Author: Mel Chamber

Bank of Valletta Group continued to deliver robust financial performance in the third quarter of 2023 with strong net interest income and capital generation, alongside resilient asset quality. Profit before tax for the nine months was €163.5 million compared with a loss before tax of €48.7 million, as restated, in the comparative period. 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. This was primarily driven by strong growth in the Bank’s personal and business lending business with the loan portfolio exceeding the € 6 billion mark (December 2022: €5.6 billion). In addition, improved returns from the Bank’s treasury portfolio as well as the positive impact of higher rates of interest on the euro have equally contributed to the strong returns. 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 as a result of the continued volatility in the world’s capital markets driven by the geopolitical tensions which is in turn dampening investor sentiment.

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. 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). 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%).  An allocation of an additional €6.7 million was made in the first nine months of 2023 (9M 2022: €6.6 million) for the execution of strategic actions.

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).

BOV Group Financial Position

The Group’s Total assets reduced by €118.8 million and stood at €14.4 billion as at end of Q3 2023, lower by 1% compared to the year ended 2022 (December 2022 restated: €14.5 billion). 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. Net expansion in the loan portfolio was of €401.5 million or 7%.

The treasury portfolio increased by €556.8 million (12%), with the vast majority 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 by circa 1% in the last quarter and 4% since December 2022, in line with the Bank’s expectations. The increase in loans experienced both in the corporate and retail lending portfolios 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 December 2022 as restated. 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).

Benign conditions in the Maltese economy support borrowers’ repayment capabilities and maintain BOV’s asset quality – Dr Gordon Cordina, Chairman

BOV Chairman Dr Gordon Cordina expressed his satisfaction on the announcement of the BOV Group performance for the first nine months of the year. “This sustained performance can be seen in light of developments in both international and local economic environments. The current international economic environment is characterised by subdued growth, dragged by the high inflationary environment and the monetary policy tightening implemented over the past months. The interest rate increases carried out by the ECB since July 2022 have pushed rates to historically high levels. There is broad consensus that rates are close, if not already, at the peak. However, ECB rates are likely to remain high for some time.

The Maltese economy has so far been mostly shielded from the interest rate shock, as the pass-through has been mostly channelled to the bond market via higher yields, and in those cases where interest rates are directly linked to foreign rates. BOV’s large deposit base allows it to benefit from the ECB’s attractive returns on the deposit facility and achieve higher yields from its bond portfolio, thus supporting the Bank’s net interest income. The structure of BOV’s balance sheet allows the Bank to continue offering mortgages and most business loans at attractive rates, while obtaining higher returns from loans linked to foreign rates. BOV believes that the decision to limit the pass-through of interest rates to the domestic economy remains adequate, as demonstrated by the Bank’s profitability and balance sheet dynamics.”

BOV’s focused strategy and commitment to operational excellence, customer satisfaction, and responsible banking will steer us towards sustained growth and success – Kenneth Farrugia, CEO

Speaking about the positive results obtained by the BOV Group as at end September 2023, Kenneth Farrugia, Bank of Valletta CEO stated, “The performance we are announcing today is the result of a number of factors. We have seen an improvement in the Group’s operating revenues, strong net interest income and capital generation, growth in customer lending and proprietary investment portfolios, alongside resilient asset quality. 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.

Whilst we have registered a marginally lower level in customer deposits, our strong liquidity position is enabling the Bank to continue supporting growth in the loan book and optimize returns through investment in treasury securities. During the period to September 2023, the Bank assisted both business and personal clients with their funding requirements, leading to the net expansion in our loan portfolio to a record level of €6 billion shared equally across corporate and personal loans.

The Bank’s focus on customer service experience remains unwavering. We are continually working on enhancing our service delivery, with a keen emphasis on personalisation, responsiveness, and convenience. We are also making significant improvements to our branch experience, which remains the strongest in Malta and Gozo, enhancing service delivery and offering a seamless banking experience. We have equally continued to invest in the training of our human resources which remain at the core of the Bank’s value proposition.

