BOV reports substantial downturn in profits

The Bank of Valletta group has suffered a substantial downturn in earnings, posting a net pre-tax profit of €25 million (Lm10.73 million) for the six months ended March 31 when compared to a profit of €56.6 million (Lm24.3 million) for the same period the previous year.

BOV chairman Roderick Chalmers said yesterday that, after three years of impressive double-digit growth in profits, it was disappointing but not unexpected to report a decline in profits.

The drop was due to a number of factors, particularly the impact of markdowns in the value of the bank's financial markets and investments portfolio as a result of the extended disruption in the global financial markets since last July.

Mr Chalmers said that such markdowns were expected to be temporary and, given the exceptional nature of the markdowns affecting the half-yearly results, the board resolved to maintain the interim dividend at the same level as last year's - €0.13,5 (Lm0.06) [€0.13,07 (Lm0.06) last year] per share, gross of tax, for the six months ending March, effectively resulting in an increase of 3.3 per cent.

He said the group registered an increase in net interest income of €800,000 (Lm343,440), mainly due to satisfactory growth in the loan book, countered by the impact of an increase in interest payable, arising from the deferred re-pricing of customer deposits in a falling interest rate environment. This was in contrast with the favourable rising interest rate scenario experienced last year.

Profits from the group's core retail and corporate banking operations were in line with expectations. Advances, net of impairment allowances, stood at €2.8 billion (Lm1.2 billion), an increase of €186 million (Lm79.85), or seven per cent, since September 30. Growth in lending has come from sustained demand for home loans and from a cross section of the business sector.

Customer deposits reached the €4.5 billion (Lm1.93 billion) level, an increase of €214 million (Lm91.87 million) (five per cent). The group's loan to deposit ratio remained at 62 per cent (September 2007: 61 per cent).

Mr Chalmers referred to BOV's "leading role" in the euro changeover process saying the bank handled 52 per cent of all the changeover business transacted in the country.

In terms of income, euro adoption had a multi-faceted impact. It resulted in a drop in foreign exchange earnings on lira-euro transactions for the period, estimated at close to €3 million (Lm1.29 million).

Concurrently, costs directly related to the euro adoption changeover period were estimated at €800,000 (Lm343,440). Furthermore, a slowdown in revenue-related activities at branches was registered at the time.