Local banks at cruising speed

Summer, long-awaited by many for the enjoyment of the sea, sun and everything in between, also represents an impactful interim reporting period, with numerous companies, both local and international, publishing their results for the second quarter and first half of the year.

Earnings season has thus far been relatively upbeat, bolstering investor sentiment amid ongoing macroeconomic concerns. In the US, 81% of the S&P500’s constituents which have reported to date beat bottom-line expectations, with profits rising by 9% year over year. Closer to home, the UK’s FTSE100 saw 75% of reporting companies surprise positively, with such figure for the European EuroStoxx600 standing at a more subdued 56%.

Locally, some of the earlier companies stepping onto the reporting docket have also been some of the most influential, with BOV, HSBC and APS publishing interim results throughout the final days of July. Half-yearly pre-tax profits, as widely expected by industry practitioners, decreased versus the prior year’s figures, with the varying degrees of contraction shedding light on the effectiveness of each bank’s management in immunising financial performance from interest rate cuts in the eurozone.

In fact, throughout this year, the ECB eased monetary policy by an additional 100bps, lowering the deposit rate to 2.00%, a level widely deemed to be approaching neutral territory. This development, although supportive for economic growth, has taken wind out of the sails of financial institutions, which have recently been riding the beneficial wave of a higher-interest-rate environment. A bank’s bottom line, however, albeit highly dependent on the level of interest rates, is also materially impacted by other business lines’ performance.

In this regard, Malta’s strong macroeconomic backdrop is continually expected to support private sector demand for credit, driving growth across well-capitalised local banks’ loan books.

Fee and commission income is also a beneficiary of financially stronger Maltese households, with demand for investment services, insurance products and pension schemes slowly but surely picking up.

Finally, maintaining high-quality asset portfolios, as evidenced by the commonly low ‘non-performing loans’ ratios across the aforementioned banks, while keeping a tight lid on costs, further protects bottom-line performance from a lower repricing of interest rates, enhancing earnings sustainability and upholding shareholder returns.  

Malta’s strong macroeconomic backdrop is continually expected to support private sector demand for credit

BOV, fresh off of the largest-ever local corporate bond issue, reported a pre-tax profit of €135.1 million, marking a year-over-year contraction of 8.8% versus H1 of 2024. On an annualised basis, however, results are encouraging and promise to challenge the upper bound of management’s full-year, recently reaffirmed, guidance.

The largest local bank also announced a gross interim dividend per share of €0.0856, slightly higher than last year’s first-half interim payment. Additionally, BOV’s management embarked on a series of shareholder-friendly initiatives, enacting a 1:10 bonus share issue in June along with the upcoming implementation of a share buyback scheme, aimed at enhancing secondary market liquidity. Finally, BOV also plans to re-tap local capital markets in the near future, with a new €325 million Euro Medium Term Note programme targeted for regulatory approval.

The second-largest local lender, APS, closed H1 with a pre-tax profit of €9.1 million, down by 9.9% year-over-year and announced a gross interim dividend of €0.00726 per share, versus last year’s €0.00811. The bank intends to approach the market with a rights issue in Q4 of 2025, aiming to raise capital to fuel further growth as APS strives to continually become the ‘everyday bank of choice’.

Management reiterated a renewed focus on organic development, without however closing the door to inorganic opportunities. CEO Marcel Cassar urged clearer policymaking while noting attempts made in recent weeks to bring APS back into the HSBC race.

HSBC, continually under strategic review by its main shareholder, declared an interim gross dividend per share of €0.10, unchanged year-over-year, with this making HSBC one of the highest dividend yielders across locally listed equities. Pre-tax profits for H1 of 2025 totalled €58.7 million, declining by 25.3% over the same period of last year, with CEO Geoffrey Fichte earmarking balance sheet solidity and continued investments in technology, people and customer service. 

Innovation, drive and strategic acumen are set to increasingly become differentiating factors, along with other idiosyncrasies, amid the ongoing normalisation of monetary policy, as local banks’ financial performance slows down to a cruising speed which still promises to be satisfactory to shareholders.

Kieran Degiorgio.

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.