Economic recovery 'not before 2023', BOV chairman says

Malta’s economy will not fully recover until 2023 at the earliest and only if the vaccination programmes for COVID-19 are rolled out effectively, BOV chairman Gordon Cordina told BusinessToday.

2021 will see the start of a recovery to some extent, but nowhere near 2019 levels.

“Also, think Darwin. It will not be the strongest or smartest that survice, but those businesses and sectors that are able to adapt the most and the fastest,” he said.

Cordina said that COVID had exposed Malta’s economy and businesses to vulnerabilities that were not evident before.

“In our small economy, BOV has proven to be able to adjust to circumstances,” he said.

Going forward, he said, BOV - and the local banking sector as a whole - must focus on change.

“We need to focus on niches, digitalisation, on going green,” he said. “Our success and longevity will depend on how fast our sector, and the authorities, can introduce these changes.”

Cordina, who was speaking to this newspaper following the publication of the bank’s financial statements for 2020, said it is important for BOV to remain a catalyst in this upcoming tranformation process.

“Our ultimate aims as BOV is to return shareholders to a stable and predictable level of dividends as we go forward, as well as continuing to support our environmental, social and corporate governance (ESG) commitments” he said.

Gordon Cordina

Financial results

Bank of Valletta has reported profit before tax of €15.2 million, down from €89.2 million in 2019.

When adjusted for a number of specific items PBT would increase to €100.7 million (2019 - €138.1 million), a reduction of €37.4 million or 27% when compared to prior year.

The most significant specific items were: €38.1 million related to increases in credit provisions with charges predominantly attributed to COVID-19; €39.8 million in impairment charges for long outstanding non-performing loans driven by changes in regulatory policy in light of current economic environment; €15.8 million investment in the Bank’s transformation programme, offset by an €8.1 million net litigations provision release following the settlement of the Swedish Pensions Agency (SPA) case.

The reduction in the normalised operating profit was driven by lower net interest income, COVID-19 impacted commissions and Ttading revenues and higher operating costs.

Net interest income of €146.8 million was €6 million lower than 2019, but still the main revenue driver.

Growth in deposits coupled with persistent negative interest rates continued to impact the bank’s net interest margin. Securities, previously generating positive returns, have been maturing and are now being re-invested at lower or negative rates.

BOV’s commission and trading revenues of €78.8 million, down by €12.1 million year on year, were most severely impacted by the COVID-19 restrictions. Decreases in revenues were predominantly in the card business, where substantially lower card usage was recorded, and in the payments business, as economic activity slowed significantly, especially during the initial lock-down period.

A slower trend was similarly noted in the foreign exchange business due to reduced foreign trade and travel, and to a smaller degree through the reduction in our appetite for higher risk business,” Hunkin said.

The bank’s operating costs increased by €15.9 million or 11.5% to €154.6 million.

This was mostly due to increased employee compensation, attributable to retirement benefits of €5.2 million paid under the Voluntary Early Retirement Scheme, as well as continuous investment in new skills and resources.

“In addition, the investment in our new IT core banking system implemented at the start of this year has led to increased amortisation cost of €4 million,” Hunkin said.

Total assets of the Group reached €12.9 billion as of December 2020, an increase of 5% over 2019. Customer deposits grew by a further 6%, or €642 million, during the last year. Customers continued to prefer short term deposit products and channelled their savings into the banking system due to the lack of more beneficial opportunities in the market.

Despite continued momentum in the loan book, the liquidity position remained very strong with cash and short-term funds increasing by €106.6 million or 2.6% over the year.

“The Group liquidity ratio stands at 463% reflecting the extraordinary deposit growth that has outpaced loan demand,” Hunkin said. “This excess liquidity, which continues to put pressure on the net interest margin, was partly mitigated by increased investment, of almost €400 million, in Treasury bills and Malta Government bonds.”

BOV CEO Rick Hunkin

Deiulemar

Although having successfully addressed two of the historic litigation claims long outstanding against the Group, the Deiulemar claim remains outstanding and continues to be significant. The Group is adamant, based upon legal advice it has received – including one from Italy’s leading independent and specialist authority in these areas – that this claim is wholly without merit.

BOV has been making concerted efforts on all fronts to ensure a fair and independent hearing which it believes would reject this claim.

“The issue is being complicated by the fact the case is being heard in the Tribunal of Torre Annunziata, amidst significant local pressures that serve to deflect proper legal proceedings,” Hunkin said.

“The bank continues to explore every legal and other proper available avenue at its disposal to bring about a change in the judicial process and deliver a fair outcome. Until the bank is successful it needs to demonstrate that, however unlikely, it has sufficient capital resources to withstand any possible adverse outcome.”

US correspondence services

Bank of Valletta will be offering corresponding services in US dollars through Western Union as of tomorrow, CEO Rick Hunkin announced this afternoon.

Following a press conference on the bank’s financial results for 2020, Hunkin told MaltaToday that the bank had secured an agreement with Western Union to offer corresponding services in US dollars to the bank’s customers, while discussions with Raiffeisen International Bank were still underway.

Raiffeisen had originally announced it would stop offering corresponding services to BOV by the end of December 2020.

“Since then, we managed to move that deadline first to the end of March this year and, recently, we postponed the end of services to the end of May,” Hunkin said. “In the meantime, talks with Raiffeisen continue.”

He said that with the new agreement with Western Union coming into force tomorrow, he did not envisage BOV having any problems providing corresponding services in US dollars to its clients.