2023
MeDirect Bank (Malta) plc
Annual Report and
Financial Statements
2Annual Report and Financial Statements 2023
Table of contents
Directors’ Report .....................................................................................................................................................................................
MeDirect at a Glance and MeDirect Business Transformation ............................................................................
Who We Are ................................................................................................................................................................................................
Group History ............................................................................................................................................................................................
Group Board ..............................................................................................................................................................................................
Statement of Compliance with the Principles of Good Corporate Governance ......................................
Remuneration Report ..........................................................................................................................................................................
Financial Statements ...........................................................................................................................................................................
Statements of Financial Position ...................................................................................................................................
Statements of Profit or Loss .............................................................................................................................................
Statements of Comprehensive Income ....................................................................................................................
Statements of Changes in Equity .................................................................................................................................
Statements of Cash Flows ..................................................................................................................................................
Notes to the Financial Statements ...............................................................................................................................
Five-Year Comparison .........................................................................................................................................................................
Company Information .........................................................................................................................................................................
Independent Auditor’s Report ......................................................................................................................................................
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255
3Annual Report and Financial Statements 2023
Directors’ Report
We hereby present the annual report of MeDirect Bank (Malta) plc (the “Bank”) and of the Bank and its subsidiaries
(“MeDirect”or “the Group”) forthe yearended 31 December 2023.
1
These results reflect the consolidated position of
the Bank and its principal subsidiaries.
2
Chair and CEO introduction
2023 was a year of consolidation and continued profitability for MeDirect.The Group consolidated the gains delivered
through the successful execution of its business transformation, which enabled it to return to profitability following the
extreme disruptions caused by the COVID-19 pandemic.
MeDirect recorded profit after tax of €11.9 million in 2023,by focusing on delivering sustainable growth and taking
advantage of a synergistic model which combines diversified retail lending, a highly attractive digital wealth platform,
cutting-edge proprietary technology and careful risk management.
MeDirect furtherstrengthened its position in its core Belgian and Maltese markets as a profitable pan-European digital
bank with a highly scalable platform and infrastructure designed to enable it to deliver increased profitability.
Delivering structural profitability organically
Notwithstanding the large COVID-19-related credit impairments incurred in 2020, MeDirect was able to grow its
operating income at a 20% constant annual growth rate from 2020 to 2023, while successfully reshaping its
operating model, investing selectively in technology to create scalability and returning to structural profitability.
1 This report is prepared in terms of the Maltese Companies Act (Cap. 386) and complies with the disclosure requirements of the Sixth Schedule to the same Act.
2 Consisting of MeDirect Bank SA (“MeDirect Belgium”), MeDirect Tech Limited (formerly Medifin Leasing Limited), and all entities where MeDirect Malta and
MeDirect Belgium retained all the underlying risks and rewards consisting of Grand Harbour I B.V. (currently in liquidation), Bastion 2020-1 NHG B.V., Bastion 2021-1
NHG B.V. and Bastion 2022-1 NHG B.V., controlled special purpose entities established in the Netherlands that were set up as part of the Group’s funding strategy,
and Medifin Estates, a property leasing partnership.
Michael Bussey
Chair
Arnaud Denis
Group CEO
4Annual Report and Financial Statements 2023
MeDirect’s Tier 1 Capital Ratio was also strengthened from 14.8% in 2020 to 16.7% in 2023 without additional external
capital (refer to the MeDirect Business Transformation 2020-2023 section in this chapter).
Thanks to the careful implementation of its strategic roadmap, MeDirect doubled its profit before impairment and tax
to €15.3 million in 2023, compared with €7.1 million for 2022.
MeDirect continued to grow its balance sheet at a controlled pace during 2023 (an increase of 7% to €5.0 billion), while
continuing to de-risk, with the International Corporate Lending (“ICL”) portfolio reduced to €328.5 million at 31 Decem-
ber 2023. The ICL portfolio now represents less than 7% of the Group’s total assets and 12% of its lending book.
During the same period, MeDirect’s mortgageportfolio increased by a healthy 22% at Group level, from €2.0 billion to
almost €2.5 billion, leveraging on diversified origination engines: Dutch government guaranteed (NHG) mortgages,
Dutch professional buy-to-let mortgages, Belgian mortgages and Maltese mortgages.
MeDirect Malta also developed its domestic corporate services and lending platform, that has supported the Maltese
economy, with a loan book reaching €140 million and an average loan-to-value of 54% as at December2023.Forall
categories of lending, MeDirect applies a robust risk selection process which has resulted in high-quality portfolios with
low arrears and defaults.
As a systemic bank in Malta, MeDirect is regulated by the European Central Bank as part of the Single Supervisory
Mechanism. Being part of the Single Supervisory Mechanism ensures that MeDirect is regulated at the standard of the
largest banks in Europe.MeDirect continues to operate with adequate capital ratios, even while growing its balance
sheet tobuild sustainable net interest income and investing in its wealth platform to generate further fee income.At
year-end, MeDirect’s Total Capital Ratio stood at 20.3%, and its Liquidity Coverage Ratio stood at 209%. Such ratios
exceed all regulatory requirements, recommendations and management buffers.
Growing the customer franchise steadily with an attractive value proposition
MeDirect increased its retail customer base by 23% at Group level in 2023, acquiring 27,000 new customers for a total
of 133,000 at year-end. Client acquisition was particularly strong in the larger Belgian market, where MeDirect Belgium
reached the 100,000 clients mark in December 2023. MeDirect Malta reached the 30,000 clients mark and opened a
new location for growth by establishing a Dutch cross-border presence, targeting retail customers in May 2023.
Retail clients continued to use MeDirect as a one-stop shop digital platform for everyday banking, savings and wealth
solutions,ranging from brokerage to model portfolios and discretionary management.Wealth product penetration of
the total retail customer base was 33%, increasing to close to 50% forcustomers who have been with MeDirect forthree
years or more.This platform – and in particular the MeDirect Wealth SuperApp – is designed to meet the needs of the
underserved affluent market segment for wealth services.
Customers who join MeDirect are extremely loyal – 94% of customers who opened an account five years ago remain
customers of the Group. The high quality of MeDirect service is reflected by strong levels of customer satisfaction – a
high Net Promoter Score (NPS) of 47 and call centre satisfaction of 87% by the end of 2023.
Group client financial assets (retail + corporate) increased by approximately 18% in 2023, reaching €5.0 billion at year
end, of which €1.7 billion were assets under custody with MeDirect, an increase of 18% from year-end 2022.
5Annual Report and Financial Statements 2023
Launching new services and transforming into a fully-fledged digital bank
MeDirect continued to broaden its retail product suite,
further establishing itself as a modern digital bank offering
clients an attractive alternative to incumbent banks, with
superior user experience, high quality of service and
competitive pricing.
In July 2023, MeDirect launched card services in Malta.This
new product enhanced MeDirect’s appeal in the retail sec-
tor, broadening significantly its pool of potential customers.
MeDirect has integrated both physical and virtual card ser-
vices into its platform and regularly rolls out additional fea-
tures to enhance the online card management experience.
This product was also launched in Belgium in January 2024.
MeManaged,MeDirect’s digital discretionary portfolio management service, originally launched in Malta in 2022, was
extended to Belgium and the Netherlands during 2023. The launch of MeManaged marked an important step in
democratising wealth management by providing discretionary management services previously limited to high-net-
worth individuals to a wider range of customers.
In Malta, MeDirect broadened its mortgage offering to add property investment loans as well as an 18-month interest
only feature.As a competitive advantage, MeDirect continued to reduce the time required to issue sanction letters and
to complete home loan contracts. MeDirect is working to provide a smooth, digital, client-focused and fast process for
all stages in the mortgage process.
Leveraging on a state-of-the art proprietary technology platform to support scalability
Overthe last fouryears,MeDirect successfully built a cutting-edge proprietary technology platform which is today at
the core its competitiveadvantage. This platform allows MeDirect to innovate continuously, scale at low marginal cost
and deliver highly reliable services across products and geographies, while reducing third-party vendor dependency.
MeDirect’s Technology team,with approximately 125 engineers based mostly in Malta,developed a high quality soft-
ware code repository (with over30 million lines of code, the intellectual property rights of which are owned by MeDirect)
and maintains a complex ecosystem deployed flexibly in multiple locations.
This platform has allowed MeDirect not only to operate with contained and stable technology costs since 2020 but
also to fuel agile product innovation, process efficiency improvement and robust control and risk management systems.
The Group’s cost-to-income ratio,which was very negatively affected by the loss of revenues resulting from the ICL
de-risking strategy, improved to 83% in 2023. This improvement in operational efficiency was achieved through
top-line revenue growth (20% operating income CAGR) but also with fixed OpEx held substantially flat during the
period 2020-2023.Appropriate technology investments,together with focus on cost control,have been majordrivers
behind such improvement.
6Annual Report and Financial Statements 2023
ESG and Social responsibility
MeDirect has continued to integrate Environmental,
Social and Governance (“ESG”) principles into its
business and to raise ESG awareness throughout
the organisation.During 2023,MeDirect increased
its offering of green funds and green bonds, more
than doubled the number of eco-friendly mortgage
loans since 2022 and initiated a project to reduce
its carbon footprint by 5% between 2022 and 2026
and to become carbon neutral by 2032.MeDirect
continued to improve its EcoVadis rating, retaining
its silver medal status in 2023 and placing MeDirect
in the top 7% of corporates evaluated by EcoVadis.
In 2023, MeDirect had employees from over 30 nationalities,with 61% of the workforce being male and 39% female.
MeDirect Malta was re-certified in June 2023 and granted again the Equality Mark by the National Commission for the
Promotion of Equality. MeDirect prides itself on developing its employees and promoting from within. MeDirect contrib-
utes to the local communities in which it operates by supporting charitable organisations as well as talented individuals
in areas such as sports and culture through sponsorships, donations and the voluntary actions of its employees.
Conclusion
In 2023,MeDirect consolidated the gains made overthe previous three years as it continued to executeits business
transformation and delivered stable profitability. Notwithstanding the scalability of the platform,careful consideration
was given to balancing the speed of growth with selective investments, prudent risk management and organic capital
creation goals, in an environment that remains extremely volatile.
Both management and the Board remain committed to continue growing MeDirect profitably, with the ambition of dis-
rupting the markets in which it operates, while delivering on its brand promise of “helping consumers grow their wealth
with confidence and autonomy”.
MeDirect is committed to exploring further ways to reinforce its capital base and facilitate shareholder transition, which
would enable MeDirect to accelerate the growth of its platform.
7Annual Report and Financial Statements 2023
Board of Directors
The Bank’s Articles of Association do not require any Directors to retire.
The Directors of the Bank who held office during the year were:
Mr. Michael Bussey – Chair – appointed on 20 February 2017
Mr. Arnaud Denis – Chief Executive Officer – appointed on 15 October 2019
Mr. Philip English – appointed on 21 August 2023
Mrs. Lisa Fergus – appointed on 19 December 2023
Mr. Jamal Ismayilov - resigned on 2 November 2023
Mr. Radoslaw Ksiezopolski – appointed on 4 October 2019
Mrs. Dina Quraishi – appointed on 6 July 2023
Mr. John Zarb – appointed on 17 July 2017
Focus on financial key performance indicators
The evaluation of management’s implementation of MeDirect’s corporate and financial strategy is based on the use of
key performance indicators (“KPIs”). KPIs arethe tools by which MeDirect’s businesses and operations are managed,
monitored and directed and indicate when the Group needs to undertake corrective measures. KPIs (and associated
risk appetite and risk tolerance metrics) ensure that key risk metrics are constantly monitored. KPIs also play an essen-
tial role in MeDirect’s performance management process.
MeDirect focuses particularly on quantitative KPIs that are actively monitored on a regular basis through dashboards
and monthly management reports. In addition,the Group’s management and Board evaluate non-financial metrics such
as customer satisfaction, employee engagement and sustainability.
The principal financial KPIs of the Group are presented in the following table:
Key performance indicators 2023 2022
Business performance management
Annualised return on equity 4.7% 3.7%
Overall net interest margin 1.8% 1.4%
Capital management
Common Equity Tier 1 (“CET 1”) Ratio 16.7% 15.2%
Leverage Ratio 4.4% 4.7%
Solvency management
Liquidity Coverage Ratio (“LCR”) 209% 221%
Net Stable Funding Ratio (“NSFR”) 126% 119%
Credit management
Non-Performing Loans Ratio 2.5% 2.2%
8Annual Report and Financial Statements 2023
Dividends and reserves
The accumulated losses of the Group amounted to €10.3 million (2022: €25.5 million) and of the Bank amounted to
€12.0 million (2022: €25.3 million).After consideration of the financial results of the Group, the Directors of the Bank do
not recommend the payment of a final dividend. The Board has determined that the Group should conserve its capital
to maximise its ability to support its customers, to continue to strengthen its balance sheet and to invest selectively in
its Wealth platform.
Confirmation of MeDirect’s going concern assessment
MeDirect remains well positioned to achieve further business growth whilst remaining adequately capitalised,with the
Total Capital Ratio at 20.3% compared to the total SREP
1
capital requirement of 11% and soundly funded with access to
the required levels of liquidity with the Liquidity Coverage Ratio being more than two times the minimum requirement.
After due consideration of MeDirect’s business,profitability projections, funding and capital plans, robust riskand inter-
nal control processes and taking into account the broadermacroeconomic outlook, the Directors declare that MeDirect
is in a position to continue operating as a going concern for the foreseeable future.
2
The Board believes that MeDirect
will have sufficient capital to meet not only its regulatory capital and liquidity requirements but also any internal risk
buffers and any buffers recommended by its regulators.
Enhancing risk governance
MeDirect understands the importance of adopting sound risk management principles. MeDirect’s core objective in the
management of risk is to protect its customers and counterparties and to ensure its ability to grow sustainably.
Managing risk effectively, efficiently and sustainably is an integral part of the Group’s business strategy. MeDirect’s
risk management approach focuses on ensuring continued financial soundness and safeguarding the interests of its
stakeholders while retaining the ability to pursue value-creating business opportunities in a fast-changing environment.
This is achieved through high standards of corporate governance and sound risk management principles.
MeDirect has a well-established risk governance structure,with an active and engaged Board of Directors supported
by an experienced senior management team and a centralised risk management function that is independent of the
business lines. Decision making is primarily conducted through the Board of Directors with oversight from a Board level
Risk Management Committee and delegated authority within Executive level Committees.The responsibilities of the
Group’s Risk Management Team are to protect and enable the Group to deliver sustainable income through facilitating
and monitoring the implementation of effectiverisk management practices and assisting risk owners in defining and
controlling risk exposures.
The Group has established a comprehensive and robust risk management framework which sets forth the steps neces-
sary to assess, manage,monitorand report current and emerging risks, whilst continually seeking to improve and evolve
its risk management practices to ensure that it can proactively manage its risk environment.
MeDirect has designed its risk management framework to support and enable its transformation strategy. This risk
management framework ensures that new and proposed business lines, areas of growth, changes in technology and
management decisions are well governed and sustainable.
1 Supervisory Review and Evaluation Process
2 Statement pursuant to MFSA Capital Market Rule 5.62.
9Annual Report and Financial Statements 2023
Risks are monitored through regular and timely risk reporting, enabling the proactive identification and management of
risks with the aim of reducing or avoiding undue exposure to various specific risktypes. Risk appetite limits established
by the Board set forth the amount and types of risk that MeDirect is prepared to accept or tolerate when delivering its
strategy. These risk appetite limits are embedded in policies, management authorities and limits across the Group. Fre-
quent and close monitoring of all risk appetite limits, combined with comprehensive reporting to management and the
Board of Directors ensures that risk is maintained within acceptable levels in accordance with the Group’s risk appetite.
In addition, all critical risk appetite limits are subjected to stress testing analysis at a risk type and portfolio level to en-
sure MeDirect remains financially healthy during and after severe risk events. Stress testing is an important part of the
Group’s risk management framework and addresses a range of idiosyncratic and market-wide scenarios. The results
from stress testing allow senior management to assess any potential vulnerability to exceptional but plausible adverse
events. Stress testing enables MeDirect to assess its capital adequacy and liquidity risks and to identify potentially
risky segments in its business model as well as inherent systematic risks. This enables the Group to develop appropri-
ate risk controls, contingency plans and mitigating actions to address relevant risks before adverse events occur.
MeDirect’s Board regularly discuss and monitor any threats or emerging risks which could potentially have an adverse
effect on the operations or financial condition of the Group,including maintaining an adequate and diversified funding
base; interest rate hedging aimed at protecting its balance sheet; continuing reduction of credit risk and diversification
of the balance sheet into lower-risk mortgage assets; and robust operational risk controls,particularly in view of the
Group’s increasing reliance on technology to improve the efficiency of its operations.
Related parties
During the yearended 31 December 2023, other than the transactions described under note 35 to the financial state-
ments,there were no material changes in related party transactions as compared with those detailed in the financial
statements forthe year ended 31 December 2022. In addition, no related party transactions materially affected the
financial position or liquidity of MeDirect.
MeDirect confirms that there were no material contracts to which it or any of its subsidiaries was a party or in which any
of its Directors was directly or indirectly interested.
1
Events after the reporting date
There were no events afterthe reporting date that would have a material effect on the financial statements of the
Bank or the Group.
Pillar 3 disclosures
MeDirect is required to publish Pillar3 quantitative and qualitative disclosure requirements.
2
The Group publishes its full
Pillar 3 disclosures on an annual basis as a separate document that is available on MeDirect’s website.
1 Statement pursuant to Capital Market Rule 5.70.1.
2 As governed by BR 07: Publication of Annual Report and Audited Financial Statements of Credit Institutions authorised under the Maltese Banking Act (Cap. 371),
issued by the MFSA, which follows the disclosure requirements of EU Regulation No 575/2013 (CRR) of the European Parliament and of the Council of 26 June 2013
and the Commission Implementing Regulation (EU) 2021/637 of 15 March 2021.
10Annual Report and Financial Statements 2023
Standard licence conditions applicable under the Investment Services Act (Cap. 370)
Licence holders are required toinclude in the Directors’ Report breaches of standard licence conditions under the In-
vestment Services Act (Cap. 370). Accordingly, the Directors confirm that no breaches of standard licence conditions
and no otherbreach of regulatory requirements under the Investment Services Act (Cap. 370) that were subject to
administrative penalty or regulatory sanction were reported during the financial year.
1
Statement of Directors’ responsibilities for the financial statements
MeDirect is required by the Maltese Banking Act (Cap.371) and the Maltese Companies Act (Cap.386) to prepare fi-
nancial statements that give a true and fair view of the state of affairs of the Bank and the Group as at the end of each
reporting year and of the profit or loss for that year.
In preparing the financial statements, MeDirect is responsible for:
• ensuring that the financial statements have been drawn up in accordance with International Financial Reporting
Standards as adopted by the EU;
• selecting and applying appropriate accounting policies;
• making accounting estimates that are reasonable in the circumstances; and
• ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to
presume that the Bank and the Group will continue in business as a going concern.
MeDirect is also responsible for designing, implementing and maintaining internal controls designed to en-
able the preparation of financial statements that are free from material misstatement, whetherdue to fraud or er-
ror, and that comply with the Maltese Companies Act (Cap.386). MeDirect is also responsible forsafeguarding the
assets of the Bank and the Group and fortaking reasonable steps forthe prevention and detection of fraud and
other irregularities.
The financial statements of the Bank for the year ended 31 December 2023 are included in the Annual Report 2023,
which is published in hard-copy printed form and will be made available on the Group’s website. MeDirect is responsible
for the maintenance and integrity of the Annual Report on the website in view of its responsibility for the controls over
and the security of its website. Access to information published on the Group’s website is available in othercountries
and jurisdictions where legislation governing the preparation and dissemination of financial statements may differ from
requirements or practice in Malta.
Statement by the Directors pursuant to Capital Market Rule 5.68
The undersigned declare that to the best of their knowledge,the financial statements were prepared in accordancewith
the applicable accounting standards, give a true and fairview of the assets,liabilities, financial position and profit orloss
of the Bank and its subsidiaries included in the consolidated financial statements and that this report includes a fair
review of the performance of the business and the position of the Bank and its subsidiaries included in the consolidated
financial statements, together with a description of the principal risks and uncertainties that it faces.
Signed by Michael Bussey (Chair) and Arnaud Denis (Chief Executive Officer) on 27 March 2024.
1 Statement in accordance with SLC 7.60 of the Investment Services Rules for Investment Services providers regulated by the MFSA
11Annual Report and Financial Statements 2023
MeDirect Group at a glance in 2023
1. Client financial assets = deposits + assets under custody (assets held under nominee basis)
Positive business developments
New business initiatives that will contribute to further growth
» Launch of physical and virtual cards in Malta
» Online Discretionary Portfolio Management in partnership with Blackrock in
Belgium
» Entry into the Dutch retail wealth market
Capital and liquidity ratios well above minimum legal requirements
20.3%
Total Capital Ratio
>200%
Liquidity Coverage Ratio
126%
Net Stable Funding Ratio
Increase in operating revenues supported by business growth and impact of higher interest rates
€14.3m
Profit before tax representing
56% increase from prior year
+43%
Increase in net
interest income
2.5%
Non-performing
loans ratio
Dynamic Franchise Growth
133k
Retail clients -
23% increase from 2022
171%
Increase in new retail
clients compared to 2022
€5.0bn
Group retail and corporate
client financial assets
1
+€253m
18% increase in assets
held under custody
Mortgage lending portfolios expanding with an overall 30% increase in their carrying amount
€2.1bn
Dutch mortgage book -
a 16% increase in 2023
€255m
Belgian mortgage book -
almost doubled in 2023
€99m
Malta mortgage book -
a 46% increase in 2023
+49%
Increase in interest income
on mortgage lending
2nd
Best Investment
Bank award by
Spaargids.be
2nd
Best Savings Bank
award by Guide-
Epargne.be
3rd
Best Bank in
Belgium by Forbes
global survey
MeDirect Belgium market recognition
12Annual Report and Financial Statements 2023
MeDirect Business Transformation 2020-2023
MeDirect restored structural profitability ... ... by growing operating income ...
... maintaining cost discipline while
investing in platform and technology ...
... and achieving positive results
over the past two years
Operating incomeProfit before impairment and taxes
Note: All figures expressed as € millions
Operating expenses Profit after tax (PAT)
13Annual Report and Financial Statements 2023
RWAICL portfolio as a percentage of total assets NPL ratio
Diversifying asset portfolios ...
... de-risking the balance sheet and achieving lower NPL ratios ...
Note: Figures expressed as € millions
Note: Non-percentage figures expressed as € millions
... and improving capital ratios
14Annual Report and Financial Statements 2023
Market recognition and high client satisfaction ...
In 2023, MeDirect achieved 4.7% ROE and
83% cost income ratio and is
ready to be scaled
... support dynamic retail franchise growth
2nd best
Belgian platform for investments and savings
47
Group Net Promoter Score (NPS)
Note: Retail deposits and retail assets under nominee figures expressed as € millions. Retail Clients figures expressed in thousands.
As of Dec 2023Belgium market: 2023 Spaargids independent market
survey amongst consumers
15Annual Report and Financial Statements 2023
Who we are
Purpose, Mission and Core Values
Our purpose is exciting:
To empower people to manage their wealth with confidence and autonomy.
To achieve this goal,we have built our Wealth SuperApp, a one-stop shop that offers in a single app a broad and
growing portfolio of digital wealth and banking services. Our vision for our customers is embodied in our “My Money,
My Choices” branding, which speaks to the freedom and flexibility provided by our platform to customers in managing
their finances.
We target the underserved affluent customersegment; people who want to retain control of their finances but who
often want to be guided in their investment journeys. Oursolution addresses the needs of a large potential universe,
ranging from first time to active investors looking fora wide choice of investment products and a highly convenient
platform that enables them to achieve their financial goals.
Users of our platform may include:
• customers unsatisfied with the offline journey provided by their current bank or investment advisor;
• people who do not have the time nor the willingness to manage their money and want to delegate or be guided;
• tech-savvy investors who want to access a highly functional trading platform with real-time capabilities and
rich information; and
• customers who do not qualify for private banking, which typically caters only to customers with significant
investible wealth.
MeDirect aims to address these problems with cutting-edge technology and customer-centric solutions with the am-
bition of disrupting the retail digital investment space. To achieve this, we offer, on a single multi-channel platform with
open architecture, a broad range of online investment solutions combined with superior UX and attractive pricing. Our
app addresses in one place a wide range of investor needs including trading, advisory and discretionary management
services, coupled with daily banking facilitated by our physical and virtual card capabilities launched in 2023.
Technology is the backbone of our success. We developed internally most of the critical components of the value chain
which form part of our ecosystem, allowing us to deploy seamless service aggregation capabilities.Ourtechnology
architecture is state-of-the-art, with scalability and modularity at its core,built by a talented team recruited from ad-
vanced technology sectors including iGaming and Telecom.
Our strategic priorities reflect our core values:
Autonomy: We empower our customers to navigate the financial world and give them the choice of how to manage
their money, their way. We encourage our employees to take ownership of their work and grow their skills.
Innovation: We do not rest on our laurels. We are results driven and constantly review how we go about delivering on
our vision and improving our value proposition.
Transparency: The financial world isn’t simple, but the MeDirect app is. We communicate clearly with our clients and
our colleagues and offer clear and understandable reporting of customer portfolios.
Responsibility: We take seriously our responsibilities to all our stakeholders: customers, employees, regulators, share-
holders and our community.
16Annual Report and Financial Statements 2023
How our vision ties into our core strategy
Our core strategy is based on four main pillars:
1. Scaling up our innovative WealthTech platform
MeDirect focuses on the affluent customersegment (typically
with €30,000-€300,000 in wealth) that values convenience,
transparency and choice. MeDirect aims to provide a full range
of investment services from brokerage to investment advice to
3. MeDirect Tech Proprietary platform
MeDirect’s technology strategy is a testament to the power of modern software architecture in driving business
growth and maintaining a competitive edge. MeDirect’s cloud-agnostic approach allows for the seamless integra-
tion of services from various third-party providers, enhancing its digital offerings. This strategic selection of partners
contributes to a robust and flexible modular ecosystem, capable of supporting the platform’s scalability.
The transition from a monolithic setup to a containerized platform
is a pivotal move in MeDirect’s tech strategy. This shift not only fa-
cilitates scaling up to accommodate higher volumes and broader
geographies but also ensures cost-efficiency. The adoption of a
modularmicroservices architecture underlines MeDirect’s commit-
ment to continuous innovation and its ability to adapt to evolving
business and customer needs.
Furthermore, MeDirect platform’s design revolves around six
core elements that prioritize user experience and interfaces,
client experience management,order orchestration, payment execution, and transaction management.These elements
are underpinned by key design principles that ensure a seamless and efficient operation. MeDirect’s in-house software
development team, recognized for its excellence, plays a crucial role in the ongoing development and refinement of this
cutting-edge technology.
Overall, MeDirect’s tech architecture is a strategic asset that enables it to offer a comprehensive and
multi-channel customer experience while optimizing operational efficiency and scalability. This positions MeDirect well
to respond swiftly to market demands and to continue its trajectory of innovation and growth.
2. Growing a low risk and capital efficient mortgage lending platform
We have built from scratch mortgage offerings in the Netherlands,Belgium and Malta and have developed a lend-
ing platform that is both scalable and competitive. In Belgium and the Netherlands, MeDirect operates a B2B2C
approach,by working with top notch servicing and origination partners and focusing on niche market segments,while still
maintaining an appropriate risk-reward balance. Looking
forward, we aim to use this business line to complement
our disruptive wealth offering and to build a platform which
maximises the full range of synergies between the two business
lines, including cross-selling mortgages to wealth customers or
vice-versa.
discretionary portfolio management, combined with high-quality daily banking functions, including physical and virtual
cards.We bring to market innovative solutions combining our proprietary software with seamlessly aggregated services
from selected partners to create intuitive customer journeys.
Since 2018, we have invested
over €33 million in our
technology platform.
MeDirect proprietary
platform’s design revolves
around six core elements that
prioritize user experience and
interfaces, client experience
management, order orches-
tration, payment execution,
and transaction management.
The mortgage lending platform
leverages on top notch partners
and inhouse Technology and
Product capabilities to build a
best-in-class platform.
17Annual Report and Financial Statements 2023
4. Efficient operating model
MeDirect operates a high-quality service centre in Malta consisting of technology, digital channels, operations and
othersupport teams. These teams drive MeDirect’s vision to be simpler, betterand faster for our customers and work-
force.The role of these teams include:
• the development of software and applications to improve customer experience;
• the management of the IT infrastructure and support;
• the management of customer operations and change across MeDirect; and
• the provision of professional services in various areas such as finance, risk and treasury, amongst others.
Dedicated marketing and product teams,as well as control functions,are located in each of our banks.This interna-
tional set-up enables MeDirect to scale up efficiently while remaining flexible and close to local market customerand
regulatory requirements.
18Annual Report and Financial Statements 2023
Group History
2009-2018
Acquired by AnaCap Financial Partners II L.P.
Launch of online deposits and wealth in Malta
Established syndicated ICL portfolio
Belgian branch obtains banking licence, becomes subsidiary of Maltese bank in 2015
MDB Group regulated under the Single Supervisory Mechanism in 2016
Group Client Financial Assets above €3.0 billion as at December 2018
2019
New management team joined to transform MeDirect and develop the WealthTech franchise
Collateralised Loan Obligation transaction executed to de-risk ICL portfolio
Launch of Dutch NHG mortgage business line
2020
Milestone of 75,000 affluent retail clients reached
NHG mortgage book exceeds €1 billion
Launch of business transformation programme by new management team
Launch of retail mobile app
Ranked top 5 for mobile app, investment products and savings by spaargids.be
Successful completion of first Residential Mortgage-Backed Security (“RMBS”) transaction
Navigated through Covid crisis
2021
Milestone of 100,000 affluent retail clients with €4.5 billion financial assets reached
NHG mortgage book exceeds €1.6 billion
Launch of revamped online brokerage platform
Again ranked top 5 for mobile app, investment products and savings by spaargids.be
Awarded “Best Use of Technology in Business Transformation” by Tech.MT for MeDirect’s digital
onboarding platform
New mortgage platform launch in Malta and Belgium
Issuance of €11 million Tier 2 capital in international markets
Second RMBS transaction completed
2022
Operating as a software house: 28 million lines of quality code deployed
New MeDirect branding and logo and UX enhancements
Launch of Discretionary Portfolio Management offer with top asset manager in Malta
Launch of professional buy-to-let mortgage product in the Netherlands
Third RMBS transaction completed
New eco-friendly home loans introduced
Top 15% in Ecovadis Silver sustainability rating
Launch of physical and virtual cards in Malta contributing to growth in our customer base
Launch of Discretionary Portfolio Management offer with top asset manager in Belgium
Geographical expansion of digital wealth products and deposits into the Netherlands
Launch of property investment loans and 18-month interest only mortgage product in Malta
Launch of revamped e-banking platform for corporate customers
Milestone of 100,000 retail clients in Belgium reached
MeDirect Belgium awarded “2nd Best Investment Bank” and “2nd Best Savings Bank” by Spaargids.be and
Guide-epargne.be respectively
MeDirect Belgium rated 3rd best bank in Belgium by Forbes global survey
Retaining Ecovadis Silver sustainability rating (top 7% of all rated corporates)
MeDirect Malta participated in the Hope guarantee scheme in collaboration with the Government of Malta
2023
19Annual Report and Financial Statements 2023
Group Board
Michael Bussey
Independent Chair and Non-Executive Director
» Joined MeDirect Board on 20 February 2017
» 45 years of experience in banking, specialising in Private banking and Wealth management
Former key positions held:
» Joined HSBC in 1980 and held various senior positions in his more than 20 years with the company, most
recently as CEO of HSBC Private Banking EMEA
» CEO - Schroder & Co Ltd
» CEO - Private Banking and Trust at NM Rothschild & Sons Ltd
» CEO - Arbuthnot Latham & Co.
» Non-Executive Chair - Credit Suisse (U.K.) Limited (2012-2020)
External appointments:
» Non-Executive Chair - DB UK Bank Limited
Dina Quraishi
Independent Non-Executive Director
» Joined MeDirect Board on 6 July 2023 and is the Chair of the Risk Committee
» 20+ years of experience in risk management covering various sectors including payments, FinTech, engineering
and financial services.
Former key positions held:
» Chief Risk Officer – SWIFT (Belgium)
» Global Head of Enterprise Risk Management – Sandvik (Sweden)
» Head of Operational Risk – Zurich Insurance
John Zarb
Independent Non-Executive Director
» Joined MeDirect Group’s Board on 17 July 2017 and is the Chair of the Audit Committee
» 40 years of experience with PwC in Malta, retiring from his role as Partner in 2014
Former key positions held:
» Formerly President of Malta Institute of Accountants and served as Malta’s representative on the EU
Accounting Regulatory Committee and on the Accountancy Board for several years
External appointments:
» Chair - PG plc
» Director - Foster Clark Products Ltd
» Board member and Chair of the Audit committee of Tumas Investments plc and board member and Chair of the
Remuneration Committee of its parent company, Tumas Group Company Limited
Philip English
Non-Executive Director
» Joined MDB Group’s Board on 21 August 2023
» 30+ years of experience focusing on portfolio management, security valuation, financial markets and institutions
and commercial banking.
Former key positions held:
» Served on the Board of Directors of the CFA Society Washington, DC
» Served on the Investment Management Committee for Raffa Wealth Management
External appointments:
» Research Associate Professor of Finance at the Fox School of Business, Temple University
» Executive Director of the Fischer-Shain Centre for Financial Services and executive member of its Board
20Annual Report and Financial Statements 2023
Arnaud Denis
Director and Group Chief Executive Officer
» Joined MDB Group as Group CEO in September 2019 and formally on MeDirect’s Board on 15 October 2019
» 25+ years of experience in banking, with track record of retail business transformation in the field of digital
Former key positions held:
» First Deputy CEO of ROSBANK Group - Société Générale’s Russian retail platform
» CEO - Eurobank SA - Polish subsidiary of Société Générale
» MD - Société Générale’s Fixed Income division based in New York
» Held various non-executive Directorships in banking
Radoslaw Ksiezopolski
Director and Group Chief Financial Officer
» Joined MDB Group as Group CFO in August 2019 and formally on MeDirect’s Board on 4 October 2019
» 20+ years of experience in banking, specialising in business transformation
Former key positions held:
» CFO - Eurobank SA - Polish subsidiary of Société Générale
» CFO - Credit Agricole Bank Poland
» Consultant - McKinsey & Co.
» Worked on the transformation of Polish subsidiary of UniCredit
Lisa Fergus
Director and Group Chief Risk Officer
» Joined MDB Group as Group CRO in December 2023 and formally on MeDirect’s Board on 19 December 2023
» Experienced banking professional with over 30 years in depth experience across enterprise risk management,
compliance, financial crime, internal audit and corporate governance
Former key positions held:
» CRO - Ashman Finance, UK
» CRO - Monzo, UK
» CRO - Clear Bank, UK
» CRO - Masthaven Bank, UK
» Leading an audit quality assurance and professional practices programme globally at Barclays Bank
21Annual Report and Financial Statements 2023
From left
John Zarb - Independent Non-Executive Drector, MeDirect Group
Radoslaw Ksiezopolski - Group Chief Financial Officer, MeDirect Group
Lisa Fergus - Group Chief Risk Officer, MeDirect Group
Dean Eaves - Senior Technology Advisor, MeDirect Group
Michael Bussey - Chair and Independent Non-Executive Director, MeDirect Group
Philip English - Non-Executive Director, MeDirect Group
Marcia De Wachter - Chair and Independent Non-Executive Director, MeDirect Belgium
Alain Moreau - Chief Executive Officer, MeDirect Belgium
Arnaud Denis - Group Chief Executive Officer, MeDirect Group
Dina Quraishi - Independent Non-Executive Director, MeDirect Group
22Annual Report and Financial Statements 2023
Statement of Compliance with the Principles of Good Corporate Governance
Introduction
MeDirect Bank (Malta) plc (the “Bank” or “MeDirectMalta”) hereby reports on the extent to which the Code of Principles
of Good Corporate Governance (the “Code”) has been adopted as required by the Capital Markets Rules of the Malta
Listing Authority.
The Group acknowledges that the Code does not dictate or prescribe mandatory rules but recommends principles of
good practice.However, the Directors strongly believe that such practices are in the best interests of MeDirect Malta,
its shareholders and otherstakeholders, primarily because compliance with principles of good corporate governance
is expected by investors on the Malta Stock Exchange and evidences the Directors’ and the Group’s commitment to a
high standard of corporate governance.
The Directors report that since MeDirect Malta is a company that only issues debt securities and has not issued equity
securities which are traded in a multilateral trading facility, it is exempt from disclosing the information prescribed in
Capital Markets Rules 5.97.1, 5.97.2, 5.97.3, 5.97.6 and 5.97.8 in this corporate governance statement.It is in the light of
these factors that the Directors are herein reporting on the corporate governance of MeDirect Malta.
The Directors are aware that theCode highlights principles which although of general application tolisted companies
are adaptable by each company depending on its particular circumstances. Those circumstances are more often than
not determined by two factors, namely: (i) the specific nature of the business of the company itself; and (ii) the fact
that whilst certain principles in the Code are applicable to companies the equity securities of which are listed on the
Stock Exchange, they are not altogether applicable, or not applicable in the same manner, to companies that fall within
the definition of a listed company by virtue of having issued debt instruments which are listed on the Malta Stock Ex-
change. In this context, the Directors believe that the Group’s current organisational set up guarantees the properand
efficient functioning of MeDirect Malta and provides adequate corporate governance safeguards.
Compliance with the Code
Principles 1 and 3: Board of Directors and composition of the Board
MeDirect Malta’s Board of Directors (the “Board”) is composed of persons with a diverse range of skills and experience
acquired in senior roles with international banks and financial organisations,professional firms and governmental en-
tities. At 31 December2023, the MeDirect Malta Board consisted of fournon-executive members and three executive
members, satisfying the rule that one third of the Directors should be Non-Executive Directors, with the majority of the
Non-Executive Directors being independent. Taking into account certain factors such as the size of MeDirect Malta, the
size of the Board and the balance of skills and experience represented by its members, the MeDirect Malta Directors
are considered to be appropriate for the requirements of MeDirect Malta’s business.
In line with MeDirect Malta’s Articles of Association, all Directors remain in office. All Directors are deemed to be fit and
proper to direct the business of MeDirect Malta.
The Board of MeDirect Malta cooperates closely with the Board of its direct subsidiary, MeDirect Belgium,to ensure
consistent application of Group standards and coordination of activities,whilst at the same time respecting the inde-
pendence of each Board and their respective needs to meet all applicable statutory and regulatory obligations in the
jurisdictions in which they are organised and do business.
23Annual Report and Financial Statements 2023
Principle 2: Chair and Chief Executive Officer
The offices of MeDirect Malta’s Chair and Chief Executive Officer are held by different individuals, avoiding concen-
tration of authority and powerin one individual and differentiating the leadership of the Board from that of running
MeDirect Malta’s business.
MeDirect Malta’s Chair is responsible for (i) leading MeDirect Malta’s Board,(ii) ensuring that MeDirect Malta’s Board
receives precise,timely and objective information to enable them totake sound decisions and monitor effectively the
performance of the company, (iii) ensure effective communication with shareholders and (iv) encourage active engage-
ment by all Directors in discussions about key issues.
MeDirect Malta’s Chief Executive Officer (“CEO”) leads the MeDirect Malta Executive Committee, which is responsible
forthe execution of the strategy approved by the Board.The MeDirect Malta CEO coordinates closely with the CEO
of MeDirect Belgium and its Executive Committee.To ensure appropriate coordination,members of the Executive
Committees of each of MeDirect Malta and MeDirect Belgium form part of a Group Steering Committee,the purpose
of which is to coordinate the activities and the strategies of the two banks.
Principles 4, 5 and 8: Responsibilities of the Board, Board Meetings and Committees
The MeDirect Malta Board has the first level responsibility for executing the fourbasic roles of corporate governance:
accountability, monitoring, strategy formulation and policy development.
Functioning of the Board
The MeDirect Malta Board delegates the management and day-to-day running of the Group to the Group CEO, who
acts in coordination with the CEO of MeDirect Belgium, in accordance with such policies and directions as the Board
may from time to time determine, with the exception of the following matters which require the approval of the Board:
• Overall business strategy;
• Key policies that may have a material impact on the Group;
• Overall risk strategy, including the risk appetite and risk management framework;
• Corporate governance structure, including the proper functioning of Board committees;
• An internal controls framework for the Group, setting forth the responsibilities of the Board and of management
of all business lines and internal units, including internal control functions, outsourced activities and distribution
channels;
• Amounts, types and distribution of both internal capital and regulatory capital with the aim of ensuring ade-
quate coverage of the risks of the Group;
• Targets for liquidity management of the Group;
• Dividend policy, including recommendation for payment of any dividend;
• Approval of large exposures that are 20% or more of own funds;
• Remuneration practices, including remuneration of the members of the Board and senior management;
• Arrangements aimed at ensuring that the individual and collective suitability assessments of the Board are
carried out effectively, that the composition and succession planning of the Board are appropriate and that the
Board performs its functions effectively, including the effectiveness of the Board Committees;
• Assessment and evaluation of key function holders;
• Arrangements at ensuring the integrity of the accounting and financial reporting systems, including financial
and operational controls designed to ensure compliance with law and regulation as well as relevant standards;
and
• A conflicts of interest policy covering conflicts on an institutional level and for staff.
The Board is also responsible forsetting a framework of values and a code of conduct in which the stated corporate
and risk culture can evolve and thrive. Each member of the Board should reinforce these values through their own
24Annual Report and Financial Statements 2023
behaviour and decisions.The Board has oversight of the following:
• The process of public disclosures and communications with external stakeholders and competent authorities;
and
• The overall activity, financial and risk situation of the Group, taking into account the economic environment, and
the implementation of sustainable strategic decisions that have a significant impact on the business.
The Board monitors,periodically reviews and addresses any weaknesses identified regarding the implementation of
processes, strategies and policies related to any of their approval and oversight responsibilities.
The Board may delegate some of its responsibilities,in particular its review and monitoring responsibilities,to Board
Committees,howeverit still retains oversight over these activities and remains responsible forultimate decision-making.
Notices of the dates of scheduled meetings of MeDirect Malta’s Board together with supporting materials are circulat-
ed to the Directors in advance of such meetings. Advance notice is also given of ad hoc meetings of MeDirect Malta’s
Board to allow Directors sufficient time to arrange their commitments in order to be able toparticipate. Twenty-three
meetings of the Board of MeDirect Malta were held during the financial year.
As soon as practicable after each Board meeting, minutes that faithfully record attendance, deliberations and decisions
of MeDirect Malta’s Board are prepared and circulated to all Directors.
Where common issues are being discussed, certain Board meetings are held jointly with the Board of MeDirect Belgium.
The following section sets forth details of the members of MeDirect Malta’s Board of Directors and of each of the com-
mittees of MeDirect Malta’s Board.
Board of Directors
The following table sets forth the percentage of meetings attended by each director during the financial year:
Meetings attended
%
Michael Bussey Independent Chair and Non-Executive Director 100
John Zarb Independent Non-Executive Director 100
Dina Quraishi Independent Non-Executive Director 100
Jamal Ismayilov * Non-Executive Director 65
Philip English** Non-Executive Director 100
Arnaud Denis Executive Director - Chief Executive Officer 100
Radoslaw Ksiezopolski Executive Director - Chief Finance Officer 100
Lisa Fergus*** Executive Director - Chief Risk Officer 100
* As from 2 November 2023, Mr Jamal Ismayilov no longer served in a non-executive capacity with MeDirect Malta.
** Dr Philip English was appointed as a non-executive director on 21 August 2023 and the percentage relates to meetings held during the time he
served as a director.
*** Ms Lisa Fergus was appointed as an executive director on 19 December 2023 and the percentage relates to meetings held during the time she
served as a director.
25Annual Report and Financial Statements 2023
Committees of the Board
Certain responsibilities of the Board are delegated toBoard committees. The Board committees play an essential role
in supporting the Board in fulfilling its responsibilities and ensuring that the highest standards of corporate governance
are maintained. Updates from the Chairs of the Board Committees are included as a standing agenda item in all routine
Board meetings.
The Committees coordinate theiractivities with the equivalent committees of MeDirect Belgium, and where common
issues are being addressed, certain meetings are held jointly with the equivalent committees of MeDirect Belgium.
Board Committees
A. Audit Committee
The purpose of the Audit Committee are to oversee the quality and integrity of the Group’s financial reports, particularly
the key financial judgments, and review the accounting policies. The primary responsibilities of the Group Audit Com-
mittee are the following:
• review accounting policies;
• monitor the Group’s financial and other disclosures, ensuring compliance with legal and regulatory
requirements;
• review the qualifications, performance and independence of the external auditor;
• review and approve Internal Audit’s plan and oversee the execution of the plan; and
• assess the effectiveness of Internal Audit, including the adequacy and competence of its staff.
The members of the Audit Committee are:
John Zarb Committee Chair and Independent Non-Executive Director
Michael Bussey Member and Independent Non-Executive Director
Dina Quraishi Member and Independent Non-Executive Director
In terms of Capital Markets Rules 5.117 and 5.118, John Zarb is the non-executive director whom the Group Board con-
siders as competent in accounting and/or auditing. John Zarb retired from his role as partner at PricewaterhouseCoop-
ers at the end of 2014 after a career spanning over 40 years in the audit and advisory practices of the firm. He is a past
President of the Malta Institute of Accountants and served fora number of years on the Accountancy Board and as
Malta’s representative on the EU Accounting Regulatory Committee. John Zarb is currently the Chair of PG plc, a Direc-
tor and Chair of the audit committee of Tumas Investments plc and Director and Chair of the remuneration committee
of Tumas Group Company Limited. He also serves as a Director of Foster Clark Products Limited.
During the year ended 31 December 2023,nine meetings of the Group Audit Committee were held.The Group Chief
Internal Auditorattends the meetings as a standing invitee,unless there are exceptional circumstances.Other officers
or employees may be asked to join the meeting as required.
The Audit Committee coordinates its activities with the Audit Committee of MeDirect Belgium, and where common
issues are being addressed, certain meetings are held jointly by the committees.
B. Nominations and Remuneration Committee
The Group’s Nominations and Remuneration Committee prepares and approves the Remuneration Report. The disclo-
sures in the Remuneration Report reflect the requirements of EU Capital Requirements Regulation (575/2013) to the
extent applicable to the financial year under review.
26Annual Report and Financial Statements 2023
MeDirect Malta’s Nominations and Remuneration Committee is composed of Non-Executive Directors with no personal
financial interest in the Group and include Michael Bussey (Chair), John Zarb and Philip English.
C. Board Risk and Compliance Committee
The primary purpose of the Board Risk and Compliance Committee is to advise and support the Group Board of Di-
rectors by performing in-depth and detailed oversight of the Group’s risk management and compliance policies and
practices and monitoring its actual performance against the risk appetiteapproved by the Board.The Risk function and
the Compliance function both report to the Board Risk and Compliance Committee.
Amongst the primary responsibilities of the Board Risk and Compliance Committee are:
• to ensure that the Group’s risk strategy and Risk Appetite Framework (including its Risk Appetite Statement
and associated thresholds for escalation and related controls) are comprehensive and consistent with the
Group’s business strategy, objectives, corporate culture and values;
• to assess, and at least annually report on, the effectiveness of the Group’s Risk Management Function, the
Compliance Function and the Money Laundering Reporting Officer,including the adequacy of staffing levels
and expertise as well as the completeness of the function’s coverage; and
• to vet and approve related party transactions in accordance with Capital Market Rule 5.138.
The Board Risk and Compliance Committee has oversight of all the Group’s risk and compliance matters, even if they
arise in its main subsidiary, MeDirect Belgium, which has its own Board Risk and Compliance Committee.
The Board Risk and Compliance Committee coordinates its activities with the Board Risk and Compliance Committee
of MeDirect Belgium, and where common issues are being addressed, certain meetings are held jointly by the commit-
tees.
The current members of the Board Risk and Compliance Committee are:
Dina Quraishi Committee Chair and Independent Non-Executive Director
John Zarb Member and Independent Non-Executive Director
Philip English Member and Non-Executive Director
Lisa Fergus Member and Executive Director
The Group Chief ExecutiveOfficer, the Group Chief Risk Officer,MeDirect Malta’s Chief Compliance Officer and the
MeDirect Malta Money Laundering Reporting Officer attend the Board Risk and Compliance Committee meetings by
invitation. The Group’s and MeDirect Belgium’s Board Chairs attend Board Risk and Compliance Committee meetings
as observers.
The Chair of the Committee reports on all matters to the Group’s Board after each meeting and notifies the Board of
any decisions made. The Committee makes whateverrecommendations to the Group Board it deems necessary. The
Board Risk and Compliance Committee met eleven times during the financial year.
Principal Management Committees
A. Group Steering Committee (“Group Steerco”)
The Group Steerco provides a forum forthe three Executive Directors of MeDirect Malta and the three Executive Di-
rectors of MeDirect Belgium to discuss key strategic issues and initiatives affecting the Group as a whole.It draws on
a wide range of experience toensure that the strategic objectives of the Group are delivered in accordance with the
Group’s strategic business plans, as approved by the Boards of Directors of the Group and MeDirect Belgium. The main
27Annual Report and Financial Statements 2023
purpose of Group Steerco is to foster a unified culture and promote a holistic approach toward discussions on strategy
across the various jurisdictions in which the Group operates.
B. Malta Executive Committee (“Malta ExCo”)
The MeDirect Malta Board delegates the execution of the strategy to the Malta ExCo.This committee serves as a
management forum to manage the execution of MeDirect Malta’s business priorities and reinforce the governance of
MeDirect Malta’s activities. It focuses on MeDirect Malta’s growth strategies and new initiatives and monitors the ability
to respond to new regulatory developments.It meets on a monthly basis and is responsible forthe formulation and
implementation of Board-approved strategies and plans and for ensuring that the business is operated in accordance
with such strategies and plans.
The Malta ExCo is chaired by the Group CEO and includes the Group Chief Financial Officer and the Group Chief Risk
Officer. The Group Chief Technology Officer, Group Head of Channels and CustomerExperience,Head of Legal and
Commercial Strategy and the Chief Internal Audit Officer (as an observer) are standing invitees of the Malta ExCo.
MeDirect Belgium has a similar Executive Committee comprising the MeDirect Belgium CEO, Chief Financial Officer,
Chief Risk Officer and Chief Operating Officer.
C. Management Credit Committee (“MCC”)
The Group Management Credit Committee is responsible formaking credit decisions under its delegated authority
including:
• whether to extend credit to a borrower and under what conditions;
• the classification of individual credits for risk and performance monitoring purposes;
• whether to recommend Board approval for credit decisions beyond its delegated authority;
• consideration of hedging strategies and whether to recommend them for Board approval;
• review and recommendations relating to impairments and provisioning; and
• oversight of the risk performance of the portfolio.
The Group MCC covers all asset classes of the Group,including all loans and receivables portfolios, all securitised
transactions, and treasury investments.
The MCC is chaired by the Group Chief Risk Officer who carries the casting vote and a right of veto in all Management
Credit Committee decisions. Members of theMCC comprise at least two othermembers, including members of credit
teams or the treasury team and a member from the risk team.
The MCC is scheduled twice weekly and meets as required for the proper fulfilment of its duties. It also meets at least
quarterly to review the Group’s lending portfolios and to make decisions on internal credit ratings and recommendations
on potential impairments.
D. Management Risk Committee (“MRC”)
The MRC is a sub-committee of the Group ExCo. Its purpose is to provide executive risk management oversight and
steering in the Group and its subsidiaries. The MRC oversees,monitors,assesses and drives risk management activ-
ities across the Group under the supervision of the Board of Directors,with a functional reporting line to the Board
Risk Committee, which monitors risk appetite, approves the risk management strategy, internal controls framework and
associated policies. The MRC ensures that the Groupand its subsidiaries remain adequately capitalised and funded
whilst ensuring that a strong risk culture is embedded across the organisation.
28Annual Report and Financial Statements 2023
The main responsibilities of the MRC are to:
• Oversee and advise ExCo and the Board Risk and Compliance Committee on non-financial risk-related matters,
in particular resilience risk (incorporating information technology, cyber security and third-party and outsourc-
ing risk), financial crime, fraud risk, regulatory compliance risk, people risk, legal risk, model risk and financial
reporting and tax risk;
• Monitor and oversee compliance with risk appetite limits and risk strategy and advise on and escalate to the
Board Risk and Compliance Committee risk appetite and risk tolerance-related matters were necessary;
• Review internal control systems to ensure their effectiveness and report to the Board Risk and Compliance
Committee on the effectiveness of risk management and internal controls;
• Discuss operational risk issues, events and actions and act as the management point of escalation for all port-
folio and process risk-related decisions;
• Assess the impact of regulatory developments on the risk management framework and risk policies, recom-
mending changes to the Board Risk and Compliance Committee as appropriate;
• Steer the development and implementation of risk frameworks, projects and strategic initiatives;
• Drive and oversee major deliverables such as ICAAP/ ILAAP and the Recovery Plan;
• Oversee risk related action plans, regulatory and audit findings; and
• Promote risk awareness and a strong risk culture within the organisation.
The membership of this committee consists of the Group Chief Risk Officer (Chair),MeDirect Belgium Chief Risk Officer
(Deputy Chair),Chief Information Security Officer, Manager– Operational Risk, Group Head of Data Protection,Chief
Compliance Officer, MeDirect Belgium Head of Compliance, Chief Internal Audit officer and MeDirect Belgium Head of
Internal Audit
E. Asset and Liability Committee (“ALCO”)
The Group’s ALCO ensures that the Group has in place and operates effectively appropriate and robust strategies
and policies to manage and optimise the Group’s asset-liability mix and oversee the Group’s capital,liquidity, funding,
interest rate risk and foreign exchange risk position. Group ALCO applies Group strategies across each business line
and legal entity and across risk types and products.Group ALCO oversees and as appropriate approves Group policies
and objectives forasset and liability management, capital and funding management and allocation, market risk position
and hedging activity, liquidity monitoring,capital usage and efficiency, product pricing, fund transfer pricing and dealing
and trading activities in each case in accordance with the risk appetite statement set by the Group Board. The Group
ALCO’s authority covers MDB Group Limited and MeDirect Bank (Malta) plc. MeDirect Belgium has a similar ALCO,
addressing the same matters for MeDirect Belgium. Group ALCO coordinates the activities of both ALCOs and ensures
that decisions taken at Belgium ALCO are aligned with the interests of the Group. Group ALCO is a sub-committee of
the Group ExCo.
The members of ALCO include MeDirect Malta’s Head – ALM (Committee Chair), Group CEO, GroupChief Financial
Officer, Group Chief Risk Officer, the MeDirect Belgium – Chief Financial Officer and MeDirect Belgium – Chief Risk
Officer. ALCO convenes meetings monthly or as required.
F. Operations Committee
The purpose of the Group Operations Committee is to ensure that the Group has in place and operates effectively and
appropriately robust change management, project management, outsourcing and vendor management processes and
procedures. The Group Operations Committee also has oversight of the ICTstrategy implementation and monitoring,
status of operational and cyber security risks and data governance initiatives and ensures that arrangements related to
Business Continuity and Disaster Recovery are in place. The Group’s Operations Committee is a sub-committee of the
Malta ExCo and the MeDirect Belgium ExCo and is the decision-making body formatters described above under the
delegated authority from the Malta ExCo and the MeDirect Belgium ExCo.
29Annual Report and Financial Statements 2023
The Committee’s terms of reference are to oversee and take any necessary decisions in the following areas:
• Feasibility of the business and regulatory change requests;
• Operational feasibility of the new products and services;
• Governance of the key third party vendors onboarding and monitoring;
• Governance of the arrangements related to budget spending on change initiatives, business continuity and
disaster recovery and data retention and archiving; and
• Awareness and oversight of the arrangements related to ICT strategy and its implementation, operational risk
and cyber security and organisational design of the Group from the point of view of efficiency and change
sustainability.
The members of this committee include the Group Chief Technology Officer (Chair), MeDirect Belgium Chief Operating
Officer, Group Head of Channels and CustomerExperience, Chief Information Security Officer,Head of Dutch Retail
Market, Group Chief Risk Officer, MeDirect Belgium Chief Risk Officer, Group Chief Financial Officer, MeDirect Belgium
Chief Financial Officer, Head of Commercial Strategy and Legal, and the Supply and Procurement Senior Manager.
G. Compliance and Client Acceptance Committee (“CCAC”)
The purpose of the Compliance and Client Acceptance Committee is to evaluate and review periodically new and exist-
ing clients across the retail and corporate business lines from a reputational and financial crime compliance perspec-
tive. TheCCAC also oversees and if appropriate recommends approval of financial crime compliance-related policies,
action plans, risk assessments and methodologies.The CCAC operates within the authority delegated from the Board
Risk and Compliance Committee and is comprised of representatives of key units within the Group.
The permanent voting members of this committee are Head of Commercial Strategy and Legal (Chair),Chief Compli-
ance Officer (Deputy Chair), Head of Operations and Manager - Operational Risk.
Code Provision 4.2.7 - Succession planning
MeDirect Malta has established a list of Key Personnel Substitutes to coverinstances in which Executive Directors, key
personnel and managers are temporarily incapacitated or otherwise unable to complete theirduties fora significant
period of time.
If such individuals are permanently unable to re-assume their duties, MeDirect Malta’s management, in consultation
with the Board, will designate permanent successors, either from MeDirect Malta’s existing management team or, if
appropriate, by selecting an outside candidate.
As part of succession planning and talent management,MeDirect Malta’s and MeDirect Belgium’s Boards and the CEO
ensure that MeDirect implements appropriate schemes to recruit, retain and motivate high quality executive officers.
They also encourage members of management to move to higherranks,seek to maintain high morale amongst Me-
Direct’s Malta’s personnel and identify high performing employees with the potential to take on more responsibilities.
The succession plan ensures that MeDirect is constantly empowering and developing existing employees, guarantee-
ing that there is a pool of talent ready and waiting for advancement and promotion into increasingly challenging roles
when they arise.
Principle 6: Information and professional development
In addition to the responsibilities of MeDirect Malta’s and Belgium’s Boards described above, these boards actively
participate in the appointment of seniormanagement. Board members receive regular updates on MeDirect’s strategic,
operational, corporate governance, compliance, risk management and financial plans and objectives.
30Annual Report and Financial Statements 2023
MeDirect Malta’s and MeDirect Belgium’s Boards appoint the respectiveCEOs taking into account the view of the
ultimate controlling shareholder and MeDirect Malta respectively. The Board’s training programmes aim to improve the
Board’s awareness of risk, regulation and compliance developments in the financial services sector, with topics tobe
covered ranging from Environmental,Social and Governance and sustainable finance to information technology and
cyber security.
MeDirect Malta and MeDirect Belgium Directors are given opportunities to update and develop theirskills and knowl-
edge,through briefings by senior executives and externally run seminars throughout their terms as Directors. Moreover,
Directors have access to independent professional advice, at MeDirect’s expense.
These Directors also have access to the advice and services of the Company Secretary who is responsible for adher-
ence to the Board procedures as well as effective information flows amongst the Board, its Committees and with senior
management.
Principle 7: Evaluation of the Board’s performance
Periodically, MeDirect Malta’s Board carries out an evaluation procedure whereby Board members are requested to
complete a questionnaire on the Board’s performance and that of its committees. The evaluation is co-ordinated by the
Board’s Chair, an independent non-executive director, and all Directors participate in the process.Feedback from the
evaluation is presented to the Nominations and Remuneration Committee. An external evaluation took place during the
financial year ended 31 December 2023.
Principles 9 and 10: Relations with shareholders and with the market and institutional shareholders
MeDirect Malta and MeDirect Belgium maintain ongoing communication with the shareholders and the market in
respect of its strategy and performance. During the yearunder review, MeDirect Malta issued various company an-
nouncements and media releases to explain ongoing corporate developments, material events and transactions which
tookplace and theirimpact on MeDirect Malta’s financial position. Through public announcements,MeDirect Malta’s
website, financial reports and interaction with the media in Malta, MeDirect Malta provides the market with regular,
timely,accurate,comprehensive and comparable information in sufficient detail to enable investors to make informed
investment decisions in respect of MeDirect Malta’s listed securities.
MeDirect Malta’s ultimate controlling shareholderis represented on its Board of Directors and actively monitors its
investment in MeDirect Malta.
The Chairs of MeDirect Malta’s and MeDirect Belgium’s Audit,Nominations and Remuneration and Board Risk and
Compliance Committees are available to answer questions at the Annual General Meeting. MeDirect Malta’s Articles of
Association provide that Directors shall, at the request of members of the company holding not less than one-tenth of
the paid-up share capital, convene an Extraordinary General Meeting of MeDirect Malta.
Principle 11: Conflicts of interest
MeDirect Malta’s Articles of Association and the Belgian Code of Companies provide that any directorof MeDirect Mal-
ta and MeDirect Belgium respectively who is in any way, whether directly or indirectly, interested in a transaction or pro-
posed transaction with MeDirect must (i) declare to the other Directors the nature of such interest, (ii) unless otherwise
determined by the unconflicted Directors, not participate in or be present for any discussion of any such transaction or
proposed transaction and (iii) not vote on any such transaction or proposed transaction.
On joining the MeDirect Malta Board and regularly thereafter, Directors are informed and reminded of their obligations
relating to dealing in MeDirect Malta’s securities under applicable law and regulation, including the Capital Markets
Rules.
31Annual Report and Financial Statements 2023
Principle 12: Corporate social responsibility
MeDirect Malta continued to play an important role in the community, supporting cultural, sporting and charitable or-
ganisations as well as educational initiatives throughout the financial year ended 31 December 2023.
Through several collaborations and sponsorship agreements, MeDirect Malta continued to focus on helping local talent
to develop.The Malta Philharmonic Orchestra, the ŻfinMalta National Dance Company and the Soċjetà Filarmonika La
Stella A. D.1863 were amongst the major beneficiaries of MeDirect Malta support during the year.This support contrib-
uted to the successful production of various musical theatre and dance performances,which strengthened the cultural
calendar in both Malta and Gozo. MeDirect’s commitment to developing musical talent in Malta was further evidenced
by the Group’s support of Malta’s Got Talent and X Factor.
The importance of developing talent in Malta was also illustrated by the support given by MeDirect Malta to various
educational activities such as Code.SprintMT, Malta’s national coding championship, which is divided into various cat-
egories open to secondary and post-secondary students as well as established software developers.MeDirect also
continues to strengthen its collaborations with MCAST and the University of Malta’s Faculty of Economics,Manage-
ment and Accountancy as it works to ensure that Malta has the right talent to support the financial services industry in
a future based on technology and digital solutions. Improving standards and personal development also provided the
motivation for MeDirect’s support to the Malta Association of Gastroenterology Nurses and Associates.
The financial year also saw MeDirect Malta and its employees provide support to numerous charities, through financial
donations, the provision of equipment and staff volunteering.These included organisations focused on supporting
children, adults and their families suffering from serious illness such as Puttinu Cares, Hospice Malta,the Alive Founda-
tion and Beating Hearts Foundation. MeDirect, as an organisation which values diversity and inclusion also supported
organisations like Spark 15 which helps migrants to acquire skills needed to integrate into Maltese society and events
like EuroPride, which took place in Malta in September 2023.
MeDirect Malta’s concern for the less fortunate also resulted in support for Angela House and St Rita Home, two res-
idential homes forchildren who are unable to live with their families. The homes are run by the Ursuline Sisters of St
Angela Merici. Further initiatives included support forDar Hosea which aids women who are,orare at risk of becom-
ing, victims of prostitution.MeDirect Malta also kept its annual Boxing Day appointment and presented a donation to
L-Istrina, the Malta Community Chest Fund Foundation’s nationwide charity campaign.
The issue of mental health and wellbeing is also important to MeDirect Malta. The Group continues to provide support
to employees who may need support through collaborations with the Richmond Foundation and the Service Dogs
Foundation, also helping these organisations to continue providing their services to the broader community.
Animal charities such as the MSPCAalso received assistance from MeDirect Malta, not only through financial dona-
tions but also the delivery of food and the practical support of employees in activities such as dog walking.
Finally,MeDirect Malta also continued to play an activerole in the sporting life of Malta, particularly through its renewed
support forOtters Water Polo Club/Aquatic club,the only water polo club in Gozo,which also provides swimming coach-
ing to hundreds of Gozitan children every summer.
In 2023 MeDirect Belgium participated in “Clean Brussels” where the staff tookto cleaning the streets around the office,
contributing to a cleaner and healthier environment.
MeDirect Belgium cooperated with Visioboutique(operated by the Red Cross) in a clothing donation event organised
on Youth Day whereby donated clothing could be bought at heavily discounted prices by people from a socially fragile
background.
32Annual Report and Financial Statements 2023
MeDirect Belgium also gave a donation tothe Cancer Institute to sustain theirongoing effort in combatting cancer in
society.
Other disclosures
There were no material contracts to which MeDirect Malta or its subsidiary were a party and in which any one of Me-
Direct Malta’s Directors was directly or indirectly interested.
Management’s internal controls over financial reporting
MeDirect Malta’s and MeDirect Belgium’s Boards are responsible forensuring that senior management develops and
implements a sound system of internal controls and forreviewing its effectiveness. Such a system is designed to
manage,ratherthan eliminate,the risk of failure toachieve business objectives and can only providereasonable and
not absolute assurance against material misstatement or loss.MeDirect operates a system of internal controls that
provides reasonable assurance of effective and efficient operations, including controls relating to financial and
operational matters and compliance with laws and regulations. Processes are in place foridentifying,evaluating and
managing the significant risks facing MeDirect Malta and the Group.
The management of MeDirect is responsible forinstituting and preserving sufficient internal control overfinancial re-
porting. Internal control over financial reporting is a process designed under the supervision of the Group Chief Finan-
cial Officer and the MeDirect Belgium Chief Financial Officer to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with IFRS
as adopted by the European Union.
Internal control over financial reporting includes policies and procedures that pertain to:
• maintaining records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of
assets;
• providing reasonable assurances that transactions are recorded as necessary to permit preparation of financial
statements in accordance with IFRS as adopted by the EU;
• ensuring that receipts and expenditures are made only in accordance with authorisations of management and
the relevant Directors; and
• providing reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or
disposition of assets that could have a material effect on the financial statements.
Signed by Michael Bussey (Chair) and Arnaud Denis (Chief Executive Officer) on 27 March 2024.
33Annual Report and Financial Statements 2023
Remuneration Report
Remuneration governance
The primary purpose of the Nomination and Remuneration Committee of the Group (that also covers MeDirect Malta)
and the Nomination and Remuneration Committee of MeDirect Belgium (“NRCs”) is to review remuneration levels in the
Group and to consider whetherto approve performance-related and othervariable bonus awards that may be delivered
in cash or share linked instruments. List of Material Risk Takers is revised and approved at least on an annual basis.
The NRCs are charged with aligning the Group’s remuneration policy, approved by the Group Board of Directors, and in
particular performance-related elements of remuneration, with the Group’s business strategy and risk tolerance, objec-
tives, values and long-term interests. The key objectives of the NRCs in this regard are the following:
• annual review of the proposals put forward by management relating to the principles of the remuneration policy
and verification with management that they are effectively implemented. In particular, monitoring of the budg-
ets allocated to the fixed salary increases for the forthcoming year and the variable remuneration pools for the
previous financial year; and
• annual review of the individual remuneration of senior management and staff members who are employed in
control functions, as well as that of staff with total remuneration above a threshold fixed by the NRCs.
One of the NRCs primary functions is to ensure that the Group is able to attract and retain suitable employees at all
levels at an acceptable cost. It may request market-related information from time to time,to verify the recommendations
made by management. On an annual basis, the NRCs review the budgets allocated to the fixed salary increases for the
forthcoming year and the variable remuneration pools forthe previous financial yearand review the individual remuner-
ation of senior management and staff members who are employed in control functions such as Risk and Compliance,
as well as that of staff with total remuneration above a threshold fixed by the relative NRC.
Membership and meetings
The members of the Group’s NRC are:
Michael Bussey Committee Chair/Independent Non-Executive Board Chair
John Zarb Independent Non-Executive Director
Philip Campbell English Non-Executive Director and Shareholder representative
The Group’s Chief Administration Officer acts as a secretary to the Committee,whilst the Chief People Officerwas
invited as an attendee throughout the year, as was the Chief Executive Officer.
During the year ended 31 December 2023, the Group’s NRC met on eight occasions of which six were joint NRCs with
the Belgian NRC committee. These meetings were attended by all members of the Group’s NRC.
34Annual Report and Financial Statements 2023
Remuneration policy statement
The Remuneration Policy is owned by the Chair of the Group’s NRC and is approved by the Group’s Board of Directors.
The policy was developed in conjunction with the Group’s principal shareholder and the NRCs. The policy is reviewed
on an annual basis by the NRCs or when significant changes occur in related directives, guidance,best practice and
technical standards. The policy is also reviewed on an annual basis by the Internal Audit function to ensure that it is in
compliance with all applicable legal and regulatory requirements.The NRCs may also requirereview of this policy by
external advisors to the extent it is deemed necessary or appropriate.
The purpose of the Remuneration Policy is to set out the overall principles that MeDirect Malta and MeDirect Belgium,
whetherdirect orindirect,must follow when determining the remuneration and compensation of its management and
staff members. This policy establishes an effective framework for determining role descriptions, performance measure-
ment,risk adjustment of compensation and the linkages to reward.The Group’s Board and the MeDirect Belgium Board
are responsible to ensure that the remuneration practices are based on sound governance processes that take the
Group’s risk strategy and profile into account.
The Boards,directly and through the NRCs, carry out effective monitoring and evaluation of adherence to the remu-
neration policy and of the Group’s remuneration system on an ongoing basis. The NRCs and the Boards monitor the
ongoing performance by Executive Directors and seniormanagement and determine the design and implementation
of an effective remuneration system. They also ensure that the remuneration policies and practices are consistent with
a prudent, forward-looking approach, aimed at maintaining a sound capital base, and that all awards of variable remu-
neration to Material Risk Takers are subject to malus and clawback arrangements and are otherwise consistent with
the Remuneration Policy.
Material Risk Takers,that consist of members of staff whose actions have a material impact on the risk profile of the
Group, are identified on the basis of the qualitative and quantitative criteria set out in the Commission Delegated Reg-
ulation (EU) 2021/923. Material Risk Takers are also identified on the basis of additional criteria developed internally.
