BOV registers €115.8m profit before tax
The BOV Group registered a profit before taxation of €115.8 million for the financial year ended September 30, 2013. This represents a five per cent increase over the corresponding figure of €110.7 million pre-tax profit reported in the previous financial period.
The Core Operating Profit of €86.5 million, which excludes price movements on investment portfolio and returns from associated companies, shows a decrease of 14 per cent from September 2012 (€100.3m). The prolonged low interest rate scenario has had a negative impact on our interest margins, particularly on the returns of our Financial Markets investment book.
Key performance indicators remain satisfactory. There was a steady improvement in Cost/Income Ratio of 38.7 per cent, down from 40.7 per cent in FY 2012. The Return on Equity registered this year is 21.1 per cent (FY 2012: 22.3 per cent), which compares favourably with international banks.
Net interest margin for the year of €131 million represents a decrease of 11 per cent when compared to last year. This decrease is mainly attributed to lower returns from the bank's Treasury assets. The bank has retained a cautious risk appetite and consciously sacrificed returns for quality of the portfolio. The retail margin also tightened this year as a result of the increase in our retail deposits which were not deployed in lending as demand for credit remained relatively subdued.
Net commission and trading income increased by 12 per cent from €62.4 million last year to €69.7 million this year. FY 2013 was characterised by stronger performance across all lines of business and the bank experienced higher interest being shown by Maltese and foreign companies wanting to do business in Libya and other parts of Africa and this resulted in a satisfactory growth in trade related fee income. While the volume of foreign currency transactions has increased, margins were tighter and foreign exchange earnings are marginally below last year. The bank managed to reverse last year's negative trend in bancassurance and this year registered an increase in commissions earned on the sale of insurance products. Growth was also registered on other investment related products, with increases in commission income on wealth management and stockbroking as well as our fund management and funds services businesses. Credit related commissions are also up while our card business again shows satisfactory growth as more people use cards as their preferred payment instrument.
Operating expenses for the year totalled €88.6 million, an increase of 1.7 per cent over the previous year. This was largely due to our increased contribution to the Deposit Guarantee Scheme as a result of the growth in our deposits and higher contribution rates. All other operating expenses remained on the same levels as last year. The bank has persisted in its efforts to improve its efficiency and curtail its discretionary expenses, and this is evident in this year's results.
Total assets as at September 30, 2013, stood at €7.3 billion (September 2012: €7 billion), while equity attributable to the shareholders of the bank increased by a further €55.6 million to €576.4 million, an increase of 11 per cent.
The bank’s liquidity ratio remains strong at over 50 per cent. Earlier this year, the bank repaid its two LTROs amounting to a total of €170 million. The entire bank’s funding is now dependent on customer deposits and long-term senior and subordinated debt, with no reliance on the international money markets. The loan to deposit ratio of 61.7% reflects the prudent approach that the bank maintained during the period. Moreover, most of BOV’s investment book continues to be held in high-quality bonds which can be used as collateral with the European Central Bank, thereby giving the Bank ready access to a source of secure additional funding should the need arise.
Total gross lending stands at €3.8 billion at the year end, a decrease of 0.9 per cent when compared to September 2012. This reflects the subdued demand for credit, particularly in the business segment, coupled with the repayment of a number of large facilities.
Customer deposits at the year end stood at €6.2 billion, an increase of €410 million, or seven per cent over September 2012. The positive growth in customer deposits came both from our retail customers as well as from the corporate and institutional segments.
The Board is of the view that it should continue with its distribution policy whereby the bank’s long term sustainability and dividend expectations are kept in balance. Accordingly, the Board of Directors is recommending a final gross dividend of €0.13 per share which, taken together with the gross interim dividend of €0.06 per share paid in May 2013, makes a total gross dividend of €0.19 per share. The total dividend for the year represents a gross yield of 7.8 per cent by reference to the closing share price of €2.42 per share at September 30, 2013, and a net dividend cover of 2.1 times.
Similar to previous years, the Board is also recommending a bonus issue of one share for every 10 shares held as on January 17, 2014, by capitalisation of reserves amounting to €30 million increasing the permanent capital to €330 million from €300 million.