BOV’s 2018 pre-tax profit reaches €71.2m, pays out no dividend

BOV sees that the main driver for its results is a sustained demand for credit in the local market. (source: Pexels/rawpixel)

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Bank of Valletta (BOV) Group announced to have had a profit before tax of €71.2m in 2018. The bank says it is committed to reinvesting in operations, with a particular emphasis on IT security, which appears to come in a timely manner in light of a recent cyber attack that compromised its funds and forced the shutdown of some payment systems. The bank also announced to pay out no dividend for 2018, but to compensate shareholders by allocating extra shares for them.

Bank of Valletta Group had a profit before tax of €71.2m in the year ending on 31 December 2018, after providing for a litigation provision of €75m, according to an announcement today by BOV. Profit before deducting provision thus amounted to €146.2m, a year-on-year increase of 5.8%.

Pre-tax return on equity stated before the litigation provision was of 14.9% in 2018, dropping from the preceding year’s 16.5%. This same ratio, reported net of tax, amounted to 9.9% per annum, as compared to a ratio of 7.3% for banks in the eurozone, according to the press statement. The Group’s Core Equity Tier One ratio rose to 18.3, from 16.1% in December 2017.

BOV sees that the main driver for its results is a sustained demand for credit in the local market — especially in terms of home loans, as well as corporate and SME lending.

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Gross advances to customers reached €4.6bn, an increase of 3%. BOV said that income from credit cards and payments recorded “satisfactory growth”, without giving an exact rate in its press release. Customer deposits were at €10.4bn, while total group assets stood at €12.1bn, at the end of the year.

‘Challenging’ year behind amid restructuring

Despite the results, that the financial institution tagged as “strong”, BOV says it left behind a truly challenging year. “These challenges ranged from the entry of new players into the financial services industry to comply with new regulation such as GDPR and MiFID ii, including the necessary IT development and the training of staff,” says Deo Scerri, Chairman of BOV.

The chairman underlined that the institution grabs challenges by the horns, making efforts to turn them into growth and building on the results by investing in the future. The group’s pipeline contains “heavy investment” in IT and fintech solutions, as well as focus on strengthening its capital buffers and on giving strategic priority to increasing its anti-financial crime and cyber defence mechanisms.

Although the press statement does not make mention of exact examples related to IT security, such commitment comes timely after BOV has recently been involved in a cyber hacking attempt. The attack the bank’s systems went under in mid-February forced operations to be shut down. BOV found that eleven payments had been initiated to foreign payment accounts in a total value of €13m. BOV asked for the cancellation of transfers and requested them to be reversed. However, news reports suggest it is difficult to say when the funds will be restored, and whether they can be restored in their entirety.

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BOV says that during the course of the last year, they continued restructuring the business model, with the objective of lowering risk profile.

“The programme is multi-faceted and includes the winding down of certain business lines, the re-dimensioning of others, the revision of the Risk Appetite Framework, the enhancement of risk policies and comprehensive training programmes covering the entire organisation from the Board of Directors downwards,” the BOV press statement says.

BOV pays out no dividend for 2018

Confirming an earlier announcement, the press statement quotes the chairman as saying that the Board of Directors resolved not to pay out or recommend any cash dividend for the financial year 2018.

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Explaining the decision, the board mentions “uncertainty arising from a number of legacy litigation cases”, which the group says led to the board giving up on “top priority to capital conservation, despite its confidence in the robustness of its legal position.” The bank says that to avoid future unexpected losses “the most efficient way of strengthening capital is to reinvest profit in the business, rather than paying it out in the form of a dividend,” the press statement records.

“It is always wise to sacrifice short term benefits — in this case, the payment of a cash dividend — in the interest of long term stability. And that is exactly what the Board did when it decided against a cash dividend payout for 2018,” BOV says.

However, the board says it will make a bonus share issue of one new share for every ten shares held by investors, which, despite not constituting a cash dividend, the group believes may offer “some value to shareholders, even in the form of possible tax benefits.”