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Rights issue by Bank of Valletta will raise over €150 million worth of share capital
16 Nov 2017

Following an Extraordinary General Meeting last July, Bank of Valletta’s (BOV) shareholders approved the issuance of a rights issue consisting of 105 million shares to its existing shareholders, with the aim of increasing the Bank’s capital base by just over €150 million - this is the first capital raising issue of its kind by the Bank in Malta. 

Chief Business Development Officer at Bank of Valletta, Kenneth Farrugia, explained that shareholders are entitled to buy one share for every four shares held, at a price of €1.43 per share. “Shareholders can exercise their right to the acquisition of these shares between 8 November and 6 December 2017. In the process, they may opt to apply for all their proportionate entitlement to the rights issue, opt not to take up those rights at all or alternatively they may assign them in part or in full to third parties. The rights which are not taken up can be bought by existing shareholders who want to apply for more than the number of rights that they’re entitled to and in the eventuality that the demand for lapsed rights exceeds the supply, a proportionality exercise will be undertaken. Non-BoV shareholders can also apply for the rights offer but will rank after existing shareholders".

The rights issue will lead to a 25 percent increase in BOV’s share capital, which will serve the current and future business requirements of the Bank going forward. “Predominantly, the reason why the Bank is raising €150 million is to support its various business areas.

This rights issue, is the largest ever on the local market
and its size is in itself a reflection the Bank’s strong market position
as Malta’s largest and leading Bank

As a result of this positioning, the Bank enjoys a strong market share practically servicing half of the operators in the national economy. In arriving at the figure of €150 million, the Bank assessed the current state of play of its various businesses and their capital requirements and in parallel also took a forward-looking view of how it sees these businesses growing in the future. In the process, the Bank also gave due consideration to new areas of business that are of interest to the Bank going forward”. 

 

It is also pertinent to point out that after the global financial crisis in 2007, the European Regulator implemented a number of reforms impacting the banking sector. The primary aim of these reforms was motivated by the need to ensure sustained market stability and integrity. Equally so, regulators also strengthened the regulatory framework through the deposit and investor compensation schemes amongst others aiming to further protect the interests of consumers

“Through the introduction of the Capital Requirement Directives and Capital Requirement Regulations, Banks were obliged to assess the capital requirements of their various areas of business and operations which in turn brought about the need to strengthen their capital base. This will enable the Banks to sustain their existing business, and also enable them to enter into new areas of business. In fact, all European Banks undertook an in-depth assessment of their capital planning requirements within the context of the current and future businesses.” said Mr Farrugia. 

He added that the introduction of the various prudential led regulations post the 2007 crisis, brought about a much stronger regulatory framework. “The importance of having a safe and sound banking sector to ensure the stability of national economies was quickly recognized by regulators. Prudential regulations are aimed at ensuring that Banks are stable, and what followed after the crisis was a tsunami of regulations, which also included the aforementioned regulations.” he asserted. “Banks were in fact required to review their business model and as a result, they either decided to de-risk their business or completely exit from certain areas of business to alleviate capital requirements as has been the case with some Banks in Malta.

Insofar as the BOV is concerned, the Board and Management have undertaken a thorough assessment of the Bank’s business model and the various areas of business of the Bank within the context of the Bank’s risk appetite. As a result, a number of decisions were taken to further strengthen existing areas of business, give consideration to new areas that the Bank wanted to participate in as well as exit from other areas of business by closing these off – the Bank’s exit from the trust business is an example of such decisions.

On this basis, the Bank was thereon able to determine the relevant capital requirements to be able to develop and grow these lines of business.” 

With the context of the Bank’s capital planning requirements, an item high on the agenda of the Bank is related to the development of its technological platform that will enable it to efficiently deliver its products and services to its clients through an omnichannel presence. BOV has always been a market leader in harnessing innovation in the design of avant-garde products and services, and in introducing new channels and the Bank intends to remain at the forefront in this regard.

The changes in the competitive landscape are also compelling banks to increase their investment in technology. Traditional business domains such as payments, for example, which is at the very core of a Bank, are being disrupted by the onset of Fintech companies on the market. Apart from managing the changing competitor landscape, Banks have in the process had to adapt to the onerous obligations emerging from the new regulatory requirements. Given that these rules and regulations are technology-hungry, Banks have had to deploy significant IT capacity to address these regulations that were introduced over the past ten years as well as those that will impact the Banking sector in the years ahead of us such as MiFID II, PSDII and GDPR just to mention a few. 

“As a result of these developments, it’s a tussle for the Banks to, on the one hand, upgrade their technological platforms and introduce new digital enablers for their customers in order to remain relevant in the market, whilst at the same time also deploy HR capacity to ensure that they are fully aligned with the requirements of the new regulations and the compliance obligations this brings with it. In response to this state of play, all Banks have had to significantly strengthen their human resource complement to cater for the requirements of this new business and regulatory environment. In fact, BOV recently officially opened new offices housing over 100 employees across four key divisions - Risk Management Division, Compliance, Anti-Financial Crime and Debt Management Unit. All units are of strategic importance to the Bank and over the past years have evolved from peripheral units into key units within the Bank’s organizational structure.   

Moreover it is also important to mention that a direct result of the changes that technology is bringing with it in the banking and investments arena, and the fast-changing competitive landscape, the Bank has recently announced a multi-million investment which will lead to a complete transformation of its core banking system. This is a significant investment that will positively impact the way the Bank operates and equally enhance the service delivery to its customers. It is a recognized fact that Banks need to constantly invest in their systems allowing them to reach their customers through multiple channels and innovative products. In the absence of these important thrusts, Banks will run the risk of becoming irrelevant and as a result will be disintermediated.

“Despite these challenges, the thrust to launch new products continues unabated. We’re constantly working to bring innovative products to the market. Only last week, we launched contactless cards in Malta, and have plans to continue growing in the digital arena. Earlier this year, the Bank launched three innovative fund portfolios through its subsidiary, BOV Asset Management.

These developments took place as BOV has continued to invest in the development of its human resource capability and also in the necessary technologies driven by the vision to remain at the forefront in delivering value to its customers through its breadth of products and services and across multiple channels.   

In his concluding remarks, Mr Farrugia also said that “The capital that the Bank will be raising through the rights issue will ensure that the Bank can sustain its strategic and business plans and as a result distribute a share of realized profits to its shareholders”.


Published on The Business Observer 16 November 2017

 

 

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).