This category would include a member of the Board of Directors, a member of senior management and the Heads and
key personnel active in the independent control functions such as the internal audit, compliance and risk management
functions of the Group and subsidiaries.
Material Risk Takers would also include:
• Staff member authorised to approve or veto the introduction of new products;
• Staff member authorised to take, approve or veto discussions on material credit risk exposures or is a member
of a committee which has authority to take decisions on material credit risk exposures; and
• Staff member that has been awarded total remuneration in the previous financial year equal to or in excess of
other material risk takers (excluding non-executive, support function and control function roles).
The list of Material Risk Takers is reviewed and reconsidered by the Group’s NRC on at least an annual basis.
Remuneration consists of base salary and, where applicable, performance based orother variable bonus awards. Per-
formance-related compensation is determined both on (i) a Group wide basis, and (ii) an individual employee basis.
Compliance with the Group’s rules and requirements and involvement on a continuous basis in riskmanagement,are
taken into account when determining performance-based remuneration forall employees.Othernon-financial factors
are considered such as skills acquired,personal development, commitment to the Group’s business strategies and
policies and contribution to the performance of the team. Performance is measured in relation to non-financial and
financial goals and, where appropriate, failure to perform in non-financial areas of responsibility outweighs success in
profit generation in determining compensation. The remuneration of staff in control functions should allow the Group to
35Annual Report and Financial Statements 2023
employ qualified and experienced personnel in those functions and should be predominantly fixed so as to reflect the
nature of their responsibilities.
The Group Riskteam provides advice in respect of the definition of suitable risk-adjusted performance measures, as
well as in assessing how the variable remuneration structure affects the risk profile and culture of the Group. The Risk
team provides input into the process for determining bonus pools and the allocations of variable remuneration awards
to ensure that all relevant factors areconsidered by the relevant decision-making body. The Risk team also validates
and assesses risk adjustment data, and a member of the Risk Committee provides input to the NRCs on this matter.
The Group Compliance function analyses how the remuneration policy affects the Group’s compliance with legislation
in all jurisdictions in which the Group operates,regulations and internal policies, and conducts an annual review of the
implementation of the Remuneration Policy. The Compliance function would report all identified compliance risks and
issues of non-compliance, and these findings are taken into account during the approval and review procedures and
oversight of the Remuneration Policy.
The Internal Audit function carries out an independent annual review on the design adequacy, control effectiveness and
sound monitoring of the Remuneration Policy related internal control framework. In parallel to reporting on the latter as-
surance activities the Internal Audit function also informs the NRC of any specific facts,events or observations,pointing
at knowingly negligent or unacceptable behaviour of key staff and management members, to be considered during the
review of remuneration levels and approval of performance-related and other variable bonus awards.
The Group’s Remuneration Policy includes malus and clawback provisions applicable to all material risk takers and key
personnel in control functions,even if variable compensation is remunerated in cash.Clawback,that implies that em-
ployees would be required to pay back all or some of an amount they have already received, will apply during the period
of fiveyears from the date of award or until the end of the applicable retention period, as applicable. The malus provi-
sions refer to the downward adjustment of incentive awards before they become payable or before they vest and may
be applied in respect of deferred elements of variable remuneration at any time during the applicable deferral period.
It is possible for the Group to apply malus and clawback provisions tovariable remuneration such as performance re-
lated bonuses or othervariable bonuses if the respectiveemployees were responsible for circumstances that resulted
in significant losses to the Group orin situations where the most appropriate standards of fitness and propriety were
not met during the period for which the performance or retention bonus was awarded.
Variable remuneration, including the deferred portion, is paid or vests only if it is sustainable according to the financial
and regulatory capital situation of the Group as a whole. Without prejudice to the general principles of national contract
and labour law,the total variable remuneration may be contracted where subdued or negativefinancial performance
of the Group occurs, taking into account both current remuneration and reductions in payouts of amounts previously
earned, including through malus or clawback arrangements.
Conflicts of interests with regard to the implementation of this Remuneration Policy and the award of remuneration in
accordance with the provisions of this policy are identified and appropriately mitigated.
In 2022 the Group revised the remuneration policy toreflect the ESMAguidance on MIFID II, whereas in 2023 it was
reviewed together with the Deferred Bonus plan but there were no material changes.
36Annual Report and Financial Statements 2023
The Group’s reward strategy
The quality and long term-commitment of all employees is fundamental to the Group’s success. The Group therefore
aims to attract, retain and motivate the very best people who are committed to maintain a long-term career with the
Group and who will perform their role in the long-term interest of the shareholders. The Group’s reward package may
comprise fixed remuneration and variable remuneration.
Fixed remuneration
The fixed remuneration reflects the individual’s role,experience and responsibility. It comprises the base salary and in
some cases a pay allowance of a fixed nature such as extra hours or public holiday allowances as detailed in their em-
ployment conditions. Base salaries are expected to comprise the majority of the Group’s overall compensation cost, are
benchmarked on an annual basis, and are paid by direct credit to an employee’s personal account on a monthly basis.
Allowances are also paid by direct credit on a monthly basis.
Fixed remuneration also includes benefits (of a fixed nature as these are pre-determined). Benefits take account of
market practice and include the provision of medical insurance and life assurance toall employees across the Group.
In Belgium and UK the Group provides defined contribution pension schemes whereby the Group’s fixed contribution is
set for each employee on the basis of the relevant salary and the payment of such contributions would stop on termi-
nation of employment by the employee.
The employees of MeDirect Malta are also entitled to the following benefits:
Staff savings account
All of the Group’s Malta-based employees are entitled to make equal monthly deposits of a specified amount direct
from aftertax payroll into an employee savings account.At the end of the financial year, MeDirect Malta will pay a ben-
eficial interest rate on the accumulated savings remaining in the account in December.
Home loan subsidy
Home loans are offered to staff in-house at beneficial interest rates.
Variable remuneration
Variable remuneration may consist of performancebonuses and othervariable bonuses awarded in cash or share linked
instruments and guaranteed sign on payments and severance payments awarded in cash.In accordancewith Article
92(1) (q) of directive 2013/36/EU (“CRD”), variable remuneration is not paid through vehicles or methods that facilitate
the non-compliance with this Directive or Regulation (EU) No 575/2013. In Belgium, a number of employees opted to be
paid the performance bonus in warrants or options rather than in cash.
Performance bonuses represent additional remuneration payable to employees as a reward for achieving specific goals
or hitting predetermined targets, but such variable remuneration is discretionary as the Group does not set an expec-
tation to its employees that a bonus will be paid if certain goals are met and the amount of the bonuses are not deter-
mined in advance.Besides the annual performance bonus the Group may also award ad hoc bonuses that are linked to
pre set KPIs in relation to specific projects.
Retention bonus is variable remuneration awarded on the condition that staff stays at the Group or subsidiary company
of the Group fora predefined period of time. This is targeted toensurebest performance, by securing the retention of
critical employees who are key to success of the realisation of the strategic plan of the Group.
Any consideration given to granting retention bonuses, guaranteed remuneration and/or severance payments is made
in light of the applicable regulatory requirements in order to ensure that such remuneration is only awarded where to
37Annual Report and Financial Statements 2023
do so is compliant with the applicable regulatory requirements and any such remuneration is awarded in such form
as is determined by the NRCs,taking account of applicable regulatory requirements (including in respect of deferral,
payment in the form of a share-linked instruments and the application of malus and clawback).
(a) Determination of the performance bonus variable remuneration pools
Aperformance bonus pool is established forthe Group as a whole and is calculated at Group level based on the
success of the Group in meeting its business objectives. The variable remuneration pool shall not be directly or solely
linked to the amount of profits orrevenues generated. Assessment of performance shall be made in the context of a
multi-year analysis, taking into account the business cycle and the Group’s business risks. In determining the variable
remuneration pool, the Group applies a prudent, forward-looking approach,consistent with maintaining a sound capital
base.The Group expects that in aggregate variable remuneration shall not have a significant impact on its capital base
and is immaterial in relation to its overall capital and operating income.
The performance bonus variable remuneration pool is set and is calculated on the basis of the following qualitative and
quantitative factors:
• Financial results of the Group, the relevant subsidiary and/or the relevant business line after taking into account
the cost of risk, capital and liquidity, with the aim of ensuring that the total amount of variable remuneration
does not undermine the Group’s or the subsidiary’s capacity to meet its objectives in terms of capital require-
ments; and
• Qualitative factors such as market practices, conditions under which activities are carried out and
risk management.
The pool will be further adjusted to the extent required to ensure that all relevant identified current and future risks are
reflected or in light of the Group’s capital position. Such an adjustment may include the NRCs reducing pools of variable
remuneration in the event of a breach (or unacceptable risk of a breach) of any key regulatory ratios and/or reducing or
not paying variable remuneration to any employee (whether or not a Material Risk Taker) who the NRC determines has
caused or contributed to any such breach (or risk of a breach).
The variable remuneration pool is split between entities by taking intoconsideration the pools allocated in the previ-
ous financial period, but also taking into consideration other factors such as change in composition of staff and senior
management and market benchmarks.
The variable remuneration pool is approved by the NRC of MeDirect Malta and MeDirect Belgium.
(b) Measures of performance as basis for awarding of bonuses
All personnel are compensated out of the variable remuneration bonus pool based on their contribution to the achieve-
ment of the Group’s business objectives as well as personal objectives. The allocations of individual variable remuner-
ation awards are correlated to the staff member’s formalised annual individual appraisal, that takes into consideration
quantitative and qualitative objectives known to the employee, as well as risk management considerations.
Individuals are compensated out of that bonus pool based on their contribution to the achievement of the Group’s and/
or the subsidiary’s business objectives. Such individual criteria will also depend on the role of the individual in the Group.
Forexample, portfolio managers are judged on factors such as risk management,overall continuing performance of the
portfolio,contribution to development of the Group’s systems, while members of the Treasury team are assessed on
effectiveness in managing liquidity as well as interest rate risk. The amount of variable remuneration will vary depending
on the performance of the staff member, as well as of the staff member’s business unit and the institution as a whole.
38Annual Report and Financial Statements 2023
The appraisal process for all employees is a continuous process which involves the following stages:
• Objective setting at the beginning of the year
» Goals are set that revolve around the development of the employee allowing for progression. Objectives
may be technical (related to area of expertise and day-to-day role) or behavioural (related to a desired change
in personal development).
• End of year appraisal
» As above employees would do a self-review followed with a manager review together with a one-to-one
meeting to discuss overall performance and rating. The employee rating is based on a 5-point rating scale.
(c) Individual allocation of the variable remuneration
i. All staff (including material risk takers)
The Chief People Officer initiates the process of gathering recommendations for salary revisions, bonuses and promo-
tions from Heads of departments. Abonus pool is allocated per department based on the bonus pool of the group. A
percentage of fixed salary is allocated to each performance rating scale in each jurisdiction.
All staff are eligible for performance related variable remuneration delivered in cash (or instruments if over the de
minimis), though this is discretionary and depends on both individual and collective performance. It takes into account
quantitative and qualitative criteria and is not directly or solely linked to the amount of profits or revenues generated.
Assessment of performance is made taking into account the business cycle and the Group’s business risks. The crite-
ria used to set variable remuneration pools,as well as their allocation, takes into account all risks,both qualitative and
quantitative.
The amount payable to any individual under the annual variable remuneration plan is based on the following:
• The Group’s financial performance in particular the profit before tax, the cost to income ratio and maintenance
of all regulatory ratios across the Group within established risk appetite levels;
• Customer satisfaction (if applicable) based on the subjective assessment of the NRC;
• Conduct risk based on the Chief Risk Officer’s recommendation to the NRC; and
• Personal performance against personal objectives.
In exceptional circumstances,the allocation of variable remuneration may differfrom the pre-determined criteria set
forth in the End of Year procedure, on a case-by-case basis. Furthermore, depending on the performance of the employ-
ee and the financial performance of the Group,variable remuneration can also be reduced tozero. Variable remunera-
tion may be significantly reduced or nullified in the case of any kind of unethical or non-compliant behaviour.
The Chief Administration Officer together with the Chief People Officer ensure that recommendations for salary revi-
sions and bonuses do not exceed the allocated pool. The Group Chief Risk Officer and the Chief Risk Officer of MeDi-
rect Belgium confirm that the bonus allocation is consistent with sound and effective risk management practices and
does not impact the capital adequacy of both entities. Recommendations are then discussed with the Group Chief Ex-
ecutive Officer and the Chief Executive Officer of MeDirect Belgium for approval before presenting to the Nominations
and Remuneration Committee of the relevant entity.
Internal control functions
Whilst the general bonus pool of the Group is based on the Group’s financial results, compensation of control functions
is not directly tied to the results of any business unit but should provide incentives forsuch staff to deliverthe best
performancein their role.Thus,control functions are judged on success in developing and implementing appropriate
39Annual Report and Financial Statements 2023
policies,developing effective risk management controls and procedures,monitoring risk and building control systems.
The Group’s remuneration practices shall ensure that no material conflict of interest arise in respect or remuneration for
staff in the Group’s control functions.
The methods used for determining the variableremuneration of control functions are designed to encourage staff not
to compromise theirobjectivity and independence.When control function staff receive variable remuneration, it is ap-
praised and the variable part of remuneration determined separately from the business units they control, including the
performance which results from business decisions where the control function is involved. The criteria used for assess-
ing performance and risk is based exclusively on internal control objectives.
Other matters on variable remuneration
In accordance with applicable remuneration regulations,the ratio between the variable components of remuneration
and the fixed components is limited to 100% (200% with shareholders’approval subject to certain conditions be-
ing met) for variable remuneration paid to MeDirect Malta staff and 50% forvariable remuneration paid to MeDirect
Belgium staff.
Where variable remuneration is more than €50,000 both forMeDirect Malta and MeDirect Belgium employees or in
certain other circumstances, a portion of the variable remuneration will be deferred and/or payable in the form of in-
struments.During the financial year, no variable remuneration paid exceeded 100% of fixed remuneration (or 50% in the
case of MeDirect Belgium).
Variable remuneration may be paid in the form of the following: 1) upfront cash; 2) an upfront share-linked instrument
award and/or 3) a deferred award representing an award granted in respect of cash or share-linked instruments subject
to deferral.Such award of share-linked instruments for the purpose of Article 94 (1) (i) of CRD entitles the material risk
takerto a cash payment based on the market value of a share of the Group but does not entitle the employee to shares
or any interest in or right over such shares. In the case of upfront share-linked awards and deferred share-linked award
linked to a retention bonus, these awards would be subject to a retention period as determined by the NRCs, of not less
than 12 months but not greater than 5 years.Any tranche of a deferred award,in relation to a retention bonus,which has
not yet been paid will lapse if the material risktaker leaves employment before the end of the deferral period, unless the
material risk taker leaves due to certain specific reasons as listed in the bonus plan rules approved by the Group’s NRC.
The share linked instruments awarded by the Group so far were to current and previous material risk takers.
Variable remuneration awarded in cash is normally paid out in the first quarter of the subsequent financial year as de-
termined by the NRCs.Variable remuneration paid to Material RiskTakers is subject to malus and clawback provisions.
The clawback provisions state that the bonus may have to be repaid to the Group in certain circumstances that would
have led to significant losses to the Group or in case of failure tomeet appropriate standards of fitness and propriety,
including cases of fraud, dishonesty or gross negligence.Clawbackprovisions may be applied expost to variable remu-
neration paid in cash and share linked instruments.
Malus may be applied at the discretion of the relevant NRC, and examples of the circumstances in which such dis-
cretion to impose malus may be exercised are included in the Group’s Remuneration Policy. Malus provisions may be
applied ex ante to share linked instruments.
40Annual Report and Financial Statements 2023
Subject to regulatory de minimis limits, forMaterial Risk Takers deferral will apply to at least 40% of annual variable
remuneration (depending on the quantum of each individual’s total remuneration and being at least 60% where annual
variable remuneration outcomes are significant according to the NRC, as determined in accordance with applicable
regulations), including both cash and instrument payments. The deferral period would be of five years and no discount
rate is applied by the Group to variable remuneration.
Signed by Michael Bussey (Chair) and Arnaud Denis (Chief Executive Officer) on 27 March 2024.
41Annual Report and Financial Statements 2023
Financial Statements
42Annual Report and Financial Statements 2023
Statements of financial position
Group Bank
2023 2022 2023 2022
Notes €000 €000 €000 €000
ASSETS
Balances with central banks and cash 4 265,401 149,929 88,748 42,446
Derivative financial instruments 5 207,950 363,382 512 8,045
Loans and advances to financial institutions 6 352,793 402,987 46,252 89,837
Loans and advances to customers 7 2,746,271 2,389,293 403,360 518,106
Investments
- Securities portfolio 8 705,910 694,038 282,994 303,740
- Securitisation portfolio 8 605,340 574,001 159,408 158,965
- Subsidiaries 9 - - 192,513 184,599
Property and equipment 10 6,091 7,574 4,788 6,200
Intangible assets 11 15,955 13,306 12,301 9,534
Non-current assets classified held for sale 12 1,785 1,785 1,785 1,785
Current tax assets 205 635 208 621
Deferred tax assets 13 17,525 17,524 9,923 9,923
Prepayments and accrued income 14 27,763 18,473 10,319 7,077
Other assets 15 29,994 28,978 8,782 12,186
Total assets 4,982,983 4,661,905 1,221,893 1,353,064
EQUITY
Called up issued share capital 16 117,450 117,450 117,450 117,450
Share premium 16 13,464 13,464 13,464 13,464
Shareholders’ contributions 16 133,196 133,196 133,196 133,196
Reserve for general banking risks 16 - 3,798 - 3,226
Other reserves 16 716 224 3,340 2,959
Accumulated losses 16 (10,285 ) (25,538 ) (12,045) (25,377)
Total equity 254,541 242,594 255,405 244,918
LIABILITIES
Derivative financial instruments 5 25,464 5,306 816 -
Amounts owed to financial institutions 17 373,102 545,135 94,918 279,725
Amounts owed to customers 18 3,281,213 2,787,600 772,046 707,072
Debt securities in issue 19 910,848 969,569 - -
Subordinated liabilities 20 54,982 54,831 54,982 54,831
Current tax liabilities 980 48 - -
Deferred tax liabilities 13 342 358 - -
Provisions for liabilities and other charges 21 298 1,263 218 1,111
Accruals and deferred income 22 47,364 24,303 13,208 11,165
Other liabilities 23 33,849 30,898 30,300 54,242
Total liabilities 4,728,442 4,419,311 966,488 1,108,146
Total equity and liabilities 4,982,983 4,661,905 1,221,893 1,353,064
Memorandum items
Commitments to extend credit, guarantees and other
commitments
32-33 260,017 342,233 128,705 165,200
The notes on pages 48 to 246 are an integral part of these financial statements. The financial statements on pages 41 to 246 were approved and authorised for issue
by the Board of Directors on 27 March 2024. The financial statements were signed on behalf of the Board of Directors by Michael Bussey (Chair) and Arnaud Denis
(Chief Executive Officer) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.
43Annual Report and Financial Statements 2023
Statements of profit or loss
The notes on pages 48 to 246 are an integral part of these financial statements.
Group Bank
2023 2022 2023 2022
Notes €000 €000 €000 €000
Interest income 173,755 80,687 49,394 35,186
Interest expense (91,434 ) (22,949 ) (16,933) (10,720)
Net interest income 24 82,321 57,738 32,461 24,466
Fee and commission income 9,694 9,216 5,068 4,850
Fee and commission expense (4,593 ) (3,087 ) (3,078) (1,524)
Net fee and commission income 25 5,101 6,129 1,990 3,326
Net trading income 26 547 1,408 506 1,996
Net gain from financial instruments at fair value through
profit or loss
Share of results of subsidiary undertaking 9 - - 7,914 (5,592)
Other operating income
– Realised losses on disposal of other investments 26.1 (30 ) - (30) -
– Realised gains on disposal of loans and advances 82 4,579 82 4,601
– Other income 77 81 1,097 1,094
Total operating income 88,545 74,663 44,467 33,799
Personnel expenses 27 (24,291 ) (24,296 ) (11,591) (12,180)
Depreciation and amortisation 10-11 (5,572 ) (6,156 ) (4,580) (4,555)
Other administrative expenses 28 (43,382 ) (37,131 ) (15,840) (11,064)
Total operating expenses (73,245 ) (67,583 ) (32,011) (27,799)
Net operating profit before changes in expected credit losses 15,300 7,080 12,456 6,000
Change in expected credit losses and other credit impairment
charges
29 (945 ) 2,041 (1,561) 2,746
Profit before tax 14,355 9,121 10,895 8,746
Tax expense 30 (2,408 ) (460 ) (408) (275)
Profit for the year 11,947 8,661 10,487 8,471
- Attributable to equity holders of the parent
Group
2023 2022
Note € €
Earnings per share 31 0.10 0.07
44Annual Report and Financial Statements 2023
Statements of comprehensive income
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Profit for the year 11,947 8,661 10,487 8,471
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Fair valuation of financial investments measured at fair value through other
comprehensive income:
- Net change in fair value, before tax - (31,421 ) - (8,421)
- Reversal due to reclassification to amortised cost - 32,823 - 8,834
Income tax relating to these items - (393 ) - (118)
Share of other comprehensive income of subsidiary undertaking
Fair valuation of financial investments measured at fair value through other
comprehensive income:
- Net change in fair value - - - 672
Other comprehensive income, net of tax - 1,009 - 967
Total comprehensive income, net of tax 11,947 9,670 10,487 9,438
The notes on pages 48 to 246 are an integral part of these financial statements.
45Annual Report and Financial Statements 2023
Group
Share
capital
Share
premium
Shareholders'
contributions
Reserve for general
banking risks
Other
reserves
Accumulated
losses Total
€000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2022 117,450 13,464 133,196 3,798 (785 ) (34,199 ) 232,924
Total comprehensive income
Profit for the year - - - - - 8,661 8,661
Other comprehensive income, net of
tax:
Items that may be reclassified
subsequently to profit or loss
Fair valuation of financial investments
measured at fair value through other
comprehensive income:
- Net change in fair value arising during
the year, net of tax
- Reclassification adjustments - net
amounts reclassified to profit or loss,
net of tax
Total comprehensive income,
net of tax
Balance at 31 December 2022 117,450 13,464 133,196 3,798 224 (25,538 ) 242,594
Balance at 1 January 2023 117,450 13,464 133,196 3,798 224 (25,538 ) 242,594
Total comprehensive income
Profit for the year - - - - - 11,947 11,947
Total comprehensive income,
net of tax
Transfer to legal reserve (Note 16) - - - - 492 (492 ) -
Release of reserve (Note 16) - - - (3,798 ) - 3,798 -
Balance at 31 December 2023 117,450 13,464 133,196 - 716 (10,285 ) 254,541
Statements of changes in equity
The notes on pages 48 to 246 are an integral part of these financial statements.
46Annual Report and Financial Statements 2023
The notes on pages 48 to 246 are an integral part of these financial statements.
Bank
Share
capital
Share
premium
Shareholders'
contributions
Reserve for gener-
al banking risks
Other
reserves
Accumulated
losses Total
€000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2022 117,450 13,464 133,196 3,226 2,172 (34,028) 235,480
Total comprehensive income
Profit for the year - - - - - 8,471 8,471
Other comprehensive income, net of tax:
Items that may be reclassified
subsequently to profit or loss
Fair valuation of financial investments
measured at fair value through other
comprehensive income:
- Net change in fair value arising during
the year, net of tax
- - - - (5,474) - (5,474)
- Reclassification adjustments - net
amounts reclassified to profit or loss, net
of tax
- - - - 5,769 - 5,769
- - - - 295 - 295
Share of other comprehensive income of
subsidiary undertaking
- - - - 672 - 672
Total comprehensive income, net of tax - - - - 967 8,471 9,438
Realisation of previously recognised fair
value reserve upon merger of subsidiary
with Bank (Note 16)
- - - (180) 180 -
Balance at 31 December 2022 117,450 13,464 133,196 3,226 2,959 (25,377) 244,918
Balance at 1 January 2023 117,450 13,464 133,196 3,226 2,959 (25,377) 244,918
Total comprehensive income
Profit for the year - - - - - 10,487 10,487
Total comprehensive income, net of tax - - - - - 10,487 10,487
Realisation of previously recognised fair
value reserve upon merger of subsidiary
with Bank (Note 16)
- - - - (111) 111 -
Transfer to legal reserve (Note 16) - - - - 492 (492) -
Release of reserve (Note 16) - - - (3,226) - 3,226 -
Balance at 31 December 2023 117,450 13,464 133,196 - 3,340 (12,045) 255,405
47Annual Report and Financial Statements 2023
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Cash flows from operating activities
Interest and commission receipts 167,396 93,798 52,618 41,456
Interest and commission payments (63,296 ) (21,797 ) (16,812) (12,586)
Payments to employees and suppliers (68,660 ) (65,642 ) (26,336) (25,401)
Operating cash flows before changes in operating assets/liabilities 35,440 6,359 9,470 3,469
(Increase)/decrease in operating assets:
- Reserve deposit with central banks (1,804 ) (561 ) 155 (224)
- Loans and advances to financial institutions and customers (192,894 ) (621,510 ) 130,854 (25,525)
Increase/(decrease) in operating liabilities:
- Amounts owed to financial institutions and customers 401,388 (16,079 ) (27,118) 49,480
- Other payables 2,654 1,423 1,260 (3,833)
Tax (paid)/refunded (1,061 ) 258 5 316
Net cash from/(used in) operating activities 243,723 (630,110 ) 114,626 23,683
Cash flows from investing activities
Acquisition of property and equipment 10 (242 ) (1,455 ) (233) (880)
Acquisition and development of intangible assets 11 (6,257 ) (4,304 ) (5,597) (2,764)
Acquisition of investments measured at amortised cost 8 (231,750 ) (271,819 ) (63,900) (57,600)
Redemption of investments measured at amortised cost 8 183,606 35,000 82,237 10,000
Redemption of investments measured at fair value through other com-
prehensive income
8 - 240,653 - 20,000
Redemption of investments measured at fair value through profit and
loss
8 5,292 - 4,473 -
Net cash (used in)/from investing activities (49,351 ) (1,925 ) 16,980 (31,244)
Cash flows from financing activities
Issuance of debt securities 19 - 20 - 366,437 - -
Redemption of debt securities 19 (58,688 ) (55,161 ) - -
Principal element of lease payments 23 (1,177 ) (1,148 ) (1,514) (1,408)
Net advances from immediate parent company 2,796 66 2,795 67
Net advances to ultimate parent company (34 ) (37 ) (34) (37)
Net advances (to)/from other group companies (49 ) (107 ) (22,552) 13,573
Net cash (used in)/from financing activities (57,152 ) 310,050 (21,305) 12,195
Net increase/(decrease) in cash and cash equivalents 137,220 (321,985 ) 110,301 4,634
Cash and cash equivalents at beginning of year (163,328 ) 158,657 (27,633) (32,267)
Cash and cash equivalents at end of year 32 (26,108 ) (163,328 ) 82,668 (27,633)
The notes on pages 48 to 246 are an integral part of these financial statements.
Statements of cash flows
48Annual Report and Financial Statements 2023
Notes to the Financial Statements
49Annual Report and Financial Statements 2023
1. Summary of material accounting policy information
1.1 Reporting entity
porated in Malta with its registered address at The Centre, Tigne’ Point,Sliema, Malta, TPO 0001 . Since the last publi-
The consolidated financial statements of MeDirect Malta as at and forthe financial year ended 31 December 2023
comprise the financial statements of MeDirect Malta and its subsidiaries,together referred to as “the Group”. Therefore,
these financial statements report the consolidated financial results of MeDirect Malta forthe financial year ended 31
December2023,including the financial results of MeDirect Bank SA(“MeDirect Belgium”); Bastion 2020-1 NHG B.V.
(“Bastion 2020-1”), Bastion 2021-1 NHG B.V. (“Bastion 2021-1”) and Bastion 2022-1 NHG B.V. (“Bastion 2022-1”), three
controlled special purpose entities utilised as part of the Group’s funding strategy in respect of the Dutch Mortgage
business; Grand Harbour I B.V. (“GH I”), a controlled special purpose entity that used to be utilised as part of the Group’s
funding strategy in respect of the International Corporate Lending portfolio and is in the process of being liquidated;
MeDirect Tech Limited (“MeDirect Tech” - formerly Medifin Leasing Limited) that leases computerhardware and soft-
ware to MeDirect Malta and MeDirect Belgium; and Medifin Estates, a property leasing partnership.
MeDirect Belgium is a credit institution licensed in Belgium and is carrying out all of the Group’s activities in Belgium.
The principal customer-related activities of MeDirect Malta and MeDirect Belgium include an easy-to-use wealth plat-
form with access to fund houses and mutual funds,a suite of wealth products available through digital channels and
MeDirect Belgium invests in Dutch residential mortgages via an established third-party mortgage originator in the
Netherlands and in Belgian residential mortgage loan products in partnership with Allianz Benelux S.A/N.V.. This offering
is underpinned by a robust credit risk framework and will continue to diversify the asset base of MeDirect Belgium into
the residential mortgage sector. MeDirect Belgium also invests in Dutch buy-to-let mortgage business whereas MeDi-
rect Malta offers innovative and attractive home loan products in a client-oriented process.
MeDirect Malta continues to support the Maltese real economy through convenient banking services such as payment
services and foreign exchange and through lending to Maltese corporates on projects and to small and medium-sized
enterprises through fully collateralised lending facilities.
Following the Group’s diversification strategy, both MeDirect Malta and MeDirect Belgium still hold a modest portfolio
of senior secured loans and revolving credit facilities to finance the business of European corporates.
The Group has retained substantially all risks and rewards pertaining to theactivities of GH I, Bastion 2020-1, Bastion
2021-1 and Bastion 2022-1 and hence to assets,liabilities and related income and expenditure attributable to these
entities,and as such, all assets,liabilities and related income and expenditure have been reflected within the Group’s
consolidated financial statements.
MeDirect Belgium, in line with article 6 of the Securitisation Regulation (EU) No 2017/2402 of the European Parliament
and of the Council of 12 December2017, undertook to retain,on an ongoing basis,a material net economic interest in
the Bastion securitisation transactions.This implies that the Group retains substantially all risks and rewards pertaining
50Annual Report and Financial Statements 2023
to the activities of these securitisation structures and hence to the assets,liabilities and related income and expenditure
attributable to the structures and as such, all assets, liabilities and related income and expenditure of the securitisation
special purpose entities are reflected in the Group’s financial statements.Medifin Estates, a property leasing partner-
ship, was set up to lease property which is then leased back to the Group.
MeDirect Tech owns the key rights and licences, including software solutions that are utilised by both MeDirect Malta
and MeDirect Belgium. It leases out amongst other equipment, software and motor vehicles and provides related sup-
port services to the other Group entities.
1.2 Basis of preparation
The Bank’s consolidated financial statements have been prepared in accordance with the requirements of International
Financial Reporting Standards as adopted by the European Union.
These financial statements havealso been drawn up in accordance with the provisions of the Maltese Banking Act
(Cap. 371) and the Maltese Companies Act (Cap. 386).
These financial statements have been prepared on the basis of the historical cost convention, except for:
• • financial investments measured at fair value through profit or loss;financial investments measured at fair value through profit or loss;
• • derivative financial instruments which are measured at fair value;derivative financial instruments which are measured at fair value;
• • recognised financial assets designated as hedged items in qualifying fair value hedge relationships which are recognised financial assets designated as hedged items in qualifying fair value hedge relationships which are
measured at amortised cost adjusted for changes in fair value attributable to the risk being hedged; andmeasured at amortised cost adjusted for changes in fair value attributable to the risk being hedged; and
• • investment in subsidiary in the Bank’s separate financial statements that are measured using the equity investment in subsidiary in the Bank’s separate financial statements that are measured using the equity
method.method.
The principal accounting policies adopted in the preparation of these financial statements are set out below.Unless
otherwise stated, these policies have been consistently applied to all the years presented.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain
accounting estimates.It also requires the Directors to exercise theirjudgment in the process of applying the Group’s
accounting policies (see Note 3.1 – Critical accounting estimates and judgments in applying the Group’s accounting
policies).
Standards, interpretations and amendments to published standards effective in 2023
During the financial yearended 31 December 2023,the Group adopted the following amendments to existing stand-
ards but the adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in significant
changes to the Group’s accounting policies impacting the Group’s financial performance and position.
• • IFRS 17 Insurance Contracts;IFRS 17 Insurance Contracts;
• • Definition of Accounting Estimates – Amendments to IAS 8;Definition of Accounting Estimates – Amendments to IAS 8;
• • Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2;Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2;
• • Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12; andDeferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12; and
• • International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expect-
ed tosignificantly affect the current or future periods. The Group has not early adopted any standards, interpretations
or amendments that have been issued but are not yet effective.
The Group adopted Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 from
51Annual Report and Financial Statements 2023
Although the amendments did not result in any changes to the accounting policies themselves, they impacted the ac-
counting policy information disclosed within this note to the financial statements.
Standards, interpretations and amendments to published standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the dateof issuance of
the Group’s financial statements are disclosed below.The Group intends to adopt these standards and interpretations,
if applicable,when they become effective.These standards and interpretations are not expected to have a material
impact on the Group in the current or future reporting periods and on foreseeable future transactions.
• • Amendments to IFRS 16: Lease Liability in a Sale and Leaseback, effective 1 January 2024; Amendments to IFRS 16: Lease Liability in a Sale and Leaseback, effective 1 January 2024;
• • Amendments to IAS 1: Classification of Liabilities as Current or Non-current, effective 1 January 2024; Amendments to IAS 1: Classification of Liabilities as Current or Non-current, effective 1 January 2024;
• • Amendments to IAS 21: Lack of exchangeability, effective 1 January 2025; andAmendments to IAS 21: Lack of exchangeability, effective 1 January 2025; and
• Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7, effective 1 January 2024.
Appropriateness of going concern assumption in the preparation of the financial statements
The Group remains well positioned to achieve business growth through diversification, and is adequately capitalised,
soundly funded and has access to the required levels of liquidity.
The Group’s business, profitability projections,funding and capital plans, together with a range of other factors such
as the economic outlook along with ongoing developments in EU economies indicatethat the Group will have suffi-
cient capital to meet not only the regulatory capital requirements but also any internal risk buffers and any buffers
recommended by the regulators throughout the forthcoming financial period.The projections confirmed that the Group
will have an adequate level of funding and liquidity that will allow the relevant minimum regulatory requirements to be
comfortably satisfied.
The financial statements are therefore prepared on a going concern basis, as the Directors are satisfied that the Group
has the resources to continue in business forthe foreseeable future,and that accordingly no material uncertainty exists
that may cast significant doubt about the Group’s ability to continue as a going concern and that may require disclosure
in terms of IAS 1. In making this assessment, the Directors have considered a wide range of information relating to pres-
ent and future conditions, including future projections of profitability, cash flows and the capital resources of the Group.
1.3 Consolidation
Subsidiaries are all entities over which the Group has control. The Group controls an entity where the group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its powerto direct the activities of the entity. The existence and effect of potential voting rights that are cur-
rently exercisable or convertible are considered when assessing whetherthe Group controls anotherentity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group.They are deconsolidated from the date
that control ceases.
Consistent accounting policies are applied throughout the Group for the purposes of consolidation.
Accounting for business combinations between entities under common control
Business combinations between entities undercommon control,which do not fall within the scope of IFRS 3, are ac-
counted for using the predecessormethod of accounting.Under the predecessormethod of accounting,assets and
liabilities are incorporated at the predecessorcarrying values,which are the carrying amounts of assets and liabilities
52Annual Report and Financial Statements 2023
No new goodwill arises in predecessor accounting, and any difference between the consideration given and the aggre-
gate bookvalue of the assets and liabilities (as of the date of transaction) of the acquired entity, is included in equity
in retained earnings. The financial statements incorporate the acquired entity’s results only from the date on which the
business combination between entities under common control occurred and reflect the acquirees assets and liabilities
as from that date.
Accounting for investments in subsidiaries in the parent company’s stand-alone financial statements
1.4 Foreign currency transactions and balances
a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the pri-
mary economic environment in which the entity operates (the functional currency). The functional currency of all Group
entities is the euro.The financial statements are presented in euro, which is also the Group’s presentation currency.
b) Transactions and balances
Foreign currency transactions are translated intothe functional currency using the exchange rates prevailing at the
dates of the transactions or valuation whereitems are remeasured. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabil-
ities denominated in foreign currencies are recognised in profit or loss.
1.5 Financial assets
Initial recognition and derecognition
The Group recognises a financial asset in its statement of financial position when it becomes a party to the contractual
provisions of the instrument.
The Group initially recognises loans and advances to customers at the date of transfer of beneficial ownership or when
cash is advanced to borrowers.Investments and transactions in all other financial instruments consisting of regular way
purchases and sales are recognised on settlement date.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have
been transferred and the Group has transferred substantially all risks and rewards of ownership or the Group has not
retained control of the asset.
When assets are sold to a third party with a concurrent total return swap on the transferred assets, the transaction is
accounted for as a secured financing transaction, retaining the asset on the statement of financial position because the
Group retains all or substantially all the risks and rewards of ownership of such assets.
Similarly,when assets are sold to a structure through which the Group is deemed to have retained all, or substantially
all, risks and rewards, the transferred assets are not derecognised.
In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of
a financial asset and it retains control over the asset,the Group continues torecognise the asset to the extent of its
continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.
In certain transactions the Group retains the obligation to service the transferred financial asset for a fee.The trans-
ferred asset is derecognised if it meets the derecognition criteria.An asset or liability is recognised forthe servicing
53Annual Report and Financial Statements 2023
contract if the servicing fee is more than adequate (asset) or is less than adequate (liability) for the performance of the
servicing.
Modification of terms
If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one
due to financial difficulties of the borrower, then an assessment is made of whetherthe financial asset should be derec-
ognised. If the cash flows of the renegotiated asset are substantially different, then the contractual rights to cash flows
from the original financial asset are deemed tohave expired.In this case,the original financial asset is derecognised,
and the new financial asset is recognised at fair value.
When a loan is restructured as part of forbearancestrategy and the restructuring results in derecognition of the existing
loan, the new loan is disclosed as forborne.
The accounting treatment in respect of the modification of terms of financial assets, including considerations made
to determine whetherthe terms of the renegotiated asset are substantially different,is described in more detail in the
‘Modified financial assets’ sub-section.
Classification and measurement
The classification and measurement criteria under IFRS 9 are driven by the entity’s business model formanaging the
financial instruments and the contractual cash flow characteristics of the financial instruments.
In line with the provisions of IFRS 9, the Group classifies and measures all financial assets under any one of the follow-
ing three categories:
• • Amortised cost;Amortised cost;
• • Fair value through other comprehensive income (FVOCI); orFair value through other comprehensive income (FVOCI); or
• • Fair value through profit or loss (FVTPL). Fair value through profit or loss (FVTPL).
The Group determines the classification and measurement basis for financial assets based on an assessment of both The Group determines the classification and measurement basis for financial assets based on an assessment of both
the business model within which the financial assets are held and a review of the contractual terms of each financial the business model within which the financial assets are held and a review of the contractual terms of each financial
asset to determine if cash flows are solely payments of principal and interest (SPPI).asset to determine if cash flows are solely payments of principal and interest (SPPI).
In this regard, subsequent to initial recognition, financial instruments are measured at:
(i) amortised cost if the financial asset is held within a business model whose objective is to hold financial assets in
orderto collect contractual cash flows (‘Hold to Collect’) and the contractual terms of the financial asset give rise to
cash flows that are SPPI;
(ii) FVOCI if the financial asset is held within a business model whose objective is achieved by both holding financial
assets in order to collect contractual cash flows and selling financial assets (‘Hold to Collect and Sell’) and the contrac-
tual terms of the financial asset give rise to cash flows that are SPPI; or
(iii) FVTPL if the financial asset does not pass the business model assessment referred to above and SPPI criteria.
In performing the SPPI assessment, the Group considers the following contractual terms todetermine whether these
introduce variability in contractual cash flows that is inconsistent with a basic lending arrangement, amongst others:
(i) variable interest rates, which typically consider the time value of money, credit risk and other basic lending risks and
costs;
(ii) leverage,which is a contractual cash flow characteristic that results in increased variability in contractual cash flows;
(iii) modifications of the time value of money; and
(iv) contractual features that could alterthe timing or amount of contractual cash flows of a financial asset,such as
contingent events, prepayment and extension options.
54Annual Report and Financial Statements 2023
The Group has identified seven separate portfolios which require separate business model assessments due to the
fact that these are managed separately and by different business units / management teams, namely (i) the Interna-
tional Corporate Lending portfolio; (ii) the Dutch Mortgage portfolio (including the buy-to-let mortgages portfolio); (iii)
the Belgian Mortgage portfolio; (iv) the Maltese Business Lending portfolio; (v) the Maltese Mortgage portfolio; (vi) the
Securities Investment portfolio; and (vii) the Securitisation Investment portfolio.
Financial assets measured at amortised cost
Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on
specified dates to cash flows that are solely payments of principal and interest are measured at amortised cost.These
financial assets are initially measured at fair value,which is generally the cash consideration to originate or purchase the
asset including any direct and incremental transaction costs, upon recognition. The Group’s financial assets measured
at amortised cost comprise primarily loans and advances to banks,loans and advances to customers, comprising the
International Corporate Lending portfolio,the Dutch Mortgage portfolio,the Belgian Mortgage portfolio,the Maltese
Business Lending portfolio and the Maltese Mortgage portfolio, and a portfolio of debt securities classified under the
Securities and Securitisation Investment portfolio.
In addition, financial assets measured at amortised cost comprise the Group’s investments in the Grand Harbour CLO
2019-1 Designated Activity Company (“GH1-2019”) structured note tranches,with the exception of the equity tranche
which is measured at fair value through profit or loss (“FVTPL”). Both investments are classified underthe Securitisation
Investment portfolio.
Financial assets measured at fair value through other comprehensive income
Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and
which contain contractual terms that give rise on specified dates to cash flows that are solely payments of principal
and interest are measured at fairvalue through other comprehensive income (“FVOCI”).On 1 July 2022,as a result of
the change in the business model those investments classified within this category were reclassified into the amortised
cost measurement category.
Financial instruments designated at fair value through profit or loss
Financial instruments, otherthan those held fortrading,are classified in this category. As at 31 December2023,the
Group also held equity instruments acquired as part of debt restructuring arrangements entered into with borrowers
experiencing financial difficulties classified within the International Corporate Lending portfolio.
Impairment of amortised cost and FVOCI financial assets
IFRS 9 requires the measurement of credit loss allowances on financial instruments using the expected credit loss
(“ECL”) impairment model using a forward-looking approach that emphasises shifts in the credit risk attached to a
financial instrument, and consequently the probability of future credit losses, even if no loss events have yet occurred.
Since movements in the fair value of financial instruments measured at FVTPL are recognised directly in profit or loss,
no credit loss allowances are deemed necessary for these financial instruments.
In contrast, financial assets measured at amortised cost or FVOCI, with the exception of equity instruments measured
at FVOCI,are subject to impairment requirements using the general impairment model stipulated by IFRS 9.This is
due to the fact that, since an integral aspect of both business models is to collect contractual cash flows, the effects of
changes in credit risk are more relevant to a user’s understanding than the effects of other changes, such as changes
in market interest rates.
IFRS 9 impairment requirements are also applicableto loan commitments that are not measured at FVTPL (if the terms
and conditions of the arrangement give rise to an enforceable contract to extend credit), financial guarantee contracts
55Annual Report and Financial Statements 2023
and recognised lease receivables to which IFRS 16 Leases applies. None of these are within the scope of IFRS 9 but
are still subject to impairment requirements in accordance with IFRS 9.
Expected credit losses may be recognised forloans and advances to banks and customers,other financial assets
measured at amortised cost, debt instruments measured at amortised cost and at FVOCI,and certain loan commit-
ments and financial guarantee contracts.The Group may commit to underwrite loans on fixed contractual terms for
specified periods of time. When the Group intends to hold the loan, the loan commitment is included in the impairment
calculations set out below.
Three stage expected credit loss approach
IFRS 9 outlines a ‘three-stage’ model forimpairment based on changes in credit quality since initial recognition.The
key driver of the measurement of ECLs therefore relates to the level of credit risk for each exposure and, as a result, an
assessment of the change in credit risk over the expected life of an asset is a core element in determining the staging
criteria under IFRS 9. The three stages under IFRS 9 are as follows:
• • Stage 1 - Financial instruments that have not had a significant increase in credit risk (SICR) since initial recog-Stage 1 - Financial instruments that have not had a significant increase in credit risk (SICR) since initial recog-
nition, or that have “low credit risk” at the reporting date are classified in Stage 1. 12-month ECLs are recorded nition, or that have “low credit risk” at the reporting date are classified in Stage 1. 12-month ECLs are recorded
to measure the expected losses that result from default events that are possible within 12 months after the to measure the expected losses that result from default events that are possible within 12 months after the
reporting date;reporting date;
• • Stage 2 - Financial instruments that have experienced a SICR since initial recognition are classified in Stage 2. Stage 2 - Financial instruments that have experienced a SICR since initial recognition are classified in Stage 2.
Lifetime ECLs are recorded to measure the expected losses that result from all possible default events over the Lifetime ECLs are recorded to measure the expected losses that result from all possible default events over the
expected life of the financial instrument; andexpected life of the financial instrument; and
• • Stage 3 - Financial instruments that demonstrate objective evidence of impairment, and which are considered Stage 3 - Financial instruments that demonstrate objective evidence of impairment, and which are considered
to be in default or credit-impaired, are classified in Stage 3, also requiring the measurement of lifetime ECLs.to be in default or credit-impaired, are classified in Stage 3, also requiring the measurement of lifetime ECLs.
Non credit-impaired and without significant increase in credit risk (Stage 1)
ECL resulting from default events that are possible within the next 12 months (12-month ECL) are recognised for finan-
cial instruments that remain in Stage 1.
Financial instruments are all classified within Stage1 upon initial recognition, unless a financial instrument is purchased
or originated credit-impaired (POCI) in which case the exposure is classified as POCI upon initial recognition and will re-
main classified as such until derecognition. Therefore, the Group calculates a credit loss allowance based on 12-month
ECL. Subsequent changes in credit risk will be reflected in the staging of the exposure, with a transfer of the exposure
to Stage 2 or 3 conditional upon the identification of a SICR or impairment respectively.
The provisions of IFRS 9 include a practical expedient to measure credit loss allowances using 12-month ECL for fi-
nancial instruments having low credit risk as at the reporting date.In practical terms, this means that, in those cases
where a financial instrument is deemed to have low credit risk, management is not required to perform an assessment
to determine whethera SICR has occurred. TheGroup considers “low credit risk” to exist in case of selected financial
instruments, for example listed bonds with an investment-grade credit rating by at least one major rating agency.
For all Stage 1 and 2 financial assets, interest income is recognised by applying the effective interest rate to the gross
carrying amount, prior to deduction of credit loss allowances.
Significant increase in credit risk (SICR) or Stage 2
The concept of default risk is central to IFRS 9. Therefore, a key risk parameter used by the Group in its credit risk man-
agement activities is the probability that the obligor defaults, either within the next 12-month period (in case of Stage 1
56Annual Report and Financial Statements 2023
An assessment of whethercredit risk has increased significantly since initial recognition is performed at least at each
reporting date by considering the change in the riskof default occurring over the remaining lifeof the financial instru-
ment.The assessment explicitly or implicitly compares the riskof default occurring at the reporting date compared with
that at initial recognition,taking into account reasonable and supportable information,including information about past
events, current conditions and future economic conditions.
To assess a SICR event,the Group considers both actual and forward-looking information relating to external market
indicators,internal factors and borrower-specific information. The assessment is unbiased and to the extent relevant,
uses forward-looking information consistent with that used in the measurement of ECL. The analysis of credit risk is
based on multiple factors, and their relevance is driven by product type, characteristics of the financial instrument and
the obligor. Therefore,it is not possible to provide a single set of criteria that will determine what is considered to be a
significant increase in credit risk, and these criteria will differ for different types of lending. The internal credit risk man-
agement framework comprises the use of both qualitative and quantitative SICR triggers.
The Group’s credit risk rating processes are designed to highlight exposures which require closer management atten-
tion because of their greater probability of default and potential loss.
In this respect, the Group adopts a five-point credit quality classification system in order to rate the credit quality of its
key financial assets. Further detail on internal credit risk management is outlined in Section 2 (Financial Risk Manage-
ment,Credit Risk). Typically, an internal risk grade is assigned to each obligorby the business which is then reviewed
by both the Credit Risk Team, and the Management Credit Committee responsible forthe oversight of the Group’s
respective portfolios. The following are the internal risk grades:
• • Regular - No material credit concerns.Regular - No material credit concerns.
• • Focus - No immediate prospect that a credit loss will ultimately be suffered, but worthy of closer credit oversight.Focus - No immediate prospect that a credit loss will ultimately be suffered, but worthy of closer credit oversight.
• • Under Surveillance - Significant increase in credit risk with identified concerns and some prospect that a credit Under Surveillance - Significant increase in credit risk with identified concerns and some prospect that a credit
loss may ultimately be suffered.loss may ultimately be suffered.
• • Doubtful - Likely that the contractual terms of the debt will not be met and that a credit loss will be suffered Doubtful - Likely that the contractual terms of the debt will not be met and that a credit loss will be suffered
(Impaired).(Impaired).
• • Write-off - Full or partial write-down of exposures with little prospect of recovery.Write-off - Full or partial write-down of exposures with little prospect of recovery.
An overview of the Group’s qualitative SICR assessment is provided below. However, the quantitative assessment
performed by the Group toidentify a SICR varies across each of the Group’s portfolios of financial instruments and is
disclosed in the relevant sub-sections below.
It is possible formultiple instruments to the same customerto be classified under different stages. This may occur
when the Group holds exposures originated at differing points in time thereby potentially giving rise to differing default
risk at initial recognition, causing a variation in the relative increase in credit risk since origination between the different
instruments.
Other than forthe ‘days past due’ trigger,the Group does not expect to observe a single qualitative SICR trigger to
signal a SICR event in normal circumstances,unless where the event is material.Therefore, the Group has defined
likely SICR triggers that are deemed most relevant in the Group Credit Risk policy. However, triggers are not treated as
exhaustive and are subject to robust credit risk management assessments. Qualitative SICR triggerassessments are
undertaken at least quarterly for each instrument and any identified SICR trigger events are presented to the appropri-
ate Management Credit Committee.
• • International Corporate Lending portfolio:International Corporate Lending portfolio:
Financial instruments within the Group’s International Corporate Lending portfolio are managed on an individual
57Annual Report and Financial Statements 2023
basis for credit purposes,whereby the Group’s credit analysts have access to the obligors and their financial
information,the latter comprising both historical and forecasted financial information.The SICR assessment for
the International Corporate Lending portfolio comprises the following:
• Use of qualitative SICR triggers, including the following qualitative triggers which are taken into consideration
by the Group in the quarterly SICR trigger assessments:
Qualitative SICR themes
Evidence of past due information
Significant change in the operating performance of the borrower
Significant change in the viability of the borrowers business model
Quality and timeliness of reporting
Project delays or overruns
Significant adverse macroeconomic or market conditions
Significant increase in refinancing risk
Pricing of debt and equity (relative to market)
Forbearance
Bankruptcy, acceleration, legal enforcement and insolvency
Sponsor support
Troubled debt restructuring
Covenant waivers or forecast breach of covenant
Adherence to internal shadow financial covenants
SICR observed on related financial instruments
• • Use of quantitative SICR assessment based on a ratings-based approach using lifetime ‘Point in Time’ (PiT) Use of quantitative SICR assessment based on a ratings-based approach using lifetime ‘Point in Time’ (PiT)
Probabilities of Default (PDs) (i.e. PD in current economic conditions)Probabilities of Default (PDs) (i.e. PD in current economic conditions)
• • Hard trigger (Internal credit classification) - financial asset that has a credit quality classification of “Under sur-Hard trigger (Internal credit classification) - financial asset that has a credit quality classification of “Under sur-
veillance” is Stage 2, classification of “Impaired” is Stage 3veillance” is Stage 2, classification of “Impaired” is Stage 3
Forthe purposes of the quantitative SICR assessment, the Group has adopted a ratings-based approach (i.e. based on
notch deterioration) for its SICR assessment.
Due to the lack of sufficient internal history of defaults,the Group uses a credit risk modelling solution developed by an
external vendor to estimate unconditional PiT PDs by: (i) benchmarking the obligor’s financial statements with those of
the underlying model dataset; and (ii) applying a qualitative scorecard to adjust the quantitative unconditional PiT PDs
to better reflect obligor-specific peculiarities.
Aforward-looking, probability weighted PiT PD estimated by the model is mapped to an implied default rating, which
adopts Moody’s public ratings agency scale terminology from C up to Aaa.When performing the SICR assessment,
the Group compares the implied rating at origination to the implied rating at the reporting dateand determines the
difference in notches between them. TheGroup’s staging criteria is therefore deemed tobe based on a ratings/notch
deterioration approach.
The quantitative SICR staging decision uses both a relative and an absolute threshold approach.The relative threshold
approach involves calculating the magnitude of the difference between the reporting date rating and the origination
date rating based on the deterioration in the numberof notches between the two ratings.The appropriate stage is
determined based on the magnitude of this difference. The absolute threshold determines the stage based on the re-
porting date rating of the instrument. The following table presents the relative and absolute thresholds applied by the
58Annual Report and Financial Statements 2023
Although the Group has adopted a ratings-based approach (i.e. based on notch deterioration) for its SICR assessment,
each implied rating is represented by an underlying PD.
Lifetime PDs are determined by estimating the marginal PD for each yearover the life of the financial instrument. For
example, for a five-year loan, PDs are calculated for each of the five years.The year-1 PD is calculated as the probability
of the loan defaulting within the first yearof it being issued, whereas the year-2 PD is calculated as the probability of the
loan surviving the first yearbut defaulting in the second year. The same principle of survival applies to the PDs for the
remaining years. The summation of marginal PDs results in the derivation of the cumulative lifetime PD term structure.
Cumulative lifetime PDs increase at a diminishing rate as the residual life of the loan shortens.
“Unconditional”PDs refer to the PD term structure based on historical information and prior to the application of for-
ward-looking macroeconomic scenarios. Multiple forward-looking macroeconomic scenarios are applied to the uncon-
ditional PiT PD term structure in order to estimate a forward-looking probability-weighted “conditional” PiTPD at an
Implied rating Relative threshold (SICR Deterioration Trigger) Absolute threshold (SICR Trigger Floor)
Aaa -10 notches -
Aa1 -8 notches -
Aa2 -7 notches -
Aa3 -6 notches -
A1 -5 notches -
A2 -5 notches -
A3 -5 notches -
Baa1 -5 notches -
Baa2 -5 notches -
Baa3 -4 notches -
Ba1 -4 notches -
Ba2 -4 notches -
Ba3 -4 notches -
B1 -3 notches -
B2 -3 notches -
B3 -2 notches -
Caa1 -1 notches -
Caa2 -0 notches Stage 2 SICR Trigger Floor
Caa3 -0 notches Stage 2 SICR Trigger Floor
Ca -0 notches Stage 2 SICR Trigger Floor
C -0 notches Stage 3 SICR Trigger Floor
59Annual Report and Financial Statements 2023
PDs are determined upon origination date and at each subsequent reporting date at an obligor level ratherthan at a
facility level. Therefore, at any given date, multiple facilities attributable to the same obligor are assigned the same PD,
reflecting the borrower’s financial condition as at the date of the assessment. In this regard, different facilities with the
same obligor originated at the same time are expected to have an identical PD both at origination date as well as sub-
sequent reporting dates. However, facilities with the same obligor originated at different time intervals can have different
PDs upon origination,reflecting the borrower’s financial condition and credit risk at each respective origination date,
whereas identical PDs are determined at each subsequent reporting date in respect of all such facilities.
In this regard, a simple or absolute comparison of PDs at initial recognition and at the reporting date is not appropriate
to determine the stage of an exposure. All otherthings kept constant,the PD of a financial instrument is expected to
reduce with the passage of time. Thus, in order to take this into consideration, the Group estimates the annualised PD
over the remaining life of the financial asset as at the origination date and the annualised PD over the remaining life of
the financial asset as at the reporting date.The annualised PD measure is the cumulative PD for a given period, stated
on a per-year basis.These are then mapped to implied ratings which are used to determine potential SICR events and
consequently the credit stage of a financial instrument through a combination of relative and absolute thresholds using
the implied credit ratings.
Hard Trigger based on Internal Risk Classifications
The quantitative assessment through the Group’s implied credit rating staging criteria is considered alongside qualita-
tive SICR triggers and forms part of the overall SICR trigger assessment.In this regard, when qualitative SICR triggers
are observed by credit analysts, the Group applies a hard trigger based on the internal credit classification (Stage 2 for
all borrowers classified as “Under surveillance”, and Stage 3 for all borrowers classified as “Doubtful”).
Dutch Mortgage portfolio
In respect of the Dutch national-guaranteed residential mortgage assets (forwhich losses are capped at 10% of expect-
ed losses through the ‘Nationale Hypotheek Garantie’ or NHG) classified within the Group’s Dutch Mortgage portfolio,
the primary determinant of SICR is a quantitative rule based on the change in PD between origination and reporting
date,and based on absolute PD thresholds.SICR is determined at “loan part”level – i.e. each facility (even wherethe
source of repayment is the same) is assessed for SICR.
The quantitative SICR trigger compares residual lifetime PD at reporting date versus residual lifetime PD at origination.
To identify whether an account experienced a SICR since initial recognition, a lifetime PD threshold is used.
In this respect, the following SICR triggers and backstops are applied and would result in a shift of these exposures to
Stage 2:
• • Change in Probability of Default: lifetime PD of the exposure on the reporting date exceeds its lifetime PD at Change in Probability of Default: lifetime PD of the exposure on the reporting date exceeds its lifetime PD at
initial recognition by more than 200%; orinitial recognition by more than 200%; or
• • Absolute level: 12-month PD of the exposure on the reporting date exceeds 20%.Absolute level: 12-month PD of the exposure on the reporting date exceeds 20%.
The following are also deemed to give rise to SICR:
1. Forbearance events where exposures are not 30 days past due (“DPD”);
2. Where payments in respect of the exposure are 30 DPD or more.
Quantitative SICR triggers are not applied to mortgages / loan parts with a PD of 0.03% or below at reporting date.
Such exposures are deemed to qualify for the low credit risk exemption (Stage 1 without further staging assessment)
in IFRS 9.The appropriateness of the application of this exemption is periodically tested forportfolios on which it is
60Annual Report and Financial Statements 2023
Belgian Mortgage portfolio
Staging forthe Belgian Retail Residential Mortgages portfolio is similar as forDutch Mortgages where primary deter-
minants of SICR are delinquency, forbearance, and other quantitative rules relating to the relative and absolute change
in PD.
Maltese Business Lending portfolio
ForMalteseBusiness Lending assets, the Group is unable to use external credit ratings as all exposures are unrated,
nor rely on risk-modelling forquantifying credit risk foreach asset,as no robust database exists forthe asset class.
The Group therefore uses the evidence of past-due information as the primary driverof SICR triggers alongside other
qualitative SICR metrics.
Payments in respect of exposures within this portfolio that are more than 30-days past due are considered as evidenc-
ing a SICR trigger.
Similarto the approach taken forthe International Corporate Lending portfolio,the otheridentifierof SICR within the
Maltese Business Lending portfolio is the review by respective relationship managers which takes into consideration
qualitative SICR triggers such as a deteriorating risk classification with otherbanks (through the Central Credit Reg-
ister), requests for concessions and other financially related triggers as described previously in respect of the Interna-
tional Corporate Lending portfolio.
Exposures within the Maltese Business Lending portfolio are therefore managed at an individual exposure level for
credit purposes,through relationship managers who have access to the customers and their financial information on
a regularbasis. Such qualitative SICR trigger assessments are undertaken at least quarterly and any identified SICR
trigger events are presented to the appropriate Management Credit Committee. These SICR assessments could lead
to changes in the internal risk grade assigned to each borrower.
Although assigned at an obligor level rather than at facility level,internal risk grades can still be used to assess and
identify SICR since initial recognition. In this regard,the Group’s internal risk grades are aligned to the three stages
contemplated by IFRS 9.
Financial instruments that:
(i) havenot deteriorated significantly in credit quality since initial recognition must be recognised as either “1-Regular”
or “2-Focus” within the Group’s internal risk grading system;
(ii) incurred a SICR are classified as “3-Under Surveillance”, in which case the Group recognises lifetime ECLs; and
(iii) demonstrate objective evidence of default are classified as “4-Doubtful” and assessed individually forprovisioning
purposes.
Maltese Mortgage portfolio
Staging forthe Maltese Retail Residential Mortgages portfolio is similar as forDutch Mortgages where primary deter-
minants of SICR are Delinquency, Forbearance, and other quantitative rules relating to the relative and absolute change
in PD.
Securities Investment portfolio
In order to monitor SICR in relation to its Securities Investment portfolio, the Group refers to external credit ratings from
at least one of the following rating agencies: Moody’s, Fitch or Standard & Poor’s. In this regard, an exposure is deemed
61Annual Report and Financial Statements 2023
Should the credit rating of a financial instrument fall below the investment-grade threshold, i.e. BBB (or equivalent) the
financial instrument is deemed to have suffered a SICR. As a result,the financial instrument will be re-classified as a
Stage 2 exposure, which will impact the measurement of the ECL charges, moving from a 12-month ECL calculation to
a lifetime ECL calculation.
Securitisation Investment portfolio
Investment in tranches within a Collateralised Loan Obligation Structured Entity (“CLO SE”) originated and managed
by the Group: The Group assesses the staging of the tranche rather than the facilities within the underlying portfolio
of financial assets. The Group determines an Implied Rating (as a proxy measure of credit risk) for each tranche at dif-
ferent points in time.Expected losses and average life are used to assign an Implied Rating to each tranche based on
an external vendor’s methodology and observed defaults in the industry sectors of the underlying assets. The Implied
Rating at reporting date is benchmarked to the Implied Rating at origination date of the tranche in orderto determine
whether a SICR has occurred since initial recognition.
In line with the Group’s approach for the identification of SICR events and the determination of staging for the Interna-
tional Corporate Lending and Securities Investment portfolios, a quantitative ratings-based approach is utilised in order
to assess the movement in credit risk since initial recognition of the Group’s investment in the tranches of the CLO.
In respect of tranches of CLOs to which an investment-grade Implied Rating is assigned, the Group makes use of the
low credit risk exemption. As a result,the Group assumes that no SICR has occurred since initial recognition as long
as the tranche retains an investment-grade Implied Rating. Hence, the Group assumes that the credit risk attributable
to tranches to which the low credit risk exemption is applied has not increased significantly since initial recognition,
and therefore does not perform a SICR assessment for such tranches unless theirImplied Rating falls to sub-invest-
ment-grade.
Investment in tranches within a publicly rated CLO SE originated and managed by a third party, with a public in-
vestment-grade rating assigned by reputable agency: Similar to the Securities Investment portfolio criteria, invest-
ment-grade rating is an example of a financial instrument that may be considered as having low credit risk. Therefore,
the Group measures 12-month ECL for publicly rated investment-grade tranches of CLOs.
Credit impaired (Stage 3)
The Group defines a financial asset as credit-impaired when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
IFRS 9 introduces a rebuttable presumption that default does not occur later than when a contractual repayment relat-
ing to a financial asset is 90 days past due, unless reasonable and supportable information is available to demonstrate
that a more lagging criterion is more appropriate. This presumption has not been rebutted by the Group for its lending
portfolios, meaning that default is deemed not to have occurred later than when a financial asset is 90 days past due.
Although this presumption is applicable to all lending portfolios managed by the Group,it is much more relevant for
identifying defaulted exposures within the Maltese Business Lending portfolio and the Dutch, Belgian and Maltese
Mortgage portfolios.
The definition of default is addressed in more detail by guidelines issued by the European Banking Authority (EBA)
and the Basel Committee on Banking Supervision (BCBS). These guidelines provide detailed definitions of what should
be considered in the determination of defaulted exposures for regulatory purposes. As a result, the Group aligned the
IFRS 9 definition of default, used for accounting purposes, to the definitions provided in the EBA and BCBS guidelines,
thereby ensuring that a single consistent view of credit risk is applied forinternal risk management, regulatory capital
62Annual Report and Financial Statements 2023
In this regard, defaulted exposures are those that satisfy either or both of the following criteria:
(i) material exposures which are past due by more than 90 days;
(ii) the debtoris assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the
existence of any past-due amount or of the number of days past due.
Therefore, since the criteria forcredit-impaired under IFRS 9 can be interpreted consistently with the definition of
default for regulatory purposes, all defaults in terms of regulation are deemed to be credit-impaired,and vice versa.
Defaulted exposures are therefore classified under Stage 3 for IFRS 9 purposes.
In order to define which events trigger “unlikeliness to pay”, the Group takes into account the situations and events
listed in the Capital Requirements Regulation (“CRR”) definition of default and in the IFRS definition of impairment re-
quirements.
IFRS 9 provides a list of events that may indicatethat a financial asset is credit-impaired. The criteria that the Group
uses to determine that there is objective evidence of an impairment loss include:
• • Significant financial difficulty of the issuer or borrower;Significant financial difficulty of the issuer or borrower;
• • A breach of contract, such as default or past due event; A breach of contract, such as default or past due event;
• • The lender(s) of the borrower having granted a concession(s) to the borrower for economic or contractual rea-The lender(s) of the borrower having granted a concession(s) to the borrower for economic or contractual rea-
sons relating to the borrower’s financial difficulty (this would not have otherwise been considered);sons relating to the borrower’s financial difficulty (this would not have otherwise been considered);
• • It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
• • The disappearance of an active market for that financial asset because of financial difficulties; orThe disappearance of an active market for that financial asset because of financial difficulties; or
• • The purchase or recognition of a financial asset at a deep discount that reflects the incurred credit losses.The purchase or recognition of a financial asset at a deep discount that reflects the incurred credit losses.
Further, in respect of exposures within the International Corporate Lending and Maltese Business Lending portfolios,
the Group has determined triggers that should lead to the recognition of a non-performing or defaulted exposure, ora
thorough assessment of whetheran unlikely-to-pay event has occurred.Unlikely to pay events and triggers are listed
63Annual Report and Financial Statements 2023
Unlikely to pay events Indicative triggers
1) The Group considers that the obligor is unlikely
to pay its debt obligations to the Group without
recourse by the Group to actions such as realis-
ing security.
• Loan is accelerated or called
• Group has called any collateral including a guarantee
• Lawsuit, execution or enforced execution in order to
collect debt
• The borrower is a co-debtor when the main debtor is in
default
• It is expected that a bullet loan cannot be refinanced at
standard market conditions with less than a 6-month
contractual maturity
2) Group puts the credit obligation on non-
accrued status
• Group stops charging of interest (also partially or condi-
tionally)
• Any direct write-off
3) Group recognises a specific credit adjustment
resulting from a significant perceived decline in
credit quality subsequent to the institution taking
on the exposure.
• Any specific loan loss provisions booked
• Any write-off against provisions
4) Group sells the credit obligation at a material
credit-related economic loss.
• An asset is sold or partially sold with material loss (>15%
loss on book value) due to credit-related concerns (i.e.
not as a result of market risk)
5) Group consents to a distressed restructur-
ing of the credit obligation where this is likely to
result in a diminished financial obligation caused
by the material forgiveness or postponement of
principal, interest, or fees.
• Restructuring with a material part which is forgiven giving
rise to net present value (NPV) loss
• Restructuring where the institution also considers the
obligor is unlikely to pay its debt obligations without
recourse to actions such as realising security
6) The Group filed for the obligor's bankruptcy
or a similar order in respect of an obligor’s credit
obligation to the institution.
• It is becoming probable that the borrower will enter bank-
ruptcy or other financial reorganisation
• Credit institution or leader of consortium starts bankrupt-
cy/insolvency proceedings
• International Swaps and Derivatives Association (“ISDA”)
credit event declared
• Out-of-court negotiations for settlement or repayment
(e.g. stand-still agreements)
7) Obligor has sought or has been placed in
bankruptcy or similar protection, where this
would avoid or delay repayment of a credit obli-
gation to the Group.
• Obligor has filed for bankruptcy or insolvency
• Third party has started bankruptcy or insolvency pro-
ceedings
In certain instances, it might not be possible to identify a single discrete event which leads to the classification of an
exposure as credit-impaired.However, the Grouptakes a holistic view of the performance of the exposure, where the
combined effect of several events may be deemed to have caused financial assets to become credit-impaired. Gener-
ally, the Group expects that a SICR be identified before a financial asset becomes credit-impaired or an actual default
64Annual Report and Financial Statements 2023
In respect of the Dutch, Belgian and Maltese Mortgage portfolios,the key indicatorof credit-impairment arises when
exposures are past due by more than 90 days taking into account the materiality threshold for Retail exposures as per
the EBAregulatory definition of default, with other unlikeliness to pay indicators, such as the extension of forbearance
measures, also being taken into consideration.
For the Securitisation Investment portfolio, the 90 DPD presumption has been rebutted by the Group for the purposes
of the investment in tranches in CLOs measured at amortised cost. All tranches in the Group’s securitisation invest-
ments are deemed to have defaulted in the event that the CLO is unable to partially or fully repay the Senior Notes,
and / or the interest thereon,i.e.if payment is 1 DPD. This might be driven by a significant level of defaults occurring
in the underlying portfolio,which might lead to an insufficient level of cash flows to honour the payment commitments
linked with each tranche within the funding structure. Similarly, the 90 DPD presumption has also been rebutted by the
Group with respect to exposures within the Securities Investment portfolio. In this regard, an exposure is deemed to be
defaulted in the event that the obligor is unable to partially or fully repay any amount due.
Forall Stage 3 financial assets,interest income is recognised by applying the effective interest rate to the amortised
cost or carrying amount of the financial instrument, i.e. gross carrying amount less credit loss allowances.
Write-offs
Financial assets and the associated credit loss allowances are normally written off, either partially or in full,when there
is no realistic prospect of recovery. In the case of international corporate loans, the determination is made after consid-
ering facts and circumstances relating to the borrower’s financial position,typically following a distressed restructure.
Where loans are secured,this is generally after receipt of any proceeds from the realisation of security. In circumstances
where the net realisable value of any collateral has been determined and there is no reasonable expectation of further
recovery, write-off may be earlier (see Note 2.2.5). In this respect, the Group writes off financial assets when the relevant
Management Credit Committee of MeDirect Malta and MeDirect Belgium determines that the balance is uncollectible.
