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Gerald Fenech
HSBC’s policy of paying out dividends which are in excess of profits earned during the year is an unsustainable one and one can never compare such a policy with the practice at Bank of Valletta.
These were the stark observations made by BOV Chairman Roderick Chalmers in comments to Business Today whilst answering a number of questions on the better than expected interim results of the bank.
“We do not believe that it is appropriate to compare (as some do) BOV’s dividend policy with that of HSBC Malta, who have been paying out dividends in excess of profits earned – and who are therefore essentially returning capital to shareholders. Apart from the fact that such a policy is unsustainable in the long term, BOV does not have a big brother holding company with billions of liri in capital, and we therefore have to ensure that our own balance sheet grows in line with our business and can stand on its own two feet”.
Asked on the situation regarding improved loan impairments, Chalmers said that according to the bank’s opinion, the housing market is not overheating and vigilance remains rigorous.
“We have seen a strong and sustained demand for home loans – and we have continued to apply normal risk related measurements and criteria in our home loans lending policy. These revolve around the age of applicant and loan multiple of income (to determine ability to repay, duration (number of years) of the loan and the loan to value ratios”.
Chalmers added that the bank obviously monitors the performance of the home loan book very carefully and will continue to do so.
“To date, this performance has been extremely satisfactory, repayments are very regular and the ratio of loans in arrears or otherwise delinquent are very low indeed. Accordingly, we remain satisfied with the quality of our Home Loans business – but we will, of course, remain vigilant”.
The chairman was tight lipped when asked on how the stock market would eventually react to the bank’s excellent results and if further growth was expected on the MSE during the next six months.
“I believe that my response to that question must be that the Board of Directors and the Management of the Bank are happy to be held accountable to our shareholders for the results of the Bank, and to do our best to explain these results to the market in a clear and unambiguous manner. We are also content to be held accountable for providing the shareholders and the market with an overview of the environment in which we are operating”.
Mr Chalmers said that although it is not the bank’s practice to provide profit forecasts, we do take care to provide the market with reasonable guidance as to our plans, prospects and expectations.
“However, I do not believe that we can or should be held responsible or accountable for the way the stock market behaves – and with good reason. This is because sometimes the market is bearish, sometimes bullish, sometimes the market is subdued, at other times exuberant or even excessively exuberant. It is therefore not our practice to comment on the expected future performance of the market”.
Chalmers also defended the bank’s dividend policy which has occasionally been described as ungenerous.
“Bank of Valletta has articulated its dividend payment policy in the past. Essentially, we aim to adopt a policy that strikes a balance between a wish to reward shareholders via dividends and the need to continue to reinvest profits in the business and further strengthen the Bank’s balance sheet. We have described the above as a “one third, one third, one third” policy, that is to say we pay out approximately one third of our profits in taxes, one third in dividends and one third is re-invested in the business”.
The chairman explained that the bank will continue attempting to pay an interim dividend following the half year results, the dividend distribution will be weighted more heavily towards the final distribution, so as to enable account to be taken of the full year numbers. In this regard he observed that for the past two years, the bank achieved a final dividend payment equal to twice the amount distributed as an interim dividend.
“We believe that the dividend policy articulated above is in the best interest of our shareholders. It is a policy that enables us to increase dividends in line with results, whilst at the same time provide for the long term interests of the business – and with that for long term shareholder value. It should be noted that the total dividends paid in FY 2006 represented an increase of 200% or three times the dividend paid in FY 2003”, Chalmers concluded. |
