APS Bank plc recorded €5 million in pre-tax profit at group level during the first quarter of 2024, 36.5 per cent less than in the same period last year (Q1 2023: €7.9 million), as interest margins compress following a period of higher interest rates.
Similarly, at bank level, APS Bank reported €4.4 million in pre-tax profit during the period, significantly lower than the €7 million recorded in Q1 2023.
The figures were announced on Thursday as part of a quarterly financial update for the period ended 31st March 2024 (Q1 2024).
During the period under review, the interest rate environment that has been prevailing since the second half of 2023, together with a buildup of minimum requirement for own funds and eligible liabilities (MREL), piled pressure on APS Bank’s margins.
This resulted in net interest income for the quarter under review to decrease to €16.7 million (Q1 2023: €18.4 million) at group level, despite interest receivable and similar income rising by 18.7 per cent to €28.2 million. This is due to continued competitive pressures and high interest rates, prompting interest payable to more than double over figures from the same period last year (Q1 2024: €11.5 million; Q1 2023: €5.4 million). Additionally, during the quarter under review, APS Bank increased its expected credit losses (ECL) charge to reflect higher uncertainty around an old non-performing loan (NPL) that will not be repeated in future periods.
Net fee and commission income stood at €2.4 million, an increase of 8.1 per cent over the same period last year, reflecting the growth in business, with the main commission streams being insurance, investments, cards, and transactional banking.
However, other operating income was lower in Q1 2024 (€19.3 million) than it was in the same period in 2023 (Q1 2023: €21.3 million), particularly due to a strong rebound in one of the group’s sub-funds that was not repeated in the first three months of 2024.
Net impairment losses of €1.3 million reflect credit charges on loans across the three International Financial Reporting Standards (IFRS) 9 stages, mostly on the local commercial book and international syndicated lending. The group’s non-performing loan (NPL) ratio positively crossed the two per cent level, ending at 1.9 per cent down from 2.2 per cent in December 2023.
Additionally, APS Bank reported €13.5 million in operating expenses during Q1 2024, increasing marginally from the €12.8 million recorded in Q1 2023. The bank stated that this was largely a result of technology and regulatory costs, as well as inflationary pressures. Cost-to-income ratio for the reporting period was 69.9 per cent (Q1 2023: 59.9 per cent).
At group level, the balance sheet grew at a slower pace than it did in Q1 2023, with total assets and liabilities increasing by 1.8 per cent to a total of €3.7 billion. The main contributors were the growth in loans and advances to customers and syndicated loans, expanding by €28.8 million across the retail, primarily home loans, commercial and international syndicated loan books.
Cash reserves at the Central Bank of Malta, together with loans and advances to banks increased by €26.9 million to a total of €212.5 million. Equity closed the end of the first quarter of 2024 at €291.1 million, an increase of €3.7 million over the final month of 2023.
Commenting on the results, APS Bank CEO Marcel Cassar said that at first glance, the drop in revenue and profit may seem like a “reversal of fortunes.”
“But what we’ve been experiencing since last year, thanks to an environment of higher interest rates, was anticipated to show up in a compression of our interest margins,” he clarified. Mr Cassar noted that APS Bank’s strategy behind its business model remains focused on not increasing home loan rates and seeking to offer the “lowest possible pricing” on products that represent its social and green agenda. He said that in this respect, it aims to remain competitive through its commercial lending, while also passing on interest rate increases to depositors.
“As Malta continues to perform well, and the global economy shows signs of resilience support by a more benign outlook on inflation, it is easy to overlook that there are some very rough seas out there, with many geopolitical hotspots that continue to fuel uncertainty,” he affirmed.
Mr Cassar said that while there is pressure on APS Bank’s margins, it is taking the “necessary corrective actions” and is confident that its business model “will deliver stronger, sustained returns over the medium to longer term.”
In the presentation of the results, held on Thursday, Mr Cassar also said that APS Bank’s performance should improve in the remaining quarters of the year, with the bank seeking growth opportunities in other sources of revenue.
At one point, he was questioned whether given that official interest rates are expected to start falling by the summer will lead to the bank’s profits to also decrease. Mr Cassar said that this is difficult to say, as it all depends on the level of pass-through of interest rates.
“Higher interest rates typically lead banks to earn higher profits because the increases allow them to benefit from the widening spreads. So, a stabilisation, and lowering of interest rates, should in theory slow down that speed of profits. But it’s difficult to predict the extent and timing how this would happen,” he explained.
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