Bank of Valletta (BOV) chairman Gordon Cordina has warned that “the viability and solvency of Maltese businesses will be put further to the test once the loan moratoria are discontinued, and Government support terminated”.
Discussing the outlook for Malta post-COVID as part of BOV’s annual report, he argues that at this juncture, it is imperative to maintain the integrity of firms and households while developing a post-pandemic long-term strategy.
“Malta is required to reassess its economic, demographic, social and environmental outlook, if it is to achieve sustainability in future years,” he says.
Dr Cordina details a number of areas the country needs to consider in order to do so.
The country should consider increasing its investment in green infrastructure and exploiting the lessons of the pandemic (especially with relation to remote working and commerce), he says.
Additionally, the nation should think about redirecting Malta’s product and brand towards a market niche focus, enhancing the tourism sector, and addressing persistent challenges in the educational sector including the high early school rates and low tertiary education rates, he says.
Dr Cordina acknowledges that 2020 was a “challenging year” for BOV, the Maltese economy and the global markets. During the year, he says, there was an unprecedented contraction in output volumes.
From a production perspective, the worst-hit sectors, he identifies, were those “mainly reliant” on tourist activities. Collectively, the most vulnerable sectors saw their direct share of Gross Value Added (GVA) contract from 30 per cent in 2019 to 23.5 per cent in 2020, he recalls.
Conversely, he says, “a number of sectors proved to be resilient to the pandemic.”
Notably, he points out that construction, arts and entertainment (which includes the iGaming sector), information and communication services, financial services and public administration, witness an expansion in their collective contribution to GVA, from 37.5 per cent in 2019 to 42.2 per cent in 2020.
However, Dr Cordina points out that “the most vulnerable sectors are also notably amongst the Bank’s most important sectors in terms of [its] credit lending portfolio”.
“Loans and advances for accommodation and food service activities, transport and storage, wholesale and retail trade, administrative and support services and other service activities made up 36.3 per cent of the bank’s lending to business customers”, he says.
On the other hand, he explains, the more resilient sectors engage less with the bank’s offerings, as they do not require substantial banking finance, or engage in sectors deemed outside the bank’s risk appetite.
This is reflected in the bank’s financial statement, which reports an “unprecedented contraction in the bank’s profitability as it witnessed an increase of €38.1 million in provisions predominantly related to COVID-19, and a further €39.8 million in relation to non-performing loans (NPLs) on aged non-performing debtors.”
This saw the bank’s profit before tax in 2020 fall to €15.2 million, down from €89.2 million in 2019,
Net interest income reached €146.8 million in the year, €6 million lower than the previous period, but remained the bank’s main revenue driver, according to the report.
Growth in deposits coupled with persistent interest rates continue to impact the banks’ net interest margin, it said.
During 2020, BOV deferred the collection of €79 million in loan repayments for circa three thousand customers, it revealed.
This assistance, it said, “reached all sectors of the economy, with the most predominant sectors being accommodation and food, wholesale and retail, transport, and entertainment services.”
BOV Group’s total assets climbed by five per cent in the year, to reach €12.9 billion. Customer deposits increased by six per cent over the year, to reach €11.3 billion.
The bank also said €280 million was approved as part of the COVID Assist scheme in collaboration with Malta Development Bank, although only €193 million of that was withdrawn.
Dr Cordina reflected the bank is “at the forefront in supporting local businesses and households during the pandemic”.
In the immediate future, he said, the bank aims to be “at the forefront in helping businesses and the local economy at large to transition to a more sustainable business model”.
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