Bank of Valletta today announced its performance for Financial Year ending 31st December 2023, registering a profit before tax of €251.6 million. These positive results are underpinned by strong income growth and high profitability levels achieved across all main business lines. This continued to strengthen the Bank’s balance sheet position, with liquidity and capital positions remaining well above regulatory requirements.
The BOV Group experienced a significant increase in operating income primarily due to the enhancement in net interest income for the year 2023. Total operating income amounted to €441.0 million (increase of €147.6m over prior year). Net Interest Income remained the primary driver of operating income, totalling €352.0 million (up by €150.1m), with Net Fee and Commission income increasing by €1.4 million. Total costs amounted to €210.9 million (increase of 10% over prior year). The Group’s share of profit from insurance associates amounted to €11.0 million.
Key performance indicators were satisfactory with pre-tax return on equity at a level of 21.1% and cost to income ratio at 47.8%. Earnings per share amounted to €28.8 cents (€5.4 cents restated in the comparative year).
The Group’s Total Assets remained on the same levels of the previous year at €14.5 billion. Gross loans and advances reached €6.3 billion, an increase of nearly 9% compared with the €5.8 billion of December 2022. Group’s gross loans to deposits ratio increased from 46.0% in December 2022 to 51.7% by end 2023. Capital ratios remained strong and above regulatory requirements, with the CET 1 and total capital ratios as at 31 December 2023 of 22.7% and 25.9% respectively.
Further to the gross interim dividend of €0.0462 per share paid on 6th December 2023 amounting to €27.0 million (net ordinary dividend of €0.0300 per share amounting to €17.5 million), the Board of Directors will, at the forthcoming Annual General Meeting, be recommending a final gross dividend of €0.0700 per share amounting to €40.9 million (net dividend of €0.0455 per share amounting to €26.6 million). This would make for a total gross dividend for the year of €0.1162 per share, equivalent to a total gross dividend payable of €67.9 million. The payment of the final dividend is still subject to regulatory approval.
“The highest dividend in the past decade, with the strongest ever capital base” - BOV Chairman Dr Gordon Cordina
Speaking during the announcement BOV Chairman Dr Gordon Cordina commented that “2023 has been a very positive year for the Bank of Valletta Group, which registered healthy profits in a situation of positive interest rates, while no longer shackled by legacy impediments and risks. The conservation and the generation of capital remain high on the Bank’s agenda. Such approach ensures that the Bank has enough capital to sustain its future strategic growth ambitions whilst always acting prudently to remain well capitalised in relation to regulatory thresholds.
On the strength of the financial performance being registered, the Board of Directors is pleased to announce one of the highest dividend distributions paid in recent years, which duly rewards our loyal shareholders. This is being recommended after taking into consideration the Bank’s future capital requirements, underpinned by a fully articulated dividend policy which seeks to balance out dividends payout with future growth of the Bank’s equity base. It also takes into consideration the sustainability of further dividend payouts in the future.
In 2023, the Board approved BOV’s updated strategy for the 2024-2026 period. Among its chief priorities, the strategy emphasises Environmental, Social and Governance (ESG) considerations. The Bank aspires to lead Malta’s transformation in this area, not only in sync with more onerous future regulatory requirements, but even more ambitiously, to help steer behaviour along a sustainable path. In 2024, BOV will be celebrating its 50th anniversary and as we reach this milestone, our ambition is that as an institution we remain vibrant, relevant, competitive, and dynamic. Our polar star is to be a leader and innovator in the financial sector and a catalyst for positive change.”
“A remarkable performance in BOV’s 50-year history” - CEO Kenneth Farrugia
Speaking about these results, BOV CEO Kenneth Farrugia stated that “Bank of Valletta’s financial performance over 2023 was undoubtedly one of the best experienced during its 50-year history, with strong income growth achieved across all core business lines. These positive results were achieved in a backdrop of a high interest rate environment influenced by geopolitical tensions, high inflation, and tightening monetary policies across the euro area. The increase in interest rates, strength of our balance sheet, our robust risk management framework, and organic growth in core business lines were all key enablers of the financial results registered during the year.
Over this year we continued to intensify our commitment to improve the delivery of a high-quality service experience to our customers. The Bank has been re-engineering processes to deliver service enhancements while providing customers with more efficient alternative channels. We are pleased to see this resulting in continued migration from traditional to more modern alternative channels. We have also taken forward a number of foundational changes to strengthen operational execution to support our key strategic thrusts over the next three years.
On the business front, the Bank has registered strong growth in both our commercial and consumer finance business. It is particularly pleasing to note the growth in green commercial and personal loans and equally the strong quality of our loan book which has been maintained. Moreover, despite the challenges posed by the market due to the impending geopolitical and other related issues, the Bank has also managed to marginally increase its overall net fee and commission income from other banking services provided to its esteemed customers when compared with the previous year.
The digitalisation of our operational model remains a high priority and various initiatives are in progress to ensure that across our physical, digital and hybrid channels, we deliver the service experience expected by our customers. During the year, we have taken forward various projects to continue strengthening our risk and control infrastructure. In this manner we are ensuring that we constantly meet our regulatory compliance requirements and meet the expected cybersecurity standards to ensure that our business can be sustained and at the same time our customers to feel secure.
Our People reside at the very centre of our strategy. Over 2023, we have launched various initiatives to strengthen the engagement of our employees and improve our overall operational efficiency and productivity. In the process, the Bank’s training academy has hosted hundreds of our employees, to support their personal development, skills, and experience so that they can grow and thrive within the Bank which we are positioning as a learning organisation.
