Bank of Valletta p.l.c.
Annual Report
2021
Contents and General Information
BOARD OF DIRECTORS
Gordon Cordina (Chairman)
Stephen Agius
Kevin J Borg
Miguel Borg
Diane Bugeja
Elizabeth Camilleri
James Grech
Rick Hunkin
Alfred Lupi
Anita Mangion
Alfred Mifsud
Antonio Piras
Godfrey Swain
COMPANY SECRETARY
Ruth Spiteri Longhurst
EXECUTIVE COMMITTEE
as at 31 December 2021
Rick Hunkin (Chief Executive Officer)
Ernest John Agius (Chief Operations Officer)
Joseph Agius (Chief Technology Officer)
Simon Azzopardi (Chief Wealth Management Officer)
Izabela Banas (Chief Financial Officer)
Miguel Borg (Chief Risk Officer)
Vanessa Borg (Chief People and Change Officer)
Kenneth Farrugia (Chief Retail Banking Officer)
Albert Frendo (Chief Business Banking Officer)
Anatoli Grech (Group Chief Compliance Officer)
Peter Halsor (Chief Marketing & Customer Intelligence Officer)
Theodoros Papadopoulos (Chief Digital Officer)
Rudolph Gatt (Secretary)
AUDITORS
KPMG
LEGAL ADVISORS
Camilleri Preziosi
NOTICE OF MEETING
The Annual General Meeting of the Bank will be held on
Thursday 2 June 2022. In view of the current COVID-19
scenario and in order for the Bank to safeguard the health
and safety of its shareholders, employees and other
stakeholders, the AGM is being convened remotely.
CONTENTS
Board of Directors and Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee & Group Chief Internal
Auditor
Corporate Social Responsibility
FINANCIAL STATEMENTS
Directors’ report
Corporate governance statement of compliance
Remuneration report
Nominations report
Independent Assurance Report
Statements of profit or loss
Statements of profit or loss
and other comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cashflows
Notes to the financial statements
Independent auditors’ report to the shareholders
of Bank of Valletta p.l.c.
The Group’s five year summary
Group financial highlights in US dollars
ii
vi
xii
xviii
xxii
1
16
30
38
40
44
45
46
47
49
50
149
165
168
ADDRESS
BOV Centre,
Triq il-Kanun,
Zone 4, Central Business District,
Santa Venera
CBD 4060
Malta
Tel: (356) 2275 3000
Fax: (356) 2275 3711
www.bov.com
E-mail: customercare@bov.com
Bank of Valletta p.l.c.
Registered Office:
58, Triq San Żakkarija,
Il-Belt Valletta VLT 1130
Malta
Registration Number: C 2833
Bank of Valletta p.l.c. is a public limited company licensed to
carry out the business of banking and conduct investment
services by the Malta Financial Services Authority.
Bank of Valletta p.l.c. is an enrolled tied insurance intermediary
of MAPFRE MSV Life p.l.c. (MMSV). MMSV is authorised and
regulated by the Malta Financial Services Authority to carry on
long term business under the Insurance Business Act 1998.
Since last publication there were no changes to the name of the reporting entity.
Bank of Valletta p.l.c.
Annual Report 2021ii
Board of Directors
and Group Company
Secretary
Dr. Gordon Cordina is a leading economist in the Maltese Islands,
with a professional experience spanning 25 years covering
banking, policy-making, academia and private sector consultancy.
He is a graduate of the University of Cambridge and the University
of Malta. His main area of academic interest is the growth and
macroeconomic dynamics facing economies that are prone to
heightened risks.
Gordon has several years of Board and Risk Committee experience
in major financial institutions in Malta, amongst which at Bank of
Valletta. He served as Manager of the Research Department of the
Central Bank of Malta, Director General of the National Statistics
Office of Malta, Head of the Economics Department of the University
of Malta and Economic Advisor to the Malta Council for Economic
and Social Development. Through the private consultancy firm
he co-founded in 2006, he is involved in a number of local and
international research projects and consultancy assignments with
institutions including the EU Commission, NGOs and private sector
entities. Gordon is a visiting senior lecturer at the University of Malta.
Appointed to the Board in October 2020.
Gordon Cordina
Chairman
CAFC NG NED *
Stephen Agius is currently a member of the Nominations and
Governance Committee and of the Remuneration Committee.
Stephen works as Chief Operating Officer at Mater Dei Hospital
and for the last twelve months he was the Head of the COVID-19
national vaccination programme. For five years, Stephen served
as member of the board of directors of Enemalta p.l.c. Prior to
his current role, Stephen occupied various positions where he was
responsible for a number of large-scale projects both locally and
abroad in areas related to enterprise resource planning, business
intelligence, business transformation and process modelling.
Stephen is also a visiting senior lecturer at the University of Malta
where he lectures Big Data Analytics. He studied computer
science and information systems and gained an Honours Bachelor
degree from the University of Greenwich (UK) followed by an
MBA in e-Business from the University of Malta. He is currently
pursuing a PhD in the use of data in strategic decision-making with
the University of Malta in conjunction with Liverpool John Moores
University.
Appointed to the Board in December 2016.
Stephen Agius
Director
RC NED *
Miguel Borg is the Chief Risk Officer and an Executive Director
of Bank of Valletta p.l.c. He serves as the Deputy Chairman of
the Executive Committee and chairs the Credit Committee, the
Internal Control & Risk Management Committee and the Credit
Sanctioning Committee of BOV. Miguel is a Director of BOV Asset
Management Ltd and chairs the Risk Committee of the company.
He also chairs the Risk Committee of MAPFRE MSV Life p.lc. Prior
to joining the Bank, he worked at the Central Bank of Malta. Miguel
holds a Masters in Economics and is a member of a number of
international risk management associations. He serves as a
member of the Ethics Committee of PRMIA (USA). He lectures at
the University of Malta.
Appointed to the Board in August 2017.
Miguel Borg
Director
ED
A graduate in Economics, Kevin J Borg is an accomplished
professional with almost 25 years experience in leadership of
the business community with the Malta Chamber of Commerce,
Enterprise and Industry, having occupied the position of Director
General for almost 15 years and various other roles within the
Chamber prior to that. Over the years, though these positions, Kevin
built himself a distinct reputation for integrity and professionalism
with all stakeholders he has connected with including entrepreneurs,
political leaders and social partners.
Kevin is currently the Chief Executive Officer of the Malta Maritime
Forum and Consultant to the Malta Employers’ Association.
Through his previous position, Kevin sat on a number of national
boards including the MCESD, MEUSAC, Education Malta, Malta
Business Bureau, and the Retail Price Index Board besides
BusinessEurope and Eurochambres at the European level.
Amongst other projects during his time at the Chamber, Kevin was
actively involved in the EU accession preparations for Malta as well
as in the merger process with the Federation of Industry which took
place in 2009.
Appointed to the Board in May 2021, Kevin also serves on the
Compliance and Anti-Financial Crime Committee since July.
Kevin J Borg
Director
CAFC NED*
Bank of Valletta p.l.c.
Annual Report 2021iii
Dr. Diane Bugeja currently chairs the Compliance and Anti Financial
Crime Committee and is a member of the Risk Committee and
Nominations Committee. Diane is a lawyer by profession practising
primarily in financial services law, financial regulation and anti-
financial crime compliance. She is currently a Senior Associate
at Camilleri Preziosi Advocates. Prior to joining Camilleri Preziosi,
Diane held the post of Senior Manager at a Big Four audit firm,
working in Malta and in London, and subsequently joined the
enforcement departments of the UK Financial Conduct Authority
and the Malta Financial Services Authority.
Diane holds a Ph.D in law from King’s College London and a M.Sc
from the London School of Economics and Political Science. She
is also a visiting lecturer at the University of Malta
Appointed to the Board in December 2019.
Diane Bugeja
Director
CAFC R NG NED*
Rick Hunkin is the Bank’s Chief Executive Officer and is a vastly
experienced financial services executive who has worked in all
aspects of retail, commercial and corporate banking for over 35
years. Having started his career at NatWest and then LloydsTSB,
he has since covered a wide span of organisations and held
seats on the Boards of several UK financial services companies
including Tesco Bank, Cheltenham and Gloucester, Goldfish Bank,
GE Money and National Bank of New Zealand. Post the 2007/08
crisis Rick was one of a small senior group hired to resolve issues
at Northern Rock and subsequently joined the Executive team
leading the establishment of Williams & Glyn (part of the RBS EU
remediation programme). Prior to joining BOV, he was Chief Risk
Officer of Chetwood Financial.
Rick chairs the BOV Executive Committee, the Change
Management Committee, the Data Council and the Asset Liability
Management Committee and is also a member of various other
management committees. He is a director on the board of MAPRE
MSV Life p.l.c. and is currently Chairman of the Malta Bankers’
Association.
Rick, holds a Masters in Business Administration from Manchester
University and a Financial Studies Diploma - a degree level
qualification obtained via the Chartered Institute of Bankers and
Sheffield Hallam University. He has been elected a Fellow of the
Chartered Institute of Banking in both England and Scotland (FCIB,
FCIBS) for services to Banking and Education.
Appointed to the Board on 1 January 2020.
Rick Hunkin
Director & CEO
ED
James Grech’s career commenced as a management accountant
with a local accounting firm. He later joined the Bank in 1998 and
is currently the Executive Head of Foreign Bank Relationships
Department. James is also Chairman of Gozo Channel Holding
Company Limited and a director of other local companies. He is
a recognised member of the Institute of Directors (UK) and holds
an Honours Degree in Management and a Masters in Business
Administration from Henley Management College (UK). His
dissertation focused on the effectiveness of Board Performance
and Corporate Governance. James has lectured on Financial
Services at the Malta College of Arts, Science and Technology, and
on Corporate Governance at the University of Malta.
Appointed to the Board in 2004 till 2008. Re-appointed to the
Board by the shareholders in the respective AGMs in December
2014 to date.
James Grech
Director
NED*
Elizabeth Camilleri is a digital growth and transformation specialist,
working with boards and C-Level executives across a number of
B2C and B2B2C sectors worldwide.
Born and educated in Malta, she subsequently moved to the UK for
her MBA at London Business School specialising in strategy and
digital innovation. It was there that she found her passion for data
and digital transformation and its power to enable any organisation
to compete in a fast-changing environment.
She currently sits on a number of boards and advises others
on digital transformation and the creation of exponential growth
through the use of data and technological innovation. Before that,
she had founded and built a market tech company (Shopological)
which she sold in 2019. Previous roles encompassed working
at global organisations such as Gartner (Head of Strategy
Consulting), Orange Global (Growth Strategist for the Board), PWC
(Consultancy, Malta) and mid-sized companies such as eDreams
(Marketing Director) and Biochemicals (Malta, Export Marketing
Manager).
Appointed to the Board in May 2021.
Elizabeth Camilleri
Director
NG NED*
Bank of Valletta p.l.c.
Annual Report 2021
Alfred Mifsud currently chairs the Risk Committee and is a member
of the Audit Committee. He was previously a member of the
Compliance and Anti Financial Crime Committee. Alfred holds a
Masters in Business Administration from Sheffield Hallam University
and a Financial Studies Diploma by the former Chartered Institute
of Bankers. From 2015 to 2017 he was Deputy Governor of the
Central Bank of Malta, with main responsibilities of the monetary
policy and banking operations. Prior to that, Alfred was Chairman
of Crystal Finance Investments Limited, a position he held for 15
years. From 1992 to 1996 he was a Governor on the Board of
Malta Financial Services Centre which now is MFSA. From 1996 to
1998, Alfred was Chairman of Mid-Med Bank.
Appointed to the Board in December 2019.
Alfred Mifsud
Director
A R NED*
Antonio Piras is currently the chairman of the Remuneration
Committee and a member of the Risk Management Committee.
He was previously a member of the Audit Committee. Antonio
occupies the role of deputy chairman of the Board and the
chairman of the Remuneration Committee of Banca UBAE (Rome).
He was previously director of the board of Iacobucci Aerospace
HF (Rome) and vice chairman of Eurofidi Soc. Consortile Garanzia
Fidi s.c.a.r.l. (Turin). Until 2014, he was the CEO of Equitalia Centro
S.p.A (Florence) and chairman and CEO of other companies of
Equitalia Group.
In 1971 he started his career at UniCredit Group, former Credito
Italiano, holding various key roles in the Italian commercial network
until 1997. Afterwards, Antonio was appointed as CEO of UniCredit
Factoring (Milan), Deputy General Manager of Banca dell’Umbria,
Chairman and CEO of Pekao Leasing Sp.z.o.o (Warsaw) and
Leasing Fabryczny Sp.z.o.o (Lublin), CEO of UniRiscossioni S.p.A.
(Turin), all companies held by UniCredit, from where he ended his
career as Senior Executive Vice President in 2009.
Appointed to the Board in December 2016.
Antonio Piras
Director
R RC NED *
iv
Anita Mangion was appointed to the Board in 2016 and for the first
three years she was a member of the Remuneration Committee and
Audit Committee. In 2019 she was appointed deputy chairperson
of the Compliance and Crime Prevention Committee and in 2020
was reappointed member of the Audit Committee.
Anita is an experienced Strategy and IT Consultant. She started
her professional career at MFSA and the Malta Stock Exchange.
Her area of specialisation is Strategy, Digital Transformation
and Innovation. During the last eighteen years she consulted to
such effect, diverse local and international entities, where she
successfully implemented sustainable profitable frameworks. Anita
graduated: Executive MBA (eBusiness); B.Com. Management
Hons and B.Sc. Business and Computing, from the University of
Malta. Additionally, she studied Business and IT at Indiana University
(USA), and Technology Entrepreneurship at the University of Malta
in joint collaboration with Oxford University (UK). For four years,
Anita served as board director at Malta Industrial Parks Limited
(MIP). At MIP she was also entrusted to oversee the Tenders
Committee, was a member of the Audit Committee and chaired
the ICT Steering Committee.
Appointed to the Board in December 2016.
Anita Mangion
Director
A RC CAFC NED*
Alfred Lupi currently chairs the Audit Committee and is a member of
the Remuneration Committee. An Accountant by profession, with
a university degree in economics, Alfred was the Chief Financial
Officer on two major companies in Malta and the Executive
Chairman of a supermarket group. He was also a director of the
Central Bank of Malta, chairing its Audit Committee and also
served as Acting Governor. For a number of years he chaired the
Accountancy Board and was subsequently a member of its Quality
Assurance Oversight Committee. Alfred has held a number of
board appointments mainly in the financial sector.
Appointed to the Board in December 2015. Alfred was Interim
Chairman of the Bank from May 2020 until October 2020.
Alfred Lupi
Director
A RC NED*
Bank of Valletta p.l.c.
Annual Report 2021
Dr. Ruth Spiteri Longhurst was appointed Group company secretary
in April 2016. Previously she occupied the post of Executive Head
of the Compliance Unit within the Bank. Ruth is also the company
secretary of MAPFRE MSV Life p.l.c., BOV Asset Management
Limited and BOV Fund Services Limited.
Ruth graduated Doctor of Laws from the University of Malta in
2001 and obtained Master of Arts in Financial Services in 2004.
Ruth has been employed with the Bank for the past twenty years.
Ruth Spiteri Longhurst
Group Company Secretary
Godfrey Swain is an international executive with thirty years of
banking experience, recently serving as CEO of Myanmar Citizens
Bank (MCB) based in Yangon tasked with executing a banking
transformational strategy in partnership with the International
Finance Corporation (IFC), an arm of the World Bank. He previously
served as Deputy CEO, Head of Retail Banking and Marketing
focused on a growth and modernization mission for Vietnam
International Bank (VIB), a large-scale bank with Vietnamese and
Australian shareholding.