Modified financial assets
In accordance with IFRS 9,the modification of contractual cash flows of a financial instrument could result in one of
two possible outcomes:
(i) If the modification is not considered to be significant, the modified cash flows are considered to pertain to the original
financial asset; or
(ii) If the modification is considered to be significant,the original asset is considered to be extinguished and accordingly
the original asset is derecognised and replaced by a new financial asset.
The assessment of whethera modification is considered to be significant is critical in determining the accounting im-
plications of modifications to an asset’s contractual cash flows. The Group applies judgement in assessing whether a
change in contractual terms (such as a change in interest rates, currency or the remaining term of the loan) is substan-
tial enough to represent an expiry of the original instrument.
In this regard,when considering a change in the contractual terms,the Group evaluates how the cash flows under
the revised terms compare with the cash flows under the original terms of the loan and also takes into consideration
qualitative factors.Qualitative considerations include extension of terms,insertion of credit enhancements, changes
in interest rates, etc. If the modification is deemed substantial, derecognition of the financial instrument is warranted.
When the modification is not substantial enough to result in the derecognition of that financial asset, the Group recal-
culates the gross carrying amount of the financial asset as the present value of the modified contractual cash flows
discounted at the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets). The
65Annual Report and Financial Statements 2023
When there is a substantial modification to the terms of a financial asset resulting in the derecognition of the existing
financial asset and the subsequent recognition of the modified financial asset, the modified asset is considered a ‘new’
financial asset.Any new financial assets that arise following derecognition events as a result of substantial modification
to the terms of the instrument are classified as Stage 1 assets,unless the new financial asset is credit-impaired on initial
recognition, in which case it will be classified as a POCI financial asset.A loss is booked in profit or loss (normally as a
write-off) since the new instrument is recognised at fair value.
When the modification is not substantial enough to result in the derecognition of the financial asset,renegotiated loans
within the International Corporate and Maltese Business Lending portfolios are considered credit-impaired and ac-
cordingly classified as Stage 3 assets unless no unlikeliness-to-pay events are deemed to have occurred. Assets that
are credit-impaired at the time of renegotiation remain in Stage 3 post renegotiation.When evidence suggests that the
renegotiated loan is no longer credit-impaired,the asset is transferred out of Stage 3. This is assessed on the basis
of historical and forward-looking information and an assessment of the credit risk overthe expected lifeof the asset,
including information about the circumstances that led to the renegotiation.Afull assessment from the appropriate
Management Credit Committee is required for approval that the exposure is no longer considered as credit-impaired.
With respect to loans within the Dutch and Maltese Mortgage portfolios, when the modification is not substantial
enough to result in derecognition, renegotiated loans are classified as credit impaired,and accordingly as Stage 3
assets, when the exposure is 90 DPD. In all other instances, renegotiated loans within these portfolios are initially clas-
sified as Stage 2 assets.
Other than originated credit-impaired loans, all othermodified loans could be transferred out of Stage 3 if they no
longer exhibit any evidence of being credit-impaired and, in the case of renegotiated loans, there is sufficient evidence
to demonstrate a significant reduction in the risk of non-payment of future cash flows overthe minimum observation
period, and there are no otherindicators of impairment. These loans could be transferred to Stage 1 or 2 based on
the mechanism as described below by comparing the risk of a default occurring at the reporting date (based on the
modified contractual terms) and the risk of a default occurring at initial recognition (based on the original, unmodified,
contractual terms). Any amount written off as a result of the modification of contractual terms would not be reversed.
Purchased or originated credit-impaired
Originated credit-impaired financial assets are those assets that are credit-impaired on initial recognition.The Group
does not expect to purchase any financial assets that are credit-impaired. However, there might be rare instances where
the Group originates new assets following a renegotiation or restructure for reasons relating to a borrower’s distressed
financial circumstances that otherwise would not have been considered, and which may result in the new assets to be
deemed POCI. The amount of change in lifetime ECL is recognised in profit or loss as an impairment gain or loss until
the POCI is derecognised,even if the lifetime ECL are less than the amount of ECL included in the estimated cash flows
on initial recognition.
Movement between stages
Financial instruments are transferred out of Stage 2 if their credit risk is no longer considered to be “significantly in-
creased” since initial recognition. Stage classification under IFRS 9 is distinct from regulatory requirements forperform-
ing status classification. That is, it should not be assumed that a regulatory “probation” period and EBApre-requisites
66Annual Report and Financial Statements 2023
ForIFRS 9 purposes,the Group has determined the below guideline approach to determine whether movement from
Stage 2 to Stage 1 is appropriate:
• • Where qualitative triggers were used to determine SICR: Stage transfer from Stage 2 to Stage 1 is subjective. Where qualitative triggers were used to determine SICR: Stage transfer from Stage 2 to Stage 1 is subjective.
Where implied rating SICR triggers were not a determinant for reclassification in the first instance, it is expected Where implied rating SICR triggers were not a determinant for reclassification in the first instance, it is expected
that any qualitative SICR triggers that were observed that derived the SICR event must be fully resolved and that any qualitative SICR triggers that were observed that derived the SICR event must be fully resolved and
evidenced for a 90-day period prior to any reclassification.evidenced for a 90-day period prior to any reclassification.
• • Where quantitative triggers were used to determine SICR, the financial asset must evidence an improvement Where quantitative triggers were used to determine SICR, the financial asset must evidence an improvement
and return to the external or implied default risk rating at the point of inception (instrument should evidence an and return to the external or implied default risk rating at the point of inception (instrument should evidence an
implied default rating in line or better than the original inception rating in order to trigger a reclassification from implied default rating in line or better than the original inception rating in order to trigger a reclassification from
Stage 2 to Stage 1)Stage 2 to Stage 1)
• • Any instrument that is no longer 30-days past due can only be reclassified to Stage 1 when: (i) all contractual Any instrument that is no longer 30-days past due can only be reclassified to Stage 1 when: (i) all contractual
arrears have been remediated (Nil days past due); and (ii) no further non-payment has been observed for a arrears have been remediated (Nil days past due); and (ii) no further non-payment has been observed for a
minimum of 90 days. This is subject to regulatory materiality thresholds defined in the Group Credit Risk policy.minimum of 90 days. This is subject to regulatory materiality thresholds defined in the Group Credit Risk policy.
In addition, for exposures within the International Corporate and Maltese Business Lending portfolios, curing of Stage
2 exposures is governed by the Management Credit Committee Quarterly Portfolio Review process where supportive
evidence of improved performance and thereby stage transfer is reviewed and approved by the committee.
Similarly,formovement of Stage 3 corporate loans to either Stage 2 or Stage 1, a full assessment from the appropri-
ate Management Credit Committee is required for approval that unlikeliness to pay criteria are no longer present, the
exposure is no longer considered as impaired and there is no past due amount on the exposure (through settling of
amounts in a regular manner).
Stage transfer in respect of corporate exposures is also subject to a 12-month probation period where defaulted (Stage
3) exposures are classified as NPEs beforethey can be upgraded to Stage 2.Meanwhile,stage transferof defaulted
retail exposures is subject to a 3-month probation period, unless the default/NPE classification is the result of forbear-
ance measures for which a 12-month probation period applies.
For loans that are assessed for impairment on a portfolio basis, the evidence to support the stage transfer assessment
typically comprises a history of payment performance against the original or revised terms,as appropriate to the cir-
cumstances.Forloans that are assessed for impairment on an individual basis,all evidence is determined on a case-
by-case basis.
Movement between stages is aligned with the Group Credit Risk policy, and any exceptions are governed by the Man-
agement Credit Committee.
Measurement of expected credit losses
The Group first determines whetherobjective evidence of impairment exists foran individually assessed financial asset,
whether significant or not,and then measures credit loss allowances using different models for non credit-impaired and
credit-impaired financial assets, as follows:
• • If no evidence of impairment exists (Stage 1 and Stage 2 assets), the Group uses statistical models developed If no evidence of impairment exists (Stage 1 and Stage 2 assets), the Group uses statistical models developed
by an external vendor to measure ECLs for exposures within the International Corporate Lending portfolio and by an external vendor to measure ECLs for exposures within the International Corporate Lending portfolio and
Maltese Business Lending portfolio at facility level.Maltese Business Lending portfolio at facility level.
• • For credit-impaired exposures (Stage 3 assets), the Group generally models ECLs based on an internally de-For credit-impaired exposures (Stage 3 assets), the Group generally models ECLs based on an internally de-
veloped methodology to estimate the expected cash flows by reference to borrowers’ enterprise values and veloped methodology to estimate the expected cash flows by reference to borrowers’ enterprise values and
forecasted operating cash flows for exposures within the International Corporate Lending portfolio and the indi-forecasted operating cash flows for exposures within the International Corporate Lending portfolio and the indi-
vidual valuation of the underlying asset / collateral for exposures within the Maltese Business Lending portfolio.vidual valuation of the underlying asset / collateral for exposures within the Maltese Business Lending portfolio.
67Annual Report and Financial Statements 2023
With respect tothe Dutch Mortgages, Securitisation Investment and Securities Investment portfolios, the ECLs on all
assets (irrespective of staging) are modelled using statistical models developed by an external vendor. For the Belgian
and Maltese Mortgage Lending portfolios,the ECL forthe mortgage portfolios is determined using internally developed
statistical models.
ECLs are defined as the probability-weighted estimate of credit losses over the expected life of a financial instrument.
Credit losses are in turn defined as the present value of all expected cash shortfalls between contractual and expected
cash flows, discounted using the original effective interest rate (EIR).
Lifetime ECLs referto the ECLs that result from all possible default events over the expected lifeof a financial instru-
ment, whilst 12-month ECLs are a portion of lifetime ECLs and represent the lifetime cash shortfalls that result if a de-
fault occurs in the 12 months after the reporting date, weighted by the probability of the default occurring.
Foreach portfolio, the Group calculates ECLs on its financial instruments based on three key inputs, namely: proba-
bility of default (“PD”),loss given default (“LGD”) and exposure at default (“EAD”).The 12-month ECL is calculated by
multiplying the 12-month PD, LGD and EAD. Lifetime ECLis calculated on a similar basis forthe entire residual life of
the exposure.
Non credit-impaired financial assets (Stage 1 & 2)
This section provides a detailed description of the methodology used by the Group to measure credit loss allowances
in respect of exposures classified as Stage 1 and Stage 2 assets using statistical models developed by an external ven-
dor (for the Dutch Mortgages, Securitisation Investment and Securities Investment portfolios) and internally developed
models (for the Belgian and Maltese Mortgages).
Probability of Default
One of the key risk parameters used by the Group in its ECL calculation is the probability that the obligor defaults either
within the next 12-month period (in case of Stage 1 exposures) or overthe lifetime of the exposure (in case of Stage 2/3
exposures).
Since the PD is a probability measure used to capture the likelihood that a customer will default overa defined period
of time, this is estimated at a customer level.
PDs for the Group’s portfolios are estimated based on statistical models developed by external vendors.In particular,
the models used forthe International Corporate Lending, Maltese Business Lending, Securitisation Investment and
Securities Investment portfolios use rating scale to PD matrices calibrated based on historical default data observed in
the market and compiled by the external vendor. In respect of the International Corporate Lending portfolio,PDs and
implied ratings are modelled by benchmarking borrower-specific characteristics,including financial performance and
qualitative characteristics captured through a scorecard, with the underlying dataset. In respect of the Maltese Busi-
ness Lending portfolio, PDs are estimated through rating scaleto PD matrices by mapping internal risk grades to public
ratings. In respect of exposures within the Securities Investment and Securitisation Investment portfolios, PDs are gen-
erally estimated using public ratings through rating scale to PD matrices. With regard to the Dutch Mortgage portfolio,
PDs are generated using models based on historical default rates observed in the Netherlands for similar assets. With
regards to the Belgium and Malta Residential Mortgages portfolio,PDs are also generated using models based on
68Annual Report and Financial Statements 2023
Loss Given Default
The second key risk parameter used by the Group relates to the estimation of the recovery rate expected to be ob-
served in the event that a ‘default’occurs. In this regard,the Group uses the LGD to capture this element within the ECL
calculation.
The LGD of an exposure measures the size of the estimated loss (as a proportion of the total EAD) that is expected
to materialise in the event of default.It is based on the difference between the contractual cash flows due and the
cash flows that the Group expects to receive,whetherfrom cash flows or from any collateral.It takes into account the
mitigating effect of collateral value at the time it is expected to be realised and the time value of money. LGD forECL
measurement includes the expected impact of future economic conditions and discounting back from estimated time
of default to reporting date using the original EIR.
In contrast with PDs, LGDs are estimated at a facility level.Whilst linked to the general credit risk of the obligor, recovery
rates are also impacted by the relative ranking of a particular facility within the obligor’s debt structure.
Forassets within the Group’s International Corporate Lending portfolio,estimated recovery rates are measured using
statistical models developed by external vendors by benchmarking exposure-specific characteristics with the under-
lying dataset.
The Group’s Securities Investment portfolioconsists of covered bonds, bonds issued by supranational organisations,
sovereign bonds and corporate bonds.Forits supranational exposures and sovereign exposures,the Group uses the
LGD values obtained from the statistical model developed by an external vendor while forcovered bonds the LGD is
aligned with regulatory standards. The LGD forcorporate bonds is modelled using the same methodology as forthe
International Corporate Lending portfolio.
The LGD used for the Maltese Business Lending portfolio is driven by the loan-to-value ratio of the individual facilities,
whilst also taking into consideration other factors such as costs to sell, valuation haircuts and the time value of money.
The LGD forthe Dutch Mortgage portfolio is modelled using the loan-to-value ratio of individual loan parts.Expected
recoveries are used to determine the expected loss and are modelled by reference to assumptions in relation tovalu-
ations of different property types, haircut to sale proceeds and the time value of money. The LGD is then estimated at
10% of expected losses,since the NHG absorbs 90% of losses, adjusted for assumptions on expected NHG pay-outs
and claim rejection rates.
With regards to the Belgium and Malta Residential Mortgages portfolios, as the Group has no internal loss data, LGD
parameters are based on external, publicly available sources of loss data for similar assets.
For the Securitisation Investment portfolio, as for PDs, the LGDs are obtained through statistical models developed by
an external vendor using estimated recovery rates.
Exposure at Default
The EAD is used to estimate the Group’s expected exposure at the time of default of an obligor,taking into account
expected changes in the exposure afterthe reporting date,including repayments of principal and interest, and any
expected drawdowns on committed facilities.
The maximum period overwhich ECLs are measured is the maximum contractual period overwhich the Group is ex-
posed to credit risk.
69Annual Report and Financial Statements 2023
International Corporate Lending portfolio
For the Group’s International Corporate Lending portfolio, theGroup makes use of behavioural rather than contractual
maturity, thereby reflecting expectations on the exercise of prepayment or extension options. In this regard, for Revolv-
ing Credit Facilities and Term Loans containing a prepayment option which is expected to be exercised by the obligor,
the Group adjusts the contractual maturity date to reflect the expected maturity date,thereby reflecting the expected
payment profile.Expected maturities are assessed quarterly, on a case-by-case basis,in order to determine any change
to the expected maturity.
To measure the EAD of off-balance sheet exposures,including loan commitments, the Group aligns the expected
drawdown on committed facilities with the credit conversion factors (CCFs) as set out in the Standardised Approach
to Credit Risk under the CRR.
Dutch Mortgage portfolio
The EAD forthe Dutch Mortgage portfolio is based on amortisation per the contractual payment profiles,taking into
account modelled prepayments. The maturity date is deemed to be equal to the contractual maturity of the mortgage.
To measure the EAD of off-balance sheet assets, the Group applies a 75% CCF.
Belgian Mortgage portfolio
The EAD for the Belgian Residential Mortgage portfolio is based on the outstanding exposure amount as at reporting
date. To measure the EAD of off-balance sheet assets (commitments to lend), the Group applies an 80% CCF.
Maltese Business Lending portfolio
For the Maltese Business Lending portfolio, the maturity date is deemed to be equal to the contractual maturity of the
exposure.
To measure the EAD of Revolving Credit Facilities the Group applies a 100% CCF, whereas the EAD for Term Loans is
assumed to be equivalent to the drawn amounts as at reporting date.
Maltese Mortgage portfolio
The EAD for the Maltese Residential Mortgage portfolio is based on the outstanding exposure amount as at reporting
date. To measure the EAD of off-balance sheet assets (commitments to lend), the Group applies a 90% CCF.
Securities Investment portfolio
For the Group’s Securities Investment portfolio, the maturity dateis deemed to be equal to the contractual maturity of
the exposure, and the EAD assumed to be the full committed exposure.
Securitisation Investment portfolio
Forthe Group’s Securitisation Investment portfolio,the external vendoranalyses underlying assets in the CLO, cap-
turing the inherent risk of each tranche (based on relative seniority and contractual terms), simulating the losses that
would be incurred by each tranche under multiple scenarios and calculates the average life of the tranche.The average
life of the tranche is equivalent to the expected lifetime.
Credit-Impaired financial assets (Stage 3)
ForStage 3 assets in the International Corporate Lending and Maltese Business Lending portfolios, the Group esti-
mates ECL on an individual basis. When assessing impairment for these assets, the recoverable amount corresponds
to the present value of estimated future cash flows. In the case of collateralised exposures, typically within the Maltese
Business Lending portfolio, the estimation of the recoverable amount reflects the cash flows that may result from the
liquidation of the collateral discounted at the original effective interest rate.
70Annual Report and Financial Statements 2023
Forexposures in the International Corporate Lending portfolio,the Group deems these assets as very rarely secured by
assets whose value is easily observable.Therefore, recoverable amounts are usually calculated by projecting expected
cash flows using a discounted cash flow (“DCF”) approach to determine the Enterprise Value (“EV”) under multiple
scenarios. The recoverable amount under each scenario is estimated as the EV, plus available cash, less exit fees, dis-
counted using the estimated weighted average cost of capital (“WACC”) at a borrowerlevel.The latter is determined
using multiple assumptions in respect of the cost of debt and cost of equity. The recoverable amount is then compared
to the EAD in order to determine any expected shortfalls / credit losses.
Hence for Stage 3 exposures the individual impairment allowance is measured as the difference between the asset’s
outstanding exposure, which is measured as the sum of the carrying amount and the expected future drawdown on
off-balance sheet commitments estimated by referenceto CCFs, and the recoverable amount. The recoverable amount
is the weighted average of the base case and the downside case, with recoveries under each case capped separately
at 100%.The carrying amount of the asset is reduced through the use of an allowance account and the amount of the
loss is recognised in profit or loss.
If, in a subsequent period,the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the
previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is
recognised in profit or loss.
Forexposures in the Maltese Business Lending portfolio, these are typically secured by real estate assets,cash col-
lateral ortradeable equities whose value is more easily observable. In this respect,the recoverable amount is usually
calculated on the basis of the present value of the estimated future cash flows of a collateralised financial asset,re-
flecting the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
foreclosure is probable.
Forthe Securities Investment portfolio, recoverable amounts are assessed on a mark-to-market basis, using observable
market prices for the instruments held.
Forthe Dutch, Belgian and Maltese Mortgages and the Securitisation Investment portfolios, the ECL on Stage 3 expo-
sures is equivalent to the LGD parameter multiplied by the exposure amount, with PD equivalent to 100%.
Forward looking information
The recognition and measurement of ECL requires the incorporation of forward-looking information into the ECL esti-
mates to meet themeasurement objective of IFRS 9. Aparticularly complexaspect is the need to consider a range of
possible forward-looking economic scenarios when calculating ECL, given the potential effect of non-linearities on ECL.
Based on the principle of non-linearity, the modelled increase in credit losses if conditions are expected to deteriorate
exceeds the decrease in credit losses if conditions improve. The Group takes into consideration reasonable and sup-
portable information relating to forecasts of future macroeconomic conditions in order to determine the expected level
of and movement in credit risk for specific obligors.
The Group first identifies macroeconomic variables (MEVs) which have the highest correlation to systemic credit risk
factors forits obligors using statistical methods developed by external vendors.These macroeconomic variables include
country-level variables that are deemed to have the highest correlation to the Group’s portfolios.The MEVs applied
forECL calculations foreach portfolio may differ. The MEVs that exhibit the highest level of correlation forexposures
classified within the International Corporate Lending,Maltese Business Lending and Securities Investment portfolios
principally comprise country-specific Gross Domestic Product (“GDP”),unemployment levels and the performance of
stock market indices. In addition, the House Price Index and national unemployment rates are key for exposures within
71Annual Report and Financial Statements 2023
the Dutch, Belgian and Maltese Mortgage portfolios,whereas interest rates are used forcalculating ECLs forexposures
within the Securitisation Investment portfolio.
IFRS 9 does not require every possible scenario to be identified. However, it requires the Group toestimateECLs by
taking into consideration multiple forward-looking macroeconomic scenarios, since the use of a single ‘most likely’ sce-
nario is not deemed sufficient. As a result, the measurement of ECLs in line with IFRS 9 involves the use of significant
judgement in developing alternative macroeconomic scenarios and/or management adjustments.In this regard,the
Group uses an external vendor solution to determine multiple forecasts of macroeconomic conditions (reflecting future
paths of the selected key macroeconomic variables). The Group then estimates an unbiased, forward-looking, proba-
bility-weighted ECL by assigning probability weights to expected losses under each of the macroeconomic scenarios.
IFRS 9 does not require forecasts of future conditions to extend overthe entire expected life of the financial instrument
in question. The Group uses macroeconomic forecasts from the external vendor for up to 20 quarters to estimate a for-
ward-looking ECL. For maturities that go beyond this 5-year period, the Group extrapolates projections from available
data.
Multiple forward-looking scenarios for Stage 3 Credit-impaired exposures
With regards to Stage 3 exposures within the Group’s International Corporate Lending portfolio, ECLs arebased on a
DCF analysis aimed at assessing the level of credit risk in detail and estimating the recoverable amount for the instru-
ment. In line with IFRS 9 requirements, such exposures still require a consideration of multiple forward-looking scenari-
os. The scenarios are designed specifically foreach obligor in question by considering the different cash flows that may
accrue to the Group under the contractual agreement including those resulting from potential restructuring, which may
include derivative features including pay-outs if certain targets or objectives are met at a future date. Such scenarios
are designed by reference to estimated unlevered operating cash flows,typically over a three-year forecasted period,
together with a terminal value estimated using assumed stable cash flows under each scenario.
With regards to Stage 3 exposures within the Group’s Maltese Business Lending portfolio,different work-out options
available to the Group in respect of each impaired exposure, such as the initiation of court proceedings to enforce fore-
closure of collateral or reaching an amicable out-of-court agreement with the obligor to sell the collateral in the market
and repay the exposure from the sales proceeds, are taken into consideration.
In line with the requirements of IFRS 9, the Group assigns a probability weight, based on management judgement, to
each of the scenarios considered in the estimation of ECLs. Due to the high level of subjectivity involved,decisions
relating to the selection of scenarios, probabilities and assumed forecasted cash flows are subject to scrutiny through
the Group’s governance structure around credit risk.
In respect of exposures within the Dutch, Belgian and Maltese Mortgages and Investment portfolios, the ECL on Stage
3 exposures is modelled based on an identical methodology as that used for Stage 1 and Stage 2 exposures.
1.6 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial posi-
tion when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a
72Annual Report and Financial Statements 2023
1.7 Intangible assets
1.7.1 Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable
net assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in
‘intangible assets’.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units forthe purpose of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are expected to benefit from the business combination
in which the goodwill arose,identified according to operating segment. Acash-generating unit to which goodwill has
been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired, by
comparing the carrying amount of theunit,including the goodwill,with the recoverable amount of the unit. The recov-
1.7.2 Computer software
Intangible assets with finite useful lives, such as purchased and internally developed computer software, are amortised,
on a straight-linebasis, overtheir estimated useful lives. Estimated useful life is generally the lower of legal duration,
where applicable,and expected useful life. The estimated useful life of purchased software and developed computer
softwareranges between 3 to 5 years. Costs incurred in the ongoing maintenance of software are expensed immedi-
ately as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique software elements
controlled by the Group are recognised as intangible assets when the following criteria are met:
• • it is technically feasible to complete the software so that it will be available for use;it is technically feasible to complete the software so that it will be available for use;
• • management intends to complete the software and use it;management intends to complete the software and use it;
• • there is an ability to use the software;there is an ability to use the software;
• • it can be demonstrated how the software will generate probable future economic benefits;it can be demonstrated how the software will generate probable future economic benefits;
• • adequate technical, financial and other resources to complete the development and to use the software are adequate technical, financial and other resources to complete the development and to use the software are
available; andavailable; and
• • the expenditure attributable to the software during its development can be reliably measured.the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include the software development employee costs
and an appropriate portion of relevant overheads.
Capitalised development costs are amortised from the point at which the asset is ready foruse.Other development
expenditure that does not meet these criteria is recognised as an expense as incurred.Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
The assets’ residual values and useful lives are reviewed,and adjusted if appropriate,at the end of each reporting
period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greaterthan its estimated recoverable amount. Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised in profit or loss.
73Annual Report and Financial Statements 2023
1.8 Property, plant and equipment
All property, plant and equipment used by the Group is initially recorded at historical cost, including transaction costs
and borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
All property,plant and equipment is subsequently stated at historical cost less accumulated depreciation and impair-
ment losses.
Depreciation on assets, recognised in profit or loss, is calculated using the straight-line method to allocate their cost to
their residual values over their estimated useful lives, as follows:
• • improvements to premises 4 - 10 years improvements to premises 4 - 10 years
• • computer equipment 3 - 5 yearscomputer equipment 3 - 5 years
• • other equipment 4 yearsother equipment 4 years
• • fixtures and fittings 10 yearsfixtures and fittings 10 years
• • motor vehicles 5 years motor vehicles 5 years
The assets’ residual values and useful lives are reviewed,and adjusted if appropriate,at the end of each reporting
period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recog-
nised in profit or loss.
1.9 Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill or certain intangible assets, are not subject to amortisa-
tion and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment when-
ever events or changes in circumstances indicate that the carrying amount may not be recoverable.An impairment loss
is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. Forthe purposes of assessing impair-
ment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating
units). The impairment test also can be performed on a single asset when the fairvalue less costs to sell or the value
in use can be determined reliably. Non-financial assets other than goodwill that suffered impairment are reviewed for
1.10 Non-current assets classified as held for sale
Non-current assets are classified as held forsale when their carrying amounts will be recovered principally through a
sale transaction rather than through continuing use, they are available for sale in their present condition and their sale
is highly probable. Non-current assets classified as held forsale are generally measured at the lower of their carrying
amount and fair value less costs to sell. Impairment losses forany initial or subsequent write-down of an asset to fair
value less costs to sell are recognised in profit or loss. Gains for any subsequent increase in fair value less costs to sell
of an asset are recognised only up to the extent of the cumulative impairment loss recognised and are reflected within
1.11 Current and deferred income tax
The tax expense or credit for the year comprises current and deferred tax. Tax is recognised in profit or loss, except to
the extent that it relates to items recognised in other comprehensive income or directly in equity. In the latter case, the
74Annual Report and Financial Statements 2023
The current income taxcharge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period.
Deferred income tax is recognised,using the liability method,on temporary differences arising between the tax bases
of assets and liabilities and theircarrying amounts in the consolidated financial statements. However, deferred tax lia-
bilities are not recognised if they arise from the initial recognition of goodwill; deferred income taxis not accounted for
if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected
to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be availa-
ble against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by
the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to
settle the balances on a net basis.
1.12 Share capital
Ordinary shares are classified as equity.Incremental costs directly attributable to the issue of new ordinary shares are
shown in equity as a deduction, net of tax, from the proceeds.
1.13 Financial liabilities
The Group recognises a financial liability on its statement of financial position when it becomes a party to the contrac-
tual provisions of the instrument. The Group’s financial liabilities,otherthan derivative financial liabilities (refer toNote
1.14), are classified as financial liabilities measured at amortised cost using the effective interest method.
These comprise principally amounts owed to financial institutions, amounts owed to customers, otherpayables and
1.14 Derivative financial instruments
Derivative financial instruments, including currency forwards and swaps,interest rate swaps and other derivative con-
tracts,are classified as held for trading derivatives unless designated as hedging instruments,and are initially recog-
nised at fair value on the date on which a derivative contract is entered into, and are subsequently remeasured at their
fairvalue.Fairvalues are obtained from valuation techniques forover-the-counterderivatives, including discounted
cash flow models. Fair values for currency forwards and swaps are determined using forward exchange market rates at
the end of the reporting period.Discounting techniques, reflecting the fact that the respective exchange or settlement
will not occur until a future date, are used when the time value of money has a significant effect on the fair valuation of
these instruments.
Changes in the fairvalue of any derivative instrument that does not qualify for hedge accounting are recognised im-
mediately in profit or loss. If a derivative is not designated in a qualifying hedge relationship, then all changes in its fair
value are recognised immediately in profit or loss as a component of net trading income.
The Group designates certain derivatives as hedging instruments in qualifying hedging relationships. On initial desig-
nation of the hedge, the Group formally documents the relationship between the hedging instrument/s and hedged
item/s, including the risk management objective and strategy in undertaking the hedge,togetherwith the method
75Annual Report and Financial Statements 2023
that will be used to assess the effectiveness of the hedging relationship.The Group makes an assessment, both at
the inception of the hedge relationship as well as on an ongoing basis, as to whether the hedging instrument/s is/are
expected to be ‘highly effective’ in offsetting the changes in the fairvalue of the respective hedged item/s during the
period for which the hedge is designated, and whetherthe actual results of each hedge are within a range of 80-125
percent.
1.14.1 Fair value hedges
When a derivative is designated as a hedging instrument in a hedge of the change in fair value of a recognised asset
or liability or a firm commitment that could affect profit or loss, changes in the fair value of the derivative are recog-
nised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the
hedged risk.
If the hedging derivative expires or is sold, terminated,or exercised, or the hedge no longer meets the criteria forfair
value hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively.
Any adjustment up to that point of discontinuation to a hedged item for which the effective interest method is used, is
amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life.
The Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) underthe EU
carve-out version of IAS 39. The EU carve-out macro hedging rules enable a group of derivatives (or proportions) to be
viewed in combination and jointly designated as the hedging instrument in the Group’s macro fair value hedging model,
and remove some of the limitations in fairvalue hedge accounting relating to hedging core deposits and under-hedging
strategies. Under the EU carve-out, hedge accounting may be applied to core deposits and ineffectiveness only arises
when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount
of that bucket.The Group applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging)
under the EU carve-out in respect of its retail operations after considering the duration gap between the International
mortgages and core deposits. The hedging activities are designated as a portfolio fair value hedge in respect of the
mortgage book, being the hedged items. Changes in the fair value of the derivatives are recognised in the statement of
profit or loss, together with the basis adjustment in relation to the mortgages (hedged items) insofaras attributable to
interest rate risk (the hedged risk).
The Group establishes the hedging ratio by matching the notional of the derivatives with the principal of the portfolio
being hedged. Possible sources of ineffectiveness are as follows:
• • Differences between the expected and actual volume of prepayments, as the Group hedges to the expected Differences between the expected and actual volume of prepayments, as the Group hedges to the expected
repayment date taking into account expected prepayments based on past experience;repayment date taking into account expected prepayments based on past experience;
• • Difference in the discounting between the hedged item and the hedging instruments, as cash collateralised Difference in the discounting between the hedged item and the hedging instruments, as cash collateralised
interest rate swaps are discounted using Overnight Indexed Swaps (OIS) discount curves, which are not applied interest rate swaps are discounted using Overnight Indexed Swaps (OIS) discount curves, which are not applied
to the fixed rate mortgages;to the fixed rate mortgages;
• • Hedging derivatives with a non-zero fair value at the date of initial designation as a hedging instrument; andHedging derivatives with a non-zero fair value at the date of initial designation as a hedging instrument; and
• • Counterparty credit risk which impacts the fair value of uncollateralised interest rate swaps but not the hedged Counterparty credit risk which impacts the fair value of uncollateralised interest rate swaps but not the hedged
items.items.
The Group applies micro fair value hedging to hedge separate hedged positions on an individual asset basis, generally
fixed interest securities, by utilising interest rate swaps as hedging instruments.
Changes in the fairvalue of derivatives that are designated and qualify as fairvalue hedges are recorded in profit or
loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
76Annual Report and Financial Statements 2023
recognised in profit or loss within interest income,together with changes in the fairvalue of the hedged fixed interest
loans and securities attributable to interest rate risk.
The gain or loss relating to the ineffective portion is also recognised in profit or loss within interest income and disclosed
separately. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of
a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity
1.15 Provisions
Provisions for legal and other claims are recognised when the Group has a present legal or constructive obligation as a
result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount
has been reliably estimated. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using
a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obliga-
tion. The increase in the provision due to passage of time is recognised as interest expense.
1.16 Interest income and expense
Interest income and expense for all interest-bearing financial instruments are recognised within ‘interest income’ and
‘interest expense’ in profit or loss using the effective interest method.
When calculating the effective interest rate,the Group estimates cash flows considering all contractual terms of the
financial instrument (for example, prepayment options) but does not consider future credit losses.
Interest income and expense presented in the profit or loss include:
• • interest on financial assets and financial liabilities measured at amortised cost calculated using the effective interest on financial assets and financial liabilities measured at amortised cost calculated using the effective
interest method; andinterest method; and
• • the effective portion of fair value changes attributable to qualifying hedging derivatives designated in fair value the effective portion of fair value changes attributable to qualifying hedging derivatives designated in fair value
hedges of interest rate risk, together with changes in fair value of the hedged items attributable to interest rate hedges of interest rate risk, together with changes in fair value of the hedged items attributable to interest rate
risk.risk.
Fairvalue changes attributable to otherderivatives in hedging relationships which are discontinued are presented in
‘net trading income’ with effect from the last date on which the hedge was demonstrated to be effective.
Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash
flows for the purpose of measuring the credit loss allowance.
1.17 Fees and commissions
Fee and commission income and expenses that are an integral part of the effective interest rate on a financial asset
or liability are included in the calculation of the effective interest rate and treated as part of interest income or interest
expense.
Other fee and commission income,comprising account servicing fees, underwriting fees, investment management fees,
foreign exchange fees,guarantee fees,placement fees and syndication fees,are recognised in profit or loss as the
related services are performed.
Loan commitment fees for loans that are likely to be drawn down aredeferred (togetherwith related direct costs) and
recognised as an adjustment to the effective interest rate on the loan.
77Annual Report and Financial Statements 2023
When a loan commitment is not expected to result in the drawdown of a loan, the related loan commitment fees are
recognised in profit or loss on a straight-line basis over the commitment period.
Fee and commission expense, relating mainly to transaction and service fees, is expensed as the services are received.
Consideration payable to customers, comprising incremental costs in the form of cash amounts that the Group pays
to wealth management customers,are incurred in acquiring new customercontracts. These costs aredeferred within
“Other assets” and subsequently recognised as an offset within fee and commission income, as follows:
• • For customer contracts with a contractual fixed period, these costs are amortised over the contractual life.For customer contracts with a contractual fixed period, these costs are amortised over the contractual life.
• • For customer contracts with no contractual fixed period, these costs are amortised over the estimated life of the For customer contracts with no contractual fixed period, these costs are amortised over the estimated life of the
contracts, which is reviewed periodically by reference to the Group’s experience with attrition rates by wealth contracts, which is reviewed periodically by reference to the Group’s experience with attrition rates by wealth
1.18 Net trading income
Net trading income comprises all realised and unrealised foreign exchange differences and all fair value changes arising
on derivatives held fortrading, including derivatives that are not designated as hedging instruments and derivatives
that no longer meet the criteria for hedge accounting.
1.19 Net income from other financial instruments carried at fair value through profit or loss
Net income from other financial instruments carried at fair value through profit or loss comprises all realised and unre-
alised fairvalue changes,interest income, dividends and foreign exchange differences attributable to financial assets
1.20 Leases
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is
available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the future lease payments. Lease payments to be made under reason-
ably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease.If that rate cannot be readily determined,
which is generally the case forleases in the Group, the lessee’s incremental borrowing rate is used, being the rate that
the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similarvalue to the right-
of-use asset in a similar economic environment with similar terms, security and conditions.
Right-of-use assets are generally comprising the amount of the initial measurement of the lease liability and are gen-
erally depreciated over the shorterof the asset’s useful life and the lease term on a straight-line basis. In determining
the lease term,management considers all facts and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension options (or periods after termination options) are only
1.21 Share-based compensation
The Group operates a deferred bonus plan in the form of a share-based compensation plan whereby selected officers
or employees are awarded performance bonuses upon meeting specific performance conditions, or retention bonuses.
Togetherwith upfront cash amounts, bonuses may comprise upfront share-linked awards and deferred share-linked
awards. Share-linked awards consist of share-linked instruments in the form of a number of notional ordinary shares
of MDB Group Limited computed by dividing the related portion of the bonus amount by the market value of these
78Annual Report and Financial Statements 2023
Share-linked award bonuses are eventually settled in cash on the settlement date (the expiry of the retention or delay
period) on the basis of the market value of the ordinary shares of MDB Group Limited determined on the settlement
date, multiplied by the number of notional shares computed on the date of award. Deferred share-linked awards attrib-
utable to retention bonuses aresubject to a vesting period during which period the specific officeroremployeemust
remain in employment for vesting to occur. Meanwhile,performance bonuses vest immediately, but are also subject to
a deferral period. Therefore,both upfront and deferred share-linked awards are subject to a retention ordelay period,
for settlement purposes, post vesting.
Share-based compensation is recognised as an employee benefit expense from grant dateoverthe relative vesting
period, which in the case of retention bonuses occurs through graded vesting. The total amount to be expensed from
grant date overthe vesting period is determined by reference to the fair value of the awards at the grant date,reflect-
ing the fair valuation of MDB Group Limited’s ordinary shares on award date.Accordingly, the Group amortises on
a straight-line basis the compensation cost arising on the grant of such awards overthe nominal vesting period for
employees based on the graded vesting of the plan. The resultant liability is re-measured at the end of each reporting
1.22 Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that requirethe issuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtorfails to make payments when due, in accordance with the terms of a debt
instrument.
In the ordinary course of business, the Group gives financial guarantees,consisting of guarantees and acceptances.
Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers.
Financial guarantee contracts are initially measured at fair value and subsequently measured at higher of:
• • The amount of the credit loss allowance (calculated as described in Note 1.5); andThe amount of the credit loss allowance (calculated as described in Note 1.5); and
• • The premium received on initial recognition less income recognised in accordance with the principles of The premium received on initial recognition less income recognised in accordance with the principles of
IFRS 15.IFRS 15.
Loan commitments are the Group’s commitments to provide credit underpre-specified terms and conditions and are
measured at the amount of the credit loss allowance (calculated as described in Note 1.5).
For loan commitments and financial guarantee contracts, the credit loss allowance is recognised as a provision.How-
ever,forcontracts that include both a loan and an undrawn commitment and the Group cannot separately identify
the expected credit losses on the undrawn commitment component from those on theloan component, the expected
credit losses on the undrawn commitment arerecognised together with the credit loss allowance for the loan. To the
extent that the combined expected credit losses exceed the gross carrying amount of the loan, the expected credit
1.23 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at face value less expected credit losses.
Cash and cash equivalents comprise balances with less than threemonths’maturity from the date of acquisition,in-
cluding cash in hand, unrestricted balances held with central banks, deposits held at call with financial institutions and
other short-term highly liquid investments with original maturities of three months or less.
Amounts owed to financial institutions’that are repayable on demand or have a contractual maturity of three months or
less and which form an integral part of the Group’s cash management are included as a component of cash and cash
79Annual Report and Financial Statements 2023
1.24 Customer assets
Customerassets areheld with the Group in a fiduciary capacity and are segregated from the assets of the Group in
accordancewith the applicable rules and regulations on protection of customerassets,except when such customer as-
sets are held by the Group to cover a required margin or when they are used to secure an obligation towards the Group.
2. Financial Risk Management
2.1 Introduction and overview
The Group’s core business activities include:
• deposit taking;
• the provision of wealth management and investment services;
• the granting of loans to international and Maltese corporates; and
• the granting of residential mortgage loans in the Dutch, Belgian and Maltese markets, the granting of buy-to-
let mortgages in the Dutch market and the relative securitisation of sub-portfolios of such Dutch residential
mortgage loans through RMBS transactions.
The Group also provides basic retail services such as money transfer and spot currency exchange and its retail cus-
tomers may also use the MeDirect debit card that may be used globally, whereverMastercard is accepted. Currency
swaps, foreign exchange forwards and interest rate swaps are also entered into for risk management purposes.
In respect of funding, the Group continues to do securitisations of Dutch mortgages portfolios and to access the inter-
national wholesale funding markets through bilateral repo lines and the Eurex repo platform.
The major components within the Group’s asset base are: the International Corporate Lending portfolio,comprising
loans to international corporates; the Dutch Mortgage portfolio, comprising residential mortgage lending to Dutch
customers; the Dutch buy-to-let mortgage portfolio; the Belgian Mortgage portfolio, comprising residential mortgage
lending to Belgian customers,the Maltese Mortgage and Business Lending portfolios, comprising residential mortgage
loans to retail customers to support the purchase of residential properties as their own dwellings and loans to Maltese
corporates; the Securities Investment portfolio principally comprising investment-grade debt securities; and the Securi-
tisation Investment portfolio,comprising acquired positions in CLO transactions managed by third party entities,as well
as investments in Collateralised Loan Obligation (“CLO”) transactions originated by the Group (representing a 5% verti-
cal slice in each structured note tranche of the Grand Harbour CLO 2019-1 Designated Activity Company (“GH1-2019”).
The main risks assumed by the Group are: (a) counterparty credit risk arising primarily from loans and advances to
customers, but also from other financial instruments; (b) liquidity risk arising from maturity mismatches and committed
but undrawn revolving credit facilities; (c) market risk, including interest rate risk; and (d) operational risk, including cyber
security related threats.
This note presents information about the Group’s exposure to each of the aboverisks, the Group’s objectives, policies
and processes for measuring and managing these risks and the Group’s management of capital.
80Annual Report and Financial Statements 2023
2.1.1 Risk management framework
The Group recognises the need to have an effective and efficient RiskManagement Function that is an integral part
of the Group’s strategic planning and management processes and has therefore adopted a comprehensive enterprise
risk management approach that provides a balance between growth and maximising profitability while managing the
associated risks. The Risk Management Function is actively involved in all material strategic and business as usual risk
management decisions and is adequately structured to delivera holistic view of the whole range of risks faced by the
Group in its strategic decision-making.
The Risk Management Framework(“RMF”) provides a comprehensive definition of the Group’s risk management pro-
cesses to enable informed risk-based decision-making. This framework provides a detailed structure as to how the
Group identifies, manages, measures and monitors material risks, including policies, procedures, risk limits and risk
controls. This ensures adequate, timely and continuous identification, measurement, assessment, monitoring, manage-
ment, mitigation and reporting of the risks at the business line, institution and consolidated or sub-consolidated levels.
The Group’s objective is to deploy an integrated risk management approach that ensures an awareness of,and ac-
countability for, the risks taken throughout the Group and also to develop the tools needed to address those risks.
Strong risk management and internal controls are core elements of the Group’s strategy. The Group has adopted a risk
management and internal control structure,referred to as the Three Lines of Defence (Figure 1), to ensure it achieves
its strategic objectives while meeting regulatory and legal requirements and fulfilling its responsibilities to shareholders,
customers and staff.
In the three lines of defence model, business line management is the first line of defence (including those functions that
are responsible for day-to-day operations and the Treasury function), the various risk control and compliance oversight
functions established by management represent the second line of defence, and internal audit is the third.
Each of these three “lines” play a distinct role within the Group’s wider governance framework. Although the Group
adopts a “three lines of defence” model, it is worth mentioning the additional interaction between the Group and its
external auditors and regulatory bodies adds further “lines of defence”, albeit they are not depended upon internally by
the Group to act in such capacities.
*On occasions, the Legal team also performs duties within the first line of defence
Figure 1: Three Lines of Defence Model
Board of Directors
Board and Executive Committees
Senior Management
External Audit
Regulator
1st line of Defence
Business Line
Management and Staff
2nd line of Defence
Risk Management;
Financial Control;
Compliance & Legal*
3rd line of Defence
Internal Audit
81Annual Report and Financial Statements 2023
2.2 Credit risk
Credit risk is the risk of loss to the Group’s business or of adverse change in its financial position, resulting from fluctu-
ations in the credit standing of issuers of securities, customers,counterparties and any debtors in the form of default
or other significant credit loss event (e.g. downgrade or spread widening).
2.2.1 Management of credit risk
The Group’s Credit Policy establishes the principles,credit standards, monitoring and reporting requirements and es-
calation and approval processes that govern the ongoing management of the Group’s credit risk exposure. The policy
applies to all subsidiaries of the Group and governs the associated credit frameworks for each asset class.
The Group’s Board of Directors has defined risk appetite limits based on the Capital Requirements Regulation (“CRR”),
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential require-
ments forcredit institutions and investment firms and amending Regulation (EU) No 648/2012,governing large ex-
posures as well as prudential requirements. Exposure limits are monitored on a regular basis by the Risk, Corporate
Credit and Treasury teams. Amongst other things, the Credit Policy for each asset class outlines the following specific
exposure and trading limits:
• Concentration limits;
• Country limits;
• Portfolio limits; and
• Minimum credit quality within each asset class.
Limits on counterparty exposures are established by the Group’s Management Risk Committee (“MRC”) in line with
the Credit Framework. Such limits relate to net exposure,afterapplication of cash (and cash equivalent) collateral,as
provided in industry-standard documentation,and are established to manage credit risk to banks and other financial
institutions in connection with the Group’s over-the-counter (“OTC”) derivative and repurchase agreement transactions.
Settlement and delivery risk are mitigated with industry-standard documentation such as the Loan Management As-
sociation (“LMA”) and International Swaps and Derivative Association (“ISDA”) agreements,alongside associated Credit
Support Annex (“CSA”) legal documents. Any bilateral secured financing transaction is executed under a signed Global
Master Repurchase Agreement (“GMRA”) or an ISDA agreement.
The Group’s objective is to manage its credit portfolios maintaining a sound and prudent credit risk profile, whilst op-
timising returns for the Group. To facilitate achieving this target, the Groupinvests in a diversified portfolio of financial
assets,including both high quality securities with strong ratings stability and a diversified portfolioof loans to corpo-
rates, whose higher returns are viewed as justifying a greater level of risk. In accordance with its business strategy, the
Group is de-risking its asset portfolio by reducing its exposureto the International Corporate Lending portfolio, with the
portfolio size having been reduced by 36% over the last financial year.
Accordingly the Group’s credit risk taking activities comprise principally lending to international and Maltese corporate
clients,classified under the International Corporate Lending and Maltese Business Lending portfolios respectively;
residential mortgage lending classified under the Dutch, Belgian and Maltese Mortgage portfolios; investments in debt
securities classified under the Securities Investment portfolio; and investments in CLO structures classified under the
Securitisation Investment portfolio, which activities are described below.
The Group is further diversifying its business through growth in a Dutch National Mortgage portfolio,which portfolio
benefits from favourable credit risk weighting treatment as a result of the NHG provided under the Dutch nation-
al-guaranteed mortgage programme (the so called NHG mortgages); the growth of the Belgian retail mortgages and
Dutch buy-to-let mortgages and the growth in the Maltese Mortgage business and corporate lending businesses; and
82Annual Report and Financial Statements 2023
CLO notes that are rated below AAA pertains to tranches in CLOs originated by the Group,which are held specifically
to meet risk retention rules as required under the Capital Requirements Regulation (CRR).
The Group’s financial assets are managed on a portfolio basis, considering correlations between asset classes.The
Group diversifies its exposures to avoid excessive concentration in particular countries, industries or types of financial
institutions through its risk appetite framework and statement.
All exposures classified under theInternational Corporate Lending and Securitisation Investment portfolios undergo a
thorough analysis process, not only from an internal credit perspective but also from a legal, financial and credit ratings
perspective.
The Group’s Corporate Credit and Risk teams, which manage the credit analysis and research process, are composed
of highly trained individuals with specialised skill sets and years of experience in Corporate Syndicated Loans markets.
The credit analysis and research process includes scenario analysis on investments to determine whetherthey can
withstand significant adverse credit, idiosyncratic and market events.Additionally, the portfolio is subject to a continual,
thorough monitoring and oversight process to identify any financial instruments which require increased monitoring of
performance. Further details on the credit approval and monitoring processes are provided within the Group’s Pillar 3
Disclosures report available in the following webpage: https://www.medirect.com.mt/about-us/investor-relations.
In respect of the Maltese Business Lending portfolio, MeDirect Malta’s Corporate lending team is responsible for per-
forming the primary credit analysis on proposed credits, as well as performing regular borrower reviews to monitor the
performanceof the underlying exposures, recommending appropriate courses of action and co-ordinating the deci-
sion-making process. The Risk team is responsible forreviewing the primary credit analysis performed by the Corporate
Credit team, challenging key views and assumptions adopted by the first line of defence, including engaging in discus-
sion during Management Credit Committee meetings and providing recommendations on the appropriate course of
action. Portfolio and credit file reviews are performed regularly to monitor the performance of the underlying exposures
and to evaluate the level of credit risk within the portfolio, including the performance of market sectors and concentra-
tions therein, with the objective to build and maintain assets of high quality.
The Maltese Retail lending portfoliois not managed on an individual borrowerbasis, due to the high volume of relatively
low value and homogenous exposures but is instead monitored on a portfolio level basis. The Maltese lending unit will
alert the Management Credit Committee of any material issues or early warning signs identified and any MCC member
may ask for any credit to be reviewed in detail.
As referred to previously, the Group also has a Dutch and Belgian mortgage business line. The Dutch national-guaran-
teed mortgagebusiness line benefits from a private non-profit fund guarantee and government guarantee (indirectly),
credit risk is deemed to be low.The residual credit risk arising therefrom is managed by MeDirect Belgium’s Credit
and Risk teams. On a regular basis a sample file review is performed by the Business and Credit Teams with the Risk
and Compliance Teams shadowing the process. Anumber of mortgages that would have been originated in the prior
months are selected, some of which are subject to a detailed and complete file review with the remaining subject to
a high-level review. Emphasis is placed on NHG compliance,the borrower’s laboursituation and income as well as on
the veracity of the collateral valuation. Furthermore,meetings are held on a regular basis in which the Dutch economy,
Dutch mortgage market, NHG developments and the snapshot of the credit risk profile of the portfolio is discussed, by
referenceto risk appetite limits,internal credit classification of the current portfolio along with the development of the
staging and expected credit losses of the portfolio.
Credit risk involved in both the Dutch buy-to-let activity as well as the Belgian mortgage activity differs from Dutch
mortgages as they do not benefit from a third-party guarantee.
83Annual Report and Financial Statements 2023
Every application undergoes a thorough screening based on a predefined set of criteria. If one or more requirements
is not met, credit files are reviewed by a Joint Credit Committee, comprised of a MeDirect Belgium’s Business and Risk
delegation. To check the exhaustive and correct application of predefined criteria, regular sample checks are organised
on both data collected as well as assessments performed.Moreover, regularcontrols are put in place to confirm the
adequacy of processes, staffing, systems and controls by 2nd and 3rd line of defence.
The Treasury function is responsible formanaging the Securities investment portfolio, overseen by the risk function,
under the oversight of the Management Credit Committee (“MCC”) and the Board Risk and Compliance Committee.
The Group focuses on acquiring debt securities meeting the criteria of high-quality liquid assets (“HQLA”). Permitted
assets in this portfolio include covered bonds issued by governments (including regional governments), agencies and
supranational institutions, as well as securities issued by financial institutions (some of which may carry a government
guarantee).
The Group focuses on the quality and timeliness of the data used to inform management decisions. In particular, en-
hanced credit risk monitoring is applied within the International Corporate Loan portfolio.
The Group adopts a discounted cash flow (“DCF”) approach for determining specific expected credit losses in respect
of non-performing exposures within the ICL portfolio, whereby the Enterprise Value (“EV”) of borrowers is prudently de-
termined by referenceto expected future cash flows under different scenarios overthe upcoming three-year period. The
projected cash flows used recent management information foreach borroweras the starting point. Expert judgement is
then applied to determine the cashflows under base and downside scenarios. This methodology enables the Group to
take a view of the steady state cashflows of borrowers overthe short to medium term, afterwhich point a terminal value
is estimated. The recoverable amount under each scenario is therefore estimated by reference to the EV, plus available
cash,less exit fees, discounted using the borrowers individually estimated weighted average cost of capital (“WACC”),
which is determined using multiple assumptions in respect of both the cost of debt and cost of equity. An element of
prudence is also built in the WACC calculation for each borrower.
The following table presents the maximum exposureto credit risk from on-balance sheet and off-balance sheet financial
instruments, before taking account of any collateral held or other credit enhancements. For financial assets recognised
on balance sheet, the maximum exposure to credit risk equals their carrying amount. For financial guarantees granted,
it is the maximum amount that the Group would have to pay if the guarantees were called upon. For loan commitments
and other credit-related commitments, it is generally the full amount of the committed facilities.
For the purposes of Note 2.2 – Credit risk, amounts related to “Investments measured at amortised cost” are inclusive
84Annual Report and Financial Statements 2023
2023 2022 2023 2022
€000 €000 €000 €000
Net exposure:
Financial assets measured at amortised cost
Balances with central banks 265,398 149,925 88,745 42,442
Loans and advances to financial institutions 352,793 402,987 46,252 89,837
Loans and advances to customers 2,746,271 2,389,293 403,360 518,106
- International Corporate Lending portfolio 328,506 512,114 161,920 319,656
- Dutch Mortgage portfolio 2,104,568 1,818,002 - -
- Belgian Mortgage portfolio 254,937 132,000 - -
- IFRS basis adjustment: International Mortgage portfolio (183,180) (271,273) - -
- Maltese Business Lending portfolio 142,841 130,852 142,841 130,852
- Maltese Mortgage portfolio 98,599 67,598 98,599 67,598
Investments measured at amortised cost 1,310,232 1,262,175 441,384 457,660
- Securities portfolio 705,910 688,746 282,994 299,267
- Securitisation portfolio 604,322 573,429 158,390 158,393
Accrued income 23,930 14,097 7,280 4,338
Loans to related parties (included in other assets) 41 652 5,458 8,618
Other receivables (included in other assets) 1,024 1,712 869 1,609
Other assets (included in other assets) 28,342 25,968 2,390 1,945
4,728,031 4,246,809 995,738 1,124,555
Instruments mandatorily measured at fair value through profit or loss 208,968 369,246 1,530 13,090
- Held for trading derivative financial instruments 511 2,014 511 1,257
- Held for risk management derivative financial instruments 207,439 361,368 1 6,788
- Investments - Securities portfolio - 5,292 - 4,473
- Investments - Securitisation portfolio 1,018 572 1,018 572
4,936,999 4,616,055 997,268 1,137,645
Commitments to extend credit, guarantees and other commitments 260,017 342,233 128,705 165,200
85Annual Report and Financial Statements 2023
Group
2023 2022
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000
Financial assets measured at amortised cost
Balances with central banks 265,400 (2) 149,927 (2)
Loans and advances to financial institutions 352,794 (1) 402,988 (1)
Loans and advances to customers 2,760,290 (14,019) 2,404,714 (15,421)
- International Corporate Lending portfolio 340,950 (12,444) 526,813 (14,699)
- Dutch Mortgage portfolio 2,104,853 (285) 1,818,186 (184)
- Belgian Mortgage portfolio 255,290 (353) 132,130 (130)
- IFRS basis adjustment: International Mortgage portfolio (183,180) - (271,273) -
- Maltese Business Lending portfolio 143,399 (558) 131,065 (213)
- Maltese Mortgage portfolio 98,978 (379) 67,793 (195)
Investments measured at amortised cost 1,310,480 (248) 1,262,550 (375)
- Securities portfolio 705,976 (66) 688,942 (196)
- Securitisation portfolio 604,504 (182) 573,608 (179)
Accrued income 24,228 (298) 14,392 (295)
Loans to related parties (included in other assets) 41 - 652 -
Other receivables (included in other assets) 1,024 - 1,712 -
Other assets (included in other assets) 28,342 - 25,968 -
4,742,599 (14,568) 4,262,903 (16,094)
Commitments to extend credit, guarantees and other commitments 260,315 (298) 343,496 (1,263)
Total 5,002,914 (14,866) 4,606,399 (17,357)
Summary of financial instruments to which the impairment requirements in IFRS 9 are applied
The following disclosures present the gross carrying/nominal amount of financial instruments measured at amortised
cost to which the impairment requirements in IFRS 9 are applied and the associated credit loss allowances, as well as
86Annual Report and Financial Statements 2023
The following table contains an analysis of the maximum credit risk exposure from financial assets not subject
to impairment.
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Instruments mandatorily measured at fair value through profit or loss
- Held for trading derivative financial instruments 511 2,014 511 1,257
- Held for risk management derivative financial instruments 207,439 361,368 1 6,788
- Investments - Securities portfolio - 5,292 - 4,473
- Investments - Securitisation portfolio 1,018 572 1,018 572
Total 208,968 369,246 1,530 13,090
Bank
2023 2022
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000
Financial assets measured at amortised cost
Balances with central banks 88,746 (1) 42,443 (1)
Loans and advances to financial institutions 46,253 (1) 89,838 (1)
Loans and advances to customers 414,645 (11,285) 530,267 (12,161)
- International Corporate Lending portfolio 172,268 (10,348) 331,409 (11,753)
- Maltese Business Lending portfolio 143,399 (558) 131,065 (213)
- Maltese Mortgage portfolio 98,978 (379) 67,793 (195)
Investments measured at amortised cost 441,555 (171) 457,936 (276)
- Securities portfolio 283,028 (34) 299,406 (139)
- Securitisation portfolio 158,527 (137) 158,530 (137)
Accrued income 7,556 (276) 4,615 (277)
Loans to related parties (included in other assets) 5,458 - 8,618 -
Other receivables (included in other assets) 869 - 1,609 -
Other assets (included in other assets) 2,390 - 1,945 -
1,007,472 (11,734) 1,137,271 (12,716)
Commitments to extend credit, guarantees and other commitments 128,923 (218) 166,311 (1,111)
Total 1,136,395 (11,952) 1,303,582 (13,827)
87Annual Report and Financial Statements 2023
2.2.2 Summary of credit quality of financial assets to which impairment requirements in IFRS 9 are
applied
The Group’s credit risk rating processes are designed to highlight exposures which require closer management atten-
tion because of their greater probability of default and potential loss.
As previously explained in the accounting policy (refer to Note 1.5), the Group adopts a five-point internal credit clas-
sification rating scale in orderto assess the relative credit quality of exposures within its portfolios of financial instru-
ments. In this respect, the members of the respective Management Credit Committees review the grading proposed by
the business and the Group’s Credit Risk teams. Each of the five internal credit classification ratings within the scale
is aligned to the Group’s approach for determining the relative staging of financial assets in line with the requirements
emanating from IFRS 9 as follows:
Stage 1 (Performing)
1. Regular - no material credit concerns.
2. Focus - no immediate prospect that a credit loss will ultimately be suffered, but worthy of close credit oversight.
Stage 2 (Underperforming)
3.Under Surveillance - significant increasein credit risk with identified concerns and some prospect that a credit loss
may ultimately be suffered.
Stage 3 (Non-performing)
4. Doubtful - it is likely that the contractual terms of the debt will not be met and that a credit loss will be suffered.
5. Write-off - full or partial write-down of exposures with little prospect of recovery.
The financial assets recorded in each stage have the following characteristics:
• Stage 1: Non credit-impaired and without significant increase in credit risk on which a 12-month ECL is recog-
nised (Regular and Focus internal classifications)
• Stage 2: A significant increase in credit risk has been experienced since initial recognition on which a lifetime
ECL is recognised (Under Surveillance internal classification)
• Stage 3: Objective evidence of impairment and are therefore considered to be in default or otherwise credit-
impaired on which a lifetime specific ECL is recognised (Doubtful and Write-off internal classifications)
Deteriorating Credits
The Group determines that a financial instrument is credit-impaired and in Stage 3 by considering relevant objective
evidence, primarily whether:
• contractual payments of either principal or interest are past due by more than 90 days;
• there are other indications that the borrower is unlikely to pay, such as when a concession has been granted to
the borrower for economic or legal reasons relating to the borrower’s financial condition; and
• the loan is otherwise considered to be in default.
Credit impaired loans and advances are those that are classified as “Doubtful” or“Write-off”. These grades are assigned
when the Group considers that either the customeris unlikely to pay its credit obligations in full, without recourse to
security, or when the customer is more than 90 days past due on any material credit obligation to the Group. If unlikeli-
ness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is more than 90 days past due.
The Group is required to identify non-performing exposures (“NPEs”) and to assess the recoverability of the recognised
88Annual Report and Financial Statements 2023
The principal guidance on the definition of NPEs,as referred to the EBA publication “Guidelines on management of
non-performing and forborne exposures“ EBA/GL/2018/06 which specify sound risk management practices for credit
institutions for managing non-performing exposures (NPEs), forborne exposures (“FBEs”) and foreclosed assets.
According to the EBA International Technical Standards on supervisory reporting, “nonperforming exposures” are those
that satisfy either or both of the following criteria:
a) material exposures which are more than 90 days past-due; and
b) the debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the
existence of any past-due amount or of the number of days past due.
Assessment is made at an obligor (rather than facility) level. This implies that in those cases where a particular debtor
has multiple facilities with the Group, the Group considers whether thereare indications of unlikeliness to pay at the
level of the debtor, irrespective of the different levels of losses that can be incurred in respect of the different facilities
resulting from different levels of seniority.
Therefore, the definitions of credit-impaired is aligned as far as possible to the regulatory definition of ‘non-perform-
ing’ so that Stage 3 represents all loans that areconsidered defaulted or otherwise credit-impaired. For furtherclarity,
exposures in respect of which a “default”is considered to have occurred,and exposures that have been found “credit
impaired” in accordance with IFRS as adopted by the EU, shall always be considered as “non-performing exposures”.
As described in more detail in section 1.5 of the financial statements, the Group’s staging assessment in respect of
exposures classified within the International Corporate Lending portfolio takes into consideration both qualitative and
quantitative criteria.
The impact on borrowers’ financial performance of post COVID-19 pandemic headwinds and the macroeconomic
impacts of the Ukraine-Russia and Israel-Gaza conflicts, seeing increased cost inflation, energy inflation and interest
rate rises on the financial performance of borrowers within the Group’s lending portfolios, is captured within the quanti-
tative assessment determined within the Group’s IFRS 9 model, since it is taken intoaccount within the macro-econom-
ic scenarios used to determine the probability weighted ECL, as well as in the life-time PiT PDs at reporting date used
to determine SICR by comparing the magnitude of the difference between the corresponding reporting date implied
rating and the origination date implied rating.
The Group exercises a degree of caution in respect of determining whether a significant increase in credit risk has
occurred since origination. In this respect, management has introduced certain caps/notch downgrades to the implied
ratings assigned to borrowers within the International Corporate lending portfolio that have undergone significant re-
structuring to reflect an increased level of credit risk since origination. Notch downgrades were also applied to expo-
sures that havequalitatively been considered ‘under surveillance’, due to management’s concerns that credit losses
may potentially be incurred in the future.
As described in more detail in section 1.5 of the financial statements, the staging criteria applied in respect of expo-
sures classified within the Dutch Mortgage portfolioare based on credit deterioration indicators such as delinquency
levels, forbearance activity and changes in PDs modelled by an external vendor on the basis of forecasted macroeco-
nomic scenarios which are revised to reflect the elevated level of economic uncertainty driven by the military conflict
between Russia and Ukraine and between Israel and Hamas and the high interest rates, as explained in more detail
in Note 2.2.7 - ‘Current Conditions and Forward-looking information incorporated in the ECLmodel’. In this regard, the
staging criteria are still deemed to be appropriate, with the impact of these conflicts on the credit risk profile of the
Dutch Mortgage portfolio being captured in the modelling of PDs.Through climate-adjusted scenarios and a statistical
model sourced from an external vendorthe Group estimates the climate-adjusted credit loss allowances of its expo-
89Annual Report and Financial Statements 2023
Exposures within the Securities Investment and Securitisation Investment portfolios are typically rated, with the excep-
tion of the Group’s investment in the GH1-2019 equity tranche measured at FVTPL. Publicly rated exposures predomi-
nantly meet the definition of investment-grade rating and, in this respect, are considered to have low credit risk. A SICR
assessment is only performed in respect of exposures to which a sub-investment-grade rating has been attributed.
The following table presents information about the credit quality of financial assets held by the Group and the Bank to
90Annual Report and Financial Statements 2023
Group
Performing
Under
performing
Non-
performing
Regular Focus
Under
surveillance Doubtful POCI Total
As at 31 December 2023 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 265,398 - - - - 265,398
Gross 265,400 - - - - 265,400
Credit loss allowances (2) - - - - (2)
Loans and advances to financial institutions 352,793 - - - - 352,793
Gross 352,794 - - - - 352,794
Credit loss allowances (1) - - - - (1)
Loans and advances to customers 2,492,970 146,106 43,996 62,985 214 2,746,271
- International Corporate Lending portfolio 151,094 112,016 20,279 44,903 214 328,506
Gross 152,692 112,995 20,982 53,855 426 340,950
Credit loss allowances (1,598) (979) (703) (8,952) (212) (12,444)
- Dutch Mortgage portfolio 2,091,229 3,080 9,962 297 - 2,104,568
Gross 2,091,365 3,080 10,107 301 - 2,104,853
Credit loss allowances (136) - (145) (4) - (285)
- Belgian Mortgage portfolio 221,539 28,843 4,059 496 - 254,937
Gross 221,761 28,870 4,105 554 - 255,290
Credit loss allowances (222) (27) (46) (58) - (353)
- IFRS basis adjustment: International Mortgage portfolio (183,180) - - - - (183,180)
- Maltese Business Lending portfolio 113,810 2,167 9,696 17,168 - 142,841
Gross 114,162 2,173 9,696 17,368 - 143,399
Credit loss allowances (352) (6) - (200) - (558)
- Maltese Mortgage portfolio 98,478 - - 121 - 98,599
Gross 98,834 - - 144 - 98,978
Credit loss allowances (356) - - (23) - (379)
Investments measured at amortised costInvestments measured at amortised cost 1,309,822 - 410 - - 1,310,232
- Securities portfolio 705,910 - - - - 705,910
Gross 705,976 - - - - 705,976
Credit loss allowances (66) - - - - (66)
- Securitisation portfolio 603,912 - 410 - - 604,322
Gross 603,973 - 531 - - 604,504
Credit loss allowances (61) - (121) - - (182)
Accrued income 20,369 2,308 241 1,012 - 23,930
Gross 20,388 2,321 247 1,272 - 24,228
Credit loss allowances (19) (13) (6) (260) - (298)
Loans to related parties (included in other assets) 41 - - - - 41
Other receivables (included in other assets) 1,024 - - - - 1,024
Other assets (included in other assets) 28,342 - - - - 28,342
4,470,759 148,414 44,647 63,997 214 4,728,031
Off balance sheet at nominal amount:
Commitments to extend credit, guarantees
and other commitments
Nominal amount 249,158 8,074 1,587 1,496 - 260,315
Credit loss allowances (122) (61) (3) (112) - (298)
249,036 8,013 1,584 1,384 - 260,017
91Annual Report and Financial Statements 2023
Group
Performing
Under
performing
Non-
performing
Regular Focus
Under
surveillance Doubtful POCI Total
As at 31 December 2022 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 149,925 - - - - 149,925
Gross 149,927 - - - - 149,927
Credit loss allowances (2) - - - - (2)
Loans and advances to financial institutions 402,987 - - - - 402,987
Gross 402,988 - - - - 402,988
Credit loss allowances (1) - - - - (1)
Loans and advances to customers 2,083,930 156,626 94,854 53,672 211 2,389,293
- International Corporate Lending portfolio 272,553 127,688 74,649 37,013 211 512,114
Gross 275,644 129,762 77,591 43,381 435 526,813
Credit loss allowances (3,091) (2,074) (2,942) (6,368) (224) (14,699)
- Dutch Mortgage portfolio 1,809,918 810 6,775 499 - 1,818,002
Gross 1,810,024 810 6,846 506 - 1,818,186
Credit loss allowances (106) - (71) (7) - (184)
- Belgian Mortgage portfolio 107,191 23,037 1,772 - - 132,000
Gross 107,286 23,056 1,788 - - 132,130
Credit loss allowances (95) (19) (16) - - (130)
- IFRS basis adjustment: International Mortgage portfolio (271,273) - - - - (271,273)
- Maltese Business Lending portfolio 97,943 5,091 11,658 16,160 - 130,852
Gross 98,146 5,096 11,662 16,161 - 131,065
Credit loss allowances (203) (5) (4) (1) - (213)
- Maltese Mortgage portfolio 67,598 - - - - 67,598
Gross 67,793 - - - - 67,793
Credit loss allowances (195) - - - - (195)
Investments measured at amortised costInvestments measured at amortised cost 1,249,738 - 12,437 - - 1,262,175
- Securities portfolio 676,711 - 12,035 - - 688,746
Gross 676,805 - 12,137 - - 688,942
Credit loss allowances (94) - (102) - - (196)
- Securitisation portfolio 573,027 - 402 - - 573,429
Gross 573,085 - 523 - - 573,608
Credit loss allowances (58) - (121) - - (179)
Accrued income 12,126 1,480 438 48 5 14,097
Gross 12,146 1,504 454 283 5 14,392
Credit loss allowances (20) (24) (16) (235) - (295)
Loans to related parties (included in other assets) 652 - - - - 652
Other receivables (included in other assets) 1,712 - - - - 1,712
Other assets (included in other assets) 25,968 - - - - 25,968
3,927,038 158,106 107,729 53,720 216 4,246,809
Off balance sheet at nominal amount:
Commitments to extend credit, guarantees
and other commitments
Nominal amount 294,892 35,214 7,781 5,609 - 343,496
Credit loss allowances (393) (167) (63) (640) - (1,263)
294,499 35,047 7,718 4,969 - 342,233
92Annual Report and Financial Statements 2023
Bank
Performing
Under
performing
Non-
performing
Regular Focus
Under
surveillance Doubtful POCI Total
As at 31 December 2023 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 88,745 - - - - 88,745
Gross 88,746 - - - - 88,746
Credit loss allowances (1) - - - - (1)
Loans and advances to financial institutions 46,252 - - - - 46,252
Gross 46,253 - - - - 46,253
Credit loss allowances (1) - - - - (1)
Loans and advances to customers 277,903 46,823 18,873 59,547 214 403,360
- International Corporate Lending portfolio 65,615 44,656 9,177 42,258 214 161,920
Gross 66,412 45,007 9,495 50,928 426 172,268
Credit loss allowances (797) (351) (318) (8,670) (212) (10,348)
- Maltese Business Lending portfolio 113,810 2,167 9,696 17,168 - 142,841
Gross 114,162 2,173 9,696 17,368 - 143,399
Credit loss allowances (352) (6) - (200) - (558)
- Maltese Mortgage portfolio 98,478 - - 121 - 98,599
Gross 98,834 - - 144 - 98,978
Credit loss allowances (356) - - (23) - (379)
Investments measured at amortised costInvestments measured at amortised cost 440,974 - 410 - - 441,384
- Securities portfolio 282,994 - - - - 282,994
Gross 283,028 - - - - 283,028
Credit loss allowances (34) - - - - (34)
- Securitisation portfolio 157,980 - 410 - - 158,390
Gross 157,996 - 531 - - 158,527
Credit loss allowances (16) - (121) - - (137)
Accrued income 4,838 1,330 129 983 - 7,280
Gross 4,847 1,336 132 1,241 - 7,556
Credit loss allowances (9) (6) (3) (258) - (276)
Loans to related parties (included in other assets) 5,458 - - - - 5,458
Other receivables (included in other assets) 869 - - - - 869
Other assets (included in other assets) 2,390 - - - - 2,390
867,429 48,153 19,412 60,530 214 995,738
Off balance sheet at nominal amount:
Commitments to extend credit, guarantees
and other commitments
Nominal amount 126,026 67 1,334 1,496 - 128,923
Credit loss allowances (105) - (1) (112) - (218)
125,921 67 1,333 1,384 - 128,705
93Annual Report and Financial Statements 2023
Bank
Performing
Under
performing
Non-
performing
Regular Focus
Under
surveillance Doubtful POCI Total
As at 31 December 2022 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 42,442 - - - - 42,442
Gross 42,443 - - - - 42,443
Credit loss allowances (1) - - - - (1)
Loans and advances to financial institu-
tions
89,837 - - - - 89,837
Gross 89,838 - - - - 89,838
Credit loss allowances (1) - - - - (1)
Loans and advances to customers 320,411 76,205 68,174 53,105 211 518,106
- International Corporate Lending portfolio 154,870 71,114 56,516 36,945 211 319,656
Gross 156,525 72,444 58,692 43,313 435 331,409
Credit loss allowances (1,655) (1,330) (2,176) (6,368) (224) (11,753)
- Maltese Business Lending portfolio 97,943 5,091 11,658 16,160 - 130,852
Gross 98,146 5,096 11,662 16,161 - 131,065
Credit loss allowances (203) (5) (4) (1) - (213)
- Maltese Mortgage portfolio 67,598 - - - - 67,598
Gross 67,793 - - - - 67,793
Credit loss allowances (195) - - - - (195)
Investments measured at amortised costInvestments measured at amortised cost 445,223 - 12,437 - - 457,660
- Securities portfolio 287,232 - 12,035 - - 299,267
Gross 287,269 - 12,137 - - 299,406
Credit loss allowances (37) - (102) - - (139)
- Securitisation portfolio 157,991 - 402 - - 158,393
Gross 158,007 - 523 - - 158,530
Credit loss allowances (16) - (121) - - (137)
Accrued income 3,964 20 306 48 - 4,338
Gross 3,995 20 317 283 - 4,615
Credit loss allowances (31) - (11) (235) - (277)
Loans to related parties (included in other
assets)
8,618 - - - - 8,618
Other receivables (included in other
assets)
1,609 - - - - 1,609
Other assets (included in other assets) 1,945 - - - - 1,945
914,049 76,225 80,917 53,153 211 1,124,555
Off balance sheet at nominal amount:
Commitments to extend credit, guarantees
and other commitments
Nominal amount 128,626 26,062 6,014 5,609 - 166,311
Credit loss allowances (337) (83) (51) (640) - (1,111)
128,289 25,979 5,963 4,969 - 165,200
94Annual Report and Financial Statements 2023
For securities within both the Securities Investment and Securitisation Investment portfolios, the Group’s credit quality
classifications encompass a range of more granular external rating grades attributed by external agencies to debt se-
These portfolios are also categorised under the five credit quality classifications used by the Group (i.e. regular, focus,
under surveillance, doubtful and write-off) and these ratings are determined by the Management Credit Committee.
