Updated: Bank of Valletta profit jumps

The Bank of Valletta group has reported a profit before taxation of €81.8 million for the year ended 30th September 2009. This compares with a pre-tax profit of €40.6 million for the equivalent period ended 30th September 2008.

"The marked improvement in profitability has resulted from the gradual stabilisation of conditions in the global financial markets in the second half of the year, and the consequent write back of some of the unrealised fair value markdowns on BOV’s Financial Markets portfolio previously recognised in the Bank’s accounts for FY 2008 and the first six months of FY 2009," the group said.

NET INTEREST MARGIN

Bank of Valletta said the net interest margin for the period declined year on year by €10.7 million or 8.5% as a result of the sharp and sustained reduction in interest rates implemented by the ECB in its efforts to encourage liquidity and combat growing recessionary pressures.

Net commission and trading income for the year was10% above that earned in the previous year. Income from foreign trade business was strong, as was revenue from the cards business. The Capital Markets division had an excellent year, managing or co-managing most of the bond issues brought to the market over the past 12 months.

Commission income on investment products was soft in the first half of the year, as investors took risk-averse positions, but they had shown encouraging signs of recovery in the second half.

OPERATING EXPENSES

Overhead costs for the year were maintained at fractionally below FY 2008 levels.

The impairment charge for the year at €4 million was a little under €1 million up on the charge for FY 2008.

NET OPERATING PROFIT

The net operating profit from core corporate and retail banking operations for the year amounted to €86.0 million (2008: €92.2 million). BOV said the reduction in profits was largely attributed to the compression in net interest margin mitigated by an improvement in commission income. A gradual improvement in the net interest margin was seen in the second half of the year

The bank said that credit quality had remained good, with Non Performing Loans standing at 3.9% of gross advances (September 2008: 4.0%).

Growth had come from carefully selective increases to the business sector, and a continuing demand for home loans in the first time buyer segment.

During the year to 30th September 2009, the bank approved €261 million of new home loans (of which €217 million were drawn down), whilst credit actually utilised by the business sector over the year increased by €210 million (or 10.7%), net of two large identified facilities that were repaid in full during the early part of the year.

"Conditions in the Maltese economy remain uncertain, and it is to be expected that some deterioration in credit quality will be experienced - particularly should, as is anticipated, the current economic downturn continue into FY 2010. However, through to the end of FY 2009 any deterioration experienced has been limited and contained," the bank said.

DEPOSITS

BOV said that customer deposits had continued to grow in a satisfactory manner, with an increase of €141 million over the year, to stand at €4.8 billion as at 30th September 2009. Notwithstanding acute competition for deposits and a high level of bond issuance activity, FY 2009 has, once again, seen a further consolidation of BOV’s position as the market leader in the domestic euro-deposit retail and corporate sectors.

The Board took a policy decision not to pass on the ECB rate cuts totalling 0.75% announced in March and April 2009 to either loans or deposits. As announced at the time, the reasons for this decision were that (i) it was felt necessary to maintain deposit rates paid to our customers in order to remain competitive, and, (ii) the Board was entirely satisfied that the Bank’s lending rates were already competitive, and compared well with lending rates prevailing elsewhere in Europe.

DIVIDEND AND BONUS ISSUE

The Board of Directors is recommending a final gross dividend to shareholders of €0.215 per share, which taken together with the gross interim dividend of €0.035 per share paid on 28th May of this year makes for a total gross dividend of €0.25 per share for FY 2009 (FY 2008: €0.16875 per share (as adjusted for bonus issue), and would represent a gross yield of 7.58% by reference to the closing share price of €3.30 per share as on 30th September 2009.

The total dividend will be 1.9 times covered by the post tax profits for the year.

The board is also recommending, effective 15th January 2010, a bonus issue of 1 share for every 4 shares held. The bonus issue will be funded by a capitalisation of reserves amounting to €40 million. This bonus issue will serve to further increase the permanent capital base of the Bank (from €160 million to €200 million), and will also serve to enhance the affordability and liquidity of the bank’s shares.