The Bank’s focused strategy and commitment to achieve operational excellence, meet and exceed customer expectations, and responsible banking will steer us towards sustained growth and success going forward. These results are overall attributed to the commitment of our valued employees and equally the loyalty of our strong personal and business customer base.”

Strategy 2023 Update

During the last quarter, the Bank worked diligently to further enhance its banking services and increase operational efficiency. The strategy remains firmly anchored on business process re-engineering, a critical move designed to enhance operational efficiency, improve customer services, reduce costs, and strengthen the Bank’s financial performance. Employees are the backbone of the organisation, and their welfare is paramount to the Bank’s success. The Bank has already undertaken several initiatives to enhance employee satisfaction and productivity, including training, wellness programs, flexible work arrangements, competitive compensation packages and a more inclusive and diverse work environment and is planning to sustain this through a program of upskilling initiatives.  

The Bank also continues to make significant investment in ensuring full compliance with its regulatory obligations. The Bank’s ability to secure the correspondent banking services of Citi, one of the world’s leading banks and financial service providers, with banking relationships in 160 countries and jurisdictions, is testimony to the strong compliance and anti-financial crime standards that the Bank continues to invest in. The Bank has worked closely with national regulatory bodies and established robust systems and processes to meet its compliance requirements.

Environmental, Social and Governance (ESG) Update

The Bank continues to target its efforts towards conducting sustainable and diligent banking. This is in line with the growing appetite from customers and investors alike who seek sustainable financing and investing solutions. At the start of the third quarter of 2023, the Bank launched Climate & Environmental (C&E) questionnaires aimed at corporate clients, to allow the Bank to align its product offerings to better satisfy clients’ evolving needs to adjust towards a more sustainable business model. During 3Q 2023, through a Remuneration Policy Working Group, BOV intensified the process of actively integrating Contributions & Expenses targets into the variable component of remuneration for top management personnel. Moreover, the Bank continuously strives to address social risk matters by providing support to vulnerable members of society.

The Bank remains committed to its Environmental, Social and Governance ESG goals, consciously integrating ESG considerations into its business decisions and is working towards creating a more sustainable, inclusive, and responsible banking model.

In its earliest forms, money was a practical instrument for commerce, like salt or even beer, but trade expansion drove the need for abstraction, from rare metals to paper and then to plastic. For a while now, digital payments have been replacing cash. According to the World Bank, two-thirds of adults worldwide make or receive digital payments.

The transition from cash to digital payments was not smooth nor immediate. There were often fears and risks to security and fraud when sending payments. Some users still juggle multiple payment and banking apps, with fragmented and less-than-intuitive experiences. Small businesses also face hurdles to integrating accounting and payments digitally.

These customer pain-points prove that continuous innovation is essential to unlock digital money’s true potential and to bridge the simplicity gap.

Since 2015, Finance Incorporated Limited (FIL) has pursued technology to dissolve boundaries between physical and digital banking. We have engineered an integrated platform to consolidate complexities, providing intuitive and unified tools.

For example, our payment gateway API enables one-click connections between merchant systems and acquiring banks. Paymix SoftPOS turns any smartphone into a card terminal -a technology that removes the need for separate point-of-sale hardware, saving costs and hassle. When Paymix SoftPOS is integrated with Paymix Pro business account, the payouts are faster and free of charge.

Our vision is an open banking ecosystem, blending payments, credit, data analytics, and more in one secure hub. We leverage diverse in-house expertise to adapt quickly to user needs and have been developing and rolling out systems to simplify the lives of customers across our portfolio. 

Examples of technologies designed to make life more straightforward include digital IBAN accounts to receive salary payments, biometric identity verification for easy onboarding, and our ongoing work to deliver micro-ERP services integrated with accounting and reconciliation.

This simplicity liberates individuals and small businesses, while larger institutions benefit from our robust infrastructure, powering billions in transactions. After all, technological innovation delivers benefits across size and scale.

Another key factor to successfully simplify financial experiences and better serve people’s financial needs is through to user feedback. Through this active collaboration, we can shape an inclusive digital economy, which allows us to implement multilingual user experiences, consider intuitive interfaces that do not exclude the elderly or those averse to technology, and of systems that bring payments to all, regardless of their net worth.