Godfrey served as a senior HSBC executive for twenty years
holding key roles as Managing Director and Country Head of
Retail Banking and Wealth Management for HSBC in Japan, in
Vietnam and previously in Malta where he also held roles of Head of
Marketing and Communications and founding CEO/MD of HSBC
Life Assurance (Malta). He was a member of the Hong Kong based
Asia Pacific Regional Management team, director on various boards
including Life Assurance and Fund Management subsidiaries and
EXCO, ALCO, Risk Management and Governance Committee
member in the countries and territories where he worked. He
started his financial services career in Adelaide and Sydney with
National Mutual Life, Australia.
Godfrey is a business graduate from Monash University, holds
a diploma in strategic management from Henley School of
Management and participated in HSBC executive programmes in
London, Hong Kong and Singapore.
Appointed to the Board in May 2021.
Godfrey Swain
Director
R NED *
A Audit Committee
CAFC Compliance and Anti Financial Crime Committee
NG Nominations and Governance Committee
RC Remuneration Committee
R Risk Committee
ED Executive Director
NED Non-Executive Director
* Independent
v
Bank of Valletta p.l.c.
Annual Report 2021vi
Chairman’s Statement
Gordon Cordina
Economic Overview
Uncertainty and instability continued to dominate the global economic scene in 2021, and these are likely to persist, if not
intensify, in 2022. While the world was staging a tentative recovery from the COVID-19 shock last year, the spectre of growthless
inflation raised its head. The geopolitical instability in Europe in the first quarter of 2022 will, most likely, intensify these threats,
in a scenario of ballooning public debt levels and uncertain demand.
The Maltese economy is not immune from these forces.
GDP levels during 2021 were back up to the equivalent
levels of 2019
1
, following the pandemic shock of 2020.
The Central Bank of Malta (CBM) anticipates the Maltese
economy to continue on its recovery path, with an average
projected growth of 5.0 percent for the years 2022 through
2024
2
. Headwinds to recovery remain in the uncertainty
of global demand, external inflationary shocks, and the
challenges to sustain competitiveness across economic
sectors. While Malta fares better than most EU economies
in terms of its fiscal resilience, this strength cannot be relied
upon indefinitely to meet surmounting external shocks.
Sectorial Vulnerability and the Effect on Bank Lending
The recovery rate in economic activity in 2021 varied greatly between the different
economic sectors.
The sectors reliant on inbound tourism were the worst hit by the pandemic in
2020, and continued to lag behind during the year under review. The number of
inbound tourists between January and December 2021 stood at 968,136 – an
improvement over 2020 but only 35.2 percent of tourist arrivals for 2019
3
.
As a result of the muted performance in tourism, the accommodation and
food service activities and the transportation and storage sector, registered the
poorest recovery rates out of all sectors in terms of gross value added (GVA).
The accommodation and food service activities achieved 46.9 percent of the
output registered in the same period in 2019, while the transportation and
storage segment achieved 74.6 percent. Administrative and support services,
which includes the rental of cars to incoming tourists, registered the second
consecutive annual contraction in 2021, and its output now stands at 85.5
percent of that in 2019.
On a positive note, the wholesale and retail sector and other service activities, accounting respectively for 18.7 and 6.9 percent
of business units in Malta, generally recovered the ground lost in 2020. The wholesale and retail sector expanded by 11.8
percent over 2020 (2020: -8.0 percent) and other services activities grew by 10.3 percent (2020: -7.8 percent), despite being
forced shut for a number of weeks during the first half of the year. The wholesale and retail trade of motor vehicles remains
hampered by supply side disruptions due to a global chip shortage leading to substantial upward pressure on new and used
car prices.
Collectively, the sectors regarded as the most vulnerable to the pandemic, saw their direct share of GVA contract from 29.1
percent in 2019 to 23.9 percent in 2021, as their aggregate output declined by 17.0 percent in real terms. During 2021, the
collective output of these industries increased by 14.5 percent over 2020, however this was still insufficient to recover the lost
ground and catchup with other sectors.
1 National Statistics Office, News Release 037/2022 – Gross Domestic Product: Q4/2021 dated 1 March 2022
2 Central Bank of Malta, Outlook for the Maltese Economy dated 2022:1
3 National Statistics Office, News Release 019/2022 – Inbound Tourism: December 2021 dated 14 February 2022
Bank of Valletta p.l.c.
Annual Report 2021vii
On the other hand, a number of segments continued to grow and outperform other economic sectors, despite the disruption caused
by the pandemic. Notably, construction, arts and entertainment, which includes the i-gaming sector, information and communication
services, financial services and public administration, witnessed an expansion in output for the second year running. In 2020, these
industries saw their collective contribution to GVA increase to 39.5 percent, from 34.9 percent in 2019. During 2021, the collective
output of these sectors grew by a further 8.1 percent, when compared to 2020.
As noted in previous communications, some of the most vulnerable sectors happen to be capital intensive sectors, and as such
amongst the Bank’s most important segments in terms of loans and advances. Loans and advances for accommodation and food
service activities, transport and storage, wholesale and retail trade, administrative and support services, and other service activities
made up 37.7 percent (2020: 36.3 percent) of the Bank’s lending to business customers or 18.6 percent (2020: 18.4 percent) of total
loans and advances to customers as at the end of 2021.
Provisioning for COVID-19
The different measures introduced by both the authorities and the banking
sector, to support Maltese households and the business community, enabled
the number of defaulting customers to be limited. While some residual credit risk
may still arise from firms which did not successfully adapt to the new normal, the
worse appears to be behind us and the vast majority of customers are meeting
their scheduled commitments despite loan moratoria being discontinued and
government support being tapered off.
As a result of the decrease in the Bank of Valletta’s expected credit loss (ECL),
the Bank released €18.9 million in impairment provisions.
Corporate Social Responsibility (CSR)
Despite the various challenges, Bank of Valletta still maintained an active role within the Maltese community during the past year. As
a responsible employer, the Bank ramped up its hygiene standards in all its customer-facing and back-office areas and implemented
various solutions to protect its employees and clients. All solutions were accompanied with extensive internal and external
communications to our staff and customers. Split operations and remote working ensured that the Bank was in a position to continue
to serve the community, albeit at times in a limited manner, during the worst phases of the pandemic, but always within reach.
As a responsible corporate citizen, Bank of Valletta piloted an initiative designed to help more people own their own homes. The Bank
continued to pioneer the shift to digital payments, through an extensive educational campaign across a number of channels, that
resulted in a 20 percent increase in digital payments effected through BOV’s channels. The Bank is committed to continue launching
green initiatives, that include lending to support sustainable operations. We will continue to step up our efforts towards paperless
banking, improving efficiency in the use of energy, water and other resources in our own operations, and supporting community
initiatives that help conserve the environment.
During 2021, we took one of our biggest strides towards
sustainability with the opening of a new concept branch
in Tas-Sliema, featuring all-natural, fast renewing
materials, with a focus on energy and water efficiency.
Green walls provide better air quality, besides their
aesthetic and mental health benefits, while clients are
greeted to a customer-centric, modern and welcoming
environment, in line with the Bank’s environmental,
social and governance (ESG) ambitions. Additionally,
the colours of the traditional Maltese luzzu flow
throughout the premises. This is a first step that will see
all the Bank’s branches transformed to this model and
in fact our Paola, Iż-Żurrieq and Is-Siġġiewi branches
were refurbished during the first months of 2022. Bank
of Valletta has long been committed to sustainability
and in recent years, this issue has steadily gained more
importance in our discussions with investors, suppliers,
customers and the broader public.
The Bank’s major initiatives and its involvement within
the community can be found in the CSR section of this
report.
Bank of Valletta p.l.c.
Annual Report 2021viii
Post-Pandemic Strategy
In June 2021, Malta launched its National Post-Pandemic Strategy
4
, focusing on:
• improving the quality of life and wellbeing,
• sustaining business and employment and driving a strong recovery, and
• remaining resilient and competitive.
The pandemic provided society with an opportunity to stop and think about the kind of future we want, and sustainability is at
the core of that future. The Bank intends to be at the forefront in supporting Maltese society to transition towards a greener and
more sustainable way of life.
Bank of Valletta p.l.c. embarked on the implementation of the BOV 2023 strategic plan during this financial year. This has seen
significant investment in our people through training programmes, in our data capability, which is being reviewed and will be
enhanced, and in our branch network.
The framework for the digitisation of our customer processes as well as the
reengineering of internal processes will be embedded in 2022. The Bank
aims to increase its efforts to rebalance its balance sheet by introducing
a number of measures geared at increasing the efficiency of customer
behaviour and improving overall welfare. The Bank will also ensure that
these transformational changes take into account the necessary controls
that are key to meeting our regulatory requirements.
We are confident that as a direct result of the transformation spurred by
BOV 2023, you will see Bank of Valletta becoming increasingly digital,
increasingly effective, and increasingly customer focused.
The Evolving Banking Business Model
The past years were characterised by a low interest rate scenario which turned the traditional banking model on its head. Interest
rate spreads declined, while simultaneously, regulation and compliance costs increased. Investment opportunities with adequate
risk-return ratios shrank, for both customers and the Bank, leading to an increase in excess liquidity in the banking system. New
market entrants targeted specific segments of the industry, while strategically choosing not to service the mass market. Also, a
significant portion of the Bank’s customer base shifted to digital services, while only the minority continues to rely exclusively on
the Bank’s numerous branches for their daily banking needs.
All this necessitated a rethink, and as announced last year, going forward the Bank will rely increasingly on pricing which reflects
the cost of the associated service and digitisation to better manage its cost base.
Twenty twenty-one witnessed a considerable improvement in the Bank’s profitability over the previous year, albeit not quite to pre-
pandemic levels. However, despite the Bank’s best efforts to improve profitability, the major hurdle remains the low interest rate
scenario, which has resulted in the Bank’s €12.2 billion deposit base becoming a costly liability, challenging the very core of our
business model. Narrowing interest rate spreads, increased contributions in relation to the Deposit Guarantee Scheme (DGS) and
the single resolution mechanism, the preclusion on local banks from passing on any negative interest rates imposed by the Maltese
authorities, and the negative interest rate charged to banks when depositing excess liquidity with the central bank, are straining the
profitability of local banks. As Malta’s largest deposit-taker by far, the strain on Bank of Valletta’s profitability is further intensified.
The inability to pass on the true costs of deposits to the relative customer segments has created market distortion. High deposit
balances holders are unimpacted by the underlying costs, and thus have no incentive to shift these deposits towards more
productive outlets and in turn gaining a better return and benefitting the Maltese economy overall. To the contrary, the costs of
deposits is being borne by the Bank, and in turn our shareholders.
During 2022, Bank of Valletta aims to implement a number of
measures intended to nudge high deposit balance holders towards
more efficient behaviour. We aim to restructure our banking model
in order to achieve a true return to long-term sustainable profits,
while as always safeguarding the welfare of all our stakeholders.
4 National Post-Pandemic Strategy dated June 2021
Bank of Valletta p.l.c.
Annual Report 2021ix
Dividend Policy
The Bank is still operating in an environment characterised by heightened risks, brought about both by external risks, such as
the changes brought about by the pandemic and the current geopolitical tensions, as well as risks specific to Bank of Valletta,
particularly the Deiulemar case.
Given the circumstances, the Board of Directors has decided to adopt a cautious approach and is not recommending a final
dividend for 2021. Nonetheless, the Board continues to actively work towards maximising shareholder value.
Looking Ahead
During 2022, we expect the Maltese economy to continue on its path to recovery, and consequently business sentiment to pick
up, particularly in the tourism related sectors. This recovery period will present an opportunity for all stakeholders to embark on
the implementation of their post-pandemic plans, and as such, further strengthening the recovery momentum. The Bank aims
to be our customers’ partner of choice when it comes to financing the transition towards cleaner technology.
The Bank is very much aware of the difficulties posed by rising inflation, demand uncertainty, and the latest geopolitical threats.
The Bank will continue with its drive to shift excess liquidity to more efficient purposes and in the process affording depositors
better returns and a degree of protection against rising inflation. During the current year, Bank of Valletta will proceed with the
implementation of its own strategic transformation. As highlighted, we will continue with our digital transformation, which will
this year focus on the revision of customer and internal processes. We will also intensify our efforts to transform the compliance
function, increasing the use of technology and data driven approaches to compliance, in order to improve efficiency and value.
Twenty twenty-one was another challenging year in which the Bank continued to provide its support to Maltese households and
the business community. I would like to thank all our staff for their hard work and dedication. I also thank, the Executive team
for their headship, the Board, and all our shareholders and customers for their crucial support and look ahead to the path to
recovery for the Bank and the economy at large.
Signed by Gordon Cordina (Chairman) on 22 March 2022
Bank of Valletta p.l.c.
Annual Report 2021
CEO’s Commentary
Rick Hunkin
xii
Whilst the financial year 2021 was another challenging year for the Maltese and global economy, it is pleasing to be able to
report much improved net results for the Bank. Although the COVID-19 pandemic continued to impact our trading capabilities,
the Bank demonstrated strong support for our customers and kept branches open to provide the necessary financial support
to our clients - paving their way back to a new normality.
Alongside the pandemic, the Bank continued to work within a negative interest rate environment which continues to prove
punitive for BOV, particularly in relation to interest margins. Malta’s greylisting has created some pockets of market nervousness
and recent inflationary increases (fuelled further by the geo-political instability) may mean we will continue to see some uncertainty
for a while longer.
Although our bottom line is stronger, we remain committed to further improving the underlying trading position of BOV to deliver
longer term sustainability. Our Transformation journey has initially focused on improving the way we serve customers and good
initial progress has been made in some key areas, with more to come during 2022. Strong increases in demand for digital
channels are already evident with these supporting 95% of transactions, with much lower manual processing. Our focus on
Investments delivered one of its strongest performances in recent years reflected in double digit commission growth as well as
improved returns through our MMSV Life partnership. We will continue to invest in this area to simplify customer servicing and
implement more efficient ways of working, whilst balancing a desire to digitise with the need to continually evolve our risk and
compliance frameworks.
Financial performance of the Group
Profit before tax for financial year 2021 was €80.7 million compared
to €15.2 million last year. This figure translates into a pre-tax return
on equity of 7.3% (2020: 1.4%) and earnings per share of €9.6
cents compared with €2.4 cents in the same period 2020.
The underlying operating performance of the Bank demonstrates
a resilient income stream with good recovery from the impact of
the pandemic in 2020 and growth in some areas, partly offset by
higher operating costs. The much stronger profitability benefited
from a net expected credit losses (‘ECLs’) release reflecting better
economic conditions relative to 2020 and individual client asset
improvements.
Operating Income
At a Group level, total operating income saw a recovery from 2020 lows as net interest income remained stable and net
commission income grew strongly exceeding 2019 levels, however foreign exchange income was down due to lower turnover.
Overall operating income was up 4.9% to €242.9 million (compared to €231.6 million in 2020).
Interest Income
Net interest income of €156.3 million was up €9.5 million versus prior year, and still provides the main revenue source representing
circa 65% of operating income, despite the costs from negative interest being charged to BOV on surplus liquidity and lower
average yields on debt securities. Strong growth in total credit provided to customers was offset by declining average returns
on treasury investments as higher-yield assets matured to be replaced with new securities at lower rates coupled with negative
interest charges on persistently high (and growing) liquidity levels. Steps were taken to lower our cost of funding and this
supported the net interest margin as interest paid on interest earning deposits continued to decrease.
STRONG FINANCIAL RESULTS IN 2021
DESPITE VARIOUS CHALLENGES
Bank of Valletta p.l.c.
Annual Report 2021
xiii
C
ommissions and other income
Net Commissions for the year 2021 exceeded pre-COVID-19 levels at
€74.6 million which represents an increase of €7.3 million, or 10.9%
on financial year 2020. Higher income was registered across the main
business pillars primarily credit and Investment related. A strong recovery
in commission income was also noted in the payments-related business
as volumes began to near to historic levels. The results were also
impacted by a one-off €1.5 million refund of customer fees introduced
late in 2020, however consequently those fees came under review by the
regulator. Furthermore, lower turnover registered in the foreign exchange
business at €9 million, resulted in less trading revenues compared to last
year at €11.3 million.
