Bank of Valletta published its half yearly report to the end of March 2003. The results show BoV Group keeping its own in adverse economic conditions. Ever since HSBC changed its accounting date to end in December, we have the two main banks between them publishing financial reports every quarter, thus providing a sort of running commentary on banking performance.
The performance of the two banks, as I have had occasion to comment, cannot be compared directly any longer because, while BoV is an independent bank and itself sees to all its requirements, HSBC Malta is a subsidiary of a much larger international bank and shares and/or receives certain functions from its parent.
While comparing the banks directly would not be appropriate, one can still gauge certain trends in the market by examining their results and, sometimes, one can also observe certain divergence in performance which is not likely to be due to scale.
A common trend which emerges is the very slow growth in both loans and advances to customers and in customer deposits. For BoV these six months, the first increased only marginally while the second remained at substantially the same level as in September 2002. This is likely to be due to the economy's not the bank's performance.
In spite of this scenario, net interest income increased by three per cent to Lm16.5 million during these six months over the comparable period in the previous reporting year, and this was achieved by strict control over interest payable necessitated by falling interest receivable. A 10 per cent improvement in fees and commissions receivable was the main factor behind the two per cent improvement in operating income.
Administrative expenses were under strict control but net impairment losses, including a fall in the market value of derivatives employed for hedging purposes, came in substantially higher than in the comparable period, at Lm4.7 million (2002: Lm3.8 million). Although the share of profit of associated companies was slightly higher than the comparable period, profit after tax attributable to shareholders declined marginally to Lm4.4 million (2002: Lm4.5 million).
Return on capital, as measured by profit before tax, came in at 11.3 per cent on an annualised basis which, barring surprises, provides good support for the current price-earnings ratio of around 14.
It was announced that Joseph FX Zahra will now become the chairman of Maltacom plc. Mr Zahra led the bank during a particularly difficult time. Not only was the economy sluggish but Mr Zahra's chairmanship took place following a period of economic boom and high share prices.
Furthermore, he had to lead BoV through the onslaught of the first true international competition in local banking, when HSBC bought Mid-Med.
During economic booms, companies' managements tend to be particularly aggressive in a bid to make hay while the sun shines. Leaders who take on after boom periods face very different, and often tougher, challenges.
Leaders the day after have to manage expectations, and make them more realistic. The expectations of shareholders, employees, customers, all would have been raised in view of the good times and it often takes great people's skills to introduce sobriety. They also have to keep up morale and keep the people together to face the crunch and register sales at the least cost wherever they can find them.
Such leaders have to sift through all the rosy projects which started in good times and measure them against the more subdued conditions and come to a decision as to whether such projects are worth continuing even though resources are now more stringent.
Post-boom leaders would have to be willing to see their more-difficult-to-achieve bottom line loaded with burdens from previous years as yesterday's practices come up to scrutiny using today's standards.
Mr Zahra had to do many such things and yet managed to take on new initiatives such as offices in neighbouring countries, marketing initiatives in the Gulf, internet banking, stockbroking, the construction of a new processing centre, and perhaps the most valid but cost-effective initiatives in the arts by any institution in recent years.
Mr Zahra managed to achieve this because of his training in economic analysis, great human management skills, his bias towards getting things done, and a naturally optimistic outlook. BoV's loss is Maltacom's gain, and Maltacom needs it.