Bank of Valletta plc (BOV) recorded a pre-tax loss of €76.6 million in 2022's first six months following the settlement of the Deiulemar litigation, it announced on Thursday.
The settlement significantly blighted the bank's "encouraging" commercial performance so far this year, with it registering a pre-tax operating profit of €26.1 million. BOV attributed the performance to "volume growth, solid customer activity, and continuing strength in credit quality".
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 into. 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.
The bank enjoyed a 15.4 per cent increase (€17.5 million) in revenue over the same period in 2021, which was mainly driven by a net interest income of €87.2 million, a rise of 18.8 per cent from the comparable period in 2021. Prior to the litigation settlement charge, the bank recorded €36 million in operating profit, while the group registered €29.8 million.
The group’s total assets as of June 2022 stood at €14.4 billion, in line with December 2021 levels. Similarly, total liabilities remained close to the previous period’s levels at €13.3 billion. Net loans and advances as at the end of the six-month period stood at €5.3 billion, resulting in a growth rate of 4.3 per cent over December 2021, while a strong liquidity position was maintained though a moderate decrease in cash and short-term funds of 4.9 per cent (€226.1 million).
Despite the Deiulemar litigation's resolution and sustained commercial performance of the bank during the first half of 2022, BOV’s board decided that no interim dividend is being declared. This came as a result of the net loss reported for the period due to the case settlement, as well as the need to remain aligned with regulatory expectations within this context.
BOV Chairman Gordon Cordina
According to BOV Chairman Gordon Cordina, the results indicate that "grounds are being set for a bright future" for the group. He added that the bank’s performance for 2022’s opening six months remained strong, despite the case settlement’s impact on net profit.
Dr Cordina stated that Malta’s removal from the FATF’s increased monitoring process has “eliminated the risk of a prolonged grey listing status, which could eventually have impacted BOV’s performance and our ability to service clients effectively”.
He also attributed the strong performance to Malta’s “progressive economic recovery” from the struggles of the pandemic, which has “enabled the bank to release most of the remaining credit risk provisions associated with COVID-19”. However, Dr Cordina added that “this impact was outweighed by the additional credit risk provisioning which the bank has prudently undertaken to cater for the new risks created by the war in Ukraine”.
Dr Cordina also made reference to the announcement of the European Central Bank’s (ECB) intentions to progressively raise interest rates, as “while this development offers BOV the opportunity to save the costs incurred due to the negative rates that were charged to banks when depositing excess liquidity with the Central Bank, BOV will be evaluating how financial and liquidity conditions evolve internationally and in Malta,” so appropriate interest rates on loans and deposits offered to clients are considered.
He concluded that BOV remains committed to its ESG strategy, striving for “net zero emissions in its operations,” as well as a gradual shift towards “greener loans and financial asset holdings,” with a focus on improving “financial literacy and the preservation of cultural heritage”.
BOV CEO Rick Hunkin labelled the group’s performance as “encouraging”, adding that “the main income lines continue to show steady growth, despite the negative interest rate impact.”
“Offsetting this, we continue to face rising costs driven in particular by rising staff costs and the increasing contributions we have to make to the Deposit Compensation Scheme, which grew in line with our significant deposit growth,” Mr Hunkin said.
He highlighted the need for the group to balance the delivery of regulatory and compliance requirements during the first six months of 2022, while also maintaining its progress initiatives aimed at improving customer service and efficiency. “Good progress” has been made when it comes to streamlining and simplifying the home loans process, with automation set to be introduced to improve customer service delivery.
“Our key focus remains on streamlining and simplifying processes for our clients through continued digitalisation, together with process re-engineering across customer journeys to deliver service improvements and efficiencies,” Mr Hunkin added.
BOV aims to continue its branch modernisation programme, with a further three branches being given a “refreshed, eco-friendly, and customer-centric layout”, with renovation works also set to take place to additional branches across the network in the future.