Costs
Total costs were €195.6 million, increasing by €25.2 million or 14.8%,
inclusive of strategy costs which were up by €7.3 million year over year.
The Bank invested a total of €23.1 million during the year in strategic
initiatives, up from €15.8 million in the previous year. We continued
to drive forward with our Strategy which involved investments in the
digitisation of processes and data quality, and continuous improvements
in our risk, compliance and control environments. These investments will
continue during the transformation journey that the Bank has embarked
on. This included enhanced investment processes, a new credit
underwriting tool and soon to be delivered digital-based Home Lending
and Customer Onboarding processes. However, a significant element of
this investment has also been on Risk and Compliance areas, such as
a new platform for Anti-Money Laundering and continually enhancing
credit management processes which include BCBS 239 Compliance
and Environmental Risk Management.
Operating costs, excluding strategy, were €172.5 million, up €17.9
million or 11.6%. Employee compensation increased by 2.7% from 2020
to €81.6 million, which reflected r equirements f or a dditional expertise
(through training and headcount) in areas such as risk, compliance and
digital based skills. Our strategy is seeking to ensure digitalisation and
simplification will combine to offset some of the potential future impact
of this.
Excluding above-mentioned strategy costs, operating administrative
expenses saw a significant increase year on year, to €70.8 million
(2020: €55.4 million). These expenses included a total of €6.1 million in
specific one-off items such as the €2.6 million fine imposed by
Financial Intelligence and Analysis Unit (‘FIAU’) and €1.4 million
disbursements on card fraud. Furthermore, costs payable to the
Deposit Guarantee Scheme (‘DGS’) increased by €4.8 million during
the year as we saw continuing growth in retail deposits. This cost
is outside the Bank’s control and may see further increases if
deposit balances continue to grow at current levels. Excluding the
impact of items that are not expected to recur and the contribution
to the DGS, the administrative costs increased by €4.5 million.
Higher IT investments were the main contributor due to the Bank’s
constant efforts to modernise and digitise key systems whilst
continuing to meet ongoing regulatory requirements and aligning with
the latest IT security solutions.
Adjusting for non-recurring items and increase in contribution to
the DGS, underlying operating costs increase was €5.7 million, or
3.7%.
Bank of Valletta p.l.c.
Annual Report 2021xiv
Specific increases in credit provisions
During the year, the Group reported a net release of Expected Credit Losses, (‘ECLs’) of €18.9 million, compared to the 2020
substantial net charge of €65.1 million which was driven by COVID-19 and Legacy Non-Performing Loans (‘NPLs’). A focus on the
legacy NPLs during 2021 resulted in some good net recovery in this space and as the economic conditions improved, we have
seen positive momentum in credit risk of individual customers supported by enhancements to collateral. These reversals of ECLs
were partly offset by required charges associated with persisting uncertainty related to COVID-19. The Bank continues to monitor
and closely manage the portfolio of non-performing loans and as at December 2021, the non-performing exposures (‘NPE’) ratio
improved from 4.7% in 2020 to 4.1% and the stock of NPLs decreased by €16.9 million. The ECL coverage of the credit impaired
assets also improved year on year from 50.0% to 54.1%.
Share of profit from Associates
The Group’s share of the insurance associates’ results was €14.5 million, up by €4 million on prior year, attributable to strong
economic recovery, solid growth in investments business and significant liquidity in the local market.
Balance Sheet position
As at December 2021, total assets of the Group continued to grow and exceeded the €14 billion mark (an 11% increase on
last year). Customer deposits were the main source of funding for the Group’s business and investment, and remain at surplus
levels. Year on year growth in deposits was €905 million or 8%. Customers continued to prefer short-term deposit products
and channelled their savings into the banking system due to the lack of more beneficial opportunities in the market. Growth
was registered in both business and retail deposits. Although at face value deposits may be deemed to be a low-cost source
of funding to the Bank, it is effectively extremely costly. The on-going
low interest rate environment offered limited opportunities to the Bank
to manage interest rate exposure any more effectively, forcing BOV to
place high levels of excess funds at negative rates. This burden was
accentuated with the increasing Deposit Guarantee Scheme related
costs covered earlier. For the benefit of both the depositors and the
Bank, the challenge in the foreseeable future is to implement a number
of measures that will help shape the depositors’ behaviour towards
more sustainable investments.
The Group’s treasury investment portfolio increased by €260 million to
€3.7 billion and remained composed of highly rated securities. Due to
limited opportunities within the Bank’s risk appetite, the investments
were primarily in local government and other sovereign bonds at much
lower market rates than those which matured throughout the year.
The vast majority of treasury assets continued to be measured at
amortised cost reflecting the Bank’s primary business model to hold
securities until maturity, with a view to collect interest revenues over
the life of the investment.
Notwithstanding the healthy increases across the Group’s investments, the liquidity position remained materially high with cash and
short-term funds reaching €4.6 billion by the end of year, an increase of €828 million or 21.8% over the previous year. This extraordinary
increase primarily arose after the Bank participated in the TLTRO III Eurosystem funding during the first quarter of 2021. Such funding
was offered at attractive rates which were offered to support the provision of finance to local businesses and households.
Net Loans and advances to customers stood at €5.2 billion, €335 million or 6.9% higher than December 2020 with strong growth
across business lending and home loans portfolios. The Bank continued to support requests for financial assistance from customers
through the payment moratoria and the provision of government guaranteed funding through our BOV MDB COVID-19 assist scheme.
We conducted systematic reviews of COVID-19 impacted portfolios and worked closely with clients as they emerged from financial
support, with 95% of total moratoria expired and repayments initiated by year end. The demand for financial assistance significantly
declined in the second half of the year and the Bank issued +30% more of business loans to support new investments over 2020.
A solid growth in home loan lending was registered over the last twelve months. In order to offer a product suite which continued to
meet the various customers’ needs, the Bank streamlined home loans into four core products meeting various requirements such as
primary, secondary, investment and rental purposes. The interest rates applicable to each product were also revised and the option
for the payment of interest only for the initial period of the loan, between one to five years, was introduced. The HomeEnergy loan
was also launched last year together with the Personal Energy Loan. In November 2021 Malta Development Bank officially selected
Bank of Valletta to implement the scheme for Further Studies Made Affordable Plus, (‘FSMA+’), through which the Bank will continue
to offer the BOV Studies Plus+ product with an additional €15 million allocation.
For the benefit of both the
depositors and the Bank, the
challenge in the foreseeable
future is to implement a number
of measures that will help shape
the depositors’ behaviour towards
more sustainable investments.
Bank of Valletta p.l.c.
Annual Report 2021xv
The Bank’s liquidity ratio at year end stood at 444%, marginally lower from the 463% as at December 2020 reflecting the high deposit
growth over the years consistently outpacing the demand for loans. The Group’s net advances to deposits ratio stood at 44.1%.
The Group’s capital ratios improved and were above regulatory requirements. Both the CET 1 and the total capital ratio increased
since December 2020 with the CET 1 ratio reported at 21.9% from 20.9% and the total capital ratio at 25.5% from 24.5%.
Deiulemar Update
The Deiulemar claim remains outstanding and continues to be significant. Post year end, a judgement against the Bank was granted
by the Tribunal of Torre Annunziata with regards to this case. In line with advice received from legal counsel, and consistent with
robust legal opinions (including one from Italy’s leading independent and specialist authority in these areas), as to the underlying
strength of our case, the Bank since appealed this decision. This outcome does not change the Group’s expectations, based on the
opinions from both local and Italian lawyers’ and thus did not impact financials. Furthermore, the Bank still considers that it makes
commercial sense to seek to resolve this claim at a level not exceeding the potential cost of servicing additional capital requirements.
For this reason, the Bank has retained the same settlement offer to the counterparty (the offer was not accepted), without prejudice
and with no admission of liability. No further litigation provision was deemed necessary for the year ending 2021.
Anti-Financial Crime Transformation
On 17 December 2021, the Financial Intelligence and Analysis Unit (‘FIAU’) imposed a fine of €2.6 million on the Bank as an
administrative penalty for failing to report Beneficial Ownership information for 2,442 corporate customers in the Central Bank
Account Register (CBAR) reporting to the FIAU. There is no suggestion that any of the affected accounts were involved in money
laundering or financing of terrorism. The Bank took immediate action and collaborated with the FIAU in a full and transparent manner.
The Bank continues to invest heavily in a transformation program and today is able to combat financial crime much more effectively
and sustainably over the long-term.
The fine imposed by the FIAU on the Bank did not have any significant impact on the Bank’s financial or capital position and the Bank
remains well capitalised and profitable. We are transforming in line with greater changes across Malta and are continuously investing
to meet new standards set by regulators and the international community, as well as to deliver more resilient, long-term sustainable
growth and profits.
Correspondent Banking and Greylisting
The greylisting of Malta has not materially impacted the Bank’s operations. However, if prolonged, the greylisting could impact
relationships with foreign banks and counterparts, including significant increase in monitoring requirements. We hold periodic meetings
with our international trading partners and as of year-end, the feedback received was that they closely examine developments being
implemented on a national level to address the matters raised by the Financial Action Task Force (‘FATF’).
In first half of 2021, the Bank addressed the issue of correspondent banking relationships in US Dollar and ensured business continuity.
To safeguard payment capabilities across major currencies, the Bank remains proactive in developing suitable contingency measures
with our current and potential correspondent banks.
Bank of Valletta p.l.c.
Annual Report 2021xvi
In 2020 the Board approved a strategy which plans
to take BOV on a digital transformation journey over
the coming years and we have been working hard on
this with some demonstrable progress achieved. We
embarked upon a major transformation programme
for our branches, both operationally, with staff re-
training and re-skilling, and with new improved
branch composition that saw the launch of the new
Sliema branch. This flagship branch is more efficient
at serving our customers and better meeting their
needs through enhanced technology solutions. The
branch refurbishment programme will continue with the
unveiling of further branches being converted from the
more traditional layout to a new service model that is
designed to meet the needs of the 21st century. These
branch layouts offer increased privacy for customers
requiring more complex wealth or credit advice.
We have also focused on migrating transactions
towards more efficient electronic means of payment
and progress here has been substantial, as we have
seen significant volumes of transactions processed
electronically and cheques processed down by more
than 50%.
Our transformation process is supported by ‘digital
factories’ that we have created, in which our internal
teams, supported by digital experts, re-imagine some
outdated processes. For Investments and Credit
Underwriting we have already launched new digitalised
processes which are having a positive impact on time to
serve customers and are reducing complexity. We are
following quickly with our Homeloans customer service
model to deliver much quicker response times and are
also now working on removing internal administrative
processes so that we have even more time to serve
our customers.
Although we have made good progress in a number
of areas, we have had to balance the pace of change
we would like to make with both managing our staff
through a major transformation and the need to
ensure our risk and control environment is continually
improved to ensure we are able to meet current, new
and emerging regulatory requirements. The Bank
invested significantly in its credit management and
wealth management back-office processes to deliver
stronger control without impacting customer service.
Alongside the transformation we have been significantly
enhancing our internal data capabilities, to improve
customer understanding and enable us to make better
and more informed decisions. We currently have a
number of data quality enhancements underway, which
will support future product development and customer
value propositions.
INCREASE
IN VOLUME OF
ELECTRONIC
PAYMENTS
50%
DECREASE
IN CHEQUES
PROCESSED
Further Update on the Strategic Plan
BOV 2023
Bank of Valletta p.l.c.
Annual Report 2021xvii
Digital transformation is clearly a major investment for the Bank
and will be part of a continuous improvement journey, but we firmly
believe that such investment is right for the Bank’s longer-term
sustainability. We are monitoring our investment in this space closely
to ensure we continue to see growing returns and benefits over
time, but this focus has already seen early signs of benefit in terms
of the faster growth of our investment and lending businesses – we
will continue improving so more customers benefit from quicker,
easier service and enjoy a more positive customer experience.
Digital transformaon is
clearly a major investment for
the Bank and will be part of a
connuous improvement
journey
Closing statement
The Bank is going through a significant and necessary period of transformation which will leave it better placed for a more
sustainable future. This transformation places a significant workload and uncertainty upon our teams. I wish to dedicate a well-
deserved thank you to all employees who face these challenges and are responding so well, reflecting their loyalty to BOV. I
remain confident that our ambitious strategic plan, which has already started showing early signs of marked improvement in
the way we operate and in the quality of service that we offer to our customers, will transform Malta’s largest bank into a more
effective, efficient and sustainable bank for the future.
Signed by Rick Hunkin (Chief Executive Officer) on 22 March 2022
Bank of Valletta p.l.c.
Annual Report 2021
Executive Committee & Group Chief Internal Auditor
Rick Hunkin was appointed to the Board on 1 January 2020 as
Executive Director. Rick is the Bank’s Chief Executive Officer and is
a vastly experienced financial services executive who has worked in
all aspects of retail, commercial and corporate banking for over 35
years. Having started his career at NatWest and then LloydsTSB,
he has since covered a wide span of organisations and held
seats on the Boards of several UK financial services companies
including Tesco Bank, Cheltenham and Gloucester, Goldfish Bank,
GE Money and National Bank of New Zealand. Post the 2007/08
crisis Rick was one of a small senior group hired to resolve issues
at Northern Rock and subsequently joined the Executive team
leading the establishment of Williams & Glyn (part of the RBS EU
remediation programme). Prior to joining BOV, he was Chief Risk
Officer of Chetwood Financial.
Rick chairs the BOV Executive Committee, the Change
Management Committee, the Data Council and the Asset Liability
Management Committee and is also a member of various other
Management Committees. He is a director on the board of MAPRE
MSV Life p.l.c. and is currently Chairman of the Malta Bankers’
Association.
Rick, holds a Masters in Business Administration from Manchester
University and a Financial Studies Diploma - a degree level
qualification obtained via the Chartered Institute of Bankers and
Sheffield Hallam University. He has been elected a Fellow of the
Chartered Institute of Banking in both England and Scotland (FCIB,
FCIBS) for services to Banking and Education.
Rick Hunkin
Chief Executive Officer
Joseph Agius was appointed Chief Technology Officer in October
2014 and became a member of the Bank of Valletta Executive
Committee in October 2016.
Since joining the Bank in 1985, Joseph has garnered over thirty-
five years’ experience in IT and Financial Services. In this time, he
has been actively involved in the implementation of various mission
critical projects, including the Core Banking Transformation
programme.
In his role as Chief Technology Officer, Joseph is responsible
for driving the Bank’s IT strategy. He is a strong proponent for
modernisation of IT infrastructure and applications whilst running IT
as a business with its inherent business value. He supports fellow
EXCO colleagues in their technology initiatives.
Joseph holds an Honours degree in Computer Science from the
University of Reading and an MBA in eBusiness from Grenoble
Graduate School of Business. He is also a Chartered Engineer and
member of the British Computer Society.
Joseph is a non-executive director on Malta Information Technology
Agency’s (MITA) Board of Directors.
Joseph Agius
Chief Technology Officer
Ernest Agius was appointed BOV’s Chief Operations Officer, in
May 2016. He is responsible for the Bank’s Administration Function
including Facilities, Security and Health & Safety, Procurement, the
Architect’s Unit, the Transaction Monitoring & Screening Function,
Investment & Custody Operations, Centralised Operations including,
Cash, Cheque, ATM and Safe Deposit Lockers Management, Core
Banking System Development & Support, SWIFT & SEPA Payments
Processing and Reconciliations, Customer On-Boarding including
Account Opening and the Customer Lifecycle Management unit.
Ernest joined Bank of Valletta in 2015 as Change Management
Executive with the specific target of setting up a Change
Management Function aiming to implement the Core Banking
System in 2019.
