Banking statistics at a glance

A noticeable lacuna in local financial journalism is the absence of a comparative analysis of the salient figures emerging from the annual financial statements published by the banks, particularly those that advertise profusely for customer deposits offering interest rates well above the norm. Analysts’ reports on the annual published results of the main banks feature periodically in the press but, with few exceptions, I have yet to see any similar detailed analyses of the figures of the foreign-owned banks that set up in Malta in recent years. Thus comparisons are rendered difficult.

One wonders how certain banks can keep offering interest rates well above market rates- Anthony Curmi

Another significant factor is that not all the banks publish even summarised financial statements in the local print media. Even those banks that incur substantial costs on advertising their services seem reluctant to present their annual results to the general public, relying only on publishing these on their website. But how many depositors do bother to look these up and to trawl through over 160 pages of figures and financial/accounting jargon?

The table with this article is an attempt to fill this gap. Apart from the three long-established “retail” banks (BoV; HSBC and Lombard) I have included Banif (which established nine branches in the short space of nearly five years of its existence) and Mediterranean Bank (with five branches). Although FimBank operates from just one office (but with affiliates overseas specialising in trade finance), I have included it in this analysis because it holds a licence for retail banking and the bank has been marketing aggressively its internet-based savings and term deposit services.

1) The figures for deposits by customers speak for themselves. Between them, BoV and HSBC account for nearly €10 billion of funds entrusted to them by depositors whereas the other four banks together account for a mere €1.42 billion. This clearly demonstrates the difference in size. Banif is the only bank to show a reduction in customers’ funds; a sharp drop of 40 per cent (from €433.7 million to €261.9 million) in one year (see also 2).

2) In the case of deposits by banks the least that relies on inter-bank funding is Lombard. Mediterranean Bank (MedBank) had no less than 69 per cent of its total balance sheet footings funded by other banks with Banif not far off (56 per cent). These percentages are abnormally high, more so in present circumstances when inter-bank funding is no longer so reliable. In the case of Banif, amounts owed to other banks rose from a mere €6 million to €181.5 million in just one year.

3) Total assets figures show that BoV (€6.6 billion) remains Malta’s largest bank; about 24.5 per cent bigger than HSBC (€5.3 billion). At the other end of the spectrum is Banif with a total of €470 million or a mere seven per cent of BoV’s total.

4) In these days of uneasiness within the global banking sector, loans to banks are under the microscope. All local banks have scaled down their exposure to this sector over recent years with HSBC and BoV down respectively to 12 per cent and six per cent of total assets. However, Banif’s exposure remains high at 27 per cent; more so with the bulk being lent to its parent bank in Madeira. A positive point is that this reduced from 60 per cent in 2010. What is striking is that MedBank reduced its exposure to banks between 2000 and 2001 by no less than 22 per cent and the percentage to total assets now stands at a mere 1.8 per cent. It seems that the bulk of these funds were repatriated and placed with the Central Bank of Malta (these having risen from €10.5 to €63.6 million). Still, nearly 90 per cent of MedBank’s total assets comprise “investment securities” with loans to customers being a mere 1.75 per cent of total assets. Another weak factor is that 69 per cent of MedBank’s liabilities are to financial institutions (see also 5).

5) The pre-tax profits figures mean what they say with HSBC being the leader in this field. However, in 2011 BoV’s profits suffered from an exceptional “Property Fund” settlement of €14.98 million. Banif reported a loss of €0.75 million for 2011 but, in an interview, their CEO stated that the Bank reached a profitable level in Q4 of that year. Nonetheless, accumulated losses of €11.17 million (5.5 per cent higher than in 2010) will take some time to be recovered. Indeed, the paid-up capital was increased in 2011 from €25 million to €32.5 million with Banif’s parent’s share of the equity remaining unchanged at 72 per cent. Thus the four local company shareholders retained their shareholding at seven per cent each by taking up their share entitlement, thereby showing confidence in the Bank. Apart from Banif’s loss, the lowest pre-tax profits in 2011 were shown by MedBank (€1.16 million). FimBank returned a profit of €1.42 million (after tax credits of €0.63 million), these having fallen by 30 per cent from 2010. It is significant that MedBank’s pre-tax profits nosedived from €19 million to just €1.16 million in one year. In 2011 the Bank took a massive hit of €62.9 million by way of impairment losses on its investment securities (issued mainly by Greece). This was partially mitigated by an increase of €15 million in the paid-up capital in August 2011.

6) Pre-tax profits expressed as a percentage of total assets reflect the figures in (5).

7) Obviously pre-tax profits as a percentage of equity is what interests shareholders. HSBC were the leaders at 31.9 per cent and Banif the laggards at -3.53 per cent.

8) Operating income as a percentage of total assets is a very useful indicator as it demonstrates how successful a bank is in making profitable use of all its assets. MedBank (5.09 per cent) was ahead of HSBC (3.69 per cent) and BoV (2.68 per cent) whose results were adversely affected by the exceptional charge to profits mentioned in (5). However, MedBank’s higher percentage return has to be viewed in relation to its abnormally high incidence of operating expenses to total assets (5.02 per cent).

9) As indicated above, except in the case of MedBank, operating expenses to total assets do not require comment as the figures do not vary a great deal from one another. That for MedBank (5.2 per cent) is exceptionally high and FimBank’s at 2.19 per cent is above the average for the other banks. In the absence of more information on the make-up of operating costs, one is unable to determine what lies behind the abnormally higher operating expenses of these two banks. MedBank is known to have sponsored some major events – no doubt at a substantial cost – with administration and personnel costs having risen by 42 per cent in one year.

10) The cost to income ratios confirm that in the case of the three long-established banks their net income stream has kept pace with costs. This certainly is not the case with the other three more recently established banks all of whom have a lot of catching up to reach the level of their longer standing competitors. Banif’s ratio even topped the 100 per cent mark!

11-13) These figures give some indication of what the shareholders themselves invested in the respective banks (i.e. the risk capital or equity) and how this relates to (a) customers’ deposits and (b) to total deposits (i.e. including funds raised from other banks). The best placed here is FimBank. Banif’s placing is at virtually the same level as BoV and HSBC as regards the ratio of equity to customers’ accounts.

I accept that this is not an in-debt analysis as it is impossible in a short article to highlight other factors that emerge from the voluminous financial statements of the banks involved. However, I trust that I have achieved my objective of producing some salient figures that give an indication of the financial strength of the six banks which between them hold total customers funds of over €11billion.

In its recent report the International Monetary Fund stated: “Given its large external risks it is important to strengthen the financial sector’s resilience further. The sector has continued to perform strongly but its sheer size and large foreign ownership represent a number of risks to financial stability and fiscal sustainability”.

Out of the six banks analysed above, all of which hold a retail bank licence, only BoV has local equity majority control. One wonders how certain banks, in their keenness to attract funds from the public, can keep offering interest rates well above market rates. I consider it particularly worrying that, in most cases, such funds are being funneled abroad to support other banks/financial institutions and even to finance ventures over which the local regulatory authorities have no control whatsoever.