been extraordinary with COVID-19 having a major impact on individuals, businesses and the world economy as a whole. During this period, we sought to adapt to the circumstances and changed our operations accordingly so as to remain effective in meeting the needs of our customers. This we did efficiently and to our customers’ expectations. However, in the wider context, most economic sectors experienced substantial disruption to activities with negative consequences that could well take years to recover from.

The Group has in place contingency plans which include various measures that are being executed as the situation unfolds and circumstances evolve. These plans are monitored and updated on an ongoing basis while constant risk assessments are undertaken in line with developments and recommended measures issued by the Government of Malta, Public Health Authorities and regulators from time to time.

Although it is difficult to quantify the impact of COVID-19 on the Group’s business, the pandemic has directly or indirectly dented the results for the first half of 2020. Whereas we had a strong start to 2020, however, as the year progressed and uncertainty increased, stress on margins on most operational lines of business became more prevalent.

Against this setting the Group registered a Profit before Tax of €5m, down from €6.2m for the same period last year while the bank’s Profit before Tax was €3.6m, down from €4.8m in H1 2019. The resilient performance by both the Group and the bank is considered to be satisfactory and in line with revised targets for the period in the context of the economic downturn.

Loans and Advances to Customers increased marginally by 1%. Customer deposits rose by 4% while the resultant Group Net Interest Income of €9.3m was 9% lower and remains the main revenue driver. Persistent low interest rates continue to put pressure on interest margins.

The bank relies on a diversified liquidity funding base, which over the years has proven to be relatively stable, while the impact of low-to-negative interest rates continues to be well managed.

Fee and commission income for the Group was down by 11% mainly on the back of much lower volume of transactions reflecting the reduced economic activity especially in the second quarter of 2020.

Group Employee Compensation and Benefits rose by 3% and are expected to continue to increase in view that the Group employs and wants to retain high-quality staff. While operating costs remain under control, compliance obligations continue to present significant challenges both in terms of expense as well as human resources.

COVID-19 necessitated increased costs in ensuring that maximum safety is integrated in the working environment for the benefit of staff and customers.

The charge for Credit Impairment Losses as determined by International Financial Reporting Standard 9 (IFRS 9) for H1 was €1.1m compared to €1.9m in the comparative period last year. The bank continued to experience an increase in alignment by borrowing customers to the terms and conditions of sanction. At the reporting date the asset quality of the bank’s financial assets remains sound and there is no evidence of an increase in Credit risk. The bank will continue to closely monitor its exposures in the light of developments so as to align the Expected Credit Loss as determined by IFRS 9 accordingly.

Both Common Equity Tier 1 Ratio as well as Total Capital Ratio stood at 15.9%, Regulatory minimum in terms of EU Regulation No. 575/2013 being 4.5% and 8% respectively.

Bank Advances to Deposits Ratio was 61.4% (FYE 2019: 63.5%), indicative of a healthy liquidity buffer. These results confirm that the strategies implemented by the Group provide a solid basis for continued strong growth.

The uncertainty that this pandemic has brought with it calls for continuous fine-tuning and swift judicious action – be this in respect of our day-to-day operations as well as our business plan itself.

Notwithstanding these challenges and the uncharted territory that may lie ahead we are confident that we have in place robust financial fundamentals, a dedicated and competent workforce as well as the appropriate work ethic to see us through such unprecedented times.

Annual General Meeting

On 23 March, the bank had issued a Company Announcement (LOM 240) informing the market that in view of the circumstances arising from the COVID-19 pandemic, including the restrictions on mass events, the board of directors had decided to postpone the bank’s AGM which was previously scheduled for 23 April.

In accordance with Legal Notice 288/2020, the bank will be availing itself of the extension period granted for the holding of the AGM. A date will be announced in due course and further information will be published on the bank’s website www.lombardmalta.com in the Investor Information section.

Dividend

Reference is made to the Company Announcement of 7 April (LOM 241) wherein the bank, inter alia, confirmed its original recommendation for the payment of a final gross dividend of 7 cent (net dividend of 4.55 cent) per nominal €0.25 share, subject to the following:

1.         In line with the European Central Bank Recommendation on dividend distributions during the COVID-19 pandemic (ECB/2020/19) of 27 March and the relative Malta Financial Services Authority Circular of 2 April, the dividend distribution shall not occur earlier than 1 October; and

2.         The recommended dividend distribution is reassessed once the situation due to the COVID-19 pandemic is no longer uncertain. At a meeting held on Friday, the board of directors took note of the ECB Recommendation on dividend distributions during the COVID-19 pandemic (ECB/2020/35) of 27 July (and the relative MFSA Circular of 28 July), which inter alia repeals ECB Recommendation ECB/2020/19 referred to above and states that until 1 January 2021 no dividends are paid out and no irrevocable commitment to pay out dividends is undertaken by credit institutions for the financial years 2019 and 2020.

On the basis of the above, the Board has resolved to withdraw its recommendation of 23 March for the payment of a final 2019 dividend. The bank remains committed to ensuring that the best interests of all its stakeholders are given priority and are safeguarded. The bank thanks its shareholders, customers and staff members for their continued support, commitment and understanding during these unprecedented times.