Ernest career in the financial services sector spans more than
thirty-seven years during which he has held a number of senior
executive positions within the Business, migrating Customers to
digital channels and IT. He has vast experience in the Banking
Operations, Financial Crime Compliance, and has led major
transformation projects involving complex technology, automation
and de-risking.
He has been a member of the Executive Committee since June
2016, member of the Change Management Committee, the Internal
Control & Risk Management Committee, Product Governance and
Pricing Committee, Change Management Committee and the
Incident Management Team, since January 2020. Ernest sits on
the Board of Churchwharf Properties Ltd.
Ernest John Agius
Chief Operations Officer
Simon Azzopardi joined Bank of Valletta in 1987. He has served in
various areas of the Bank including the retail network, corporate
lending, strategic planning, and marketing. He holds a degree
(B.Comm Hons) in Banking & Finance from the University of Malta,
and a MSc International Securities, Investment and Banking from the
University of Reading. Simon is also an Associate of the Chartered
Insurance Institute and a fellow of the Chartered Institute of Bankers.
Simon enjoys considerable experience in investment services.
During his career at BOV, he has occupied various senior positions
at Risk Management, International Corporate Centre, Chairman’s
Office and the various subsidiaries. He was also responsible for the
setting up and running of the Cairo representative office. As Chief
Wealth Management Officer (appointment date 22 January 2021),
he is a member of the Bank’s Executive Committee and currently sits
on various Boards within and outside the BOV Group; these include
Chairman of the BOV Asset Management Board and Director of
the BOV Fund Services Board. He is also a member of various
committees which include, the MMSV Investment Committee, the
MMS Investment Committee, the Investment Committee BOV Asset
Management and the Risk & Regulatory Committee BOV Funds
Services.
Simon Azzopardi
Chief Wealth Management Officer
xviii
Bank of Valletta p.l.c.
Annual Report 2021
Miguel Borg was appointed to the Board in August 2017.
Miguel is the Chief Risk Officer and an Executive Director of Bank
of Valletta p.l.c. He serves as the Deputy Chairman of the Executive
Committee and chairs the Credit Committee, the Internal Control
& Risk Management Committee and the Credit Sanctioning
Committee of BOV. Miguel is a Director of BOV Asset Management
Ltd and chairs the Risk Committee of the company. He also chairs
the Risk Committee of MAPFRE MSV Life p.l.c. Prior to joining
the Bank, he worked at the Central Bank of Malta. Miguel holds a
Masters in Economics and is a member of a number of international
risk management associations. He serves as a member of the
Ethics Committee of PRMIA (USA). He lectures at the University
of Malta.
Miguel Borg
Chief Risk Officer
Izabela Banas was appointed as the Bank’s Chief Financial Officer
on 1 March 2021.
She serves as Deputy Chair of Asset and Liability Management
Committee and is a member of the Bank’s Executive Committee
and a number of management committees. Izabela is a director
on the Board of MAPFRE MMSV Life p.l.c., a member of MAPFRE
MMSV Life p.l.c. Audit Committee and regular attendee at the
BOV’s Board of Directors as well as BOV and MAPFRE Middlesea
p.l.c. Audit Committees.
Izabela is an experienced Finance professional and has held a
number of senior positions within the Financial Services industry
in the UK and Switzerland. Izabela joined Bank of Valletta after five
years with HSBC Group in London where her last role was as a Chief
Financial Officer for Private Bank EMEA. Having started her career
at General Electric Company as part of Financial Management
Programme, she has since covered wide span of organisations,
industries and geographies including Credit Suisse Group, Willis
Insurance Brokers and Private Equity owned industrial companies
in Germany and in the UK.
She holds a degree in Economics with specialisation in Finance
from University of Illinois at Urbana-Champaign and is a certified
Lean Six Sigma Black Belt.
Izabela Banas
Chief Finance Officer
Dr. Vanessa Borg was appointed in 2021, as Chief People and
Change Officer.
She has been active within the local international management
field for over two decades, previously appointed as Director,
Strategy Advisory with KPMG and has occupied the role of Chief
Executive with Argus, an insurance entity having presence in Malta,
Gibraltar and Bermuda. From 2007 till 2017, Vanessa founded and
headed Consultancy and Training Acumen Centre Ltd, whereby
since conception, the company enjoyed a string of international
awards. Vanessa has also held corporate senior positions within
the hospitality industry and during her tenure with Corinthia Hotels
International, she was mainly involved in the development and
implementation of HR strategic tools.
Within BOV, She is a driver of people and change strategic initiatives
required to maintain overall financial and organisational health and
acts as a steward and keeper of employee culture, wellness and
engagement. She sits on the Bank’s Executive Committee and a
number of management committees.
Throughout the years, Vanessa has also been appointed as an
accredited lecturer both locally and internationally. She holds a
Doctorate in Business Administration, a Master’s in Philosophy,
a Master’s in Business Administration (Maastricht School of
Management) and a Bachelor of Commerce (University of Malta).
Vanessa Borg
Chief People and Change Officer
xix
Kenneth Farrugia joined the Bank in 1985 and has since occupied
various positions within the Group. He currently holds the post of
Chief Retail Banking Officer and sits on the Executive Committee.
Kenneth is responsible for Bank’s personal and micro-business
customer segments, the corresponding service channels as well
as the suite of retail banking solutions Kenneth sits on a number
of Management Committees to include the Asset and Liability
Committee, Internal Control & Risk Management Committee,
Credit Committee, Product Governance and Pricing Committee
and Change Committee. He currently chairs the Board of Directors
of BOV Fund Services Limited, sits on the Board of Directors of
BOV Asset Management Limited, and is also a director on the
board of the Vilhena Funds SICAV p.l.c. Kenneth is a Fellow of the
Institute of Sales and Marketing Management in the UK.
Kenneth Farrugia
Chief Retail Banking Officer
Bank of Valletta p.l.c.
Annual Report 2021
Anatoli Grech holds the position of Group Chief Compliance Officer.
He previously held the position of Head of Strategy and Regulatory
Affairs at BOV Asset Management Limited, the asset management
of the Bank.
He also sits on the Executive Committee, the Internal Control and
Risk Management Committee, Product Governance and Pricing
Committee and Change Management Committee of BOV. Anatoli
is a Director on the Board of BOV Asset Management Limited and
the Chair of its Risk and Regulatory Committee.
Anatoli is also a member of the Risk and Regulatory Committee
of BOV Fund Services Limited and MAPFRE MSV Life p.l.c. He is
also a member of the board of the European Savings and Retail
Banking Group, a member of the Banking Supervision Committee
of the European Banking Federation, a member of the WSBI-ESBG
Task Force on AML and the Secretary of the Malta Asset Servicing
Association.
Anatoli Grech
Group Chief Compliance Officer
Peter Halsor holds a Bachelor of Science degree in Business from
the University of Minnesota. He enjoys over 20 years’ experience
leading marketing teams in designing and implementing digital
products, services and campaigns that underpin business strategy,
enhance customer experience and drive profitability.
A passionate advocate of the customer, Peter has led Digital,
Customer Experience, Marketing and Business Transformation
teams to deliver market-leading propositions for several leading
financial institutions in London, Continental Europe and the Middle
East.
As an early digital innovator at Fidelity Investments, Peter led the
design & delivery of the UK’s first online fund supermarket. Later,
as Head of Customer Experience at NEST, Peter led a digital
team to define the e-business strategy and customer experience
proposition for a new pension scheme used by over 11 million
people to save for retirement.
As Chief Customer Experience Officer at Riyad Bank, Peter
led a business transformation programme to drive customer-
centricity across the retail bank. He was responsible for defining
the customer experience strategy across all channels and working
within the C-Suite to drive CX transformational change and digital
innovation. As part of this work, Peter implemented a state-of-the-
art Customer Experience & Innovation Laboratory - the first bank
in the region to do so.
Peter is currently Chief Marketing & Customer Intelligence Officer
at Bank of Valletta. As a member of the executive management
team, he sits on several of the banks’ management committees
and carries responsibility for all marketing, customer experience
and data analytics activities.
Peter Halsor
Chief Marketing and Customer
Intelligence Officer
Albert Frendo is an accountant by profession and is responsible for
the stewardship of the Credit Function. His career at the Bank spans
over thirty years with wide ranging experience in cost management
and financial reporting, risk management and credit finance.
For twelve years, he headed the Bank’s Risk Function and was
later assigned with the management of the Bank’s overall Credit
Portfolio, responsible for a number of key credit areas including
Corporate, SME, Consumer and Trade Finance, Collections and
Collateral Management. He was entrusted to launch Risk Sharing
Instruments in Malta aimed at SMEs including JEREMIE, CIP,
SMEG, SME Initiative (JAIME) and SME Invest. Albert is a member
of the Bank’s Executive Committee and a number of management
committees. Albert is responsible for Business Banking being one
of the three key pillars of the revamped Business Model along
with Retail Banking and Investments. Albert holds a degree in
Accountancy from University of Malta and a Masters in Business
Administration, with specialization in Management Consulting,
from Grenoble Graduate School of Business in France. Albert also
sits on the board of Tigne Mall p.l.c.
Albert Frendo
Chief Business Banking Officer
Anthony Scicluna was appointed as Chief Officer Human
Resources and Ethics Development in 2016, and became a
member of the Executive Committee in November 2019. As Chief
Officer Human Resources and Ethics, Mr. Scicluna was responsible
for the Group’s human resources, training, ethics and employee
professional development.
Anthony joined the Bank in 1984 and mainly held positions within
the bank’s branch network, finance and internal audit. Between
2005 and 2013 he was responsible for the Bank’s Group Internal
Audit. Anthony is a certified public accountant and holds a
practicing certificate in auditing. He is a Fellow of the Malta Institute
of Accountants and also holds an honours degree in Business
Management from the University of Malta. Anthony Scicluna took
early retirement from the Bank on the 31 December 2021.
Anthony Scicluna
Chief Officer Human Resources &
Ethics
xx
Bank of Valletta p.l.c.
Annual Report 2021
Theodoros Papadopoulos was appointed as Chief Digital Officer
in September 2021 and sits at the Executive Committee of the
Bank. He sits on different committees of the Bank (CMC, PGPC.
ICRM, Data Council). He holds an MSc in Digital Communication
and Media/Multimedia of Stockholm’s University, an MSc in
International Business (Public Policy) from Södertörn University in
Sweden and a BA in Public Relations and Communication Policy.
He is a Digital Transformation, Digital Banking, Innovation and
Technology Executive who has worked for Fortune 500 companies
recognized for strong people leadership and Change Management.
Prior to joining Bank of Valletta, Theodoros held the position of
Director of User Experience at Eurobank EFG in Athens, Greece
and helped the bank to increase the digital footprint in the market.
Between 2011 and 2016, he was engaged with Booking.com in
the Netherlands, initially as a Global Hotels Projects Team Member
and appointed as Manager, Strategic Partnerships in 2013, a
position which he occupied before moving to Eurobank, EFG. He
has extensive experience in redesigning and implementing digital
products, in Customer Experience, Voice of the Customer, Design
Thinking and Customer Journey Mapping.
The appointment of Theodoros Papadopoulos is subject to
regulatory approval.
Theodoros Papadopoulos
Chief Digital Officer
xxi
Elena Dourou joined BOV on 1 October 2020 as Group Chief
Internal Auditor.
She has vast experience in the financial sector and internal audit and a
successful international career. Among other major institutions, she
has worked in Deloitte, ABN Amro Bank, National Bank of Greece,
Piraeus Bank (Greece), Ferratum Bank (Malta) in positions relevant
to internal audit, consulting and internal controls. Before joining the
BOV, she was working at the Hellenic Corporation of Assets and
Participations, where she was responsible to monitor the internal
audit departments of its subsidiaries to ensure harmonisation of
processes and application of Internal Audit Standards in 15 major
Greek Public Sector organisations.
Elena is a Fellow Certified Chartered Accountant, a Certified
Internal Auditor and holds an MBA from Oxford Brookes University.
Elena Dourou
Group Chief Internal Auditor
Bank of Valletta p.l.c.
Annual Report 2021
Corporate Social Responsibility (CSR)
OUR STAFF
PROMOTING FINANCIAL WELL-BEING
As Malta’s largest Bank, delivering on our strategic priorities is our commitment. We believe that looking out for the best
interests of all our stakeholders, that include our shareholders, customers, our colleagues and the Community in which we
operate. Our success is directly proportional to the value we create for each of these stakeholders.
We foster building a strong internal culture based on our core
values of corporate responsibility that result in meaningful and
lasting relationships, and an environment where employees feel
respected, included and heard. Our most valuable asset is our
workforce, and our success is a direct reflection of the talent
and tireless efforts of our people.
We believe everyone should have the ability to make confident, well-informed money-related decisions resulting in financial
security for both the short and long term. We place customers, and their needs, at the forefront and provide information about
our products and services, and access to one’s finances at the touch of a button through the Bank’s online presence as well
as through Internet and Mobile Banking. This is complemented by various educational initiatives, among different channels
such as newspapers and television to promote new ways of managing money, and helping our customers meet their personal
financial needs.
xxii
THE COMMUNITY
ARTS & CULTURE
We have continued to support the Community in which we operate, through various initiatives, in line with our Environment,
Social and Governance (ESG) principles. Although the COVID-19 pandemic continued to hamper various activities and initiatives
along the island, the Bank extend its assistance, some at the forefront, and others in preparatory stage for when we come out
of these trying times.
The main initiatives undertaken by the Bank during 2021 were:
The Joseph Calleja Concert 2021 was one of
the first public events held since the outbreak
of the Pandemic in 2020. The Bank has been
a main supporter of the Maltese Tenor since
2013, a collaboration that sees the BOV Joseph
Calleja Foundation assist numerous talented
youngsters achieve their artistic potential
through financial support in furthering their
artistic studies.
Bank of Valletta p.l.c.
Annual Report 2021xxiii
The Bank sponsored restoration of the Gran Salon
at the Auberge de Provence in Valletta. This yielded
a major discovery when the restorers uncovered
what is believed to be a part of the original
decorations of this majestic hall from the times of
the Knights, up till now the only surviving artefact
from those times.
A set of paintings by Emvin Cremona, decorating
the Main Altar of the Parish of the Blessed Virgin of
Lourdes in Paola underwent a rigorous restoration
process through the Bank’s support. The Bank also
maintained its long term collaborations with Malta’s
main heritage foundations being Fondazzjoni Wirt
Artna, Fondazzjoni Patrimonju Malti and Din l-Art
Ħelwa. New restoration projects will continue to be
announced during 2022.
The Bank’s new Concept Branch in Tas-Sliema which was
inaugurated in 2021 focuses on energy and water efficiency,
with the aim of minimising its carbon footprint through fast-
renewing, all-natural materials, latest technology energy saving
light fittings and green walls.
The New BOV’s HomeEnergy Loan aims to assist new
and existing home-owners to finance energy efficiency and
renewable energy (EERE) projects.
The Bank supported a photography exhibition in collaboration
with Din l-Art Ħelwa to highlight the current state of our
surrounding seas and raise awareness about the pollution
created.
HERITAGE
THE ENVIRONMENT
Bank of Valletta p.l.c.
Annual Report 2021
SOCIAL
BOV staff, even those working remotely, shed off their work attire, and reported to work wearing purple, during a dress down
initiative. This activity helped raise funds to help vulnerable women who, due to domestic violence, homelessness and other
difficulties such as addiction, mental health, relationship and familial issues, are forced to live in shelters. A number of blood
donation drives were also organised for BOV Staff members and these attracted numerous donors as a show of altruism
towards the Maltese Community.