As at 31 December 2023 and 2022, all the investments in the Securities Investment portfolio and the Securitisation
Investment portfolio are classified as regular, with the exception of the Group’s investment in the most junior non-equity
GH1-2019 tranche measured at amortised cost, which is rated B+ (2022: B) and which is deemed to have experienced
a SICR since initial recognition hence being classified as “Under Surveillance”. Staging in respect of the Group’s invest-
ment in the GH1-2019 structured note tranches is determined by referenceto Implied Ratings determined in accordance
with the methodology described in Note 1.5 of the financial statements, whereby a SICR assessment is only performed
when Implied Ratings fall below investment-grade.
Measured at amortised cost
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Securities Investment portfolio
National and regional government
securities, supranationals and agencies
AAA 355,859 348,689 103,495 86,598
AA+ to AA- 300,319 303,760 164,579 200,634
A- to BBB- 49,732 24,262 14,920 -
Other securities
Not rated - 12,035 - 12,035
705,910 688,746 282,994 299,267
Securitisation Investment portfolio
AAA 598,427 567,553 152,495 152,517
AA+ to AA- 2,950 2,950 2,950 2,950
A- to BBB- - 1,399 - 1,399
BB+ to B- 2,945 1,527 2,945 1,527
604,322 573,429 158,390 158,393
Total 1,310,232 1,262,175 441,384 457,660
95Annual Report and Financial Statements 2023
2.2.3 Detailed information on credit quality of financial assets
The following table provides an overview of the Group’s credit risk by stage and business segment, and the associated
ECL coverage.
Summary of credit risk (excluding financial instruments not subject to impairment requirements) by stage distribution
and ECL coverage
Gross carrying/nominal amount Credit loss allowance ECL coverage %
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Group €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 % % % % %
As at 31 December
2023
On balance sheet
at amortised cost:
Balances with
central banks
265,400 - - - 265,400 (2) - - - (2) - - - - -
Loans and ad-
vances to financial
institutions
352,794 - - - 352,794 (1) - - - (1) - - - - -
Loans and advanc-
es to customers
- International
Corporate Lending
portfolio
265,687 20,982 53,855 426 340,950 (2,577) (703) (8,952) (212) (12,444) 1.0 3.4 16.6 49.8 3.6
- Dutch Mortgage
portfolio
2,094,445 10,107 301 - 2,104,853 (136) (145) (4) - (285) - 1.4 1.3 - -
- Belgian Mortgage
portfolio
250,631 4,105 554 - 255,290 (249) (46) (58) - (353) 0.1 1.1 10.5 - 0.1
- IFRS basis adjust-
ment: International
Mortgage portfolio
(183,180) - - - (183,180) - - - - - - - - - -
- Maltese Business
Lending portfolio
116,335 9,696 17,368 - 143,399 (358) - (200) - (558) 0.3 - 1.2 - 0.4
- Maltese Mortgage
portfolio
98,834 - 144 - 98,978 (356) - (23) - (379) 0.4 - 16.0 - 0.4
Investments
measured at
amortised cost
- Securities portfolio 705,976 - - - 705,976 (66) - - - (66) - - - - -
- Securitisation
portfolio
603,973 531 - - 604,504 (61) (121) - - (182) - 22.8 - - -
Accrued income 22,709 247 1,272 - 24,228 (32) (6) (260) - (298) 0.1 2.4 20.4 - 1.2
Loans to related
parties (included in
other assets)
41 - - - 41 - - - - - - - - - -
Other receivables
(included in other
assets)
1,024 - - - 1,024 - - - - - - - - - -
Other assets
(included in other
assets)
28,342 - - - 28,342 - - - - - - - - - -
Off balance sheet
at nominal amount:
Commitments to
extend credit, finan-
cial guarantees and
other commitments
257,232 1,587 1,496 - 260,315 (183) (3) (112) - (298) 0.1 0.2 7.5 - 0.1
4,880,243 47,255 74,990 426 5,002,914 (4,021) (1,024) (9,609) (212) (14,866) 0.1 2.2 12.8 49.8 0.3
96Annual Report and Financial Statements 2023
Gross carrying/nominal amount Credit loss allowance ECL coverage %
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Group €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 % % % % %
As at 31 December
2022
On balance sheet
at amortised cost:
Balances with
central banks
149,927 - - - 149,927 (2) - - - (2) - - - - -
Loans and advanc-
es to
financial institutions
402,988 - - - 402,988 (1) - - - (1) - - - - -
Loans and advanc-
es to customers
- International
Corporate Lending
portfolio
405,406 77,591 43,381 435 526,813 (5,165) (2,942) (6,368) (224) (14,699) 1.3 3.8 14.7 51.5 2.8
- Dutch Mortgage
portfolio
1,810,834 6,846 506 - 1,818,186 (106) (71) (7) - (184) - 1.0 1.4 - -
- Belgian Mortgage
portfolio
130,342 1,788 - - 132,130 (114) (16) - - (130) 0.1 0.9 - - 0.1
- IFRS basis adjust-
ment: International
Mortgage portfolio
(271,273) - - - (271,273) - - - - - - - - - -
- Maltese Business
Lending portfolio
103,242 11,662 16,161 - 131,065 (208) (4) (1) - (213) 0.2 - - - 0.2
- Maltese Mortgage
portfolio
67,793 - - - 67,793 (195) - - - (195) 0.3 - - - 0.3
Investments
measured at
amortised cost
- Securities portfolio 676,805 12,137 - - 688,942 (94) (102) - - (196) - 0.8 - - -
- Securitisation
portfolio
573,085 523 - - 573,608 (58) (121) - - (179) - 23.1 - - -
Accrued income 13,650 454 283 5 14,392 (44) (16) (235) - (295) 0.3 3.5 83.0 - 2.0
Loans to related
parties (included in
other assets)
652 - - - 652 - - - - - - - - - -
Other receivables
(included in other
assets)
1,712 - - - 1,712 - - - - - - - - - -
Other assets
(included in other
assets)
25,968 - - - 25,968 - - - - - - - - - -
Off balance sheet
at nominal amount:
Commitments to
extend credit, finan-
cial guarantees and
other commitments
330,106 7,781 5,609 - 343,496 (560) (63) (640) - (1,263) 0.2 0.8 11.4 - 0.4
4,421,237 118,782 65,940 440 4,606,399 (6,547) (3,335) (7,251) (224) (17,357) 0.1 2.8 11.0 50.9 0.4
97Annual Report and Financial Statements 2023
Gross carrying/nominal amount Credit loss allowance ECL coverage %
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Bank €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 % % % % %
As at 31 December
2023
On balance sheet at
amortised cost:
Balances with central
banks
88,746 - - - 88,746 (1) - - - (1) - - - - -
Loans and advances
to financial institu-
tions
46,253 - - - 46,253 (1) - - - (1) - - - - -
Loans and advances
to customers
- International Corpo-
rate Lending portfolio
111,419 9,495 50,928 426 172,268 (1,148) (318) (8,670) (212) (10,348) 1.0 3.3 17.0 49.8 6.0
- Maltese Business
Lending portfolio
116,335 9,696 17,368 - 143,399 (358) - (200) - (558) 0.3 - 1.2 - 0.4
- Maltese Mortgage
portfolio
98,834 - 144 - 98,978 (356) - (23) - (379) 0.4 - 16.0 - 0.4
Investments
measured at
amortised cost
- Securities portfolio 283,028 - - - 283,028 (34) - - - (34) - - - - -
- Securitisation
portfolio
157,996 531 - - 158,527 (16) (121) - - (137) - 22.8 - - 0.1
Accrued income 6,183 132 1,241 - 7,556 (15) (3) (258) - (276) 0.2 2.3 20.8 - 3.7
Loans to related par-
ties (included in other
assets)
5,458 - - - 5,458 - - - - - - - - - -
Other receivables
(included in other
assets)
869 - - - 869 - - - - - - - - - -
Other assets (includ-
ed in other assets)
2,390 - - - 2,390 - - - - - - - - - -
Off balance sheet at
nominal amount:
Commitments to
extend credit, financial
guarantees and other
commitments
126,093 1,334 1,496 - 128,923 (105) (1) (112) - (218) 0.1 0.1 7.5 - 0.2
1,043,604 21,188 71,177 426 1,136,395 (2,034) (443) (9,263) (212) (11,952) 0.2 2.1 13.0 49.8 1.1
98Annual Report and Financial Statements 2023
Gross carrying/nominal amount Credit loss allowance ECL coverage %
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Bank €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 % % % % %
As at 31 December
2022
On balance sheet at
amortised cost:
Balances with central
banks
42,443 - - - 42,443 (1) - - - (1) - - - - -
Loans and advances
to financial institu-
tions
89,838 - - - 89,838 (1) - - - (1) - - - - -
Loans and advances
to customers
- International Corpo-
rate Lending portfolio
228,969 58,692 43,313 435 331,409 (2,985) (2,176) (6,368) (224) (11,753) 1.3 3.7 14.7 51.5 3.5
- Maltese Business
Lending portfolio
103,242 11,662 16,161 - 131,065 (208) (4) (1) - (213) 0.2 - - - 0.2
- Maltese Mortgage
portfolio
67,793 - - - 67,793 (195) - - - (195) 0.3 - - - 0.3
Investments meas-
ured at amortised
cost
- Securities portfolio 287,269 12,137 - - 299,406 (37) (102) - - (139) - 0.8 - - -
- Securitisation
portfolio
158,007 523 - - 158,530 (16) (121) - - (137) - 23.1 - - 0.1
Accrued income 4,015 317 283 - 4,615 (31) (11) (235) - (277) 0.8 3.5 83.0 - 6.0
Loans to related par-
ties (included in other
assets)
8,618 - - - 8,618 - - - - - - - - - -
Other receivables
(included in other
assets)
1,609 - - - 1,609 - - - - - - - - - -
Other assets (includ-
ed in other assets)
1,945 - - - 1,945 - - - - - - - - - -
Off balance sheet at
nominal amount:
Commitments to
extend credit, financial
guarantees and other
commitments
154,688 6,014 5,609 - 166,311 (420) (51) (640) - (1,111) 0.3 0.8 11.4 - 0.7
1,148,436 89,345 65,366 435 1,303,582 (3,894) (2,465) (7,244) (224) (13,827) 0.3 2.8 11.1 51.5 1.1
An exposure is “past due” when any amount of principal, interest or fee has not been paid on the date it was due. Past
due but not credit-impaired loans are those loans and advances forwhich contractual interest or principal payments
are past due but do not meet the Group’s criteria for “credit impaired”as outlined in the Three stage expected credit
loss (ECL) approach.
MeDirect Malta and MeDirect Belgium do not have any exposures forming part of the International Corporate Lending,
Securities Investment and Securitisation Investment portfolios which are past due but not credit impaired.Past due
but not credit-impaired facilities are attributable to the MalteseBusiness Lending portfolio,representing exposures to
counterparties domiciled in Malta and concentrated within the real estate and construction sector, the Dutch Mort-
gage portfolio, representing residential mortgage exposures to households and individuals domiciled in the Neth-
erlands, the Belgian Mortgage portfolio, representing residential mortgage exposures to households and individu-
als domiciled in Belgium, as well as a small portfolioof professional lending exposures held forrental purposes and
99Annual Report and Financial Statements 2023
Gross exposure Credit loss allowance
Stage 2
Of which up
to 30 DPD
Of which more
than 30 DPD Stage 2
Of which up to 30
DPD
Of which more than
30 DPD
Group
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Dutch Mortgage portfolio
- Loans and advances to customers 10,107 7,387 2,720 (145) (48) (97)
Maltese Business Lending portfolio
- Loans and advances to customers 9,696 9,696 - - - -
- Accrued income 44 44 - - - -
Belgian Mortgage portfolio
- Loans and advances to customers 4,105 896 3,209 (46) (11) (35)
23,952 18,023 5,929 (191) (59) (132)
Gross exposure Credit loss allowance
Stage 2
Of which up
to 30 DPD
Of which more
than 30 DPD Stage 2
Of which up to 30
DPD
Of which more than
30 DPD
Group
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Dutch Mortgage portfolio
- Loans and advances to customers 6,846 5,667 1,179 (71) (1) (70)
Maltese Business Lending portfolio
- Loans and advances to customers 11,662 11,662 - (4) (4) -
- Accrued income 44 44 - - - -
Belgian Mortgage portfolio
- Loans and advances to customers 1,788 352 1,436 (16) (8) (8)
20,340 17,725 2,615 (91) (13) (78)
the Maltese Mortgage portfolio, representing home loans granted to Malta individuals.
Unless identified at an earlier stage, all financial assets are deemed to have experienced a significant increase in credit
risk when they are more than 30 days past due. As at 31 December2023 and 2022, no exposures within the Maltese
Mortgage portfolio, Securities Investment and Securitisation Investment portfolios were classified as Stage 2, with the
exception of the Group’s investment in the most junior GH1-2019 tranche measured at amortised cost, which was not
past due but classified as “Under Surveillance” as at 31 December 2023 and 2022. None of the Stage 2 exposures
within the International Corporate Lending portfolio were past due as at 31 December 2023 and 2022.
In this regard,the following disclosure only presents the ageing of Stage 2 financial assets in the Maltese Business
Lending and Dutch and Belgian Mortgage portfolios. It distinguishes between those assets that are classified as Stage
2 when they are either not past due or up to 30 days past due from those that are classified as Stage 2 due to ageing
and are more than 30 days past due (>30 DPD). Past due financial instruments are those loans where customers have
failed to make payments in accordance with the contractual terms of their facilities. As at 31 December2023,Stage 1
exposures with a gross carrying amount of €3.1 million (2022: €0.7 million) and €28.9 million (2022: €23.1 million) clas-
100Annual Report and Financial Statements 2023
Gross exposure Credit loss allowance
Stage 2
Of which up to
30 DPD
Of which more
than 30 DPD Stage 2
Of which up to
30 DPD
Of which more
than 30 DPD
Bank
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Maltese Business Lending portfolio
- Loans and advances to customers 9,696 9,696 - - - -
- Accrued income 44 44 - - - -
9,740 9,740 - - - -
Gross exposure Credit loss allowance
Stage 2
Of which up to
30 DPD
Of which more
than 30 DPD Stage 2
Of which up to
30 DPD
Of which more
than 30 DPD
Bank
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Maltese Business Lending portfolio
- Loans and advances to customers 11,662 11,662 - (4) (4) -
- Accrued income 44 44 - - - -
11,706 11,706 - (4) (4) -
101Annual Report and Financial Statements 2023
Group
Gross carrying amount/nominal amount
Regular Focus
Under
surveillance Doubtful POCI Total
Credit loss
allowance Net
As at 31 December 2023 €000 €000 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 265,400 - - - - 265,400 (2) 265,398
Loans and advances to financial institutions 352,794 - - - - 352,794 (1) 352,793
Loans and advances to customers
- International Corporate Lending portfolio
Stage 1 152,692 112,995 - - - 265,687 (2,577) 263,110
Stage 2 - - 20,982 - - 20,982 (703) 20,279
Stage 3 - - - 53,855 - 53,855 (8,952) 44,903
POCI - - - - 426 426 (212) 214
- Dutch Mortgage portfolio
Stage 1 2,091,365 3,080 - - - 2,094,445 (136) 2,094,309
Stage 2 - - 10,107 - - 10,107 (145) 9,962
Stage 3 - - - 301 - 301 (4) 297
- Belgian Mortgage portfolio
Stage 1 221,761 28,870 - - - 250,631 (249) 250,382
Stage 2 - - 4,105 - - 4,105 (46) 4,059
Stage 3 - - - 554 - 554 (58) 496
- IFRS basis adjustment: International Mortgage portfolio (183,180) - - - - (183,180) - (183,180)
- Maltese Business Lending portfolio
Stage 1 114,162 2,173 - - - 116,335 (358) 115,977
Stage 2 - - 9,696 - - 9,696 - 9,696
Stage 3 - - - 17,368 - 17,368 (200) 17,168
- Maltese Mortgage portfolio
Stage 1 98,834 - - - - 98,834 (356) 98,478
Stage 3 - - - 144 - 144 (23) 121
Investments measured at amortised cost
- Securities portfolio
Stage 1 705,976 - - - - 705,976 (66) 705,910
- Securitisation portfolio
Stage 1 603,973 - - - - 603,973 (61) 603,912
Stage 2 - - 531 - - 531 (121) 410
- Accrued income
Stage 1 20,388 2,321 - - - 22,709 (32) 22,677
Stage 2 - - 247 - - 247 (6) 241
Stage 3 - - - 1,272 - 1,272 (260) 1,012
Loans to related parties (included in other assets)
Stage 1 41 - - - - 41 - 41
Other receivables (included in other assets)
Stage 1 1,024 - - - - 1,024 - 1,024
Other assets (included in other assets)
Stage 1 28,342 - - - - 28,342 - 28,342
Off balance sheet at nominal amount:
Commitments to extend credit, financial guarantees and
other commitments
Stage 1 249,158 8,074 - - - 257,232 (183) 257,049
Stage 2 - - 1,587 - - 1,587 (3) 1,584
Stage 3 - - - 1,496 - 1,496 (112) 1,384
4,722,730 157,513 47,255 74,990 426 5,002,914 (14,866) 4,988,048
Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and
102Annual Report and Financial Statements 2023
Group
Gross carrying amount/nominal amount
Regular Focus
Under
surveillance Doubtful POCI Total
Credit loss
allowance Net
As at 31 December 2022 €000 €000 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks 149,927 - - - - 149,927 (2) 149,925
Loans and advances to financial institutions 402,988 - - - - 402,988 (1) 402,987
Loans and advances to customers
- International Corporate Lending portfolio
Stage 1 275,644 129,762 - - - 405,406 (5,165) 400,241
Stage 2 - - 77,591 - - 77,591 (2,942) 74,649
Stage 3 - - - 43,381 - 43,381 (6,368) 37,013
POCI - - - - 435 435 (224) 211
- Dutch Mortgage portfolio
Stage 1 1,810,024 810 - - - 1,810,834 (106) 1,810,728
Stage 2 - - 6,846 - - 6,846 (71) 6,775
Stage 3 - - - 506 - 506 (7) 499
- Belgian Mortgage portfolio
Stage 1 107,286 23,056 - - - 130,342 (114) 130,228
Stage 2 - - 1,788 - - 1,788 (16) 1,772
- IFRS basis adjustment: International Mortgage portfolio (271,273) - - - - (271,273) - (271,273)
- Maltese Business Lending portfolio
Stage 1 98,146 5,096 - - - 103,242 (208) 103,034
Stage 2 - - 11,662 - - 11,662 (4) 11,658
Stage 3 - - - 16,161 - 16,161 (1) 16,160
- Maltese Mortgage portfolio
Stage 1 67,793 - - - - 67,793 (195) 67,598
Investments measured at amortised cost
- Securities portfolio
Stage 1 676,805 - - - - 676,805 (94) 676,711
Stage 2 - - 12,137 - - 12,137 (102) 12,035
- Securitisation portfolio
Stage 1 573,085 - - - - 573,085 (58) 573,027
Stage 2 - - 523 - - 523 (121) 402
- Accrued income
Stage 1 12,146 1,504 - - - 13,650 (44) 13,606
Stage 2 - - 454 - - 454 (16) 438
Stage 3 - - - 283 - 283 (235) 48
POCI - - - - 5 5 - 5
Loans to related parties (included in other assets)
Stage 1 652 - - - - 652 - 652
Other receivables (included in other assets)
Stage 1 1,712 - - - - 1,712 - 1,712
Other assets (included in other assets)
Stage 1 25,968 - - - - 25,968 - 25,968
Off balance sheet at nominal amount:
Commitments to extend credit, financial guarantees and
other commitments
Stage 1 294,892 35,214 - - - 330,106 (560) 329,546
Stage 2 - - 7,781 - - 7,781 (63) 7,718
Stage 3 - - - 5,609 - 5,609 (640) 4,969
4,225,795 195,442 118,782 65,940 440 4,606,399 (17,357) 4,589,042
103Annual Report and Financial Statements 2023
Bank
Gross carrying amount/nominal amount
Regular Focus
Under
surveillance Doubtful POCI Total
Credit loss
allowance Net
As at 31 December 2023 €000 €000 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks
Stage 1 88,746 - - - - 88,746 (1) 88,745
Loans and advances to financial institutions
Stage 1 46,253 - - - - 46,253 (1) 46,252
Loans and advances to customers
- International Corporate Lending portfolio
Stage 1 66,412 45,007 - - - 111,419 (1,148) 110,271
Stage 2 - - 9,495 - - 9,495 (318) 9,177
Stage 3 - - - 50,928 - 50,928 (8,670) 42,258
POCI - - - - 426 426 (212) 214
-Maltese Business Lending portfolio
Stage 1 114,162 2,173 - - - 116,335 (358) 115,977
Stage 2 - - 9,696 - - 9,696 - 9,696
Stage 3 - - - 17,368 - 17,368 (200) 17,168
- Maltese Mortgage portfolio
Stage 1 98,834 - - - - 98,834 (356) 98,478
Stage 3 - - - 144 - 144 (23) 121
Investments measured at amortised cost
- Securities portfolio
Stage 1 283,028 - - - - 283,028 (34) 282,994
- Securitisation portfolio
Stage 1 157,996 - - - - 157,996 (16) 157,980
Stage 2 - - 531 - - 531 (121) 410
- Accrued income
Stage 1 4,847 1,336 - - - 6,183 (15) 6,168
Stage 2 - - 132 - - 132 (3) 129
Stage 3 - - - 1,241 - 1,241 (258) 983
Loans to related parties (included in other assets)
Stage 1 5,458 - - - - 5,458 - 5,458
Other receivables (included in other assets)
Stage 1 869 - - - - 869 - 869
Other assets (included in other assets)
Stage 1 2,390 - - - - 2,390 - 2,390
Off balance sheet at nominal amount:
Commitments to extend credit, financial guarantees and
other commitments
Stage 1 126,026 67 - - - 126,093 (105) 125,988
Stage 2 - - 1,334 - - 1,334 (1) 1,333
Stage 3 - - - 1,496 - 1,496 (112) 1,384
995,021 48,583 21,188 71,177 426 1,136,395 (11,952) 1,124,443
104Annual Report and Financial Statements 2023
Bank
Gross carrying amount/nominal amount
Regular Focus
Under
surveillance Doubtful POCI Total
Credit loss
allowance Net
As at 31 December 2022 €000 €000 €000 €000 €000 €000 €000 €000
On balance sheet at amortised cost:
Balances with central banks
Stage 1 42,443 - - - - 42,443 (1) 42,442
Loans and advances to financial institutions
Stage 1 89,838 - - - - 89,838 (1) 89,837
Loans and advances to customers
- International Corporate Lending portfolio
Stage 1 156,525 72,444 - - - 228,969 (2,985) 225,984
Stage 2 - - 58,692 - - 58,692 (2,176) 56,516
Stage 3 - - - 43,313 - 43,313 (6,368) 36,945
POCI - - - - 435 435 (224) 211
-Maltese Business Lending portfolio
Stage 1 98,146 5,096 - - - 103,242 (208) 103,034
Stage 2 - - 11,662 - - 11,662 (4) 11,658
Stage 3 - - - 16,161 - 16,161 (1) 16,160
- Maltese Mortgage portfolio
Stage 1 67,793 - - - - 67,793 (195) 67,598
Investments measured at amortised cost
- Securities portfolio
Stage 1 287,269 - - - - 287,269 (37) 287,232
Stage 2 - - 12,137 - - 12,137 (102) 12,035
- Securitisation portfolio
Stage 1 158,007 - - - - 158,007 (16) 157,991
Stage 2 - - 523 - - 523 (121) 402
- Accrued income
Stage 1 3,995 20 - - - 4,015 (31) 3,984
Stage 2 - - 317 - - 317 (11) 306
Stage 3 - - - 283 - 283 (235) 48
Loans to related parties (included in other assets)
Stage 1 8,618 - - - - 8,618 - 8,618
Other receivables (included in other assets)
Stage 1 1,609 - - - - 1,609 - 1,609
Other assets (included in other assets)
Stage 1 1,945 - - - - 1,945 - 1,945
Off balance sheet at nominal amount:
Commitments to extend credit, financial guarantees and
other commitments
Stage 1 128,626 26,062 - - - 154,688 (420) 154,268
Stage 2 - - 6,014 - - 6,014 (51) 5,963
Stage 3 - - - 5,609 - 5,609 (640) 4,969
1,044,814 103,622 89,345 65,366 435 1,303,582 (13,827) 1,289,755
105Annual Report and Financial Statements 2023
Reconciliation of changes in gross carrying/nominal amount and credit loss allowances for loans and ad-
vances to customers, including accrued income, and other credit-related commitments.
The following disclosure provides a reconciliation by stageof the Group’s gross carrying/nominal amounts and credit
loss allowances for loans and advances to customers for the International Corporate Lending portfolio, including cred-
it-related commitments.On-balance sheet exposures are shown at theirgross carrying amounts whereas off-balance
sheet exposures are shown at their nominal amounts.
Within the following tables the line items “New business” and “Repayments and disposals” represent movements within
the Group’s International Corporate Lending portfolio in respect of gross carrying/nominal amounts and associated
credit loss allowances. “New business”represents new lending sanctioned during the financial year. Meanwhile,“Re-
payments and disposals” reflect loan repayments and disposals that occurred during the financial year, which however
relate to loans that would only have existed on the Group’s balance sheet as at the end of the preceding financial re-
porting period. Accordingly,repayments and disposals relating to loans sanctioned during the financial reporting period
are netted off against new lending included within “New business”.
The line item “Transfers of financial instruments”represents the impact of stage transfers on gross carrying/nominal
amounts and associated credit loss allowances determined as at the end of the financial reporting period. The line
item “Net remeasurement of ECL arising from stage transfers and changes in risk parameters, including climate risk”
represents the increase or decrease in credit loss allowances due to modified measurement basis from 12-month to
lifetime in relation to stage transfers. It also includes the effects of changes in other expected credit loss measurement
factors and model parameters such as, but not limited to, changes in time to maturity of assets; changes in underlying
credit ratings; changes in measurement of loss given default and changes in respect of multiple economic scenarios.
Finally, this line item also comprises the increase in ECL in respect of assets written off during the period measured as
the movement between 1 January and the date of write-off.
The decrease in credit loss allowances in the financial year ended 31 December 2023 was principally driven by the gen-
eral improvement in financial condition experienced by borrowers within the portfolio, leading to significant repayments
and in turn a decrease in ECLs of €3.2 million. Also, the expected credit loss allowances decreased as a result of the
disposal of Stage 3 loans and the realisation of ECLs on Stage 3 loans by way of write-off amounting to €3.4 million as
disclosed in the line item “Assets written off”.
The decrease in credit loss allowances in the financial yearended 31 December 2022 was principally driven by the gen-
eral improvement in financial condition experienced by borrowers within the portfolio, leading to significant repayments
and in turn a decrease in ECLs of €6.5 million. Also, the expected credit loss allowances decreased as a result of the
disposal of Stage 3 loans and the realisation of ECLs on Stage 3 loans by way of write-off amounting to €7.7 million as
disclosed in the line item “Assets written off”.
As per the table below,net exposures amounting to €14.7million were transferred out of Stage 1 into Stages 2 or 3
during the year(2022: nil), with net transfers to Stage 3 amounting to €26.5 million (2022: €22 million). The net remeas-
urement of ECLs reflects in the decreasein PDs and LGDs driven by point-in-timeeconomic adjustments and more
pessimistic forward-looking macroeconomic scenarios being forecasted in the modelling of ECLs. As explained in more
detail in Note2.2.7 – ‘Current Conditions and Forward-looking information incorporated in the ECL model’, the Group
deemed that forward-looking macroeconomic scenarios now appropriately reflected the uncertainty within the wider
106Annual Report and Financial Statements 2023
The table below provides a reconciliation of movements in gross carrying/nominal amounts and credit loss allowances,
by stage, for the International Corporate Lending portfolio.
Group
Non-credit impaired Credit impaired Total
Stage 1 Stage 2 Stage 3 POCI
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Year ended 31 December 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
International Corporate
Lending portfolio
At beginning of year 522,548 (5,731) 83,716 (3,021) 49,068 (7,243) 435 (224) 655,767 (16,219)
Repayments and disposals (204,464) 1,396 (50,405) 906 (13,747) 1,988 (9) - (268,625) 4,290
Transfers of financial instruments
- Transfers to Stage 3 (14,673) 635 (11,852) 807 26,525 (1,442) - - - -
Net remeasurement of ECL
arising from stage transfers
and changes in risk parameters,
including climate risk
- 924 - 597 - (8,386) - 8 - (6,857)
Realisation of ECL through
restructuring and disposals
- - - - (5,764) 5,764 - - (5,764) 5,764
At end of year 303,411 (2,776) 21,459 (711) 56,082 (9,319) 426 (216) 381,378 (13,022)
ECL released for the year 3,197
Assets written off (3,428)
Other (8)
Change in expected credit losses
and other credit impairment charg-
es for the year
(239)
107Annual Report and Financial Statements 2023
Group
As at 31 December 2023
Year ended
31 December 2023
Gross carrying/
nominal amount Credit loss allowance ECL (charge)/release
€000 €000 €000
As per preceding table 381,378 (13,022) (239)
Balances at central banks 265,400 (2) -
Loans and advances to financial institutions 352,794 (1) -
Loans and advances to customers
- Dutch Mortgage portfolio: drawn exposures 2,104,853 (285) (101)
- Dutch Mortgage portfolio: undrawn commitments 94,503 (3) 1
- Belgian Mortgage portfolio: drawn exposures 255,290 (353) (223)
- Belgian Mortgage portfolio: undrawn commitments 28,722 (15) 19
- Maltese Business Lending portfolio: drawn exposures 143,399 (558) (345)
- Maltese Business Lending portfolio: undrawn commitments 54,654 - -
- Maltese Mortgage portfolio: drawn exposures 98,978 (379) (184)
- Maltese Mortgage portfolio: undrawn commitments 26,964 - -
Investments measured at amortised cost
- Securities portfolio 705,976 (66) 130
- Securitisation portfolio 604,504 (182) (3)
Other accrued income (excl. International Corporate Lending
portfolio)
19,109 - -
Summary of financial instruments to which the impairment
requirements in IFRS 9 are applied through profit or loss
5,136,524 (14,866) (945)
Total credit loss allowance/total income statement ECL
charge for the year
(14,866) (945)
108Annual Report and Financial Statements 2023
Bank
Non-credit impaired Credit impaired Total
Stage 1 Stage 2 Stage 3 POCI
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Year ended 31 December 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
International Corporate
Lending portfolio
At beginning of year
331,766 (3,436) 62,972 (2,238) 49,000 (7,243) 435 (224) 444,173 (13,141)
Repayments and disposals
(180,588) 1,111 (41,404) 839 (13,778) 1,988 (9) - (235,779) 3,938
Transfers of financial
instruments
- Transfers to Stage 3
(11,795) 598 (11,852) 807 23,647 (1,405) - - - -
Net remeasurement of ECL
arising from stage transfers
and changes in risk parame-
ters, including climate risk
- 460 - 270 - (8,139) - 8 - (7,401)
Realisation of ECL through
restructuring and disposals
- - - - (5,764) 5,764 - - (5,764) 5,764
At end of year
139,383 (1,267) 9,716 (322) 53,105 (9,035) 426 (216) 202,630 (10,840)
ECL released for the year
2,301
Assets written off
(3,428)
Other
(10)
Change in expected credit
losses and other credit im-
pairment charges for the year
(1,137)
109Annual Report and Financial Statements 2023
Expected credit losses measured in respect of exposures within the Maltese Business Lending portfolio classified
as Stage 1 and Stage 2 exposures, resulted in an increase from €0.2 million to €0.4 million during the year (2022: re-
mained constant at €0.2 million). The impact of the pandemic on the Group’s MalteseBusiness Lending portfoliohas
been limited since the majority of exposures within the Maltese Business Lending portfolio relate to the real estate and
construction sectors, which sectors have largely managed to resume operations in the aftermath of the outbreak of the
pandemic and are more dependent on the longer-term economic recovery of the country. The Group’s credit risk is also
mitigated through the maintenance of adequate levels of collateralisation,typically by charges on real estateproperties.
In this regard, movements in expected credit losses were largely driven by model and risk parameter changes, primarily
due to the economic recovery during the year, improving macroeconomic scenarios and to a lesser extent due to stage
transfers and net book movements during the year.
The table also includes the credit loss allowances attributable to the Dutch Mortgage portfolio backed by the NHG
guarantee scheme and to the Maltese Mortgage portfolio, the credit loss allowances attributable to the Securitisation
Investment portfolio, which comprises the Group’s investments in CLOs (5% vertical slice in each of the Grand Harbour
CLO 2019-1 Designated Activity Company “GH1 – 2019” structured note tranches, and acquired portions in CLO trans-
actions managed by third party entities), included within “Investments measured at amortised cost” and “Investments
measured at fairvalue through other comprehensiveincome”, as well as credit loss allowances attributable to the Se-
curities and Securitisation Investment portfolio measured at FVOCI. The ECL charge for the Group in respect of these
portfolios is not considered significant in absolute terms and,as a result, no further disclosures were deemed necessary.
Bank
As at 31 December 2023
Year ended
31 December 2023
Gross carrying/
nominal amount Credit loss allowance ECL (charge)/release
€000 €000 €000
As per preceding table 202,630 (10,840) (1,137)
Balances at central banks 88,746 (1) -
Loans and advances to financial institutions 46,253 (1) -
Loans and advances to customers
- Maltese Business Lending portfolio: drawn exposures 143,399 (558) (345)
- Maltese Business Lending portfolio: undrawn commitments 54,654 - -
- Maltese Mortgage portfolio: drawn exposures 98,978 (379) (184)
- Maltese Mortgage portfolio: undrawn commitments 26,964 - -
Investments measured at amortised cost
- Securities portfolio 283,028 (34) 105
- Securitisation portfolio 158,527 (137) -
Other accrued income (excl. International Corporate Lending
portfolio)
4,336 - -
Summary of financial instruments to which the impairment
requirements in IFRS 9 are applied through profit or loss
1,107,515 (11,950) (1,561)
Total credit loss allowance/total income statement ECL
charge for the year
(11,950) (1,561)
110Annual Report and Financial Statements 2023
The table below provides a reconciliation of movements in gross carrying/nominal amounts and credit loss allowances
by stage for the International Corporate Lending portfolio for the financial year ended 31 December 2022:
Group
Non-credit impaired Credit impaired Total
Stage 1 Stage 2 Stage 3 POCI
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Year ended 31 December 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
International Corporate
Lending portfolio
At beginning of year 522,117 (2,455) 215,631 (4,226) 101,296 (16,038) - - 839,044 (22,719)
New business 99,903 (1,510) 1,759 (62) - - 435 (224) 102,097 (1,796)
Repayments and disposals (198,913) 918 (55,757) 1,319 (30,704) 11,291 - - (285,374) 13,528
Transfers of financial
instruments
-Transfers from Stage 2 to Stage 1 88,881 (1,232) (88,881) 1,232 - - - - - -
- Transfers to Stage 3 - - (22,319) 86 22,319 (86) - - - -
-Transfers from Stage 3 10,560 (1,460) 33,283 (4,926) (43,843) 6,386 - - - -
Net remeasurement of ECL
arising from stage transfers
and changes in risk parameters
- 8 - 3,556 - (8,796) - - (5,232)
At end of year 522,548 (5,731) 83,716 (3,021) 49,068 (7,243) 435 (224) 655,767 (16,219)
ECL released for the year 6,502
Assets written off (7,673)
Other (112)
Change in expected credit losses
and other credit impairment charg-
es for the year
(1,283)
111Annual Report and Financial Statements 2023
Group As at 31 December 2022 Year ended 31 December 2022
Gross carrying/
nominal amount
Credit loss
allowance
ECL (charge)/
release
€000 €000 €000
As per preceding table 655,767 (16,219) (1,283)
Balances at central banks 149,927 (2) -
Loans and advances to financial institutions 402,988 (1) -
Loans and advances to customers
- Dutch Mortgage portfolio: drawn exposures 1,818,186 (184) (35)
- Dutch Mortgage portfolio: undrawn
commitments
92,420 (4) (2)
-Belgian Mortgage portfolio: drawn exposures 132,130 (130) (130)
- Belgian Mortgage portfolio: undrawn commit-
ments
63,808 (34) (34)
-Maltese Business Lending portfolio: drawn
exposures
131,065 (213) 3,691
-Maltese Business Lending portfolio: undrawn
commitments
13,370 - -
- Maltese Mortgage portfolio: drawn exposures 67,793 (195) (92)
- Maltese Mortgage portfolio: undrawn
commitments
33,248 - -
Investments measured at amortised cost
- Securities portfolio 688,942 (196) (65)
- Securitisation portfolio 573,608 (179) (7)
Other accrued income (excl. International
Corporate Lending portfolio)
10,531 - (2)
Summary of financial instruments to which the
impairment requirements in IFRS 9 are applied
through profit or loss
4,833,783 (17,357) 2,041
Total credit loss allowance/total income
statement ECL release for the year
(17,357) 2,041
112Annual Report and Financial Statements 2023
Bank
Non-credit impaired Credit impaired Total
Stage 1 Stage 2 Stage 3 POCI
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Gross
carrying/
nominal
amount
Credit
loss
allowance
Year ended 31 December 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
International Corporate
Lending portfolio
At beginning of year
315,834 (1,511) 173,629 (2,778) 108,068 (15,803) - - 597,531 (20,092)
New business
32,734 (412) 1,594 (61) - - 435 (224) 34,763 (697)
Repayments and disposals
(106,018) 381 (42,853) 1,046 (39,250) 11,291 - - (188,121) 12,718
Transfers of financial
instruments
-Transfers from Stage 2 to
Stage 1
78,655 (877) (78,655) 877 - - - - - -
- Transfers to Stage 3
- - (22,214) 86 22,214 (86) - - - -
-Transfers from Stage 3
10,561 (1,460) 31,471 (4,691) (42,032) 6,151 - - - -
Net remeasurement of
ECL arising from stage transfers
and changes in risk parameters
- 443 - 3,283 - (8,796) - - (5,070)
At end of year
331,766 (3,436) 62,972 (2,238) 49,000 (7,243) 435 (224) 444,173 (13,141)
ECL released for the year
6,951
Assets written off
(7,673)
Other
(109)
Change in expected credit losses
and other credit impairment
charges for the year
(831)
Bank
As at 31 December 2022
Year ended
31 December 2022
Gross carrying/nominal amount Credit loss allowance ECL (charge)/release
€000 €000 €000
As per preceding table 444,173 (13,141) (831)
Balances at central banks 42,443 (1) -
Loans and advances to financial institutions 89,838 (1) -
Loans and advances to customers
- Maltese Business Lending portfolio: drawn exposures 131,065 (213) 3,691
- Maltese Business Lending portfolio: undrawn
commitments
13,370 - -
- Maltese Mortgage portfolio: drawn exposures 67,793 (195) (92)
- Maltese Mortgage portfolio: undrawn commitments 33,248 - -
Investments measured at amortised cost
- Securities portfolio 299,406 (139) (16)
- Securitisation portfolio 158,530 (137) (7)
Other accrued income (excl. International Corporate
Lending portfolio)
1,986 - 1
Summary of financial instruments to which the
impairment requirements in IFRS 9 are applied
through profit or loss
1,281,852 (13,827) 2,746
Total credit loss allowance/total income statement
ECL release for the year
(13,827) 2,746
113Annual Report and Financial Statements 2023
Credit loss allowances attributable to loans and advances to customers
The following table shows the credit loss allowances on loans and advances to customers recognised on the Group’s
and Bank’s balance sheets as at 31 December 2023 and 2022, excluding credit loss allowances on accrued interest
and other credit-related commitments, analysed by stage distribution.
Group Bank
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
International Corporate Lending
portfolio
2,577 703 8,952 212 12,444 1,148 318 8,670 212 10,348
Dutch Mortgage portfolio 136 145 4 - 285 - - - - -
Belgian Mortgage portfolio 249 46 58 - 353 - - - - -
Maltese Business Lending portfolio 358 - 200 - 558 358 - 200 - 558
Maltese mortgage portfolio 356 - 23 - 379 356 - 23 - 379
3,676 894 9,237 212 14,019 1,862 318 8,893 212 11,285
Group Bank
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
International Corporate Lending
portfolio
5,165 2,942 6,368 224 14,699 2,985 2,176 6,368 224 11,753
Dutch Mortgage portfolio 106 71 7 - 184 - - - - -
Belgian Mortgage portfolio 114 16 - - 130 - - - - -
Maltese Business Lending portfolio 208 4 1 - 213 208 4 1 - 213
Maltese mortgage portfolio 195 - - - 195 195 - - - 195
5,788 3,033 6,376 224 15,421 3,388 2,180 6,369 224 12,161
The movement in credit loss allowances and the ECL charge forthe financial year ended 31 December 2023 and 2022
are analysed in detail in the tables presented in the previous section.
During the financial yearended 31 December 2023,interest income amounting to €5.0 million (2022: €4.2 million)
and €4.8 million (2022: €4.1 million) of the Group and the Bank respectively was recognised in profit or loss on credit-
114Annual Report and Financial Statements 2023
2.2.4 Loans and advances to customers with renegotiated terms and the Group’s forbearance policy
The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, cus-
tomerretention and other factors not related to a current or potential credit deterioration of the customer. An existing
loan whose terms have been modified would be derecognised in certain circumstances and the renegotiated loan rec-
ognised as a new loan at fair value.
Forbearancemeasures always aim to return the exposure to a situation of sustainable repayment capacity. Forbear-
ance measures consist of concessions towards a debtor facing or about to face difficulties in meeting its financial
commitments (“financial difficulties”).
The Group renegotiates loans to customers in financial difficulties (referred to as “forbearance activities”) to maximise
collection opportunities and minimise the risk of default.Under the Group’s forbearance policy, loan forbearanceis
granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is
evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the debtoris ex-
pected to be able to meet the revised terms.
Aconcession is defined in the European Banking Authority (“EBA”) final draft Implementing Technical Standards (2014)
and further set out in the EBAfinal guidance on Management of Non-performing and Forborne Exposures (2018),
which refer to either of the following actions:
• a modification of the previous terms and conditions of a contract which the debtor was considered unable to
comply with due to its financial difficulties (“troubled debt”) to allow for sufficient debt service ability, that would
not have been granted had the debtor not been in financial difficulties; or
• a total or partial refinancing of a troubled debt contract, that would not have been granted had the debtor not
been in financial difficulties.
The revised terms usually applied by the Group include extending the maturity, amending the terms of loan covenants
and partial write-offs where there is reasonable financial evidence to demonstrate the borrower’s inability to repay the
loan in full. MeDirect Malta’s Management Credit Committee regularly reviews reports on forbearance activities.
Forthe purposes of these financial statements, “loans with renegotiated terms” are defined as loans that have been
restructured due to a deterioration in the borrower’s financial position,for which the Group has made concessions by
agreeing to terms and conditions that are more favourable forthe borrower than the Group had provided initially and
that it would not otherwise consider. A loan continues to be presented as part of loans with renegotiated terms until
maturity, early repayment or write-off, unless certain prescriptive conditions are met.
Typically, the Group either categorises a forborne exposure as performing or classifies the exposure as forborne
non-performing if unlikely-to-pay indicators are evidenced,as outlined in the Non-Performing and Default Exposure
section of the Group’s Credit Policy.
Renegotiated loans can be classified as non-credit-impaired where the renegotiation has resulted from significant
concern about a borrower’s ability to meet their contractual payment terms,but the renegotiated terms are based on
current market rates and contractual cash flows are expected to be collected in full following the renegotiation.
Non-credit-impaired renegotiated loans also include previously impaired renegotiated loans that have demonstrated
satisfactory performance over a period of time or have been assessed based on all available evidence as having no
remaining indicators of impairment.
On renegotiation, where the existing agreement is cancelled and a new agreement is made on substantially different
115Annual Report and Financial Statements 2023
terms, or if the terms of an existing agreement are modified, such that the renegotiated loan is substantially a different
financial instrument, the loan would be derecognised and a new loan is recognised, for accounting purposes. However,
newly recognised loans retain the “nonperforming forborne” classification for regulatory reporting purposes.
When determining whethera loan that is restructured should be derecognised and a new loan recognised, the Group
considers the extent to which the changes to the original contractual terms result in the renegotiated loan, considered
as a whole, being a substantially different financial instrument.
As outlined previously, renegotiated loans that are classified as credit-impaired/Stage 3 exposures at the renegotiation
date which have not had a substantial modification in terms, are not derecognised and remain disclosed as credit-im-
paired/Stage 3 exposures until there is sufficient evidence of cure to demonstrate a significant reduction in the risk of
non-payment of future cash flows observed over a one-year period and there are no other indicators of impairment. In
contrast, when substantial modification has been made to the terms of the renegotiated loan, the old financial asset is
derecognised and a new financial asset is recognised,the latterbeing classified as a Stage 1 asset unless originated
credit-impaired, in which case it is classified as a POCI financial asset.
As at 31 December 2023 and 2022, none of the exposures within the Maltese Mortgage portfolio, the Dutch Buy to Let
Mortgage portfolio,Securities Investment and Securitisation Investment portfolios were forborne reflecting the fact that
both the Securitisation Investment portfolio and the Securities Investment portfolio principally comprise of investment
grade exposures and that the Maltese and the Dutch Buy to Let mortgage portfolios are relatively new portfolios.In this
regard, any amounts disclosed in this section relate to forbearance activity within the International Corporate Lending,
Maltese Business Lending, Dutch and Belgian Mortgage portfolios.
The following table shows the carrying amount of the Group’s loans and advances tocustomers classified within the
International Corporate Lending and Maltese Business Lending portfolios reflecting forbearance activity, by stage and
Group
International Corporate
Lending Portfolio
Maltese Business Lending
Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
Neither past due nor credit-impaired 258,190 7,497 116,335 - 382,022
Stage 2
Neither past due nor credit-impaired 2,916 18,066 9,696 - 30,678
Stage 3
Credit-impaired, net of credit loss allowances 13,790 31,113 1,030 16,138 62,071
POCI
Credit-impaired, net of credit loss allowances - 214 - - 214
Loans and advances to customers, net of
Stage 3 and POCI credit loss allowances
274,896 56,890 127,061 16,138 474,985
Stage 1 credit loss allowances 2,341 236 358 - 2,935
Stage 2 credit loss allowances 19 684 - - 703
Stage 3 credit loss allowances 658 8,294 - 200 9,152
POCI credit loss allowances - 212 - - 212
116Annual Report and Financial Statements 2023
Group
International Corporate
Lending Portfolio
Maltese Business Lending
Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
Neither past due nor credit-impaired 383,078 22,328 101,101 - 506,507
Past due but not credit-impaired
- by up to 30 days - - 2,098 43 2,141
Stage 2
Neither past due nor credit-impaired 24,321 53,270 8,351 1,272 87,214
Past due but not credit-impaired
- by up to 30 days - - 2,039 - 2,039
Stage 3
Credit-impaired, net of credit loss allowances 27,548 9,465 960 15,200 53,173
POCI
Credit-impaired, net of credit loss allowances - 211 - - 211
Loans and advances to customers,
net of Stage 3 and POCI credit loss
allowances
434,947 85,274 114,549 16,515 651,285
Stage 1 credit loss allowances 4,674 491 208 - 5,373
Stage 2 credit loss allowances 655 2,287 1 3 2,946
Stage 3 credit loss allowances 5,059 1,309 - 1 6,369
POCI credit loss allowances - 224 - - 224
117Annual Report and Financial Statements 2023
Bank
International Corporate
Lending Portfolio
Maltese Business Lending
Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
Neither past due nor credit-impaired 103,922 7,497 116,335 - 227,754
Stage 2
Neither past due nor credit-impaired 1,320 8,175 9,696 - 19,191
Past due but not credit-impaired
Stage 3
Credit-impaired, net of credit loss allowances 11,248 31,010 1,030 16,138 59,426
POCI
Credit-impaired, net of credit loss allowances - 214 - - 214
Loans and advances to customers, net of
Stage 3 and POCI credit loss allowances
116,490 46,896 127,061 16,138 306,585
Stage 1 credit loss allowances 912 236 358 - 1,506
Stage 2 credit loss allowances 8 310 - - 318
Stage 3 credit loss allowances 376 8,294 - 200 8,870
POCI credit loss allowances - 212 - - 212
118Annual Report and Financial Statements 2023
In May 2020, MeDirect Malta launched the MeAssist lending product to enhance access to bank financing to corporate
customers in the Group’s Maltese Business Lending portfolio in Malta. Individual loan facilities offered in the form of
working capital facilities granted to assist customers with their operational requirements in view of the market disrup-
tions brought about by the outbreak of the COVID-19 pandemic under this product are up to 90% secured by guaran-
tees provided under the MDB CGS,capped at 50% of the actual portfolio volume.In this respect,total commitments
entered into with corporate customers within the Group’s Maltese Business Lending portfolio meeting the criteria of the
MeAssist lending product amounted to €1.3 million as at 31 December 2023 (2022: €1.4 million), of which €0.3 million
(2022: €0.5 million) was drawn down and classified in Stage 1 and €1.0 million was classified in Stage 3 (2022: €0.9
Bank
International Corporate
Lending Portfolio
Maltese Business Lending
Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
Neither past due nor credit-impaired 206,641 22,328 101,101 - 330,070
Past due but not credit-impaired
- by up to 30 days - - 2,098 43 2,141
Stage 2
Neither past due nor credit-impaired 24,321 34,371 8,351 1,272 68,315
Past due but not credit-impaired
- by up to 30 days - - 2,039 - 2,039
Stage 3
Credit-impaired, net of credit loss allowances 27,480 9,465 960 15,200 53,105
POCI
Credit-impaired, net of credit loss allowances - 211 - - 211
Loans and advances to customers, net of
Stage 3 and POCI credit loss allowances
258,442 66,375 114,549 16,515 455,881
Stage 1 credit loss allowances 2,494 491 208 - 3,193
Stage 2 credit loss allowances 656 1,520 1 3 2,180
Stage 3 credit loss allowances 5,059 1,309 - 1 6,369
POCI credit loss allowances - 224 - - 224
119Annual Report and Financial Statements 2023
Group
Dutch Mortgage Portfolio Belgian Mortgage Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
Neither past due nor credit-impaired 2,091,365 - 221,761 - 2,313,126
Past due but not credit-impaired
- by up to 30 days 3,080 - 28,870 - 31,950
Stage 2
Neither past due nor credit-impaired 231 4,619 - 896 5,746
Past due but not credit-impaired
- by more than 30 days and up to 90 days 4,030 1,227 3,209 - 8,466
Stage 3
Credit-impaired, net of credit loss allowances 297 - 330 166 793
Loans and advances to customers,
net of Stage 3 credit loss allowances
2,099,003 5,846 254,170 1,062 2,360,081
Stage 1 credit loss allowances 136 - 249 - 385
Stage 2 credit loss allowances 106 39 35 11 191
Stage 3 credit loss allowances 4 - 39 19 62
Group Dutch Mortgage Portfolio Belgian Mortgage Portfolio
Non-forborne
exposures
Forborne
exposures
Non-forborne
exposures
Forborne
exposures Total
€000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
Neither past due nor credit-impaired 1,142,563 - 107,286 - 1,249,849
Past due but not credit-impaired
- by up to 30 days 668,271 - 23,056 - 691,327
Stage 2
Neither past due nor credit-impaired 1,790 3,877 - 352 6,019
Past due but not credit-impaired
- by more than 30 days and up to 90 days 1,179 - 1,436 - 2,615
Stage 3
Credit-impaired, net of credit loss allowances - 499 - - 499
Loans and advances to customers,
net of Stage 3 credit loss allowances
1,813,803 4,376 131,778 352 1,950,309
Stage 1 credit loss allowances 106 - 114 - 220
Stage 2 credit loss allowances 63 8 8 8 87
Stage 3 credit loss allowances - 7 - - 7
The following table shows the carrying amount of the Group’s loans and advances tocustomers classified within the
120Annual Report and Financial Statements 2023
As at 31 December 2023 and 2022, all exposures within the Maltese Mortgage portfolio were classified as Stage
1 – neither past due nor credit-impaired. In addition,none of the exposures classified therein were forborne as at 31
December 2023 and 2022.
As at 31 December 2023, total gross forborne loans and advances to customers as a percentage of total gross loans
and advances to customers of theGroup and Bank were equivalent to 3.2% (2022: 4.5%) and 17.3% (2022: 16.3%) re-
spectively.
Interest income recognised by the Group and the Bank during the financial year ended 31 December 2023 in respect
of forborne exposures amounted to €6.0 million (2022: €8.9 million) and €5.0 million (2022: €7.6 million) respectively.
The movement in the gross carrying amount of forborne loans and advances to customers,before credit loss allow-
ances is analysed below:
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
As at 31 December
At beginning of year 108,058 247,585 84,424 194,358
Loans to which forbearance measures have been
extended during the year/period without derecognition
35,067 12,934 33,091 12,582
Capitalised interest 987 10,347 987 7,080
Capitalised fees - (29) - (10)
Repayments or disposals (52,278) (65,262) (42,462) (33,282)
Loans exiting forborne status during the year without
derecognition
(7,666) (85,742) (7,502) (85,637)
Newly recognised loans as a result of forbearance
measures
898 - - -
Write-offs (301) (15,341) (301) (15,349)
Write-backs 2,181 6,338 2,181 6,338
Amortisation of premium or discount 636 692 602 673
Exchange differences 1,079 (3,464) 720 (2,329)
At end of year 88,661 108,058 71,740 84,424
121Annual Report and Financial Statements 2023
Group Bank
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Accommodation and food
service activities
- 18,066 - - 18,066 - 8,175 - - 8,175
Administrative and support
services
- - 5,052 - 5,052 - - 5,052 - 5,052
Real estate and construction - - 16,337 - 16,337 - - 16,337 - 16,337
Financial and insurance
activities
7,497 - 34,004 426 41,927 7,497 - 33,901 426 41,824
Professional, scientific and
technical activities
- - 1 - 1 - - 1 - 1
Households and individuals - 6,742 185 - 6,927 - - - - -
Wholesale and retail trade;
Repair of motor vehicles and
motorcycles
- - 351 - 351 - - 351 - 351
7,497 24,808 55,930 426 88,661 7,497 8,175 55,642 426 71,740
Capitalised fees included in the table above reflect amounts disbursed by customers in relation to the origination of the
exposure.Such amounts are recognised as part of the gross carrying amount of the exposure in the form of deferred
income and amortised over the life of the instrument.
As at 31 December 2023, credit loss allowances in respect of the Group’s and Bank’s forborne loans were equivalent to
€9.7 million (2022: €4.3 million) and €9.3 million (2022: €3.5 million) respectively. Additions to credit loss allowances on
forborne loans during the year ended 31 December 2023 amounted to €7.8 million (2022: €1.6 million) and €7.4 million
(2022: €1.6 million) for the Group and Bank respectively. Reversals of credit loss allowances on forborne loans during
the year ended 31 December 2023 amounted to €2.4 million (2022: €9.6 million) and €1.6 million (2022: €8.8 million).
The following tables show the gross carrying amounts of the Group’s and Bank’s holdings of renegotiated loans and
advances to customers analysed by industry sector and stage:
Group Bank
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Accommodation and food
service activities
- 17,704 - - 17,704 - 8,012 - - 8,012
Administrative and support
services
- - 9,220 - 9,220 - - 9,220 - 9,220
Real estate and construction 43 1,272 15,184 - 16,499 43 1,272 15,184 - 16,499
Financial and insurance
activities
7,895 23,721 1,220 434 33,270 7,895 14,514 1,220 434 24,063
Information and
communication
14,433 - - - 14,433 14,433 - - - 14,433
Professional, scientific and
technical activities
- - 1 - 1 - - 1 - 1
Households and individuals - 4,229 506 - 4,735 - - - - -
Wholesale and retail trade;
Repair of motor vehicles and
motorcycles
- 11,845 351 - 12,196 - 11,845 351 - 12,196
22,371 58,771 26,482 434 108,058 22,371 35,643 25,976 434 84,424
122Annual Report and Financial Statements 2023
The Group’s and Bank’s forborne loans classified within the International Corporate Lending portfolio as at 31 Decem-
ber 2023 consist of corporate exposures based in Europe, amounting to €35.1 million (2022: €74.5 million) and €25.6
million (2022: €56.3 million) respectively, and in the United States, amounting to €20.9 million (2022: €8.0 million)
and €20.8 million (2022: €8.0 million) respectively. The forborne loans classified within the Maltese Business Lending
portfolio are mainly categorised as exposures tocorporate customers within the real estate and construction sector.
Forbearance measures in respect of exposures classified within the Dutch and Belgian Mortgage portfolios are limited
to payment arrangements,allowing customers to repay the amounts in arrears in addition to the regular monthly in-
stalment. Past due amounts are thereby regularised within an agreed number of months. The forborne loans classified
within the Dutch and Belgian Mortgage portfolios are categorised as exposures to households and individuals in the
tables above.
2.2.5 Write-offs
Financial assets written off by the Group and Bank during the financial year ended 31 December 2023 amounted to
€3.4 million (2022: €7.7million) and €3.4 million (2022: €7.7million) and were all resulting from renegotiations of fi-
nancial instruments as described in further detail in note 2.2.4 – “Loans and advances to customers with renegotiated
terms and the Group’s forbearance policy”.
2.2.6 Collateral
The Group holds collateral against loans and advances to customers classified underthe Maltese Business Lending
and the Dutch, Belgian and Maltese Mortgage portfolios in the form of hypothecary rights over immovable assets, and
registered rights over movable assets and guarantees.The assets held as collateral are assigned a fair value at the time
of credit approval. The assigned value is regularly monitored to identify assets that need revaluation.
Depending on the customer’s standing and the type of product, in certain circumstances facilities may be provided on
an unsecured basis, although the Group has limited appetite forsuch agreements.In most lending facilities,a charge
over collateral is obtained and considered in determining the credit risk appetite and risk-return profile of all lending
decisions.In the event of a default,the Group may utilise the collateral as a source of repayment. Depending on its form,
collateral can have a significant financial effect in mitigating exposure to credit risk.
Collateral received by the Group includes residential and commercial property, as well as financial collateral such as
debt securities and cash on deposit. The immovable property collateral received in respect of exposures within the
Maltese Business Lending, the Maltese mortgage, the Dutch Mortgage portfolios and the Belgian Mortgage portfolios
are mainly located in Malta, the Netherlands and Belgium respectively.
Exposures meeting the eligibility criteria of the MeAssist lending product launched by MeDirect Malta to aid Maltese
corporate customers classified within the Maltese Business Lending portfolioin the aftermath of the outbreakof the
pandemic benefit from unfunded credit risk protection in the form of guarantees covering up to 90% of individual ex-
posure amounts capped at 50% of the portfolio and provided under the MDB CGS.
The following tables show the gross carrying amount (before credit loss allowances) of the loans and advances to
customers classified underthe Maltese Business Lending portfolio by level of collateral expressed through the loan-
to-value (“LTV”) ratio. The collateral measured forthe purposes of the tables below consists of fixed first charges on
real estate,and charges overcash and marketable financial instruments, as well as guarantees provided under the
MDB CGS.The collateral amounts represent the expected market value on an open market basis forreal estate: no
adjustment has been made to the collateral for any expected costs of recovery. Cash is valued at its nominal value and
marketable securities at their fairvalue.If an exposure is fully cash secured (100% LTV),no ECL is measured in this
respect,whereas ECL is calculated on exposures which are partially cash secured and having a LTV ratio less than
100%.Guarantees provided in respect of the MeAssist lending product under theMDB CGS are shown at 90% of the
123Annual Report and Financial Statements 2023
Group and Bank Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
a) Not collateralised 399 (1) - - 399 (1)
b) Fully collateralised
- Up to 50% LTV 59,402 (20) - - 59,402 (20)
- 51% to 75% LTV 35,234 (139) - - 35,234 (139)
- 76% to 90% LTV 20,312 (198) - - 20,312 (198)
- 91% to 100% LTV 988 - - - 988 -
116,335 (358) - - 116,335 (358)
Stage 2
a) Not collateralised 7 - - - 7 -
b) Fully collateralised
- Up to 50% LTV 9,689 - - - 9,689 -
9,696 - - - 9,696 -
Stage 3
a) Not collateralised 45 - 79 (1) 124 (1)
b) Fully collateralised
- Up to 50% LTV - - 1,409 - 1,409 -
- 51% to 75% LTV - - 14,850 (199) 14,850 (199)
- greater than 100% LTV 985 - - - 985 -
1,030 - 16,338 (200) 17,368 (200)
Total 127,061 (358) 16,338 (200) 143,399 (558)
124Annual Report and Financial Statements 2023
Group and Bank Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
a) Not collateralised 457 (2) 43 - 500 (2)
b) Fully collateralised
- Up to 50% LTV 52,396 (4) - - 52,396 (4)
- 51% to 75% LTV 44,288 (149) - - 44,288 (149)
- 76% to 90% LTV 5,073 (50) - - 5,073 (50)
- 91% to 100% LTV 985 (3) - - 985 (3)
103,199 (208) 43 - 103,242 (208)
Stage 2
a) Fully collateralised
- Up to 50% LTV 5,671 - - - 5,671 -
- 51% to 75% LTV 4,719 (1) 1,272 (3) 5,991 (4)
10,390 (1) 1,272 (3) 11,662 (4)
Stage 3
a) Not collateralised - - 274 (1) 274 (1)
b) Fully collateralised
- Up to 50% LTV 40 - 1,357 - 1,397 -
- 51% to 75% LTV - - 13,570 - 13,570 -
- greater than 100% LTV 920 - - - 920 -
960 - 15,201 (1) 16,161 (1)
Total 114,549 (209) 16,516 (4) 131,065 (213)
125Annual Report and Financial Statements 2023
Group Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
a) Fully collateralised
- Up to 50% LTV 88,235 (2) - - 88,235 (2)
- 51% to 75% LTV 396,035 (19) - - 396,035 (19)
- 76% to 90% LTV 468,787 (31) - - 468,787 (31)
- 91% to 100% LTV 1,141,388 (84) - - 1,141,388 (84)
2,094,445 (136) - - 2,094,445 (136)
Stage 2
a) Fully collateralised
- Up to 50% LTV - - 43 - 43 -
- 51% to 75% LTV 159 - 653 (21) 812 (21)
- 76% to 90% LTV 589 (18) 506 (3) 1,095 (21)
b) Partially collateralised
- greater than 100% 3,513 (88) 4,644 (15) 8,157 (103)
4,261 (106)
5,846 (39)
10,107 (145)
Stage 3
a) Fully collateralised
- 76% to 90% LTV 133 - - - 133 -
- 91% to 100% LTV 168 (4) - - 168 (4)
301 (4) - - 301 (4)
Total 2,099,007 (246) 5,846 (39) 2,104,853 (285)
The following table shows the gross carrying amount (before credit loss allowances) of the loans and advances to
customers classified under the Dutch Mortgage portfolio by level of collateral expressed through the LTVratio.The
126Annual Report and Financial Statements 2023
Group Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
a) Fully collateralised
- Up to 50% LTV 52,209 (5) - - 52,209 (5)
- 51% to 75% LTV 318,488 (18) - - 318,488 (18)
- 76% to 90% LTV 435,147 (24) - - 435,147 (24)
- 91% to 100% LTV 890,228 (52) - - 890,228 (52)
b) Partially collateralised
- greater than 100% 114,762 (7) - - 114,762 (7)
1,810,834 (106) - - 1,810,834 (106)
Stage 2
a) Fully collateralised
- 51% to 75% LTV 384 (6) 465 - 849 (6)
- 76% to 90% LTV 159 - 129 - 288 -
- 91% to 100% LTV 1,902 (48) 2,763 (7) 4,665 (55)
b) Partially collateralised
- greater than 100% 524 (9) 520 (1) 1,044 (10)
2,969 (63)
3,877 (8)
6,846 (71)
Stage 3
a) Fully collateralised
- 76% to 90% LTV - - 506 (7) 506 (7)
- - 506 (7) 506 (7)
Total 1,813,803 (169) 4,383 (15) 1,818,186 (184)
127Annual Report and Financial Statements 2023
The following table shows the gross carrying amount (before credit loss allowances) of the loans and advances to
customers classified under the Belgian Mortgage portfolio by level of collateral expressed through the LTV ratio. The
Group Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
a) Fully collateralised
- Up to 50% LTV 27,468 (20) - - 27,468 (20)
- 51% to 75% LTV 73,272 (67) - - 73,272 (67)
- 76% to 90% LTV 120,419 (130) - - 120,419 (130)
- 91% to 100% LTV 29,472 (32) - - 29,472 (32)
250,631 (249) - - 250,631 (249)
Stage 2
a) Fully collateralised
- Up to 50% LTV 473 (4) - - 473 (4)
- 51% to 75% LTV 369 (3) 305 (3) 674 (6)
- 76% to 90% LTV 1,623 (19) 591 (8) 2,214 (27)
- 91% to 100% LTV 744 (9) - - 744 (9)
3,209 (35) 896 (11) 4,105 (46)
Stage 3
a) Fully collateralised
- 76% to 90% LTV 369 (39) 185 (19) 554 (58)
369 (39) 185 (19) 554 (58)
254,209 (323) 1,081 (30) 255,290 (353)
128Annual Report and Financial Statements 2023
Group Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
a) Fully collateralised
- Up to 50% LTV 10,855 (7) - - 10,855 (7)
- 51% to 75% LTV 32,473 (26) - - 32,473 (26)
- 76% to 90% LTV 72,850 (67) - - 72,850 (67)
- 91% to 100% LTV 13,307 (13) - - 13,307 (13)
b) Partially collateralised
- greater than 100% LTV 857 (1) - - 857 (1)
130,342 (114) - - 130,342 (114)
Stage 2
a) Fully collateralised
- Up to 50% LTV 152 - - - 152 -
- 76% to 90% LTV 978 - 164 (4) 1,142 (4)
- 91% to 100% LTV - (8) 188 (4) 188 (12)
b) Partially collateralised
- greater than 100% LTV 306 - - - 306 -
1,436 (8) 352 (8) 1,788 (16)
131,778 (122) 352 (8) 132,130 (130)
129Annual Report and Financial Statements 2023
Group and Bank Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Stage 1
a) Not collateralised 154 (68) - - 154 (68)
b) Fully collateralised
- Up to 50% LTV 19,826 (44) - - 19,826 (44)
- 51% to 75% LTV 32,801 (95) - - 32,801 (95)
- 76% to 90% LTV 45,892 (148) - - 45,892 (148)
b) Partially collateralised
- greater than 100% LTV 161 (1) - - 161 (1)
98,834 (356) - - 98,834 (356)
Stage 3
a) Fully collateralised
- Up to 50% LTV 144 (23) - - 144 (23)
144 (23) - - 144 (23)
98,978 (379) - - 98,978 (379)
Group and Bank Non-forborne Forborne Total
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
Gross carrying/
nominal amount
Credit loss
allowance
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Stage 1
a) Fully collateralised
- Up to 50% LTV 11,158 (39) - - 11,158 (39)
- 51% to 75% LTV 22,377 (40) - - 22,377 (40)
- 76% to 90% LTV 34,258 (116) - - 34,258 (116)
67,793 (195) - - 67,793 (195)
The following table shows the gross carrying amount (before credit loss allowances) of the loans and advances to
130Annual Report and Financial Statements 2023
As at 31 December 2023, the Group and the Bank held senior secured loans to international borrowers classified under
the International Corporate Lending portfolio which amounted to €0.3 billion (2022: €0.5 billion) and €0.2 billion (2022:
€0.3 billion).In respect of such financial assets, the Group normally has a right overthe borrower’s unencumbered
assets.
