The BOV group generated a pre-tax profit of 22 million euros in the first quarter of 2022, but warns that geopolitical instability could have an impact on the national economy and the activities of the bank.
The bank said it was on the road to recovery from the pandemic, but warned of risks of geopolitical instability, according to the interim directors’ statement issued on Thursday.
“Faced with these developments, the group maintains a cautious outlook, in particular with regard to its position in terms of credit provisioning, the performance of the first quarter not necessarily being representative of the results of the year 2022”, indicates the communicated.
BOV’s revenues amounted to 58.4 million euros in the first quarter, up 5% compared to the same period in 2021. The group owes this to a steady growth in loans, in particular through real estate loans and the increase in revenues from payments and card activity.
However, operating expenses increased by 3% compared to the first quarter of 2021. The bank said this was due to higher employee compensation costs driven by an increase in headcount, as well as the contribution of the group to the deposit guarantee scheme, linked to an increase in customer deposit levels.
A reversal of 7 million euros of net expected credit losses contributed to the group’s profitability in the first quarter of 2022. According to the bank, this reflects more favorable economic circumstances positively affecting the expected performance of specific sectors.
In addition, a charge of €4.8 million was recorded during the quarter for long-dated non-performing loans.
“The share of earnings from insurance associates declined significantly compared to the same period in 2021, largely due to a more cautious future outlook impacting actuarial model results,” the bank said.
Net loans and advances to customers increased by 2% during the first quarter of 2022, with growth recorded in both business loans and home loans. However, home loans were the main driver. Customer deposits increased by 1% over the period, mainly in shorter-term deposits.
The bank said it plans to continue to strengthen its minimum capital requirement and eligible liabilities position throughout the second quarter of 2022, in line with applicable regulatory requirements. To achieve this goal, the bank intends to issue a senior preferred bond in the international market.
The Russian-Ukrainian conflict
BOV said it had no significant exposure to Russia or Russian nationals in its loan portfolio. Moreover, exposures from Ukraine and neighboring countries are also small and insignificant compared to the bank’s total loan portfolio.
However, the bank said it was still looking closely at the possible economic and trade effects of the conflict, as Russia and Ukraine are major exporters of key global inputs, such as energy, metals and crops. .
“Malta’s direct trade links with both countries are weak and focused on specific products. However, the indirect effects, arising from the dynamics of the prices of products traded on international markets, as well as the economic dependence of Malta’s other trading partners on Russia and Ukraine, make this shock offers a direct impact on Maltese businesses and households.
The bank carried out an impact assessment to understand how different sectors might be affected by the conflict due to supply chain bottlenecks for different resources or materials. It simulated three different gravity scenarios.
According to BOV, the bank would be able to absorb the negative impact even in the most stressful scenario.
“The situation will continue to be monitored, given the possibility that the fluid situation could potentially deteriorate.”