Fund raising by philanthropic organisations also suffered as a result of the pandemic. The Bank continued to support main
philanthropic organisations such as the Malta Community Chest Fund Foundation, Caritas (Malta), the Malta Hospice Movement
and Puttinu Cares.
xxiv
SPORTS
BOV is committed to the UN Strategic Development Goal
03 supporting good health and well-being. The Bank is the
main sponsor of sporting initiatives in Malta that include
football, basketball and water polo, sailing, bowling, and
horse-racing among others. Despite the interruptions due
to the pandemic, most competitions were still held thanks
to resilience, commitment and dedication of Malta’s sports
enthusiasts.
Bank of Valletta p.l.c.
Annual Report 2021
EDUCATION
The Dean’s List of the Faculty of Arts within the University of Malta yielded the largest group of inductees in its 25 year history in
2021. Supported by Bank of Valletta since its inception, a mention in the Dean’s list signifies excellence through its very rigorous
requirements.
Literacy from infancy is high on BOV’s agenda through it’s support of Read with Me. The platform that has gone online due to
the pandemic, but saw an increase in participation by young students and their parents.
xxv
Bank of Valletta p.l.c.
Annual Report 2021
1
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as at 31 December 2021
The Directors present their 48th Annual Report, together with the audited financial statements of the Bank of Valletta Group (the Group)
and the Bank for the Financial Year (FY) ended 31 December 2021.
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The Bank of Valletta Group comprises Bank of Valletta p.l.c. (the Bank) and two subsidiary companies namely BOV Asset Management
Limited (BOV AM) and BOV Fund Services Limited (BOV FS). The Group also has two equity-accounted investee companies, MAPFRE
Middlesea p.l.c. and MAPFRE MSV Life p.l.c. The Group’s principal activities are set out below.
The Group offers banking, financial and investment services and connected activities within the domestic Maltese market. The principal
activities of the Bank comprise the following:
1) The receipt and acceptance of customers’ monies for deposit in current, savings and term accounts which may be denominated
in Euro and other major currencies,
2) The provision of loans and advances to a wide array of customers, and
3) The provision of investment services, covering a comprehensive suite of investment products and services that meet the
customers’ needs throughout their lifecycle, including stockbroking, advisory and discretionary portfolio management services.
The Group also provides a number of other services, including, bancassurance, corporate advisory, fund management, fund
administration, and other services, such as 24-hour internet banking service, issuance of major credit cards, night safe facilities,
automated teller machines, foreign exchange transactions, and outward and inward payment transfers.
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Bank of Valletta p.l.c. is licensed to carry out the business of banking and investment services in terms of the Banking Act,1994 (Chapter
371, Laws of Malta) and the Investment Services Act,1994 (Chapter 370, Laws of Malta). The Bank is an enrolled tied insurance
intermediary of MAPFRE MSV Life p.l.c. under the Insurance Intermediaries Act, 2006 (Chapter 487, Laws of Malta).
The Bank offers the entire range of retail banking services as well as the sale of financial products such as units in collective investment
schemes. The Bank also offers investment banking services, including underwriting and management of Initial Public Offerings (IPOs).
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BOV AM provides management services for collective investment schemes and portfolio management services for institutional clients.
BOV AM is a fully owned subsidiary of the Bank and has three regulatory functions: Asset Management, Risk Management and
Compliance.
BOV FS is also a fully owned subsidiary of the Bank and is recognised as a fund administrator and licensed as a Company Services
Provider by the Malta Financial Services Authority. BOV FS provides a comprehensive suite of services to fund managers and fund
promoters, as well as a full suite of fund administration including fund accounting, shareholder registry services, regulatory reporting and
corporate services.
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MAPFRE MSV Life p.l.c. operates as a life assurance company licensed under the Insurance Business Act, 1998 (Chapter 403, Laws of
Malta). MAPFRE Middlesea p.l.c. is engaged in the business of insurance, including group life assurance.
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During FY 2020 the Board of Directors approved a comprehensive strategic plan, entitled BOV 2023, covering a strategic plan for a three-
year period between 2021 and 2023. The overarching strategic ambition was to transform the Bank into a more efficient, digital and
customer-oriented organisation whilst continuing to strengthen the control functions. The long-term sustainability of the Bank and its
support to the local economy was being ensured through a number of initiatives.
The Strategic Plan was based on 3 keys strategic pillars as follows:
1) Transform and digitise the operating model
2) Rebalance the balance sheet
3) Bring superior value to customers
Bank of Valletta p.l.c.
Annual Report 2021
2
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as at 31 December 2021 (continued)
D
uring FY 2021 the Bank launched and implemented a number of initiatives in line with the captioned Strategy aimed at addressing
regulatory requirements, building fundamental enablers and improve on customers network and experience. During the same year the
Bank re-assessed and re-prioritised its initiatives to become a Future-Proof Bank, focusing on attaining the following strategic initiatives:
1) IT and Data Platform and Modernisation
2) A Human Resources Programme which included re-skilling
3) Value Based Management
4) F2B investment and Assets under Administration boost
5) Credit Transformation
6) Branch footprint and layout, transaction migration and new service model
The Bank’s strategy has been re-defined within the Risk Appetite Framework (RAF) and approved by the Board during the year under
review. More information on the Bank’s Strategic Plan – BOV 2023 – A Future Proof Bank is found in the CEO’s Commentary.
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The Directors are aware of the various risks faced by the Group as a result of its involvement in different business lines and operations.
A number of measures are in place to ensure that such risks and uncertainties are maintained at acceptable levels and are in line with
the Group’s risk appetite and strategy of sustainable, long-term growth and profitability. In line with the Bank’s Policy, the Risk Appetite
Statement and Framework was reviewed and approved by the Board of Directors in October 2021. The document lays out the
responsibilities of various stakeholders, including the Board of Directors and Senior Management, and establishes a number of qualitative
and quantitative parameters for acceptable risk taking.
In line with the provisions of the Risk Appetite Statement and Framework, Senior Management is responsible for the day-to-day monitoring
and control of risk-taking, subject to the regular oversight of the Board of Directors through the Risk Committee. The overall structure is
aimed at ensuring a sound risk culture supported by a performance management system that discourages excessive risk taking.
The key risks faced by the Group include credit risk, market risk, operational risk and liquidity risk. These, and other risks and uncertainties
inherent in the business, require sound capital management to ensure adequacy against regulatory requirements and adverse events.
With this in mind, the Group regularly sets out and reviews capital targets in line with actual and forecast business levels and monitors
performance against such targets on a regular basis. A more detailed explanation of key risks and capital management is included within
the Pillar 3 Disclosures Report available on the Bank's website, as well as Note 39 to the Financial Statements.
The Directors also recognise the fact that the Group may be subject to reputation and litigation risk as a result of its actions and operations.
Conscious of the serious repercussions such risks may have on the Group’s and the various stakeholders’ wellbeing, both the Board of
Directors and Senior Management exercise zero tolerance to conduct risk and aim to instill the highest levels of ethical behaviour through
a number of appropriate policies, procedures and controls.
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A review of the business of the Group for the period ended 31 December 2021 and an indication of future developments are provided
in the Chairman’s Statement and the CEO’s Commentary, which can be found in the front section of this Annual Report.
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A gross interim dividend of €0.0264 per share was paid on 28 January 2022. The aggregate net dividend for the year is €0.0172 per
share, amounting to €10,018,853.
GGrroossss
€15,413,620
TTaaxx aatt SSoouurrccee
(€5,394,767)
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€10,018,853
T
he Board of Directors has decided to adopt a cautious approach, within an operating environment that remains characterized by
heightened risks, and hence does not intend to recommend a final dividend for Financial Year 2021. Dividend distribution remains a
priority area of focus for the Board, taking into account risks, regulatory requirements and the business outlook.
Bank of Valletta p.l.c.
Annual Report 2021
3
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as at 31 December 2021 (continued)
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e following Directors served on the Board during FY 2021:
Gordon Cordina (Chairman)
Stephen Agius
Kevin J. Borg*
Miguel Borg
Diane Bugeja
Elizabeth Camilleri*
James Grech
Rick Hunkin
Alfred Lupi
Anita Mangion
Alfred Mifsud
Antonio Piras
Godfrey Swain*
*Elizabeth Camilleri, Kevin J.Borg and Godfrey Swain were appointed Directors on the Bank of Valletta Board during the Annual General
Meeting held on the 20 May 2021. Their appointment was subject to regulatory approval, which approval was received in the case of
Godfrey Swain on the 14 December 2021, and in the case of Elizabeth Camilleri and Kevin J. Borg, on the 17 December 2021.
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he Directors are required by the Companies Act, 1995 (Chapter 386, Laws of Malta) to prepare financial statements in accordance with
International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Group and
the Bank as at the end of the financial year and of the profit or loss of the Group and the Bank for the year then ended.
In preparing the financial statements, the Directors should:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable; and
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and the Bank will
continue in business as a going concern.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time
the financial position of the Group and the Bank, and which enable the Directors to ensure that the financial statements comply with the
Banking Act, 1994 (Chapter 371, Laws of Malta) and the Companies Act, 1995 (Chapter 386, Laws of Malta) and with the requirements
of Article 4 of the Regulation on the application of IFRS as adopted by the EU. This responsibility includes designing, implementing and
maintaining such internal controls as the Directors determine necessary to enable the preparation of financial statements that are free
from material misstatements, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Group
and the Bank, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
After reviewing the Group’s plans for the coming financial years, the Directors are satisfied that at the time of approving these financial
statements, it is appropriate to continue adopting the going concern basis in preparing these financial statements.
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A resolution to re-appoint KPMG Malta jointly with KPMG LLP (United Kingdom) as statutory auditors of the Bank will be proposed at the
forthcoming Annual General Meeting (AGM). KPMG Malta and KPMG LLP (United Kingdom) have expressed their willingness to remain
in office.
Bank of Valletta p.l.c.
Annual Report 2021
4
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as at 31 December 2021 (continued)
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he financial statements are prepared on a going concern basis. The Directors regard that pursuant to Capital Markets Rule 5.62, this is
appropriate, after due consideration of the Bank’s profitability, liquidity, the statement of financial position, capital adequacy and solvency.
Specifically, the Directors have prepared financial and capital plans for the next three years which show that the Bank is in a position to
continue operating as a going concern for the foreseeable future. These plans take into account risks facing the Bank, including but not
limited to, the potential crystallisation of known contingent liabilities.
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he Bank has an authorised share capital of €1,000 million divided into 1,000 million ordinary shares with a nominal value of €1.00 each.
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he issued shares of the Bank consist of one class of ordinary shares with equal voting rights attached. The Bank has an issued and fully
paid up share capital of €583,849,270 divided into 583,849,270 shares with a nominal value of €1.00 each. There were no changes to
the issued share capital during FY 2021.
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Clause 4.3 of the Bank’s Memorandum of Association provides that, with the exception of existing large shareholders, presently the
Government of Malta and UniCredit S.p.A., no person may at any time, whether directly or indirectly and in any manner whatsoever,
acquire such number of shares in the Bank, as would in aggregate be in excess of 5% of the issued share capital of the Bank.
As at 31 December 2021, Malta Government Investments Limited had a shareholding in the Bank of 0.48% and National Development
and Social Fund (NDSF) had a shareholding in the Bank of 2.88%. Both entities are fully owned by the Government.
Any shareholder holding in excess of 50% of the issued share capital of the Bank or if no such shareholder exists, the shareholder holding
the highest number of shares not being less than 25% of the issued share capital, may appoint the Chairman. Qualifying Shareholders
with 10% or more of the shares in issue are entitled to recommend one Director for every 10% holding.
The Directors confirm that as at 31 December 2021, shareholding in excess of 5% of the issued share capital of the Bank was held
directly by:
Government of Malta 25.0%
UniCredit S.p.A. 10.2%
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he rules governing the appointment and replacement of the Bank’s Directors are contained in Articles 24 to 31 of the Bank’s Articles of
Association. More details on the appointment and rotation process of Directors is found under the Corporate Governance Statement of
Compliance, under principle 3.
An extraordinary resolution approved by the shareholders in general meeting is required to amend the Memorandum and Articles of
Association.
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he Board of Directors has the power to transact all business of whatever nature, not expressly reserved by the Memorandum and
Articles of Association of the Bank, to be exercised by the Bank in general meeting or by any provisions contained in any applicable laws.
The shareholders in general meeting authorised the Board to exercise during the Prescribed Period, all the powers of the Bank to issue
and allot shares up to an aggregate nominal amount equal to the Prescribed Amount. The Prescribed Period refers to a term of five years
approved during an Extraordinary General Meeting held on 27 July 2017 and which term expires on the 26 July 2022. This authority is
renewable for further periods of five years each.
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he Directors have service contracts with the Bank. More information on the Directors’ service contracts can be found under the
Remuneration Report.
Bank of Valletta p.l.c.
Annual Report 2021
5
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as at 31 December 2021 (continued)
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he relative Collective Agreements regulate the compensation payable to employees in case of resignation, redundancy or termination of
employment for other reasons. More information relating to Collective Agreements is found further below under the section entitled Non-
Financial Disclosures.
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During the 46th Annual General Meeting held on the 26 November 2020, the general meeting approved the rules of the Bank of Valletta
Variable Remuneration Share Plan (“Plan”), and the Board of Directors was authorised to (i) establish the Plan and to do all such acts and
things as may be necessary or expedient to give effect to the Plan; and (ii) issue up to and including 14,596,232 shares from the authorised
share capital of the Bank for the purpose of satisfying the obligations of the Bank that will ensue from the operation of the Plan, without
first offering the same to shareholders in proportion to their then existing holdings.
During FY 2021 no shares were issued from the authorised share capital of the Bank for the purpose of satisfying the obligations of the
Bank pursuant to the Plan.
It is hereby declared that as at 31 December 2021, information required under Capital Markets Rules 5.64.7 and 5.64.10 was not
applicable to the Bank.
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There were no material contracts to which the Bank, or any one of its subsidiaries, was a party and in which anyone of the Bank’s
Directors was directly or indirectly interested.
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ursuant to the captioned Malta Financial Services Authority (MFSA) Investment Services Rules, it is hereby declared that during the
reporting period, there were no breaches of the MFSA Investment Services Rules, Standard Licence Conditions or other regulatory
requirements which were subject to an administrative penalty or other regulatory sanction.
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The Bank has in place a Whistleblowing Policy aimed to encourage reporting of improper practices and suspected wrongdoing in a
controlled manner which safeguards the confidentiality of the whistleblower. The nature of the disclosures made through the
Whistleblowing process are reported to the Audit Committee.
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he Bank has the following Branches, Agencies and Centres around Malta and Gozo:
• 34 Branches offering both deposit taking and lending services
• 5 Business Centres
• 6 Investment Centres
• 4 Agencies offering deposit services only
• 1 Sub-Agency/Satellite Branch
During the period under review, a number of Branches, Agencies and Centres around Malta and Gozo were constrained to close
temporarily, for a day or two or as the circumstances necessitated, due to the COVID-19 pandemic situation. Following sanitization as
per Health Authority recommendations, the above-mentioned Bank’s premises were re-opened and resumed business.
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In light of the business sector in which it operates, the Bank does not consider research and development as a main area of activity.
Bank of Valletta p.l.c.
Annual Report 2021
6
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as at 31 December 2021 (continued)
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On 8 February 2022, the Bank was informed that the Tribunal of Torre Annunziata delivered its decision against the Bank with respect of
the Deiulemar case, for an aggregate an amount of €371 million including legal interests and costs.
Under these proceedings the Bank was being requested to pay an amount equivalent to the value of the shares of a company which had
been settled on trust with the Bank as Trustee, and which value the plaintiffs were alleging amounts to €363 million. Bank of Valletta
disputed this claim as shares held were deemed worthless. The Bank held no other assets on behalf of the Deiulemar Group.
The Bank is well capitalised and its operations will not be adversely impacted by this decision. In 2018, the Bank had placed in excess
of €363 million in the hands of an independent entity, following an order from the Tribunal of Torre Annunziata as precautionary security.