The Community we operate in remains an important stakeholder of the Bank. Our Corporate Social Responsibility program has been a highly active during the year where we have organised various initiatives across our key CSR pillars to support this highly important stakeholder.
I wish to conclude by thanking our employees across the Bank that are working hard each day with the required dedication to drive forward our "good to great” transformation program. I am highly appreciative for all their contribution as well as that of my Executive Team as well as the Board of Directors as we journey to more exciting years ahead of us. Our aim is to deliver value to our shareholders and customers alike where the Bank remains firmly secure, compliant and sustainable in the process.”
Highlights for the Financial Year 2023
Reported profit before tax (‘PBT’) of €251.6 million (2022 restated: €49.1 million adjusted to €152.0 million when excluding the effect of the Deiulemar settlement).
The earnings per share for the year 2023 amounted to €28.8 cents compared with €5.4 cents restated in the comparative year.
The Group delivered solid revenue growth with client-driven activities and positive interest rate dynamics, supported by a net release of Expected Credit Losses (‘ECLs’).
BOV Group has experienced a significant increase in operating income primarily due to the enhancement in net interest income for the year 2023. Overall, total operating income amounted to €441.0 million, an increase of €147.6 million or 50% over the prior year (2022: €293.4 million).
Net Interest Income remained the primary driver of operating income, totalling €352.0 million, a surge of €150.1 million or 74% when compared to €201.9 million in the preceding year, reflecting consistent growth in customer lending and proprietary investment portfolios.
Net Fee and Commission income increased by €1.4 million during the year for a total yearly amount of €78.0 million (2022: €76.6 million).
Total costs amounted to €210.9 million which is equivalent to an increase of 10% or €18.3 million when compared to the previous year €192.6 million. The increase was driven by the Group’s ongoing pursuit of talent enrichment, enhanced compensation and benefits, continuous investment in technology, the delivery of digital channels and investments in platforms to strengthen regulatory compliance. Employee compensation and benefits increased by €11.0 million or 11% mainly as a result of recruitment in specialised areas of the Bank and associated growth rate in the average compensation. The execution of our strategic initiatives remained swift, and the Bank allocated an additional €11.0 million in investments in 2023 (2022: €7.8 m).
A release of €10.5 million was registered in terms of net Expected Credit Losses (‘ECL’) (2022: €49.1 million release). The magnitude of this release reflects largely the effects of the Non-Performing Loans (‘NPL’) sale executed by the Bank in 4Q, which is considered a first in the local banking sector and which resulted in a €17.5 million reversal of allowances, which were previously booked against such exposures.
The BOV Group maintained vigilant oversight over all asset quality metrics with particular attention being placed on the non-performing exposures portfolio (‘NPE’). As at 31 December 2023, the NPE ratio stood at 3.1%, down by more than 40bps when compared to the 3.5% outstanding a year earlier, with the decrease amounting to €11.9 million in terms of absolute amounts.
The Group’s share of profit from insurance associates for the year resulted in a profit of €11.0 million (2022 restated: €2.2 million profit). The Group’s profits for the comparative year were adjusted by €357 thousand in share of results from insurance associates, increasing the share of profits as had been reported in the previous year. This outcome is due to the Group’s associated companies implementing IFRS 17, an accounting standard that introduced a fresh approach to valuing insurance contracts.
Financial Position of the Group
The Group’s Total assets remained practically on the same levels of the previous year at €14.5 billion as at 31 December 2023 (2022 restated: €14.5 billion). Material shifts were noticed between line items especially between balances held with central bank moving to investments and lending, as the Bank seeks to optimise long term returns.
Sustainable management of excess liquidity was maintained during 2023, with cash and short-term assets decreasing by circa €1.0 billion, a reduction of around 31% over the 2022 closing position. These funds were utilised to fuel further net growth in the loan book, €511.7 million, followed by further investments in treasury securities.
Customer deposits stood at €12.2 billion as at end of year, marginally lower than the previous year’s €12.5 billion and confirming the stickiness of the deposit base.
Gross loans and advances to customers as of 31 December 2023 reached €6.3 billion, an increase of nearly 9% when compared with the €5.8 billion of December 2022. Both the commercial and retail business lines registered a very positive year in terms of growth and also in terms of related revenues.
The Group’s gross loans to deposits ratio increased from 46.0% in December 2022 to 51.7% by end of 2023, in line with medium term financial targets.
Liquidity ratio was 362%, down from 426% outstanding as at 31 December 2022, and remained significantly above the minimum regulatory requirement.
The capital ratios remained strong and above regulatory requirements, with the CET 1 and total capital ratios as at 31 December 2023 of 22.7% (2022: 21.8%) and 25.9% (2022: 25.4%), respectively.
Strategy update
The year 2023 marked the closing period of the 3 year strategy that the Bank had embarked upon in 2020, when the Board had approved a three-year strategy that planned to take BOV on a forward-looking transformation journey. Despite a number of external factors, such as the pandemic, litigation and the Ukrainian crisis posed several challenges, the Bank continued moving forward with its strategic ambitions related to digitalisation, process simplification, customer centricity and product diversification.
Going forward, the Board of Directors has approved a new strategy for the next three years to 2026. The key strategic thrusts revolve around our personal and business customers, digitalisation of our operational model, further strengthening the Bank’s risk management control framework and enhancing the Bank’s human capital. In parallel, the Bank will be supporting initiatives in these areas by investing in its Data management and analytical capabilities, digitalisation and embedding ESG in its business and operational model. Through these concerted thrusts the Bank aims to consistently meet and where possible exceed the expectations of its customers.