All the Group’s and Bank’s exposures classified under the Securities Investment portfolio as at 31 December 2023 and
2022 are unsecured with the exception of a sub-portfolio of covered bonds amounting to €438.1 million (2022: €386.8
million) and €117.5 million (2022: €101.8 million),respectively, which are backed by a separate group of assets in the
form of loans. Similarly,all exposures classified under the Securitisation Investment portfolio as at 31 December 2023
and 2022 are also backed by a separate group of assets in the form of loans.
2.2.7 Current Conditions and Forward-looking information incorporated in the ECL model
Point-in-time, forward-looking PD and LGD modelling methodology
The modelling methodology used by the Group in the measurement of credit loss allowances in respect of Stage 1 and
Stage 2 exposures leverages current and multiple scenarios of future projections of macroeconomic data beyond the
reporting date in order to determinepoint-in-time PDs and incorporate forward-looking information. Statistical models
used are developed by an external vendor.
As explained in moredetail in Note 1.5 of the financial statements, forthe International and Maltese Corporate Lend-
ing and Securities portfolios the models use rating scale to TTC PD matrices calibrated on the basis of an underlying
dataset of market observations to firstly determine a TTC PD and accordingly an implied rating for each borrower. The
TTC PD/implied rating is determined by calibrating borrowers’ financial and non-financial profile with those of observa-
ble rated peers. An exposure’s implied rating is then converted to an unconditional PiT PD using a methodology which
utilises market capitalisation/equity volatility and leverage of comparable firms,with shocks to a firm’s stockprice
translated into corresponding shocks to the credit risk metric attributable to the underlying exposure. Therefore, equity
market performance is a key variable for incorporating current conditions into the Group’s ECL modelling methodology,
particularly in the conversion from TTC to PiT PDs.
The methodology then utilises macroeconomic correlation models in orderto determine the historical correlation of a
borrower’s financial performance with overall country or region-level macroeconomic conditions, with the correlation
factors estimated principally by reference to borrowersize as well as the industry in which the borroweroperates.
Multiple macroeconomic forecasts developed by an external vendor are then applied to PiT PDs to produce proba-
bility-weighted forward-looking conditioned PiTPDs in line with the requirements of IFRS 9. The conditioning of PDs
by reference tomultiple macroeconomic scenarios reflects forecasted quarter-on-quarterchanges in macroeconomic
variables (such as GDP, unemployment and HPI) overthe PD term structure of the exposure. The Group’s modelling
methodology therefore estimates a point-in-time and forward-looking measure of default risk. The same methodology
is also used to estimate PiT LGDs.
Input parameters similar to those of the Corporate and Securities portfolios do not exist for determining implied ratings
of the Maltese Business Lending portfolio,mainly due to existing data limitations within the Maltese market.There-
fore,implied ratings are assigned by the Credit Risk team using professional judgement by reference todefault rates
experienced in similar markets as well as the financial performance and position of the borrower in relation to financial
performanceand position at origination. Asimilar approach to that adopted forCorporate and Securities portfolios is
applied to determine conditional PiT PDs, using the TTC implied riskratings based on internal risk classifications by the
131Annual Report and Financial Statements 2023
ForDutch residential mortgages,PiT PDs and LGDs aredetermined using loan and borrower characteristics such as
loan-to-value (‘LTV’) and loan-to-income (‘LTI’) inputs, calibrated based on historical data of proxy NHG loans from
RMBS transactions which are adjusted to incorporate current and forward-looking macroeconomic variables and data
such as unemployment rates, real GDP growth and house price indices.
PiT PDs for Maltese mortgages are based on the actual six months lagged NPL ratio published by the Central Bank of
Malta in its Financial Stability Report and the actual quarterly NPL ratio published by the European Banking Authority
in its Risk Dashboard Report, adjusted to incorporate forward-looking macroeconomic variables including real GDP
growth, house price index, compensation of employees and household disposable income.
For the Belgian mortgages, the PiT PDs are mainly based on the Belgium Mortgage industry level NPL data published
by the National Bank of Belgium adjusted to incorporate forward-looking macroeconomic variables including unem-
ployment rates, real GDP growth, house price index, claims on private sector and household disposable income.
In respect of defaulted / Stage 3 exposures classified within the International Corporate Lending portfolio, the Group
utilises an internally developed discounted cash flow methodology in order to estimate the net present value of fore-
casted operating cash flows under multiple forward-looking scenarios discounted using the borrower-specific weight-
ed average cost of capital (“WACC”).In this regard,forward-looking expectations based on the impact of changing
macroeconomic conditions on the borrower are reflected in multiple scenarios of operating cash flows developed by
management, which are discounted and probability-weighted in accordance with the requirements of IFRS 9.
Similarly,the expected recoveries in respect of defaulted / Stage 3 exposures classified within the MalteseBusiness
Lending portfolio are estimated by referenceto multiple work-out options determined on the basis of an individual
borrower assessment and taking into consideration the impact of macroeconomic conditions on the recoverable
amount under each scenario.
The model used to measure credit loss allowances in respect of all exposures classified within the Dutch,Belgian and
Maltese Mortgage portfolio estimates PDs and LGDs by reference to historical information observed in that jurisdiction
forsimilar assets as well as multiple forward-looking macroeconomic forecasts for the respective economy developed
by the external vendor.
As at 31 December 2023, a degree of uncertainty remains as the economy is expected to continue to stagnate due to
high interest rates, negative sentiment,weak manufacturing orders and a risk in geopolitical tensions.In this respect,
the macroeconomic modeling aspect within the estimation of ECL, and the forecasting of economic conditions is still
subject to an inherent level of risk and highly subjective.
This has required an elevated level of review to ensure that the macroeconomic methodology used by the Group,
provided by a reputable third party, results in plausible scenarios that adequately captures the uncertainties previously
mentioned. This methodology was also compared to regulator issued scenarios,with those used by the Group being
more conservative.
Judgment is still required in the determination of macroeconomic forecasts reflecting potential future economic
132Annual Report and Financial Statements 2023
Forecasts of future economic conditions
The Group applies macroeconomic scenarios sourced from an external vendor to the PD and LGD term structures for
the estimation of credit loss allowances in respect of Stage 1 and Stage 2 exposures classified within the International
Corporate Lending and Maltese Business Lending portfolios, as well as in respect of all exposures classified within the
Dutch Mortgage, Belgian Mortgage, Maltese Mortgage, Securities Investment and Securitisation Investment portfolios.
The macroeconomic scenarios represent the Group’s view of the range of potential outcomes, and application of these
scenarios captures the non-linearity of expected credit losses under different scenarios for all portfolios.
The Group has chosen three macroeconomic scenarios that include a central,or baseline,scenario and two “alternative”
scenarios to reflect upside and downside scenarios. The scenarios are constructed by the external vendor based on a
target severity for each of the scenarios. While the baseline scenario is by design in the middle of possible future eco-
nomic outcomes, the alternative scenarios capture alternative economic conditions that are equally distanced from the
baseline in terms of their severity as per the assumptions of the external vendor. After their construction, the scenarios
are each assigned probability weights based on the external vendor’s severity distribution and on how well they approx-
imate (simulated) possible future economic developments.The scenarios are generated/refreshed on a quarterly basis.
The macroeconomic scenarios used in the Group’s modelling of credit loss allowances reflect possible macroeconomic
paths taking into consideration a range of potential economic impacts driven by geopolitical tensions in respect of the
conflict between Russia and Ukraine and between Israel and Hamas, assumptions on the energy markets,monetary
policy assumptions as the ECB is expected to start cutting rates, as well as epidemiological assumptions in respect of
future waves of the pandemic.Moreover, the outlook is that the economy will continue to stagnate mainly due to high
interest rates and negative sentiment, therefore, economic forecasts remain subject to a high degree of uncertainty in
the current environment.
With the current geopolitical tensions, rigorous monitoring of macroeconomic forecasts developed by the external ven-
dor was performed by the Group in order to challenge the adequacy and reasonableness of the developed scenarios.
In this respect,the macroeconomic scenarios werereviewed on a quarterly basis in full consideration of the guidance
issued by the ECB to Significant Institutions on 1 April 2020 (“IFRS9 in the context of the coronavirus (COVID-19)
pandemic”).
The scenarios have been benchmarked and assessed against the macroeconomic forecasts forthe Euro area pub-
lished by the ECB, in line with ECB guidance, with the latest publication available being the one published in December
2023.In this respect, theGroup’s forward looking macroeconomic scenarios are deemed to be aligned with the ECB’s
macroeconomic forecasts for the Euro area.
As at 31 December 2023,management selected to use threescenarios developed and recommended by the external
vendorwhich aredeemed to be mostly aligned with the December 2023 ECB Staff projections. As per the preceding
133Annual Report and Financial Statements 2023
The scenarios used for the purposes of determining the ECL as at 31 December 2023 are described below.
Baseline
• Conflict between Russia and Ukraine continues but does not expand beyond Ukraine
• Conflict between Israel and Hamas does not escalate into a broader regional conflict
• Global oil prices remain around current levels for several quarters
• Natural gas prices remain close to current levels and are only slightly higher than their pre-pandemic
• Supply chain bottlenecks continue to ease
• Infections due to new variants of COVID-19 lead to only minimal restrictions on mobility or voluntary social dis-
tancing, and correspondingly have little economic impact
• ECB holds rates unchanged at 4% for several quarters. It starts cutting rates in the summer of 2024, and it
proceeds relatively rapidly given the softness in inflation. Neutral rate is reached in 2025
Upside
• Conflict between Russia and Ukraine ends, which reduces geopolitical tensions. Supplies of commodities such
as oil, gas and food from the region increase
• Vaccinations successfully combat new variants of the virus and render any restrictions to mobility unnecessary
• The supply side of the economy expands strongly, driven by productivity gains, while slack in the economy
proves more substantial than initially thought. The global economy picks up robustly, boosting manufacturing
output. Productivity gains and the expansion of the supply
• Global energy prices are slightly higher than in the baseline, reflecting stronger demand that is met by robust
supply
• ECB feels more confident and proceeds with normalization more slowly than in the baseline. It starts cutting
rates later than in the baseline and reaches neutral values significantly later than the baseline
Downside 2
• Conflict between Russia and Ukraine increases steadily, and fears grow that NATO will be dragged into the
conflict, which leads to an even sharper decline in confidence
• Worries that conflict between Israel and Hamas will spiral into a broader regional conflict weigh on financial
markets and confidence more broadly
• Tensions between the U.S. and China persist and intensify, with barriers to shipping along the Taiwan Strait
• There is a moderate wave of the pandemic, social distancing increases as does the economic effect, but the
impact is mild compared with the disruption experienced in 2020-2022
• Business investment declines as does the demand for labour
• After some hesitation, the ECB starts to cut rates, taking the deposit rate below neutral but above zero
• To limit stress in sovereign and interbank markets, the ECB restarts its purchase of government bonds, pro-
vides forward guidance about its future policy moves, and further loosens the eligibility criteria forthe collateral
it accepts from banks
The year-on-yearforecasts for2023 to 2026 forkey macro-economic variables (MEVs) under each of the scenarios
134Annual Report and Financial Statements 2023
The Group’s weighting allocation approach is that weights represent the share of outcomes that are best approximated
by a scenario (not the likelihood of a specific scenario occurring). The Group has assigned the probability weightings to
each scenario using the mid-point approach through which the probability weight assigned to each scenario would be
dependent on the mid-points between the percentiles (representing the severity of the scenario) which each scenario
represents along the distribution curve. Management selected this mid-point approach since it is an approach recom-
mended by the external vendor and, the scenarios and probability weight chosen are deemed to be mostly aligned with
the December 2023 ECB Staff projections.
The scenarios selected, together with the relative probability weightings relative to the severity distribution provided by
the external vendor for each scenario, are disclosed in the table below:
The following tables present the year-on-year growth rates for the key macroeconomic variables provided by the ex-
ternal vendor underthe baseline and the five alternative scenarios referred to above forthe measurement of ECLfor all
portfolios as at 31 December 2023 and 2022.
Forthe International Corporate Lending and Securities portfolios, MEVs are determined for each country, with the fore-
casted MEVdata in respect of the countries to which the Group is mostly exposed being presented in the tables below.
Eurozone MEVs are used in some cases,ratherthan country-level MEVs, as the formerare deemed to havea higher
correlation to the country specific portfolio assets.Forexposures within the Maltese Business Lending portfolio and
the Maltese Mortgages portfolio, Malta-specific MEVs are used forthe measurement of credit loss allowances. The key
MEVs used for the estimation of ECL for exposures classified within the Corporate and Securities portfolios comprise
real GDP growth, the performance of stock market indices and unemployment rates.
With respect to the Dutch Mortgage portfolio, the Group utilises regional-level as well as national-level MEVs as ap-
propriate in orderto capture regional level peculiarities. The key MEVs used forthe estimation of ECL in respect of
exposures classified within the Dutch Mortgage portfolio comprise the House Price Index, unemployment rates and 10-
yeartreasury rates, with the national level forecasts used in the ECL calculation being disclosed in the table hereunder.
Forthe Belgian Residential Mortgages portfolio, the key MEVs used forthe estimation of ECL are national levels of
House Price Index, Unemployment Rate, real GDP growth and Household Disposable Income.
With respect to the Maltese Residential Mortgages portfolio,the key MEVs used for the estimation of ECL are national
levels of House Price Index,Unemployment Rate,real GDP growth and Household Disposable Income, and the actual
quarter lagged NPL ratio.
The ECL model for the measurement of credit loss allowances in respect of exposures classified within the Securitisa-
tion Investment portfolio uses Euriborand GBP Libor 3-month and 1-month rates as well as the same MEVs used for
the purposes of the International Corporate Lending portfolio, since the pool of underlying assets securing the Group’s
investment in CLO structured tranches is similar to the exposures classified within the International Corporate Lending
External vendor
Scenarios Severe Upside Upside Baseline Downside 1 Downside 2 Severe Downside
External Vendor Severity 96% 90% 50% 25% 10% 4%
Probability Weight 30% 40% 30%
135Annual Report and Financial Statements 2023
Economic Scenarios: Year-on-Year Forecasts (2023-2026) for key MEVs
International Lending and Securities Maltese Lending Dutch Mortgages Belgian Mortgages
UK US Eurozone Malta Netherlands Belgium
ECL
Scenario
2023 2024 2025 2026 2023 2024 2025 2026 2023 2024 2025 2026 2023 2024 2025 2026 2023 2024 2025 2026 2023 2024 2025 2026
Real GDP - Growth %
Severe
Upside
0.6% 5.4% 2.0% 1.1% 2.6% 6.1% 2.6% 2.8% 0.3% 4.4% 1.9% 1.6% 5.1% 8.2% 3.9% 2.6% -0.6% 4.9% 2.6% 1.3% 1.5% 4.2% 4.3% 1.9%
Upside 0.6% 3.9% 1.2% 1.3% 2.6% 3.5% 2.3% 2.5% 0.3% 3.5% 1.5% 1.6% 5.1% 7.1% 3.6% 2.8% -0.6% 3.6% 2.0% 1.3% 1.5% 3.2% 3.3% 1.9%
Baseline 0.6% 0.4% 1.0% 1.3% 2.6% 1.3% 1.9% 2.4% 0.3% 1.2% 1.7% 1.8% 5.1% 4.0% 4.0% 3.2% -0.6% 0.9% 2.0% 1.6% 1.5% 1.7% 1.9% 1.9%
Downside 1 0.6% -3.3% 2.5% 1.5% 2.6% -0.7% 2.9% 2.7% 0.3% -1.0% 2.6% 1.9% 5.1% 2.5% 4.6% 3.2% -0.6% -0.8% 2.2% 2.0% 1.5% 0.3% 2.5% 2.0%
Downside 2 0.6% -5.6% 1.3% 2.6% 2.6% -2.3% 1.6% 3.3% 0.3% -5.0% 2.2% 3.1% 5.1% -2.6% 4.7% 4.5% -0.6% -5.4% 2.3% 3.8% 1.5% -4.7% 2.6% 3.2%
Severe
Downside
0.6% -7.1% -0.2% 4.2% 2.6% -4.1% 0.3% 3.4% 0.3% -7.1% 0.2% 4.5% 5.1% -4.5% 2.5% 5.9% -0.6% -7.3% 0.3% 4.7% 1.5% -7.1% 0.3% 4.7%
Unemployment Rate
- Average %
Severe
Upside
4.2% 3.8% 3.5% 3.5% 3.6% 2.8% 2.9% 3.1% 6.5% 6.3% 6.0% 6.1% 2.8% 3.4% 3.6% 3.5% 3.6% 3.6% 3.0% 3.4% 5.6% 6.8% 7.1% 7.0%
Upside 4.2% 4.1% 3.9% 3.9% 3.6% 3.1% 3.3% 3.4% 6.5% 6.5% 6.3% 6.4% 2.8% 3.5% 3.8% 3.6% 3.6% 3.6% 3.4% 3.7% 5.6% 6.8% 7.1% 7.0%
Baseline 4.2% 4.5% 4.7% 4.7% 3.6% 4.0% 4.1% 4.0% 6.5% 6.7% 6.7% 6.7% 2.8% 3.6% 3.8% 3.7% 3.6% 3.9% 4.0% 4.1% 5.6% 6.9% 7.1% 7.0%
Downside 1 4.2% 4.9% 5.0% 4.9% 3.6% 5.7% 5.3% 4.0% 6.5% 7.0% 7.3% 7.1% 2.8% 3.6% 3.9% 3.6% 3.6% 4.0% 4.6% 4.4% 5.6% 7.0% 7.2% 7.1%
Downside 2 4.2% 5.6% 7.3% 7.5% 3.6% 6.7% 7.4% 6.1% 6.5% 7.7% 8.8% 8.3% 2.8% 3.8% 4.4% 3.9% 3.6% 4.4% 5.9% 5.5% 5.6% 7.2% 8.0% 8.0%
Severe
Downside
4.2% 6.3% 8.5% 8.4% 3.6% 7.2% 8.7% 8.3% 6.5% 8.0% 9.8% 9.6% 2.8% 3.8% 4.7% 4.4% 3.6% 4.5% 6.6% 6.6% 5.6% 7.3% 8.5% 8.7%
Stock Market Index
- Growth %
Severe
Upside
3.0% 23.3% -0.3% 2.4% 13.3% 18.1% 2.6% 4.9% 14.0% 20.7% 3.8% 4.5% 0.5% 27.9% -0.7% 11.2% - - - - - - - -
Upside 3.0% 18.7% 1.2% 2.0% 13.3% 12.9% 2.3% 4.1% 14.0% 16.5% 4.3% 4.6% 0.5% 22.1% -2.8% 11.9% - - - - - - - -
Baseline 3.0% 7.8% 3.9% 4.8% 13.3% 6.5% 2.8% 5.3% 14.0% 6.1% 4.6% 6.2% 0.5% 9.2% -0.9% 13.4% - - - - - - - -
Downside 1 3.0% 4.5% 2.5% 5.7% 13.3% -19.1% 14.3% 14.3% 14.0% -3.8% 6.9% 8.5% 0.5% 0.4% -1.1% 15.5% - - - - - - - -
Downside 2 3.0% -13.2% 12.9% 11.1% 13.3% -33.8% 11.3% 22.4% 14.0% -28.2% 26.6% 17.5% 0.5% -22.3% 0.6% 26.1% - - - - - - - -
Severe
Downside
3.0% -27.5% 8.8% 17.4% 13.3% -42.9% 4.8% 16.3% 14.0% -41.5% 20.6% 33.1% 0.5% -30.8% 10.1% 42.6% - - - - - - - -
10Yr Treasury Rate
- Average %
Severe
Upside
- - - - - - - - - - - - - - - - 2.8% 2.7% 2.8% 3.1% - - - -
Upside - - - - - - - - - - - - - - - - 2.8% 2.6% 2.7% 2.8% - - - -
Baseline - - - - - - - - - - - - - - - - 2.8% 2.6% 2.6% 2.6% - - - -
Downside 1 - - - - - - - - - - - - - - - - 2.8% 2.1% 2.2% 2.6% - - - -
Downside 2 - - - - - - - - - - - - - - - - 2.8% 1.7% 1.5% 1.7% - - - -
Severe
Downside
- - - - - - - - - - - - - - - - 2.8% 1.2% 0.9% 1.0% - - - -
House Price Index %
Severe
Upside
- - - - - - - - - - - - 1.0% 6.1% 8.6% 3.3% -5.3% 2.4% 3.9% 3.6% -1.6% -0.5% 0.9% 2.2%
Upside - - - - - - - - - - - - 1.0% 4.4% 6.3% 2.9% -5.3% 1.3% 2.7% 3.6% -1.6% -0.9% 0.7% 2.3%
Baseline - - - - - - - - - - - - 1.0% 2.8% 1.9% 1.9% -5.3% -1.5% 2.8% 4.3% -1.6% -2.1% 1.0% 2.5%
Downside 1 - - - - - - - - - - - - 1.0% 2.5% 0.6% -0.3% -5.3% -3.9% 2.3% 5.0% -1.6% -3.1% 1.0% 2.3%
Downside 2 - - - - - - - - - - - - 1.0% 0.8% -6.2% -5.0% -5.3% -10.1% -2.0% 8.6% -1.6% -6.3% 0.3% 3.6%
Severe
Downside
- - - - - - - - - - - - 1.0% 1.2% -10.3% -9.8% -5.3% -11.6% -7.9% 7.7% -1.6% -6.3% -2.5% 3.2%
Household Disposable
Income - Growth %
Severe
Upside
- - - - - - - - - - - - 5.4% 9.0% 2.3% 3.0% - - - - 5.8% 2.5% 3.5% 2.3%
Upside - - - - - - - - - - - - 5.4% 6.3% 2.3% 3.1% - - - - 5.8% 2.0% 2.8% 2.1%
Baseline - - - - - - - - - - - - 5.4% 5.8% 2.1% 2.7% - - - - 5.8% 1.4% 1.7% 1.8%
Downside 1 - - - - - - - - - - - - 5.4% 5.8% 1.9% 2.5% - - - - 5.8% 1.2% 1.6% 1.5%
Downside 2 - - - - - - - - - - - - 5.4% 0.9% 1.6% 2.2% - - - - 5.8% 0.6% 0.9% 1.0%
Severe
Downside
- - - - - - - - - - - - 5.4% 1.1% -3.2% 2.1% - - - - 5.8% 1.1% 0.3% 0.5%
136Annual Report and Financial Statements 2023
Economic Scenarios: Year-on-Year Forecasts (2022-2025) for key MEVs
International Lending and Treasury Maltese Lending Dutch Mortgages Belgian Mortgages
UK US Eurozone Malta Netherlands Belgium
ECL
Scenario
2022 2023 2024 2025 2022 2023 2024 2025 2022 2023 2024 2025 2022 2023 2024 2025 2022 2023 2024 2025 2022 2023 2024 2025
Real GDP - Growth %
Severe
Upside
0.3% 3.1% 1.8% 1.0% 0.4% 6.2% 3.2% 2.9% 1.2% 4.5% 2.7% 2.0% 3.2% 10.0% 0.9% 4.1% 2.1% 5.4% 2.7% 1.1% 0.9% 6.2% 1.5% 1.1%
Upside 0.3% 1.9% 1.2% 1.1% 0.4% 3.5% 2.5% 2.3% 1.2% 3.5% 2.3% 2.0% 3.2% 9.2% 0.6% 4.0% 2.1% 4.1% 2.1% 1.2% 0.9% 4.8% 1.0% 1.2%
Baseline 0.3% -0.8% 1.2% 1.4% 0.4% 1.0% 2.6% 2.8% 1.2% 1.2% 2.6% 2.2% 3.2% 7.3% 0.8% 4.1% 2.1% 1.4% 2.1% 1.4% 0.9% 2.1% 1.3% 1.3%
Downside 1 0.3% -4.4% 2.7% 1.6% 0.4% -1.3% 3.1% 3.4% 1.2% -1.0% 3.4% 2.3% 3.2% 5.8% 1.4% 4.2% 2.1% -0.3% 2.3% 1.8% 0.9% 0.7% 1.9% 1.4%
Downside 2 0.3% -6.9% 1.3% 2.5% 0.4% -2.3% 1.7% 3.8% 1.2% -5.0% 3.2% 3.5% 3.2% 0.5% 1.4% 5.5% 2.1% -5.0% 2.4% 3.6% 0.9% -4.3% 2.0% 2.6%
Severe
Downside
0.3% -8.3% -0.3% 3.5% 0.4% -4.1% 0.9% 3.9% 1.2% -7.1% 1.0% 4.9% 3.2% -1.4% -0.7% 6.8% 2.1% -6.9% 0.4% 4.6% 0.9% -6.7% -0.3% 4.1%
Unemployment Rate
- Average %
Severe
Upside
3.7% 3.5% 3.2% 3.3% 3.7% 3.1% 3.1% 3.0% 6.7% 6.7% 6.3% 6.4% 3.0% 3.3% 3.2% 3.4% 3.5% 3.2% 2.6% 3.0% 5.5% 4.7% 4.5% 5.3%
Upside 3.7% 3.8% 3.7% 3.7% 3.7% 3.5% 3.4% 3.4% 6.7% 6.8% 6.6% 6.6% 3.0% 3.3% 3.3% 3.4% 3.5% 3.3% 2.9% 3.3% 5.5% 4.7% 4.7% 5.5%
Baseline 3.7% 4.2% 4.4% 4.5% 3.7% 4.0% 4.1% 3.8% 6.7% 7.1% 7.1% 7.0% 3.0% 3.3% 3.4% 3.5% 3.5% 3.5% 3.6% 3.7% 5.5% 5.0% 5.0% 5.5%
Downside 1 3.7% 4.6% 4.8% 4.7% 3.7% 5.7% 5.4% 3.9% 6.7% 7.4% 7.8% 7.6% 3.0% 3.3% 3.5% 3.6% 3.5% 3.7% 4.1% 4.0% 5.5% 5.2% 5.5% 5.8%
Downside 2 3.7% 5.3% 7.0% 7.3% 3.7% 6.8% 7.4% 5.9% 6.7% 8.3% 9.5% 8.9% 3.0% 3.5% 4.1% 4.3% 3.5% 4.0% 5.5% 5.1% 5.5% 5.8% 7.7% 8.5%
Severe
Downside
3.7% 6.0% 8.3% 8.2% 3.7% 7.4% 8.9% 8.4% 6.7% 8.6% 10.6% 10.5% 3.0% 3.5% 4.3% 4.9% 3.5% 4.1% 6.2% 6.2% 5.5% 6.1% 9.1% 11.0%
Stock Market Index
- Growth %
Severe
Upside
-1.3% 20.3% -1.3% 4.1% -17.6% 19.6% 0.1% 6.0% -12.5% 20.0% 0.9% 3.7% -6.9% 19.7% -0.5% 6.0% - - - - - - - -
Upside -1.3% 15.8% 0.2% 3.8% -17.6% 14.3% -0.2% 5.2% -12.5% 15.9% 1.3% 3.7% -6.9% 14.4% 1.2% 7.6% - - - - - - - -
Baseline -1.3% 5.1% 2.9% 6.6% -17.6% 7.9% 0.3% 6.5% -12.5% 5.7% 1.5% 5.5% -6.9% 1.5% 3.3% 10.4% - - - - - - - -
Downside 1 -1.3% 2.0% 1.5% 7.5% -17.6% -20.8% 12.0% 16.4% -12.5% -4.5% 3.7% 8.0% -6.9% -6.2% 3.5% 12.0% - - - - - - - -
Downside 2 -1.3% -15.3% 11.8% 13.0% -17.6% -34.7% 7.3% 24.2% -12.5% -29.0% 22.8% 16.6% -6.9% -27.9% 15.3% 24.0% - - - - - - - -
Severe
Downside
-1.3% -29.3% 7.8% 19.4% -17.6% -41.6% 0.5% 17.6% -12.5% -42.1% 16.1% 32.1% -6.9% -36.1% 22.4% 39.4% - - - - - - - -
10Yr Treasury Rate
- Average %
Severe
Upside
- - - - - - - - - - - - - - - - 1.4% 2.5% 2.7% 2.8% - - - -
Upside - - - - - - - - - - - - - - - - 1.4% 2.5% 2.6% 2.6% - - - -
Baseline - - - - - - - - - - - - - - - - 1.4% 2.4% 2.5% 2.3% - - - -
Downside 1 - - - - - - - - - - - - - - - - 1.4% 1.9% 2.1% 2.2% - - - -
Downside 2 - - - - - - - - - - - - - - - - 1.4% 1.6% 1.4% 1.3% - - - -
Severe
Downside
- - - - - - - - - - - - - - - - 1.4% 1.3% 1.0% 0.8% - - - -
House Price Index %
Severe
Upside
- - - - - - - - - - - - 1.5% 13.3% 6.9% 0.2% -1.7% -1.3% 4.6% 2.8% 1.5% 2.1% 6.1% 4.1%
Upside - - - - - - - - - - - - 1.5% 11.3% 4.6% 0.0% -1.7% -4.0% 1.9% 2.1% 1.5% 0.6% 5.0% 3.7%
Baseline - - - - - - - - - - - - 1.5% 7.6% 1.2% 0.4% -1.7% -5.7% -0.7% 1.8% 1.5% -1.0% 3.5% 3.6%
Downside 1 - - - - - - - - - - - - 1.5% 8.7% -0.4% -1.7% -1.7% -6.1% -1.5% 1.6% 1.5% -0.5% 3.1% 2.8%
Downside 2 - - - - - - - - - - - - 1.5% 4.5% -10.2% -8.4% -1.7% -9.4% -6.7% 1.0% 1.5% -4.7% 1.5% 2.2%
Severe
Downside
- - - - - - - - - - - - 1.5% 9.1% -16.4% -12.9% -1.7% -7.3% -13.7% -3.6% 1.5% -3.6% 1.6% 0.7%
Household Disposable
Income - Growth %
Severe
Upside
- - - - - - - - - - - - 0.5% 5.0% 4.7% 1.9% - - - - 2.5% 6.3% 5.6% 1.5%
Upside - - - - - - - - - - - - 0.5% 8.5% 4.3% 1.8% - - - - 2.5% 4.8% 5.0% 1.7%
Baseline - - - - - - - - - - - - 0.5% 0.8% -0.5% 2.0% - - - - 2.5% 3.0% 3.7% 2.2%
Downside 1 - - - - - - - - - - - - 0.5% 5.9% 4.4% 2.0% - - - - 2.5% 3.5% 3.7% 1.5%
Downside 2 - - - - - - - - - - - - 0.5% 5.2% 4.8% 1.5% - - - - 2.5% 2.5% 1.6% 0.9%
Severe
Downside
- - - - - - - - - - - - 0.5% -0.1% 4.5% 2.0% - - - - 2.5% 3.9% -0.2% -0.7%
137Annual Report and Financial Statements 2023
Model adjustments and management overlays
ECB guidance states that subjective model inputs and post-core model adjustments (overlays) may be used given
the current level of uncertainties.These need to be directionally consistent with objective and verifiable evidence such
as observable macroeconomic variables and forward-looking forecasts.Overlays should be supported by adequately
documented processes and subject to strict governance oversight.
To ensure that the Group is adequately capturing the level of credit risk in its International Corporate Lending portfolio,
an assessment was performed and the Group introduced caps to implied internal ratings to borrowers that have under-
gone distressed restructuring and where necessary have applied notch downgrades to exposures that are classified
as ‘Under Surveillance’ through qualitative factors not captured by the models to reflect the increase in credit risk since
origination.
Given the sensitivity of the models used by the Group to equity values of comparable firms in determining PiT PDs, the
movement in equity prices during 2023 can be attributed to being the main variable to the change in PiT PDs within the
Group’s ECL model for Corporates.
Management is confident that the modelled macroeconomic scenarios from the external vendorinclude reasonable
epidemiological,economic, and geopolitical risk assumptions and the model outputs are appropriately reflecting the
current market conditions.
ECL sensitivity analysis in respect of macroeconomic scenarios
Notwithstanding the significant number of assumptions and different aspects forming part of the Group’s methodology
formodelling credit loss allowances in respect of exposures classified within the Group’s portfolios of financial instru-
ments, the ECL measurement is deemed to be most sensitive to the inherent level of estimation uncertainty in respect
of the modelling of macroeconomic forecasts.
The Group is hereby presenting the sensitivity analysis in respect of credit loss allowances attributable to Stage 1 and
Stage 2 exposures classified within the International Corporate Lending portfolio as at 31 December 2023 and 2022,
estimated by determining the range of credit loss allowances which would have been measured as at each date by
assigning a 100% weighting to each of the macroeconomic scenarios developed by the external vendor,as presented
in the table below.
Scenario sensitivity Severe Upside Upside Baseline Downside 1 Downside 2 Severe Downside
Group
2023
Probability Weight 2023 - 30% 40% - 30% -
ECL as at 31 December 2023 - 1,392,904 2,467,718 - 6,939,851 -
2022
Probability Weight 2022 - 30% 40% - 30% -
ECL as at 31 December 2022 - 4,008,718 6,420,667 - 16,606,354 -
Bank
2023
Probability Weight 2023 - 30% 40% - 30% -
ECL as at 31 December 2023 - 753,575 1,185,165 - 2,963,899 -
2022
Probability Weight 2022 - 30% 40% - 30% -
ECL as at 31 December 2022 - 2,751,553 4,258,611 - 10,484,767 -
138Annual Report and Financial Statements 2023
It is to be noted that the weighted average ECL cannot be reconciled by applying the relative probability weights to the
ECL outcomes under each scenario since staging might change across the scenarios when using a 100% weighting
(e.g. an exposure might be classified as Stage 2 in one out of five individual scenarios, and as Stage 1 in the weighted
average scenarios).
The estimated weighted average ECL under each scenario as at 31 December 2023, presented in the table above, is
not directly comparable with the estimated weighted average ECL under each scenario as at 31 December 2022, since
the size of the International Corporate Lending portfolio decreased significantly compared to the prior financial year.
Although duly taken into consideration,the impact of macroeconomic scenarios on the measurement of credit loss
allowances in respect of credit-impaired / Stage 3 exposures classified within the International Corporate Lending
portfolio is less pronounced compared to otherborrower-specific factors used to forecast operating cash flows under
different scenarios. Accordingly, the sensitivity impact was not considered to be significant.
The sensitivity impact of macroeconomic scenarios on the ECL outcome measured in respect of exposures classified
within the Dutch, Belgian and Maltese Mortgage, Maltese Business Lending, Securities Investment and Securitisation
Investment portfolios is not considered to be significant taking cognisance of the level of credit loss allowances esti-
mated at 31 December 2023 and 2022.
The Group has integrated ESG, by catering for climate and environmental risk factors into its existing credit riskpro-
cesses.
The Group applies climate-adjusted scenarios sourced from an external vendorand utilises a statistical model devel-
oped by the external vendorforthe estimation of the climate-adjusted credit loss allowances of its exposures classified
within the International Corporate Lending, Maltese Business Lending, Dutch Mortgages, and Buy-to-Let portfolios.
The Group applies stresses on the collateral pledged as security for the estimation of the climate-adjusted credit loss
allowances of its exposures classified within the Belgian and Maltese mortgage portfolios.
As at 31 December 2023, theincrease in expected credit losses recognised in relation to climate risk was not deemed
material to warrant further disclosures.
2.2.8 Concentration of credit risk exposures
2.2.8.1 Concentration of investment securities
Securities Investment portfolio
The Group’s and Bank’s exposure to sovereign Eurozone government bonds as at 31 December 2023 represented 3%
(2022: 22.9%) and 7.4% (2022: 43.1%),respectively, of the total investment securities within the Securities Investment
portfolio.
Credit loss allowances forthe Group and Bank amounting to €3 thousand wererecognised in respect of these expo-
sures as at 31 December 2023 (2022: €23 thousand).
The Group monitors concentrations of investment securities for credit risk by type of exposure. An analysis of concen-
139Annual Report and Financial Statements 2023
Measured at amortised cost
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Concentration by type
As at 31 December:
Carrying amount:
Covered bonds 437,656 387,035 117,553 101,764
National and regional government 247,749 135,590 144,936 61,524
Supranational and agencies 20,505 154,086 20,505 123,944
Corporations - 12,035 - 12,035
Total 705,910 688,746 282,994 299,267
Securitisation Investment portfolio
The Group’s and Bank’s Securitisation Investment portfolio comprises the investment in GH1-2019 structured note
tranches,amounting to €19.4 million as at 31 December 2023 (2022: €19.1 million), as well as CLO transactions man-
aged by third-party entities, amounting to €585.9 million (2022: €555.1 million) and €140.0 million (2022: €140.0 million)
for the Group and Bank respectively. The Group’s and Bank’s investment in GH1-2019 comprises a 5% vertical slice of
each of the tranches for “Risk Retention” purposes, with a pool of leveraged loans as collateral.The Group’s and Bank’s
investment in CLO transactions managed by third-party entities comprises positions in the most senior tranche of 29
different CLOs at Group (2022: 27) and 9 at Bank level (2022: 9), all of which are also collateralised by a pool of lever-
aged loans.
As at 31 December 2023, credit loss allowances in respect of exposures classified under these two sub-portfolios and
measured at amortised cost amounted to €0.2 million (2022: €0.2 million) and €0.1 million (2022: €0.1 million) forthe
Group and Bank respectively. The Group’s investment in the equity tranche of GH1-2019, with a fair value of €1.0 million
as at 31 December 2023 (2022: €0.6 million),is measured at FVTPLand accordingly is not subject to impairment in
accordance with IFRS 9.
2.2.8.2 Concentration of loans and advances to customers
An analysis of concentration of loans and advances tocustomers by industry sectorand geography is shown in the
following tables.
As at 31 December 2023,exposures to UK counterparties classified under the International Corporate Lending portfolio
and categorised as ‘Other European countries’ in the tables below amounted to €58.4 million (2022: €147.0 million).
Exposures classified under Maltese Business Lending,Maltese Mortgage,Dutch and Belgian Mortgage portfolios are
categorised as EU exposures in the following tables with the Maltese Business Lending portfolio classified under “real
estate activities” and “construction”sectors whereas the Dutch, Belgian and Maltese retail mortgage portfolio classified
under the “household and individuals” sector.
140Annual Report and Financial Statements 2023
Group Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 1
As at 31 December 2023
Administrative and support
service activities
8,499 - - - 8,499 (191) - - - (191)
Construction 76,141 - - - 76,141 (262) - - - (262)
Financial and insurance
activities
87,048 23,384 15,795 - 126,227 (953) (194) (96) - (1,243)
Households and individuals 2,443,910 - - - 2,443,910 (739) - - - (739)
Information and communication 10,001 - - - 10,001 (101) - - - (101)
Manufacturing 26,411 - - - 26,411 (252) - - - (252)
Professional, scientific and
technical activities
42,784 3,137 - - 45,921 (320) (16) - - (336)
Real estate activities 48,118 - - - 48,118 (158) - - - (158)
Transportation and Storage 8,964 - - - 8,964 (75) - - - (75)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
11,838 11,913 7,989 - 31,740 (104) (91) (124) - (319)
2,763,714 38,434 23,784 - 2,825,932 (3,155) (301) (220) - (3,676)
Stage 2
As at 31 December 2023
Accommodation and food
service activities
- 20,982 - - 20,982 - (703) - - (703)
Construction 9,535 - - - 9,535 - - - - -
Households and individuals 14,212 - - - 14,212 (191) - - - (191)
Real estate activities 161 - - - 161 - - - - -
23,908 20,982 - - 44,890 (191) (703) - - (894)
141Annual Report and Financial Statements 2023
Group Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 3
As at 31 December 2023
Administrative and support
service activities
- - 5,052 - 5,052 - - (596) - (596)
Construction 2,530 - - - 2,530 (200) - - - (200)
Financial and insurance
activities
27,406 - 21,045 - 48,451 (7,030) - (1,210) - (8,240)
Households and individuals 1,000 - - - 1,000 (85) - - - (85)
Real estate activities 14,838 - - - 14,838 - - - - -
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
351 - - - 351 (116) - - - (116)
46,125 - 26,097 - 72,222 (7,431) - (1,806) - (9,237)
POCI
As at 31 December 2023
Financial and insurance
activities
426 - - - 426 (212) - - - (212)
426 - - - 426 (212) - - - (212)
Total
2,834,173 59,416 49,881 - 2,943,470 (10,989) (1,004) (2,026) - (14,019)
Group Notional amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Commitments to purchase
financial assets, commitments
to extend credit, guarantees
and other commitments
As at 31 December 2023
Accommodation and food
service activities
- 292 - - 292 - (2) - - (2)
Administrative and support
service activities
- - 951 - 951 - - (112) - (112)
Construction 55,027 - - - 55,027 - - - - -
Financial and insurance
activities
- - 25,527 - 25,527 - - (118) - (118)
Households and individuals 150,418 - - - 150,418 (16) - - - (16)
Professional, scientific and
technical activities
8,540 - - - 8,540 (50) - - - (50)
Real estate activities 19,560 - - - 19,560 - - - - -
142Annual Report and Financial Statements 2023
Group Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 1
As at 31 December 2022
Activities of holding companies 15,039 - - - 15,039 (158) - - - (158)
Administrative and support
service activities
8,484 - - - 8,484 (137) - - - (137)
Construction 7,894 - - - 7,894 (152) - - - (152)
Financial and insurance
activities
114,181 48,479 30,358 - 193,018 (1,867) (534) (312) - (2,713)
Households and individuals 2,008,968 - - - 2,008,968 (415) - - - (415)
Human health and social work
activities
14,960 - - - 14,960 (334) - - - (334)
Information and communication 10,001 14,433 - - 24,434 (232) (147) - - (379)
Manufacturing 32,002 - - - 32,002 (349) - - - (349)
Professional, scientific and
technical activities
48,679 32,068 - - 80,747 (358) (188) - - (546)
Real estate activities 103,242 - - - 103,242 (208) - - - (208)
Transportation and Storage 8,964 - - - 8,964 (110) - - - (110)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
11,889 - 7,976 - 19,865 (220) - (67) - (287)
2,384,303 94,980 38,334 - 2,517,617 (4,540) (869) (379) - (5,788)
Stage 2
As at 31 December 2022
Accommodation and food
service activities
- 17,704 - - 17,704 - (1,278) - - (1,278)
Administrative and support
service activities
10,000 - - - 10,000 (427) - - - (427)
Financial and insurance
activities
12,311 11,410 - - 23,721 (129) (73) - - (202)
Households and individuals 8,634 - - - 8,634 (87) - - - (87)
Information and communication - 14,321 - - 14,321 - (229) - - (229)
Real estate activities 11,662 - - - 11,662 (4) - - - (4)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
- 11,845 - - 11,845 - (806) - - (806)
42,607 55,280 - - 97,887 (647) (2,386) - - (3,033)
143Annual Report and Financial Statements 2023
Group Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 3
As at 31 December 2022
Administrative and support
service activities
- - 9,220 - 9,220 - - (1,193) - (1,193)
Financial and insurance
activities
16,687 - 17,123 - 33,810 (4,915) - (144) - (5,059)
Households and individuals 506 - - - 506 (7) - - - (7)
Real estate activities 16,161 - - - 16,161 (1) - - - (1)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
351 - - - 351 (116) - - - (116)
33,705 - 26,343 - 60,048 (5,039) - (1,337) - (6,376)
POCI
As at 31 December 2022
Financial and insurance
activities
435 - - - 435 (224) - - - (224)
435 - - - 435 (224) - - - (224)
Group Notional amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Commitments to purchase
financial assets, commitments
to extend credit, guarantees
and other commitments
As at 31 December 2022
Accommodation and food
service activities
69 3,143 - - 3,212 - (22) - - (22)
Administrative and support
service activities
14,460 - 5,407 - 19,867 (34) - (640) - (674)
Construction 3,452 - - - 3,452 - - - - -
Financial and insurance
activities
56,174 - 27,313 - 83,487 (213) - (161) - (374)
Households and individuals 201,753 - - - 201,753 (38) - - - (38)
Information and communication - 8,584 - - 8,584 - (75) - - (75)
Manufacturing 3,437 - - - 3,437 (14) - - - (14)
Professional, scientific and
technical activities
10,060 - - - 10,060 (66) - - - (66)
Real estate activities 6,575 - - - 6,575 - - - - -
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
3,069 - - - 3,069 - - - - -
299,049 11,727 32,720 - 343,496 (365) (97) (801) - (1,263)
Total
2,461,050 150,260 64,677 - 2,675,987 (10,450) (3,255) (1,716) - (15,421)
144Annual Report and Financial Statements 2023
Bank Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 1
As at 31 December 2023
Administrative and support
service activities
1,003 - - - 1,003 (23) - - - (23)
Construction 68,217 - - - 68,217 (200) - - - (200)
Financial and insurance
activities
43,176 - 998 - 44,174 (572) - (5) - (577)
Households and individuals 98,834 - - - 98,834 (356) - - - (356)
Manufacturing 16,420 - - - 16,420 (181) - - - (181)
Professional, scientific and
technical activities
32,795 269 - - 33,064 (229) (2) - - (231)
Real estate activities 48,118 - - - 48,118 (158) - - - (158)
Transportation and Storage 8,964 - - - 8,964 (75) - - - (75)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
- 7,794 - - 7,794 - (61) - - (61)
317,527 8,063 998 - 326,588 (1,794) (63) (5) - (1,862)
Stage 2
As at 31 December 2023
Accommodation and food
service activities
- 9,495 - - 9,495 - (318) - - (318)
Construction 9,535 - - - 9,535 - - - - -
Real estate activities 161 - - - 161 - - - - -
9,696 9,495 - - 19,191 - (318) - - (318)
145Annual Report and Financial Statements 2023
Bank Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 3
As at 31 December 2023
Administrative and support
service activities
- - 5,052 - 5,052 - - (596) - (596)
Construction 2,530 - - - 2,530 (200) - - - (200)
Financial and insurance
activities
27,406 - 18,119 - 45,525 (7,030) - (928) - (7,958)
Households and individuals 144 - - - 144 (23) - - - (23)
Real estate activities 14,838 - - - 14,838 - - - - -
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
351 - - - 351 (116) - - - (116)
45,269 - 23,171 - 68,440 (7,369) - (1,524) - (8,893)
POCI
As at 31 December 2023
Financial and insurance
activities
426 - - - 426 (212) - - - (212)
426 - - - 426 (212) - - - (212)
Bank Notional amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Commitments to purchase
financial assets, commitments
to extend credit, guarantees
and other commitments
As at 31 December 2023
Accommodation and food
service activities
- 132 - - 132 - (1) - - (1)
Administrative and support
service activities
- - 951 - 951 - - (112) - (112)
Construction 55,026 - - - 55,026 - - - - -
Financial and insurance
activities
- - 17,519 - 17,519 - - (55) - (55)
Households and individuals 27,195 - - - 27,195 - - - - -
Professional, scientific and
technical activities
8,540 - - - 8,540 (50) - - - (50)
Real estate activities 19,560 - - - 19,560 - - - - -
110,321 132 18,470 - 128,923 (50) (1) (167) - (218)
Total
372,918 17,558 24,169 - 414,645 (9,375) (381) (1,529) - (11,285)
146Annual Report and Financial Statements 2023
Bank Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 1
As at 31 December 2022
Activities of holding companies 15,039 - - - 15,039 (158) - - - (158)
Administrative and support
service activities
1,001 - - - 1,001 (16) - - - (16)
Financial and insurance
activities
56,989 24,761 13,364 - 95,114 (1,220) (222) (137) - (1,579)
Households and individuals 67,793 - - - 67,793 (195) - - - (195)
Human health and social work
activities
14,960 - - - 14,960 (334) - - - (334)
Information and communication - 14,433 - - 14,433 - (147) - - (147)
Manufacturing 22,022 - - - 22,022 (254) - - - (254)
Professional, scientific and
technical activities
38,682 18,754 - - 57,436 (267) (120) - - (387)
Real estate 103,242 - - - 103,242 (208) - - - (208)
Transportation and Storage 8,964 - - - 8,964 (110) - - - (110)
328,692 57,948 13,364 - 400,004 (2,762) (489) (137) - (3,388)
Stage 2
As at 31 December 2022
Accommodation and food
service activities
- 8,012 - - 8,012 - (578) - - (578)
Administrative and support
service activities
10,000 - - - 10,000 (427) - - - (427)
Financial and insurance
activities
10,406 4,108 - - 14,514 (110) (26) - - (136)
Households and individuals - - - - - - - - - -
Information and communication - 14,321 - - 14,321 - (229) - - (229)
Real estate activities 11,662 - - - 11,662 (4) - - - (4)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
- 11,845 - - 11,845 - (806) - - (806)
32,068 38,286 - - 70,354 (541) (1,639) - - (2,180)
147Annual Report and Financial Statements 2023
Bank Gross carrying amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Stage 3
As at 31 December 2022
Administrative and support
service activities
- - 9,220 - 9,220 - - (1,193) - (1,193)
Financial and insurance
activities
16,688 - 17,054 - 33,742 (4,915) - (144) - (5,059)
Real estate activities 16,161 - - - 16,161 (1) - - - (1)
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
351 - - - 351 (116) - - - (116)
33,200 - 26,274 - 59,474 (5,032) - (1,337) - (6,369)
POCI
As at 31 December 2022
Financial and insurance
activities
435 - - - 435 (224) - - - (224)
435 - - - 435 (224) - - - (224)
Bank Notional amount Credit loss allowance
EU
Other
European
countries
North
America Asia Total EU
Other
European
countries
North
America Asia Total
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Commitments to purchase
financial assets, commitments
to extend credit, guarantees
and other commitments
As at 31 December 2022
Accommodation and food
service activities
69 1,422 - - 1,491 - (10) - - (10)
Administrative and support
service activities
14,460 - 5,407 - 19,867 (34) - (640) - (674)
Construction 3,452 - - - 3,452 - - - - -
Financial and insurance
activities
52,090 - 18,161 - 70,251 (194) - (77) - (271)
General Banking 784 - - - 784 - - - - -
Households and individuals 39,525 - - - 39,525 - - - - -
Information and communication - 8,584 - - 8,584 - (76) - - (76)
Manufacturing 3,437 - - - 3,437 (14) - - - (14)
Professional, scientific and
technical activities
10,060 - - - 10,060 (66) - - - (66)
Transport and storage - - - - - - - - - -
Real estate activities 6,575 - - - 6,575 - - - - -
Wholesale and retail trade,
repairs of motor vehicles and
motorcycles
2,285 - - - 2,285 - - - - -
132,737 10,006 23,568 - 166,311 (308) (86) (717) - (1,111)
Totals
394,395 96,234 39,638 - 530,267 (8,559) (2,128) (1,474) - (12,161)
148Annual Report and Financial Statements 2023
2.2.9 Offsetting financial assets and financial liabilities
The Group is eligible to present certain financial assets and financial liabilities on a net basis in the statement of finan-
cial position in accordance with the Group’s policy described in Note 1.6 ‘Offsetting Financial Instruments’.
The following tables set out:
• the impact of offsetting financial assets and financial liabilities on the consolidated statement of financial
position.
• the financial impact of netting for instruments subject to an enforceable master netting arrangement or similar
agreement; and
• the available financial collateral received or pledged in relation to the total amounts of assets and liabilities that
were not offset.
The Group enters into derivative transactions under International Swap and Derivatives Association (ISDA) master net-
ting agreements.In general, under such agreements the amounts owed by each counterparty on a single day in respect
of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one
party to the other. In certain circumstances such as when an event of default occurs, all outstanding transactions under
the agreement are terminated and settled in a single net amount per currency.
The ISDAagreements do not meet the criteria foroffsetting the positive and negative values in the statement of fi-
nancial position. This is attributable to the fact that the Group and its counterparties do not have any currently legally
enforceable right to settle on a net basis or to realise the asset and settle the liability simultaneously because the right
to offset is enforceable only on the occurrence of future credit events.
The Group also pledges and receives collateral in the form of cash and marketablesecurities primarily forsale and
repurchase agreements and for margining purposes on OTC derivative transactions.Pledges are generally conducted
under terms that are usual and customary for standard contracts and transactions of this nature. The rights of set off
relating to such collateral are conditional upon the default of the counterparty. The financial instruments subject to such
collateral arrangements are included in the table below within ‘Financial collateral pledged/(received)’.
The net amount of financial instruments that do not meet the on-balance sheet offsetting criteria,including collateral
pledged and received,presented within the following tables is equal to the amount presented in the statement of fi-
nancial position for that instrument.
Below is a table showing financial instruments subject to offsetting, enforceable masternetting arrangements and
similar agreements.
149Annual Report and Financial Statements 2023
Group Related amounts not offset in the
statement of financial position
Gross amounts
of recognised
financial
instruments
Gross amounts of
recognised financial
instruments offset in the
statement of financial
position
Net amounts of
financial instru-
ments presented
in the statement of
financial position
Amounts
subject to
master netting
arrangements
Financial collateral
pledged/(received
(incl. cash) Net amount
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Financial assets
Derivative financial instruments 207,950 - 207,950 649 - 208,599
Loans and advances to finan-
cial institutions
352,793 - 352,793 - (26,113) 326,680
Investments - Securities
Portfolio
705,910 - 705,910 - (157,322) 548,588
Investments - Securitisation
Portfolio
605,340 - 605,340 - (167,987) 437,353
1,871,993 - 1,871,993 649 (351,422) 1,521,220
Financial liabilities
Derivative financial instruments (25,464) - (25,464) (649) 26,113 -
Amounts owed to financial
institutions
(373,102) - (373,102) - 325,309 (47,793)
(398,566) - (398,566) (649) 351,422 (47,793)
Group Related amounts not offset in the
statement of financial position
Gross amounts
of recognised
financial
instruments
Gross amounts of
recognised financial
instruments offset in the
statement of financial
position
Net amounts of
financial instru-
ments presented
in the statement of
financial position
Amounts
subject to
master netting
arrangements
Financial collateral
pledged/(received
(incl. cash) Net amount
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Financial assets
Derivative financial instruments 363,382 - 363,382 (1,500) - 361,882
Loans and advances to finan-
cial institutions
483,559 (80,572) 402,987 - (3,806) 399,181
Investments - Securities
Portfolio
694,038 - 694,038 - (192,919) 501,119
Investments - Securitisation
Portfolio
574,001 - 574,001 - (33,442) 540,559
2,114,980 (80,572) 2,034,408 (1,500) (230,167) 1,802,741
Financial liabilities
Derivative financial instruments (85,878) 80,572 (5,306) 1,500 3,806 -
Amounts owed to financial
institutions
(545,135) - (545,135) - 226,361 (318,774)
(631,013) 80,572 (550,441) 1,500 230,167 (318,774)
Derivative financial liabilities and loans and advances to financial institutions are offset as a netting agreement is in
150Annual Report and Financial Statements 2023
Bank Related amounts not offset in the
statement of financial position
Gross amounts
of recognised
financial
instruments
Gross amounts of
recognised financial
instruments offset in the
statement of financial
position
Net amounts of
financial instru-
ments presented
in the statement of
financial position
Amounts
subject to
master netting
arrangements
Financial collateral
pledged/(received
(incl. cash) Net amount
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Financial assets
Derivative financial instruments 512 - 512 1 - 513
Loans and advances to finan-
cial institutions
46,252 - 46,252 - (817) 45,435
Investments - Securities
Portfolio
282,994 - 282,994 - (69,955) 213,039
Investments - Securitisation
Portfolio
159,408 - 159,408 - (52,992) 106,416
489,166 - 489,166 1 (123,764) 365,403
Financial liabilities
Derivative financial instruments (816) - (816) (1) 817 -
Amounts owed to financial
institutions
(94,918) - (94,918) - 122,947 28,029
(95,734) - (95,734) (1) 123,764 28,029
Bank Related amounts not offset in the
statement of financial position
Gross amounts
of recognised
financial
instruments
Gross amounts of
recognised financial
instruments offset in the
statement of financial
position
Net amounts of
financial instru-
ments presented
in the statement of
financial position
Amounts
subject to
master netting
arrangements
Financial collateral
pledged/(received
(incl. cash) Net amount
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Financial assets
Derivative financial instruments 8,045 - 8,045 (747) - 7,298
Loans and advances to finan-
cial institutions
89,837 - 89,837 - 747 90,584
Investments - Securities
Portfolio
303,740 - 303,740 - (126,325) 177,415
Investments - Securitisation
Portfolio
158,965 - 158,965 - - 158,965
560,587 - 560,587 (747) (125,578) 434,262
Financial liabilities
Derivative financial instruments - - - 747 (747) -
Amounts owed to financial
institutions
(279,725) - (279,725) - 126,325 (153,400)
(279,725) - (279,725) 747 125,578 (153,400)
(279,725) - (279,725) 747 125,578 (153,400)
As at 31 December 2023,the Group’s and Bank’s derivative financial liabilities subject to master-netting agreements
have a fair value of €0.7 million (2022: €1.5 million) and €1 thousand (2022: €0.7 million) respectively. Within the table
above,these have been capped at the fairvalue of the derivative assets of the Group and Bank amounting to €0.7
151Annual Report and Financial Statements 2023
2.3 Liquidity Risk
2.3.1 Management of liquidity risk
In line with the Group’s Liquidity Risk Management Policy, management of the Group’s liquidity position is the responsi-
bility of its Treasury and ALM function underthe oversight of the Asset and Liability Committee (“ALCO”) and the Board
Risk and Compliance Committee (“BRCC”).The Treasury and ALM function have primary responsibility for managing
and reporting the Group’s projected liquidity position (the “base case”).
The Group’s Risk team ensures that all liquidity risks are identified, measured, overseen and appropriately reported.
In particular, the Risk team has primary responsibility formonitoring liquidity risk, including defining potential adverse
liquidity scenarios (“stress cases”) that are considered forassessing the Group’s exposure to these scenarios and for
assessing the effectiveness of contingency plan funding measures.
The Group’s liquidity risks principally relate to its banking activities and the Group’s Board of Directors sets, approves
and oversees the implementation of the targets forliquidity management of the Group. Analysis of liquidity riskis the
joint responsibility of the Group’s Treasury and ALM and Risk functions under the oversight of the ALCO and of the
BRCC.
Management Asset and Liability Committee
The Group has established an Asset and Liability Committee (“ALCO”) to ensure the Group has in place, and operates
effectively, appropriate and robust strategies and policies tomanage and optimise the Group’s asset-liability mix and
oversee the Group’s capital,liquidity, funding, interest rate risk and foreign exchange (“FX”) risk position. Group ALCO
cascades Group strategies down across each business line and legal entities and across risk types and products.Group
ALCO oversees and, where necessary, approves Group policies and objectives forassets and liability management,
capital and funding management and allocation,market risk position and hedging activity, liquidity monitoring, capital
usage and efficiency, product-pricing, fund transfer pricing, dealing and trading activities according to the risk appetite
statement set by the Group Board. Group ALCO’s authority covers MeDirect Bank (Malta) plc and MDB Group Limited.
Belgium ALCO’s authority covers MeDirect Bank SA. Group ALCO provides oversight and ensures that decisions taken
at Belgium ALCO are aligned to the interests of the Group. Group ALCO is a sub-committee of the Group EXCO.
Board Risk and Compliance Committee
The Board delegates to the Board Risk and Compliance Committee (“BRCC”) its oversight responsibilities of the risk
function.Therefore,the BRCC represents the principal forum foroverseeing the Group’s liquidity and funding risk. In
addition, it is responsible for recommending to the Board an appropriate liquidity and funding risk appetite and for ap-
proving liquidity risk-related policies and recommendations. The BRCC is also responsible for ensuring that all liquidity
risk controls are in accordance with regulatory requirements and best practice and for advising the Board on the coor-
dination and prioritisation of liquidity risk management issues throughout the Group.
The BRCC reviews regular reports on the liquidity position of the Group, including the review of stress testing scenar-
ios to assess the resilience of its liquidity buffers in relation to the minimum regulatory requirements comprising the
Liquidity CoverageRatio(“LCR”) and the Net Stable Funding Ratio(“NSFR”).It is informed immediately of new and
emerging liquidity concerns and ensures that Executive management takes appropriate remedial actions to address
the concerns, including the viability of contingency funding options.
Roles and responsibilities
The Group’s Treasury team, under the leadership of the Group Chief Financial Officer has primary responsibility for
managing and reporting the Group’s projected liquidity position (the “base case”). Forliquidity purposes, the Group’s
balance sheet, encompassing both assets and liabilities, is managed on an intraday and day-to-day basis, and includes
152Annual Report and Financial Statements 2023
monitoring compliance with metrics of current liquidity. The department is also responsible for forecasting the Group’s
future cash flow profile, as well as for analysis and management of the Group’s deposit book. This is executed under the
leadership of the Group Head - ALM.
The Group’s Risk team,under the leadership of the Group Chief Risk Officer (“CRO”), has primary responsibility for
monitoring current liquidity performance as well as defining potential adverse liquidity scenarios that should be consid-
ered, and for reporting exposure to these scenarios (the “downside case”). Under the leadership of the Group CRO, it is
responsible for ensuring that all significant risks relating to liquidity are properly identified and clearly incorporated into
the Group’s risk management and reporting framework. It is also responsible for producing reports that show and ana-
lyse the Group’s sensitivity to external events related to liquidity, including the definition of severe but plausible events
that could constitute stress scenarios.
Funding strategy
Banks traditionally perform a role of liquidity transformation,whereby they fund through liabilities that are liquid in the
short to medium term, in order to invest in longer term and less liquid assets. This mismatch of liquid liabilities and less
liquid assets is a nearuniversal feature of bank balance sheets and clearly leads toa risk if liabilities cannot be rolled
over when they mature (which may be every day in the case of money held in current or savings accounts).
The Group’s strategy to mitigate this risk has four main components:
• Diversifying deposit product offerings as its primary instrument of funding by focusing on the retail market to
maximise granularity and by expanding outside Malta directly and indirectly through platforms to reduce its
dependence on a single market;
• Limiting its exposure to wholesale funding withdrawal by locking in term, rather than short-dated, funding
against illiquid assets (where this is used at all: illiquid assets are primarily deposit funded) and by either diver-
sifying its sources of funding in general or ensuring that it does not rely on funding that is at the discretion of
market counterparties;
• Maintaining a contingency source of funding by ensuring that substantially all of its HQLA Securities Invest-
ment portfolio is eligible for funding at the ECB orat Eurex, as well as ensuring that other AAA-rated debt in-
struments are eligible for use as collateral against multiple repo lines, if alternative sources are unavailable; and
• Holding a much higher than typical proportion of assets that could over time be liquidated or against which
funding can be obtained in the secondary market.
The Group’s objective is to maintain a prudent funding structure drawn from diverse funding sources in the short-,
medium- and long-term.
Potential funding sources may include, but are not limited to:
• Deposits from retail and corporate customers;
• Bond issuance, either secured (for example through CLO structures or the issuance of RMBSs, the latter repre-
senting one of the main sources of funding forthe Dutch Mortgage portfolio), senior unsecured orsubordinated;
• Issuance of capital instruments; and
• Central Bank funding (although it is the Group’s strategy not to rely on the Central Bank for funding in the nor-
mal course of events, but instead only used as a secondary source of financing).
To ensure that the Group and Bank have adequate liquidity to meet its near-term obligations, the Treasury team main-
tains good liquidity buffers and projects the Group’s and Bank’s expected liquidity position foreach day overthe subse-
quent week, as well as the “residual” cash balance that considers known inflows and outflows (for example settlements
of asset purchases or sales) beyond this period.
153Annual Report and Financial Statements 2023
MDB Group Limited is the parent company of MeDirect Malta and this parent company togetherwith its subsidiaries
are referred to as “the Regulatory Group” or “MDB Group”. The MDB Group and the MeDirect Malta Group comply
with the Liquidity Coverage Ratio (“LCR”) in relation to short-term liquidity and monitorthe Net Stable Funding Ratio
(“NSFR”) in order to assess long-term liquidity:
• The Liquidity Coverage Ratio (“LCR”): The ratio aims to ensure that institutions are able to withstand a 30-day
period of stress by virtue of having sufficient unencumbered High Quality Liquid Assets (“HQLA”). HQLAconsist
of cash or assets that can be converted into cash at little or no loss of value in the markets. The LCR metric is
designed to promote the short-term resilience of the Group’s and Bank’s liquidity profile.
The table below displays the Group’s LCR as at 31 December 2023 and 2022:
During the year ended 31 December 2023 and 2022, the LCR was within both the regulatory minimum and the risk ap-
petite set by the Group.As at 31 December 2023 and 2022, the Group’s LCR was significantly above 100% at all times.
• The Net Stable Funding Ratio (“NSFR”): This ratio looks at the relationship between long-term assets and long-
term funding. The NSFR requires institutions to maintain sufficient stable funding relative to required stable
funding and reflects a bank’s long-term funding profile (funding with a term of more than a year). It is designed
to complement the LCR and the NSFR requirement is of 100%.
The Group’s NSFR remained above the minimum legal requirement of 100% at all times during the financial year ended
31 December 2023 and 2022.
2.3.2 Liquidity risk reporting
Reliable management reporting provides the Executive and the Board with timely and forward-looking information on
the Group’s liquidity position. Reporting of risk measures is done on a frequent basis and compares current liquidity
exposures to established limits to identify any emerging pressures and limit breaches.
The Group’s Risk team performs regularstress testing of its liquidity profile, as well as the availability of contingency
funding options through both its ILAAP and monthly Maximum Cumulative Outflow (“MCO”) report.The MCO analyses
the likely risks to the Group’s liquidity position and quantifies its ability to withstand the associated shocks through
deployment of management contingency funding plan options. Summarised results from all the various analyses are
used as inputs to the MCO, with the liquidity impacts of different levels of severity of both idiosyncratic and market-wide
scenarios modelled across a twelve-month time horizon.In addition, the Group’s Liquidity Contingency Plan (“LCP”)
analyses the availability and practicability of its contingency funding measures with regards to idiosyncratic and mar-
ket-wide stress scenarios. Impacts are assessed at Group level, as well as at MeDirect Malta and MeDirect Bank SA
Group
2023 2022
% %
Actual LCR 209 221
Group
2023 2022
% %
Actual NSFR 126 119
154Annual Report and Financial Statements 2023
The Group’s liquidity risk reporting reinforces the Group’s oversight of liquidity risk, by not only focusing its riskreporting
on the ‘current’state,but also providing regularand timely reporting of the potential ‘stress’ liquidity profile of the Group.
The Risk team also monitors deposit concentration within its monthly risk management report where the Group’s top
ten depositors are monitored by also looking at the corporate sector and the product maturity ladder.
The Treasury and ALM team maintains good liquidity buffers and projects the Group’s and Bank’s expected liquidity
position foreach day over the subsequent week, as well as the “residual” cash balance that takes into account known
inflows and outflows (for example settlements of asset purchases or sales) beyond this period.