In line with advice received from legal counsel, and consistent with several legal opinions as to the underlying strength of our case, on 10
March 2022, the Bank appealed from this decision. The appeal was filed before the Court of Naples. The Bank has also filed a stay of
execution of proceedings.
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On 25 March 2021, the Bank made a capital injection of €20 million in its associate company MAPFRE MSV Life p.l.c. (MMSV). MMSV
had approached its 2 shareholders, Bank of Valletta p.l.c. and Mapfre International S.A for a capital injection of a total of €40 million (€20
million from Mapfre International S.A. and €20 million from the Bank). MMSV’s other shareholder, MAPFRE Middlesea p.l.c., made a
similar €20 million capital injection into MMSV. Following this capital injection, the Bank continues retaining its 50% shareholding in MMSV
and therefore, the Bank retains the same influence within MMSV.
The capital injection of €20 million is a material related party transaction for the Bank. Audit Committee and Board approval and the
necessary regulatory no objection were all sought and obtained.
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The following disclosures are made pursuant to Directive 2014/95/EU:
1
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.
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Bank of Valletta operates a customer centric model that is organised on 3 key customer service pillars. The Retail Banking pillar has been
designed to service the requirements of personal customers, through the introduction of a service model underpinned by the presence
of Universal Bankers that are assigned the servicing of designated customer cohorts. On the other hand, the Business Banking pillar is
servicing the requirements of business customers, whilst the Wealth Management and Investments pillar addresses the investment and
financial planning service needs of the Bank’s customers.
Over the years, the Bank has continued to develop and evolve its comprehensive suite of products and service solutions aiming to meet
the requirements of its clients as they progress through the different stages of their life-cycle. In parallel, the Bank has also continued to
invest in its physical and digital channels to provide its customers with greater service flexibility and ease of access to the Bank’s products
and services. On this front the Bank has initiated a redesign and refurbishment program across its key branches to meet the service
expectations of its customers.
Within this context, the presence of the Bank’s strong branch footprint across Malta and Gozo, remains a critical service touchpoint for
an array of personal banking customers and the delivery of retail products and services. At the same time, the Bank has continued to
develop its internet and mobile banking channel functionalities, which together with its payment app, BOV Pay, have further empowered
its customers to execute transactions with a degree of ease and comfort. The Bank has also very recently introduced a Virtual Branch,
which is a hybrid physical and digital channel allowing customers the ability to purchase select products and services through a digital
channel assisted by the presence of trained Universal Bankers.
The advent of COVID, has in no small way accelerated the use of digital and alternative payment options in lieu of the traditional cash and
cheque-based payments. Cheque issuance and usage has markedly declined over these last two years and clients are increasingly
recognising the efficiency of digital payments. This was also attributed to the fact that pursuant CBM Directive 19 on the use of cheques
and backdrafts, as from 1 January 2022, cheques for amounts of less than €20 can no longer be issued in Malta.
The Bank is currently taking forward several business-led initiatives that are all collectively driven to strengthen the service experience of
its customers, whether they decide to service their requirements through a physical customer service touchpoint, a digital one or a virtual
branch. The aim is to deliver a consistent and seamless omnichannel service experience to our customers.
Bank of Valletta p.l.c.
Annual Report 2021
7
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as at 31 December 2021 (continued)
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Ap
proach to Sustainability and Climate Change
B
ank of Valletta aims to improve the financial wellbeing of customers and community at large. The Bank is experiencing an increased
awareness and urgency to address the global climate crisis and the unprecedented depletion of natural resources and biodiversity. In
this regard, the Bank recognises the need to mainstream environmental issues within business activity, against the backdrop of rapidly
evolving scientific and community perspectives change.
As Malta’s largest financial institution, BOV has the responsibility to support climate and environmental protection by the current
generation and take the opportunity to safeguard and preserve the environment for future generations. BOV aims towards making a
meaningful contribution to the community, mainly by empowering customers and businesses to act more sustainably. This calls for the
transformation of finance into a lever for achieving ambitious climate change targets through a broad-based concerted action. The Bank
is thus aiming to support EU Institutions in the implementation of the action plan towards
financing sustainable growth, which includes
compliance to the EU Taxonomy and standards, finance markets regulatory requirements, prudential regulation and strengthening of
sustainability disclosures.
.
Sustainability and Climate and Environmental-Related Risk Governance
In accordance with Article 74 of the Capital Requirements Directive (CRD), the Bank shall have robust internal governance arrangements,
which include organisational structure, management body, sound policies and procedures, adequate control and reporting for the risks
they are or might be exposed to. The Bank commits to improve its governance by considering climate and environmental-related risks
as material, even if they could not occur in the short to medium term. BOV is strengthening its governance to ensure an effective oversight
of these risks, both on an individual and consolidated basis.
The climate and environmental-related risks will be included in the Risk Appetite Framework of the Bank, under the Environmental, Social
and Governance (ESG) risks, in 2022.
(a) ESG Committee
In 2021, the Board has set up the ESG Committee (effective date 1 January 2022) to secure board-level oversight of strategic climate
and environmental-related risks and opportunity management, as well as strengthening the governance structure in relation to ESG
factors. The Committee acts as the approval board body for the decisions in relation to the Sustainability strategy and its implementation,
and senior line management for points of escalation for decisions relating to climate work underway across the business line of the Bank.
The ESG Committee is chaired by the Bank’s Chairman and is composed of three Non-Executive Directors with representatives from
relevant business functions extending the committees.
(b) ESG Management Committee
An ESG Management Committee is about to be established and foreseen to be convened by the first quarter of 2022. It is meant to be
mandated by the Bank’s Internal Control and Risk Management Committee and will assume the overall responsibility for adequately
embedding climate and environmental-related risks in the holistic business strategy and risk management framework. This includes
overseeing the development of the ESG framework and the process of the implementation on the agreeable strategy. The Bank
considered the knowledge, skills, and experience of the identified members to ensure adequate understanding of the climate and
environmental-related risks and encompasses different personnel covering different areas of the Bank.
(c) ESG Department
The Bank established the ESG Department with direct reporting to the Chief Risk Officer (CRO). This department complements the three
risk distinct departments (Financial Risk Management, Credit Risk Management and Operational Risk Management) with providing an
oversight and monitoring of the climate and environmental-related risks and analysing the impact on the material risks of the Bank. During
the coming year, the Department will be working on the implementation of the Sustainability Risk Framework, whilst putting measurable
monitoring targets in place to support management to exercise its risks, as well as taking timely decisions on a sound and well-informed
basis. Performance in relation to these risks will be evaluated and reported as part of the Risk Appetite Framework dashboard. Moreover,
the ESG Department is responsible for the development and overview of the ESG strategy, maximising the impact and deliverance of the
Bank’s environmental sustainability vision while engaging in dialogue with the key external stakeholders.
The ESG Department assumes the role to support and help the frontliners (i.e., business lines) to improve its capability in identifying and
controlling the risks at source. In the coming future, the Department will be working closely with the business line to implement the
identification, assessment and monitoring of the risks in their respective functional responsibilities. In addition, the ESG Department
supports and engages with the Compliance Department, to aid in the implementation and technical assessment of the impact of the
green regulations and standards, to avoid facing compliance-related risks and any reputational risks, especially in highly technical
regulatory frameworks currently on the negotiations table.
Bank of Valletta p.l.c.
Annual Report 2021
8
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as at 31 December 2021 (continued)
T
he Bank intends to include climate and environmental-related risks in the overall risk management framework which includes policies
and procedures, as well as internal controls. It aims to apply sustainability principles across the Bank. The ESG Department in
collaboration with the other functions within the Bank will be responsible for meeting the requirements of the updated policies in terms of
managing climate and environmental-related matters, whilst the senior management will be responsible for promoting and championing
the sustainability culture throughout the Group.
Business Model and Strategy
W
hilst the studies are showing that the Maltese islands are expected to suffer a moderate impact from climate change, these can be
expected to have significant impacts on business competitiveness and the quality of life of the resident population. The Bank is also
understanding the behavioural changes towards more climate friendly and sustainable practices. In this respect, BOV will be articulating
its long-term commitment to sustainability, and placing it at the core of its business strategy through a Sustainability strategy which will
be launched in 2022, and which will be aligned with the overall business strategy of the Bank. This project will drive an increased focus
on digitization and on ESG-related projects.
(a) Understanding BOV’s exposure to climate and environmental related risks
As part of setting the ESG strategy, during the year 2021, BOV commenced an analysis to identify how the Bank manages its financing
activities at priority sector level. The scope was to develop an insight of the top emissions-intensive sectors of the Bank’s credit portfolio,
which are contributing negatively to climate change adaptation and climate change mitigation. The Bank adopted the United Nations
Environmental Programme Finance Initiative (UNEP FI) Impact Analysis Tool to qualitatively assess the alignment of the credit portfolio
with the Paris Climate Agreement goals and the United Nations Sustainable Development Goals (UN SDGs). The portfolio alignment
analysis is also recognised by the European Banking Authority (EBA) as a method to analyse and evaluate climate and environmental-
related risks. The top four sectors identified are construction, real estate, electricity production and transportation. This granular analysis
is helping the Bank to understand the sustainability and climate impacts of its lending practices. The Bank intends to continue to evolve
its approach as industry practices develop and measurement and methodological standards continue to emerge.
The Bank will integrate climate scenario analysis within the stress testing framework. BOV is building capabilities and tools to produce
reputable and robust group-wide projections under different climate scenarios, including natural disasters for physical risks and transition
circumstances for the accompanying transitional risks. As BOV’s understanding of climate and environmental-related risks matures and
climate science continues to evolve, the Bank will use scenario analysis to inform its overall climate strategy, which will in turn be reflected
in its risk management and business development approaches.
(b) Pursuing sustainability opportunities
BOV wants to future proof its own business and clients by empowering reduction in carbon emissions and accelerate the transition to
long-term sustainability. The Bank is doing this by offering sustainable finance products, supporting the retail, business, and institutional
customers as they embark on this climate-friendly journey.
During the year 2021, BOV launched three energy efficient loan products; the Personal Energy Loan, the Home Energy Loan, and the
Business Energy Loan. All sustainable financing can be defined as taxonomy aligned vis-à-vis climate mitigation since all the eligible
investment costs contribute towards a reduction in carbon emissions and are designed in helping households and businesses to reduce
their emissions and energy costs. The Bank provides these loans to encourage households to invest in clean energy technology that
reduces their energy bills and make their homes more energy efficient. The Business Energy Loan provides financing for efficiency
investments, including sustainable mobility and water efficiency among others. The ultimate objective of the Bank will remain to work and
improve its relationship with businesses, as they harness these new climate and environmental-related opportunities and transit their
business model from ‘brown to green’. The Bank will adopt a risk-based approach to environmental matters, with additional due diligence
being applied to lending in sectors where impacts are high or sensitive in accordance with the EBA Guidelines on loan origination and
monitoring (EBA/GL/2020/06). The Bank’s practices will align with consumer protection rules and respect fair treatment of consumers.
Moreover, BOV is integrating sustainability considerations in the investment decision-making process when providing investment advice
and portfolio management services. The Bank recommends making environmentally responsible investment decisions, taking into
consideration the ESG rating of the investment and the client’s ESG preferences, encouraging more environmental-friendly
considerations. The full details are available in the ‘Wealth’ section of the Bank’s website, under ‘ESG-Environmental Social Governance
Solution’. This report is in line with the EU Sustainable Finance Disclosure Regulation (SFDR).
(c) Reducing the Bank’s own carbon footprint
The Bank aims to reduce operational emissions and make progress on its climate ambitions. The Bank intends to focus on the reduction
of the direct emissions from fuel and processes (Scope 1 emissions) and emissions from purchased electricity (Scope 2 emissions). This
will be achieved through its considerate practices and continued investment in smart technologies to increase the energy efficiency of
buildings and equipment and by using electricity from renewable sources. Scope 3 emissions relate to the indirect emissions that occur
in the Bank’s value chain, which the Bank will be studying further to obtain a complete assessment of the carbon footprint of its business
activities
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Bank of Valletta p.l.c.
Annual Report 2021
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(d)
Prudential Disclosures
BOV’s approach will be to transparently disclose material climate and environmental-related information. The Bank strongly believes that
timely disclosures are important to ensure that its customers, community, regulators, and other stakeholders are aware of the work the
Bank is doing to limit the wide damaging impacts of climate change.
The Bank’s annual sustainability reporting reflects compliance to the Non-Financial Reporting Directive (NFRD) by disclosing the
information in this Group’s Annual Report. The reporting is aligned with the financial industry best practices in terms of guidelines,
frameworks, and initiatives for disclosures such as the ECB report on institutions’ climate and environmental-related risks disclosures.
The Bank is also doing its effort to adopt recommendations by the Financial Stability Board’s Task Force of Climate-related Financial
Disclosures (TCFD). Furthermore in 2021, the Bank adhered to its regulatory requirements of non-financial disclosures by submitting its
ESG report for year ending 2020 to the online Malta ESG Platform which is piloted by the Minister for Energy, Enterprise, and Sustainable
Development. The platform illustrates the ESG credential of listed companies. BOV reported its carbon footprint and quantified its impact
by efficient use of water and other resources. This information is available on https://sustainabledevelopment.gov.mt.
Risk Management
E
BA defines climate and environmental-related risks as the risk of losses arising from any negative financial impact on the institution
stemming from the current or prospective impacts on the institution’s counterparties or invested assets including factors related to the
transition towards the following environmental objectives;
(i) climate change mitigation;
(ii) climate change adaptation;
(iii) the sustainable use and protection of water and marine resources;
(iv) the transition to a circular economy;
(v) pollution prevention and control and
(vi) the protection and restoration of biodiversity and ecosystems.
Physical Risk: Pressure points from the physical risks arise largely from the permanent impairment due to more frequent and extreme
weather events and long-term shifts in climate patterns. These could include droughts or heatwaves leading to fires as well as flooding
from heavy rains or from rising sea levels. This results in the risk of reduced value of the Bank’s assets, including those held as collateral
or investments. Reduced asset values in affected locations or sectors could have implications on the Bank’s customers’ ability to repay
loans, resulting to increasing losses for the Bank from more customer hardship cases. Moreover, severe weather events could potentially
lead to negative operational implications related to buildings and infrastructure owned by the Bank as well as overall business continuity.
Transition Risk: Transition risks occur from the process of adjustment towards low carbon economy through abrupt implementation of
green policies and regulations such as the introduction or increase of carbon prices or taxes, technological developments, shifting investor
expectations and consumer sentiments. Transition risks will mostly affect the Bank’s business clients which have carbon-intensive
operations or products if they fail in diversifying, conducting efficient transition or reallocating capital. For instance, carbon prices could
affect the business profitability. The cost of transition is likely to have an impact on the economic outlook of the countries, pushing up
inflation and interest rates. Furthermore, increased supervisory focus could intensify the risk of compliance breaches or litigation fines.
For this reason, BOV is closely following the negotiations in relation to the Fit for 55 Package, as well as the Climate Delegated Act, which
proposes further adjustments in the business models of financial and non-financial undertakings in Europe.
(a) Risk Management Framework
Climate and environmental-related risks arising from physical and transitional risks have far-reaching implications. They pose potentially
adverse direct and indirect impacts on the strategy, financial metrics, and operations (non-financial) of the Bank. BOV’s reputation could
be impacted by continuing to finance certain industries, activities, and customers, or by setting emissions reduction targets and strategies
deemed by the community to be inadequate. Climate and environmental-related risks could manifest through the Bank’s material risk
types such as credit risk, operational risk, market risk and liquidity and funding risk. Climate change will also present opportunities for the
Bank arising from the provision of support to emerging climate-friendly sectors and business practices.
The Bank is carrying a materiality assessment on climate and environmental-related risks covering physical and transitional risks to
subsequently integrate into the material risks in the risk inventory and management framework of the Bank. This is foreseen to be
concluded by March 2022.The Bank aims to adopt an enterprise view to identify the associated key risks and classify them as short term,
medium term, and longer term. The evaluation of climate and environmental-related risks will play a key role in the Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) processes of the Bank. The Bank
will develop mechanisms to have a functioning risk management framework for these risks, which will offer further granularity of the
analysis.
