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Bank of Valletta Group said today its pre-tax profit dropped by 60% to €40.6 million in the year up to September.
Return on equity for the year was of 10.2% (2007: 26.4%), while earnings per share amounted to €0.196 (2007: €0.509).
"The effects of the credit turmoil have been felt since the last few months of FY 2007, and have persisted throughout the current financial year - with a marked escalation in the second half of September 2008," the bank said.
It said that while it could not be expected to be insulated from the crisis in the global financial markets, the policies and precautionary measures it had taken had helped to mitigate the impact of these events.
It said it had concentrated on securing strong capital and liquidity positions, while at the same time diversifying its investment book and risk exposure across a wide range of quality holdings.
"The importance of the strong capital and liquidity positions has meant that BOV has been, and remains, in a position to retain its holdings through to redemption, and has not been obliged to dispose of the debt securities in the highly strained and distressed market conditions that have prevailed over the past year," the bank said.
"The largest single item which impacted the performance for FY 2008 was unrealised fair value markdowns totalling €41 million, of which €14 million arose in the last two weeks of the financial year. These mark downs on debt instruments were taken as a result of the very negative sentiment prevailing in the markets, especially close to the financial year end.
"The Group also recognised a direct charge on Lehman Brothers of €12.7 million following the latter’s failure in mid-September 2008."
The impact of the financial crisis also affected other related areas of the business. The Group’s share of profit of associates for the year, at €1.7 million, was €4 million below that recognised for FY 2007, and lower commissions were earned from the asset management, bancassurance and stock-broking businesses of the bank.
The reduction in the base rate upon euro adoption also had a short term negative impact on margins due to the time lag inherent in the re-pricing of deposits. Suspended interest on loans was also €3 million higher than in FY 2007, due to lower recoveries on impaired accounts.
During the year the bank saw 15.9% growth in its net loan book, as well as a continuing improvement in the quality of that business.
“Growth has come from carefully selective increases to the business sector, and a continuing demand for home loans,” it said.
Loans and advances to customers (net of impairment allowances), increased by €418 million, and now stood at €3.0 billion (2007: €2.6 billion
Customer deposits increased to €4.6 billion, an increase of €322 million (7.5%).
A gross interim dividend of €0.135 per share was paid on 28 May 2008. The directors have proposed a gross final dividend of €0.0675 per share. This results in a gross total dividend of €0.2025 per share for the full year, compared to €0.3921 for 2007.
The Board is also recommending, effective 15 January 2009, an increase in the nominal and paid up value of the ordinary shares in issue from €0.75 per share to €1.00 per share. The increase will be funded by a capitalisation of reserves amounting to €33.3 million.It is recommending a bonus issue of 1 share for every 5 shares held. The bonus issue will be funded by a capitalisation of reserves amounting to €26.67 million.
“Besides strengthening the balance sheet through the increase in the permanent paid up capital of the Bank to €160 million, these moves will also serve to enhance the affordability and liquidity of the Bank’s shares.