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The investor community were waiting for the interim results of Bank which were published last Thursday. Why? These results reflect the last three calendar months of last year and the first three months of this year of a major player in the financial market. Till now, we have seen the positive full year 2005 results of HSBC, Lombard and the unquoted APS Bank. Now that we have an indication of how the first quarter 2006 contributed to the BOV interim results, investors will be working out their projections of what other listed financial institutions would register.
Bank of Valletta has registered a net profit before tax of Lm18.8 million for the six months ending 31 March, 2006, which is an increase of 92.2% over the restated net profit before tax of Lm9.8 million at 31 March, 2005.
These results came about following strong performance from Financial Markets, investments, growth in loan book, sale of investments and other products as well as the increased contribution from the Group’s insurance business. The Bank also decreased its cost to income ratio and reduced the impairment charges.
Interest receivable in the first six months of the current financial year reached Lm47 million against the Lm40 million of 2004. After deducting the interest payable, the Bank registered a Net Interest income of Lm23.8 million compared to the Lm20.1 million in the previous year. This is an 18.5% increase.
The Group continued to earn more from dividends, fees and commissions payable and trading profits bring the operating income to a level of Lm35.7million which is 17.5% more than that of 2004. Administration expenses and depreciation rose slightly this year however operating profit before impairment losses reached Lm19.9 million against Lm15.3 million.
Although total costs increased by 4.5%, the Group cost to income ratio has improved from 49.8% in March 2005 to 44.3% in March 2006. Adding on the share of profits of associated and jointly controlled entities, the profit before impairment charges amounted to Lm22.7 million being an increase of Lm6.3 million and equivalent to a 38% increase over the March 2005 figures. The share of profits of associated and jointly controlled entities include the results of Middle Sea Insurance p.l.c. and Middlesea Valletta Assurance Co. Ltd which at Lm2.8 million is a staggering rise of 145% over that of the previous year.
The net impairment losses this year stood at Lm3.9 million compared to Lm6.6 million in the previous year. The Board explained in the notes to the financial statements that there is included a specific impairment charge of Lm2.9 million. The Bank took a more prudent view of collateral held against certain impaired accounts, leading to a downward revaluation of the realisable value. Other small impaired accounts which had been long overdue were written off as bad debts.
The charge for collective impairment amounted to Lm1million resulting from an increase in the loan book. Shareholders question such impairments even though they know that this is a banking institution that exercises diligence in loaning funds. However, a collateral which was held against a certain account, was viewed in a different light during this 6 month period leading to a reduction in the expected realisable value.
Although the Bank is bound by secrecy and confidentiality of its customers, an indication of the industry sector would assist the local general business community. As an example, if the review of the value of a collateral was because of a decision of a withdrawal of a shareholders’ guarantee, it is in the general economic interest for all to know more of this event especially if it may be a loan guaranteed by assets or on the strength of a balance sheet or reputation of an entity /body. Traders do not have the sophistication of risk policies adopted by the Bank and would like to know what caused this event during the last 6 months. Following this transaction profit after tax was Lm13.1 million against Lm6.7 million in 2004, bringing the earnings per share to 11c7mils.
The Bank’s Balance Sheet got stronger with total assets reaching Lm2.2 billion and shareholders funds have reached Lm150 million, whilst customers deposits with the bank reached Lm1.56million, an increase of 3.4% in 6 months, The net advances stood at Lm826.7million.
In Malta, listed companies do not give profit forecasts however it is good to note that the Board of Directors of Bank of Valletta comment they do not see any reason why the rate of profitability will not be sustained in the second half of the financial year.
Bank of Valletta is proposing an interim dividend of 5 cents 5mils gross of tax being 46% more than the interim dividend given in March 2005. Bank of Valletta has also increased the cash and cash equivalents.
The Government of Malta which had started the process to divest of its 25% shareholding will be earning the Lm5.7million tax on these interim profits apart from the dividend of its shareholding. Government’s 25% shareholding will receive Lm1.5million gross. Not bad for a passive partner!
It is always good news to know that a Maltese entity operating in a highly competitive and crowded market such as the financial sector , continues to strive and register amazing results. Credit is due to the Directors, Management and staff at BOV and the new Head Quarters should lead to improved efficiency for the benefits of its customers.
The local stock exchange did not reflect the positive results, last Friday. The share price dipped down, possibly because a higher dividend was expected on the results.
Yet again, until a strategic partner is found for the minority shareholding in Bank of Valletta p.l.c. the Group shows that it is still continuing with registering positive results. And this is to the benefit of all shareholders especially the thousands of individual shareholders that grouped together form the major class of shareholders.
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