Bank of Valletta on Thursday reported a pre-tax profit of €25.9m in the first half of this year, a jump from the pre-tax profit of €13.8 million reported in the first half of 2020.
It said the result includes the effect of investment activities in Anti-Financial Crime Transformation and its 2023 Strategy of €17.1 million (1H 2020: €5.8 million). Credit provisions also saw a net release of €3 million for the first half of 2021 (1H 2020: €7.5 million charge).
Excluding the impact of investment in transformation and strategy, and credit provisions, the underlying profit stood at €39.9 million (1H 2020: €27 million). The increased underlying profit was driven by higher operating revenues, lower operating costs and improved performance from associates.
Bank chairman Gordon Cordina said the economy was showing strong potential for an effective re-start through tourism and related activities, but this is likely to take place in gradual steps. One of the longer-term costs of the recent resilience of the economy was a higher level of public debt, which needs to be carefully managed over the coming years.
BOV, he said, had staged a revival in profitability during the first half of 2021. The return on equity, at 4.8%, however remained way below its longer-term potential.
"A return to a stable and predictable dividend is not advisable at this stage, given the risks in the overall economic environment, the litigation risks facing the bank, and the need for capital to support the bank’s ongoing transformation strategy over the coming months. This view is consistent with regulatory recommendations which prevailed in the first half of the year."
He said Malta's, greylisting by the FATF has not implied any immediate significant concerns, thanks to the de-risking programme implemented by the Bank which accelerated in recent months and which is expected to be completed in the current year. A significant prolongation of greylisting status could however have important longer-term implications for the bank’s performance.
Prospects for the second half of 2021 point to a continued economic recovery and the rollout of the first tangible results of the transformation strategy.
He said the bank will nevertheless retain its prudent stance towards credit provisioning, sustain its efforts to combat financial crime in all of its forms, while ensuring that its systems and operating methods become more customer centric.
Group financial performance
BOV said its Net interest income of €73.4 million in the first half of 2021 (1H 2020: €72.3 million) was underpinned by a steady growth in home loans and in corporate loans issued in support of businesses. Growth in deposits coupled with persistent negative interest rates continued to exert pressure on the net interest margin, as did the redemption of securities previously generating positive returns. The headwinds challenging net interest revenue were offset by lower cost of funding, also as the Group’s €71 million 4.8% subordinated bond matured in 1Q 2020.
Commission and Trading revenues of €40.4 million (1H 2020: €36.3 million) benefited from the relaxation of COVID-19 restrictions which in 2020 had severely impacted business lines such as cards and payments. Activity in 2021 however still remained below 2019 levels. Furthermore, the results for the first half of the year included a €1.5 million refund of customer fees and charges which had been introduced late last year. A review of these with the regulator is ongoing.
Subdued volumes continued in the foreign exchange business due to reduced foreign trade and travel. A gain on Visa shares held of €1.2 million contributed to Operating Income in first half of 2021.
Operating costs decreased to €81.5 million as at end of June (1H 2020: €83.7 million) reflecting lower consultancy costs as some aspects of the de-risking programme reached completion, partly offset by an operating loss of some €1 million due to the cost of refunding customers who were recently targeted in fraudulent scams.
The share of profit from insurance associates for the first six-month period was €7.6 million (1H 2020: €2.1 million). The increase in profitability was largely driven by an increase in market value of investments and higher written premiums.
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.
APS Bank also sees profits rise
APS Bank also reported an increase in its half-year profits.
In a statement, it said the APS Group registered a pre-tax profit of €12.2 million (2020: €8.9 million) while the bank posted a pre-tax result of €11.5 million (2020: €10.3 million).
Net interest income was the main contributor to the group’s profitability registering a total of €26.3 million (2020: €23.9 million). This was mainly attributable to interest receivable on loans and advances, which as at 30 June 2021 amounted to €30.3 million (2020: €27.8 million). The growth in interest revenue was a direct result of 10% growth in both personal and commercial lending.
In a statement, APS said the financial results reflect the strength and resilience of the group’s business model, taking a pragmatic approach and adjusting itself throughout the various pandemic phases. The bank continued growing the retail and commercial loan book through new or renewed support measures.
It said the vast majority of lending moratoria granted to personal clients have returned to satisfactory performance, reflecting in a release of credit losses recognised in the prior financial year.