Bad debt provisions increased

by Franco Aloisio

Bank of Valletta Group yesterday announced a record pre-tax profit of Lm17.6m for this year, an increase of Lm1.8m or 11.4 per cent over 1999. These results were announced during yesterday’s 27th annual general meeting of the BOV Group.
Despite these positive results, an item featuring in the financial results raised a number of questions from the shareholders. According to the financial statement, BOV has this year increased its specific provisions for bad and doubtful debts from Lm1.9m to Lm5m.

As expected, many were those shareholders who yesterday questioned such a hefty increase in the provision for bad debt, among them the chairman of the Malta Shareholders Association John Borg Bonello, who is also a director at HSBC.
Other shareholders asked whether this increase was related to the financing of the advances made to Daewoo Malta, which was declared bankrupt. A particular shareholder specifically asked what was the bank’s position regarding Daewoo.
BoV chairman Joseph F.X. Zahra said the board of directors is bound by law not to divulge any information on specific clients – past, present and future.
“The only thing that I can say is that the bank has always acted professionally and according to the country’s laws and practices,” he said.
Mr Zahra added that there are several regulators in this field – the Central Bank, the Malta Financial Services Centre, and the Malta Stock Exchange – which act to safeguard the interests of shareholders and the public at large. Apart from that, he said, the bank has its own auditors who monitor the financial situation of the group.
Mr Zahra assured the shareholders that their investment was being administered in best possible way.
Regarding the increase in the provision of bad debts, Mr Zahra said these were being increased to bring the bank in line with international standards. He said certain investment from certain loans and advances can perform positively or negatively. The bank was taking all the necessary safeguards to protect itself from bad debts.
On the bank’s performance, Mr Zahra said the financial year ending September 2000 was yet another challenging and encouraging year: “This year has proved a strong base for further improvement and growth whereby the BoV Group performed well in 2000, producing earnings attributable to the equity shareholder after tax of Lm14.9m, an increase of 27.7 per cent.
“Operating income of Lm45.1m was up Lm6.0m, or 15.4 per cent, an impressive achievement in the increasingly competitive Maltese financial services market. Reflecting the excellent results achieved the board of directors are proposing a dividend of nine cents,” Mr Zahra announced.
Mr Zahra added that the group has very successfully managed to raise funds through two bond issues, the first a subordinated bond issue of Lm20m, and the second being the bond issue of US$25m. Both bond issues were oversubscribed.
Speaking about the bank’s strategy, Mr Zahra stated the bank is focusing itself in order to be at the forefront in its offer of financial services giving value added benefits and creating a closer relationship with its customers.
“To pursue these aspirations and foster a stronger relationship with its major stakeholders – be they customers, shareholders, employees in the community the Bank serves, renewed emphasis has been placed on a number of strategic areas. As part of it relationship banking strategy, Bank of Valletta has departed from the previous largely uniform servicing approach and is now concentrating more closely on the diverse needs of the different customer segments,” he said.
The BoV chairman said that during July, the board of directors announced the group’s new business structure by re-integrating Valletta Investment Bank and Card Service Limited into BoV with the aim of improving efficiency, generating business growth, and effecting cost savings. The role of investment banking will be carried out throughout Financial
Markets Division, and the group’s commitment to provide such services will be strengthened further following the successful launch of bond issues.
The chairman added that BoV also launched a new company called Bank of Valletta Stockbrokers Limited which has now been granted a licence by the Malta Stock Exchange. This new venture is expected to strengthen the Group’s objective of being a one-stop provider of financial services for its customers.
Speaking about the bank’s efforts to enhance risk management and control, Mr Zahra stated: “The board of directors regularly assesses the group’s credit, operating, market and liquidity risks to determine the appropriate framework for prudent implementation of risk analysis and control. In line with developments in banks overseas, the board has felt the need to develop a holistic approach to risk management by forming a specific Risk Management division in order to strengthen the necessary structure and ensure a clear demarcation line between sanctioning and control functions.”
With regards to the bank’s internationalisation process, Mr Zahra stated that during the past two years the bank has been working hard at strengthening its international presence through representative offices in Tunisia and Libya.
Mr Zahra yesterday announced the group’s investment in upgrading its infrastructure. He stated that the two main projects are the construction of the new processing centre in Santa Venera and the installation of a high-speed communication network across Malta. The profit and loss account and balance sheet for the financial year ended 30 September 2000, the directors’ and auditors’ report, and a gross dividend of nine cents per share, were approved. The meeting reappointed Deloitte & Touche Malta jointly with Deloitte & Touche United Kingdom as auditors.