BoV's three-pronged strategy

In a presentation to stockbrokers, Joseph F.X. Zahra, chairman of the Bank of Valletta Group, discussed at length the strategies being followed by the bank in its efforts to create shareholder wealth and deliver results.

Mr Zahra noted that even though stockbrokers and financial analysts normally focused on financial results to assess a company, in order for a company to deliver good results, and do so consistently, rather than as a fluke, the bottom line has to be supported by solid work stemming from a viable strategy.

The bank had a whisker less than Lm2 billion in total assets as at the end of March. It had slightly under Lm1 billion at the end of March 1997. Total assets, therefore, doubled in seven years, a compounding growth of 10 per cent per annum.

Seven years ago, total shareholders' funds were at Lm58 million. They are now at Lm129 million, an increase of 12 per cent compounded per annum, not including the dividends paid.

Mr Zahra gave a detailed presentation on the bank's three-pronged strategy for delivering shareholder wealth. First, the bank is pushing itself towards growth in its banking business, its core activity. Second, it is following a programme of diversifying its sources of income, by providing life insurance, investment funds, and other services. The last leg of this strategy is to control costs. The three prongs are tied together by a customer-centric focus.

In order to follow a strategy and achieve results, one has to have all the different resources in place. In this regard, BoV has, over the years, put together a competent, relatively young, motivated management team. It is in the final phases of removing all back office functions from branches. It has just finished the construction of a state-of-the-art operations headquarters in Santa Venera and it is expected that the first departments be transferred there early next year. This means that while revenue and delivery channels are being diversified, operations are being centralised.

To have a good labour force, merit must rule. To this end, BoV has reached an agreement with all the parties concerned that henceforth promotions shall be based on merit not seniority. All the different jobs were evaluated, consultants were called in to assist in the process, and Mr Zahra gave special thanks to the unions who understood the need for change and cooperated with management.

The bank has also started giving special importance to succession planning by identifying "hipos", meaning high-potential, or high-ability, workers. "We know that giving people recognition is a great motivator," said Mr Zahra.

According to Mr Zahra, one means by which the group is delivering wealth to shareholders is by working towards a target of two new financial products every month. This is a tough challenge, and needs that everyone be focused and be willing to learn. Growth is also being achieved by endeavouring to be a round the clock bank, with services available 24 hours a day, seven days a week. This is being achieved via internet banking, ATMs and mobile banking.

Another means of delivering to more people is by being in more places. BoV has three representative offices in southern Europe, one in Canada, and another one in Australia. Currently it is studying which representative office could be upgraded to provide banking services. BoV is also putting its expertise in various areas to good use by taking on certain consultancy assignments.

BoV Group can be said to be Malta's premier patron of the arts. In a very cost-efficient manner, it regularly supports a wide variety of art and cultural initiatives, including historical publications and a very important series of retrospective exhibitions of major Maltese artists.

Interim results for the six months ended March 31 were very strong. Net interest income increased by 12 per cent over the equivalent period last year because, although interest received fell, strong margin management ensured that interest payable falls by even more. In addition, commission income, trading profits, associated companies' and other income all increased. Total revenue increased by 12 per cent, from Lm25.2 million in the equivalent period to Lm28.2 million during the six months under consideration.

Administrative expenses increased slightly, by five per cent, mostly as a result of regulatory expenses, including the regulator's new supervisory fee, and training costs. Non-personnel costs, however, fell. A "final" charge was made against loans, to get the bank compliant with Banking Directive No. 9, which lays down strict, non-discretionary criteria to provide against potential bad loans.

Profit before tax was ahead by 25 per cent over comparative figures. Profit after tax and after minority interests for the six months was Lm5.4 million (October 2002-Mar 2003: Lm4.4 million). Earnings per share for the six months were 9c8. Adjusted on a full year basis, the earnings per share stands at 20c5.

While deposits remained stable at Lm1.4 billion, loans to customers increased by four per cent since September 2003, the end of the last financial year, to Lm 815 million.

Mario Mallia, Group head of financial reporting, explained how with falling interest rates, money attracted by the group was flowing into investment funds rather than deposits and how customers were opting for deposits with a shorter term.

BoV has resumed the payment of an interim dividend. On May 28 it will be paying a gross dividend per share of six cents to investors on the register on May 6.

(Azzopardi Investment Management Limited is the corporate stockbroker of Bank of Valletta plc.)

Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Mr Azzopardi and/or the company may have an interest in securities mentioned. Readers are requested to seek professional financial advice tailored to their own personal circumstances.