Record profits for Volksbank
Volksbank registered a record profit of €9.2 million after tax in 2007, a 38 per cent increase over the same period the previous year. "Before tax we exceeded €10 million for the first time, with profits of €10.5 million for the group," chief...
Volksbank registered a record profit of €9.2 million after tax in 2007, a 38 per cent increase over the same period the previous year.
"Before tax we exceeded €10 million for the first time, with profits of €10.5 million for the group," chief financial controller for Volksbank Malta Group Mario Gauci said.
"We had a very positive year!"
The growth has come in spite of one-off costs last year like the expansion and refurbishment of its office in Sliema and euro adoption. Managing director Herbert Skok stressed that this was no accident.
"We are very strict about planning and budgeting. Since I came to Malta, we never exceeded our adminsitrative expenses," he said. In fact the bank's cost-to-income ratio is 28.2 per cent, very low in an industry where banks struggle to get below 60 per cent.
The group balance sheet at December 31 was €1,052 million and €894 million for the bank, an increase of 25.3 per cent.
The main contributor to profits was net interest income, which increased by 18 per cent, mostly from more loans and advances. Indeed, the bank would probably be able to grow this business considerably but it is bound by the conditions of its tax incentives.
"We have a tax advantage in Malta that offers lower tax on profit resulting from foreign transactions. But this only applies if local business does not exceed 5 per cent of all deposit liabilities," Mr Skok said.
"Local banks have access to cheap money from current accounts, for example, which is a big advantage. We cannot accept too many accounts because we would exceed the limit!"
However, the tax incentive is attractive to other banks in Malta, who see its advantages as their business portfolios change.
"We have to wait and see how government sees this clause as we know that local banks would like to have this tax advantage. We understand that they are already in discussion over solutions for all financial institutions, whether local or foreign, to enable all profits from foreign transactions to be taxed the same way. It is a good chance for Malta to become more of a financial services centre," Mr Skok said.
The most relevant development last year was the acquisition of Investcredit, which fitted well with the parent company's strategy.
"It is important to plan a strategy that brings two organisations together, especially when the union is not the result of a merger or an unfriendly takeover.
"Over the years ÖVAG, our head company, managed to get slice by slice of the shares until it owned it outright. Investcredit was always known as the Austrian bank for big corporates and big customers. This fits in well with Volksbank operations as we now have banks for every business segment," Mr Skok explained. Volksbank AG is the retail bank for Vienna and the head office, ÖVAG, takes care of all the Volksbanks in Austria. Volksbank International looks after the foreign subsidiaries in the Central and Eastern European countries, excluding Malta, which is a direct subsidiary of head office.
In the meantime, its strategic partner DZ Bank in Germany is the umbrella organisation for all Volksbank and Raiffeisen Banks in Germany. They have shares in ÖVAG and cover other parts of the world like London, New York, Singapore, Hong Kong and so on.
In Malta, Volksbank originally started out as an offshore bank but went onshore in 2002. Since 2003, it started penetrating local business.
"We are in a very good position as we do not have to go for the mass market but can really hand-pick the customers who fit best with our organisation. We don't turn people away but we clearly have an affinity with the German-speaking community and with Maltese who have connections in countries where our bank is present."
The bank's focussed ambition means it co-exists comfortably with the large banks, HSBC and Bank of Valletta.
"Both of them know that we do not interfere in their business. We are not going for their customers but just offer niche products. They have a much better local network and technology set-up. We are young. We are investing constantly in our technology but it takes time," he said pragmatically.
"We know our deficiencies and we try to improve constantly. Internet banking should be introduced at the end of the year. We are also working to provide our customers with an ATM card; without plastic money, you are not a bank. We are trying to do this through a collaboration."
This does not mean that the bank does not offer benefits that the larger banks do not. For example, in spite of the lack of internet banking, Volksbank offers bank transfers at the lowest fees on the island, Mr Skok pointed out.
Volksbank International has seen growth of 40 per cent in the CEE countries over the past year. Clearly, some of that growth has been matched by increased trade with Malta. The most visible aspect of this has been property purchases by Maltese but he said that there were exciting new avenues of investment.
"After accession, CEE countries were known for low-cost production because labour was so cheap. But manufacturing is still moving eastwards. First it was the Czech Republic and Hungary and then this shifted to Romania and Bulgaria. It is now shifting to Ukraine and further east.
"These new EU members are now moving towards services, just as Malta did. I see a good, long-lasting connection between Maltese businessmen and these new countries - and vice-versa. We are seeing new customers from Hungary, Czech Repuiblic and Slovak Republic investing in Malta and using the network. We have the advantage since we have banks both here and there."
Just as Volksbank was once the newcomer so have new entrants come into Malta, especially Portugese Banif Bank and Dutch CreditEurope.
"We do not see any problem because we have a niche market in geographic areas where we are very strong. A Portugese bank might have its own customers - I do not know what the trade is between Malta and Portugal - but we know about the investment flows between Malta and Bulgaria, or Malta and Russia."
The bank in Malta does not yet market any of the group's financial products - "yet" being the operative word. However, it has started to offer corporate clients financial derivatives to hedge their risks, using foreign exchange options, forward rate agreements and interest rate swaps, all well-known and traded instruments.
"We have a very professional Treasury in Vienna, employing over 200 people, which offers back-to-back cover so we can offer a big variety of products without speculation. We do not run risk positions..." he said.
