BoV chairman tells it as it is
Over a choppy six months to end-March Bank of Valletta sailed a steady course to produce a reasonably handsome profit of €49.1 million, maintaining its core profit stable at €47million. The macro-economic background to this performance does not give rise to much joy, both in Malta and its most important surrounding group, the eurozone.
In Malta there was a “muted” demand for credit and “subdued” investment-related activities. The bank’s chairman, Roderick Chalmers, attributed this to negative market sentiment in the wake of the deepening eurozone sovereign debt crisis.
This was reflected in the bank’s tactical positioning. Its overall credit quality remained satisfactory, Mr Chalmers noted, with the proportion of non-performing accounts to total loans and advances showing an improvement over the position at the end of September 2011.
This enabled BoV to improve the interest margin contribution largely through an amount of €5.2 million recovered from accounts on which interest had previously been suspended.
Nevertheless the bank felt it should continue to build up the collective provision allowance (aside from specific provisions regarding doubtful debt) through increasing precautionary allowances in respect of “exposures in vulnerable sectors”.
The chairman’s reflections on the state of the Maltese economy indicated which sectors prompted a substantial prudent increase in provisions. He said that, in general, business sentiment at the start of 2012 was subdued, both as a result of domestic political uncertainty and, more importantly as a result of concerns as to the likely economic impact of the austerity measures being implemented by governments across the eurozone.
Mr Chalmers noted signs of “some stress” in certain sectors of the economy, “most notably in the construction/property and retail sectors”. All this was reflected in a slow increase in the demand for loans and advances, net of substantially increased impairment allowances.
The relatively small increase of €87 million in net loans and advances brought total outstanding credit to €3.69 million, an indication of the bank’s involvement in and support for the Maltese economy.
Another slow increase, this time in customer deposits – of €94 million, to €5.62 million, suggests, in my view, that the government’s continuing high financing requirements is beginning to crowd out the banks as individuals and liquid companies seek government stock because of the interest rate differential relative to deposits.
The bank’s own €40 million medium-term note, with a 4.25 per cent coupon, was snapped up, confirming this trend.
The sober remarks by the chairman of Bank of Valletta regarding the macro-economic situation, and Malta’s vulnerability to adverse developments in the eurozone area, where – he reminded – the crisis was far from over, comes along in stark contrast to the bullishness regularly demonstrated in official quarters.
There are positive factors in the Maltese economy. Segmental employment is one of them with a considerable number of Maltese earning good income in the financial and gaming sectors. However this masks a problem which is being given scant attention.
Malta’s unemployment rate is not high, compared to most countries in the eurozone and wider European Union. However the total of 6,000 plus registrants is largely made up of low-skilled workers. New employment opportunities for the unemployed are scarce.
Also there is another, more substantial segment of employees who do have a job, but it is in very low paid, even precarious employment. This is comfirmed by the hourly earnings data released a few days ago by Eurostat, the EU’s statistics unit, saying that the average hourly rate in Malta is €11 against, for instance, €15 in Cyprus.
Being an average this suggests that the very high earners in Malta are very much in a minority which is far outweighed by middle to very low income sectors.
It would be interesting if the National Statistics Office, which does commendable work, were to prepare and publish regularly data showing estimates of income distribution in Malta and Gozo, preferably sub-divided by regions.
Social statistics are still in their infancy in Malta. They need to be beefed up. Income distribution is one area clamouring for attention. In all probability the NSO data bank used, among other things, to produce a report on income and living conditions already contains considerable information.
A provisional report utilising such data would be welcome, preferably to be published before the general election to allow fuller assessment of what the political parties are – or are not – proposing to bring about a more just society.
Meanwhile, Bank of Valletta’s management and employees are to be congratulated for producing a creditable performance in rather difficult circumstances. The messages to our public administrators inherent in that performance, and carefully articulated by the bank’s chairman, should not be ignored.
In an island where politicised and jaundiced views are the order of the day, it is bracing to get an apolitical assessment of the situation, hopefully to spur a more reasoned debate to come into being.