Bank of Valletta’s half-year pre-tax profit dropped to €25 million for the six months ending on March 31, compared to the pre-tax profits of €56.6m it had made in the same six months last year.
Chairman Roderick Chalmers said the disappointing result was expected due to the effects of the disruption in the global financial market since July 2007 on the value of BOV’s financial markets and investments portfolio.
Despite the drop in profits, Chalmers said the bank would still be giving an interim dividend of €0.1350 per share, gross of tax for the six months, due to the exception nature of the mark-downs in its portfolio. The dividend last year was €0.1307 per share.
Chalmers said that, given the exceptional nature of the markdowns affecting the results for the half year, the board has resolved to maintain the interim dividend at the same level as declared in 2007.
He explained in details how the severe credit crunch that accompanied the disruption in the global financial markets had impacted the liquidity of the bond markets and caused a marked widening of credit spreads, and a consequent reduction in the quoted market value of the Bank’s Financial Markets and Investments portfolio.
“Given that a major part of this portfolio (designated as Fair Value through Profit or Loss) is marked to market in accordance with the requirements of the accounting policies adopted by the Bank, the effects of the market turmoil have resulted in a mark to market write down for the period of €26 million before taxation,” Chalmers said.
“This notwithstanding, given the high quality of the bank’s portfolio, the board of directors expects the markdowns to be largely temporary in nature, with a significant proportion of the amount being clawed back over time as the investments are held through to redemption.”
Chalmers said that it was thanks to the defensive nature of the BOV’s investment strategy that the overall post-tax impact of this disruption in the global financial markets had been contained at just €12.2 million on a portfolio of over €2 billion.
“This is because the Bank has no holdings whatsoever of US sub prime mortgages, complex debt instruments or leveraged debt positions – the asset classes most adversely affected by the downturn. Indeed, the Board had noted that since the onset of the credit crisis in July 2007, not one single investment holding within the Bank’s portfolio has defaulted on interest payment or on maturity.”
Chalmers said that the markets seem to have calmed somewhat since mid-March: “the general consensus is that this particular credit crunch is nearer its end than its beginning, with the focus increasingly turning to capital rebuilding and to the wider consequential fallout in terms of global economic growth.
“The strong liquidity position of the bank is such that we are able to hold the securities through to redemption – and in fact, usually do. We therefore expect to recoup much of the mark to market write-downs over time, as the markets stabilise and the quality holdings are redeemed on maturity.”
The BOV group registered an increase in net interest income of €0.8 million, driven by satisfactory growth in the loan book. Advances, net of impairment allowances, stood at €2.8 billion, an increase of €186 million (7%) since 30 September 2007. Customer deposits reached the €4.5 billion level, an increase of €214 million (5%) over the six months. The group’s loan-to-deposit ratio remains at a prudent 62% (September 2007: 61%), whilst capital adequacy under the revised Basel II regime remains strong at 12%, as does the liquidity ratio at 52%. The Group continued to exercise effective cost control, with overall increases in costs being contained at 2.6%, after allowing for specific euro adoption related costs.