My previous article (The Times Business, June 7) featured six ‘retail’ banks licensed to operate in Malta. In all, there are 25 institutions which hold a local banking licence but not all advertise for funds from the public as their licence does not allow it in view that they operate offshore.
In terms of operating expenses to total assets, APS’s percentage at 1.68 per cent equals that of Bank of Valletta- Anthony R. Curmi
This is a review of the 2011 financial statements of another locally-owned bank, APS Bank, plus five foreign-owned banks, all licensed to accept deposits from the public in Malta. Only APS has a branch network. Volksbank has two offices, including one in Gozo, and the other four operate from one office.
As evidenced in the comparative table, APS is by far the largest by way of customer deposits. The other five are listed in the order of the size of their total equity (i.e. the risk capital put up by the shareholders of the respective banks). NBG Bank (Malta) changed its name from National Bank of Greece in 2008.
In terms of customers deposits APS is by far the largest. It held 60 per cent of the total (€1.15 billion) held by all six banks. The smallest is Volksbank with €16 million.
Deposits by banks reflect a rather different picture with NBG (€656 million) and Volksbank (€442 million) being highly dependent on the volatile source of inter-bank funding. Between them, these two banks raised over €1billion from that source, while the other four banks owed a mere €72 million to other banks and have a more realistic deposit base. As a percentage of total deposits, funds from other banks were only seven per cent in the case of APS compared with 79 per cent for NBG and as much as 96 per cent for Volksbank.
By way of total assets, NBG was first in line. However, it has to be pointed out that this is no indication of a bank’s financial strength. Merely booking funds raised from overseas banks and on-lending these to customers abroad (corporate names in the case of NBG, 53 per cent of which are said to be to the manufacturing and construction sectors) inflates both sides of a bank’s balance sheet with consequent risks.
The figures for loans to banks and financial institutions indicate each bank’s exposure to that sector. Expressed as a percentage of total deposits, except in the case of Sparkasse (100 per cent) and Volksbank (25.5 per cent), these are not abnormally high. However, NBG held €372 million in investment securities; this may account for their relatively low exposure by way of loans to banks (€87 million).
As regards pre-tax profits, NBG’s figure was virtually double that of APS with Sparkasse showing a small overall loss of €570,889 (compared to a pre-tax profit of €1.74 million in 2010) due to a loss of €4.09 million on the disposal of investments. Volksbank turned a very small profit of €120,000. It is to be noted that, although NBG showed by far the highest pre-tax profit in 2011, its profit and loss account reflected some significant changes in one year. For example, net interest income fell by €10 million (down 30 per cent) while net impairment losses on financial assets also reduced by €3.5 million (better by 65).
Pre-tax profits as a percentage of total assets (6) reflect the figures in (5).
When expressed as a percentage of equity, the figures show some remarkable differences with Izola on top of the league as regards giving a return to their shareholders (13.38 per cent) closely followed by APS (12.74 per cent). Despite showing the highest pre-tax profit, NBG’s return on equity was much lower at 6.68 per cent. However, in 2010 NBG had increased its paid-up capital by the substantial sum of €75 million (from €100 million to €175 million).
The percentages of operating income to total assets show wide variations with Izola and IIG coming up with figures in excess of four per cent compared with a low 0.36 per cent for Sparkasse. At 2.91 per cent APS’s figure compares well with the figures of the other three main retail banks (BoV, HSBC and Lombard) featured in my previous article.
It interesting to note that in the case of operating expenses to total assets, APS’s percentage at 1.68 per cent equals that of Malta’s largest bank, Bank of Valletta. The highest figure is that for IIG (3.69 per cent). Although IIG had no impairment charges in 2011 (2010 was its first operating year) its administrative costs rose by 54.7 per cent, while staff numbers rose from four to six.
The cost-to-income ratios also reveal some wide differences. Again, APS’s percentage (64.44 per cent) was virtually at the same level at that for BoV, with NBG’s being an exceptionally low figure of 20.42 per cent; by far the lowest of all 12 banks reviewed in both articles.
On the other hand, the percentage for IIG is high (80.47 per cent) and that for Sparkasse a staggering 227.07 per cent due to the exceptional loss on investments. This shows the extent to which a bank’s performance in one year can be adversely affected when its assets include too high a level of financial assets. Evidently, Sparkasse learnt its lesson as in 2011 these assets were reduced by as much as 58 per cent although it has to be said that the proceeds were placed mainly with other banks the bulk of such deposits being repayable at short notice.
As regards total equity, NBG increased substantially its paid-up capital in 2010. Its total equity as at December 31, 2012 (€239 million) exceeded by far the figure for all the other five banks. Next in line was Volksbank (€173 million) with APS a distant third (€66 million). Sparkasse raised its paid-up capital by €3 million in 2011.
The figures for total equity expressed as a percentage of customers deposits showed wide variations with NBG (135.85 per cent) being well in the lead and APS the laggard at 9.59 per cent. Still, APS’s percentage is even better than that for BoV and HSBC (8.18 per cent and 7.02 per cent).
Percentages of total equity to total deposits reflect a totally different picture in the case of NBG. In view of their high preponderance of funds raised from other banks, their figure falls from 135.85 per cent to 28.72 per cent whereas that for APS reduces only slightly from 9.59 per cent to 8.93 per cent. This demonstrates the advantages of having a widely spread customer deposits base in preference to too high a reliance on inter-bank funding, especially in the turbulent times that global banks have been experiencing in recent years.
This concludes my two-part analysis of the salient figures extracted from the 2011 published financial statements of banks licensed to operate in Malta who accept deposits from the public.
On June 7, I concluded with the word of warning made by the International Monetary Fund in its recent report on Malta. This was that, while the local banking sector continues to perform strongly, its sheer size and large foreign ownership do represent a risk to financial stability.
Most locally registered banks give prominence in their advertising material to the fact that customers deposits are covered by the Depositor Compensation Scheme administered by the Central Bank of Malta and to which all such banks are obliged to contribute annually. Quite apart from the fact that – fortunately – the efficacy of this scheme has not yet been tested, David Curmi, the managing director of Curmi & Partners, made a very valid point in The Times Business of June 21.
He pointed out that as at December 31, 2011, the scheme had reserves of €11.4 million with a further €53.4 million of assets also committed in the form of a special reserve. According to the CBM, total bank deposits covered by the scheme reached a staggering €23.6 billion as at May 31, 2012.
Not all deposits are eligible under the scheme (which excludes corporate deposits and limits compensation to a maximum of €100,000 per individual depositor – not per account as is sometimes erroneously indicated) but Mr Curmi estimates that eligible deposits could well stand at around €9 billion.
It is possible that, in determining to which bank to entrust their hard-earned savings, depositors may be enticed too much by the above-market interest rates being offered by some banks as also to place full reliance on the Depositor Compensation Scheme instead of using the underlying financial strength of the bank concerned as a yardstick.