Malta-based APS Bank registered €1.9 million in profit before tax at group level in the first half of 2022, a sharp 84 per cent fall from the €12.2 million recorded in the same period in 2021, it announced on Thursday. Conversely, €13.6 million profit before tax was recorded at bank level, an 18 per cent increase from the comparable period’s figures.

The group’s revenues remained primarily driven by net interest income which grew to €29.8 million during the period, 13.2 per cent higher than the comparable period’s €26.3 million. While tight interest rate conditions continued to prevail, growth in the lending book across both personal and commercial credit lines, and to a lesser extent in the syndicated book, create more opportunities for spread.

Interest payable stood at around the same level of the comparable period at €6.9 million, indicating management’s ability to “achieve more efficient cost of funding with stable interest pricing on higher deposit liabilities”.

Net fee and commission income grew by 35.1 per cent from the previous period’s figures, reaching €3.8 million. This was driven by general business activity in loans, payments, cards, as well as a wider customer base that provided new sources of revenue generation.

The group’s operating income went into the red zone at €6.6 million, largely due to the recent financial markets instability and rising fixed income yields that have negatively affected the investment in the group’s sub funds. These results reflect the performance of major bonds and equity indices, both in Malta and internationally, which have retracted by double-digit figures since the start of the year. Other operating revenues from business operations amounted to €1.6 million, rising by €1.1 million over the comparative period.

Additionally, operating expenses for the first half of 2022 were €23 million, an increase of €3.2 million (or 15.9 per cent) from the same period in 2021. This was mainly a result of a higher accrual of €1 million in relation to the Deposit Compensation Scheme (DCS) that brought forward a transitory period originally intended to be concluded in 2024. This was coupled by rises in staff costs, indicating rising labour prices across all levels, as well as the group’s “commitment to attract and retain highly skilled resources,” while also investing in their wellbeing and training. There were also increases in most classes of insurance, security, as well as certain sub-contracted services.

A number of initiatives are currently underway at APS Bank to improve efficiency through greater automation, digitisation of records, centralisation of processes from the network, along with greater use of robotics and more advanced technologies.

Net impairment charges dropped to €0.1 million, contrasting with the €1.7 million writeback for the previous comparable period, which had primarily resulted from a reversal of impairment overlays reserved in the pandemic stricken 2020 financial year. The group “consistently maintains a prudent view of credit in line with its risk appetite and respectful of general economic conditions and outlook”.

Total assets expanded by €259.3 million (9.3 per cent) to €3.05 billion for the first half of 2022, a growth that was largely propelled by the increase in the bank’s lending book that since the end of 2021 grew by 6.4 per cent to €2.2 billion. Home lending to retail customers remained a key driver for growth, affirming the bank’s strong market position within this segment. Liquidity stock also grew significantly during the six months under review, as treasury fixed-income portfolio increased by €47 million to reach €375.1 million. Cash and reserves with the Central Bank of Malta grew to €291.4 million compared to December 2021’s €207.7 million. Funding through short-term deposits also increased by €205.7 despite a reduction in term deposits, thus further improving the group’s deposit portfolio.

Amounts owed to banks stood at €70.1 million, a rise of €12.9 million on December 2021.

Additionally, the period under review saw the bank conclude the final phase of its 2018-2022 Capital Development Plan, which has “motored” growth in recent years. Last June, APS Bank closed an Initial Public Offering (IPO) of 110 million ordinary shares at €0.62 per share, raising €66 million of new equity. The highly successful IPO, which closed before its initial closing date due to heavy oversubscription, led to the listing of the bank’s entire share capital on the Malta Stock Exchange.

APS Bank is recommending an interim net dividend of €1.8 million, payable through the issuance of new ordinary shares at the nominal value of €0.25 per ordinary share. Net dividend equates to 0.50 € cents per ordinary share. Subject to regulatory approvals, an Extraordinary General Meeting (EGM) will be held to approve the issuance of new shares in satisfaction of this interim dividend. A separate announcement will also be made to announce the date of the EGM later in the year.

APS Bank CEO Marcel Cassar

“As anticipated in our Quarterly Financial Update of April, the first half of 2022 got off to an extraordinary start as the impetus which developed on the back of a post-COVID economic rebounded experienced a new series of shocks,” APS Bank CEO Marcel Cassar said.

“Most prominently, the invasion of Ukraine and the amplified supply chain issues in both energy and food prices have fuelled inflationary pressures and resultant interventions from central banks,” he added. “Such global developments are felt also in our widely open economy through higher costs of inputs and imported goods, being partly offset by Government subsidies which however contribute to a build-up in public debt,” Mr Cassar continued.

Against this backdrop, the Maltese economy continues to experience “strong growth”, particularly boosted by a healthier than expected tourism season and “buoyed by the removal from the FATF grey list”.

“While an increase in interest rates should generally be expected to benefit bank margins, it may also impact the ability of certain borrowers to service their repayments, raising the spectre of asset quality deterioration,” Mr Cassar said. While it “is still early” to forecast how this new phase of interest rate normalisation will evolve, APS Bank is “entering it with a strong balance sheet, fortified by a high capital pile, ample liquidity, and a conservative risk appetite resulting from a tried and tested business model,” he added.

As the market continues to absorb the policy adjustments and “hopefully moves into a calmer environment,” APS Bank expects the values of financial instruments to “slowly regain the unrealised losses of recent months”.

Mr Cassar added that “throughout the first half, APS Bank continued strengthening the fundamentals in the core business lines, asset quality and capital,” with a “stronger” balance sheet that is “fortified by a high capital pile, ample liquidity, and conservative risk appetite resulting from a tried business model”.

“Riding on the back of a hugely successful IPO, we look at the months ahead with confidence and optimism for the opportunities they may hold,” Mr Cassar concluded.