Bank of Valletta Group again bucked the trend across most of Europe and reported improved results, posting pre-tax profits of €68.5 million for the first half of the financial year 2016, up from €58.8 million.

However, the gross interim dividend of 3c9 per share (3c6 in 2015) represents a pay-out ratio of 22 per cent of profit after tax, compared to a ratio of 23 per cent in 2015, a far cry from the 33 per cent of the past.

Group chairman John Cassar White said capital was an important buffer to protect both depositors and shareholders should there be a downturn in business.

He noted that profit retention (through a lower dividend ratio) was the fastest way to recapitalise a bank.

In line with his promise when appointed, the bank has made a number of strategic decisions, starting with considerable investment in IT over the coming three to five years, the first significant sum to be spent on core systems in 16 years. The bank will also be setting limits on its concentration risk to particular sectors andto counterparties.

It is also reviewing business lines whose return did not justify the risk, the most dramatic of these being trusts.

Mr Cassar White said that following the €363 million claim made against the bank in Italy by liquidators of the shipping giant Deiulemar in connection with a trust, the bank had received legal advice confirming that it had acted appropriately. However, he acknowledged that, ultimately, the court would decide.

The bank had not made any provisions for the amount claimed but might have to review it as the case unfolded, he said.

Hearings had started, although at this stage, only procedural matters had been covered.

Mr Cassar White said the bank would start to wind down the rest of its trust business, but that meant reaching agreements with each client and that would “come at a cost”.

Another change will be a review of the board, currently composed of nine non-executive directors.

Mr Cassar White said the intention was to have a minority of executive directors – though the chairman would remain non-executive – for more continuity.

He was asked about allegations made by Nationalist MP Kristy Debono about inappropriate lending practices. Mr Cassar White said this had been investigated by the bank’s internal audit team.

The allegations were also reported to the regulators, the European Central Bank and the Malta Financial Services Authority, which embarked on their own investigations. The bank’s external auditors had also been alerted.

At a glance

Pre-tax return on average equity: 19.9% pa. (2015: 18.4%)
Operating income: €134.5 million (+12.5%)
Operating costs: €58.4 million (+7%)
Cost-to-income ratio: 43.3% (2015: 41.8%)
Net impairment allowances: €8.1 million (-41.8%)
Tier 1 capital: 12.3%
Total assets: €10.5 billion
Total equity: €706 million