Bank of Valletta’s core profits grew by two per cent to €87.9 million but the performance of its associates and changes to the value of its invested portfolio dragged down pre-tax profits by 10 per cent to €104.1 million.

The board of directors is proposing a final gross dividend of €0.0925 per share, which, taken together with the gross interim dividend of €0.0425 per share paid in May, would represent a total gross dividend of €0.135.

Chairman John Cassar White said this was a departure from the past when profits were always split equally three ways between taxes, reserves and dividends. While tax will still absorb a third of the profits, more will be put into reserves – 38.3 per cent instead of 33 per cent – leaving just 27.7 per cent for dividends.

“With increased regulation, those who invest in banks will know that their investments are safer but that the banks will be less profitable. Banks will not give the same returns as in the past,” he said.

The bank had made fairly high provisions for potentially bad loans in recent years and this year only reported an impairment charge of €19.4 million, compared with €25.6 million last year.

However, the ‘market’ value of its portfolio only improved by €9 million compared with an improvement of €17.4 million in the last financial year.

The share of profits from its associates – mostly MSV Life –fell by 42 per cent, down from €12.4 million to €7.2 million. The bank’s income was affected by a reduction of four per cent in the interest margin, basically the difference between the interest paid on deposits and the interest from loans. This was the result of persistently low interest rates and the fact that it had high levels of liquidity.

“Our deposits were up by 14 per cent to €7.1 billion but the demand for loans did not grow by the same amount.

“So our challenge was to use this liquidity in a way that would generate enough money to cover the interest we pay on deposits,” Mr Cassar White said.

Operating costs rose by five per cent on the back of significantly higher regulatory and supervisory costs.

Advances stood at €4.1 billion, an increase of five per cent over last year, mostly from mortgages after an aggressive selling campaign.

The bank recently announced a new executive structure, with a chief operating officer reporting to the chief executive officer. An audit on corporate governance will be carried out in the coming weeks.

“Focus on a robust governance structure will be one of our major priorities to ensure the bank’s sustainable performance in the future,” he said.

The board is recommending a bonus issue of one share for every 11 shares by a capitalisation of reserves amounting to €30 million. This will increase the permanent capital from €330 million to €360 million.

Key figures

Core profits
€87.9m (2013: €86m)

Pre-tax profit
€104.1m(2013: €115.8m)

Impairment charge
-€19.4m(2013: -€25.6m)

Advances
€4.1bn+5%

Deposits:
€7.1bn+14%

Year ended September 30.