The BOV Group reported a profit before tax of €46.5 million for the first quarter of 2023, up by €24 million from the same period last year.

Chairman Gordon Cordina said the bank is “pleased to see a substantial increase in bottom line profitability”, which he said was practically wholly underpinned by operating business activities. 

The higher interest rate environment proved a boon to the bank: “with the price of money higher, we had greater scope to seek opportunities which are more profitable and render higher return.” He argued that in spite of the difficulties that characterise the global economic situation and the recent shocks to the banking system, such as the collapse of SVB, Credit Suisse and most recently First Republic Bank, BOV is on a positive trajectory that is “reflected, finally, in bottom line results”. 

CEO Kenneth Farrugia noted that operating income increased by 62 per cent year-on-year, largely attributable to the deployment of assets more effectively, with the breadth of investments increasing along with interest rates.  

The business, home and personal loan books registered an increase of just over seven per cent: “We had very strong growth in that respect.” 

Meanwhile, the strong deposit base, which had long been a costly burden due to the negative interest rate environment, has now become a source of income, as BOV earns interest on deposits it places with the Central Bank of Malta.  

While still very significant, the bank registered a decline in its deposits, attributing the cause to the significant market activity seen with the issuance of Malta Government Stock and a number of corporate IPOS and bond issues.  

Apart from providing savings of some €1.4 million through a decrease in the costs related to the Deposit Guarantee Scheme, that also had a positive impact on the loan-to-deposit ratio, which increased from 43 per cent to 47 per cent. 

Turning to future initiatives, both Dr Cordina and Mr Farrugia insisted that ESG considerations are the overarching structure in which the bank is planning its continued evolution, both internally, in terms, for example, of resource-efficient refurbishing of its branches, and externally, through the products it provides customers.  

“We want to be catalysts in the journey of the country to shift towards a greener future,” said Mr Farrugia.  

Main Performance Indicators

Revenues at €95.5 million were €36.6 million higher than in the first quarter of 2022, almost wholly generated by growth in net interest income. The bank estimates that around one-fifth of this growth reflected the pass-through of the increase in interest rates effected by the European Central bank, mainly to Euribor-denominated loans to business customers. Growth in business and home loan portfolios also contributed to the higher net interest income, as did higher effective rates on the home loan portfolio through the repricing of facilities granted at temporary competitive interest rates in recent years.

The bank has also taken opportunities to deploy liquidity at better returns in the securities markets, generating one-fourth of the growth in net interest income. The bank has furthermore benefited from positive returns on excess liquidity balances held at the Central bank, reversing a long period of negative returns. This was contrasted by the cost of the 10 per cent Callable Senior Non-Preferred Notes issued by the bank in December 2022 to meet regulatory requirements. 

Net fee and commission income was lower when compared to the same period last year, but this was mainly due to the timing of specific services performed during the year. A strong performance in foreign exchange income persisted in Q1 2023.

Operating costs for the first three months of 2023 were up by 2.8 per cent versus the same period in 2022 due to increases in employee compensation and modernisation of the bank’s technology. Strategy investment costs doubled when compared to the first quarter of 2022. This was in line with expectations, given that, in the previous year, the Group focused resources on regulatory commitments resulting in a relatively slower pace in the delivery of strategic initiatives.

A net Expected Credit Losses charge of €5 million was recorded in the first quarter. This net charge was partly a normal consequence of the growth in the loan portfolio, as well as improved coverage levels for riskier exposures.

The share of results from insurance associates further enhanced financial results in the first quarter, largely driven by the volatility of global financial markets during the same period in 2022 caused by the outbreak of war in Ukraine.

Net loans and advances grew by 1.5 per cent when compared with year-end 2022 with growth in both retail and business lending. Customer deposits were lower by 2.3 per cent from December 2022, with continued growth in personal deposits but offset by a decrease in corporate deposit levels. These developments led to a favourable increase in the bank’s loan-to-deposit ratio. The bank’s liquidity ratios remained strong and regulatory capital ratios continued to well-exceed regulatory capital requirements.