BoV sees sharp drop in six-month profit

Bank of Valletta's half-year pre-tax profit dropped to €25 million for the six months ending on March 31, bank chairman Roderick Chalmers said this afternoon. The bank had made a pre-tax profit of €56.6 million in the same six months last year.

Mr Chalmers (picture) said that this result was disappointing but had been expected because of a number of factors particularly the impact of mark downs in the value of the bank's financial markets and investments portfolio as a result of the extended disruption in the global financial market since July 2007.

He said there would be an interim dividend of 0.1350 euro per share, gross of tax for the six months. The dividend last year was 0.1307 euro per share. The board had decided to maintain the dividend because of the exceptional nature of the mark-downs, the chairman said.

The bank explained that the severe credit crunch that accompanied the global financial markets disruption had impacted the liquidity of the bond markets and caused a marked widening of credit spreads, and a consequent reduction in the quoted market value of the Bank’s Financial Markets and Investments (FM+I) portfolio.

A major part of this portfolio (designated as Fair Value through Profit or Loss) was marked to market in accordance with the requirements of the accounting policies adopted by the bank. This had resulted in a mark to market write down for the period of €26 million before taxation.

"However, it is important to note that the Bank’s portfolio remains of high quality, and the Board of Directors expects the markdowns to be largely temporary in nature, with a significant proportion of the amount being clawed back over time, as the investments are held through to redemption, and the fair value adjustments unwind."

A gain of €7.4 million (pre tax) on the Bank’s Available for Sale portfolio has been taken directly to reserves, the bank said.

It added that the disruption in the financial markets, and the consequent weak performance of most equity and bond instruments and exchanges, had also had an adverse effect on the stockbroking and asset management businesses of the Group, as volumes reduced and investors moved to adopt more cautious investment positions.

The bank said euro adoption impacted on income for the period through a decrease in foreign exchange earnings on Lm - euro transactions of €2.6 million and increased costs directly related to euro adoption of €0.8 million. There was also a slowdown in revenue related activities at branches during the transition period of December 2007 and January 2008.

During the six months Bank of Valletta saw a modest impairment charge of €1.5 million (March 2007 €1.8 million), resulting from the sustained improvement in credit quality and certain recoveries of sums previously provided.

Non-Performing Loans as a percentage of the total loan book continued to improve, and stood at 4.3% as at 31 March 2008 ( March 2007: 5.9 %);