In the coming years, BOV strives to build knowledge and strengthen its capabilities and skills to keep refining the climate and
environmental-related risks management approach in accordance with the changing regulatory landscape, while responding to new
requirements as necessary. BOV is reaching out to environmental authorities to seek scientific facts, develop standards and identify
pragmatic solutions for the eventual integration of the climate and environmental-related data into the risk inventory and the risk
management framework of the Bank.
Bank of Valletta p.l.c.
Annual Report 2021
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M
etrics and Targets
M
etrics and targets assist the appropriate management of the risks and opportunities associated with climate change and environmental
issues. While metrics on climate and environmental-related risks are still in development, BOV is currently tracking metrics related to
emissions from its own operations, to eventually develop targets for performance.
The Bank plans to develop metrics to routinely monitor the climate and sustainability performance of its portfolios. The Bank will be
complying with further mandatory regulatory metrics, such as the Green Asset Ratio (GAR), and eventually the Banking Book Taxonomy
Alignments Ratio (BTAR) as mandated under the Pillar 3 disclosures guidelines. The selected risk metrics and thresholds will be included
in the Bank’s Risk Appetite Framework in 2022.
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a) T
rade Unions
A substantial number of the employees within the Bank are members of a trade union. The two main trade unions within the Bank are
MUBE and GWU with the latter currently being the recognised union. The Bank’s relationship with both unions is very good and is
characterised by unilateral communication and healthy discussions. This is proven by the fact that the Bank did not experience any
industrial actions in years.
b) Community Relations
2021 continued to present the challenges brought about by COVID-19, however the Bank had already laid all the groundwork for working
during the pandemic during 2019, and continued to hone them to continue supporting the community and to drive the BOV2023 strategy.
The drive towards more digital banking was continued using different virtual tools both for our staff members as well as our customers.
Safety was always on the top spot of our agenda, but we still found ways to encourage our staff to be socially responsible, through
various initiatives related to health and philanthropy while continuing to support various initiatives through the Bank's extensive Community
Programme.
The Bank aligned its efforts within the community to the United Nations Sustainable Development Goals, in line with its commitments
towards sustainability while continuing to navigate through the disruptions brought about by the pandemic.
The Bank’s Corporate Social Responsibility are described in further detail under Principle 12 within the Corporate Governance Statement
of Compliance within this Annual Report.
c) Consumer Relationships
The Bank has in place an integrated business model that is customer centric and supported by a suite of banking products and services
that are delivered to its customers through both physical and digital channels.
This enables our customers to engage with the Bank through their channel of choice or to simply self-service their requirements through
the Bank’s digital channels.
Over the course of this year, the Bank has introduced a new service model across its branch network that is underpinned by the presence
of Universal Bankers who have been upskilled to provide customers with a breadth of banking services to include consumer finance and
investments amongst others.
In addition, the Bank has also launched a Virtual Branch, which is a hybrid digital channel featuring the presence of a Universal Banker
were select products and services may be acquired through this channel. The Bank has also introduced new functionality on its website
which allows customers to open a personal bank account and also the ability to set an appointment with the branch of their choice to
discuss specific products or services.
.
A number of initiatives are in progress which further strengthen the ability for customers to engage with the Bank through the choice of
channel.
Bank of Valletta p.l.c.
Annual Report 2021
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T
he total headcount of all employees is 2,030. This includes all gender (both male and female) as well as both permanent and temporary
employees. A similar breakdown of the total headcount of 2,030 is also provided by Nationality below.
The full-time employment rate (%) is 97.6%. With regards to gender, the percentage of Female Board of Directors stands at 23.1% and
the percentage of Female Management Cohort is 51.4%. In total, the percentage of the Bank’s Female Workforce is 63.2%. Over the
past months, the percentage figure of multinational workforce increased to 0.8%.
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T
he Bank uses various tools for screening new employees as part of its due diligence process, including Police Conduct, Safe Watch
and Credit Info screening, reference letters and others, as the case may be, whilst remaining within the ambit of the General Data
Protection Regulation (GDPR) requirements. The due diligence process in respect to recruitment and resourcing is laid down in the Bank's
Resourcing Policy. During the course of employment, employees are also expected to abide with other policies and guidelines, mainly
the Code of Conduct and Ethics Policy, the Conflict of Interest Policy, as well as other, role specific policies to ensure that staff members
abide with regulatory requirements. Compliance is ensured through regular internal and external audits and audit trails. Non-compliance
and breaches of the above, as well as other policies, may lead to sanctions as contemplated in the Discipline Section of the collective
agreement.
The ratio of the average basic remuneration, by gender is €32,680 for the Male Workforce and €29,797 for the Female Workforce. The
reason for this variance is due to the difference in tenure, with that of Males being higher than Female (on average 2.5 years). The ratio of
the average basic remuneration by gender was worked out as a sum of female (or male) salary per capita/sum of all salaries per capita.
Moreover, the difference in percentage terms of the total remuneration (salary) is -8.8%. The difference in total remuneration was worked
out taking into consideration all levels of employment type.
T
he Bank is covered by a Collective Bargaining Agreement which binds the relationship between the organisation and its employees. The
percentage of employees under collective bargaining agreements is 97%. The employees under collective bargaining agreement includes
all employees up to managerial role less those working on part time basis and definite contract. The prevailing Collective Agreement
includes several Family Friendly measures ensuring employee matters are looked after, including but not limited to Flexible Work
Arrangements, Adoption/Fostering Leave, Bereavement Leave, Community Work Leave, Employee Welfare and an Employee Wellness
Allowance. As the Collective Agreement expired in December 2021, the Bank is currently negotiating the next Collective Agreement with
the trade unions. The following tables depict the number of employees entitled to parental leave, the number of employees who have
taken up this family friendly measure, the latter also being compared to the total labour hours. The parental leave taken is 2.3%.
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Parental leave hours taken 800 83,048
Total labour hours 1,749,800 2,372,760
T
he Bank also has in place a number of policies ensuring respect for human rights including a Bullying Policy, a Sexual Harassment
Policy, a Code of Ethics, an Employee Grievance Policy and an Equality Policy. Related to the latter, the Bank has been awarded the
Equality Mark, in recognition of the Bank's non-discriminatory approach to its workforce. Indeed, Bank of Valletta employs over the
requested quota for employees with special needs and last year received an award for the most company operating in an inclusive
manner - 'Premju Socjeta Gusta'. The different ability employment percentage is 1.4%.
Bank of Valletta p.l.c.
Annual Report 2021
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M
oreover, the Bank has an Employee Assistance Programme that assists employees resolve personal or work related problems that may
impact their ability to carry out their work-duties. The Bank, in conjunction with the Richmond Foundation, also offers its staff members
free Mental Health Care related services on a confidential basis. The Bank receives annual feedback from Richmond Foundation regarding
the number of employees making use of these services, which information confirms that employees are well informed about these services
and make use thereof when necessary. The Bank also holds a Mental Health Policy.
As part of its people strategy, the Bank gives significant importance to Human Rights matters in various ways, as follows:
Grievances - The Bank is highly committed in ensuring that all employees are given the opportunity to voice their personal and/or collective
grievance without any fear, hesitation or doubt that this will have a negative impact on their employment and career. To this effect, the
Bank has a grievance policy in place to regulate and facilitate the process of addressing grievances. This involves the setup of an
independent board, who has knowledge of the Bank’s Collective Agreement, to hear and evaluate the grievance eventually leading to a
decision on the remedy to the case. During FY 2021 the Bank did not register any official claim under the Grievance Policy.
Ad Hoc Boards - In those instances where HR is notified of any situation/s either by employees of third parties which might be adversely
affect one or more aspects of the Bank’s daily operations, HR may also appoint an ad-hoc independent board to investigate the matter
and its veracity, and propose a suitable action and way forward. There were no such instances in FY 2021.
Discipline - The Bank requires all its employees to comply to its Code of Conduct and with proper standards of performance and
behaviour, and to maintain the highest level of integrity both inside and outside the Bank. In the case of breaches of these standards, the
Bank takes the appropriate disciplinary action regulated by a Discipline clause within its Collective Agreement. There were no such cases
which were initiated in FY 2021.The Bank is in the process of updating its Disciplinary Policy.
Bullying Policy - The Bank considers any unwelcome physical, verbal or nonverbal behaviour which denigrates, ridicules, or intimidates
individuals as unacceptable. Through this policy, the Bank wants to ensure that its employees are treated with respect and dignity, and
that their rights are safeguarded at all times. Moreover, the objective of this policy is to raise organisation-wide awareness on the impact
of bullying on fellow colleagues as well as the implications and consequences of such inappropriate behaviour. There were no cases of
bullying in FY 2021.
Sexual Harassment Policy - The Bank is committed to provide a professional work environment for every individual that comes into
contact with the organisation. The Bank does not tolerate, condone or allow sexual harassment (verbal or physical) whether engaged in
by fellow employees, management, associates and partners or by outside clients or other non-employees who conduct business with
the Bank. The Policy also acknowledges that the victim of sexual harassment may experience emotional stress, physical stress and/or a
negative change in job performance. Therefore, necessary support through the Staff and Organisation Support Programme would be
made available. There were no cases of sexual harassment in FY 2021.
KPIs - The Bank has designed a mechanism whereby employees who, following discussions with their respective line managers, fail to
agree with the feedback given on their KPIs, can notify HR to kick-start a process aimed at resolving possible misunderstanding between
the employees and their line manager.
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he Bank remains committed to high standards of ethical behaviour and has zero tolerance towards bribery and corruption. Following
the setting up of a dedicated Anti-Bribery and Corruption Function within the AFC Department and the introduction of a new Anti- Bribery
and Corruption Policy, as reported in 2019, the Bank has continued its efforts to increase controls in this area, thereby minimising risks
to stakeholders, the economy and society in general, through the setting up of procedures aligned to the policy requirements, which are
also supported by the bank-wide training programme.
The Bank requires that all employees, including the Board of Directors and associated persons, are to comply with the principles in the
policy, in the performance of their duties for or on behalf of the Bank. The policy requires all the Bank entities and individuals to apply
controls in order to protect against bribery and corruption risks particularly within activities such as the receiving and offering of gifts and
hospitality, hiring, third party management, speaker events, sponsorships, donations, charitable giving, joint ventures, mergers, and
acquisitions. Specific procedures, systems, and controls to manage bribery and corruption risks covering these activities have been
outlined within the bank’s procedures. Monthly controls are in place to review the position and escalate any issues as part of the
governance committees' reporting.
All BOV employees are to undergo mandatory annual Anti-Bribery and Corruption training. Additionally, specific training is delivered to
employees who by nature, their role is exposed to higher risks of bribery and corruption.
Bank of Valletta p.l.c.
Annual Report 2021
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n conducting its day-to-day business activities, the Bank is exposed to different risk types. The sound management and control of such
risks is important to ensure that the relative probability of risk event materialization is minimized to the greatest extent possible in the
interest of institutional stakeholders.
Risk management and control is practised under the following configuration:
i) Top-level corporate governance: Board of Directors, various Board Committees such as the Risk Committee, Executiv
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ommittee, and other management committees such as the Asset and Liability Management Committee (ALCO) and Internal
Control and Risk Management Committee (ICRM);
ii) First line: revenue-generating business units – such ingrained frontline risk management internal control measures, with dedicated
risk correspondents appointed to facilitate the implementation of the operational risk policies and the embedment of the Bank’s
risk culture across the network;
iii) Second line: this comprises various second-tier risk control and oversight functions such as Financial Risk Management, Credit
Risk Management, Operational Risk Management, Compliance, Anti-Financial Crime, Financial Control, and other back-office
support functions (example: quality control);
iv) Third line: independent assurance and constructive challenge by the Group Internal Audit.
The main risk types are outlined hereunder:
a) Credit Risk:
The risk of loss arising from default or credit quality deterioration of a customer or other counterparty to whom the Bank has either directly
provided credit or in respect of whom it has assumed a contractual obligation.
This risk is managed and controlled in various ways such as through the regular review of credit policies to reflect the Bank’s Risk Appetite
framework, credit scoring systems, an internal risk rating system supplemented by an Early Warning System to enable proactive
monitoring, a forward-looking expected loss model for quantifying provisions compliant with the IFRS 9 accounting regime, stress testing
relating to credit risk, and various other measures. The Bank’s underwriting processes include a four-eye approach for business credit
facilities and retail facilities of significant magnitude. The Bank has implemented more stringent policies relating to forbearance and
nonperforming loans and has included more granular credit risk-related Key Risk Indicators in the Bank’s Risk Appetite Framework,
internal limits relating to single-name and sectoral concentration risk, and various other mitigants. The Bank is also currently enhancing
its credit rating model, making it more granular, and whose outputs will feed into the pricing tool and the ECL model, as well as the
Bank’s underwriting tool. Furthermore, to mitigate the potential negative effects of COVID-19, a strategy has been implemented which
enables closer monitoring of impacted customers and detailing the management and support afforded to these customers.
b) Operational Risk:
The Group defines operational risk, in line with the Basel framework, as the risk of loss resulting from inadequate or failed internal
processes, people, systems or from external events. It covers execution errors, fraud, legal, cyber, regulatory and conduct risk amongst
its sub-categories.
Operational risk spans across all departments, products and channels of the Group and encompasses the entire value chain, including
outsourcing service providers. For this reason, all employees are responsible for managing and controlling the operational risks generated
by their activities.
The Group’s goal in terms of operational risk management is timely identification, assessment and mitigation of material operational risks.
This is achieved via the use of core risk management tools such as Risk and Control Self-Assessments that are required to be undertaken
by every area of the Bank as well as Risk Event management, which allows to record and analyse failures and losses and derive lessons
learned.
The Group’s overall operational risk appetite is low; and this aims to protect the Bank’s franchise, to support its strategic objectives, and
ensure availability of services to support the local economy. Over the last two years, the Bank has taken concrete measures to strengthen
the Operational Risk Management Framework, enhance the core set of policies and implement robust governance arrangements and
senior committees that are tasked to oversee the Operational risk portfolio of the Bank. Every area of the Bank has a dedicated Risk
Correspondent, an essential role to support the embedding of Operational risk management across the whole organisation. The Group
continues to invest in its technical and human resources to meet and comply with the increased regulatory expectations and to ensure
that it has solid foundations to facilitate timely, accurate and meaningful operational risk reporting which is required in order to monitor
and take remedial action to address existing and emerging risks. A dedicated IT solution fully integrates the core elements of operational
risk thus having one single repository containing an inventory of key risks and controls including the functionality of action management
and risk event management.
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Annual Report 2021
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c) M
arket Risk:
Market risk is the risk incurred as a result of changes in market factors such as interest rate, credit spreads and foreign exchange rates
that affect the value of positions mainly in the investment portfolio). A robust and prudent Treasury Management Policy ensures that
responsible and well-informed risk-taking is practiced by the Treasury function in line with the overall direction provided by ALCO and
Risk Management Committee. Other important processes include the analysis of counterparty credit risk, credit valuation adjustment,
and the development of a methodology to quantify position risk on the part of the investment portfolio which is reported in the audited
accounts at fair value (i.e. on a mark-to-market basis). The Bank has its own Interest Rate Risk in the Banking Book (IRRBB) model to
quantify risk arising under different stressed scenarios as prescribed by applicable regulatory dicta and which is premised on two
approaches: the Economic Value of Equity approach and the Earnings Based approach.
d) Liquidity Risk:
Liquidity risk is the risk that the Group will be unable to meet its obligations when they fall due, or can only obtain them at an unreasonably
high cost.