2.3.3 Contractual maturity ladder
The following is an analysis of financial assets and liabilities by remaining contractual maturities as at the reporting
date,with the exception of the analysis of loans and advances to customers classified under the International Corporate
Lending and Dutch, Belgian and Maltese Mortgage portfolios, debt securities in issue and subordinated liabilities, that
are based on the expected maturities based on the date when the instruments are expected to be fully repaid,since
this is how the liquidity of the Group is monitored on a regular basis. Refer also to Note 2.3.5 that provides an analysis
155Annual Report and Financial Statements 2023
Group
Not more
than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between 1 and 5
years
More than 5
years
No maturity
date Total
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Assets
Balances with central banks 237,117 - - - - 28,281 265,398
Derivative financial instruments 199 - 1,102 27,958 178,180 511 207,950
Loans and advances to financial institutions 352,793 - - - - - 352,793
Loans and advances to customers 17,754 30,833 260,820 1,032,974 1,587,070 (183,180) 2,746,271
- International Corporate Lending portfolio - - 97,890 230,616 - - 328,506
- Dutch Mortgage portfolio 13,009 26,179 120,605 650,679 1,294,096 - 2,104,568
- Belgian Mortgage portfolio 2,428 4,382 20,003 81,908 146,216 - 254,937
- IFRS basis adjustment: International
Mortgage portfolio
- - - - - (183,180) (183,180)
- Maltese Business Lending portfolio 2,314 7 19,982 56,939 63,599 - 142,841
- Maltese Mortgage portfolio 3 265 2,340 12,832 83,159 - 98,599
Investments - 10,011 80,521 436,689 784,029 - 1,311,250
- Securities portfolio - 10,011 80,521 436,689 178,689 - 705,910
- Securitisation portfolio - - - - 605,340 - 605,340
Accrued income 967 20,708 2,255 - - - 23,930
Loans to related parties (incl. in other assets) - - - - - 41 41
Other receivables (incl. in other assets) - - - - - 1,024 1,024
Other assets (incl. in other assets) - - - - - 28,342 28,342
Total financial assets 608,830 61,552 344,698 1,497,621 2,549,279 (124,981) 4,936,999
Liabilities
Derivative financial instruments 844 - - 4,519 20,101 - 25,464
Amounts owed to financial institutions 322,590 - 50,512 - - - 373,102
Amounts owed to customers 2,684,679 29,786 341,809 224,929 10 - 3,281,213
Debt securities in issue 7,552 15,103 66,456 821,737 - - 910,848
Subordinated liabilities - - 54,982 - - - 54,982
Accrued interest expense (incl. in accruals and
deferred income)
863 1,040 15,876 10,518 8,829 - 37,126
Lease liabilities (incl. in other liabilities) 370 50 785 3,030 104 - 4,339
Amounts due to related parties (incl. in other
liabilities)
- 950 - - 10,503 2,326 13,779
Total financial liabilities 3,016,898 46,929 530,420 1,064,733 39,547 2,326 4,700,853
Liquidity gap (2,408,068) 14,623 (185,722) 432,888 2,509,732
Cumulative liquidity gap (2,408,068) (2,393,445) (2,579,167) (2,146,279) 363,453
156Annual Report and Financial Statements 2023
Group
Not more
than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between 1 and 5
years
More than 5
years
No maturity
date Total
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Assets
Balances with central banks 123,448 - - - - 26,477 149,925
Derivative financial instruments 1,179 320 483 79,336 281,553 511 363,382
Loans and advances to financial institutions 402,987 - - - - - 402,987
Loans and advances to customers 14,859 24,967 355,186 932,712 1,332,842 (271,273) 2,389,293
- International Corporate Lending portfolio - - 214,220 297,894 - - 512,114
- Dutch Mortgage portfolio 10,914 22,251 106,749 523,659 1,154,429 - 1,818,002
- Belgian Mortgage portfolio 1,276 2,520 11,757 46,239 70,208 - 132,000
- IFRS basis adjustment: International Mort-
gage portfolio
- - - - - (271,273) (271,273)
- Maltese Business Lending portfolio 2,669 13 20,817 56,525 50,828 - 130,852
- Maltese Mortgage portfolio - 183 1,643 8,395 57,377 - 67,598
Investments - 26,758 157,573 455,808 622,608 5,292 1,268,039
- Securities portfolio - 26,758 157,573 455,808 48,607 5,292 694,038
- Securitisation portfolio - - - - 574,001 - 574,001
Accrued income 1,096 11,928 1,073 - - - 14,097
Loans to related parties (incl. in other assets) - - - - - 652 652
Other receivables (incl. in other assets) - - - - - 1,712 1,712
Other assets (incl. in other assets) - - - - - 25,968 25,968
Total financial assets 543,569 63,973 514,315 1,467,856 2,237,003 (210,661) 4,616,055
Liabilities
Derivative financial instruments - 5,306 - - - - 5,306
Amounts owed to financial institutions 344,497 50,638 150,000 - - - 545,135
Amounts owed to customers 2,114,495 39,965 412,570 220,534 36 - 2,787,600
Debt securities in issue 7,802 15,812 72,771 873,184 - - 969,569
Subordinated liabilities - - 19,997 34,834 - - 54,831
Accrued interest expense (incl. in accruals and
deferred income)
1,589 522 5,746 3 2,912 - 10,772
Lease liabilities (incl. in other liabilities) 376 53 754 3,765 123 - 5,071
Amounts due to related parties (incl. in other
liabilities)
- 950 - - 10,309 1,491 12,750
Total financial liabilities 2,468,759 113,246 661,838 1,132,320 13,380 1,491 4,391,034
Liquidity gap (1,925,190) (49,273) (147,523) 335,536 2,223,623
Cumulative liquidity gap (1,925,190) (1,974,463) (2,121,986) (1,786,450) 437,173
157Annual Report and Financial Statements 2023
Bank
Not more
than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between 1 and 5
years
More than 5
years
No maturity
date Total
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Assets
Balances with central banks 82,351 - - - - 6,394 88,745
Derivative financial instruments 1 - - - - 511 512
Loans and advances to financial institutions 46,252 - - - - - 46,252
Loans and advances to customers 2,317 272 84,620 169,211 146,758 182 403,360
- International Corporate Lending portfolio - - 62,480 99,440 - - 161,920
- Maltese Business Lending portfolio 2,314 7 19,800 56,939 63,599 182 142,841
- Maltese Mortgage portfolio 3 265 2,340 12,832 83,159 - 98,599
Investments - - 23,091 194,801 224,510 - 442,402
- Securities portfolio - - 23,091 194,801 65,102 - 282,994
- Securitisation portfolio - - - - 159,408 - 159,408
Accrued income 445 5,975 860 - - - 7,280
Loans to related parties (incl. in other assets) - - - - - 5,458 5,458
Other receivables (incl. in other assets) - - - - - 869 869
Other assets (incl. in other assets) - - - - - 2,390 2,390
Total financial assets 131,366 6,247 108,571 364,012 371,268 15,804 997,268
Liabilities
Derivative financial instruments 816 - - - - - 816
Amounts owed to financial institutions 44,251 - 50,667 - - - 94,918
Amounts owed to customers 518,712 21,723 150,346 81,265 - - 772,046
Subordinated liabilities - - 54,982 - - - 54,982
Accrued interest expense (incl. in accruals and
deferred income)
526 716 3,362 1,142 - - 5,746
Lease liabilities (incl. in other liabilities) 584 377 1,182 2,805 471 - 5,419
Amounts due to related parties (incl. in other
liabilities)
- 950 - - 10,503 9,062 20,515
Total financial liabilities 564,889 23,766 260,539 85,212 10,974 9,062 954,442
Liquidity gap (433,523) (17,519) (151,968) 278,800 360,294
Cumulative liquidity gap (433,523) (451,042) (603,010) (324,210) 36,084
158Annual Report and Financial Statements 2023
Bank
Not more
than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between 1 and 5
years
More than 5
years
No maturity
date Total
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Assets
Balances with central banks 35,893 - - - - 6,549 42,442
Derivative financial instruments 746 - 483 6,305 - 511 8,045
Loans and advances to financial institutions 89,837 - - - - - 89,837
Loans and advances to customers 2,669 196 194,399 212,637 108,205 - 518,106
- International Corporate Lending portfolio - - 171,939 147,717 - - 319,656
- Maltese Business Lending portfolio 2,669 13 20,817 56,525 50,828 - 130,852
- Maltese Mortgage portfolio - 183 1,643 8,395 57,377 - 67,598
Investments - 12,035 70,002 183,344 192,851 4,473 462,705
- Securities portfolio - 12,035 70,002 183,344 33,886 4,473 303,740
- Securitisation portfolio - - - - 158,965 - 158,965
Accrued income 366 3,382 590 - - - 4,338
Loans to related parties (incl. in other assets) - - - - - 8,618 8,618
Other receivables (incl. in other assets) - - - - - 1,609 1,609
Other assets (incl. in other assets) - - - - - 1,945 1,945
Total financial assets 129,511 15,613 265,474 402,286 301,056 23,705 1,137,645
Liabilities
Derivative financial instruments - - - - - - -
Amounts owed to financial institutions 79,087 50,638 150,000 - - - 279,725
Amounts owed to customers 522,694 18,769 118,597 46,976 36 - 707,072
Subordinated liabilities - - 19,997 34,834 - - 54,831
Accrued interest expense (incl. in accruals and
deferred income)
239 297 1,005 3 - - 1,544
Lease liabilities (incl. in other liabilities) 479 248 1,374 4,313 328 - 6,742
Amounts due to related parties (incl. in other
liabilities)
- 950 - - 10,309 33,280 44,539
Total financial liabilities 602,499 70,902 290,973 86,126 10,673 33,280 1,094,453
Liquidity gap (472,988) (55,289) (25,499) 316,160 290,383
Cumulative liquidity gap (472,988) (528,277) (553,776) (237,616) 52,767
159Annual Report and Financial Statements 2023
Current accounts and savings deposits payable on demand orat short notice of the Group and Bank amounted to
€2,238 million (2022: €1,885 million) and €280 million (2022: €304 million), respectively, as at 31 December 2023. This
amount is disclosed within the ‘Not more than 1 month’maturity grouping. As at 31 December 2023 savings deposits
with a withdrawal notice period of one month amounting to €777 thousand (2022: €2 million) and €596 thousand
(2022: €760 thousand) forthe Group and the Bank respectively, are disclosed within the ‘Between 1 and 3 months’
maturity grouping. In addition, as at 31 December 2023 savings deposits with a withdrawal notice period of three to six
months amounting to €151 million (2022: €299 million) and €18 million (2022: €29 million) for the Group and the Bank
respectively, are disclosed within the ‘Between 3 months and 1 year’ maturity grouping. Furthermore, as at 31 December
2023, savings deposits with a withdrawal notice period of one yearforthe Group amounting to €69 million (2022: €108
million) are disclosed within the ‘Between 1 yearand 5 years’ maturity grouping.However,in practice these deposits
are maintained with the Group and Bank forlonger periods; hence the effective date of repayment is later than the
contractual date.
As of 31 December2023, unencumbered financial assets classified as Securities Investments measured at amortised
cost with a carrying amount of €548 million (2022: €382 million) and €213 million (2022: €70 million) forthe Group
and the Bank respectively, form part of the high quality liquid asset portfolio forLCR purposes. Accordingly, they may
be liquidated within one month. In addition to these instruments, as at 31 December 2022, the Group and Bankheld un-
encumbered financial assets classified as Securities Investments measured at amortised cost with a carrying amount
of €12 million included in the category between 1 and 3 months in the preceding table.
The Group’s and Bank’s cash from margin balances amounting to €56.8 million (2022: €54.5 million) and €11.1 million
(2022: €3.5 million), respectively, can be available upon maturity of the contract,favourable change in the market value/
change in the exchange rates or reduction in the initial margins.
2.3.4 Residual contractual maturities of financial liabilities
The following is an analysis of undiscounted cash flows payable under the principal non-derivative financial liabilities by
remaining contractual maturities as at the reporting date, except for debt securities in issue and subordinated liabilities
forwhich undiscounted cash flows payable are presented by expected maturities in line with the Contractual Maturity
Group
Carrying
amount
Total
outflows
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Non-derivative liabilities
Amounts owed to financial institutions
- Due to clearing houses 230,731 231,204 210,791 - 20,413 - -
- Due to other banks 142,371 143,432 111,950 - 31,482 - -
Amounts owed to customers 3,281,213 3,293,944 2,684,730 29,858 345,125 234,220 11
Debt securities in issue 910,848 985,350 8,169 16,339 71,892 888,950 -
Subordinated liabilities 54,982 57,553 - - 57,553 - -
Lease liabilities (included in other liabilities) 4,339 4,883 437 67 799 3,427 153
4,624,484 4,716,366 3,016,077 46,264 527,264 1,126,597 164
160Annual Report and Financial Statements 2023
Group
Carrying
amount
Total
outflows
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Non-derivative liabilities
Amounts owed to financial institutions
- Due to clearing houses 150,000 151,653 - - 151,653 - -
- Due to other banks 395,135 395,708 344,626 51,082 - - -
Amounts owed to customers 2,787,600 2,795,171 2,114,504 40,003 414,180 226,444 40
Debt securities in issue 969,569 995,254 6,916 16,698 72,771 411,799 487,070
Subordinated liabilities 54,831 58,953 - - 22,472 36,481 -
Lease liabilities (included in other liabilities) 5,071 5,838 422 77 857 4,278 204
4,362,206 4,402,577 2,466,468 107,860 661,933 679,002 487,314
Bank
Carrying
amount
Total
outflows
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Non-derivative liabilities
Amounts owed to financial institutions
- Due to clearing houses 50,000 50,472 30,059 - 20,413 - -
- Due to other banks 44,918 45,749 14,267 - 31,482 - -
Amounts owed to customers 772,046 780,270 518,757 21,775 152,723 87,015 -
Subordinated liabilities 54,982 57,553 - - 57,553 - -
Lease liabilities (included in other liabilities) 5,419 5,905 596 428 1,285 3,109 487
927,365 939,949 563,679 22,203 263,456 90,124 487
Bank
Carrying
amount
Total
outflows
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Non-derivative liabilities
Amounts owed to financial institutions
- Due to clearing houses 150,000 151,653 - - 151,653 - -
- Due to other banks 129,725 130,298 79,216 51,082 - - -
Amounts owed to customers 707,072 710,271 522,702 18,805 119,734 48,990 40
Subordinated liabilities 54,831 58,953 - - 22,472 36,481 -
Lease liabilities (included in other liabilities) 6,742 7,730 485 310 1,582 4,870 483
1,048,370 1,058,905 602,403 70,197 295,441 90,341 523
161Annual Report and Financial Statements 2023
The following is an analysis of undiscounted cash flows relating to the Group’s and Bank’s principal derivative financial
Group
Carrying
amount
Inflows/
(Outflows)
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Derivative assets
Derivative financial instruments
- Interest rate swaps 207,240 242,439 3,493 6,528 26,213 85,793 120,412
- Foreign exchange swaps 199 (210) (210) - - - -
Inflows 21,289 21,289 - - - -
Outflows (21,499) (21,499) - - - -
- Other derivative financial instruments
(no maturity)
511 - - - - - -
207,950 242,229 3,283 6,528 26,213 85,793 120,412
Derivative liabilities
Derivative financial instruments
- Interest rate swaps 24,620 (28,830) 38 1,611 2,041 (21,313) (11,207)
- Foreign exchange swaps 844 894 894 - - - -
Inflows 69,493 69,493 - - - -
Outflows (68,599) (68,599) - - - -
25,464 (27,936) 932 1,611 2,041 (21,313) (11,207)
Group
Carrying
amount
Inflows/
(Outflows)
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Derivative assets
Derivative financial instruments
- Interest rate swaps 361,368 330,780 287 3,870 28,190 134,727 163,706
- Foreign exchange swaps 1,503 (1,545) (1,212) (333) - - -
Inflows 85,481 70,258 15,223 - - -
Outflows (87,026) (71,470) (15,556) - - -
- Other derivative financial instruments
(no maturity)
511 - - - - - -
363,382 329,235 (925) 3,537 28,190 134,727 163,706
Derivative liabilities
Derivative financial instruments
- Interest rate swaps 5,306 6,112 976 - 5,136 - -
- Foreign exchange swaps - - - - - - -
Inflows 4,566 4,566 - - - -
Outflows (4,566) (4,566) - - - -
162Annual Report and Financial Statements 2023
Bank
Carrying
amount
Inflows/
(Outflows)
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2023
Derivative assets
Derivative financial instruments
- Foreign exchange swaps 1 - - - - - -
Inflows 2,877 2,877 - - - -
Outflows (2,877) (2,877) - - - -
- Other derivative financial instruments
(no maturity)
511 - - - - - -
512 - - - - - -
Derivative liabilities
Derivative financial instruments
- Foreign exchange swaps 816 866 866 - - - -
Inflows 63,683 63,683 - - - -
Outflows (62,817) (62,817) - - - -
816 866 866 - - - -
Bank
Carrying
amount
Inflows/
(Outflows)
Less than 1
month
Between 1 and
3 months
Between 3
months and
1 year
Between
1 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000 €000
As at 31 December 2022
Derivative assets
Derivative financial instruments
- Interest rate swaps 6,788 7,794 45 225 2,410 5,114 -
- Foreign exchange swaps 746 (767) (767) - - - -
Inflows 48,306 48,306 - - - -
Outflows (49,073) (49,073) - - - -
- Other derivative financial instruments
(no maturity)
511 - - - - - -
8,045 7,027 (722) 225 2,410 5,114 -
Derivative liabilities
Derivative financial instruments
- Foreign exchange swaps - 1 1 - - - -
Inflows 4,519 4,519 - - - -
Outflows (4,518) (4,518) - - - -
- 1 1 - - - -
163Annual Report and Financial Statements 2023
2.3.5 Encumbered assets
The following tables set out the availability of the Group’s and Bank’s financial assets to support future funding.
International mortgage portfolios exclude any IFRS basis adjustment.
Encumbered Unencumbered
Group
Pledged as
collateral Other*
Available as
collateral Other** Total
€000 €000 €000 €000 €000
31 December 2023
Balances with central banks and cash
(Note 4)
- 28,281 237,120 - 265,401
Derivative financial instruments - - - 207,950 207,950
Loans and advances to financial
institutions (Note 6)
303,587 - - 49,206 352,793
Loans and advances to customers - - - 2,746,271 2,746,271
- International Corporate Lending
portfolio
- - - 328,506 328,506
- Dutch Mortgage portfolio - - - 1,921,388 1,921,388
- Belgian Mortgage portfolio - - - 254,937 254,937
- Maltese Business Lending portfolio - - - 142,841 142,841
- Maltese Mortgage portfolio - - - 98,599 98,599
Investments 325,310 - 966,527 19,413 1,311,250
- Securities portfolio 157,323 - 548,587 - 705,910
- Securitisation portfolio 167,987 - 417,940 19,413 605,340
Accrued income - - - 23,930 23,930
Loans and advances to related parties
(included in other assets)
- - - 41 41
Other receivables (included in other
assets)
- - - 1,024 1,024
Other assets (included in other assets) - - - 28,342 28,342
628,897 28,281 1,203,647 3,076,177 4,937,002
* Represents assets that are not pledged for funding purposes but that the Group believes it is restricted from using to secure funding, for legal or
other reasons.
** Represents assets that are not restricted foruse as collateral, but that the Group would not consider as readily available to secure funding in the
164Annual Report and Financial Statements 2023
Encumbered Unencumbered
Group
Pledged as
collateral Other*
Available as
collateral Other** Total
€000 €000 €000 €000 €000
31 December 2022
Balances with central banks and cash
(Note 4)
- 26,477 123,452 - 149,929
Derivative financial instruments - - - 363,382 363,382
Loans and advances to financial
institutions (Note 6)
294,634 - - 108,353 402,987
Loans and advances to customers - - - 2,389,293 2,389,293
- International Corporate Lending
portfolio
- - - 512,114 512,114
- Dutch Mortgage portfolio - - - 1,546,729 1,546,729
- Belgian Mortgage portfolio - - - 132,000 132,000
- Maltese Business Lending portfolio - - - 130,852 130,852
- Maltese Mortgage portfolio - - - 67,598 67,598
Investments 466,780 - 777,019 24,240 1,268,039
- Securities portfolio 290,017 - 398,729 5,292 694,038
- Securitisation portfolio 176,763 - 378,290 18,948 574,001
Accrued income - - - 14,097 14,097
Loans and advances to related parties
(included in other assets)
- - - 652 652
Other receivables (included in other
assets)
- - - 1,712 1,712
Other assets (included in other assets) - - - 25,968 25,968
761,414 26,477 900,471 2,927,697 4,616,059
* Represents assets that are not pledged for funding purposes but that the Group believes it is restricted from using to secure funding, for legal or
other reasons.
** Represents assets that are not restricted foruse as collateral, but that the Group would not consider as readily available to secure funding in the
165Annual Report and Financial Statements 2023
Encumbered Unencumbered
Bank
Pledged as
collateral Other*
Available as
collateral Other** Total
€000 €000 €000 €000 €000
31 December 2023
Balances with central bank and cash (Note 4) - 6,394 82,354 - 88,748
Derivative financial instruments - - - 512 512
Loans and advances to financial
institutions (Note 6)
11,689 - - 34,563 46,252
Loans and advances to customers –
corporate
- - - 403,360 403,360
- International Corporate Lending
portfolio
- - - 161,920 161,920
- Maltese Business Lending portfolio - - - 142,841 142,841
- Maltese Mortgage portfolio - - - 98,599 98,599
Investments (Note 8) 122,947 - 300,042 19,413 442,402
- Securities portfolio 69,955 - 213,039 - 282,994
- Securitisation portfolio 52,992 - 87,003 19,413 159,408
Accrued income - - - 7,280 7,280
Loans and advances to related parties
(included in other assets)
- - - 5,458 5,458
Other receivables (included in other assets) - - - 869 869
Other assets (included in other assets) - - - 2,390 2,390
134,636 6,394 382,396 473,845 997,271
* Represents assets that are not pledged for funding purposes but that the Group believes it is restricted from using to secure funding, for legal or
other reasons.
** Represents assets that are not restricted foruse as collateral, but that the Group would not consider as readily available to secure funding in the
normal course of business.
166Annual Report and Financial Statements 2023
Encumbered Unencumbered
Bank
Pledged as
collateral Other*
Available as
collateral Other** Total
€000 €000 €000 €000 €000
31 December 2022
Balances with central bank and cash (Note 4) - 6,549 35,897 - 42,446
Derivative financial instruments - - - 8,045 8,045
Loans and advances to financial
institutions (Note 6)
23,643 - - 66,194 89,837
Loans and advances to customers –
corporate
- - - 518,106 518,106
- International Corporate Lending portfolio - - - 319,656 319,656
- Maltese Business Lending portfolio - - - 130,852 130,852
- Maltese Mortgage portfolio - - - 67,598 67,598
Investments (Note 8) 361,831 - 77,453 23,421 462,705
- Securities portfolio 221,814 - 77,453 4,473 303,740
- Securitisation portfolio 140,017 - - 18,948 158,965
Accrued income - - - 4,338 4,338
Loans and advances to related parties
(included in other assets)
- - - 8,618 8,618
Other receivables (included in other assets) - - - 1,609 1,609
Other assets (included in other assets) - - - 1,945 1,945
385,474 6,549 113,350 632,276 1,137,649
*Represents assets that are not pledged for funding purposes but that the Group believes it is restricted from using to secure funding,forlegal or
other reasons.
**Represents assets that are not restricted foruse as collateral, but that the Group would not consideras readily available to secure funding in the
normal course of business.
167Annual Report and Financial Statements 2023
2.4 Market risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and credit spreads
(not relating to changes in the obligor’s/issuer’s credit standing) will affect the Group’s income or the value of its hold-
ings of financial instruments.The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return on risk.
2.4.1 Management of market risks
Management of market riskis the responsibility of the Group’s Treasury team and is overseen by the Group’s Risk team,
under the oversight of the Group’s ALCO and the Board Risk and Compliance Committee, and as set out in the foreign
exchange (“FX”) risk policy and the Interest Rate Risk and Credit Spread Risk in the Banking Book (“IRRBB & CSRBB”)
policy.
2.4.2 Foreign exchange risk
FX risk is the risk that the value of the Group’s positions may fluctuate due to movements in underlying foreign curren-
cy exchange rates. The Group seeks tominimise FX risk and thus hedges all major exposures in accordance with its
risk appetite. The Group is mainly exposed to currency risk on FX movements relating to the US Dollar and GB Pound,
originating from the Group’s corporate banking business. In the majority of cases, the Group hedges this risk by ensur-
ing that its foreign currency denominated liabilities are matched with corresponding assets in the same currency. Any
mismatches that arise are monitored closely. The Group’s Treasury team is permitted to use spots,forwards and swaps
in order to hedge the Group’s FX risk.
The following table provides an analysis of the principal financial assets and financial liabilities of the Group and the
168Annual Report and Financial Statements 2023
Group EUR currency GBP currency USD currency Other Total
€000
€000 €000 €000 €000
As at 31 December 2023
Financial assets
Balances with central banks and cash 265,401 - - - 265,401
Derivative financial instruments 207,755 195 - - 207,950
Loans and advances to financial institutions 329,676 3,325 2,742 17,050 352,793
Loans and advances to customers 2,702,041 42,515 1,715 - 2,746,271
- International Corporate Lending portfolio 284,625 42,515 1,366 - 328,506
- Dutch Mortgage portfolio 1,921,388 - - - 1,921,388
- Belgian Mortgage portfolio 254,937 - - - 254,937
- Maltese Business Lending portfolio 142,492 - 349 - 142,841
- Maltese Mortgage portfolio 98,599 - - - 98,599
Investments 1,311,250 - - - 1,311,250
- Securities portfolio 705,910 - - - 705,910
- Securitisation portfolio 605,340 - - - 605,340
Accrued income 23,422 485 15 8 23,930
Loans to related parties (included in other
assets)
- 41 - - 41
Other receivables (included in other assets) 938 86 - - 1,024
Other assets (included in other assets) 28,342 - - - 28,342
4,868,825 46,647 4,472 17,058 4,937,002
Financial liabilities
Derivative financial instruments 24,620 293 551 - 25,464
Amounts owed to financial institutions 373,102 - - - 373,102
Amounts owed to customers 3,169,587 52,250 41,754 17,622 3,281,213
Debt securities in issue 910,848 - - - 910,848
Subordinated liabilities 50,834 4,148 - - 54,982
Accrued interest expense (incl. in accruals and
deferred income)
37,019 85 7 15 37,126
Lease liabilities (included in other liabilities) 4,088 251 - - 4,339
Amounts owed to related parties (incl. in other
liabilities)
13,766 13 - - 13,779
4,583,864 57,040 42,312 17,637 4,700,853
Net on-balance sheet financial position (10,393) (37,840) (579)
Notional of derivative financial instruments 10,268 37,095 -
Residual exposure (125) (745) (579)
169Annual Report and Financial Statements 2023
Group EUR currency GBP currency USD currency Other Total
€000
€000 €000 €000 €000
As at 31 December 2022
Financial assets
Balances with central banks and cash 149,929 - - - 149,929
Derivative financial instruments 361,882 1,150 220 130 363,382
Loans and advances to financial institutions 393,709 3,367 1,518 4,393 402,987
Loans and advances to customers 2,236,454 148,966 3,873 - 2,389,293
- International Corporate Lending portfolio 359,529 148,966 3,619 - 512,114
- Dutch Mortgage portfolio 1,546,729 - - - 1,546,729
- Belgian Mortgage portfolio 132,000 - - - 132,000
- Maltese Business Lending portfolio 130,598 - 254 - 130,852
- Maltese Mortgage portfolio 67,598 - - - 67,598
Investments 1,262,747 5,292 - - 1,268,039
- Securities portfolio 688,746 5,292 - - 694,038
- Securitisation portfolio 574,001 - - - 574,001
Accrued income 13,111 939 38 9 14,097
Loans to related parties (included in other assets) 612 39 - 1 652
Other receivables (included in other assets) 1,531 169 12 - 1,712
Other assets (included in other assets) 25,968 - - - 25,968
4,445,943 159,922 5,661 4,533 4,616,059
Financial liabilities
Derivative financial instruments 5,305 - 1 - 5,306
Amounts owed to financial institutions 545,135 - - - 545,135
Amounts owed to customers 2,673,837 60,663 40,096 13,004 2,787,600
Debt securities in issue 969,569 - - - 969,569
Subordinated liabilities 50,767 4,064 - - 54,831
Accrued interest expense (incl. in accruals and
deferred income)
10,633 113 8 18 10,772
Lease liabilities (included in other liabilities) 4,741 330 - - 5,071
Amounts owed to related parties (incl. in other
liabilities)
12,733 16 - 1 12,750
4,272,720 65,186 40,105 13,023 4,391,034
Net on-balance sheet financial position 94,736 (34,444) (8,490)
Notional of derivative financial instruments (89,995) 34,064 1,439
Residual exposure 4,741 (380) (7,051)
170Annual Report and Financial Statements 2023
Bank EUR currency GBP currency USD currency Other Total
€000
€000 €000 €000 €000
As at 31 December 2023
Financial assets
Balances with central banks and cash 88,748 - - - 88,748
Derivative financial instruments 511 1 - - 512
Loans and advances to financial institutions 25,401 2,660 2,138 16,053 46,252
Loans and advances to customers 384,087 17,558 1,715 - 403,360
- International Corporate Lending portfolio 142,996 17,558 1,366 - 161,920
- Maltese Business Lending portfolio 142,492 - 349 - 142,841
- Maltese Mortgage portfolio 98,599 - - - 98,599
Investments 442,402 - - - 442,402
- Securities portfolio 282,994 - - - 282,994
- Securitisation portfolio 159,408 - - - 159,408
Accrued income 6,999 258 15 8 7,280
Loans to related parties (included in other assets) 4,922 107 429 - 5,458
Other receivables (included in other assets) 783 86 - - 869
Other assets (included in other assets) 2,390 - - - 2,390
956,243 20,670 4,297 16,061 997,271
Financial liabilities
Derivative financial instruments - 293 523 - 816
Amounts owed to financial institutions 94,918 - - - 94,918
Amounts owed to customers 670,411 50,394 35,154 16,087 772,046
Subordinated liabilities 50,834 4,148 - - 54,982
Accrued interest expense (included in accruals and
deferred income)
5,646 81 4 15 5,746
Lease liabilities (included in other liabilities) 5,168 251 - - 5,419
Amounts owed to related parties (included in other
liabilities)
18,720 613 566 616 20,515
845,697 55,780 36,247 16,718 954,442
Net on-balance sheet financial position (35,110) (31,950) (657)
Notional of derivative financial instruments 34,531 31,244 -
Residual exposure (579) (706) (657)
171Annual Report and Financial Statements 2023
The Group and Bank uses derivative financial instruments to hedge movements in foreign exchange rates by entering
derivative contracts with notional amounts which substantially reflect the net exposure in each currency. As a result, the
Group and Bank are not materially exposed to fluctuations in foreign exchange rates as evidenced in the tables above,
reflecting the policy to eliminate foreign exchange risk as much as is practicable.
In view of the Group’s policy formanaging currency risk, the Board does not deem necessary the presentation of a
Bank EUR currency GBP currency USD currency Other Total
€000
€000 €000 €000 €000
As at 31 December 2022
Financial assets
Balances with central banks and cash 42,446 - - - 42,446
Derivative financial instruments 7,412 426 189 18 8,045
Loans and advances to financial institutions 79,900 5,063 976 3,898 89,837
Loans and advances to customers 402,202 112,031 3,873 - 518,106
- International Corporate Lending portfolio 204,006 112,031 3,619 - 319,656
- Maltese Business Lending portfolio 130,598 - 254 - 130,852
- Maltese Mortgage portfolio 67,598 - - - 67,598
Investments 458,232 4,473 - - 462,705
- Securities portfolio 299,267 4,473 - - 303,740
- Securitisation portfolio 158,965 - - - 158,965
Accrued income 3,600 691 38 9 4,338
Loans to related parties (included in other assets) 8,074 103 437 4 8,618
Other receivables (included in other assets) 1,461 136 12 - 1,609
Other assets (included in other assets) 1,945 - - - 1,945
1,005,272 122,923 5,525 3,929 1,137,649
Financial liabilities
Derivative financial instruments - - - - -
Amounts owed to financial institutions 279,725 - - - 279,725
Amounts owed to customers 604,810 58,464 32,087 11,711 707,072
Subordinated liabilities 50,767 4,064 - - 54,831
Accrued interest expense (included in accruals and
deferred income)
1,415 108 3 18 1,544
Lease liabilities (included in other liabilities) 6,412 330 - - 6,742
Amounts owed to related parties (included in other
liabilities)
39,545 3,747 362 885 44,539
982,674 66,713 32,452 12,614 1,094,453
Net on-balance sheet financial position 56,210 (26,927) (8,685)
Notional of derivative financial instruments (52,823) 26,506 8,439
Residual exposure 3,387 (421) (246)
172Annual Report and Financial Statements 2023
2.4.3 Interest rate risk
The Group’s and MeDirect Belgium’s Interest Rate Risk in the Banking Book (IRRBB) position is managed through the
three lines of defence: the First Line of Defence comprising the asset and liability management process managed by
the MeDirect Group/Belgium Treasury team, the Second Line of Defence being the Risk team and the Third Line of
Defence being Internal Audit.It is managed according tothe Group’s/MeDirect Belgium’s IRRBB policy with limits es-
tablished by the Risk team and monitored by both the First and Second Lines of Defence.
The monitoring/reporting activity is reviewed and managed independently by Group/MeDirect Belgium ALCO for the
First Line of Defence, by the Risk Committee for the Second Line of Defence, and by the Audit Committee for the Third
Line of Defence.
Interest rate risk is managed by comparing the interest rate risk profile of assets with the profile of liabilities, and by
hedging unmatched interest rate risk arising in the balance sheet by purchasing interest rate derivatives, primarily in-
terest rate swaps.
Interest rate risk reporting and analysis
As part of its monitoring duties, the Group’s Riskteam prepares and reports on the Group’s interest rate risk position on
a monthly basis.The report outputs show the effects of a number of internal and regulatory interest rate shocks on the:
• Projected net interest margin – ∆NII;
• Group’s capital position – ∆EVE; and
• Time bucket sensitivity – PV01.
The Group measures its exposure adopting both contractual and behavioural views (where items without deterministic
maturity are assigned certain level of stickiness). The impact of the automatic options embedded in the banking book
structure is assessed under ∆NII, ∆EVE and PV01.
The table below discloses the mismatch of the dates on which interest rates on financial assets and liabilities either will
be reset to market rates levels,or the date on which instruments mature. Actual cash flows on reset dates may differ
from contractual dates owing to the possible exercise of behavioural options such as prepayments. In addition, contrac-
173Annual Report and Financial Statements 2023
Repricing in
Group
Carrying
amount
Not more
than 3
months
Between 3
months and 1
year
Between 1
year and 3
years
Between
3 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Balances with central banks 265,398 265,398 - - - -
Loans and advances to financial institutions 352,793 352,793 - - - -
Loans and advances to customers 2,746,271 441,714 217,119 388,546 431,893 1,266,999
- International Corporate Lending portfolio 328,506 263,181 65,325 - - -
- Dutch Mortgage portfolio 2,104,568 39,188 120,605 330,681 319,998 1,294,096
- Belgian Mortgage portfolio 254,937 6,810 20,003 44,604 37,304 146,216
- IFRS basis adjustment: International Mortgage
portfolio
(183,180) - - - - (183,180)
- Maltese Business Lending portfolio 142,841 132,381 10,460 - - -
- Maltese Mortgage portfolio 98,599 154 726 13,261 74,591 9,867
Investments 1,310,232 898,353 411,879 - - -
- Securities portfolio 705,910 294,031 411,879 - - -
- Securitisation portfolio 604,322 604,322 - - - -
4,674,694 1,958,258 628,998 388,546 431,893 1,266,999
Amounts owed to financial institutions: 373,102 322,590 50,512 - - -
- Due to clearing houses 230,731 210,731 20,000 - - -
- Due to other banks 142,371 111,859 30,512 - - -
Amounts owed to customers 3,281,213 2,714,465 341,809 198,444 26,485 10
Debt securities in issue 910,848 22,655 66,456 235,035 586,702 -
Subordinated liabilities 54,982 - 54,982 - - -
Amounts due to immediate parent company
(included in Other Liabilities)
10,503 - - 10,503 - -
4,630,648 3,059,710 513,759 443,982 613,187 10
Interest rate repricing gap (1,101,452) 115,239 (55,436) (181,294) 1,266,989
Impact of hedging interest rate derivatives –
notional amounts
182,620 1,125,450 (715,000) 214,367 (58,990) (565,827)
Net interest rate repricing gap 23,998 (599,761) 158,931 (240,284) 701,162
174Annual Report and Financial Statements 2023
Repricing in
Group
Carrying
amount
Not more
than 3
months
Between 3
months and 1
year
Between 1
year and 3
years
Between
3 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Balances with central banks 149,925 149,925 - - - -
Loans and advances to financial institutions 402,987 402,987 - - - -
Loans and advances to customers 2,389,293 597,742 187,385 343,422 295,519 965,225
- International Corporate Lending portfolio 512,114 431,283 65,950 - 14,881 -
- Dutch Mortgage portfolio 1,818,002 33,165 106,749 314,195 209,464 1,154,429
- Belgian Mortgage portfolio 132,000 3,796 11,757 27,743 18,496 70,208
- IFRS basis adjustment: International Mortgage
portfolio
(271,273) - - - - (271,273)
- Maltese Business Lending portfolio 130,852 129,498 1,354 - - -
- Maltese Mortgage portfolio 67,598 - 1,575 1,484 52,678 11,861
Investments 1,262,175 826,942 435,233 - - -
- Securities portfolio 688,746 253,513 435,233 - - -
- Securitisation portfolio 573,429 573,429 - - - -
4,204,380 1,977,596 622,618 343,422 295,519 965,225
Amounts owed to financial institutions: 545,135 395,135 150,000 - - -
- Due to clearing houses 150,000 - 150,000 - - -
- Due to other banks 395,135 395,135 - - - -
Amounts owed to customers 2,787,600 2,154,459 412,570 201,137 19,398 36
Debt securities in issue 969,569 23,615 79,224 649,832 216,898 -
Subordinated liabilities 54,831 - 19,997 34,834 - -
Amounts due to immediate parent company
(included in Other Liabilities)
10,309 - - - 10,309 -
4,367,444 2,573,209 661,791 885,803 246,605 36
Interest rate repricing gap (595,613) (39,173) (542,381) 48,914 965,189
Impact of hedging interest rate derivatives –
notional amounts
361,368 1,450,550 - (95,500) (280,033) (1,075,017)
Net interest rate repricing gap 854,937 (39,173) (637,881) (231,119) (109,828)
175Annual Report and Financial Statements 2023
Repricing in
Bank
Carrying
amount
Not more
than 3
months
Between 3
months and 1
year
Between 1
year and 3
years
Between
3 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000
As at 31 December 2023
Balances with central banks 88,745 88,745 - - - -
Loans and advances to financial institutions 46,252 46,252 - - - -
Loans and advances to customers 403,360 258,747 46,894 13,261 74,591 9,867
- International Corporate Lending portfolio 161,920 126,212 35,708 - - -
- Maltese Business Lending portfolio 142,841 132,381 10,460 - - -
- Maltese Mortgage portfolio 98,599 154 726 13,261 74,591 9,867
Investments 441,384 272,128 169,256 - - -
- Securities portfolio 282,994 113,738 169,256 - - -
- Securitisation portfolio 158,390 158,390 - - - -
979,741 665,872 216,150 13,261 74,591 9,867
Amounts owed to financial institutions: 94,918 44,250 50,668 - - -
- Due to clearing houses 50,000 30,000 20,000 - - -
- Due to other banks 44,918 14,250 30,668 - - -
Amounts owed to customers 772,046 540,435 150,346 70,487 10,778 -
Subordinated liabilities 54,982 - 54,982 - - -
Amounts due to immediate parent company
(included in Other Liabilities)
10,503 - - 10,503 - -
Amounts due to subsidiaries (included in Other
Liabilities)
- - - - - -
932,449 584,685 255,996 80,990 10,778 -
Interest rate repricing gap 81,187 (39,846) (67,729) 63,813 9,867
Impact of hedging interest rate derivatives –
notional amounts
- - - - - -
Net interest rate repricing gap 81,187 (39,846) (67,729) 63,813 9,867
176Annual Report and Financial Statements 2023
Repricing in
Bank
Carrying
amount
Not more
than 3
months
Between 3
months and 1
year
Between 1
year and 3
years
Between
3 and 5
years
More
than 5
years
€000 €000 €000 €000 €000 €000
As at 31 December 2022
Balances with central banks 42,442 42,442 - - - -
Loans and advances to financial institutions 89,837 89,837 - - - -
Loans and advances to customers 518,106 400,101 51,982 1,484 52,678 11,861
- International Corporate Lending portfolio 319,656 270,603 49,053 - - -
- Maltese Business Lending portfolio 130,852 129,498 1,354 - - -
- Maltese Mortgage portfolio 67,598 - 1,575 1,484 52,678 11,861
Investments 457,660 250,993 206,667 - - -
- Securities portfolio 299,267 92,600 206,667 - - -
- Securitisation portfolio 158,393 158,393 - - - -
1,108,045 783,373 258,649 1,484 52,678 11,861
Amounts owed to financial institutions: 279,725 129,725 150,000 - - -
- Due to clearing houses 150,000 - 150,000 - - -
- Due to other banks 129,725 129,725 - - - -
Amounts owed to customers 707,072 541,462 118,597 45,035 1,942 36
Subordinated liabilities 54,831 - 19,997 34,834 - -
Amounts due to immediate parent company
(included in Other Liabilities)
10,309 - - - 10,309 -
Amounts due to subsidiaries (included in Other
Liabilities)
22,700 22,700 - - - -
1,074,637 693,887 288,594 79,869 12,251 36
Interest rate repricing gap 89,486 (29,945) (78,385) 40,427 11,825
Impact of hedging interest rate derivatives –
notional amounts
6,788 71,300 - (46,000) (25,300) -
Net interest rate repricing gap 160,786 (29,945) (124,385) 15,127 11,825
The net interest rate repricing gap is attributableto differences between the behavioural and the contractual view of
repricing profile. The Interest rate risk measurement,limits and hedging decisions are based on the behavioural view
of repricing profile. The interest rate gaps under the behavioural view are kept at low levels resulting in conservative
177Annual Report and Financial Statements 2023
The Group’s exposure to interest rate risk arises predominantly from its asset/liability structure, specifically mismatch-
es between the repricing term of its International Corporate Lending and Mortgage lending portfolios and the term
structure of customer deposits, as well as from possible impacts on the Mark-to-Market (“MtM”) value of its fixed rate
instruments if market interest rates increase.
The Group’s assets mainly comprise the Group’s International Corporate Lending portfolio, that reprices periodically
(generally every three months) and has a relatively short duration, and the Dutch and Belgian Mortgage portfolio, that
have a longer-term duration.
The presence of interest rate floors embedded in most of the International Corporate Lending portfolio enables the
Group to mitigate its repricing risk from the Group’s asset/liability structure, whilst the Group generally hedges the re-
pricing risk from its financial assets, namely the securities, and wholesale repo funding.
The Group’s and MeDirect Belgium’s long-term risk exposure to interest rate risk is managed through a hedging strat-
egy which uses a series of plain vanilla interest rate swaps that form a run-off profile matching a mortgage portfolio
run-off profile with behavioural pre-payment assumptions.
The Group’s Securitisation Investment portfolio comprises an investment in the equity tranche of GH1-2019 amounting
to €1.0 million (2022: €0.6 million). The returns relating to this financial instrument are variable, with repayments being
equivalent toany residual amounts after the commitments relating to more senior tranches in GH1-2019 are repaid. In
this regard,this financial instrument is not deemed to be subject to interest rate risk and has been excluded from the
table above accordingly.
Apositive interest rate sensitivity gap exists where more assets than liabilities reprice during a given period. Although
a positive gap position tends to benefit net interest income in a rising interest rate environment,the actual effect will
depend on several factors, including the extent to which repayments are made earlier or later than the contracted date
and variations in interest rates within repricing periods and among currencies.Similarly, a negative interest rate sensitiv-
ity gap exists where more liabilities than assets re-price during a given period.A negative gap position tends to benefit
net interest income in a declining interest rate environment, but the actual effect will depend on the same factors as for
positive interest rate gaps.
The management of interest rate risk attributableto interest rate repricing gap limits is supplemented by monitoring the
sensitivity of the Group’s financial assets and liabilities to various interest rate scenarios under the stress testing frame-
work whilst the extent of the difference between risk factors on the asset side and liability side is monitored through
the re-fixing gap analysis.
The estimated impact on the Group’s Net Interest Margin (“NIM”) and on Economic Value based on scenarios and
assumptions prescribed by the EBA guidelines on the management of interest rate risk arising from non trading book
activities (EBA/GL/2018/02) would be as follows:
31 December 2023
• NIM would decrease by €4.9 million in a parallel up scenario and decrease by €0.1 million in the parallel down
scenario.
• Economic value of equity would increase by €0.8 million in a parallel up scenario and decrease by €0.9 million
178Annual Report and Financial Statements 2023
31 December 2022
• NIM would increase by €18.4 million in a parallel up scenario and decrease by €15.3 million in the parallel down
scenario.
• Economic value of equity would increase by €1.9 million in a parallel up scenario and increase by €2.4 million
in the parallel down scenario.
The main assumptions used in the model utilised to measure the benchmarks referred to above are:
• Interest bearing assets are assumed to mature on their expected maturity or behavioural prepayment profile
and are not replaced for the ∆EVE purposes (run off balance sheet).
• Interest bearing assets are assumed to mature on their expected maturity and are replaced on like for like basis
for the ∆NII purposes (constant balance sheet);
• The Dutch NHG and Belgian Retail mortgages are assumed to follow a CPR curve over and above the contrac-
tual principal payment schedule;
• In addition to the legal floor on regulated savings accounts of MeDirect Belgium, there is an implicit zero floor
option on retail customer deposits as the Group will not charge negative rates to the retail segment of its cus-
tomer base;
• The ∆NII and ∆EV metrics includes the effect of changes in value of the contractual automatic options embed-
ded in the banking book assets;
• Customer deposits follow their behavioural schedule; and
• Sensitivities to behavioural assumptions are measured on a quarterly basis as part of the ICAAP whereas the
IRRBB measurement has been validated and adapted to cater for novel characteristics of new product lines.
Interest rate movements affect reported equity in the following ways:
• retained earnings arising from increases or decreases in net interest income after taking into consideration the
net impact of interest rate hedging instruments; and
• fair value reserves arising from increases or decreases in fair values of investments measured at fair value
through other comprehensive income reported directly in equity.
2.4.4 Credit Spread Risk
The Group has a portfolio of Treasury securities (held mainly as High-Quality Liquid Assets - HQLAs) and otherlow
credit risk bearing assets which give rise to the Credit Spread Risk in the Banking Book (“CSRBB”). Exposure to move-
ments in securities prices can be decomposed into the exposure to interest rates and to spreads which fora same level
of creditworthiness fluctuate on a daily basis as a result of the changes in the market demand and liquidity for certain
securities.
The Group quantified the credit spread through the difference between the security’s market yield at the valuation date
and the risk-freerate and is strengthening its market value risk assessment including metrics related to the Marked-
to-Market value sensitivity to spreads.Forassets being hold to theirmaturities,the Group is not directly exposed to
their market value variations. Nevertheless, the credit spread is an important market risk category for the Group given
the existence of the Treasury and highly rated securities,mainly held forliquidity purposes, which could potentially be
used as contingency assets in case of severe liquidity stress. This risk is howevermitigated by the high credit quality
requirement set in the Treasury’s policy, the short spread duration of those securities and the hold to maturity strategy
179Annual Report and Financial Statements 2023
2.5 Operational risk
In line with the Basel framework,operational risk is defined as the potential for loss arising from failed or inadequate
internal processes, people, systems or from external events.Operational risks can arise from all business lines and from
all activities which are carried out by the Group.Failure to manage operational risk may result in a direct or indirect
financial loss, reputational damage,regulatory breaches ormay even have a negative impact on the management of
otherrisks such as credit,liquidity or market risk. There are various operational risk subtypes, including but not limited
to fraud (internal/external), business disruption due to reduced ornon-availability of systems, inadequate outsourcing
arrangements,the Group’s inability to attract,retain,train and develop the right people,failed or inadequate business
processes, data risk and project execution risk.
Operational Risk Management ensures that the Group’s risk appetite foroperational risk is translated in a form that can
be implemented and managed in practice. As covered in the Risk Appetite Statement, the Group has low tolerance for
operational risk events that could jeopardise its financial performance, customeroutcomes or reputation. The Group’s
objective is to manage operational riskto balance the avoidance of financial losses and damage to the Group’s reputa-
tion with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity while maintain-
ing risk taking within a tolerable limit.
The governanceof Operational Risk follows the Group’s Three Lines of Defence model. The First Line of Defence is
accountable to manage its own risks, whilst the Operational Risk Management,which forms part of the Second Line
of Defence oversees and challenges risk taking activities and ensures that operational risks are consistently identified
and assessed, managed adequately, monitored and reported accordingly. The Third Line of Defence (Internal Audit)
provides an independent assurance on the design and operating effectiveness of the control structure.
The Group also has an Operational Risk frameworkin placeto make sure that it has a consistent and embedded ap-
proach for fully identifying and managing operational risks in an effective manner. The framework covers the following
sections: Operational Risk Policy, Operational Risk Awareness,Operational Risk & Control Self-Assessment (RCSAs),
Operational Risk Control Testing, Operational Risk Reporting and Incident Management & Business Continuity.
The Risk & Control Self-Assessment process, which at minimum,is carried out on an annual basis, is used to identify,
document and assess the key risks and controls within the Group. The RCSA process provides a bottom-up approach
to risk identification at granularlevel.The RCSAresults are leveraged forcreating key risk indicators and developing
narratives for scenario analysis. The risk identification process is also supported through the use of audit findings and
internal loss data.The Operational Risk Management uses a dedicated Operational Risk Management tool to manage
the RCSA process and maintain a repository of loss data which captures and records operational loss events and “near
misses” events.
Operational Risk is monitored through the development and ongoing evolution of the Key Risk Indicator (KRI) reporting
process.Operational Risk Management aim to develop KRIs that allow forthe monitoring of internal controls factors
associated with significant risks. Operational Risk is also monitored through: Risk & Control Owners alerting Operational
Risk Management of control deficiencies, Operational Risk Management identifying changes to the operational risk
profiles and by Internal Audit through theirassessment of Operational Risk Management and indirectly through their
reviews of business areas. Control testing is also carried out using a risk-based approach to identify weaknesses in the
control environment.
Operational Risk reporting provides management with a timely view of the Group’s Operational Risk profile and any
breaches to the Risk Appetite Statement.Material risks and breaches are escalated to the Group’s governing bodies,
such as Executive Committee and Board Committee, which serve as medium to ensure that corrective action plans are
in place to mitigate significant risks and avoid reoccurrence of events impacting the Group’s operations.Operational
180Annual Report and Financial Statements 2023
risks are reported through the Monthly Group Risk Management Report, Incident Reporting,Internal Control Report
and the annual lCAAP.
Operational Risk Management is also responsible to ensure that the Group has contingencies in the event of business
disruption.The Group has in place a Business Continuity Plan (BCP) and an ITDisasterRecovery Plan (DRP), both
of which are defined in separate documents respectively. Since the DRP focuses on the availability of IT/technology
services, the document is maintained and tested by the IT department. The BCP is intended to provide the Group with
a plan of actions necessary to restore critical business operations and ensuring the availability of resources whenever
and wherevernecessary and relies on the assumption that technology is available tosupport the business continuity
efforts. The BCP is regularly tested to ensure the appropriateness of the responses in case of a business disruption.
A financial measurement of this risk is calculated by the Group for the purpose of allocating risk capital using the Basic
IndicatorApproach under Regulation (EU) No.575/2013 of the European Parliament and of the Council of 26 June
2013, also known as the CRR.The risk weighted assets for operational risk under this method as at 31 December 2023
were calculated at €132.2 million (2022: €108.4 million).
ICT Security
ICTRisk is the risk of loss due to breach of confidentiality, failure of integrity of systems and data,inappropriateness
or unavailability of systems and data or inability tochange information technology within a reasonable time and with
reasonable costs when the environment or business requirements change.This includes security risks resulting from
inadequate or failed internal processes or external events including cyber-attacks or inadequate physical security.
The ICTSecurity function, led by the CISO manages the Group ICTand Security Risk management framework. The
Frameworkdocuments the Group’s approach tomanaging ICTrisks and is reviewed and approved by the Board an-
nually. The Framework has been documented taking into consideration supervisory requirements,namely the EBA
Guidelines on ICT and security risk management (EBA/GL/2019/04).
Responsibility to manage and mitigate ICTrisks lies with all Group employees,employees follow the Group’s Information
Security policies and procedures.
Residual ICTSecurity risks are managed in the context of the Group’s Risk Appetite Statement. ICTSecurity critical
and non-critical risk appetite limits have been defined by the Group. Breaches at different levels will trigger a course of
action – risk appetite breaches and notification thresholds are reported to the Board on a monthly basis.
The Group’s three-year ICTSecurity strategy is embedded within the overall ICTStrategy and is aligned with the
Group’s overall business strategy.
ICT Risk Identification and ICT Risk Mitigation:
• ICT Risk Identification: the group adopts several techniques to identify ICT risks. Risk sources include ICT se-
curity risk assessments, external security assessments, IT Security policy spot-checks, ICT security audits, ICT
security policy exemptions, RCSAs, risks assessed as part of third-party due diligence, risks identified through
ongoing monitoring of ICT infrastructure and risks identified through monitoring the cyber security threat land-
scape.
• ICT Risk Mitigation: risks are documented in the ICT risk register and are followed up by the IT Security
function. Arisk treatment plan is documented for each risk. Acontrol owneris defined and an implementation
timeline foreach control is documented.Implementation of controls is followed up by the IT Security function
181Annual Report and Financial Statements 2023
ICT Security controls implemented by the Group through the IT Security strategy are grouped into the following
categories:
a) Physical Security.
b) Logical Security.
c) ICT Operations Security.
d) Security monitoring; and
e) Information Security reviews, assessment and training.
ICTrisks are reported to the Group ExCo every six months. Additionally, every month the CISO provides a status update
of the ITSecurity programme to the Board. This includes coverage of selected IT risks, IT risk appetite limits and Key
Risk Indicators (“KRIs”).
Cyber security matters of interest are also reported to the Board.This includes updates on the Cybersecurity land-
scape, new and existing threats and how the Group is responding to such threats and results of external security tests.
Risk reports,security control test results and results from phishing awareness campaigns are presented to the Group
Management Risk Committee (“MRC”) and the Group Operations Committee.
ICT Change Management
Identification and management of information security requirements and associated processes are integrated in early
stages of ICTprojects. An ITSecurity risk assessment is conducted formajor projects to identify any security risks as
well as challenge the design of the project.
ATechnical Product Ownershall liaise with ITSecurity to ensure that any security requirements are included in the
Product Specifications Document (PSD).Security requirements shall be vetted by the CISO or a delegate.ITSecuri-
ty and Operational Risk verify that the solution includes the necessary controls.Where the product being reviewed
processes PII (Personally Identifiable Information), the Group Data Protection Officer conducts a Data Privacy Impact
Assessment (DPIA).
2.6 Environmental, Social and Governance-related (“ESG”) risk
During 2023, the Group continued to integrate sustainability into its internal organisational structure as part of the im-
plementation of its ESG agenda.
The Board of Directors are ultimately responsible for approving and overseeing the implementation of the Group’s stra-
tegic objectives,principal policies and procedures,including its ESG Strategy and Climate-related and Environmental
Risks (“CER”)/ESG risk procedures and commitments that are incorporated into the Group’s wider risk management
framework.Moreover, the Board reviews and approves the Group’s Non-Financial report together with the Group Annual
Report & Financial Statements ensuring that all material ESG-related topics are covered and disclosed.
The Board structure enables the Group to coordinate its CER/ESG policies and procedures to ensure consistency on
matters affecting all entities within the Group across all jurisdictions including Malta, Belgium, UK and the Netherlands.
By setting the ESG agenda at the parent level,the Board ensures a common ESG strategic framework which can be
deployed and implemented across the Group, including at the subsidiary level. This helps to ensure that ESG is given
appropriate priority on the Group’s agenda and that ESG factors are embedded in the decision-making processes at
all levels of the Group structure.
The Board maintains oversight of CER/ESG risks via periodic updates (at least once a quarter) that are given during
the routine Board meetings by the Group Head of Sustainability.
182Annual Report and Financial Statements 2023
The ESG Committee has the overall responsibility to oversee CER/ESG risks and initiatives including oversight of the
MeDirect ESG strategy and agenda implementation,whilst providing advice and support to the Board of Directors on
CER/ESG-related matters. The Committee consists of top management of main functions, including Finance (Group
Chief Financial Officer, Belgium Chief Financial Officer and Procurement manager), Risk (Group Chief Risk Officerand
Belgium Chief Risk Officer), Compliance and other Business functions. The Group Chief Financial Officer is the Chair of
the Committee and the Belgium Chief Risk Officer is the co-Chair.
Moreover, the Group incorporated CER across the three lines of defence (“LoD”) by updating business procedures and
policies,the risk management framework,risk appetite,stress testing,compliance monitoring plans and internal audit
plan.The front-line business is responsible for identifying, assessing and managing sustainability risks within their spe-
cific operations and for incorporating the management of such risks in the various stages of their business processes
including, amongst others,the credit process. Business functions should follow the internal procedures related to ESG/
CER in their day-to-day business operations.The Risk function is responsible for developing and tracking a dashboard
of relevant CER/ESG risk indicators, stress test and limits within the existing risk reporting frameworks of the Group,
with continuous enhancement overtime. The Risk function has integrated CER and ESG risks (both financial and
non-financial) in theirrisk identification and management process comprehensively analysing the ways in which CER
and ESG risks may affect different areas of the Group. The Compliance Functions are responsible forpreparing com-
pliance plans that considerCER/ESG risk. The Compliance Function operates independently from the business units,
albeit advising and assisting the business units and other internal functions to ensure that operations are in line with
policies,procedures and regulation. The IAF (third line of defence) is responsiblefor executing a multi-year audit plan
across the Group and on a periodic basis, provides (global or targeted) assurance on the integration and proper imple-
mentation of CER/ESG risks across the governance, internal control, operational and business processes of the Group.
The Regulatory Affairs function monitors all incoming regulatory and legislative changes, (including CER/ESG-specific
legislation) and ensures that the Group is kept abreast of all such changes.
All the strategic objectives and commitments related to CER/ESG were incorporated in the ESG Strategy 2022-
2024/25 “On the path to sustainability for 2022-2024/25”. During the last two years the Group incorporated CER/ESG
criteria in a number of policies and procedures including Risk Management Framework,Risk Appetite Statements, the
Stress Testing Framework, Sustainability Risk, Planning and Budgeting, Impairment and Accounting, Procurement and
Remuneration policies.
MeDirect Sustainability Policy outlines the Group’s approach on integrating and managing sustainability risks in the
Group’s main processes including credit, wealth, procurement, remuneration and governance processes.
During 2023,the Risk and appropriate Business functions have adopted (hard) risk appetite limits into its Risk Appetite
Statements forall lending portfolios linked to physical and/or transition climate risks,such as high flood riskand high
sea-level increase risk regions, poor EPC scoring (yearly energy efficiency) of the mortgaged properties, sectors highly
contributing to climate change, and exclusion sectoral lists. The Group will monitor these limits, and applies escalation
procedure, in line with the Risk Appetite Framework, in case of a breach in limits.
The Group also incorporated in to its operational framework the risk of CER impacting its operational centres and rep-
utation. TheOperational Risk Policy includes the extreme natural disasterscenario that damages the Malta operation
(not accessible for3D) and impact capital. The Business Continuity Plan (“BCP”) includes scenarios related to natural
hazards (e.g.storm, earthquake,flooding) and power failure,among others.The Incident management procedure in-
cludes scenarios related to physical risk due toinability to operate from offices/branches (e.g. earthquake,and other
natural) with the escalation and scenarios related to counterparties reputation affected by ESG risk. The Operational &
Reputational Risk Appetite Statement includes CER impact of the Groupcounterparties and Reputational Risk Man-
agement Policy includes ESG risk affecting reputation. In addition, the Planning and Budgeting Policy and Impairment
183Annual Report and Financial Statements 2023
and Accounting Policy were updated to include CER in budgeting process and impairment calculation whenever
applicable.
The Risk function reviews and updates on an annual basis the Group CER Materiality Assessment that analyses the
sensitivity of the Group’s businesses to physical and transition risks using a forward-looking approach.In 2023,the
Group reviewed its initial assessment to analyse the main CER that may impact MeDirect strategy, business model,
asset portfolios,funding sources, treasury and hedging, wealth management services, as well as the business operating
centres in which it operates. The assessment was presented to the ESG Committee and was validated by the Board.
The assessment included all on-balance sheet elements and off-balance sheet elements, covering physical risks
(floods/fluvial,sea level risk, drought/external heat,forest fire/wildfire,biodiversity loss, water stress) and transition risks
(policy/regulations, stranding risk, market sentiment, technology change) including high-level impact horizons (short,
medium and long-term).The Group used the European Climate Risk Typology, European Environment Agency maps
and Moody’s Investor Services analysis including sectoral heatmaps while analysing individual physical risks. To ana-
lyse transition risk,the Group used Moody’s Analytics researches and Grantham Research Institute’s report on Climate
Change and the Environment that are publicly available. The assessment was conducted on a proportional and risk-
based approach, utilising currently available sources and data. The materiality assessment was conducted by the Risk
function with the support of the relevant business functions.
The materiality assessment concluded that the overall strategic Group’s exposure toCER is limited given the Group’s
business profile and its strategy. The direct impact of MeDirect operation is not material as the Group mainly operates
in digital channels and its greenhouse gas emissions and resources consumption are limited. The impact is mainly in-
direct through financing clients from the sectors highly contributing to the climate change or through green financing.
The assessment indicated that the assets could be impacted by CER primarily through credit risk (deterioration of
collateral valuation and deterioration of credit standing of the borrower), retail funding primarily through reputational
risk (deposit outflows), wholesale funding primarily through counterparty/country risk and deterioration of securities
collateral valuation,wealth management services through market sentiment (fund classes) and operational centres
through operational risk (higher energy requirements, physical risk of destruction or failure).
The Group assessment has shown a higher transition risk related to its residential mortgage portfolios in the Nether-
lands, Belgium and Malta driven by stranding assets risk and wealth management services driven by market sentiment
The real estate portfolios of Belgium and Netherlands are the most exposed to these risks in the long-term due to their
geographical location.The assessment was conducted in line with the approach adopted in the 2022 ECB Climate
Stress Test,using a regional approach based on Eurostat’s nomenclature of territorial units for statistics (“NUTS”) for
EU countries and European Climate Risk Typology (“ECRT”) using CER scenarios. The Group’s exposure to these port-
folios represents almost €2.4 billion (48 % of the Group 2023 assets) as presented in the table below.
Balance sheet exposure Group assets
€000 %
Dutch NHG mortgage portfolio exposure 2,019 41%
Dutch Buy-to-let mortgage portfolio exposure 86 2%
Belgian mortgage portfolio exposure 255 5%
184Annual Report and Financial Statements 2023
Arelatively low proportion of the Group’s Dutch mortgage portfolio is exposed tohigher flood risk (3.5%) and none of
is exposed to higher sea hazard risk area.
The physical risk in the Dutch mortgage portfolio property is mitigated through property insurance or the National Mort-
gage Guarantee(NHG) protection.In Belgium, the Group implemented a contractual obligation forclients to purchase
property insurance that automatically covers flood risk. Most of the Group’s Belgian mortgages are already covered by
property insurance.
Moreover, the Group implemented the portfolio limits related to high flood risk in the Dutch and Belgian Risk Appetite
Statement.
The transition risk related to sea level increase hazard in the Dutch and Belgium mortgage portfolio is a long-term risk.
The Group monitors the exposure to this risk in the quarterly Risk Report and Dutch and Belgian Risk Appetite State-
ment the portfolio limits related to high coastal (sea-level) risk.
Notwithstanding these risks, the Group has assessed its residual risk as low, particularly in the short- to medium-term.
The assessment indicates that based on its current CER/ESG risk profile,no additional capital or liquidity buffer is re-
quired to cover potential impact of CER risk.
Moreover, CER has been also assessed from both the normative and economic perspectives of the Internal Capital
Adequacy Assessment Process (“ICAAP”), which assesses its impact on the profit or loss, capital requirements and
solvency (PD, LGD).The Group has incorporated climate-related scenarios into its stress testing processes,which
encompass both physical and transition risks over a three-year time horizon. The updated in 2023 capital stress tests
include scenarios linked to MeDirect operation (physical risk related to significant weather conditions impacting MT
operation) and credit portfolios (NGFS Scenario Combined Orderly Net Zero 2050 Scenario and transition risk related
to new CER regulations impose on homeowners with energy-inefficient properties to renovate their houses with the
impact on capital and capital ratios). The impact on of the CER transition scenarioon the capital is €14.3 million, and on
the impairment is €28.5 million impairments overand above the budgeted amount of impairments. The impact of the
CER physical scenario on the capital is €15.0 million operational loss. The Group continues to evolveits stress testing
processes and to enhance existing processes to be able to conduct adequate and plausible Climate Risk Stress Tests
to make informed decisions.
During the last two years the Group participated in the ECB Climate Stress Tests and ECB Climate thematic review. In
2023 2022
% %
% of Dutch NHG mortgage portfolio exposure in high flood risk areas 3.5% 3.5%
% of Dutch NHG mortgage portfolio exposure in high sea hazard risk areas 17.9% 17.7%
% of Dutch Buy-to-let mortgage portfolio exposure in high flood risk areas 4.4% N/A
% of Dutch Buy-to-let mortgage portfolio exposure in high sea hazard risk areas 3.1% N/A
% of Belgian mortgage portfolio exposure in high flood risk areas - -
% of Belgian mortgage portfolio exposure in high sea hazard risk areas 22.9% 24.8%
185Annual Report and Financial Statements 2023
2.7 Capital management - regulatory capital
The Group’s regulator, the ECB’s Joint Supervisory Team (the “JST”) sets and monitors capital requirements forthe
Group based on the capital requirements prescribed within CRR II and Capital Requirements Directive (“CRD V”).
As a result, the Group is required to maintain a prescribed ratio of total capital to total risk-weighted assets. The Group
does not engage in trading and is exempt from having a trading book. Risk-weighted assets on the banking bookare
determined according to specified requirements that seek to reflect the varying levels of risk attached to assets includ-
ing balances with counterparties and other illiquid assets.
The Group complies with the provisions of the CRR in respect of regulatory capital and it applies the standardised
approach forcredit risk. For regulatory purposes, the Group’s capital base is divided in two main categories, namely
Common Equity Tier 1 Capital and Tier 2 Capital.
• Common Equity Tier 1 Capital which includes ordinary share capital, share premium, shareholders’ contribu-
tions, retained earnings, fair value reserve and other regulatory adjustments relating to items that are included
in equity but are treated differently for capital adequacy purposes including deductions relating to Reserve for
Depositor Compensation Scheme (‘Other reserves’) and certain other regulatory items; and
• Tier 2 Capital consists of unrealised gains included within the fair value reserve and subordinated liabilities in
Group’s policy is to maintain a good capital base to maintain investor,creditorand market confidence and to sustain
future development of the business. The impact of the level of capital on shareholders’return is also recognised and
the Group recognises the need to maintain a balance between the higherreturns that might be possible with greater
gearing and the advantages and security afforded by a sound capital position.
MDB Group Limited is subject to the same supervision as that exercised over institutions. Accordingly, in terms of arti-
cle 7(2) of the CRR, the obligation of MeDirect Malta to comply with the disclosure requirements relating to own funds,
capital requirements, large exposures, and transferred credit risk have been waived.
In this respect,the Regulatory Group has complied with all externally imposed capital requirements throughout the year.
2023 2022
% %
CET 1 Ratio 16.7 15.2
Total Capital Ratio 20.3 18.7
186Annual Report and Financial Statements 2023
2.8 Fair value measurement
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction be-
tween market participants at the measurement date in the principal or, in its absence, the most advantageous market
to which the Group has access at that date.The fair value of a liability reflects its non-performance risk.
When available, the Group measures the fair value of an instrument using quoted prices in an active market forthat
instrument.A market is regarded as active if the transactions forthe asset or liability take place with sufficient frequency
and volume to provide pricing information on an ongoing basis. The judgement as to whether a market is active may
include,but is not restricted to, the consideration of factors such as the magnitude and frequency of trading activity,
the availability of prices and the size of bid/offer spreads.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of rele-
vant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all
of the factors that market participants would take into account in pricing a transaction.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price - i.e.,
the fair value of the consideration given or received.If the Group determines that the fair value at initial recognition
differs from the transaction price and the fair value is evidenced neither by the quoted price in an active market for an
identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the
financial instrument is initially measured at fairvalue,adjusted to deferthe differencebetween the fairvalue at initial
recognition and the transaction price. Subsequently, that difference is recognised in profit or loss only to the extent that
it arises from a change in a factor (including time) that market participants would consider in setting a price.
If an asset ora liability measured at fair value has a bid price and an ask price,then the Group measures assets and
long positions at a bid price and liabilities and short positions at an ask price.
2.8.1 Fair value hierarchy
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used
in making the measurements:
• Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments.
• Level 2: inputs other than quoted market prices included within Level 1 that are observable either directly (i.e.,
as prices) orindirectly (i.e. derived from prices). This category includes instruments valued using: quoted mar-
ket prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets
that are considered less than active; or othervaluation techniques where all significant inputs are directly or
indirectly observable from market data. Financial instruments which are generally included in this category in-
clude certain loans and advances to customers and over-the-counter derivatives where the fair value is based
on observable inputs.
• Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique
includes inputs not based on observable data and the unobservable inputs have a significant effect on the
instrument’s valuation. This category includes instruments that are valued based on quoted prices forsimilar
instruments for which significant unobservable adjustments or assumptions arerequired to reflect differences
187Annual Report and Financial Statements 2023
2.8.2 Use of valuation techniques
In the event that the market for a financial instrument is not active, a valuation technique is used. Valuation techniques
may incorporate assumptions about factors that other market participants would use in their valuations, including:
• the likelihood and expected timing of future cash flows from the instrument.
• selecting an appropriate discount rate for the instrument; and
• judgement to determine what model to use to calculate fair value in areas where the choice of valuation model
is particularly subjective.
Arange of valuation techniques is employed, dependent on the instrument type and available market data.Most val-
uation techniques are based upon discounted cash flow analyses, in which expected future cash flows are calculated
and discounted topresent value using a discounting curve.Prior to considering credit risk, the expected future cash
flows may be known,as would be the case forthe fixed leg of an interest rate swap,ormay be uncertain and require
projection, as would be the case for the floating leg of an interest rate swap. Projection utilises market forward curves,
if available.
Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads
and other premiums used in estimating discount rates, bond and foreign currency exchange rates and expected price
volatilities and correlations.
The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be
received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the
measurement date.
The Group uses widely recognised valuation models for determining the fair value of common and simple financial
instruments, such as interest rate and currency swaps,that use only observable market data and require minimal man-
agement judgement and estimation.
Fair values of investment securities in inactive markets are based on:
• quoted prices of similar instruments, performing numerical procedures such as interpolation when input values
do not directly correspond to the most active market trade parameters; or
• price quotations in respect of orderly transactions between market participants provided by reputable dealers.
Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange
traded derivatives and simple over the counter derivatives such as interest rate swaps. Availability of observable market
prices and model inputs reduces the need formanagement judgement and estimation and reduces the uncertainty as-
sociated with determining fair values. Availability of observable market prices and inputs varies depending on the prod-
ucts and markets and is prone to changes based on specific events and general conditions in the financial markets.
2.8.3 Financial instruments measured at fair value
The following table analyses financial instruments measured at fairvalue at the end of the reporting year, in terms of
the respective levels within the fair value hierarchy into which the respective fair value measurement is categorised.The
fair value amounts are based on the carrying amounts reflected in the statement of financial position.
188Annual Report and Financial Statements 2023
As at 31 December 2023 As at 31 December 2022
Group Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
€000 €000 €000 €000 €000 €000 €000 €000
Assets
Instruments mandatorily measured at fair
value through profit or loss
- Securitisation investment portfolio
- - 1,018 1,018 - - 572 572
- Derivative financial instruments
- 207,439 511 207,950 - 282,810 80,572 363,382
- Securities investment portfolio - Equity
instruments
- - - - - - 5,292 5,292
Total financial assets
- 207,439 1,529 208,968 - 282,810 86,436 369,246
Liabilities
Derivative financial instruments
- 25,464 - 25,464 - 5,306 - 5,306
As at 31 December 2023 As at 31 December 2022
Bank Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
€000 €000 €000 €000 €000 €000 €000 €000
Assets
Instruments mandatorily measured at fair
value through profit or loss
- Securitisation investment portfolio
- - 1,018 1,018 - - 572 572
- Derivative financial instruments
- 1 511 512 - 7,534 511 8,045
- Securities investment portfolio - Equity
instruments
- - - - - - 4,473 4,473
Total financial assets
- 1 1,529 1,530 - 7,534 5,556 13,090
Liabilities
Derivative financial instruments
- 816 - 816 - - - -
Level 2 assets principally comprise derivatives held forrisk management that are fair valued based on valuation models
with the key methodology utilised comprising the calculation of the net present value of a series of expected cash flows,
considering the different terms of each specific contract/instrument (discounted cash flow approach). These models
use as their basis independently sourced market parameters including, forexample, interest rate yield curves.Market
parameters are either directly observable or are implied from observable instrument prices. The model may perform
numerical procedures in respect of pricing such as interpolation when input values do not directly correspond tothe
most active market trade parameters.
