Bank of Valletta has reported a pre-tax profit of €105.1 million for the first half of this year, compared to a €72.1 million pre-tax loss, as restated, in the comparative period last year (including €102.7 million in net settlement of the Deiulemar litigation).
It said the positive results in the first half of 2023 were led by a solid underlying operating profit driven by a significant improvement in the group’s operating revenues of €202.5 million, which have grown by €71.2 million or 54% compared to the first half of 2022 (1H 2022: €131.3 million).
Net Interest Income remained the leading driver with €159.9 million (1H 2022: €87.2 million), an increase of €72.7 million or 83% versus the same period in 2022, reflecting consistent growth in customer lending and proprietary investment portfolios.
"During the past six months, interest income continued to benefit from the upward repricing of interest rates, mainly due to Euribor-denominated loans to business customers and treasury assets. Higher interest revenues resulted from a larger investment book as the bank continued to deploy liquidity to better returns in the securities markets," the bank said.
In contrast to the comparative period, positive returns were also registered on liquid assets invested short-term in money markets.
Higher interest expense was due to the half-yearly cost on the 10% Callable Senior Non-Preferred Notes, issued by the Bank in the fourth quarter of 2022, required to meet regulatory requirements.
Net Fee and Commissions, Exchange and other revenues stood at €42.7 million, down by €1.5 million or 3.3% (H1 2022: €44.1 million). Net commissions declined by €2.8 million, or 7.4% vis-à-vis the same period last year due to the removal of deposit-related fees on corporate customers and a persisting slowdown in investment-related commissions.
Foreign exchange revenues increased compared to the same period last year with increased margins compensating for the decrease in turnover.
Operating costs in the interim period amounted to €93.0 million (1H 2022: €87.7 million) up by €5.3 million or 6.0% compared to the same period in 2022. This was primarily driven by increases in employee compensation, BOV said.
Investment in technology and the delivery of digital channels further contributed to higher costs. These rises were partially offset by lower contributions to the Depositor Compensation Scheme due to lower levels in customer deposits and a change in legislation during the second half of 2022.
Interest rates
Bank chairman Gordon Cordina welcomed the results. He pointed out in a statement that with the goal of curbing euro area inflation, the ECB had raised its interest rates by a total of 250 basis points during the second half of 2022, and by a further 150 basis points during the first six months of 2023. Looking ahead, further increases were possible, as euro area inflation was proving rather persistent. A normalisation of interest rates is to be expected in the medium term, as the long period of exceptionally accommodative monetary policy has effectively come to an end.
"In this context, the Bank is pursuing opportunities for investment to ensure sustainable returns in the medium to long term from its treasury activities and loan portfolio. Towards this end, the Bank is redeploying part of its holdings of excess liquidity at the Central Bank of Malta, even though these are rendering an attractive return for the time being. These operations are undertaken in a manner which preserves the strength of the Bank’s capital position and risk exposures, and which continues to sustain healthy liquidity, cognisant of BOV’s systemic importance," he said.
He also pointed out that the bank had maintained its base rate unchanged, continuing to offer mortgages and most business loans at attractive rates despite the rate hikes by the ECB.
"BOV’s financial performance for the first half of 2023 indicates the validity of its stance on deposits and loans. Borrowing clients were shielded from sudden rate changes, allowing the household and corporate loan portfolio to expand compared to end 2022. This avoided potential financial stresses at a time when the country faces a high inflation environment. In any case, BOV commits itself that should circumstances warrant any changes, these will be gradual and communicated in a timely manner," Cordina said.
"As Malta’s largest bank, BOV is conscious that its actions have a material impact on the economy and is a key enabler of the country’s economic prospects. In this respect, the Bank aims to minimise shocks in the economy, which is a key service for a very small open economy."