The future remains unwritten. How else can technology simplify money? We hear about emerging technologies like atomic swaps, programmable currency, decentralised money, and so many other emerging notions that are all worth understanding and, occasionally, exploring.

By combining cutting-edge engineering with human wisdom, FIL believes financial innovation will culminate in technology fading into the background. Arthur C. Clarke’s third law is his most often cited and states that “Any sufficiently advanced technology is indistinguishable from magic”. Our tech should work very hard in the background so that our users need not face any barriers to make use of it. After all, frictionless financial experiences will underpin tomorrow’s human aspirations.

Money evolved across millennia from early physical forms where we swapped items that we ascribed value to all the way to its present digital form. At FIL, we see this transformation continuing to a future where payments just work – powerfully yet imperceptibly enhancing our lives.

We have a small part to play in this complex web of user experiences and technologies and we continue to approach it with our core philosophy – that of driving simplicity through innovation.

Increasing vigilance through an innovative online quiz

Since October is widely recognised as cybersecurity awareness month, Bank of Valletta took to social media to continue raising awareness of the different types of scams currently in circulation.

The BOV Spot the Scam Quiz was an innovative way for the Bank to engage with customers, helping the general public increase their knowledge of how to navigate the cyber world in a secure and safe manner. Over 1,600 individuals participated of over two weeks, with questions covering a broad spectrum of topics including scam phone calls, scam SMS alerts, fake websites, fraudulent requests for confidential information, and much more. The winners of the BOV Spot the Scam Quiz were Mr Julian Cassar, Ms Mandy Farrugia, and Mr Justin Vella, who met the Bank’s Creative Hub team at the BOV Centre in Santa Venera to collect their prizes.

As the incidence of scams and hacking attempts increases, the Bank continues to play an important role in arming the general public to protect themselves against the activities of fraudsters, and helping potential victims understand why it is so important to take care of their personal information.

The Bank urges the public to be vigilant and cautious at all times. It is important to keep in mind that BOV employees will never ask for account or card numbers in full, card CVV details (the 3 digits at the back of the card), card PINS, internet or mobile banking passwords, codes, signatures, one-time passwords, or multi-factor authentication. Bank employees will never ask customers for information that leads them to carry out financial transactions over the phone. It is important not to give out sensitive information over the phone, or through any links received via SMS.

Keeping updated and learning as much as possible about these fraudulent activities is the first step. Bank of Valletta invites the public to view a series of short clips featuring common day-to-day situations that they can find themselves in. These clips are shared on the Bank’s YouTube channel and are also available on the Bank’s official website.

Atlas Insurance inaugurated the GEO-INF Rainwater Recovery Facility at De La Salle College. The GEO-INF project involves the installation of the innovative technology designed by Ing. Marco Cremona in a number of schools, to channel rainwater from the roofs of school buildings directly to the water table and replenish groundwater levels.

The project is being financed through the Atlas Community Involvement Fund that was set up to provide a clear and transparent framework through which Atlas Insurance identifies and supports well-developed projects. Spearheaded by Executive Director and Company Secretary Catherine Calleja, and administered by a committee of representatives from various departments within Atlas Insurance, the Fund also provides a structured platform to maximise Atlas Group’s contribution to a wide range of community engagement projects.

The Minister for Public Works and Planning, Honourable Stefan Zrinzo Azzopardi, attended the inauguration of the GEO-INF project in the presence of Atlas Insurance CEO Matthew von Brockdorff, who presided over the event, the Director of Educational Mission at De La Salle College, Mr Stephen Cachia, and Ing. Cremona.

In his speech, Minister Zrinzo Azzopardi praised this initiative which is being financed by the private sector and called for more sustainable alternatives to be found for the utilization of our country’s natural resources such as fresh water. The Minister said: “The environmental goals of our country are all our responsibility, and projects of this kind are very encouraging for our society because we are also seeing the private sector contributing to the work of the Government to conserve rainwater.” Minister Zrinzo Azzopardi also spoke about the Government’s commitment regarding Green Stormwater Infrastructures (GSI) with the aim of achieving the European Union’s environmental targets for carbon neutrality by 2050.

