BOV profits slashed by half

Bank of Valletta's interim profits plummeted by 54 per cent in "the toughest six-month period in the history of modern banking", chairman Roderick Chalmers said yesterday.

Pre-tax profit for the first six months of this financial year - between October 2008 and March - fell to €10.1 million from €21.9 million registered in the same period last year.

The bank was hard-hit by the cut in interest rates by the European Central Bank which were cut five times between October and March, from 4.25 per cent to just 1.5 per cent, in reaction to the global recession.

As a result of these cuts, BOV lost about €6 million, or nine per cent down from the €64.4 million made in 2008.

Mr Chalmers said Malta was not totally immune from the global recession but the impact on the country was "relatively mild". Nonetheless, he said, the bank was expecting the situation to become "more challenging" in the short to medium term.

He said the bank's conservative policies, its liquidity and capital ratio policies helped it navigate through the unprecedented conditions which faced banks today.

He said that in the period under review, the bank continued to implement cost control measures which shaved €442,000 off its operating costs, despite the cost of collective agreements for workers.

Mr Chalmers said the bank continued to manage its balance sheet in a "prudent and conservative manner", with liquidity remaining strong at 49.8 per cent. The bank's loan to deposit ratio remained comfortable at 66.7 per cent.

The final net profit for the period has been reduced by the loss of €3.8 million, being BOV's shares in the insurance company Middlesea and the Italian Progress Assicurazioni.

In fact, news of the bank's dip in profits comes as Middlesea announced a staggering pre-tax loss of €29 million and beverage producer Farsons reported a drastic drop in profits on Wednesday.

Mr Chalmers said that, in the last six months, the bank approved €115 million worth of home loans, with 90 per cent of them being granted to first-time buyers. In the same period, deposits grew by €51 million.

Referring to the fact that the bank did not lower its interest rates every time the ECB cut the rates, Mr Chalmers said the bank sought a balance between the needs of depositors and borrowers.

For this reason, the bank did not lower its rates because deposits would have decreased and the amount available for the bank to lend would have decreased too.

"Firstly, it was felt necessary to maintain deposit rates paid to BOV customers in order to remain competitive and secondly, the board was entirely satisfied that current lending rates were already competitive and compared very favourably with the rates prevailing elsewhere in Europe," he said.

The bank has decided to declare an interim dividend of €0.035 per share which, he said, should not be taken as an indication of what the final dividend may be.