‘A year of challenges and a year of growth’

Bank of Valletta Group has announced a profit before tax of €71.2m for the year ended on 31 December 2018, after providing for a litigation provision of €75m. Profit before deducting provision thus amounts to €146.2m, a 5.8% increase over the annualised result for 2017.

Pre-tax return on equity, stated before the litigation provision, was of 14.9% (2017: 16.5%). This same ratio, stated net of tax, amounted to 9.9% per annum, as compared to a ratio of 7.3% for banks in the euro area.

The Group’s Core Equity Tier One ratio rose from 16.1% in December 2017 to 18.3%.

The business drivers that have led to this result include a sustained demand for credit, especially as regards home loans, but also in corporate and SME lending. Gross advances to customers increased by 3% during the year to reach €4.6bn. Income from a number of business lines, including credit cards and payments, also recorded satisfactory growth.

Customer deposits rose by just over 3% and now amount to €10.4bn. Total Group assets stand at €12.1bn.

BOV chairman Deo Scerri explained that these strong results were achieved during a period which was highly challenging for the Group. “These challenges ranged from the entry of new players into the financial services industry to compliance with new regulation such as GDPR and MiFID ii, including the necessary IT development and the training of staff.”

Scerri stated that BOV met these challenges by going for growth. He explained that the Group will continue to build on these results by investing in the future. Group strategy contemplates, among many other initiatives, heavy investment in IT and in fintechs. Concurrently, BOV will continue to strengthen its capital buffers and to give strategic priority to strengthening its antifinancial crime and cyber defence mechanisms.

The Group has, in the meantime, continued the restructuring of its business model, with the objective of lowering its risk profile. The programme is multi-faceted and includes the winding down of certain business lines, the re-dimensioning of others, the revision of the Risk Appetite Framework, the enhancement of risk policies and comprehensive training programmes covering the entire organisation from the board of directors downwards.

The BOV chairman went on to explain the bank’s position on the payout of dividends. As had already been announced, the board of directors resolved not to pay out or recommend any cash dividend for financial year 2018.

In arriving at its decision, the Board took a number of issues into consideration. Foremost among these is the uncertainty arising from a number of legacy litigation cases. This uncertainty led the Board to give top priority to capital conservation, despite its confidence in the robustness of its legal position. Capital is the bank’s bulwark against future unexpected losses and the most efficient way of strengthening capital is to reinvest profit in the business, rather than paying it out in the form of a dividend.

It is always wise to sacrifice shortterm benefits − in this case, the payment of a cash dividend − in the interest of long-term stability. And that is exactly what the Board did when it decided against a cash dividend payout for 2018.

In this context, the Board resolved to make a bonus share issue of one new share for every 10 shares held. A bonus issue, while not constituting a cash dividend, may also offer some value to shareholders, even in the form of possible tax benefits.

It is the intention of the bank to resume the regular payment of cash dividends as soon as prudent judgment allows, and under guidance from its banking supervisors. “The bank will always give priority to long-term sustainability and stability over short-term benefits and this in the interest of all its stakeholders, not least of its shareholders,” concluded Scerri.