The research team at Calamatta Cuschieri has recently distributed an equity research report on Lombard Bank Malta plc with a Hold recommendation and a 12-month price target of €2.36, implying a capital upside of 3.5 per cent to the current price of €2.28 as at the time of this writing. 

About the bank

The Bank is licensed as a credit institution and as an investment service provider and offers the full range of traditional retail and commercial Banking activities, including home loans, deposit accounts, credit and debit cards, and trade finance and asset management. The Bank is mainly focused on financing commercial-related activities. 

Loans and advances to customers

During H1 2019, loans and advances to customers rose 5.8 per cent year-on-year, contributing towards an increase in interest income of 9.3 per cent in comparison to H1 2018. Customer deposits during the period also increased by 1.8 per cent. Subsequently, net interest income as per 2019 last twelve months (LTM) results further improved to €18.7 million from €17.5 million during FY 2018. We expect net interest income to increase to €20.4 million during FY 2019.

Net fees and commissions

Net fees and commissions as per 2019 LTM results increased by 10.7 per cent to €5.2 million when compared to FY 2018, as a result of increased credit facilities, wealth management services and transaction banking activity. Going forward, we expect net fee and commission income to remain at this level during FY 2019.


Through Redbox limited, being a wholly owned special purpose vehicle subsidiary of the Bank, the Group owns 71.5 per cent of MaltaPost, which is Malta’s leading postal services company and the sole Universal Service Provider of postal services in Malta.

Moreover, MaltaPost’s operational performance has recently registered a decline in activity concerning foreign letter mail. Albeit, we expect the upward revision in the rates for the domestic single and bulk mail, combined with the improved rates on the local and foreign registered mail to positively contribute to the

MaltaPost’s revenues and profitability. However, in the short to medium term we do not expect any material contribution from Maltapost towards the Group as we continue to see weakness in the letter business. 


In terms of expenditure, employee compensation and benefits is the major cost item incurred by the Bank. This increased by 4.3 per cent to €21.6 million as per 2019 LTM results, reflecting the need to recruit more specialized expertise and to retain existing staff in a tight labour market characterised by wage inflation. We expect employee compensation and benefits to increase to €22.6 million in FY 2019. 


The Bank’s impairment charge following the adoption of the new accounting standard (IFRS 9) from FY 2018 onwards, did not reveal any significant divergences in the required level of provisioning from previous estimates, thus reflecting the high quality of the Bank’s financial assets as well as the collateral cover held. The change in credit impairment losses for H1 2019 was €2.0 million resulting from further alignment to IFRS 9. We expect credit impairment losses to amount to €2.7 million during FY 2019. 

Net profit

Upon taking the above into consideration, we expect the Group’s net profit to amount to €9.2 million during FY 2019, translating to an EPS of €0.196 compared to €8.9 million or €0.191/share as per FY 2018 results.

Return on equity and earnings yield

The Bank’s return on equity and earnings yield as per 2019 LTM results currently stand at a healthy level of 7.7 per cent and 8.5 per cent respectively, reflecting the Bank’s recent growth trajectory, primarily emanating from an increase in loan book, both from a retail and commercial perspective. 

Capital Adequacy Requirements

The banking industry in Malta, as well as internationally, remains relatively unattractive, with larger capital requirements as a consequence of more stringent regulation, increased costs mainly related to risk management, compliance and ICT; coupled with a backdrop of punishingly low interest rates which are affecting interest margins across the board.

Although the Common Equity Tier 1 Ratio (CET1) currently stands at 14.3 per cent, which is above the regulatory minimum requirement of 4.5 per cent at present, we are cautious of the risk associated with the Group’s future dividend distribution due to unfavourable regulatory capital requirements arising from the MREL and Basel IV requirements forcing the Bank to increase the level of own funds. This concern is exacerbated through the drop in the Group’s CET1 ratio, whereby in FY 2015 this stood at 16.4 per cent and dropped to 14.3 per cent as at LTM 2019.


At the current price of €2.28, the Group is currently trading at a Price to Book (P/B) multiple of 0.9x (2019LTM), in which we deem to be justified given the concerns discussed above. Consequently, we used a P/B forward multiple of 0.85x for FY 2019 and FY 2020 in our valuation in order to cater for the concerns circulating within the Banking industry in general.

At a target price of €2.36, the forward earnings yield for FY 2019 and FY 2020 remains relatively attractive at 8.6 per cent in line with the Bank’s anticipated positive performance in the short-to-medium term. We expect the valuation to remain at such levels unless the above concerns materialise, and accordingly, we rate the stock as a Hold. 

Disclaimer: This article was issued by Andrew Fenech, research analyst at Calamatta Cuschieri. For more information visit The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Analyst views to BUY, SELL or HOLD on particular stocks or instruments are related to the stock/instrument being reviewed and are not to be treated as personal recommendations to investors, which are only issued following suitability assessment.

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