Bank of Valletta shares staged a vertiginous rise last Monday following the release the previous Friday of its preliminary income statement for the year to September 30, 2002, and the announcement of a special dividend together with a bonus issue.
First, a look at the results.
For the BoV Group, interest paid as a proportion of interest earned fell by 1.2 per cent which meant that the group kept more of the gross interest income it earned. Indeed, after rising last year, the ratio this year fell below the level it was in the year 2000.
The current economic scenario, plus the increased conservatism witnessed across the banking sector, as banks seek to increase the quality thresholds of their loans, meant that gross interest income contracted by 6.3 per cent to Lm92.4 million, leading to lower net interest income (Lm30.6 million) in spite of the improved margin.
Non-interest income more than compensated for the reduced interest income and increased by Lm1.1 million over 2001, up by 7.1 per cent.
Expenses grew by 4.2 per cent to Lm27.3 million (2000: Lm26.2 million) and the increase was partly compensated by falling "net impairment losses", at Lm5.6 million compared to Lm6.4 million last year. "Net impairment losses" include provisions (and adjustments) for bad and doubtful debts and provisions for the impairment in the value of equity investments. There were also minor increases in profit from associated companies.
Profit before tax was Lm14.5 million this year compared to last year's Lm14.4 million. Profit after tax came under pressure due to an increased average tax rate. Bank of Valletta International's offshore banking licence expired and the offshore regime was phased out. BoVI used to pay tax at five per cent and this used to average down the Group's tax rate. The Group's tax rate, which averaged 20.3 per cent last year, this year increased to 35.4 per cent.
BoVI has now been merged into BoV proper since there was no longer any benefit of keeping it a separate subsidiary. As it happened, though, BoVI itself became a brand name in the geographical areas it used to operate in and the name has been retained.
The increase in the average tax rate reduced BoV's profit after tax and earnings per share compared to last year, as the table shows.
The pro forma statement shows that, were it not for the increased average tax rate, there would have been an increase in profit attributable to shareholders and earnings per share (eps) of 4.4 per cent, which, in the current economic scenario, is very positive.
The increase in tax levels, therefore, had the effect of depressing profit attributable to shareholders and eps by 19 per cent. Tax payable over pro forma is Lm2.2 million.
Advances to customers increased by 5.6 per cent and stand at Lm763.3 million while deposits grew by 11.1 per cent to reach Lm1.38 billion. The net asset value of BoV was ahead by 9.9 per cent.
Under the leadership of Mr Joseph F.X. Zahra, Group chairman, the Group is being managed with a view to sustained growth. A lot of importance is given to prudent credit management and customer relationship management. Customer relationships have been improved and deepened. Operating conditions are difficult considering low global economic growth which cannot but impinge on the local situation.
"In spite of these difficulties, the Group expanded its operations to areas where it is known and where it has competitive advantages, such as Libya, and managed to maintain its profitability," Mr Zahra said.
Along with the preliminary results, Bank of Valletta announced a dividend of 11 cent per share plus a special dividend of five cents per share to shareholders on the register on November 7, 2002.
Shareholders on the register on January 3, 2003, shall also receive, out of the share premium account, a bonus issue of one share for every five shares held. The share premium account holds reserves which represent the surplus which BoV made when shares were issued above their nominal value. These reserves are undistributable and cannot be paid as dividends but their benefit can be passed to shareholders as bonus shares. BoV thus decided to reward "shareholders for their loyalty and continued support, hence increasing future potential dividend flows to shareholders."
On Monday the average price of BoV shares increased by 55c2, to Lm2.977, at one point touching Lm3.18.
Paul V. Azzopardi is corporate stockbroker of Bank of Valletta plc.
pvazzopardi@usa.net