Bank of Valletta’s pre-tax profits dropped by 75 per cent in the first six months of this year, as COVID-19 hit the economy hard.
In a presentation on Friday, the bank said its profit before tax for the first six months of this year was €13.8 million, down from €54.3 million in the same period last year.
The bank said the reduction in profit was mostly a result of the COVID-19 pandemic, which impacted all of BOV’s business lines.
In fact, of the €41 million drop in profit, the bank estimates that €25 million is the direct result of the pandemic.
The bank said that its investment in new technology and banking systems, as well as a wide-ranging de-risking effort, had also hurt profit margins.
Scores of gaming and other ‘high risk’ businesses were cut loose by BOV over the past year, following instructions by the European Central Bank to “de-risk” its operations.
Bank interim chairman Alred Lupi said it was important to define the context within which the results were being presented.
“The economy is going through an unprecedented period,” he said.
Lupi said the bank’s priority during the pandemic had been to help households, but BOV knew it had to remain a resilient bank to be able to do this.
“We need to be well capitalised to meet these challenges and continue to meet our systemic functions as the largest local bank,” he said.
The results for the period under review also include impacts from a number of other areas, including increased depreciation on new IT investments and staff costs.
Net interest income, which remains the main revenue driver for the bank, amounted to €72.3 million, €5.3 million less than the income registered for the same period in 2019.
The persistently low to negative interest rate environment, coupled with a conservative risk appetite, limited investment opportunities and increased levels of liquidity which attract negative interest. This resulted in lower earnings on the bank’s investment portfolio.
Demand for credit was primarily related to liquidity shortages brought about by the COVID-19 pandemic.
During the first six months of this year, the demand for home loans was subdued when compared to previous years and this is mostly attributed to changed consumer behaviour influenced by the pandemic.
Commission and trading profits were of €37 million, 19 per cent lower than the first six months of 2019.
The economic slowdown caused by COVID-19 had an adverse effect on commissions earned, especially those related to the card and payment business and investment-related products.
Income from foreign exchange transactions was also negatively impacted.
De-risking programme 'going well'
BOV said its de-risking programme is going well, and while the bank is registering lower revenues, within the expected parameters, the bank’s risk position and long-term sustainability were improving.
Total costs for the first half of the year increased by €8.2 million to €89.5 million.
The bank attributed this to IT costs related to the new core banking system which went live at the start of the year, increasing staff costs mainly in recruitment in the risk and compliance areas, and professional fees engaged in the implementation of the bank’s transformation programme.
The bank said it remains highly liquid, with cash and short-term funds increasing by €178.3 million (4.3 per cent) during the six months of this year.
Customer deposits increased by over €500 million since the start of the financial year and reached €11.1 billion at the end of June 2020. Net loans and advances increased by €91 million since December 2019, an annualised growth rate of 4%, and stand at €4.7 billion at 30 June 2020.