Conservative stance pays dividends

Bank of Valletta is licking the wounds inflicted by the global financial crisis, which has eaten away almost €54 million of its earnings, dropping the bank's pre-tax profits by 60 per cent to €40.6 million.

Still, chairman Roderick Chalmers said the results were disappointing but respectable and the effect of the crisis would have been worse had the bank not taken corrective measures over the past four years by being a "conservative bank".

Despite the precautions, the bank did not escape the crisis unscathed. The negative results, Mr Chalmers said, are the result of the Lehman Brothers collapse that cost the bank €12.7 million (a figure revealed for the first time yesterday) and the re-evaluation of the company's investments as a result of the falling prices on the international markets.

When the company announced that it had been exposed to the crash of the banking giant in September, it refused to give a precise figure but said that the impact would be "modest". When questioned about this yesterday, Mr Chalmers defended the bank, saying it was one of the very first banks to say it was exposed to the Lehman bankruptcy around the world.

But when pressed on the point that the bank had declared a modest exposure, Mr Chalmers said that, while it was previously expected that 40 per cent to 60 per cent of the losses would be recovered, the complexity of winding up Lehman led to a downwards adjustment.

The bank also suffered from a loss of €11 million through lower earnings from foreign exchange as a result of the euro exchange but the bank had anticipated this.

On top of this, Mr Chalmers explained that the bank uses "market to market" accounting principles, which means that its wealth is based on the trading price of its investment. In the present volatile circumstances, this translates into bigger losses for the bank - leading to a reduction of paper wealth of €41 million, €14 million of it in the last two weeks of September alone. However, the loss can be recouped in a stabilised climate.

He said the crisis also had a spill-over effect on fund management and stock broking businesses, which affected the bank's associates.

"BoV went into 2008 knowing that it will be facing a challenging year... However, what has happened over the past year and, especially, since mid-September 2008, has been truly extraordinary. Having said this, the policies adopted and precautionary measures taken by BoV ahead of the impending storm have served to greatly mitigate the impact of the crisis on the bank," he said.

In spite of the bad news, the bank's net loan book increased by 15.9 per cent. Loans and advances reached €3 billion while impaired lending as a percentage of the total book dropped from 4.8 per cent in September 2007 to four per cent this year.

Total deposits increased by €322 million from September 2007 to reach €4.6 billion this year.

Nonetheless, given the marked reduction in profits being reported the board is now proposing a final gross dividend to shareholders of €0.0675 per share, which taken together with the gross interim dividend of €0.1350 per share paid on May 28, makes a total gross dividend of €0.2025 per share.

The board also recommended an increase in the nominal and paid up value of the ordinary shares in issue from €0.75 to €1 per share. The increase will be funded by a capitalisation of reserves amounting to €33.33 million and a bonus issue to shareholders of one share for every five shares held. Turning to the future, Mr Chalmers said that with such an open economy it is likely that Malta will be affected by the wider downturn and, therefore, the outlook for the next 12 months must be a very cautious one.

Still, Mr Chalmers insisted that the group is well positioned and the fundamentals remain strong, with a strong balance sheet and very sound liquidity and capital positions.

"Our credit book remains of good quality and our depositor base is stable and has been growing for a number of years. We will continue to manage our balance sheet in a conservative manner, adding to capital if and when required.

We are wholly committed to supporting Malta's economy and our business community in a responsible manner."