Level 3 assets consist of the following:
• The Group’s and Bank’s investment in the equity tranche of GH1-2019 with a carrying amount of €1.0 million
(2022: €0.6 million),for which a fairvalue is determined using third party valuation models to estimate the
net present value of a series of expected cash flows, taking into consideration instrument-specific contrac-
tual terms (discounted cash flow approach).Amongst otherthings, these models take into consideration the
characteristics of the underlying portfolio of assets (including quality of underlying assets), historical portfolio
performance, and the liability structure of the CLO transaction. These models also make use of independently
189Annual Report and Financial Statements 2023
• MeDirect had entered into back-to-back structured interest rate swaps that reinternalised interest rate risk of
the securitised mortgage loan receivables.The valuation of these derivatives as at 31 December 2022 was per-
formed based on the expected cashflows on the swap transaction measured until the First Optional Redemp-
tion Date (FORD) of these related securitisations transactions. The valuation included both market observable
inputs interest rate curves) as well as mortgage loan prepayment estimates consistent with MeDirect IRRBB
assumptions.
• As part of a derecognition of loans and advances to a European corporation as a result of restructuring pro-
cedures that occurred in 2021,the Group obtained equity instruments as part of this restructuring procedure
which it initially held at nil value due to the unlikely scenario of recovering any value on the equity at that time.
During 2022, the Group was notified of an agreement to sell the corporation against which the Group would be
receiving proceeds for the equity positions it held. Following the closing of this transaction in 2023 the Group
and Bank received €5.3 million and €4.5 million respectively.
• Tax warrants and contingent value notes resulting from a loan restructuring arrangement, classified as deriva-
tive financial instruments amounting to €0.5 million (2022: €0.5 million).
The following table shows a reconciliation of the fair value measurements in Level 3 of the fair value hierarchy:
Securisation investment
portfolio measured at fair
value through other
comprehensive income
Securisation investment
portfolio measured at
fair value through profit
or loss
Securities invest-
ment measured at
fair value through
profit or loss
Derivative financial
instruments measured
at fair value through
profit or loss
Group 2023 2022 2023 2022 2023 2022 2023 2022
€000
€000 €000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year - 327,110 572 1,145 5,292 - 80,572 5,562
Additions - - - - - - - -
Amortisation of premium/discount - (1) - - - - - -
Changes in fair value - 212 446 (573) - 5,292 (80,061) 75,010
Realised - - - - (5,292) - - -
Transfer to amortised cost category - (327,321) - - - - - -
At end of year
- -
1,018 572 - 5,292 511 80,572
Securisation investment
portfolio measured at fair
value through other com-
prehensive income
Securisation investment
portfolio measured at
fair value through profit
or loss
Securities invest-
ment measured at
fair value through
profit or loss
Derivative financial
instruments measured
at fair value through
profit or loss
Bank 2023 2022 2023 2022 2023 2022 2023 2022
€000
€000 €000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year - 69,918 572 1,145 4,473 - 511 511
Additions - - - - - - - -
Amortisation of premium/discount - (2) - - - - - -
Changes in fair value - 84 446 (573) - 4,473 - -
Realised - - - - (4,473) - - -
Transfer to amortised cost category - (70,000) - - - - - -
At end of year
- -
1,018 572 - 4,473 511 511
190Annual Report and Financial Statements 2023
As at 31 December 2023
Group Level 1 Level 2 Level 3 Total fair values Total carrying amount
€000
€000 €000 €000 €000
Assets
Loans and advances to customers - 42,020 2,136,177 2,178,197 2,426,515
- International Corporate Lending portfolio - 42,020 22,138 64,158 67,010
- Dutch Mortgage portfolio - - 1,875,134 1,875,134 2,104,568*
- Belgian Mortgage portfolio - - 238,905 238,905 254,937*
Investments 682,055 - 594,728 1,276,783 1,310,232
- Securities portfolio 682,055 - - 682,055 705,910
- Securitisation portfolio - - 594,728 594,728 604,322
Total financial assets 682,055 42,020 2,730,905 3,454,980 3,736,747
Liabilities
Debt securities in issue - - 914,409 914,409 910,848
Subordinated liabilities 53,012 - - 53,012 54,982
Total financial liabilities 53,012 - 914,409 967,421 965,830
As previously mentioned, the Group’s main exposure to Level 3 assets consist of derivative assets as part of back-to-
back structured interest swaps. It has been determined that any changes to the unobservable inputs to the underlying
models will result in changes to the value of the back-to-backstructured interest swaps, but this will result in a corre-
sponding change in the valuation of the derivative liabilities off-set with the loans and advances to financial institutions,
as discussed further in note 2.2.9.
Accordingly, a sensitivity analysis of the fair value measurement to changes in observable inputs is not deemed
relevant.
2.8.3.1 Transfers between levels
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting year during
which the transfer has occurred.
There were no transfers between levels of the fair value hierarchy during the financial years ended 31 December 2023
and 31 December 2022.
2.8.4 Financial instruments not measured at fair value
The following table sets out the fairvalues of financial instruments not measured at fair value and analyses them in
terms of the respective level within the fair value hierarchy into which the respective fair value measurement is catego-
rised. This table includes only financial instruments in respect of which fair value is estimated to be materially different
than the carrying amounts.
191Annual Report and Financial Statements 2023
As at 31 December 2023
Bank Level 1 Level 2 Level 3 Total fair values Total carrying amount
€000
€000 €000 €000 €000
Assets
Loans and advances to customers
- International Corporate Lending portfolio - 16,669 22,138 38,807 41,619
Investments 273,048 - 155,931 428,979 441,384
- Securities portfolio 273,048 - - 273,048 282,994
- Securitisation portfolio - - 155,931 155,931 158,390
Total financial assets 273,048 16,669 178,069 467,786 483,003
Liabilities
Subordinated liabilities 53,012 - - - 54,982
As at 31 December 2022
Bank Level 1 Level 2 Level 3 Total fair values Total carrying amount
€000
€000 €000 €000 €000
Assets
Loans and advances to customers
- International Corporate Lending portfolio - 30,254 109,292 139,546 152,482
Investments 273,774 - 134,645 408,419 445,626
- Securities portfolio 273,774 - - 273,774 287,232
- Securitisation portfolio - - 134,645 134,645 158,394
Total financial assets 273,774 30,254 243,937 547,965 598,108
Liabilities
Subordinated liabilities 53,827 - - 53,827 54,831
As at 31 December 2022
Group Level 1 Level 2 Level 3 Total fair values Total carrying amount
€000
€000 €000 €000 €000
Assets
Loans and advances to customers - 51,724 1,736,937 1,788,661 2,132,386
- International Corporate Lending portfolio - 51,724 118,152 169,876 182,384
- Dutch Mortgage portfolio - - 1,486,918 1,486,918 1,818,002*
- Belgian Mortgage portfolio - - 131,867 131,867 132,000*
Investments 639,503 - 550,433 1,189,936 1,250,140
- Securities portfolio 639,503 - - 639,503 676,711
- Securitisation portfolio - - 550,433 550,433 573,429
Total financial assets 639,503 51,724 2,287,370 2,978,597 3,382,526
Liabilities
Debt securities in issue - - 971,209 971,209 969,569
Subordinated liabilities 53,827 - - 53,827 54,831
Total financial liabilities 53,827 - 971,209 1,025,036 1,024,400
* The Group’s International mortgage portfolios disclosed in the preceding tables are presented exclusive of the IFRS basis
adjustment equivalent to €183.2 million (2022: €271.3 million)
192Annual Report and Financial Statements 2023
In addition to the above,as disclosed in note 20 to the financial statements in February 2021,MDB Group Limited is-
sued €11.0 million fixed rate reset callable subordinated notes.
The proceeds from the issuance of these notes,which qualify as Tier 2 capital, have been lent to MeDirect Malta as a
subordinated loan for general corporate purposes, including to strengthen and optimise its capital and to support the
execution of its business strategy. As at 31 December 2023,the carrying amount of this loan, included by the Bank
within “Other liabilities”, amounted to €10.5 million (2022: €10.3 million) and its fair value as at the same date was €11.6
million (2022: €10.0 million).The fairvalue was determined by projecting the cashflows to the first call date and dis-
counting with January-end ESTR curves to obtain the spread over the said curve. In the absence of trades since issue
of these loans in February 2021,the fairvalue calculation considers the impact of the rise in interest rates throughout
this period which is the most likely meaningful contribution to the change in fair value. The spread overthe ESTR curves
during this period was utilised to measure the present values of future cashflows.
The Level 1 fair values reflected in the tables aboveconsist of the closing bid price quoted in an active market in respect
of debt securities classified under the Securities Investment portfolio and subordinated bonds issued by the Group.
The Level 2 and Level 3 fair value disclosures of the International Corporate Lending portfolio mainly comprise price
quotations sourced from an online platform in respect of internationally traded loans and advances, consisting of the
Group’s international loan book with foreign corporates. Loans and advances to customers forming part of the Interna-
tional Corporate Lending portfolio of the Group and Bank amounting to €239.1 million (2022: €329.7 million) and €111.3
million (2022: €199.6 million) respectively, net of expected credit losses, and as at 31 December 2022, a corporate debt
security within the Group’s and Bank’s Securities Investment portfolio, with a carrying amount of €12.1 million, have not
been reflected within the preceding table given that there were no observable market prices or any public information
available but the contractual terms of these instruments, that mainly re-price within three months,and the nature of
the borrowers, are similar to those of the instruments in the preceding table and thus their fair valuation characteristics
would not differ significantly from those of the instruments included in the preceding table.
The Level 3 assets also include the following:
• The Group’s and Bank’s investments in tranches of securitisation structures amounting to €604.3 million
(2022: €573.4 million) and €158.4 million (2022: €158.4 million) respectively, which are mainly rated AAA, and
forwhich a fairvalue is determined using third party valuation models to estimate the net present value of a
series of expected cash flows, taking into consideration instrument-specific contractual terms (discounted cash
flow approach). Amongst other things, these models take into consideration the characteristics of the underly-
ing portfolio of assets (including quality of underlying assets), historical portfolio performance, and the liability
structure of the CLO transaction. These models also make use of independently sourced market parameters
including, for example, interest rate yield curves.
• Dutch mortgages amounting to €2,104.5 million (2022: €1,818.0 million) and Belgium mortgages amounting
to €254.9 million (2022: €132.0 million), included in Loans and advances to customers. In order to derive their
fairvalue as at 31 December2023 and 2022, the Group bootstraps the average of the top three interest rate
quotes offered by Dutch government-backed mortgage loan lenders in the Netherlands and Belgian mortgage
loan lenders in Belgium respectively forevery mortgage fixed rate tenorto create a zero coupon discount curve
and applies this curve to discount the projected future cashflows. In addition, to estimate the future cashflows,
the Group considers both instrument-specific contractual terms and estimated conditional prepayment rates.
As at 31 December 2023, the carrying amount for loans and advances to customers classified under the Maltese Busi-
ness Lending portfolio amounting to €142.8 million (2022: €130.9 million) and Maltese mortgages amounting to €98.6
million (2022: €67.6 million) approximates their fair value because these loans are repriceable at the Group’s discretion.
193Annual Report and Financial Statements 2023
The Group’s financial instruments not measured at fair value also comprise balances with central banks, loans and
advances to financial institutions,and amounts owed to financial institutions and customers. The fairvalues of these
financial assets and liabilities are not disclosed given that the carrying amount is a reasonable approximation of fair
value because these are either re-priced to current market rates frequently or are short-term in nature.
As at 31 December2023,all the Group’s and Bank’s exposures classified underloans and advances tofinancial insti-
tutions amounting to €352.8 million (2022: €403.0 million) and to €46.3 (2022: €89.8 million) respectively, and bal-
ances with central banks amounting to €265.4 million (2022: €149.9 million) and to €88.7 million (2022: €42.4 million)
respectively, reprice or mature in less than one year. Hence their fair value is not deemed to differmaterially from their
carrying amount at the reporting date.
Fairvalues referred to above are estimated using discounted cash flows,applying market rates.These estimates are
considered Level 3 fair value estimates.
The majority of the ‘Amounts owed to financial institutions’of the Group and the Bank as at 31 December 2023 amount-
ing to €373.1 million (2022: €545.1 million) and €94.9 million (2022: €279.7 million),respectively, and ‘Amounts owed
to customers’ of the Group and the Bank amounting to €3.1 billion (2022: €2.6 billion) and €691.8 million (2022: €660.1
million) respectively, sourced from the Maltese and Belgian markets,re-price or mature in less than one year. Hence
theirfairvalue is not deemed to differmaterially from theircarrying amount at the reporting date. Fair values of these
liabilities are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining
maturities. These are considered Level 3 fair value estimates. The fair value of a demand deposit is not less than the
amount payable on demand, discounted from the first date on which the amount payable is required to be paid.
2.8.5 Non-current assets held for sale
Non-current assets classified as held for sale with a carrying amount of €1.8 million (2022: €1.8 million) comprise com-
mercial properties that had been acquired in satisfaction of debt. The fair value of such properties is estimated by the
Directors to approximate its carrying amount.
194Annual Report and Financial Statements 2023
3.Accounting estimates and judgements
3.1 Critical accounting estimates and judgements in applying the Group’s accounting policies
Estimates and judgements are continually evaluated and based on historical experience and otherfactors including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future.The resulting accounting estimates are, by defini-
tion, seldom equal to the related actual results. These estimates and assumptions present a risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year. The Group’s management
also makes judgements, apart from those involving estimations, in the process of applying the entity’s accounting pol-
icies that may have a significant effect on the amounts recognised in the financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively.
Information about assumptions, estimations and uncertainties that have a significant risk of resulting in a material ad-
justment in the year ending 31 December 2024 is set out below in relation to estimated cash flows for the purposes of
applying the effective interest method and the impairment of financial instruments.
3.2 Expected credit losses on loans and advances to customers
Financial assets measured at amortised cost are evaluated for impairment on the basis described in Accounting Policy
Note 1.5.Expected credit losses (“ECL”) on loans and advances represent management’s best estimate of expected
credit losses on the loan portfolios subject to IFRS 9 impairment requirements at the end of the reporting period.In this
respect,management is required to exercise judgement in defining what is considered to be a significant increase in
credit risk or an unlikeliness-to-pay event,in determining the expected lifetime and point of initial recognition of financial
instruments, and in making assumptions and estimates to incorporate relevant information about past events, current
conditions and forecasts of economic conditions when calculating expected credit losses.
The measurement of credit loss allowances in respect of loans and advances to customers in line with IFRS 9 princi-
ples requires complex statistical analyses and modelling assumptions, with ECL models built and calibrated principally
by reference to historical information in respect of default levels and loss severities. However, due to the inherent level
of estimation uncertainty in modelling such aspects of the ECL calculation, a significant element of expert judgement
is required to ensure that model parameters produce an ECL output which is reasonable and appropriate in light of
existing conditions.
Forloans within the Group’s International Corporate Lending and Maltese Business Lending portfolios, judgement is
firstly required in determining whetherthere is objective evidence that an exposure is credit-impaired. In performing this
assessment, management applies a significant level of judgement in evaluating all relevant information on indicators of
unlikeliness-to-pay, including the consideration of factors that immediately indicate deterioration in the financial con-
dition of borrowers, but also in respect of factors that impact the outlook of borrowers affecting their ability topay, as
described in Note 1.5.Ahigher level of judgement is required for loans to borrowers showing continued signs of financial
difficulty similar to those experienced during the preceding financial year,and for borrowers that areperforming better
compared to the prior year to understand whether the improvements are sustainable going forward. These judgements
are reflected within forecasted cash flow forecasts under different scenarios forStage 2 borrowers particularly when
assessing their unlikeliness to pay.
The measurement of credit loss allowances in respect of defaulted exposures is performed through an internally de-
veloped model based upon management’s best estimate of the present value of the cash flows that are expected to
195Annual Report and Financial Statements 2023
be received undermultiple forward looking scenarios. As described in note 2.2.1 the Group utilises a DCF approach.In
estimating cash flows fordefaulted exposures within the International Corporate Lending portfolio,management makes
judgements about a debtor’s financial situation and future repayment prospects,taking into consideration manage-
ment plans forgrowth within the current environment.In this regard, judgement is applied in estimating the expected
future cash flows from each borrower under the different scenarios, assigning probabilities to those scenarios, and de-
termining appropriate discount rates reflecting borrower-specific characteristics. The determination of operating cash
flows under multiple scenarios requires a significant level of judgement in orderto adequately capture the current
economic conditions.
The estimates of recoverable cash flows foreach defaulted borrowerare independently reviewed and challenged by the
Group’s credit risk function, and approved by the Group’s Management Credit Committee.
During 2023 and 2022, the Group extended loan forbearance measures to borrowers experiencing financial difficulties
by agreeing to modify the contractual payment terms of loans in order to improve collection opportunities or to avoid
default. Whereforbearance activities are present,higher levels of judgement and estimation uncertainty are involved
in determining their effects on credit loss allowances. Significant judgement was required in determining whether sub-
stantial modifications were made to contractual terms,thereby requiring derecognition of the extinguished financial
instrument(s) and the recognition of the new financial instrument(s). In addition, whether such restructuring lead to the
recognition of new financial instruments or the continuing recognition of the pre-restructured debt, the determination
of the relative staging of the post-restructured debt and the measurement of the associated credit loss allowances are
also deemed to be highly judgemental.
Forexposures classified as Stage 1 and Stage 2 within the International Corporate and Maltese Business Lending
portfolios, and all exposures within the Dutch,Belgian and Maltese Mortgage portfolios,the Group measures credit
loss allowances on the basis of complex models with a numberof underlying assumptions. Particularly, in respect of the
International Corporate lending portfolio, the level of estimation uncertainty is exacerbated in respect of:
(i) modelling PiT PDs and LGDs;
(ii) forecasting macroeconomic scenarios for the purposes of estimating probability-weighted credit loss allowances;
(iii) the determination of expected maturities of facilities,particularly in the case of International Corporates classified
as Stage 2; and
(iv) assessing if there has been a significant increase in credit risk, which comprise a combination of qualitative and
quantitative criteria, as described in Note 1.5;
The PD, LGD and EAD models used forthe measurement of credit loss allowances forthe International Corporate
Lending,Maltese Business Lending and Dutch Mortgage portfolio are developed by an external vendor, enabling the
estimation of these three key risk parameters at a facility level using statistical models, mainly by benchmarking expo-
sure-specific characteristics against an underlying dataset. Specifically, PDs and LGDs are developed on a name-by-
name basis by reference to the default and loss history of comparable borrowers with similar characteristics in terms of
size, industry and country of operations.
In this regard, the methodology togetherwith the assumptions and parameterisation used in the calibration of the
model are reviewed on a regular basis by management in order to ensure that the model output remains appropriate in
view of the Group’s observed default and credit loss history. A significant level of judgement is required in order to as-
sess the continuing appropriateness and reasonableness of the PiT PDs and LGDs being determined by the statistical
models. In this respect, it is noteworthy to mention that the Group’s IFRS 9 model for determining PiT PDs is particularly
sensitive to equity market data. As a result, given that equity prices are driven by factors unrelated to creditworthiness,
a significant level of expert judgement is required to determine the reasonableness of ECL model outputs. As described
196Annual Report and Financial Statements 2023
in more detail in Note 2.2.7 of the financial statements, as at 31 December 2023 the Group did not resort to the appli-
cation of overlays.
Similarly,significant judgement was also required in the modelling and selection of macroeconomic forecasts as well
as in calibration of the severities and respectiveprobability weights of macroeconomic scenarios used in the determi-
nation of ECLs. Judgement in this respect has been amplified by the heightened level of uncertainty triggered by the
unprecedented economic and socio-political conditions being currently experienced across countries and industries.
In this respect,a numberof modelling assumptions are required,based on expert judgement, in orderto form a view
on the expected time horizon forthe global economy toreturn to pre-COVID-19 levels and the impact of the conflict
between Russia and Ukraine and between Israel and Hamas on macroeconomic variables in specific countries and
industries.
Hence,as at 31 December 2023,the development of multiple forward-looking macroeconomic scenarios taking into
consideration all these variables represents a key element of estimation uncertainty in the measurement of credit
loss allowances. In addition,as described in Note2.2.7 of the financial statements,the Group ensures that the mod-
elled macroeconomic forecasts provided by the external vendor that supplies the Group with the applicable modelled
scenarios for the purposes of ECL modelling are aligned with the ECB staff macroeconomic projections published in
December 2023.
In view of the high subjectivity involved in forecasting scenarios and the sensitivity of the ECLto the key changes in
the number,selection and probability weightings applicable to the different scenarios, the Group has recalculated the
ECL under the different scenarios both by applying a 100% weight to each scenario, as well as by re-calibrating the
probability weights to scenario severities determined by the external vendoras in the preceding year, i.e. priorto any
post-model adjustments.The effect of this uncertainty on the ECL outcome is disclosed in the sensitivity analysis of the
measured credit loss allowances as at 31 December 2023 and 2022 presented in Note 2.2.7 of the financial statements.
The determination of expected maturities,which is particularly relevant forStage 2 exposures within the International
Corporate Lending portfolio,is based on behavioural maturity, reflecting management expectations on the exercise of
prepayment options,based on borrowers’ability to refinance their debt in the open market. The level of subjectivity in
determining expected maturities increases significantly when increased credit risk is experienced by such borrowers
as it diminishes their refinancing abilities overthe shorterterm.In this context,management continues to monitor the
expected maturities of borrowers in Stage 2 by reference to borrower specific information as well as by benchmarking
the expected timing of future recoveries against actual outcomes to ensure that they remain appropriate.
The identification of SICR events,particularly in respect of the International Corporate Lending portfolio, requires sig-
nificant judgement in order to assess the severity of the impact of significant events on the financial performance and
financial condition of such borrowers. In this respect,during 2023 and 2022, increased reliance has continued to be
made by the Group on its qualitative staging criteria,particularly through the introduction of caps on implied ratings and
notch downgrades to ensure that borrower specific risks as at the end of the financial reporting period are captured in
as timely a manner as possible.
3.3 Valuation of derivatives and hedge accounting
The level of management judgment required in establishing fairvalue of derivative financial instruments is limited for
those instruments valued using valuation models which arestandard across the industry and where all parameter in-
puts are quoted in active markets.
The level of subjectivity and degree of management judgment required is more significant for those derivative financial
instruments valued using specialised and sophisticated models and where some or all of the parameter inputs are less
197Annual Report and Financial Statements 2023
liquid or less observable. Management judgment is required in the selection and application of appropriate parameters,
assumptions and modelling techniques.Where no market data are available fora particularinstrument then pricing
inputs are determined by assessing otherrelevant sources of information such as historical data and making appro-
priate adjustment to reflect the actual instrument being valued and current market conditions. Further, some valuation
adjustments may require the exercise of management judgment to achieve fair value.
Moreover, the accounting treatment of the hedging relationship and the effectiveness test is based on a number of
assumptions that include amongst others the expected future early redemptions and renegotiations of the International
Mortgage portfolios.
Financial assets and liabilities carried at fair value are required to be disclosed according to the inputs to the valuation
method that are used to determinetheir fair value.Specifically,segmentation is required between those valued using
valuation techniques based on observable parameters (level 2) and valuation techniques using significant unobserv-
able parameters (level 3). Management judgment is required in determining the category to which certain instruments
should be allocated.This specifically arises when the valuation is determined by a number of parameters, some of which
are observable and others are not.
4. Balances with central banks and cash
As at 31 December 2023, balances held with central banks include reserve deposits of the Group amounting to €28.3
million (2022: €26.5 million) relating to the Minimum Reserve Requirement in terms of Regulation (EC) No 1745/2003 of
the ECB, of which €6.4 million (2022: €6.5 million) relates to MeDirect Malta, bearing interest at 0% per annum. Other
balances with central banks held by the Group with the National Bank of Belgium amounting to €154.7million (2022:
€104.3 million) are subject to a positive interest rate of 4% (2022: positive interest rate of 2%) per annum. The remaining
balances that are held with Central Bank of Malta are subject to a positive interest rate of 4% per annum (2022: 2% per
annum).
Balances with central banks in the preceding table are shown net of credit loss allowances amounting to €2 thousand
(2022: €2 thousand) and €1 thousand (2022: €1 thousand) as at 31 December 2023 forthe Group and the Bankre-
2023 2022 2023 2022
€000 €000 €000 €000
At amortised cost:
Balances with central banks 265,398 149,925 88,745 42,442
Cash 3 4 3 4
265,401 149,929 88,748 42,446
198Annual Report and Financial Statements 2023
5. Derivative financial instruments
The Group established derivative lines with counterparties to purchase foreign exchange swaps, interest rate swaps
and other appropriate instruments approved for hedging risks.
The Group uses over-the-counter foreign exchange swaps to hedge its exposure to changes in foreign exchange rates.
All foreign exchange swaps mature within 1 month (2022: 2 months) from the reporting date.
In 2023 and 2022, the Group and the Bank used over-the-counter interest rate swaps to hedge their exposure to
changes in the fair values of specific fixed rate securities attributable to changes in market interest rates (micro fair
value hedging). Interest rate swaps were matched to fixed rate securities in designated fair value hedging transactions.
The gains on the hedged items arising during the yearended 31 December 2023 attributable to the hedged risk were
€0.6 million (2022: gains of €1.5 million). The losses on the related hedging instruments forthe Group and the Bank
during the year ended 31 December 2023 were €0.6 million (2022: gains of €6.1 million). As at 31 December 2023, the
Group and Bank did not use such over-the-counter interest rate swaps.
The Group also uses over-the-counterinterest rate swaps to hedge its exposure to interest rate risk emanating from
a portfolioof fixed-rate mortgages (see Note below – macro fair value hedging under the EU carve-out version of IAS
39).The losses on the related hedging instruments during the yearended 31 December 2023 were €86.4 million (2022:
gains of €238.2 million). The gains on the hedged items arising during the year attributable to the hedged risk were
€85.1 million (2022: losses of €235.5 million).
Foreign exchange and interest rate swaps are commitments to exchange one set of cash flows for another, resulting in
an economic exchange of currencies or interest rates (for example, fixed rate for floating rate).
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Derivative financial assets - fair value 207,950 363,382 512 8,045
Derivative financial liabilities - fair value (25,464) (5,306) (816) -
The Group applies fair value hedge accounting on micro level in which one hedged item is hedged with one or multiple
hedging instruments as well as on macrolevel whereby a portfolio of items is hedged with multiple hedging instru-
ments. For macro hedges of interest rate risk,the Group applies the EU ‘carve-out’ version of IAS 39.The EU ‘carve-out’
rules for macro hedging enable a group of derivatives (orproportions) to be viewed in combination and jointly desig-
nated as the hedging instrument and remove some of the limitations in fair value hedge accounting relating to hedging
net positions of loans and core deposits and under-hedging strategies. Thus, natural interest rate hedges are used in
the first place, that is the interest rate risk associated with liabilities (e.g. retail funding, wholesale funding), to determine
the net exposure. The remaining exposure is hedged in a portfolio hedge, using the EU ‘carve-out’ version of IAS 39, in
which a portion of the retail mortgage lending portfolio is designated as a hedged item for hedge accounting purposes.
199Annual Report and Financial Statements 2023
The Group applies the following types of hedge accounting:
Fair value hedges
Hedging the interest rate risk in respect of loans and advances to customers (macro hedge)
The hedged portfolio comprises fixed-rate mortgages of MeDirect Belgium (refer to Note 7). These are mortgages that
have a fixed-rate interest period of more than 240 months.The hedging instruments are interest rate swaps entered
intoas part of interest rate risk management in the Asset and Liability Management (‘ALM’) process.The risk being
hedged is the risk of change in fairvalue of the portfolioattributable to movements in market interest rates.Effective-
ness assessments are performed on a retrospective and a prospective basis, using the dollar offset method.
Hedging the interest rate risk on investments (micro hedge)
The interest rate risk on specific fixed-income investments (refer to Note 8), on an individual asset basis,is hedged by
swapping the coupon to a floating interest rate using interest rate swaps. The country or credit spread is not hedged.
The hedges provide protection for changes in fair value of the relevant fixed-income investments attributable to move-
ments in market interest rates.Effectiveness assessments are performed on a retrospective and a prospectivebasis,
using the dollar offset method.
Hedge ineffectiveness can arise from:
• Differences in timing of cash flows of hedged items and hedging instruments;
• Different interest rate curves and the intra period movement of these curves applied to forecast and discount
of the cash flows of the hedged item and hedging instruments; and
• Disparity between expected and actual prepayments (prepayment risk).
The fair values of the held fortrading derivatives and derivatives designated as hedging instruments in fair value hedg-
es togetherwith the related notional amounts, distinguishing between micro hedges and macro hedges forthe purpos-
200Annual Report and Financial Statements 2023
Group Bank
Notional Fair value Notional Fair value Notional Fair value Notional Fair value
2023 2023 2022 2022 2023 2023 2022 2022
€000 €000 €000 €000 €000 €000 €000 €000
Derivatives held for trading – Assets
Instrument type:
- Foreign exchange swaps 21,289 199 85,809 1,503 2,877 1 48,613 746
- Interest rate swaps - - - 80,061 - - - -
- Other derivative financial instruments 511 511 511 511
710 82,075 512 1,257
Derivatives held for trading – Liabilities
Instrument type:
- Foreign exchange swaps 68,599 (844) 4,565 - 62,817 (816) 4,518 -
(844) - (816) -
Net derivatives held for trading (134) 82,075 (304) 1,257
Derivatives designated as hedging in-
struments in fair value hedges – Assets
Instrument type:
- Interest rate swaps maturing in more
than one year and less than five years
-Micro hedges - - 120,300 6,788 - - 120,300 6,788
- Macro hedges 1,080,923 29,060 304,233 28,546 - - - -
More than five years
-Macro hedges 1,031,277 178,180 1,075,017 245,973 - - - -
207,240 281,307 - 6,788
Derivatives designated as hedging
instruments in fair value hedges –
Liabilities
Instrument type:
- Interest rate swaps maturing in
More than one year and less than five
years
-Macro hedges 553,900 (4,519) 200,000 (5,306) - - - -
More than five years
- Macro hedges 432,850 (20,101) - - - - - -
(24,620) (5,306) - -
Net derivatives designated as hedging
instruments in fair value hedges
182,620 276,001 - 6,788
201Annual Report and Financial Statements 2023
MeDirect had entered into back-to-back structured interest rate swaps that reinternalised interest rate risk of the secu-
ritised mortgage loan receivables.As at 31 December 2022,the derivative asset side included above within the Group’s
derivative assets held fortrading amounted to €80.6 million. As described in Note 2.2.9, the respective derivative fi-
nancial liabilities as at 31 December 2022 were offset against loans and advances to financial institutions as a netting
agreement was in place with the counterparty.
The carrying amounts and the accumulated basis adjustment for fixed-rate mortgages and fixed-income investments
are respectively included in the statement of financial position within Loans and advances to customers and within
Investments – Securities portfolio, and accordingly disclosed in note 7 and note 8.
The accumulated negative basis adjustment within loans and advances to customers amounting to €183.2 million
(2022: negative basis adjustment amounting to €271.3 million) also includes the accumulated unamortised fairvalue
hedge adjustments of €1.2 million (2022: €3.7 million) related to hedges that have been discontinued and are now am-
ortised.
6. Loans and advances to financial institutions
As at 31 December 2023,€205.4 million (2022: €47.3 million) of the Group’s loans and advances to financial institutions
were pledged as collateral, most of which were in relation to the funding of the purchase of Dutch mortgages amounting
to €182.9 million (2022: €9.9 million) and in relation to the funding of the purchase of Belgium mortgages amounting to
€22.2 million (2022: €36.5 million).
Besides the above, the Group has amounts of €40.1 million (2022: €161.6 million) that are held forthe purposes of
margin requirements on hedging instruments attributableto the Dutch Mortgage lending business, and are hence
considered encumbered.
As at 31 December 2023,other loans and advances to financial institutions of the Group,most of which were pledged in
favour of Eurex Clearing AG in relation to clearing of derivative financial instruments, amounting to €49.7 million (2022:
€77.3 million) and other loans and advances to financial institutions of the Bank amounting to €3.8 million (2022: €4.5
million) were encumbered. In addition, loans and advances to financial institutions of the Group and Bank also include
€8.4 million (2022: €8.4 million) and €7.4 million (2022: €7.4 million) respectively in the form of cash that has been
contributed to a derivatives clearing fund held by Eurex Clearing AG, of which the Group is a member. The clearing fund
protects members against losses until they leave the clearing fund.
As at 31 December 2023,€0.5 million (2022: €11.7million) of the Bank’s loans and advances to financial institutions
were pledged as collateral, most of which were to MeDirect Belgium in relation to a Revolving Credit Facility granted by
MeDirect Belgium.
2023 2022 2023 2022
€000 €000 €000 €000
At amortised cost:
Repayable on call and at short notice 297,660 227,707 35,016 77,972
Term loans and advances 55,133 175,280 11,236 11,865
352,793 402,987 46,252 89,837
202Annual Report and Financial Statements 2023
Loans and advances to financial institutions as at 31 December2023 and 2022 were neitherpast due norcredit-im-
paired and no forbearance measures were applied by the Group and the Bank in this respect.In addition,loans and
advances to financial institutions in the preceding table are shown net of credit loss allowances amounting to €1 thou-
7. Loans and advances to customers
2023 2022 2023 2022
€000 €000 €000 €000
International Corporate Lending portfolio
- Term loans and advances: corporate 340,950 526,813 172,268 331,409
Dutch Mortgage portfolio
- Term loans and advances: retail 2,104,853 1,818,186 - -
Belgian Mortgage portfolio
- Term loans and advances: retail 255,290 132,130 - -
IFRS basis adjustment - International mortgage
portfolio
(183,180) (271,273) - -
Maltese Business Lending portfolio
- Repayable on call and short notice: corporate 4,909 4,731 4,909 4,731
- Term loans and advances: corporate 138,490 126,334 138,490 126,334
Maltese Mortgage portfolio
- Term loans and advances: retail 98,978 67,793 98,978 67,793
Gross loans and advances to customers 2,760,290 2,404,714 414,645 530,267
Less: Credit loss allowances (14,019) (15,421) (11,285) (12,161)
2,746,271 2,389,293 403,360 518,106
203Annual Report and Financial Statements 2023
Group Allowance booked under
Stage 1 Stage 2 Stage 3 POCI Total
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Credit loss allow-
ances:
- International cor-
porate lending
(2,577) (5,165) (703) (2,942) (8,952) (6,368) (212) (224) (12,444) (14,699)
- Dutch mortgage
portfolio
(136) (106) (145) (71) (4) (7) - - (285) (184)
- Belgian mortgage
portfolio
(249) (114) (46) (16) (58) - - - (353) (130)
- Maltese business
lending portfolio
(358) (208) - (4) (200) (1) - - (558) (213)
- Maltese mortgage
portfolio
(356) (195) - - (23) - - - (379) (195)
(3,676) (5,788) (894) (3,033) (9,237) (6,376) (212) (224) (14,019) (15,421)
Bank Allowance booked under
Stage 1 Stage 2 Stage 3 POCI Total
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Credit loss allow-
ances:
- International cor-
porate lending
(1,148) (2,985) (318) (2,176) (8,670) (6,368) (212) (224) (10,348) (11,753)
- Maltese business
lending portfolio
(358) (208) - (4) (200) (1) - - (558) (213)
- Maltese mortgage
portfolio
(356) (195) - - (23) - - - (379) (195)
(1,862) (3,388) (318) (2,180) (8,893) (6,369) (212) (224) (11,285) (12,161)
The negative fair value/basis adjustment amounting to €183.2 million (2022: negative fair value/basis adjustment
amounting to €271.3 million) is attributable to interest rate swaps entered into as part of the interest rate risk manage-
ment in the ALM process to hedge the risk of change in fair value of the portfolio attributable to movements in market
interest rates (refer to Note 5). The movement led to gains on hedged items attributable to the hedged risk amounting
to €85.1 million (2022: losses of €235.5 million) as disclosed in note 24 to these financial statements.
As disclosed in further detail in Note 19, as at 31 December 2023 Dutch retail mortgages amounting to €1,153.3 mil-
lion (2022: €1,219.7 million) have been securitised through three (2022: three) Residential Mortgage-Backed Security
(“RMBS”) transactions.As risks and rewards were deemed to havebeen retained by MeDirect Belgium, as at 31 Decem-
ber 2023 and 2022, these were recognised on the Group’s statement of financial position.
The Group’s Dutch Mortgage portfolio in the preceding table mainly consist of Dutch retail residential mortgages with
the exception of buy-to-let mortgages amounting to €85.3 million as at 31 December2023 (2022: €15.9 million). This
business was launched in October 2022.
204Annual Report and Financial Statements 2023
Loans and advances relating to exposures within the Group’s and Bank’s International Corporate Lending portfolio
amounting to €5.8 million and €5.8 million respectively (2022: €12.7million and €12.7 million respectively) have been
written off during the financial year. Consequently, during the financial yearended 31 December 2023,credit loss al-
lowances amounting to €2.0 million and €2.0 million (2022: €12.7 million and €12.7million) of the Group and Bank,
respectively relating to such write-offs have been released to profit or loss.
No restructuring of the Group’s and Bank’s International Corporate Lending Portfolio have taken place during the years
ended 31 December 2023 and 2022.
8. Securities and Securitisation Investment portfolios
Securities Investment portfolio
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Investments measured at amortised cost
including basis adjustment attributable to
the hedged risk
-Debt and other fixed income securities 705,976 688,942 283,028 299,406
-Less: Credit loss allowances (66) (196) (34) (139)
Investments measured at fair value through
profit and loss
-Equity instruments - 5,292 - 4,473
705,910 694,038 282,994 303,740
Credit loss allowances:
-On investments measured at amortised cost (66) (196) (34) (139)
(66) (196) (34) (139)
205Annual Report and Financial Statements 2023
Measured at amortised cost
Measured at fair value through
profit or loss
Group 2023 2022 2023 2022
€000 €000 €000 €000
Debt securities and other fixed income securities
Issued by public bodies
- foreign national and regional governments 247,749 135,590 - -
- supranational 20,505 154,067 - -
Issued by other bodies - -
- foreign banks 437,656 386,952 - -
- corporations - 12,137 - -
705,910 688,746 - -
Equity instruments
Issued by public issuers
- corporations - - - 5,292
- - - 5,292
Listing status
- listed on foreign recognised exchanges 705,910 676,711 - -
- not listed - 12,035 - 5,292
705,910 688,746 - 5,292
Measured at amortised cost
Measured at fair value through
profit or loss
Bank 2023 2022 2023 2022
€000 €000 €000 €000
Debt securities and other fixed income securities
Issued by public bodies
- foreign national and regional governments 144,936 61,524 - -
- supranational 20,505 123,939 - -
Issued by other bodies
- foreign banks 117,553 101,667 - -
- corporations - 12,137 - -
282,994 299,267 - -
Equity instruments
Issued by public issuers
- corporations - - - 4,473
- - - 4,473
Listing status
- listed on foreign recognised exchanges 282,994 287,232 - -
- not listed - 12,035 - 4,473
282,994 299,267 - 4,473
206Annual Report and Financial Statements 2023
Measured at
amortised cost
Measured at fair value
through other comprehen-
sive income
Measured at fair value
through profit or loss
Group 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year 688,746 119,700 - 650,217 5,292 -
Additions 200,500 204,819 - - - -
Redemptions (183,437) (35,000) - (240,653) (5,292) -
Gains/(losses) on hedged items
attributable to the hedged risk
907 (5,897) - 362 - -
Amortisation of premium/discount (936) 2,642 - (8,618) - -
Changes in fair value - - - 1,239 - 5,292
Movement in credit loss
allowances
130 (65) - - - -
Reclassification to amortised cost
category
- 402,547 - (402,547) - -
At end of year 705,910 688,746 - - - 5,292
Measured at
amortised cost
Measured at fair value
through other comprehen-
sive income
Measured at fair value
through profit or loss
Bank 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year 299,267 64,031 - 213,693 4,473 -
Additions 63,900 57,600 - - - -
Redemptions (82,237) (10,000) - (20,000) (4,473) -
Gains/(losses) on hedged items
attributable to the hedged risk
907 (5,897) - 362 - -
Amortisation of premium/discount 1,052 1,612 - (2,462) - -
Changes in fair value - - - 344 - 4,473
Movement in credit loss
allowances
105 (16) - - - -
Reclassification to amortised cost
category
- 191,937 - (191,937) - -
At end of year 282,994 299,267 - - - 4,473
207Annual Report and Financial Statements 2023
Investment securities with a nominal value of €606.7 million and €270.7 million forthe Group and the Bank respectively
are pledged as collateral with Eurex against the provision of borrowing facilities (2022: €588.8 million and €311.5 million
respectively). These include investment securities that are held on balance sheet with a carrying amount of €605.2
million and €269.7 million for the Group and Bank respectively (2022: €557.5 million and €280.0 million respectively).
In addition, in 2022, investment securities of the Group and Bank with a nominal value of €34.7 million were subject to
a bilateral repo with a global bank.
The cash value of unutilised borrowing facilities (headroom) of the Group and the Bank as at 31 December 2023 which
are secured by the investment securities referred to above amounted to €524.2 million (2022: €387.1 million) and
€204.4 million (2022: €133.0 million) respectively.
As at 31 December 2023, an amount of €3.9 million (2022: €3.9 million) in the form of High Quality Liquid Assets have
been contributed by the Group and Bank to a derivatives clearing fund held by Eurex Clearing AG, of which the Bank is
a member. The clearing fund protects members against losses until they leave the clearing fund.
A further €2.0 million in the form of High-Quality Liquid Assets as at 31 December 2023 (2022: €2.0 million) were also
contributed by the Group and Bank to Eurex Clearing AG to cover for daily margining.
Furthermore, as at 31 December 2023,the Group and Bank also held €5.5 million (2022: €5.5 million) in the form of High
Quality Liquid Assets with Saxo Bank as collateral for trading purposes.
Investment securities with a nominal value of €87.0 million (2022: €110.5 million) and a carrying amount of €87.0 million
(2022: €112.0 million) are also pledged as part of the cooperation with the Blauwtrust Groep to access their multi-inves-
tor platform to purchase newly originated Dutch mortgages.
As at 31 December 2023,investment securities held by the Group and the Bank with a nominal value of €2.2 million
(2022: €2.3 million) and a fair value of €2.1 million (2022: €2.1 million) were pledged as a “payment commitment” in
favour of the Maltese Depositor Compensation Scheme (DCS).
The interest rate risk on specific fixed-income investments (refer to Note 5), on an individual asset basis, is hedged by
swapping the coupon to a floating interest rate using interest rate swaps. The country or credit spread is not hedged.
The hedges provide protection for changes in fair value of the relevant fixed-income investments attributable to move-
ments in market interest rates.Effectiveness assessments are performed on a retrospective and a prospectivebasis,
using the dollar offset method.As at 31 December 2022, the interest rate risk on specific fixed-income investments held
by the Group and Bank with a carrying amount of €108.0 million was hedged by swapping the coupon to a floating
interest rate using interest rate swaps. This included a negative fair value/basis adjustment amounting to €5.0 million.
During the financial year ended 31 December 2023, the hedging of interest rate risk on an individual basis was ceased.
The unamortised basis adjustment associated with the formerhedge amounted to €2.9 million of which €0.5 million
was amortised to profit or loss during the year. As at 31 December 2023, the unamortised basis adjustment amounted
to €2.4 million.
As at 31 December 2023 and 2022, the Group and the Bank had no commitment to purchase further investment se-
curities.
As referred to in note 2.8.3,throughout the financial year ended 31 December 2022, the Group and Bank recognised
equity investments of €5.3 million and €4.5 million respectively, acquired as part of a restructure of a European corpo-
ration that occurred in 2021, which were previously held at nil value. These were redeemed in 2023.
208Annual Report and Financial Statements 2023
Securitisation Investment portfolio
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Investments measured at amortised cost
- Debt and other fixed income securities 604,504 573,608 158,527 158,530
-Less: Credit loss allowances (182) (179) (137) (137)
Investments mandatorily measured at fair value
through profit or loss
-Debt and other fixed income securities 1,018 572 1,018 572
605,340 574,001 159,408 158,965
Measured at amortised cost
Measured at fair value
through other comprehensive
income
Measured at fair value
through profit or loss
Group 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year 573,429 179,096 - 327,110 572 1,145
Additions 31,250 67,000 - - - -
Redemptions (169) - - - - -
Amortisation of premium/dis-
count
(185) 51 - (1) - -
Changes in fair value - - - 212 446 (573)
Movement in credit loss
allowances
(3) (39) - - - -
Reclassification to amortised
cost category
- 327,321 - (327,321) - -
At end of year 604,322 573,429 - - 1,018 572
209Annual Report and Financial Statements 2023
As at 31 December 2023, the Group and Bankhad pledged €168.0 million and €53.0 million respectively of the secu-
ritisation investment portfolio in favour of third parties against the provision of borrowing facilities (2022: €176.8 million
and €140.0 million respectively).
In July 2019,MeDirect Malta acquired a 5% vertical slice in each of the GH1-2019 structured note tranches forrisk
retention purposes, for the amount of €20.2 million. As at 31 December 2023, with the exception of the equity tranche
amounting to €1.0 million (2022: €0.6 million) and mandatorily measured at FVTPL, MeDirect Malta’s investment in the
remaining tranches amounting to €18.5 million (2022: €18.5 million) is measured at amortised cost.
During the financial year ended 31 December 2023, the Group also acquired portions in CLO transactions amounting
to €31.3 million (2022: €67.0 million) corresponding to tranches with the highest credit rating in such CLO structures
which are managed by third party entities. These acquired portions in CLO transactions are listed on recognised ex-
changes but not centrally traded.The underlying assets forthese CLO transactions are leveraged loans, predominantly
senior secured leveraged loans, and high yield corporate bonds. As at 31 December 2023, positions with a nominal
value of €586.2 million (2022: €555.1 million) and €140.0 million (2022: €140.0 million) in total for the Group and the
Bank, respectively, are held in a ‘hold to collect’ business model and measured at amortised cost.
Reclassification of investments
In June 2022, the Group and Bank changed the business model for managing those investments within the Securities
and Securitisation investments portfolios that were originally deemed to be “Hold to collect and sell” and therefore were
measured at fair value through other comprehensive income.
This change in business model was attributableto the fact that the first half of 2022 represented the end of a jour-
ney to shape MeDirect fortomorrow as the Group,through the commencement of the Belgium mortgages business,
Measured at
amortised cost
Measured at fair value
through other
comprehensive income
Measured at fair value
through profit or loss
Bank 2023 2022 2023 2022 2023 2022
€000 €000 €000 €000 €000 €000
Year ended 31 December
At beginning of year 158,393 88,358 - 69,918 572 1,145
Amortisation of premium/
discount
(3) 42 - (2) - -
Changes in fair value - - - 84 446 (573)
Movement in credit loss
allowances
- (7) - - - -
Reclassification to amortised
cost category
- 70,000 - (70,000) - -
At end of year 158,390 158,393 - - 1,018 572
210Annual Report and Financial Statements 2023
The Group’s diversification strategy that kicked off in 2019 was mainly based on the reduction of the International
Lending portfolio and the launch of the Dutch mortgage business line. The successful launch of the Dutch mortgage
business also allowed MeDirect Belgium to successfully issue two RMBS from the Dutch mortgage business during
the height of the COVID-19 pandemic. Furthermore, in 2021 MeDirect Malta launched the Malta home loans business
using a customer-centric approach with a digitalised experience.
In December2021,the Group ceased the intragroup funding arrangements between MeDirect Belgium and MeDirect
Malta through Grand Harbour I. This resulted in significantly better management of the liquidity of both banks.
The Group has also increased and diversified the sources of funding as it increased the channels forboth deposit
taking and repurchase agreements and is financing its International Mortgage portfolio through its Bastion mortgage
securitisation programme. Thus through such sources of funding the Group is able to satisfy its liquidity needs and will
hold these investments till maturity.
The above developments resulted in a change in the business model of the Securities and Securitisation investments
portfolios. These investments are now categorised as hold to collect and as a result on 1 July 2022 these investments
were reclassified out of the fairvalue through other comprehensive income measurement category and into the amor-
tised cost measurement category.
Group Bank
Carrying amount
prior to
reclassification
Carrying amount
subsequent to
reclassification
Carrying amount
prior to
reclassification
Carrying amount
subsequent to
reclassification
€000 €000 €000 €000
Assets
Investments – Securities portfolio:
- measured at amortised cost 312,729 869,331 111,043 321,860
- measured at fair value through other
comprehensive income
541,807 - 205,092 -
Investments – Securitisation portfolio:
- measured at amortised cost 179,108 573,400 88,368 158,361
- measured at fair value through other
comprehensive income
377,666 - 67,297 -
Deferred tax assets 26,857 18,179 12,865 9,918
Total assets 4,412,147 4,434,890 1,481,943 1,487,417
Equity
Other reserves (23,731) (1,050) (2,548) 2,915
Retained earnings 28,478 28,540 8,179 8,190
Total equity 214,339 237,082 272,967 278,441
211Annual Report and Financial Statements 2023
As at 31 December 2023, the Investments - Securities portfolio and the Investments - Securitisation portfolio included
investments with a carrying amount of € 203.9 million and €394.2 million respectively forthe Group (2022: €402.3
million and €394.3 million) and € 57.4 million and €70.0 million respectively forthe Bank (2022: €189.2 million and
€70.1 million) that were part of this reclassification that took place on 1 July 2022. The fairvalueof these investments
as at 31 December 2023 in the Investments - Securities portfolio and the Investments - Securitisation portfolio was
equivalent to €191.2 million and €387.2 million respectively for the Group (2022: €382.1 million and €378.6 million) and
€53.5 million and €68.8 million respectively for the Bank (2022: €182.2 million and €67.3 million). If these investments
had not been reclassified out of the fair value through othercomprehensive income category so that they are measured
at amortised cost,between 1 July 2022 and 31 December 2023 fair value losses of €2.7 million and fairvalue losses
of €0.98 million would have been recognised on the Securities portfolio within the other comprehensive income of the
Group and Bank respectively (1 July 2022 to 31 December2022: fairvalue losses of €5.3 million and fair value loss-
es of €2.3 million respectively) whereas fairvalue gains of €9.5 million and fairvalue gains of €1.5 million would have
been recognised on the Securitisation portfolio within othercomprehensive income of the Group and Bank respectively
(1 July 2022 to 31 December 2022: fair value gains of €0.9 million and fair value losses of €14 thousand respectively).
9. Investment in subsidiaries
Name of subsidiary
Country of incorporation/
formation Nature of business Equity interest
2023 2022
% %
MeDirect Bank SA Belgium Banking 100 100
MeDirect Tech Limited Malta Leases of software and equipment 100 100
Medifin Estates (partnership) Malta Operating lease of branches 100 100
2023 2022
€000 €000
Year ended 31 December
At beginning of year 184,599 189,519
Share of results and reserves 7,914 (4,920)
At end of year 192,513 184,599
212Annual Report and Financial Statements 2023
MeDirect Belgium was incorporated on 16 June 2014 and was authorised as a Belgian credit institution on 1 June 2015.
MeDirect Belgium’s principal activities comprise those of offering competitive and cost-effective savings and wealth
management products to the Belgian retail market, the provision of senior secured loans to foreign companies and the
financing of Dutch and Belgian mortgages, including RMBS transactions.
MeDirect Tech Limited was incorporated on 20 July 2011 and was acquired by MeDirect Malta on 4 January 2021 from
Medifin Investments Limited. MeDirect Tech’s principal activities comprise those of leasing out property, equipment
and intangible assets (predominantly software) and providing related support services to MeDirect Malta and MeDirect
Belgium.
Medifin Estates is a partnership set up on 5 June 2012. This partnership enters into certain operating leases forprop-
2023 2022
€000 €000
At 31 December
Cost 225,490 225,490
Share of results and reserves (32,977) (40,891)
Net book amount 192,513 184,599
213Annual Report and Financial Statements 2023
10. Property and equipment
Group
Improvements
to premises
Computer
equipment
Other
equipment
Fixture and
fittings
Motor
vehicles
Right-of-
use assets Total
€000 €000 €000 €000 €000 €000 €000
As at 1 January 2022
Cost 589 3,474 132 904 80 10,735 15,914
Accumulated depreciation (240) (1,672) (82) (414) (5) (4,315) (6,728)
Net book amount 349 1,802 50 490 75 6,420 9,186
Year ended 31 December 2022
At beginning of year 349 1,802 50 490 75 6,420 9,186
Additions 21 962 35 437 - 355 1,810
Modification of lease - - - - - (1,075) (1,075)
Disposals (152) (96) (5) (123) - - (376)
Depreciation for the year (69) (849) (29) (122) (15) (1,058) (2,142)
Depreciation released on disposals 76 31 3 61 - - 171
At end of year 225 1,850 54 743 60 4,642 7,574
As at 31 December 2022
Cost 458 4,340 162 1,218 80 10,015 16,273
Accumulated depreciation (233) (2,490) (108) (475) (20) (5,373) (8,699)
Net book amount 225 1,850 54 743 60 4,642 7,574
Year ended 31 December 2023
At beginning of year 225 1,850 54 743 60 4,642 7,574
Additions - 208 3 31 - - 242
Modification of lease - - - - - 260 260
Disposals (26) - - (10) - - (36)
Depreciation for the year (44) (751) (21) (156) (16) (976) (1,964)
Depreciation released on disposals 11 - - 4 - - 15
At end of year 166 1,307 36 612 44 3,926 6,091
As at 31 December 2023
Cost 432 4,548 165 1,239 80 10,275 16,739
Accumulated depreciation (266) (3,241) (129) (627) (36) (6,349) (10,648)
Net book amount 166 1,307 36 612 44 3,926 6,091
214Annual Report and Financial Statements 2023
Bank
Improvements
to premises
Computer
equipment
Other
equipment
Fixture and
fittings
Right-of-use
assets Total
€000 €000 €000 €000 €000 €000
As at 1 January 2022
Cost 508 1,505 72 587 10,469 13,141
Accumulated depreciation (211) (971) (51) (255) (3,861) (5,349)
Net book amount 297 534 21 332 6,608 7,792
Year ended 31 December 2022
At beginning of year 297 534 21 332 6,608 7,792
Additions 21 394 28 437 498 1,378
Modification of lease - - - - (1,075) (1,075)
Disposals (152) (95) (5) (123) - (375)
Depreciation for the year (49) (265) (12) (72) (1,293) (1,691)
Depreciation released on disposals 76 31 3 61 - 171
At end of year 193 599 35 635 4,738 6,200
As at 31 December 2022
Cost 377 1,804 95 901 9,892 13,069
Accumulated depreciation (184) (1,205) (60) (266) (5,154) (6,869)
Net book amount 193 599 35 635 4,738 6,200
Year ended 31 December 2023
At beginning of year 193 599 35 635 4,738 6,200
Additions - 202 - 31 - 233
Modification of lease - - - - 38 38
Disposals (26) - - (10) - (36)
Depreciation for the year (38) (252) (11) (132) (1,229) (1,662)
Depreciation released on disposals 11 - - 4 - 15
At end of year 140 549 24 528 3,547 4,788
As at 31 December 2023
Cost 351 2,006 95 922 9,930 13,304
Accumulated depreciation (211) (1,457) (71) (394) (6,383) (8,516)
Net book amount 140 549 24 528 3,547 4,788
As at 31 December 2023 and 2022 the Group and Bank operated from five and four immovable properties respectively
which are held under lease agreements.The right-of-use assets disclosed in the preceding table reflect the following
assets relating to leases:
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Premises 3,926 4,642 2,998 3,765
Computer equipment - - 389 760
Other equipment - - 160 213
3,926 4,642 3,547 4,738
215Annual Report and Financial Statements 2023
The movement in the carrying amount of right-of-use assets is analysed in the following table:
Group Premises Computer equipment Other equipment Total
€000 €000 €000 €000
As at 1 January 2022
Cost 9,869 796 70 10,735
Accumulated depreciation (3,449) (796) (70) (4,315)
Net book amount 6,420 - - 6,420
Year ended 31 December 2022
At beginning of year 6,420 - - 6,420
Additions 355 - - 355
Modification of lease (1,075) - - (1,075)
Depreciation for the year (1,058) - - (1,058)
At end of the year 4,642 - - 4,642
As at 31 December 2022
Cost 9,149 796 70 10,015
Accumulated depreciation (4,507) (796) (70) (5,373)
Net book amount 4,642 - - 4,642
Year ended 31 December 2023
At beginning of year 4,642 - - 4,642
Modification of lease 260 - - 260
Depreciation for the year (976) - - (976)
At end of the year 3,926 - - 3,926
As at 31 December 2023
Cost 9,409 796 70 10,275
Accumulated depreciation (5,483) (796) (70) (6,349)
Net book amount 3,926 - - 3,926
216Annual Report and Financial Statements 2023
The relevant lease liabilities are disclosed and analysed in Note 23 to these financial statements.
There were no capitalised borrowing costs related to the acquisition of property and equipment during the year
Bank Premises Computer equipment Other equipment Total
€000 €000 €000 €000
As at 1 January 2022
Cost 8,404 1,729 336 10,469
Accumulated depreciation (3,027) (740) (94) (3,861)
Net book amount 5,377 989 242 6,608
Year ended 31 December 2022
At beginning of year 5,377 989 242 6,608
Additions 355 119 24 498
Modification of lease (1,075) - - (1,075)
Depreciation for the year (892) (348) (53) (1,293)
At end of the year 3,765 760 213 4,738
As at 31 December 2022
Cost 7,684 1,848 360 9,892
Accumulated depreciation (3,919) (1,088) (147) (5,154)
Net book amount 3,765 760 213 4,738
Year ended 31 December 2023
At beginning of year 3,765 760 213 4,738
Modification of lease 38 - - 38
Depreciation for the year (805) (371) (53) (1,229)
At end of the year 2,998 389 160 3,547
As at 31 December 2023
Cost 7,722 1,848 360 9,930
Accumulated depreciation (4,724) (1,459) (200) (6,383)
Net book amount 2,998 389 160 3,547
217Annual Report and Financial Statements 2023
Group Bank
Computer
software
Right-of-
use assets Total
Computer
software
Right-of-
use assets Total
€000 €000 €000 €000 €000 €000
As at 1 January 2022
Cost 19,505 4,108 23,613 10,606 5,507 16,113
Accumulated amortisation (6,474) (4,108) (10,582) (4,164) (2,708) (6,872)
Net book amount 13,031 - 13,031 6,442 2,799 9,241
Year ended 31 December 2022
At beginning of year 13,031 - 13,031 6,442 2,799 9,241
Additions 4,304 - 4,304 2,764 397 3,161
Write-off (52) - (52) (13) - (13)
Amortisation and impairment charges for the year (4,014) - (4,014) (1,860) (1,004) (2,864)
Amortisation released on write-off 37 - 37 9 - 9
At end of year 13,306 - 13,306 7,342 2,192 9,534
As at 31 December 2022
Cost 23,757 4,108 27,865 13,357 5,904 19,261
Accumulated amortisation (10,451) (4,108) (14,559) (6,015) (3,712) (9,727)
Net book amount 13,306 - 13,306 7,342 2,192 9,534
Year ended 31 December 2023
At beginning of year 13,306 - 13,306 7,342 2,192 9,534
Additions 6,257 - 6,257 5,597 146 5,743
Modification of lease - - - - (58) (58)
Amortisation and impairment charges for the year (3,608) - (3,608) (1,872) (1,046) (2,918)
At end of year 15,955 - 15,955 11,067 1,234 12,301
As at 31 December 2023
Cost 30,014 4,108 34,122 18,954 5,992 24,946
Accumulated amortisation (14,059) (4,108) (18,167) (7,887) (4,758) (12,645)
Net book amount 15,955 - 15,955 11,067 1,234 12,301
11. Intangible assets
218Annual Report and Financial Statements 2023
The right-of-use assets reflected in the preceding table related to leased computer software. The relevant lease liabili-
As at 31 December 2023,internally generated software included within Computersoftwarein the table above amounted
to €8.1 million (2022: €5.6 million) and €8 million (2022: €5.5 million) for the Groupand Bank respectively. Capitalised
staff costs in respect of the financial year ended 31 December 2023, included within the Group’s and Bank’s “Additions”
to Computer software in the table above amounted to €3.6 million (2022: €2.0 million). Meanwhile, amortisation recog-
nised during the year in respect of internally generated software amounts to €1.6 million (2022: €1.6 million).
Amortisation of amounts capitalised by the Group and Bankof €3.2 million (2022: €1.8 million) had not yet commenced
by the end of the reporting year.
The carrying amount of the assets written off during the preceding financial year, and the impairment charges recog-
nised during the year in respect of such assets, reflected in the tables above, are deemed insignificant and accordingly
no further disclosures were presented in this respect.
12. Non-current assets held for sale
As at 31 December 2023,the property that had been acquired in satisfaction of debt had a carrying amount of €1.8
million (2022: €1.8 million).
Repossessed properties are made available for sale in an orderly fashion,with the proceeds used to reduce orrepay
the outstanding indebtedness. The Group does not generally occupy repossessed properties for its business use. Re-
2023 2022
€000 €000
Year ended 31 December
At beginning and end of year 1,785 1,785
219Annual Report and Financial Statements 2023
13. Deferred tax assets and liabilities
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Deferred tax assets 17,525 17,524 9,923 9,923
Deferred tax liabilities (342) (358) - -
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Property and equipment (1,036) (1,163) (618) (600)
Investments measured at fair value through profit or loss 132 (1,770) - (1,566)
Derivative financial instruments (95) (95) (95) (95)
Unutilised wear and tear allowances - 131 - -
Unutilised tax losses 12,340 16,248 5,338 6,815
Unutilised notional interest deduction 77 73 - -
Credit loss allowances 6,026 6,251 5,298 5,369
Taxation in overseas jurisdictions (261) (2,509) - -
17,183 17,166 9,923 9,923
Deferred tax assets and liabilities are attributable to the following:
Deferred tax assets and liabilities of the Group and Bank amounting to €1.1 million (2022: €5.2 million) and €0.7 million
(2022: €2.3 million) respectively were offset as there is a legally enforceable right tooffset current taxassets against
current tax liabilities and the deferred income taxes relate to the same fiscal authority.
Deferred taxes are calculated on all temporary differences underthe liability method and are measured at the tax rates
that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates (and tax
laws) that have been substantively enacted by the end of the reporting period. The principal tax rates used are 35%
(2022: 35%) in relation to the Maltese jurisdiction and 25% (2022: 25%) in respect of the Belgian fiscal authority.
Under notional interest deduction rules for Maltese corporate income tax purposes,Maltese entities may claim a de-
duction of notional interest computed by reference to risk capital and a benchmark interest rate.
Excess notional interest deduction in Malta which cannot be utilised against chargeable income forthe respective
financial yearcan be carried forward and added to the notional interest deduction forthe following financial year. Unuti-
lised notional interest deduction does not have an expiry date.Adeferred tax asset is recognised in respect of unutilised
notional interest deduction only to the extent that it is probable that sufficient future taxable profits will be available
against which the unutilised deduction can be used.
220Annual Report and Financial Statements 2023
Movements in deferred tax during the year:
Group At beginning of year Recognised in profit or loss At end of year
€000 €000 €000
Year ended 31 December 2023
Property and equipment (1,163) 127 (1,036)
Investments measured at fair value through profit or loss (1,770) 1,902 132
Derivative financial instruments (95) - (95)
Unutilised wear and tear allowances 131 (131) -
Unutilised tax losses 16,248 (3,908) 12,340
Unutilised notional interest deduction 73 4 77
Credit loss allowances 6,251 (225) 6,026
Taxation in overseas jurisdictions (2,509) 2,248 (261)
17,166 17 17,183
At beginning
of year
Recognised in profit
or loss
Recognised in other
comprehensive income
At end of
year
€000 €000 €000 €000
Year ended 31 December 2022
Property and equipment (721) (442) - (1,163)
Investments measured at fair value through
other comprehensive income
393 - (393) -
Investments measured at fair value through
profit or loss
- (1,770) - (1,770)
Derivative financial instruments (95) - - (95)
Unutilised wear and tear allowances 60 71 - 131
Unutilised tax losses 8,172 8,076 - 16,248
Unutilised notional interest deduction 62 11 - 73
Credit loss allowances 9,703 (3,452) - 6,251
Taxation in overseas jurisdictions - (2,509) - (2,509)
17,574 (15) (393) 17,166
221Annual Report and Financial Statements 2023
Bank At beginning of year Recognised in profit or loss At end of year
€000 €000 €000
Year ended 31 December 2023
Property and equipment (600) (18) (618)
Investments measured at fair value through profit or loss (1,566) 1,566 -
Derivative financial instruments (95) - (95)
Unutilised tax losses 6,815 (1,477) 5,338
Credit loss allowances 5,369 (71) 5,298
9,923 - 9,923
At beginning of
year
Recognised in
profit or loss
Recognised in other
comprehensive income
At end of
year
€000 €000 €000 €000
Year ended 31 December 2022
Property and equipment (256) (344) - (600)
Investments measured at fair value through
other comprehensive income
118 - (118) -
Investments measured at fair value through
profit or loss
- (1,566) - (1,566)
Derivative financial instruments (95) - - (95)
Unutilised tax losses 1,278 5,537 - 6,815
Credit loss allowances 8,996 (3,627) - 5,369
10,041 - (118) 9,923
As at 31 December 2023, deferred tax assets attributable to MeDirect Malta are equivalent to €9.9 million (2022: €9.9
million), while deferred tax assets attributable to MeDirect Belgium are equivalent to €7.6 million (2022: €7.6 million).
The following table provides an analysis of the deferred tax assets that were not recognised by the Group and the Bank
as deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised.
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Property and equipment 2,468 2,232 2,468 2,232
Unutilised tax losses 11,879 12,656 5,585 6,071
Unutilised notional interest deduction 35,448 28,555 35,448 28,555
Net deferred tax assets 49,795 43,443 43,501 36,858
222Annual Report and Financial Statements 2023
Accrued income is shown net of credit loss allowances amounting to €0.3 million and €0.3 million for the Group and
Amounts receivable from subsidiaries as at 31 December 2023 were unsecured. These consisted of a revolving loan
amounting to €4.7 million (2022: €4.3 million) that was subject to interest at the rate of three-month EURIBOR floored
at 0% and was repayable afterone year from the date when repayment is demanded, unless an event of default occurs
in which case the loan is repayable in full immediately. As at 31 December 2022, these also included a loan amounting
to €1.6 million that was repayable through monthly instalments and subject to interest at the rate of three-month EU-
RIBOR floored at 0%.
Amounts receivable from immediate parent company and other amounts receivable from subsidiaries and other group
companies were unsecured, interest free and repayable on demand.
As at 31 December 2023,the Group’s ‘otherassets’ comprises balances amounting to €19.5 million (2022: €16.2 million)
held with a third-party mortgage originator in the Netherlands until the relevant NHG eligibility criteria for specific loan
applications relating to the Dutch Mortgage portfolio are fulfilled in the future.
As at 31 December 2023, the Group’s ‘otherassets’ comprises balances amounting to €1.6 million (2022: €6.9 million)
held with a third-party mortgage originator in Belgium until the relevant criteria for specific loan applications relating to
2023 2022 2023 2022
€000 €000 €000 €000
Prepayments 3,833 4,376 3,039 2,739
Accrued income 23,930 14,097 7,280 4,338
27,763 18,473 10,319 7,077
2023 2022 2023 2022
€000 €000 €000 €000
Amounts receivable from:
- immediate parent company 41 652 41 652
- subsidiary companies - - 5,417 7,966
Deferred customer contract costs 587 646 65 14
Other receivables 1,024 1,712 869 1,609
Other assets 28,342 25,968 2,390 1,945
29,994 28,978 8,782 12,186
14. Prepayments and accrued income
15. Other assets
223Annual Report and Financial Statements 2023
As at 31 December 2023, ‘otherassets’of the Group and Bank include an amount of €0.8 million (2022: €0.8 million)
and €0.8 million (2022: €0.7 million) respectively placed in an account held in respect of the Single Resolution Fund as
an Irrevocable Payment Commitment (‘IPC’) in terms of the Recovery and Resolution Regulations.
The total Irrevocable Payment Commitments (‘IPC’) made by the Group and the Bank during the financial yearended
31 December 2023 amounted to €37 thousand (2022: €104 thousand) and €18 thousand (2022: €97 thousand) re-
spectively.
None of these assets are deemed credit-impaired at 31 December 2023 and 2022 and expected credit losses in rela-
16. Capital and reserves
Rights and entitlements attached to ordinary shares
The holders of Ordinary ‘A’ shares are entitled to receive dividends as declared from time to time and are entitled to one
vote per share at general meetings of the Bank. Ordinary ‘B’ shareholders are not entitled to vote and do not carry any
dividend entitlement. The holders of the Ordinary ‘A’ shares and the holders of the Ordinary ‘B’ shares shall be equally
entitled to receive notice of general meetings of the Bank.
2023 2022
No. No.
Share capital
Authorised:
Ordinary ‘A’ shares of €1 each 299,999,999 299,999,999
Ordinary ‘B’ shares of €1 each 1 1
300,000,000 300,000,000
2023 2022
€ €
Issued and fully paid up:
Ordinary ‘A’ shares of €1 each 117,450,106 117,450,106
Ordinary ‘B’ shares of €1 each 1 1
117,450,107 117,450,107
224Annual Report and Financial Statements 2023
Share premium
Share premium as at the reporting date represents the issue of shares in prior periods as follows:
Shareholders’ contributions
The terms and conditions of the contributions granted renderthese instruments equity in nature in accordance with the
requirements of IAS 32: Financial Instruments - Presentation:
• The Bank has no obligation to bear any servicing cost or transfer any economic benefits of any kind to the
Contributor or any other person in return; and
• The Bank has no obligation to repay the contributions.
