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Understanding FIMBank's interim results

FIMBank discussed its interim financial results for the six months ended in June 2018 during the stockbrokers meeting held last Monday August 27.

The interim results are confirming that the bank has got over the turnaround process and is now facing a growth period. Such growth has been made possible also by the rights issue announced in March 2018, through which the bank raised €105 million, and that allowed the group to expand its business. The rights issue is also expected to allow the bank to maintain strong capital ratios in the near term.

During the past years the bank concentrated its efforts in implementing a sound risk management and governance framework. The efforts of the bank have been recognised also internationally, with Fitch confirming the credit rating BB and an outlook stable during 2017.

The group’s efforts have now shifted to achieving a sustainable growth, especially by focusing on origination of yield-rewarding assets and the reduction of the cost of funding. This was reflected in the 2017 results which saw a 4% increase in net interest income and fee and commission income compared to the same period of 2017.

The management also explained that cost of funding was at 1.8%, down from 2.1% in the first six months of 2017, also thanks to the repayment of a $50 million subordinated loan following the rights issue.

The group also decided to enter new markets, such as real estate financing in Malta, cash management and corporate risk distribution, which are all showing higher volumes and performance.

Net trading results moved to a positive territory of $2.1 from a net loss of $2.0 million following a decrease in foreign currency swaps and an improvement in the market values of a number of trading assets held in the forfaiting portfolio.

During 2018, in line with the group’s strategy to exit non-profitable businesses or whose operating models are not complementary to the one of the bank, the bank resolved to dispose of its investment in Latamfactors (Chile).

Administrative expenses decreased by 12% as a result of the deconsolidation of Latam Factors, a better and more efficient use of the bank’s properties and the one-off nature of some regulatory costs incurred during 2017. The deconsolidation of Latam Factors had, however, also a negative effect on the financial performance, due to a €2.1 million fair value loss for the difference in the carrying amount of the investment and its expected realisable value.

Overall the group registered a growth in profit after tax of 47% with respect to the comparable period, and the management expect this momentum to be maintained in the second half of the year. However, some of the main concerns over FIMBank remain the low profitability, with a trailing ROE of only 3.5%, and the current difficulty to pay dividends, due to the lack of any distributable reserves and accumulated losses of €38 million.

The bank’s equity was negatively impacted by the adoption, since January 2018, of the IFRS9 for the treatment of financial instruments. With respect to the low profitability, the management indicated that the group aims to achieve a double digit ROE, although they did not indicate a timeframe to achieve it.

Disclaimer:

This article was issued by Elisabetta Gaudiano, research analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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