Indeed, one advantage for Volksbank is that it did not inherit its portfolio of clients - and debtors.
"Last year did not have to make any provisions for loans in default. We are very careful about clients' security and analyse their credit history," Mr Gauci said.
"Before tax we exceeded €10 million for the first time, with profits of €10.5 million for the group," chief financial controller for Volksbank Malta Group Mario Gauci said.
"We had a very positive year!"
The growth has come in spite of one-off costs last year like the expansion and refurbishment of its office in Sliema and euro adoption. Managing director Herbert Skok stressed that this was no accident.
"We are very strict about planning and budgeting. Since I came to Malta, we never exceeded our adminsitrative expenses," he said. In fact the bank's cost-to-income ratio is 28.2 per cent, very low in an industry where banks struggle to get below 60 per cent.
The group balance sheet at December 31 was €1,052 million and €894 million for the bank, an increase of 25.3 per cent.
The main contributor to profits was net interest income, which increased by 18 per cent, mostly from more loans and advances. Indeed, the bank would probably be able to grow this business considerably but it is bound by the conditions of its tax incentives.
"We have a tax advantage in Malta that offers lower tax on profit resulting from foreign transactions. But this only applies if local business does not exceed 5 per cent of all deposit liabilities," Mr Skok said.
"Local banks have access to cheap money from current accounts, for example, which is a big advantage. We cannot accept too many accounts because we would exceed the limit!"
However, the tax incentive is attractive to other banks in Malta, who see its advantages as their business portfolios change.
"We have to wait and see how government sees this clause as we know that local banks would like to have this tax advantage. We understand that they are already in discussion over solutions for all financial institutions, whether local or foreign, to enable all profits from foreign transactions to be taxed the same way. It is a good chance for Malta to become more of a financial services centre," Mr Skok said.
The most relevant development last year was the acquisition of Investcredit, which fitted well with the parent company's strategy.
"It is important to plan a strategy that brings two organisations together, especially when the union is not the result of a merger or an unfriendly takeover.
"Over the years ÖVAG, our head company, managed to get slice by slice of the shares until it owned it outright. Investcredit was always known as the Austrian bank for big corporates and big customers. This fits in well with Volksbank operations as we now have banks for every business segment," Mr Skok explained. Volksbank AG is the retail bank for Vienna and the head office, ÖVAG, takes care of all the Volksbanks in Austria. Volksbank International looks after the foreign subsidiaries in the Central and Eastern European countries, excluding Malta, which is a direct subsidiary of head office.
In the meantime, its strategic partner DZ Bank in Germany is the umbrella organisation for all Volksbank and Raiffeisen Banks in Germany. They have shares in ÖVAG and cover other parts of the world like London, New York, Singapore, Hong Kong and so on.
In Malta, Volksbank originally started out as an offshore bank but went onshore in 2002. Since 2003, it started penetrating local business.
"We are in a very good position as we do not have to go for the mass market but can really hand-pick the customers who fit best with our organisation. We don't turn people away but we clearly have an affinity with the German-speaking community and with Maltese who have connections in countries where our bank is present."
The bank's focussed ambition means it co-exists comfortably with the large banks, HSBC and Bank of Valletta.
"Both of them know that we do not interfere in their business. We are not going for their customers but just offer niche products. They have a much better local network and technology set-up. We are young. We are investing constantly in our technology but it takes time," he said pragmatically.
"We know our deficiencies and we try to improve constantly. Internet banking should be introduced at the end of the year. We are also working to provide our customers with an ATM card; without plastic money, you are not a bank. We are trying to do this through a collaboration."
This does not mean that the bank does not offer benefits that the larger banks do not. For example, in spite of the lack of internet banking, Volksbank offers bank transfers at the lowest fees on the island, Mr Skok pointed out.
Volksbank International has seen growth of 40 per cent in the CEE countries over the past year. Clearly, some of that growth has been matched by increased trade with Malta. The most visible aspect of this has been property purchases by Maltese but he said that there were exciting new avenues of investment.
"After accession, CEE countries were known for low-cost production because labour was so cheap. But manufacturing is still moving eastwards. First it was the Czech Republic and Hungary and then this shifted to Romania and Bulgaria. It is now shifting to Ukraine and further east.
"These new EU members are now moving towards services, just as Malta did. I see a good, long-lasting connection between Maltese businessmen and these new countries - and vice-versa. We are seeing new customers from Hungary, Czech Repuiblic and Slovak Republic investing in Malta and using the network. We have the advantage since we have banks both here and there."
Just as Volksbank was once the newcomer so have new entrants come into Malta, especially Portugese Banif Bank and Dutch CreditEurope.
"We do not see any problem because we have a niche market in geographic areas where we are very strong. A Portugese bank might have its own customers - I do not know what the trade is between Malta and Portugal - but we know about the investment flows between Malta and Bulgaria, or Malta and Russia."
The bank in Malta does not yet market any of the group's financial products - "yet" being the operative word. However, it has started to offer corporate clients financial derivatives to hedge their risks, using foreign exchange options, forward rate agreements and interest rate swaps, all well-known and traded instruments.
"We have a very professional Treasury in Vienna, employing over 200 people, which offers back-to-back cover so we can offer a big variety of products without speculation. We do not run risk positions..." he said.
Indeed, one advantage for Volksbank is that it did not inherit its portfolio of clients - and debtors.
"Last year did not have to make any provisions for loans in default. We are very careful about clients' security and analyse their credit history," Mr Gauci said.