Bank of Valletta plc (BOV) on Thursday released its Annual Report for 2022, in which it posted €48.7 million in pre-tax profit for the year. This represents a 39 per cent decrease in profitability from the previous year’s €80.7 million.
Excluding the Deiulemar settlement, the group’s profit before tax amounted to €151.7 million after an increase of €71 million from 2021’s figures.
The Deiulemar case was a claim filed against BOV by liquidators of the Deiulemar Group and representatives of 13,000 bondholders who lost their life savings because of a fraudulent scheme that goes back to 2009. BOV had taken over a trust opened by owners of Deiulemar, yet the latter filed for bankruptcy in 2012, reporting over €800 million in losses. BOV was then accused of allowing the owners to set up three trusts in 2009, whose owners were accused of illegally inserting millions of funds. BOV announced a settlement in May 2022 that would see it pay €182.5 million to the curators in a final settlement of the disputes and claims against the bank, putting an end to the saga.
The net impact of this settlement to profitability in 2022 was €103 million, while a total of €363 million in pledged assets were released and are free from encumbrance.
BOV delivered a 29 per cent increase in net interest income from the previous year’s €156.3 million, amounting to €201.9 million. Net fee and commission income marginally increased from €74.6 million 2021 to €76.6 million in 2022. These two increases prompted the group’s operating income to rise by 20.8 per cent to €293.4 million.
In terms of costs, employee compensation and benefits was the main increase, as this rose by €18.5 million to €100 million during 2022, largely due to human capital requirements in specialised areas and associated growth rate in the average compensation. BOV has also recently introduced a voluntary pensions scheme and stepped up its early retirement scheme. General administrative expenses dropped from 2021’s €93.9 million to €72.9 million in 2022.
The group’s total assets stood at €14.5 billion as at the end of 2022, a marginal increase when compared to 2021’s €14.4 billion. Customer deposits have seen a growth of three per cent from the previous year’s figure.
Due to new market opportunities, BOV’s excess liquidity has eased from €4.6 billion in 2021 to €3.4 billion in 2022, and has thus resulted in a 27 per cent growth in investments when compared to 2021.
The group’s Directors did not declare any interim dividends due to the net loss reported for the current period due to the Deiulemar settlement, as well as because of the need to remain “aligned with regulatory expectations within this context”. While the bank enjoyed a “significant recovery” in underlying profitability during 2022, it remains “weighed down” by the cost of the settlement. As a result, the Directors did not propose a dividend for the year, an approach which is consistent with the “prudent” one that the group is taking with regards to overall developments in the global economy and financial markets.
BOV Chairman Gordon Cordina
Commenting on the results, Chairman Gordon Cordina explained that 2022 continued to be shaped by the global economic recovery from the COVID-19 pandemic, rising prices, and the war in Ukraine. He remarked that the economic effect of the conflict in Ukraine was a “surge in worldwide inflation, thus unleashing a problem which countries had not experienced for many years”, with more interest rate “tightening” being planned by central banks for 2023.
“Notwithstanding such economic headwinds from abroad, Malta’s economy continued to exhibit strong dynamism in 2022. The restructuring undergone by the economy over the years, which resulted in sectors gaining in importance and allowing for more even distribution of activity, has paid off in terms of sustaining the country’s resiliency,” he added.
Dr Cordina pointed towards the resolution of the Deiulemar case, Malta’s removal from the FATF’s grey list, and the successful issue of callable senior non-preferred notes on the international market as the “three positive highlights” for BOV during 2022.
“Both the resolution of the Deiulemar case and the issue of the international notes have placed the bank on a significantly more secure footing to plan its business,” he explained.
While he remarked that there have been various changes that have been implemented in the group’s ESG mission, “more will be necessary”, yet there is “confidence about a brighter future”.
CEO Kenneth Farrugia stated that 2022 “followed on the heels of the previous year” and ended up being “both challenging and rewarding in equal measure” for BOV.
Despite the effects of the aforementioned global challenges and the Deiulemar legal case, he noted that due to the bank’s “strong franchise in the domestic market and robust business model foundations”, it delivered “strong organic growth”, while maintaining a strong capital ratio.
“These positive results have been driven by the collective collaboration and commitment of our loyal, and highly committed employees. This has enabled us to further drive forward our strategic journey towards a lean, and at the same time digital-led, business and operational model,” Mr Farrugia explained. He added that the group’s focus remains centred around the “optimisation” of its business and operational model, with the aim to “ensure” it creates and delivers value to its customers and stakeholders.
He proceeded to thank BOV’s customers and employees, before saying that going forward, the group remains “anchored” to maintain a strong balance sheet, sustain its business value streams, nurture investment in its human capital, strengthen its risk, governance and controls, remain relevant to customers, and also support the development of the community it operates in through ESG principles.
“During the course of financial year 2023, we are also excited to actively develop and prepare a new three-year strategic plan – BOV2026. Our strategic thrusts revolving around our customers, operations, risk management, and our people will be driven by both data and digital-led initiatives as key enablers, ensuring ESG is embedded in our business and operational model in the process,” Mr Farrugia concluded.