The Bank of Valletta Group recently published its preliminary financial statements for the year ended September 30, 2004. Profit before tax at Lm18.4 million is a record for the bank. This figure was up by 25 per cent over the corresponding figure for 2003 and was even higher than the Lm17.6 million profit before tax reported in 2000, the highest till then.
In 2000, the group paid tax at an average rate of 14 per cent but was not so lucky this financial year since the tax provision is at 35 per cent, thus pushing profit after tax to Lm11.9 million. The record year for profit after tax remains 2000. Both these records were achieved under chairman Joseph F. X. Zahra, whose resignation became effective last Friday.
During the financial year under consideration, the main source of revenue was net interest income which increased by Lm6.3 million, or 18 per cent, since in a falling interest rate scenario even though interest income fell by Lm5.3 million, interest expense was down by even more, by Lm11.6 million. Non-interest income was up by Lm0.6 million while another Lm0.3 million came from the group's share of profit of associated companies. Loans and advances to customers increased by Lm45 million while customer deposits increased by Lm30.3 million.
Expenses increased by Lm2.3 million which, according to the group, were "mainly due to higher retirement benefits". In spite of the increased costs, however, expenses as a percentage of revenues generated by the group (i.e. not considering the share of profit of associated companies), fell from 51 per cent last year to 49 per cent for this financial year.
Net impairment losses were up 10.5 per cent to Lm13.4 million while tax is being charged at 35 per cent (2003: 28 per cent ) and increased by Lm2.3 million.
Profit after tax increased by 12 per cent to Lm11.9 million. The group re-introduced the payment of an interim dividend, paying a gross interim dividend of 6 cents earlier on. The final gross dividend is being proposed at 10 cents, making a total for the year of 16 cents, compared to last year's total of 11 cents. On the current price of around Lm4.25, this total dividend works out to a gross yield of 3.8 per cent.
Recently, Mr Zahra, who has been chairman for over six years, resigned from his post "for personal reasons". The decision took the market by surprise. Mr Zahra not only delivered the record profits mentioned but did so in a very competitive environment.
He was well-liked by shareholders who felt that he communicated with them in a very honest, but realistic, manner and managed to promote the bank's Maltese character among other things by being the greatest patron of local art and culture.
Mr Zahra chaired the group during a difficult time. There was the sudden rush of increased competition when Mid-Med became a subsidiary of HSBC, rapid technological change, a shuffling economy, and a bank which had to provide heavily against its loan portfolio to come up to scratch with international standards. And yet he managed to leave a very strong group, as he wrote to the employees:
"We grew in profits, in market share, in assets; we developed and transformed our business lines, our distribution channels, our information technology, our presence in new markets.
"And we took a lot of decisions and implemented them so as to ensure that the bank becomes leaner, faster, more creative and responds in the smoothest way possible to changes in the external environment."
Mr Zahra mentioned in his resignation letter that he considered the possible implications on the market and, in the current circumstances, albeit a price reaction is inevitable in such circumstances, in any market, the group was protected by having an incumbent CEO. In accepting his resignation, the Prime Minister praised Mr Zahra for his dedication, professionalism and standards.
pva@onvol.net
Mr Azzopardi is corporate stockbroker of Bank of Valletta plc. He is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.