BOV reports profits of €146 million
At a press conference held yesterday, Bank of Valletta Chairman John Cassar White announced the Group’s financial results for the financial year which ended on 30 September 2016.
The Group reported a profit for the year of €145.9 million, before deducting income tax. This result is inclusive of a gain of €27.5 million, arising from the takeover of VISA Europe, in which BOV is a Principal member, by VISA Inc.
The Group’s operating profit, adjusted for this windfall profit, amounts to €118.4 million, as compared to the profit of €117.9 million reported for the previous financial year.
The Board will be recommending a final gross dividend of €0.0852 per share which, taken together with the gross interim dividend of €0.0391 per share paid in May 2016, results in a total gross dividend of €0.1243 per share for FY2016.
The Board is also recommending, effective 16 January 2017, a bonus issue of 1 share for every 13 shares held. The bonus issue will be funded by a capitalisation of reserves amounting to €30 million. This will increase the permanent capital from €390 million to €420 million.
Profit excluding the gain on the VISA transaction represents a return on equity of 16.9%, down from 18.4% for 2015. This decrease is due to equity having grown by 9% to €729.2 million over the year, while the growth in operating profit has been marginal. Return on average assets, adjusted for the windfall gain, stands at 1.1%, compared to 1.3% last year. The cost-to-income ratio, which relates to costs incurred to revenue generated (excluding the VISA gain), amounts to 44.3%, against 41.8% in 2015.
Group total assets stand at €10.7 billion, up by €821 million over September 2015. This growth was financed primarily by incoming customer deposits, which increased by €621 million to reach €9.2 billion; and by the issue of €112 million worth of subordinated debt. These funds were mostly deployed as liquid assets, as gross loans and advances remained stable at their September 2015 level of €4.3 billion. New loan drawdowns amounted to over €700 million, but these were almost completely offset by repayment of existing lending.
The Group’s Core Equity Tier 1 ratio, which is the standard regulatory ratio measuring the capital adequacy of banks, rose to a robust 12.8%, up from 11.3% last year. BOV Chairman John Cassar White expressed satisfaction at the results which, he said, were achieved during a year marked by healthy economic activity, but which was also characterised by a continuing low interest environment which was exerting pressure on margins. Pressure on profitability is also arising from increasing overheads, and especially HR costs, which have risen by 4% following the conclusion of a new Collective Agreement.
Mr Cassar White emphasised the need for BOV to review its business model in order to ensure the long term sustainability of the Bank, and its continuing relevance to the Maltese economy.
“The model is evolving from one based on growth to one based on quality, with a lower risk profile and, correspondingly, potentially lower returns,” explained the Chairman. The bank has to reconsider business lines with a high level of inherent risk, while other core business lines are reaching a state of maturity and their potential for further growth is limited. “Diversification of revenue streams and de-risking will be high on the bank’s agenda over the coming years,” affirmed Mr Cassar White.
The Chairman explained the bank’s strategy which, he said, gives priority to the long-term stability and sustainability of the business. The strategy may be described as one of consolidation, and includes the strengthening of the bank’s levels of capital; the Core Banking Transformation programme, which is centered around the replacement of the Core IT system; the review of the business model; and the strengthening of the corporate governance framework.
The bank will be further strengthening its anti-financial crime defences, by setting up a fully resourced Anti-Financial Crime department, and review its Risk Appetite Framework, which is based on a detailed articulation of the board’s risk appetite.
Mr Cassar White concluded by thanking all stakeholders for their commitment to the bank’s success, and the bank’s customers for choosing BOV as their preferred provider of financial services.