Bank of Valletta stages first-half revival in profitability with €25.9m pre-tax profit

Bank of Valletta has registred a €25.9 million pre-tax profit for the first half of 2021 (€13.8m 2020).

BOV staged a revival in profitability with return on equity, at 4.8% (2020: 2.6%) still way below its longer-term potential.

Chairman Gordon Cordina said a return to a stable and predictable dividend was not advisable at this stage, given the risks in the overall economic environment, litigation risks, and the need for capital to support the ongoing transformation over the coming months.  

CEO Rick Hunkin said the bank will be investing in new technology and streamlining processes as well as undertaking a significant restructuring of our operating models. This will be supplemented by branch redesign and refurbishment over the next two years. 

The result includes the effect of investment activities in Anti-Financial Crime Transformation and BOV 2023 Strategy of €17.1 million (1H 2020: €5.8 million). Credit provisions saw a net release of €3 million for first half of 2021 (1H 2020: €7.5 million charge).

Excluding the impact of investment in transformation and credit, the underlying profit stood at €39.9m.

Net interest income of €73.4m (2020: €72m) was underpinned by a steady growth in home loans and in corporate loans issued in support of businesses under the BOV MDB COVID-19 Assist scheme.

Commission and trading revenues of €40.4m (2020: €36.3m) benefited from the relaxation of COVID-19 restrictions which in 2020 had severely impacted business lines such as cards and payments. 

Operating costs decreased to €81.5m on as at end of June (2020: €83.7 million) reflecting lower consultancy costs as some aspects of the bank’s de-risking programme reached completion, partly offset by an operating loss of circa €1 million due to the cost of refunding customers who were recently targeted in fraudulent scams.  

The Group’s total assets were €13.7 billion as at June 2021 which was 6.4% higher than December 2020. 

Net loans and advances as at end June 2021 were just below the €5 billion mark, with a growth rate of 3.9% over December 2020. Despite the momentum in the loan book, the liquidity position remained very strong with cash and short-term funds increasing by €365 million in the first half. 

BOV’s Deiulemar litigation in Italy has not changed during the last six months. The bank maintains its position, based upon robust legal opinions (including one from Italy’s leading independent and specialist authority in these areas), that the claim by the Italian bondholders of the defunct shipping giant, is wholly without merit.

“An offer to settle out of court made last year was based solely upon a desire to end this long-standing matter quickly to remove uncertainty and avoid costs associated with addressing the matter.

This would also enable us to make a more effective use of its capital surplus. Significant efforts continue on a number of fronts to resolve this situation and no additional provision for litigation is considered necessary,” CEO Rick Hunkin said.

Hunkin said the FATF greylisting is not expected to have an immediate impact on the Bank’s operations and rating.

“However, greylisting could raise transaction costs and impact cross-border transaction flows for the whole banking sector. Increased monitoring by foreign banks and counterparts is also expected. Initial indications are that our international trading partners had factored in such an eventuality, but we will watch closely as there remains a risk that a prolonged period before removal from the grey list may lead to some potentially changing their view,” the CEO said.