BOV records €163.5 million in profit before tax in Q1 - Q3

BOV Group has announced that profit before tax for the first nine months of 2023 was €163.5 million compared with a loss before tax of €48.7 million, as restated, in the comparative period. Group profits have been restated by €7.0 million in share of results from insurance associates, reversing a €5.4 million loss in September 2022.

This was a result of the implementation of IFRS 17 by the Group’s associated companies, which accounting standard introduced a new methodology for the valuation of insurance contracts. The performance of the Group in 2022 was impacted by the out-of-court settlement of the Deiulemar case.

Excluding the impact of the settlement, the Group’s results for the comparative period were a profit before tax of €54.8 million restated.

The favourable performance for the first three quarters of 2023 was attributable mainly to the improvement in the Group’s operating revenues totalling €315.9 million, a growth of €113.7 million or 56% compared with the same period in 2022 (9M 2022: €202.3 million):

• Net Interest Income continued to be the dominant catalyst with €253.8 million (9M 2022: €137.3 million), an increase of €116.5 million or 85% compared to the same period in the prior year, reflecting a further growth in customer lending and proprietary investment portfolios. Furthermore, the upward repricing of interest rates, a larger investment book coupled with positive returns on liquid assets invested short-term continue to substantially benefit the interest income revenues. Higher interest expense was also registered this financial period primarily due to the 10% Callable Senior Non-Preferred Notes, issued by the Bank in 4Q 2022 to meet regulatory requirements.
• Net Fees and Commissions, Exchange and other revenues amounted to €62.1 million, down by €2.8 million or 4% (9M 2022: €65.0 million). Net commissions declined by €0.8 million, or 2% vis-à-vis the same period last year mostly due to the removal of deposit-related fees to corporate customers and a persisting slowdown in investment- related commissions. The latter was partially compensated for by growth in advances and capital markets related commissions.
• Operating costs in the first three quarters of the year amounted to €139.0 million (9M 2022: €132.3 million) an increase of €6.7 million or 5% compared to the same period in 2022. This net movement is owing to lower regulatory costs and professional fees offset by further investment in human resources and digitisation efforts.

Net Expected Credit Losses (‘ECL’) for the period to September 2023 was a net charge of €13.1 million (9M 2022: €10.1 million net charge). This charge represented business growth and stronger coverage against specific exposures with increased risk offset by releases in ECL on facilities with improved collateral coverage or reduced outstanding balances.

The Bank’s policy to build a robust coverage against high-risk non-performing exposures persists with a €3.7 million charge as part of the total net ECL charge for the period.

Write-off of non-performing debt (net of recoveries) amounted to €1.8 million charge. As per Company Announcement (BOV461), the Bank is currently in advanced negotiations to sell a portion of its portfolio of non-performing loans with a view to strengthening its capital and liquidity buffers, and to ensure that the Bank’s resources are focused on servicing loans with a better prospect of recoverability.

As at 30 September 2023, the ECL coverage for credit-impaired assets stood at 53.6% (December 2022: 53.8%) while the ratio of non-performing to the total credit portfolio stood at 4.0% (December 2022: 3.5%).

The Bank sustained its momentum in executing strategic actions, with the Bank allocating an additional €6.7 million in the first nine months of 2023 (9M 2022: €6.6 million).

The share of profit from insurance associates for the first three quarters of 2023 amounted to €6.4 million, aligned with the recently adopted IFRS 17 standard implemented by the associates (9M 2022: €1.5 million restated).

Group financial position

The Group’s total assets reduced by €118.8 million and stood at €14.4 billion as at the end of the third quarter of 2023, lower by 1% compared to the year ended 2022 (December 2022 restated: €14.5 billion).

The decrease was driven by lower levels in customer deposits while still supporting growth in the loan book and further investment in treasury securities. The Group’s liquidity ratio as at 9M 2023, stood at 458.5%, up from 426.3% as at December 2022, significantly above the minimum regulatory requirement.

Effective management of surplus liquidity was upheld in the first nine months of the year with cash and short-term assets decreasing by 35% or €1.2 billion.

During the period to September 2023, the Bank assisted both the business and personal clients with their funding requirements, leading to a net expansion in the loan portfolio of €401.5 million or 7%. In view of the increased investment opportunities, the treasury portfolio increased by €556.8 million or 12%.

The vast majority are measured at amortised cost reflecting the Bank’s primary business model to hold securities until maturity with a view to collecting interest revenues over the life of the investment.

Customer deposits contracted circa 1% in the last quarter and 4% since December 2022, in line with the Bank’s expectations given the current market conditions with positive interest rates and various investment opportunities including within the local market such as Malta Government Bonds and other private issues.

Net loans and advances to customers as at 30 September 2023 amounted to €6.0 billion (December 2022: €5.6 billion). The increase in loans was experienced both in the corporate and retail lending portfolios.

These developments led to a favourable increase in the Group’s net loans to deposits ratio from 46.0% in December 2022 to 49.5% as at the end of September 2023.

Total Group Equity increased to €1.2 billion, up by €108.5 million on the December 2022 position, as restated. Group equity as at end 2022 has been restated, against the Investment in equity-accounted investees, to reflect the new value of investment following IFRS 17 implementation.

The Group’s capital ratios remained strong and above regulatory requirements, with the CET 1 and total capital ratios as at September 2023 of 22.7% (December 2022: 21.8%) and 26.1% (December 2022: 25.4%), respectively. The 2023 capital ratios are inclusive of 9M 2023 profits and proposed interim dividend for comparative purposes.

The Group’s net asset value as at 30 September 2023 amounted to €1.2 billion resulting in €2.1 net asset value per share (December 2022: €1.1 billion restated resulting in €1.9 net asset value per share).

Strategy 2023 update

During the last quarter, the Bank worked diligently to further enhance banking services, improve customer experiences, and increase operational efficiency. To date, substantial strides were made in these key focus areas.

The strategy remains firmly anchored on business process re-engineering, a critical move designed to enhance operational efficiency, reduce costs, and improve the Bank’s financial performance.

The Bank has been making significant strides in streamlining its processes, eliminating redundancies, and automating routine tasks, allowing its teams to focus on more strategic, value-adding activities.

In line with its commitment to uphold the highest standards of corporate governance, the Bank continues to make significant investments in ensuring full compliance with its regulatory obligations.

The Bank has worked closely with regulatory bodies and established robust systems and processes to meet and exceed its compliance requirements.

Recognising the increasing role of technology in shaping the future of banking, the Bank has been making considerable improvements to its digitisation efforts. The Bank is utilising emerging technologies to digitise its operations, enhance its online platforms, and offer innovative digital banking solutions to its customers by leveraging the Voice of the Customer insights.