Addressing the event, Atlas Insurance CEO Matthew von Brockdorff explained that: “Atlas Insurance is very pleased to be supporting a project that addresses one of society’s most pressing issues, the sustainability of resources, and in this particular case water resources. The GEO-INF project, that is aligned with the Sustainable Development Goal 6 – Clean Water and Sanitation, is purposely being installed in schools in order to contribute to the personal and educational growth of students, and also to have a broader positive impact on communities, the environment, and society as a whole by shaping responsible, informed, and engaged citizens.”

The Director of Educational Mission at De La Salle College, Mr Stephen Cachia, spoke about the significance of the environmental principles that the College aims to impart to its students. He also referred to the active involvement of students in hands-on approaches, such as their participation in initiatives like “Eco Champions” and “Eko Skola.”

The event came to an end with a presentation delivered by Ing. Cremona during which he explained the operating principles and technology behind the GEO-INF project, followed by a visit to the site of the installation where rainwater from the College’s roofs is gathered in a tank connected to a gravel filter and an infiltration borehole that channels water into the aquifers. Students were also given the opportunity to ask questions to Ing. Cremona.

Dividend subject to regulatory approval

Bank of Valletta announced an interim cash dividend of €0.0462 Gross per share (€0.03 net of tax), subject to Regulatory Approval. This dividend which amounts to a gross payout of €26.9 million is the result of the financial performance of the BOV Group for the six months ending June 2023, where the Bank reported a profit before tax of €105.1 million, compared to a pre-tax loss of €72.1 million (restated) during the first half of last year.

BOV Chairman Dr Gordon Cordina expressed his satisfaction at this announcement. He explained that this dividend is the result of an in-depth analysis carried out by the Bank on forward-looking data. The Bank’s decision regarding the distribution of a dividend to its shareholders meets important risk and other regulatory criteria, which focus on the strength and viability of the Bank’s future business. This is essential to safeguard the best interest and expectations of shareholders and other stakeholders.

Corroborating Dr Cordina’s comments, the Bank’s CEO Kenneth Farrugia stated that this dividend is evidence that the Bank is on the right track and is delivering solid financial performance. The Bank is committed to continue strengthening its position as a leading financial institution in Malta, focused on customer-centricity, excellence and innovation, in an ever-evolving industry landscape.

Subject to regulatory approval, the dividend is planned to be paid on Wednesday 6 December 2023 to those Members appearing on the Bank’s Register of Members, as maintained at the Central Securities Depository at the Malta Stock Exchange, as at the close of business of Tuesday 21 November 2023.

BNF Bank once again joined thought leaders and influential industry experts in Malta’s economy at EY’s Malta Future Realised Conference 2023, participating as a key stakeholder in the discussion about the country’s future. Over the years, BNF has built a fruitful working relationship with EY, acknowledging the strength that lies in sharing similar visions and values.

The prestigious Conference analysed the issues, concerns and challenges faced by businesses, offering a wide discussion on possible solutions and alternative directions that can positively shape the future of business in Malta.

David Power, Chief Executive Officer of BNF Bank expressed his views during a breakout panel titled ‘Unlocking long-term value through effective transformation’, highlighting the Bank’s leadership commitment to its digital transformation, through advocacy, clear communication, training and empowerment of staff. “We have defined clear and measurable goals and objectives for the transformation, that are regularly assessed,” he explained. “Most importantly, we celebrate our achievements and discuss improvements as a team.”

When discussing the agile mindset, Mr Power emphasised that culture change is one of the biggest challenges faced by the Bank when shifting to a structure that embraces flexibility, adaptability and rapid change. “Effective communication is essential in the shift to agile frameworks,” he said. “Whilst training is key, the positive impact from key employees is imperative in extending the acceptance of change.”

BNF enjoys a reputable position in the country’s financial landscape, and the conference provided the ideal platform from which it could showcase its expertise and commitment to businesses. Through a branded stand, the BNF team could network, showcase and engage with participants whilst strengthening its already solid relationship with local entrepreneurs.