The contributions are also eligible as own funds in terms of the Capital Requirements Regulation.
Reserve for general banking risks
Banking Rule (“BR”) 09 issued by the MFSArequired banks in Malta to hold additional reserves for general banking
risks in respect of non-performing loans. This reserve was required to be funded from retained earnings. As at 31 De-
cember 2022, the reserve for general banking risks of the Group and the Bank was equivalent to €3.8 million and €3.2
million respectively. This reserve,which was distributable subject to the formal consent of the Banking Regulator, rep-
resented 100% of the regulatory allocation by virtue of paragraph 38 of the Banking Rule.
Banking Rule 09 was revised as from 1 January 2023 and under the new rule banks are no longer required to hold this
reserve given that banks are required to carry out deductions from Common Equity Tier 1 capital in line with the mini-
mum coverage expectations as specified within the Capital Requirements Regulations for those loans that wereclas-
sified as NPEs after 26 April 2019 and in line with minimum coverage expectations as set by the regulatory authorities
for those loans that were classified as NPEs before such date.
Other reserves
As at 31 December 2023, the other reserves of the Bank were equivalent to €2.6 million (2022: €2.7 million). The differ-
ence between the purchase consideration of €35.3 million upon acquisition of Mediterranean Corporate Bank Limited
in 2015 and the fair value of the identifiable net assets acquired of €57.5 million, amounting to €22.4 million, had been
reflected within other comprehensive income, as a fair value reserve, in the Bank’s stand-alone financial statements for
preceding financial years in view of the Bank’s previous accounting policy whereby investments in subsidiaries were
treated as available-for-sale investments within the stand-alone financial information. Upon the merger of Mediterra-
nean Corporate Bank Limited into MeDirect Malta, this reserve was categorised as an otherreserve comprising an
adjustment to equity arising on merger, rather than a fairvalue reserve. Aportion of this reservehas been treated as
realised, and reclassified to retained earnings, reflecting the proportion of the difference arising on acquisition referred
to above, which is linked to underlying net assets which would have been realised in the meantime.
As at 31 December 2023,other reserves of the Group also comprises of a legal reserve amounting to €0.7 million (2022:
€0.2 million) that is required tobe maintained by MeDirect Belgium in line with Article 7:211 of the Belgian Companies
Group and Bank
Share premium
Number of shares Premium per share 2023 2022
€ €000 €000
Issue date
10 August 2010 10,000,000 0.9155 9,155 9,155
29 September 2010 19,119,470 0.2254 4,309 4,309
13,464 13,464
225Annual Report and Financial Statements 2023
Code which requires MeDirect Belgium to assign at least 5% of MeDirect Belgium’s net profits to the legal reserve until
such legal reserve amounts to 10% of MeDirect Belgium share capital.
All reserves at the reporting date, except for the Group’s and the Bank’s retained earnings and shareholders’ contribu-
Dividends
The Directors of the Bank do not propose any final dividends for distribution.
17. Amounts owed to financial institutions
As at 31 December 2023,amounts owed to financial institutions of the Group amounting to €192.5 million (2022: €271.4
million) and amounts owed to financial institutions of the Bank amounting to €94.9 million (2022: €271.4 million) in-
cluded in term deposits and consisting of repos are secured by a pledge overthe Group’s investments (refer to Note 8).
18.Amounts owed to customers
2023 2022 2023 2022
€000 €000 €000 €000
Term deposits 373,058 545,109 94,874 279,699
Other 44 26 44 26
373,102 545,135 94,918 279,725
2023 2022 2023 2022
€000 €000 €000 €000
Repayable on call and at short notice 2,452,739 1,896,470 294,536 315,500
Term deposits 828,474 891,130 477,510 391,572
3,281,213 2,787,600 772,046 707,072
226Annual Report and Financial Statements 2023
By virtue of a base prospectus dated May 2020,MeDirect Belgium successfully securitised part of its Dutch retail
mortgage portfolio raising €350.0 million through a RMBS transaction, listed on Luxembourg Stock Exchange. As part
of the transaction the mortgage portfolio was sold to Bastion 2020-1, a special purpose securitisation vehicle estab-
lished in the Netherlands, which is controlled by MeDirect Belgium.
This RMBS is subject to interest of 0.60% per annum above 3-month Euribor (including floor at 0%) up to the first
optional redemption date,and interest of 1.00% per annum above 3-month Euribor (including floorat 0%) from the
first optional redemption date being April 2025, payable quarterly. All bonds are redeemable at par and shall become
due for final redemption in April 2057, however, MeDirect Belgium reserves the right to redeem the bond in particular
circumstances specified in the base prospectus.
An institutional investor acquired the Class A notes of the RMBS equivalent to €350.0 million, having a senior ranking
vis-à-vis all the junior tranches retained by MeDirect Belgium. MeDirect retains substantially all risks and rewards of
the underlying securitised Dutch government-backed mortgage portfolioand accordingly controls Bastion 2020-1. As
a result, the mortgage portfolio, the senior notes of Bastion 2020-1 held by the institutional investor and related income
19. Debt securities in issue
Group
2023 2022
€000 €000
Year ended 31 December
At beginning of year 969,569 658,293
Original face value of notes issued - 368,500
Issue costs incurred - (2,063)
Amortisation of premium recognised in profit or loss (1,028) (1,303)
Amortisation of issue costs recognised in profit or loss 995 1,303
Redemptions (58,688) (55,161)
At end of year 910,848 969,569
As at 31 December
Original face value of notes issued 910,766 969,454
Unamortised note premium 2,316 3,311
Unamortised note issue costs (2,234) (3,196)
Net carrying amount 910,848 969,569
As at 31 December
Bastion 2020-1 NHG B.V. 271,555 295,053
Bastion 2021-1 NHG B.V. 297,822 307,416
Bastion 2022-1 NHG B.V. 341,471 367,100
Net carrying amount 910,848 969,569
227Annual Report and Financial Statements 2023
On each of the Notes Payment Dates of Bastion 2020-1, falling on 23 January 2023, 24 April 2023, 24 July 2023 and
23 October 2023,amounts of €6.4 million,€5.6 million, €5.1 million and €6.7 million of Class Anotes, pertaining to the
senior tranche were redeemed,whereas on each of the Notes Payment Dates on 24 January 2022,25 April 2022, 25
July 2022 and 24 October 2022, amounts of €7.3 million, €6.1 million, €7.8 million and €5.8 million of the said Class A
notes were redeemed.
In January 2021, MeDirect Belgium securitised a further part of its Dutch retail mortgages portfolio through a RMBS
transaction listed on Luxembourg Stock Exchange, whereby a principal amount of €414.0 million of the Dutch Mort-
gage portfolio was sold to a securitisation special purpose entity, Bastion 2021-1 NHG B.V., established in the Nether-
lands, which is controlled by MeDirect Belgium.
This RMBS is subject to interest of 0.70% per annum above 3-month Euribor (including floor at 0%) up to the first
optional redemption date, and interest of 1.05% per annum above 3-month Euribor (including floor at 0%) from the first
optional redemption date being August 2026,payable quarterly. All bonds are redeemable at par and shall become
due forfinal redemption in August 2058, however, MeDirect Belgium reserves the right to redeem the bond in particular
circumstances specified in the base prospectus.
An institutional investoracquired the Class A notes of the RMBS equivalent to €350.0 million, having a senior ranking
vis-à-vis all the junior tranches retained by MeDirect Belgium. MeDirect retains substantially all risks and rewards of
the underlying securitised Dutch government-backed mortgage portfolio and accordingly controls Bastion 2021-1. As
a result, the mortgage portfolio, the senior notes of Bastion 2021-1 held by the institutional investor and related income
and expenditure are reflected in the Group’s financial statements.
On each of the Notes Payment Dates of Bastion 2021-1, falling on 20 February 2023,22 May 2023,21 August 2023 and
20 November 2023, amounts of €8.0 million, €5.3 million, €10.6 million and €6.8 million of Class A notes, pertaining to
the senior tranche were redeemed whereas on each of the Notes Payment Dates on 21 February 2022, 20 May 2022,
22 August 2022 and 21 November 2022, amounts of €7.9 million, €9.2 million, €5.8 million and €7.3 million of the said
Class A notes were redeemed.
By virtue of a base prospectus dated 25 November 2022, MeDirect Belgium successfully securitised part of its Dutch
retail mortgage portfolio raising €368.5 million through placement with external investors of A1 notes of the RMBS
transaction,listed on Luxembourg StockExchange.As part of the transaction the mortgage portfolio was sold to
Bastion 2022-1, a special purpose securitisation vehicle established in the Netherlands,which is controlled by MeDirect
Belgium.
This RMBS is subject to interest of 0.60% per annum above3-month Euribor (including floor at 0%) up to the first
optional redemption date, and interest of 1.20% per annum above 3-month Euribor (including floor at 0%) from the first
optional redemption date being March 2028, payable quarterly. All bonds are redeemable at par and shall become
due forfinal redemption in May 2060,however,MeDirect Belgium reserves the right to redeem the bond in particular
circumstances specified in the base prospectus.
An institutional investor acquired Class A notes of this RMBS equivalent to €369.0 million, having a senior ranking vis-
à-vis all the junior tranches retained by MeDirect Belgium. MeDirect retains substantially all risks and rewards of the
underlying securitised Dutch government-backed mortgage portfolio and accordingly controls Bastion 2022-1. As a
result, the mortgage portfolio, the seniornotes of Bastion 2022-1 held by the institutional investorand related income
228Annual Report and Financial Statements 2023
On each of the Notes Payment Dates of Bastion 2022-1, falling on falling on 20 February 2023,22 May 2023,21 Au-
gust 2023 and 20 November 2023, amounts of €5.7 million, €5.9 million, €7.2 million and €7.2 million of Class A notes,
pertaining to the senior tranche were redeemed.
20. Subordinated liabilities
On 16 October 2017,MeDirect Malta announced the issue of euro equivalent of €20.0 million 5% Subordinated Unse-
cured Bonds 2027 maturing on 13 October 2027 with a 13 October 2024 early redemption option held by the Bank.The
bonds were issued on the Malta Stock Exchange in euro and pound sterling. The interest payable is fixed at 5% (effec-
tive interest rate of 5.19%) and the bonds are redeemable at their nominal value. The amounts subscribed consisted of
£1.2 million (euro equivalent to €1.3 million) bonds in pound sterling and €18.7 million bonds in euro.
On 8 October2019, MeDirect Malta announced the issue and listing of €35.0 million 4% Subordinated Unsecured
Bonds denominated in euro and pound sterling maturing on 5 November 2029 with an annual early redemption option
starting 5 November 2024 held by MeDirect Malta. The bonds were issued on the Malta Stock Exchangein euro and
pound sterling. The interest payable is fixed at 4% (effective interest rate of 4.2%) and the bonds are redeemable at
their nominal value. The amounts subscribed consisted of £2.4 million (euro equivalent to €2.8 million) bonds in pound
sterling and €32.2 million bonds in euro.
The above liabilities will, in the event of the winding up of MeDirect Malta, be subordinated to the claims of depositors
and all other creditors of MeDirect Malta. MeDirect Malta has not had any defaults of interest orotherbreaches with
respect to its subordinated debt securities during the years ended 31 December 2023 and 2022. As at 31 December
2023 2022
€000 €000
Year ended 31 December
At beginning of year 54,831 54,994
Foreign exchange differences 83 (226)
Transaction costs amortised to profit or loss 68 63
At end of year 54,982 54,831
Analysed as follows:
5% Subordinated Unsecured Bonds 2022 – 2027 20,045 19,997
4% Subordinated Unsecured Bonds 2024 – 2029 34,937 34,834
54,982 54,831
229Annual Report and Financial Statements 2023
2023 2022 2023 2022
€000 €000 €000 €000
Amounts due to ultimate parent company 841 875 841 875
Amounts due to immediate parent company 12,860 11,748 12,860 11,748
Amounts due to subsidiary companies - - 6,736 31,789
Amounts due to other group companies 78 127 78 127
Indirect taxes payable 1,419 916 898 296
Other liabilities 14,312 12,161 3,468 2,665
33,849 30,898 30,300 54,242
21. Provisions for liabilities and other charges
23. Other liabilities
22. Accruals and deferred income
2023 2022 2023 2022
€000 €000 €000 €000
Credit loss allowances in respect of loan commitments and financial
guarantee contracts
Year ended 31 December
At beginning of year 1,263 1,158 1,111 1,105
Change in expected credit losses (965) 105 (893) 6
At end of year 298 1,263 218 1,111
2023 2022 2023 2022
€000 €000 €000 €000
Accrued interest expense 37,126 10,772 5,746 1,544
Other accrued expenses 9,272 10,134 6,951 6,946
Deferred income 966 3,397 511 2,675
47,364 24,303 13,208 11,165
230Annual Report and Financial Statements 2023
2023 2022 2023 2022
€000 €000 €000 €000
Non-current
Premises 3,280 4,126 2,492 3,311
Computer equipment - - 197 300
Other equipment - - 127 128
Computer software - - 918 1,062
3,280 4,126 3,734 4,801
Current
Premises 1,059 945 837 755
Computer equipment - - 111 188
Other equipment - - 72 86
Computer software - - 665 912
1,059 945 1,685 1,941
Total 4,339 5,071 5,419 6,742
As at 31 December 2023 and 2022, the amounts due to immediate parent company comprise a callable loan granted
by MDB Group Limited to MeDirect Malta amounting to €10.5 million (2022: €10.3 million), which is due on 10 February
2031, the terms of which mirror those of the subordinated notes issued by MDB Group Limited on the Global Exchange
Market of Euronext Dublin. As a result, the loan bears a fixed interest rate of 9.75% per annum until 10 February 2026
and thereafter will bear interest at a fixed rate which will be set by an Agent Bank on 10 February 2026.
As at 31 December 2022, amounts due to subsidiary company included a revolving credit facility amounting to €22.7
million, as part of an RCF facility of €82.0 million, that was subject to interest per annum equal to the aggregate of the
three month Euribor and the margin of 2.80% and was secured by a pool of international corporate loans held by Me-
Direct Malta with a nominal value of €164.3 million.
Amounts due to ultimate parent company and other group companies and other amounts due to the immediate parent
company and subsidiaries are unsecured, interest free and repayable on demand.
Other liabilities mainly consist of settlement accounts.
The extension options in leases relating to premises, with the last extension covering till April 2032, have been included
in the lease liability as the lease term reflects the exercise of such options.
The Group determines the lease term as the non-cancellable term of the lease,togetherwith any periods covered by an
option to extend the lease if it is reasonably certain to be exercised, orany periods covered by an option to terminate
the lease, if it is reasonably certain not to be exercised.
The Group has certain lease contracts that include extension and termination options. The Group applies judgement in
evaluating whetherit is reasonably certain whetheror not to exercise the option to renew or terminate the lease. That
is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination.
231Annual Report and Financial Statements 2023
After the commencement date, the Group reassesses the lease term if there is a significant event or change in circum-
stances that is within its control that affects its ability to exercise or not to exercise the option to renew or to terminate.
The contractual undiscounted cash flows attributable to lease liabilities are analysed in Note 2.3.4.
The movement in the carrying amount of these liabilities is analysed in the following table:
The income statement reflects the following amounts relating to leases:
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Year ended 31 December
At beginning of year 5,071 7,083 6,742 8,961
Additions - 355 146 895
Modification of lease 260 (1,075) (20) (1,075)
Payments (1,177) (1,503) (1,660) (2,303)
Interest charge 185 211 211 264
At end of year 4,339 5,071 5,419 6,742
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Interest expense (Note 24) 185 211 211 264
232Annual Report and Financial Statements 2023
An amount of €5.4 million and €5.1 million in respect of the Group and the Bankrespectively (2022: €4.2 million and
€4.1 million respectively) relating to credit-impaired financial assets is included within interest income from loans and
advances to customers for the year ended 31 December 2023.
In the financial year ended 31 December 2023,fairvalue losses of the Groupand the Bank amounting to €0.7 million
(2022: gains of €5.6 million) arising on derivatives designated in micro fairvalue hedge relationships and €0.9 million
(2022: €5.5 million) representing net increases (2022: net decreases) in the fair value of the hedged items attributable
to the hedged risk are included within the Group’s and the Bank’s net interest income.These hedging relationships, that
were discontinued during 2023,compromise interest rate swaps hedging interest rate risk on specific fixed rate debt
securities, on an individual asset basis.The losses are reflected within interest arising from investment securities, where
interest on the hedged items is presented.
On the otherhand, for the macro hedging relationships comprising interest rate swaps hedging interest rate risk on a
portfolio of the Group’s fixed rate mortgages,fairvalue losses of €86.4 million (2022: gains of €238.2 million) arising
on derivatives designated in fair value hedge relationships and gains of €85.1 million (2022: losses of €235.5 million)
representing net decrease (2022: decrease) in the fair value of the hedged items attributable tothe hedged risk are
included within the Group’s net interest income. The losses are reflected within interest arising from loans and advances
24. Net Interest Income
2023 2022 2023 2022
€000 €000 €000 €000
Interest income
Loans and advances to financial institutions 47,425 908 3,306 753
Loans and advances to customers
-interest on loans and advances to customers 119,079 75,015 41,236 31,799
- (losses)/gains representing ineffective portion of fair value hedges (1,300) 2,700 - -
Investment securities
- interest on investment securities 9,419 7,934 3,550 3,388
-amortisation of net premiums on investment securities (1,121) (5,926) 1,049 (810)
- gains representing ineffective portion of fair value hedges 253 56 253 56
Total interest income 173,755 80,687 49,394 35,186
Interest expense
Amounts owed to financial institutions 46,169 6,597 3,560 2,529
Amounts owed to customers 41,347 12,447 9,429 4,233
Lease liabilities 185 211 211 264
Subordinated liabilities 2,466 2,467 2,466 2,467
Other liabilities 1,267 1,227 1,267 1,227
Total interest expense 91,434 22,949 16,933 10,720
Net interest income 82,321 57,738 32,461 24,466
233Annual Report and Financial Statements 2023
Within interest income, the Group and Bank are netting-off amounts of €5.7 million (2022: €3.1 million) and €0.1 million
in 2022 respectively relating to interest expense on interest rate swaps used to hedge the International Mortgage port-
folios.
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Micro hedging:
(Losses)/gains on hedging instruments (654) 5,591 (654) 5,591
Gains/(losses) on hedged items attributable to the hedged risk – basis
adjustment to Securities Investments measured at amortised cost (see Note 8)
907 (5,535) 907 (5,535)
253 56 253 56
Macro hedging:
(Losses)/gains on hedging instruments (86,400) 238,200 - -
Gains/(losses) on hedged items attributable to the hedged risk – basis
adjustment to International Mortgage portfolio (see Note 7)
85,100 (235,500) - -
(1,300) 2,700 - -
Net (losses)/gains representing ineffective portion of fair value hedges (1,047) 2,756 253 56
25. Net fee and commission income
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Fee and commission income
Corporate secured lending fee income 1,052 1,151 1,045 998
Banking transactions fee income 1,488 1,112 1,470 1,241
Investment services fee income 6,793 6,803 2,541 2,606
Other fee income 361 150 12 5
Total fee and commission income 9,694 9,216 5,068 4,850
Fee and commission expense
Corporate secured lending fee expense 1,877 111 1,873 113
Banking transactions fee expense 717 850 486 588
Investment services transaction and custody fees 1,797 1,963 590 725
Other fee expense 202 163 129 98
Total fee and commission expense 4,593 3,087 3,078 1,524
Net fee and commission income 5,101 6,129 1,990 3,326
234Annual Report and Financial Statements 2023
The Group’s and the Bank’s net fee and commission income excludes income and expenses that form an integral part
of the effective interest rate on financial assets and financial liabilities that are not at fair value through profit or loss, but
in the financial year ended 31 December 2023, includes income of €1.1 million (2022: €1.3 million) and expenses of €1.9
million (2022: €0.1 million) relating to such financial assets and liabilities.
The net revenue arising during 2023 (i.e. the gross revenue less any commissions directly related to the acquisition of
the said gross revenue) derived from activities in relation to the Bank’s investment services licence in Malta amount to
€2.0 million (2022: €1.9 million).
26. Net trading income
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Net income from foreign exchange activities 1,121 1,671 1,080 1,513
Net income/loss from held for trading financial instruments (574) (263) (574) 483
547 1,408 506 1,996
26.1 Realised losses on disposal of other investments
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Investments measured at amortised cost (30) - (30) -
235Annual Report and Financial Statements 2023
2023 2022 2023 2022
€000 €000 €000 €000
Directors’ emoluments
- salaries 3,860 2,888 2,100 1,568
- defined contribution social security costs 62 31 28 24
- fees 817 668 398 306
- other emoluments 145 66 145 66
Staff costs
- salaries 21,034 20,656 11,572 11,305
- defined contribution social security costs 2,007 2,005 982 929
Staff costs capitalised within Intangible Assets (Note 11) (3,634) (2,018) (3,634) (2,018)
27. Personnel expenses
Personnel expenses incurred, including remuneration and emoluments paid to the Directors of MeDirect Malta and
MeDirect Belgium, are analysed as follows:
The Directors of MeDirect Tech Limited do not receiveany Directors’emoluments as they are employed within the MDB
Group and their remuneration for 2023 and 2022 are presented above within ‘Staff costs’.
As per above, in the financial year ended 31 December 2023, salary costs amounted to €24.9 million (2022: €23.5 mil-
lion) and €13.7 million (2022: €12.9 million) forthe Group and Bank respectively, with the Group’s and Bank’s variable
remuneration accounting for 12.2% (2022: 10.7%) and 17.4% (2022: 15.6%) respectively of these amounts.
The Group’s and Bank’s salary costs include expenses for defined contributions plans amounting to €0.5 million (2022:
€0.5 million) and €0.2 million (2022: €0.1 million).
236Annual Report and Financial Statements 2023
Vested Unvested Vested Unvested
Group €000 €000 €000 €000
Total outstanding deferred remuneration – share-based payments
Year ended 31 December
At beginning of year 1,586 810 1,507 1,200
Awarded throughout the year - 587 - 197
Vested throughout the year 744 (744) 587 (587)
Paid throughout the year (845) - (553) -
Performance and other adjustments throughout the year 176 - 45 -
At end of year 1,661 653 1,586 810
2023 2022 2023 2022
No. No. No. No.
Executive and senior management 25 16 16 11
Other managerial, supervisory and clerical 313 326 259 263
Other 6 6 6 6
344 348 281 280
The weekly average number of persons employed during the year, including Executive Directors, was as follows:
The number of persons employed by the Group and Bank as at the reporting date,including Executive Directors,was
350 (2022: 339) and 288 (2022: 280), respectively.
As disclosed in the remuneration report, share-based payments are granted tocertain Executive Directors and other
material risktakers under a performance and retention bonus plan, where they are entitled to share-linked instruments,
subject to a deferral period not greater than five years, the value of which is based on changes in the fairvalue of the
ordinary shares of MDB Group Limited but which are settled in cash and hence do not entitle the employees to shares
237Annual Report and Financial Statements 2023
The total expense recognised during the financial yearended 31 December 2023,disclosed in the table above within
‘salaries’ amounted to €0.4 million (2022: €0.2 million) and €0.3 million (2022: €0.1 million) for the Group and Bank re-
spectively. The resultant liability as at 31 December 2023, arising from deferred share-based payments and presented
in the statement of financial position with ‘Accruals and deferred income’, amounted to €1.8 million (2022: €2.3 million)
28. Other administrative expenses
Other administrative expenses are analysed as follows:
2023 2022
Vested Unvested Vested Unvested
Bank €000 €000 €000 €000
Total outstanding deferred remuneration – share-based payments
Year ended 31 December
At beginning of year 1,474 810 1,465 1,200
Awarded throughout the year - 517 - 127
Vested throughout the year 674 (674) 517 (517)
Paid throughout the year (836) - (553) -
Performance and other adjustments throughout the year 175 - 45 -
At end of year 1,487 653 1,474 810
2023 2022 2023 2022
€000 €000 €000 €000
IT support and telecommunication costs 8,072 7,974 2,190 2,118
Legal, professional and marketing expenses 17,799 12,876 4,928 3,870
Regulatory expenses 5,493 6,059 815 1,069
Indirect taxation 4,959 4,664 2,204 1,573
Other expenses 7,059 5,558 5,703 2,434
43,382 37,131 15,840 11,064
238Annual Report and Financial Statements 2023
Included in other administrative expenses are fees charged by the Group’s independent auditors for the year as follows:
Other non-audit services consisted of regulatory advisory services in respect of the Group’s compliance with elements
of the accounting and regulatory framework it is exposed to or which the Group will be exposed to in the future. These
29. Change in expected credit losses and other credit impairment charges
Group Bank
2023 2022 2023 2022
€000 €000 €000 €000
Change in expected credit losses
Loans and advances to customers, including credit-related commitments
- International Corporate Lending portfolio (including accrued income) 3,189 6,388 2,291 6,843
- Dutch Mortgage portfolio (100) (37) - -
- Belgian Mortgage portfolio (204) (164) - -
- Maltese Business Lending portfolio (345) 3,691 (345) 3,691
- Maltese Mortgage portfolio (184) (92) (184) (92)
Investments measured at amortised cost
- Securities portfolio 130 (65) 105 (16)
- Securitisation portfolio (3) (7) - (7)
Other credit impairment charges
Amounts written off on loans and advances to customers
- International Corporate Lending portfolio (3,428) (7,673) (3,428) (7,673)
(945) 2,041 (1,561) 2,746
2023 2022 2023 2022
€000 €000 €000 €000
Audit services 630 445 253 220
Other assurance services 65 20 37 13
Tax related services 104 10 - -
239Annual Report and Financial Statements 2023
30.Tax expense
2023 2022 2023 2022
€000 €000 €000 €000
Current tax expense
- current year tax charge 2,425 445 408 275
Deferred tax (Note 13)
- current year tax (17) 15 - -
Income tax charge 2,408 460 408 275
2023 2022 2023 2022
€000 €000 €000 €000
Profit before tax 14,355 9,121 10,895 8,746
Tax at the applicable rate of 35% 5,024 3,192 3,813 3,061
Tax effect of:
Non-deductible expenses 943 56 56 8
Unrecognised deferred tax movements (Note 13) (541) (3,128) (250) (5,128)
Income not subject to tax (3,383) (1,815) (1,047) -
Share of results of subsidiary undertaking - - (2,770) 1,957
Effect of different tax rates (694) 2,044 - -
Other 1,059 111 606 377
Income tax charge 2,408 460 408 275
The taxrecognised in profit or loss on the Group’s and the Bank’s profit before tax differs from the theoretical amount
that would arise using the applicable tax rate in Malta, which is the Bank’s country of incorporation, as follows:
240Annual Report and Financial Statements 2023
31. Earnings per share
The calculation of the basic earnings per share has been based on the profit attributable to ordinary shareholders and
The Group has no instruments or arrangements which give rise to dilutive potential ordinary shares and accordingly,
diluted earnings per share is equivalent to basic earnings per share.
32. Cash and cash equivalents
Balances of cash and cash equivalents as shown in the statements of cash flows are analysed below:
2023 2022
Profit attributable to ordinary shareholders (€000) 11,947 8,661
Weighted average number of ordinary shares (‘000) 117,450 117,450
Earnings per share (€cents) 10 7
2023 2022 2023 2022
€000 €000 €000 €000
Analysis of cash and cash equivalents:
Cash in hand 3 4 3 4
Call deposits 49,206 108,355 34,564 66,195
Target 2 overnight deposits 237,117 123,448 82,351 35,893
Amounts owed to financial institutions with original maturity of less than 3 months (312,434) (395,135) (34,250) (129,725)
Per Statement of cash flows (26,108) (163,328) 82,668 (27,633)
Adjustments to reflect:
Other balances with central banks 28,281 26,477 6,394 6,549
Deposits with original maturity of over 3 months and encumbered deposits 303,587 294,632 11,688 23,642
Amounts owed to financial institutions with original maturity of over 3 months (60,668) (150,000) (60,668) (150,000)
Per Statement of financial position 245,092 7,781 40,082 (147,442)
241Annual Report and Financial Statements 2023
2023 2022 2023 2022
Notes €000 €000 €000 €000
Analysed as follows:
Balances with central banks and cash 4 265,401 149,929 88,748 42,446
Loans and advances to financial institutions 6 352,793 402,987 46,252 89,837
Amounts owed to financial institutions 17 (373,102) (545,135) (94,918) (279,725)
245,092 7,781 40,082 (147,442)
33. Contingent liabilities
As at 31 December 2023,the Group and Bank had cash secured guarantee obligations amounting to €20.2 million
(2022: €9.4 million).
34. Commitments
Commitments to lend
Commitments to lend represent undrawn formal standby facilities,credit facilities and othersimilarcommitments to
lend. As at 31 December 2023, the Group and Bank had undrawn commitments of €35.3 million (2022: €125.1 million)
and €27.1 million (2022: €110.1 million) respectively under international lending revolving credit facilities. In addition, lend-
ing commitments in relation to the Group’s Dutch Mortgage portfolio amounted to €94.5 million (2022: €98.4 million),
Belgian Mortgage portfolio amounted to €28.7 million (2022: €63.8 million) and Maltese mortgage portfolio amounted
to €27.0 million (2022: €33.2 million).
As at 31 December 2023, undrawn facilities on corporate term loans of the Group and Bank in Malta amounted to €54.7
million (2022: €13.6 million).
Other contingent liabilities consist of possible future contributions payable to the DepositorCompensation Scheme
(‘DCS’) and the Single Resolution Fund (‘SRF’). The DCS provides compensation,up to certain limits, to eligible cus-
tomers of credit institutions that are unable, or likely to be unable, to pay claims against them. The DCS may impose a
further contribution on the Group to the extent the contributions imposed to date are not sufficient to cover the com-
pensation due to customers in any future possible collapse. The ultimate contribution to the industry as a result of a
collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential recovery of
assets by the DCS, changes in the level of protected products (including deposits and investments) and the population
of DCS members at the time. At 31 December 2023, assets pledged in favour of the DCS comprised debt securities
measured at amortised cost with a carrying amount of €2.3 million (2022: €2.3 million). TheDepositorCompensation
Scheme reserve amounts to €2.0 million (2022: €2.0 million).
In addition,in accordance with article 70(3) of Regulation (EU) No 806/2014 of the European Parliament and of the
Council of 15 July 2014 establishing uniform rules and a uniform procedure forthe resolution of credit institutions
and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and
amending Regulation (EU) No 1093/2010,the available financial means of the SRF may include irrevocable payment
242Annual Report and Financial Statements 2023
commitments cannot exceed 30% of the total amount of contributions.At 31 December 2023,irrevocable payment
commitments to the SRF by the Group and Bank amounted to €0.8 million (2022: €0.8 million) and €0.8 million (2022:
€0.7million) respectively, reflecting cash collateral tothe SRF. The cash collateral is classified within ‘Other assets’in
35. Related parties
Immediate and ultimate parent company
The ultimate controlling party of the Bank is AnaCap Financial Partners II L.P.
The ultimate parent company of the Bank is Medifin Investments Limited,a non-cellular company incorporated and
registered in Guernsey.
The intermediate parent company of the Bank is Medifin Finance Limited,a non-cellular company incorporated and
registered in Guernsey.
The immediate parent company of MeDirect Malta is MDB Group Limited,which is a company incorporated and reg-
istered in Malta.
Related parties of the Group and the Bank include the subsidiaries, the ultimate controlling party,the ultimate parent
company, the intermediate parent company, the immediate parent company, all entities controlled by the ultimate par-
ent company, Key Management Personnel,close family members of Key Management Personnel and entities which are
controlled or jointly controlled by Key Management Personnel or their close family members.
Transactions with Key Management Personnel
Key Management Personnel are defined as those persons having authority and responsibility forplanning, directing
and controlling the activities of the Group, being the Directors of MDB Group Limited,MeDirect Malta and MeDirect
Belgium.
Key Management Personnel compensation consisting of Directors’ remuneration is disclosed in Note 27. The Group
also provides non-cash benefits to Key Management Personnel, including gross rent payable on accommodation
based in Malta, presented within ‘Personnel expenses’, and health and lifeinsurance premiums paid by the Group
amounting to €0.1 million in the financial yearended 31 December 2023 (2022: €0.1 million), presented within ‘Other
administrative expenses’.
Related party balances and transactions
During the course of its activities, the Group conducted business on commercial terms with all related parties.
The following table provides the total amount of Group transactions which have been entered into, and Group balances
with, related parties of the Group for the relevant financial year:
243Annual Report and Financial Statements 2023
Year ended
31 December 2023
As at
31 December 2023
Related party
Income from
related parties
Expenses charged
by related parties
Amounts owed by
related parties
Amounts owed to
related parties
Transaction/
balance type
€000
€000 €000 €000
Ultimate parent
company
5 - - -
Service charge
fees
- - - 841 Other liabilities
Immediate parent
company
5 - - -
Service charge
fees
- 1,266 - - Interest expense
- - 41 - Other assets
- - - 12,860 Other liabilities
Other group
companies
5 - - -
Service charge
fees
- - - 78 Other liabilities
Key management
personnel
- 7 - - Interest expense
- - - 4,207
Amounts owed
to customers
- - - 25
Subordinated
liabilities
Year ended
31 December 2022
As at
31 December 2022
Related party
Income from
related parties
Expenses charged
by related parties
Amounts owed by
related parties
Amounts owed to
related parties
Transaction/
balance type
€000
€000 €000 €000
Ultimate parent
company
5 - - -
Service charge
fees
- - - 875 Other liabilities
Immediate parent
company
5 - - -
Service charge
fees
- 1,227 - - Interest expense
- - 652 - Other assets
- - - 11,748 Other liabilities
Other group
companies
5 - - -
Service charge
fees
- - - 127 Other liabilities
Key management
personnel
- 1 - - Interest expense
- - - 178
Amounts owed
to customers
- - - 25
Subordinated
liabilities
244Annual Report and Financial Statements 2023
Throughout the financial yearMeDirect Malta recharged employee compensation and benefits to MeDirect Belgium
amounting to €5.0 million (2022: €4.5 million) and received €0.9 million from MeDirect Belgium in relation to ITsup-
port and security services (2022: €1.0 million). In the financial year ended 31 December 2023, MeDirect Malta charged
interest of €208.5 thousand (2022: €4.0 thousand) on its loans and advances to MeDirect Tech Limited and paid in-
terest and commitment fees amounting to €140 thousand and €217 thousand respectively in the financial year ended
31 December2023 (2022: €744 thousand and €349 thousand respectively) on a revolving credit facility provided by
MeDirect Belgium. MeDirect Belgium paid commitment fees to MeDirect Malta throughout the financial year2023 of
€283 thousand (2022: €284 thousand) on a revolving credit facility provided by MeDirect Malta.
36. Segmental information
The Group engages primarily in the business of lending conducted from Malta and Belgium through Dutch, Belgian
and Maltese mortgage lending togetherwith the investment in high credit quality collateralised instruments such as
covered bonds, guaranteed senior bank debt,sovereign related debt and investment in AAA tranches of securitisation
special purpose entities.The Group also has a lending portfolio consisting of international corporate lending and Malta
corporate lending. Revenues secured through the above-mentioned assets are complemented by the revenues gener-
ated by the Group on its wealth management business.
The Group’s internal management reporting to the Board of Directors and SeniorManagement,is mainly analysed by
jurisdiction.For each jurisdiction, the Senior Management,reviews internal management reports in orderto make de-
cisions about allocating resources and assessing performance.Where applicable,such as in the case of international
corporate lending, these internal management reports are also supplemented by reports in respect of the Group’s rev-
enue streams on a consolidated basis.
Further information about the products and services and geographical areas is set out in Notes 2, 7, 8, 24 and 25 to the
financial statements which provide information about the financial risks,credit concentrations by sectorand location,
245Annual Report and Financial Statements 2023
Year ended
31 December 2023
Year ended
31 December 2022
Malta Belgium Total Malta Belgium Total
€000 €000 €000 €000 €000 €000
Turnover * 54,891 129,681 184,572 48,416 52,283 100,699
Interest expense (16,162) (75,272) (91,434) (8,892) (14,057) (22,949)
Fee expense and other losses (3,078) (1,515) (4,593) (1,518) (1,569) (3,087)
Change in expected losses and other credit
impairment charges
- International corporate lending (1,137) 898 (239) (830) (453) (1,283)
- Dutch mortgages - (100) (100) - (37) (37)
- Belgian mortgages - (204) (204) - (164) (164)
- Maltese business lending (345) - (345) 3,691 - 3,691
- Maltese mortgages (184) - (184) (92) - (92)
- Other 105 22 127 (23) (51) (74)
Total change in expected losses and other credit
impairment charges
(1,561) 616 (945) 2,746 (705) 2,041
Depreciation and amortisation (3,302) (2,270) (5,572) (3,975) (2,181) (6,156)
Other operating expenses (26,255) (41,418) (67,673) (22,210) (39,217) (61,427)
Profit/(loss) before tax 4,533 9,822 14,355 14,567 (5,446) 9,121
Taxation (394) (2,014) (2,408) (291) (169) (460)
Profit/(loss) after tax 4,139 7,808 11,947 14,276 (5,615) 8,661
Capital expenditure 6,133 366 6,499 5,126 988 6,114
As at 31 December 2023
As at 31 December 2022
Total assets (€million) 1,019 3,964 4,983 1,131 3,531 4,662
Total liabilities (€million) 955 3,773 4,728 1,072 3,347 4,419
Full time equivalent staff (No) 288 62 350 280 59 339
* Turnover is defined as interest income, fee and commission income and other operating income.The turnover allocated to Belgium
in the financial year ended 31 December 2023 includes interest charged to MeDirect Malta amounting to €0.4 million (2022: €1.1
million).
Total assets allocated to Malta include non-current assets held for sale amounting to €1.8 million (2022: €1.8 million).
The Group carried out its activities in the countries listed above under the name of MeDirect Malta in Malta and in the
name of MeDirect Belgium in Belgium. Activities in Malta and Belgium include banking and wealth management.
The preceding table also covers the disclosure required by Article 89 of CRD V whereby the Group must disclose infor-
mation about turnover, number of employees, profit before tax, tax and public subsidies received by country, taking into
account all jurisdictions in which it operates.The Group has not received any public subsidies that relate to the Group’s
activities as a credit institution.
246Annual Report and Financial Statements 2023
37. Investor compensation scheme
In accordance with the provisions of the Investor Compensation Scheme Regulations, issued underthe Maltese Invest-
ment Services Act (Cap. 370),licence holders are required to transfera variable contribution to an InvestorCompen-
sation Scheme Reserve and place the equivalent amount with a bank, pledged in favour of the Scheme. Alternatively,
licence holders can elect to pay the amount of variable contribution directly to the Scheme. Throughout the financial
years ended 31 December 2023 and 2022, MeDirect Malta was not required to pay any variable contribution to the
Scheme.
38.Assets held on a nominee basis
As part of its Wealth Management proposition,the Group acts as a nominee holder of financial instruments on behalf of
customers under its Investment Services licence. Assets held on a nominee basis are not assets of the Group and are
not recognised in the statements of financial position. Accordingly, the Group is not exposed to any credit risk relating
to such placements, as it does not guarantee these investments.
At 31 December 2023, the total assets held by the Groupand the Bank on behalf of customers amounted to €1,688.4
million (2022: €1,435.8 million) and €767.6 million (2022: €621.0 million) respectively.
39. Events after the reporting date
There were no events after the reporting date that would have a material effect on the financial statements.
40. Statutory information
MeDirect Bank (Malta) plc is a limited liability company and is incorporated in Malta.
The ultimate controlling party of MeDirect Malta is AnaCap Financial Partners II L.P., a limited partnership,registered
in Guernsey with its registered address at 2nd Floor, Windsor House, Lower Pollet, St Peter Port, Guernsey, GY1 1WF.
The ultimate parent company of MeDirect Malta is Medifin Investments Limited , a non-cellular company, which is in-
corporated and registered in Guernsey with its registered address at 2nd Floor, Windsor House, LowerPollet, St Peter
Port, Guernsey, GY1 1WF.
The immediate parent company of MeDirect Malta is MDB Group Limited , a limited liability company, which is incorpo-
rated and registered in Malta with its registered address at The Centre, Tigne Point, Sliema TPO 0001.
MDB Group Limited prepares consolidated financial statements of the group of which MeDirect Malta together with its
subsidiaries form part.These consolidated financial statements will be filed and available forpublic inspection at the
Malta Business Registry in Malta and on the Group’s website https://www.medirect.com.mt/about-us/investor-relations.
247Annual Report and Financial Statements 2023
Five-year comparison
248Annual Report and Financial Statements 2023
Five-year comparison: Statements of comprehensive income
Group
Year ended 31
December
Year ended 31
December
Year ended 31
December
Year ended
31 December
Period from
1 April to 31
December
2023 2022 2021 2020 2019
€000 €000 €000 €000 €000
Interest income 173,755 80,687 74,156 77,849 67,924
Interest expense (91,434) (22,949) (27,108) (28,797) (23,897)
Net interest income 82,321 57,738 47,048 49,052 44,027
Net fee and commission income 5,101 6,129 5,684 5,501 4,218
Net trading income 547 1,408 2,687 1,703 3,001
Net income/(loss) from financial instruments at fair
value through profit or loss
447 4,728 353 (288) 187
Other operating income/(expense) 129 4,660 331 (4,660) 3,496
Total operating income 88,545 74,663 56,103 51,308 54,929
Personnel expenses (24,291) (24,296) (22,512) (23,318) (22,824)
Depreciation and amortisation (5,572) (6,156) (6,876) (7,283) (3,817)
Other administrative expenses (43,382) (37,131) (38,390) (30,745) (21,103)
Change in expected credit losses and other credit
impairment charges
(945) 2,041 (2,326) (65,253) (136)
Profit/(loss) before tax 14,355 9,121 (14,001) (75,291) 7,049
Taxation (2,408) (460) (1,324) (2,894) (1,029)
Profit/(loss) for the year/period 11,947 8,661 (15,325) (78,185) 6,020
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss
Fair valuation of financial investments measured at
fair value through other comprehensive income
- Net change in fair value, before tax - (31,421) (3,823) 6,186 (28)
- Net amount reclassified to profit or loss, before tax - 32,823 - (368) (5,098)
Income tax relating to above items - (393) 1,109 (1,826) 1,379
- 1,009 (2,714) 3,992 (3,747)
Items that will not be reclassified subsequently to
profit or loss
Fair valuation of financial investments measured at
fair value through other comprehensive income
- Net change in fair value - - 1,991 (668) -
Other comprehensive income, net of tax - 1,009 (723) 3,324 (3,747)
Total comprehensive income, net of tax 11,947 9,670 (16,048) (74,861) 2,273
249Annual Report and Financial Statements 2023
Group
2023 2022 2021 2020 2019
€000 €000 €000 €000 €000
Assets
Balances with central banks and cash 265,401 149,929 328,626 490,680 241,726
Derivative financial instruments 207,950 363,382 42,688 1,841 2,020
Loans and advances to financial institutions 352,793 402,987 193,724 263,129 223,287
Loans and advances to customers 2,746,271 2,389,293 2,324,303 2,020,760 1,359,377
Investments 1,311,250 1,268,039 1,277,268 1,150,925 1,184,117
Property and equipment 6,091 7,574 9,186 11,711 12,443
Intangible assets 15,955 13,306 13,031 15,380 16,455
Non-current assets classified as held for sale 1,785 1,785 1,785 1,785 1,785
Current tax assets 205 635 1,297 1,576 3,089
Deferred tax assets 17,525 17,524 18,377 18,550 22,279
Prepayments and accrued income 27,763 18,473 14,314 16,524 15,979
Other assets 29,994 28,978 13,527 47,365 48,511
Total assets 4,982,983 4,661,905 4,238,126 4,040,226 3,131,068
Equity
Called up issued share capital 117,450 117,450 117,450 117,450 117,450
Share premium 13,464 13,464 13,464 13,464 13,464
Shareholders’ contribution 133,196 133,196 133,196 133,196 133,196
Reserve for general banking risks - 3,798 3,798 3,357 3,357
Other reserves 716 224 (785) 1,261 (2,731)
(Accumulated loss)/Retained earnings (10,285) (25,538) (34,199) (16,461) 61,724
Total equity 254,541 242,594 232,924 252,267 326,460
Liabilities
Derivative financial instruments 25,464 5,306 1,131 14,344 4,182
Amounts owed to financial institutions 373,102 545,135 273,349 352,067 224,012
Amounts owed to customers 3,281,213 2,787,600 2,960,865 2,749,929 2,439,126
Debt securities in issue 910,848 969,569 658,293 553,849 0
Subordinated liabilities 54,982 54,831 54,994 54,650 54,820
Current tax liabilities 980 48 2 89 276
Deferred tax liabilities 342 358 803 881 199
Provisions for liabilities and charges 298 1,263 1,223 3,916 4,528
Accruals and deferred income 47,364 24,303 23,723 32,931 40,906
Other liabilities 33,849 30,898 30,819 25,303 36,559
Total liabilities 4,728,442 4,419,311 4,005,202 3,787,959 2,804,608
Total equity and liabilities 4,982,983 4,661,905 4,238,126 4,040,226 3,131,068
Five-year comparison: Statements of financial position
250Annual Report and Financial Statements 2023
Five-year comparison: Statements of cash flows
Group
Year ended 31
December
Year ended 31
December
Year ended 31
December
Year ended
31 December
Period from 1 April
to 31 December
2023 2022 2021 2020 2019
€000 €000 €000 €000 €000
Cash flows from operating activities
Interest and commissions receipts 167,396 93,798 78,072 84,393 78,617
Interest and commission payments (63,296) (21,797) (32,070) (28,101) (22,724)
Payments to employees and suppliers (68,660) (65,642) (65,748) (58,545) (33,458)
Operating cash flows before changes in operating assets/liabilities 35,440 6,359 (19,746) (2,253) 22,435
(Increase)/decrease in operating assets:
- Reserve deposit with central banks (1,804) (561) (2,390) 218,028 (117,930)
- Loans and advances to financial institutions and customers (192,894) (621,510) (307,382) (749,644) 472,553
Increase/(decrease) in operating liabilities:
- Amounts owed to financial institutions and customers 401,388 (16,079) 197,927 326,448 33,616
- Other payables 2,654 1,423 4,278 (14,247) (14,629)
Tax (paid)/refunded (1,061) 258 (228) 990 6,942
Net cash from/(used in) operating activities 243,723 (630,110) (127,541) (220,678) 402,987
Cash flows from investing activities
Acquisition of property and equipment (242) (1,455) (803) (490) (325)
Acquisition/development of intangible assets (6,257) (4,304) (3,650) (1,685) (3,419)
Acquisition of investments measured at amortised cost (231,750) (271,819) (65,000) (49,991) (264,593)
Acquisition of investments measured at fair value through other
comprehensive income
- - (448,569) (365,554) (654,640)
Acquisition of investments measured at fair value through profit
or loss
- - - - (1,750)
Redemption of investments measured at amortised cost 183,606 35,000 255,295 236,606 -
Redemption of investments measured at fair value through other
comprehensive income
- 240,653 122,297 206,237 417,842
Redemption of investments measured at fair value through profit
or loss
5,292
- - - -
Net cash (used in)/from investing activities (49,351) (1,925) (140,430) 25,123 (506,885)
Cash flows from financing activities
Shareholders’ contributions - - - - (10,000)
Issuance of debt securities - 366,437 498,955 558,295 -
Redemption of debt securities (58,688) (55,161) (393,082) (5,003) -
Issuance of subordinated loans - - - - 35,044
Redemption of subordinated loans - - - - (47,229)
Principal element of lease liabilities (1,177) (1,148) (1,166) (3,543) (1,892)
Net advances (to)/from ultimate parent company (34) (37) 318 3,116 -
Net advances from immediate parent company 2,796 66 11,667 963 33
Net advances (to)/from group companies (49) (107) 8,400 (2,547) 4,669
Net cash (used in)/from financing activities (57,152) 310,050 125,092 551,281 (19,375)
Net increase/(decrease) in cash and cash equivalents 137,220 (321,985) (142,879) 355,726 (123,273)
Cash and cash equivalents at beginning of year/period (163,328) 158,657 301,536 (54,190) 69,083
Cash and cash equivalents at end of year/period (26,108) (163,328) 158,657 301,536 (54,190)
251Annual Report and Financial Statements 2023
The equity and total assets figure for the accounting ratios listed above are based on the simple average value for the
financial year.
Group
2023
2022 2021 2020 2019
No. No. No. No. No.
Shares in issue 117,450,107 117,450,107 117,450,107 117,450,107 117,450,107
Group
2023
2022 2021 2020 2019
€ € € € €
Net assets per share 2.13 1.97 2.12 2.50 2.78
Group
2023
2022 2021 2020 2019
Earnings/(losses) per share (cents)
based on profit/(loss) after tax
10c 7c (13c) (67c) 5c
Group
Year ended 31
December
Year ended 31
December
Year ended 31
December
Year ended
31 December
Period from 1 April to
31 December
2023 2022 2021 2020 2019
€000 €000 €000 €000 €000
Net interest income and other operating
income to total assets
1.8% 1.7% 1.3% 1.4% 1.8%
Operating expenses to total assets 1.5% 1.5% 1.6% 1.7% 1.6%
Cost to income ratio 82.7% 90.5% 120.8% 119.6% 86.9%
Profit/(loss) before tax to total assets 0.3% 0.2% (0.3%) (2.0%) 0.2%
Profit/(loss) after tax to total assets 0.2% 0.2% (0.4%) (2.1%) 0.2%
Profit/(loss) before tax to equity 5.7% 3.9% (5.6%) (25.6%) 2.1%
Profit/(loss) after tax to equity 4.8% 3.7% (6.2%) (26.6%) 1.8%
Five-year comparison: Accounting ratios
252Annual Report and Financial Statements 2023
Company Information
253Annual Report and Financial Statements 2023
Analysis of the share capital of the parent company of MeDirect Bank (Malta) plc, MDB Group Limited, as at
31 December 2023:
There were no changes in the holding reflected above up to 27 March 2024.
MeDirect Bank (Malta) plc C34125
Type and class of shares Issued shares % paid up Nominal value per share in EUR
MDB Group Limited Ordinary A 117,450,106 100 1.000000
MDB Group Limited C34111
Type and class of shares Issued shares % paid up
Nominal value per
share in EUR
Medifin Finance Limited Ordinary A 56,406,546 100 1.000000
Number of shares Number of holders
Class A " 117,450,106 1
Class B " 1 1
Number of shares Number of holders
Class A " 56,406,546 1
Class B " 1 1
Shareholder Register Information
Analysis of the share capital of MeDirect Bank (Malta) plc as at 31 December 2023:
254Annual Report and Financial Statements 2023
Company Information
Group company secretary
Schmeltzer, Henry
Senior management and key officers
The senior management and key officers as at the end of the financial year and as at the dateof approval of this annual
report were:
Registered address
MeDirect Bank (Malta) plc
The Centre, Tigne Point
Sliema TPO 0001
Malta
Telephone
+356 2557 4000
Denis, Arnaud
Fergus, Lisa
Ksiezopolski, Radoslaw
Bonello Ghio, Lorraine
Breemeersch, Chris
Camilleri, Emma
Crossley, Wayne
Grech, Caroline
Malukiewicz, Pawel
Mantz, Job
Portelli, Chris
Reznev, Herman
Schmeltzer, Henry C.
Moreau, Alain
Fenech, Marija
Maher, Jean Claude
Director and Group Chief Executive Officer
Director and Group Chief Risk Officer
Director and Group Chief Financial Officer
Chief Administration Officer
Group Chief Internal Audit Officer
Chief People Officer
Head – Operations and Retail Network
Chief Compliance Officer
Group Head – Channels and Customer Experience
Head – Dutch Retail Market
Chief Technology Officer
Head – Corporate Credit
Head - Commercial Strategy and Legal
Chief Executive Officer – MeDirect Belgium
Chief Risk Officer - MeDirect Belgium
Chief Operating Officer – MeDirect Belgium
255Annual Report and Financial Statements 2023
Independent Auditor’s Report
INDEPENDENT AUDITOR’S REPORT
to the Shareholder of MeDirect Bank (Malta) plc
Report on the audit of the financial statements
256
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Street
Msida MSD 1751
Malta
Opinion
We have audited the separate and consolidated financial statements of MeDirect Bank (Malta) plc [(the “Bank”) and its
subsidiaries (the “Group”)] set on pages 41 to 246, which comprise the separate and consolidated statement of financial
position as at 31 December 2023,the separate and consolidated statement of comprehensive income, separate and con-
solidated statement of changes in equity and the separate and consolidated statement of cash flows for the yearthen
ended, and notes to the separate and consolidated financial statements, including a summary of material accounting
policies information.
In our opinion, the accompanying separate and consolidated financial statements give a true and fair view of the separate
and consolidated financial position of the Bank and the Group as at 31 December 2023,and of their separate and con-
solidated financial performance and their separate and consolidated cash flows forthe forthe yearthen in accordance
with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and in accordance with the
requirements of the Banking Act (Cap. 371) (the “Banking Act”) and the Companies Act (Cap.386) (the “Companies Act)
of the Laws of Malta.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the Companies Act.
Our responsibilities under those standards and under the Companies Act are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the Bank and the
Group in accordance with the International Code of Ethics for Professional Accountants (including International Inde-
pendence Standards) as issued by the International Ethics Standards Board of Accountants (the “IESBA Code”) together
with the ethical requirements that are relevant toouraudit of the separate and consolidated financial statements in ac-
cordance with the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Account-
ancy Profession Act, Cap. 281 of the Laws of Malta, and we have fulfilled our other ethical responsibilities in accordance
with these requirements and the IESBACode.We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Tel: +356 2134 2134
Fax: +356 2133 0280
ey.malta@mt.ey.com
ey.com
INDEPENDENT AUDITOR’S REPORT
to the Shareholder of MeDirect Bank (Malta) plc
Report on the audit of the financial statements
257
Key audit matters incorporating the most significant risks of material misstatements,including assessed
risk of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the finan-
cial statements of the current period. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon,and we do not provide a separate opinion on these matters. For each
matter below, our description of how our audit addressed the matter is provided in that context.
We havefulfilled the responsibilities described in the Auditor’s responsibilities forthe audit of the financial statements
section of our report, including in relation to these matters.Accordingly, our audit included the performance of procedures
designed to respond to our assessment of the risks of material misstatement of the financial statements. Theresults of
our audit procedures, including the procedures performed to address the matters below,provide the basis forour audit
opinion on the accompanying financial statements.
Measurement of expected credit losses of the international corporate lending and the Maltese business
lending portfolios within the loans and advances to customers of the Bank and the Group
The Bank’s and Group’s international corporate lending and Maltese business lending portfolios, which comprise of syn-
dicated loans and advances to international corporates and other facilities to Malta corporates amount to 42% and 35%
of the gross loans and advances to customers of the Bank and 12% and 5% of the Group,respectively. The expected
credit losses (ECL) on such portfolios, as described and disclosed in notes 1.5, 2.2,3.2,7and 29 represents 6.0% and
0.4% of the Bank’s portfolio and 3.6% and 0.4% of the Group’s portfolio. The total expected credit losses on loans and
advances to customers on these two portfolios comprise 97% of the total ECL of the Bankand 93% of the Group as at
31 December 2023.
Measurement of ECL for stage 1 and 2 exposures
The stage model of the Bank and the Group is detailed in Note 1.5. For exposures classified as Stage 1 and Stage 2, the
Bank and the Group measures credit loss allowances on the basis of the following key inputs: Probability of Defaults
(PDs) and Loss Given Defaults (LGDs).
The PD and LGD models used forthe measurement of credit loss allowances are developed by an external vendor,
enabling the estimation of these key risk parameters at a facility level using statistical models, mainly by benchmarking
exposure-specific characteristics against an underlying dataset.
The Bank and the Group applies macroeconomic scenarios sourced from an external vendorto the PD and LGD term
structures for the estimation of credit loss allowances in respect of Stage 1 and Stage 2 exposures. The macroeconomic
scenarios represent theBank’s and Group’s view of the range of potential outcomes, and application of these scenarios
captures the non-linearity of expected credit losses under different scenarios for all portfolios.
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Management re-calibrates its probability weights with the severity of the scenario using a weighting allocation approach
whereby the latterrepresents the share of outcomes that are best approximated by a scenario (not the likelihood of a
specific scenario occurring).
Measurement of ECL for stage 3 exposures
In respect of defaulted / Stage 3 exposures,the Bank and the Group utilises an internally developed discounted cash
flow (“DCF”) methodology in order to estimate the net present value of forecasted operating cash flows under multiple for-
ward-looking scenarios discounted using the borrower-specific weighted average cost of capital (“WACC”). In this regard,
forward-looking expectations based on the impact of changing macroeconomic conditions on the borrower are reflected
in multiple scenarios of operating cash flows developed by management, which are discounted and probability-weighted
in accordance with the requirements of IFRS 9.
Reasons for designation as a KAM
ECL calculations are based on complex statistical analyses and modelling assumptions and calibrated by reference to
historical information in respect of default levels and loss severities. In view of the inherent level of estimation uncertainty
in modelling such aspects of the ECL calculation,a significant element of expert judgement is required to ensure that
model parameters produce an ECL output which is reasonable and appropriate in light of existing conditions.
Judgement is firstly required in determining whetherthere is objective evidence that an exposure is credit-impaired.In
performing this assessment, management applies a significant level of judgement in evaluating all relevant information
on indicators of unlikeliness-to-pay, including the consideration of factors that immediately indicate deterioration in the
financial condition of borrowers,but also in respect of factors that impact the outlook of borrowers affecting theirability
to pay. Ahigh level of judgement is required for loans to borrowers showing continued signs of financial difficulty similar
to those experienced during the preceding financial year, and forborrowers that are performing bettercompared to the
prior year to understand whether the improvements are sustainable going forward.
The Bank and the Group utilises a DCF approach for its defaulted exposures. In estimating the cash flows, management
makes judgements about a borrower’s financial situation and future repayment prospects, taking into consideration bor-
rower’s plans forgrowth within the current environment.In this regard,judgement is applied in estimating the expected
future cash flows from each borrower under the different scenarios, assigning probabilities to each scenarios, and deter-
mining appropriate discount rates reflecting borrower specific characteristics. The determination of operating cash flows
under multiple scenarios requires a significant level of judgement in order to adequately capture the current economic
conditions.
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Audit procedures
Our audit procedures over the measurement and adequacy of expected credit losses included amongst others:
• Obtained understanding of the design and effectiveness of the controls relating to the credit issuance, the credit
risk management (including periodic credit review, monitoring of the borrower’s credit quality using indicators and
the determination of the staging) and the flow of information between systems.
ECL measurement for Stage 1 and Stage 2 exposures
• Involved our Quantitative Analysis specialist to assess the appropriateness of the ECL measurement model in
line with IFRS 9 requirements;
• Assessed the reasonableness of key assumptions with the involvement of our Quantitative specialist including:
» the Staging of the loans, historical migrations and staging sensitivity;
» the PD’s generated by the Moody’s tool and the volatility adjusted PD’s;
» the relevant data points for the determination of the LGD;
• Analysed other key assumptions and inputs including:
» Expected maturities of individual borrower and performed back testing by assessing the historical accuracy
of management’s prediction of expected maturity to actual maturity;
» Analytically reviewed and benchmarked the historical and projected PD’s estimated by the model as at year
end with PDs forexposures with similar credit quality issued by an independent credit rating agency and
other sources;
» Performed sensitivity analysis and benchmarked the LGDs estimated by the model with proposed LGDs
forsimilar credit exposures by an independent credit rating agency, the European Banking Authority and
other sources;
» For a risk-based sample of borrowers with credit upgrades during the financial year, independently assessed
whether a decrease in credit risk has been experienced;
» For a sample of Stage 1 and Stage 2 borrowers, independently assessed the staging appropriateness;
• Tested the accuracy of the model data inputs used against source data including borrowers’ information such as
key financial data points, sector, geographic location, days past due, amongst others.
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ECL measurement for Stage 3 exposures
• For stage 3 loans we obtained understanding of the borrower’s latest developments and inspected information
available to assess the prospects of recoverability
• Assessed the appropriateness of the DCF methodology and reasonability of key inputs with the involvement of
our Valuation specialist including:
» the expected future cashflows against industry peers;
» the discount rate used in determining the present value;
» benchmarked the DCF results to industry multiples;
» DCF shadow recalculation incorporating additional sensitivity analysis.
We have also assessed the relevance of disclosures relating to the Bank’s and the Group’s expected credit losses on
loans and advances within the International Corporate Lending portfolio presented in notes 1.5,2.2, 3.2, 7 and 29 to the
financial statements.
Valuation of derivatives and hedge accounting of the Group
The net value of the derivatives of the Group amounted to 72% of the net assets as at yearend, as disclosed in Notes
1.14, 2.2.9, 3.3 and 5.
Derivative financial instruments mainly comprise of currency forwards, currency swaps and interest rate swaps.They are
classified as held fortrading derivatives unless designated as hedging instruments and are initially recognised at fair val-
ue and subsequently remeasured at fair value. Fair values forcurrency forwards and swaps are determined using forward
exchange market rates at the end of the reporting period.
The Group applies fairvalue hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU
carve-out version of IAS 39 in respect of its retail operations afterconsidering the duration gap between the Dutch and
Belgian mortgages and core deposits. The hedging activities are designated as a portfolio fair value hedge in respect of
the mortgage book, being the hedged items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss,
together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain
or loss relating to the effective portion of interest rate swaps hedging fixed interest loans and securities is recognised in
profit or loss within interest income, together with changes in the fair value of the hedged fixed interest loans and securi-
ties attributable to interest rate risk.
The gain or loss relating to the ineffective portion is also recognised in profit or loss within interest income and disclosed
separately.
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Reasons for the designation as a key audit matter
The valuation of the fair value of derivatives is based on a number of estimates and assumptions,inbuilt within the
valuation techniques,which are not readily observable on the market.Moreover,the establishment of the correct account-
ing treatment of the hedging relationship and the effectiveness test is based on a number of assumptions that include
amongst others the expected future early redemptions and renegotiations of the mortgages.
Audit procedures
Our audit procedures over the valuation of derivatives and hedge accounting included amongst others:
• Compared the fair values of the derivatives recognized by the Group to the valuation issued by the Group’s ex-
ternal counterparties;
• For a sample basis, recalculated the fair value of derivatives using the term of the instrument and key inputs from
independent sources including benchmark interest rate curves;
• Assessed the Group’s hedging documentation to determine whether it meets the criteria as described in the
“carved-out” version of IAS 39 as adopted by the European Union;
• Assessed the reasonableness of the model used by the Group to forecast future early repayments and renego-
tiations of mortgage loans and back tested to recent financial years;
• Compared the volume of hedging derivatives with the projected volume of hedged mortgage loans over future
time buckets to identify any over-hedging situations;
• Analysed the effectiveness tests performed by the Group to determine whether the hedging relationships are
effective and whether the ineffectiveness was calculated correctly;
• Assess the appropriateness of the hedge accounting in line with the results of the Group’s model and testing.
We have also assessed the relevance of disclosures relating to the Group’s valuation of derivatives and hedge accounting
presented in notes 1.14, 2.2.9, 3.3 and 5 to the financial statements.
Other information
The Directors are responsible forthe other information. The otherinformation comprises the information included in the
Annual Report, other than the financial statements and our auditor’s report thereon.
Our opinion on the separate and consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon other than our reporting on other legal and regulatory requirements.
In connection with our audit of the separate and consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the separate and con-
solidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
based on the workwe have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
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Responsibilities of the Directors and those charged with governance for the financial statements
The Directors are responsible for thepreparation and fair presentation of the separate and consolidated financial state-
ments in accordance with IFRS, and in accordance with the requirements of the Banking Act and the Companies Act
of the Laws of Malta, and forsuch internal control as the Directors determineis necessary to enable the preparation of
separate and consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate and consolidated financial statements,the Directors areresponsible forassessing the Bank’s
and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and us-
ing the going concern basis of accounting unless the Directors either intend to liquidate the Bank and/or Group to cease
operations, or have no realistic alternative but to do so. Those charged with governance are responsible foroverseeing
the Bank’s and the Group’s financial reporting process.
Those charged with governance are responsible for overseeing the Bank’s and the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the separate and consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error,and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance,but is not a guarantee that an audit conducted in accord-
ance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or errorand are considered material if,individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these separate and consoli-
dated financial statements.
As part of an audit in accordance with ISAs,we exercise professional judgement and maintain professional skepticism
throughout the audit. We also:
• identify and assess the risks of material misstatement in the consolidated and separate financial statements,
whetherdue to fraud or error,design and perform audit procedures responsive to those risks,and obtain audit
evidence that is sufficient and appropriate to provide a basis for ouropinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, for-
gery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the
Bank’s and the Group’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the Directors;
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• conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on
the audit evidence obtained, whethera material uncertainty exists related to events orconditions that may cast
significant doubt on the Bank’s and the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in
the separate and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Bank and/or Group to cease to continue as a going concern;
• evaluate the overall presentation, structure and content of the separate and consolidated financial statements,
including the disclosures,and whether the separate and consolidated financial statements represent theunder-
lying transactions and events in a manner that achieves fair presentation.
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business ac-
tivities within the Group to express an opinion on the separate and consolidated financial statements.We are
responsible for the direction, supervision and performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with the those charged with governance regarding,among othermatters,the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
We also provide the those charged with governance with a statement that we have complied with relevant ethical require-
ments regarding independence, and to communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the those charged with governance, we determine those matters that were of most
significance in the audit of the separate and consolidate financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law orregulation precludes public disclosure
about the matter or when,in extremely rare circumstances,we determine that a mattershould not be communicated in
our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
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Matters on which we are required to report by the Companies Act
Directors’ report
We are required to express an opinion as to whether the Directors’ report has been prepared in accordance with the ap-
plicable legal requirements.In our opinion the Directors’ report has been prepared in accordance with the Companies Act.
In addition, in the light of the knowledge and understanding of the Bank and the Group and its environment obtained in
the course of the audit, we are required to report if we have identified material misstatements in the Directors’ report. We
have nothing to report in this regard.
Other requirements
We also have responsibilities under the Companies Act to report if in our opinion:
• proper accounting records have not been kept;
• proper returns adequate for our audit have not been received from branches not visited by us;
• the separate and consolidated financial statements are not in agreement with the accounting records and returns;
• we have not received all the information and explanations we require for our audit.
We have nothing to report to you in respect of these responsibilities.
Appointment
We were appointed as the statutory auditorby the General Meeting of the Shareholders of the Bankand the Group on
27 April 2022. The total uninterrupted engagement period as statutory auditor, including previous renewals and reap-
pointments, amounts to 2 years.
Consistency with the additional report to the audit committee
Our audit opinion on the separate and consolidated financial statements expressed herein is consistent with the addition-
al report to the audit committee of the Bank and the Group, which was issued on 21 March 2024.
Non-audit services
No prohibited non-audit services referred to in Article 18A(1) of the Accountancy Profession Act, Cap. 281 of the Laws
of Malta were provided by us to the Bank and the Group, and we remain independent of the Bank and the Group as
described in the Basis for opinion section of ourreport.No other services besides statutory audit services and services
disclosed in the annual report and in the separate and consolidated financial statements were provided by us to the Bank
and the Group and its controlled undertakings.
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Report on compliance with the requirements of the European Single Electronic Format Regulatory
Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by
the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European
Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the annual financial report of the Bank and the
Group for the year ended 31 December 2023, entirely prepared in a single electronic reporting format.
Responsibilities of the Directors
The directors are responsible forthe preparation of the annual financial report,including the separate and consolidated
financial statements and the relevant mark-up requirements therein,by reference toCapital Markets Rule 5.56A,in ac-
cordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whetherthe annual financial report, including the separate
and consolidated financial statements and the relevant electronic tagging therein comply in all material respects with the
ESEF RTS based on the evidence we have obtained.We conducted our reasonable assurance engagement in accord-
ance with the requirements of ESEF Directive 6.
Our procedures included:
• Obtaining an understanding of the entity’s financial reporting process, including the preparation of the annual
financial report, in accordance with the requirements of the ESEF RTS.
• Obtaining the annual financial report and performing validations to determine whether the annual financial report
has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.
• Examining the information in the annual financial report to determine whether all the required taggings therein
have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF
RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the annual financial report forthe year ended 31 December 2023 has been prepared,in all material re-
spects, in accordance with the requirements of the ESEF RTS.
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Matters on which we are required to report by the Capital Markets Rules
Corporate governance statement
The Capital Markets Rules issued by the Malta Financial Services Authority (MFSA) require the directors to prepare and
include in their annual report a statement of compliance providing an explanation of the extent to which they have adopt-
ed the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure
compliance throughout the accounting period with those Principles.
The Capital Markets Rules also require the auditortoinclude a report on the statement of compliance prepared by the
directors. We are also required to express an opinion as to whether, in the light of the knowledge and understanding of the
Bank and the Groupand its environment obtained in the course of the audit,we haveidentified material misstatements
with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5.
We read the statement of compliance and consider the implication for ourreport if we become awareof any apparent
misstatements or material inconsistencies with the financial statements included in the annual report. Our responsibilities
do not extend to considering whetherthis statement is consistent with the other information included in the annual report.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the state-
ment of compliance coverall risks and controls,or form an opinion on the effectiveness of the Bank’s and the Group’s
governance procedures or its risk and control procedures.
In our opinion:
• the corporate governance statement set out on pages 22 to 32 has been properly prepared in accordance with
the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority
• in the light of the knowledge and understanding of the Bank and the Group and its environment obtained in the
course of the audit the information referred toin Capital Markets Rules 5.97.4 and 5.97.5 are free from material
misstatement.
Other requirements
Under the Capital Markets Rules we also have the responsibility to review the statement made by the Directors,set out
on page 10, that the business is a going concern, together with supporting assumptions or qualifications as necessary.
We have nothing to report to you in respect of these responsibilities.
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Matters on which we are required to report by the Banking Act
We also have responsibilities under the Banking Act to report on the following matters:
• whether we have obtained all the information and explanations which, to the best of our knowledge and belief,
were necessary for the purpose of our audit;
• whether in our opinion, proper books of account have been kept by the Bank, so far as appears from our exami-
nation of those books;
• whether the Bank’s financial statements are in agreement with the books of account;
• whether in our opinion, and to the best of our knowledge and belief and, on the basis of the explanations given to
us, the financial statements give the information required by law in force in the manner so required.
We have nothing to report in respect of these responsibilities.
The partner in charge of the audit resulting in this independent auditor’s report is
Shawn Falzon for and on behalf of
Ernst & Young Malta Limited
Certified Public Accountants
27 March 2024