A range of liquidity risk management tools are used to monitor liquidity risk such as maturity ladder gap analysis and the regular updating
of key metrics Including: the Liquidity Coverage Ratio, the Net Stable Funding Ratio, the Loans-to-Deposit Ratio, the Maturity
Transformation Metric and various others. Furthermore, over and above the Internal Liquidity Adequacy Assessment Process (ILAAP)
which is thoroughly reviewed every year, the Bank conducts robust stress testing on liquidity in line with the Stress testing programme
which is reviewed and updated on an annual basis. Other important elements within the liquidity risk management toolkit include the
Contingency Funding Plan which is regularly updated and tested by means of simulation exercise and a prudent Liquidity Risk Policy
which is also updated periodically.
e) Solvency Risk:
The Group ensures that it is adequately capitalised to meet all regulatory requirements to achieve its strategic objectives in line with its
risk appetite, and to be able to withstand unforeseen macroeconomic downturns. The Group insists that capital should be managed in
a transparent and consistent manner to ensure the most efficient outcome for shareholders, whilst at the same time be compliant with
all relevant regulatory conditions.
As part of the Internal Capital Adequacy Assessment Process (ICAAP) the Bank monitors the capital position on a regular basis and
updates its Capital Plan to ensure that there is enough capital not only to meet Pillar 1 risks – credit, operational, and market – but also
other Pillar 2 risks such as IRRBB, concentration risk, equity risk, and others.
Stress testing which is performed on a quarterly basis, aims to ensure that the Bank’s capital position is able to withstand severe macro-
economic downturns in terms of important capital related ratios, including the Common Equity Tier 1 capital, total Capital Adequacy Ratio
and Leverage ratio.
f) Regulatory Compliance Risk:
The risk of non-compliance with legal and regulatory requirements as well as supervisory expectations which may result in administrative
or disciplinary sanctions, or of material financial loss, due to failure to comply with the provisions governing the Group’s activities. By
ensuring that these rules are observed, the Group works to protect its customers, shareholders, counterparties and employees.
This is conducted in alignment with the Group strategy as operating a business model based on prudence and sound governance, and
to continue strengthening the corporate ethos based on integrity, fairness and transparency.
(i) Financial Crime Compliance
The BOV Group is committed to fight against financial crime and to set up and implement a programme to identify, understand and
mitigate the financial crime risk. The financial crime risk encompasses:
a) money laundering and terrorist financing,
b) breaches of sanctions, and
c) bribery and corruption.
The Bank maintains a thorough AFC risk assessment in order to identify, understand, manage and mitigate inherent AFC risks. Risk
mitigations measures are designed and implemented to control adequately and effectively those inherent risks. Inherent and residual risks
are managed in line with the Bank’s risk appetite.
On December 17 2021, the Financial Intelligence Analysis Unit (FIAU) imposed a fine of €2.6 million on the Bank, as an administrative
penalty for failing to report Beneficial Ownership information for 2,442 corporate customers in the Central Bank Account Register (CBAR)
reporting to the FIAU. The Bank took immediate action to address the matter and is also carrying out a bank-wide data quality review
exercise. There is no suggestion that any of the affected accounts were involved in money laundering or terrorism. The Bank continues
to invest heavily in a transformation program and today is able to combat financial crime much more effectively and sustainably over the
long-term.
BOV remains committed to implement a robust financial crime compliance programme.
Bank of Valletta p.l.c.
Annual Report 2021
15
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as at 31 December 2021 (continued)
(
ii) Regulatory Compliance
Complying with the regulatory obligations and internal codes is the responsibility of all Group employees who must demonstrate
compliance and integrity in their daily tasks. The Bank operates a three lines of defence governance model with the first line responsible
for identifying and managing risk as part of their accountability for achieving objectives. The second line provides the policies, frameworks,
tools, techniques and support to enable risk and compliance to be managed in the first line and conducts monitoring to assess the
effectiveness of the risk management controls. The third line of defence provides independent assurance.
Group Compliance is an independent risk control function headed by the Group Chief Compliance Officer and constitutes the second
line of defence for compliance risk. The Group Chief Compliance Officer reports to the Chief Executive Officer and to the Compliance and
Anti Financial Crime Committee, which is a Board Committee. The Bank’s Money Laundering Reporting Officer and a Group Data
Protection Officer report to the Group Chief Compliance Officer.
g) Key Performance Indicators (KPIs)
The Group has in place a set of key performance indicators (KPIs) that are quantifiable measures which ensure that material risks are
kept within defined thresholds as formalized in the Risk Appetite Framework. A selection of key metrics is tabulated hereunder.
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arious non-financial KPIs enable the Directors also to evaluate the risk profile exhibited on other risks such as reputational, compliance,
anti-financial crime, operational, and risk culture.
The KPIs are reported on a regular basis in the Risk Dashboard which includes targets set to facilitate comparison between progress
achieved towards attainment of strategic objectives and the actual risk profile exhibited viz.: ‘within target’, ‘within tolerance’, ‘limit’.
Other than as disclosed in note 43 to the financial statements, there were no subsequent events which would have otherwise warranted
an adjustment to or disclosure in these financial statements.
7
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9
T
he COVID-19 pandemic continued to have an economic and social impact on a substantial number of our customers. The wide-ranging
effects of the pandemic are multi-faceted and have re-defined the business model of a number of our business customers and the life
style and social dynamics of our personal customers as well as that of our staff. As the largest bank in Malta, Bank of Valletta has
continued to be a protagonist in taking immediate and wide-ranging actions to ensure business continuity to our commercial customers
and also continued to ensure the least possible economic hardship for our personal customers.
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W
e, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Bank and its subsidiaries
included in the consolidation taken as a whole, 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 consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face.
Signed on behalf of the Bank’s Board of Directors on 22 March 2022 by Gordon Cordina (Chairman) and Rick Hunkin (Chief Executive
Officer) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Accounts
2021.
Bank of Valletta p.l.c.
Annual Report 2021
16
Corporate Governance Statement of Compliance
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Pursuant to the Capital Markets Rules, Bank of Valletta p.l.c. (the Bank) as a company whose equity securities are listed on a regulated
market, should endeavour to adopt the Code of Principles of Good Corporate Governance (the Code) contained in Appendix 5.1 to
Chapter 5 of the Capital Markets Rules. In terms of Capital Markets Rule 5.94, the Bank is obliged to prepare a report explaining how it
has complied with the Code. For the purposes of the Capital Markets Rules, the Bank is hereby reporting on the extent of its adoption of
the Code.
The Board of Directors (the Board) is committed to the values of truth, transparency, honesty and integrity in all its actions. The Board
strongly believes that the Bank benefits from having in place more transparent governance structures and from improved relations with
the market which enhance market integrity and confidence. The Board acknowledges that the Code recommends principles for the
Board and the Bank’s management to pursue objectives that are in the interest of the Bank and its shareholders.
Good Corporate Governance is the responsibility of the Board, and in this regard the Board has adopted a corporate decision-making
and supervisory structure that is tailored to suit the requirements of the Bank’s constitutional documents as well as its size, nature and
operational needs. In addition, while the structure provides flexibility and an efficient decentralisation of selective decision-making, it
concurrently provides a system of checks and balances. The Board believes that any structure which is adopted must be geared to meet
the necessary standards of accountability and probity, and considers that the structure which it has adopted does so.
As demonstrated by the information set out in this Statement, together with the information contained in the Report of the Remuneration
Committee and in the Nominations Report, the Bank believes that it has, save as indicated herein, in the section entitled Non-Compliance
with the Code, throughout the accounting period under review, applied the principles and complied with the provisions of the Code. In
the Non-Compliance section, the Board indicates and explains the instances where it has departed from or where it has not applied the
Code.
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The Board’s role and responsibility is to provide the necessary leadership, to set strategy and to exercise good oversight and stewardship.
The Board is composed of a Chairman, two Executive Directors and ten Non-Executive Directors. This mix of Executive and Non-
Executive Directors on the Board enables the Non-Executive Directors to exercise their monitoring function over the management and
the executive arm of the Board at the level of the Board. Moreover, the fact that the Chief Executive Officer (CEO) is also an Executive
Director on the Board, enables the Board to be in receipt of timely and appropriate information in relation to the business of the Bank
and Management’s performance. As a result, the Board can contribute effectively to the decision-making process, whilst at the same
time exercising prudent and effective controls.
The Board delegates specific responsibilities to a number of Committees, notably the Audit Committee, the Risk Committee, the
Compliance and Anti-Financial Crime Committee, the Remuneration Committee and the Nominations and Governance Committee, each
of which operates under formal Terms of Reference approved by the Board.
Further details in relation to the Committees and the responsibilities of the Board is found under Principles 4 and 5 of this Statement.
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The Bank’s organisational structure incorporates the position of a CEO. The position of the Chairman and that of the CEO are occupied
by different individuals. Their respective positions have been defined with specific roles rendering these positions completely separate
from one another. These specific roles are identified within the Board Terms of Reference and in their contract of engagement. This
separation of roles of the Chairman and the CEO avoids concentration of authority and power in one individual.
The Chairman is responsible to lead the Board and to set its agenda. The Chairman ensures that the Board’s discussions on any issue
put before it goes into adequate depth, that the opinions of all the Directors are taken into account and that all the Board’s decisions are
supported by adequate and timely information. The Chairman ensures that the CEO develops a strategy which is agreed to by the Board.
On the other hand, the CEO, besides being an Executive Director, leads the Bank’s Executive Committee, which is the highest executive
de
cision-making body within the Bank.
More information on the Bank’s Executive Committee can be found under the section entitled Executive Committees, within this
Statement.
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The Board considers that during the year under review the size of the Board, whilst not being too large as to be unwieldy, was appropriate,
taking into account the size of the Bank and its operations. The combined and varied knowledge, experience and skills of the Board
members provided a balance of competencies that are required and add value to the proper functioning of the Board.
Bank of Valletta p.l.c.
Annual Report 2021
17
Corporate governance statement of compliance (continued)
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uring Financial Year 2021, the Board consisted of the following Independent Non-Executive Directors:
Between 1 January and 19 May 2021 there were seven (7) Independent Non-Executive Directors
Between 20 May and 31 December 2021 there were ten (10) Independent Non-Executive Directors (three (3) of whom were
approved by the regulatory authorities in December 2021)
During the year under review, the Board included also one Non-Independent Non-Executive Director (as indicated on pages (ii) and (iii) of
the Annual Report) and two Executive Directors. In determining the independence or otherwise of its Directors, the Board has considered,
amongst others, the notion of independence as contained in the Code, the Bank’s own practice as well as general good practice
principles.
Moreover, the Non-Executive Directors have to prepare a written annual declaration of their independence to the Board in line with Code
Provision 3.4 declaring that they undertake:
to maintain in all circumstances his/her independence of analysis, decision and action;
not to seek or accept any unreasonable advantages that could be considered as compromising his/her independence; and
to clearly express his/her opposition in the event that s/he finds that a decision of the board may harm the company.
The Board believes that, by definition, employment with the Bank rendered Director James Grech as Non-Independent from the
Institution. However, this should not, in any manner, detract from the said Non-Independent Director’s ability to maintain independence
of analysis, decision and action at all times. Moreover, having considered Mr Grech’s role and duties within the Bank as a Bank employee,
the Bank deemed Mr Grech to be a Non-Executive Director.
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he appointment of Executive Directors is regulated by article 24 of the Articles of Association. In accordance with the said article, the
CEO of the Bank shall ex officio become an Executive Director by virtue of his office and shall remain in office until the tenure of office as
CEO.
The Non-Executive Directors shall appoint at least one other Executive Director on the Board from amongst the Senior Management and
may also appoint a third Executive Director if the Non-Executive Directors consider it in the best interest of the collective knowledge and
competence of the Board to do so. To date, one additional Executive Director has been appointed and that position is held by the Chief
Risk Officer, which is in line with the Bank’s strategic initiatives to highlight risk management even at Board level.
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rticle 23.3 of the Bank’s Articles of Association specifies that the Board of Directors shall consist of a maximum of three (3) Executive
Directors and a maximum of nine (9) Non-Executive Directors. In the event of the co-option to the Board, pursuant to article 27A, of a
maximum 2 additional Non-Executive Directors, the maximum number of Non-Executive Directors shall be eleven (11).
The appointment of the Non-Executive Directors is governed by articles 25 and 27A of the Articles of Association and appointments may
be made as follows:
(a) By Qualifying Shareholders – namely members holding at least 10% of the issued share capital of the Bank having voting rights,
that are entitled to nominate, for the approval of the Nominations and Governance Committee, one person for each 10% voting
shares held; and
(b) By Non-Qualifying Shareholders not having a Qualifying Shareholding, but who individually or in aggregate hold not less than
€50,000 in nominal value of shares having voting rights in the Bank and who are entitled to make recommendations for the
approval of the Nominations and Governance Committee; or
(c) By the Nominations and Governance Committee itself seeking the recruitment of fit and proper persons having the right attributes
that can add value to the Board of Directors.
(d) By the Non-Executive Directors pursuant to Article 27A of the Articles of Association as explained in further detail below.
Save for the provisions in para (d) above, all Non-Executive Directors are appointed by the Bank’s shareholders during the Annual General
Meeting.
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rticle 27A of the Bank’s Articles of Association provides for the additional appointment of Non-Executive Directors by Co-Option. This
article was introduced in the Articles of Association and approved during the Annual General Meeting held on 9 May 2019.
The objective of this article was to address situations where, notwithstanding the efforts that may be made by the Nominations and
Governance Committee to ensure that the Board of Directors of the Bank had the necessary mix of skills and experience, there could
arise situations where those efforts could not yield the appropriate mix and combination of skills, or where the regulator could require
certain skills which may not be present on the Board. In these situations, the Board would need to react in a relatively short time to ensure
that the composition of the Board fulfils its ultimate aim. Accordingly, this Article empowers the Board of Directors (specifically, the Non-
Executive Directors) to co-opt up to a maximum of additional two Non-Executive Directors to sit on the Board of Directors of the Bank,
only in those instances where the nine Non-Executive Director positions were already filled, but the then current Board complement did
not have the composition required by regulation or in the opinion of the Nominations and Governance Committee, the Board still did not
Bank of Valletta p.l.c.
Annual Report 2021
18
Corporate governance statement of compliance (continued)
h
ave the appropriate mix of collective skills, knowledge and experience. Such co-opted Non-Executive Directors would be appointed for
a three (3) year term with eligibility for re-appointment.
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ll Directors, irrespective of the manner in which they are proposed, can only take office following the approval of their nomination by the
Nominations and Governance Committee. In this context, the Nominations and Governance Committee is the organ that, after having
scrutinised the list of candidates to ensure that the Board will have the appropriate collective knowledge, experience and competence,
will then place the list of approved candidates for election at the Annual General Meeting. More information on the Nominations and
Governance Committee is found under the Nominations Report. The appointment of all Directors is subject to regulatory approval.
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he Bank has a system of rotation of Directors aimed at ensuring a certain level of continuity within the Board of Directors. The system
of rotation of Directors contemplates the retirement of one-third of the Non-Executive Directors in each year, with the remaining two-
thirds of the Board retaining office. This is aimed at providing stability of policy-making and implementation by retaining a majority of the
Board in place for a period of at least three years at any time. Those Directors whose turn it is to retire from office, pursuant to the rotation
system, will be eligible for reappointment, subject to approval by the Nominations and Governance Committee. The Directors to retire
first shall be determined as follows:
(a) Those Non-Executive Directors who wish to retire and who do not seek reappointment prior to the full term of their appointment;
otherwise,
(b) To the extent that there are no Non-Executive Directors who wish to retire and who do not seek reappointment prior to the full
term of their appointment, those who retire first shall be the Non-Executive Directors who have been longest in office, including
by virtue of re-election, since their first election, but as between persons who became Directors on the same day or in the event
that the duration in office cannot be properly determined those to retire shall (unless they otherwise agree among themselves) be
determined by lot.
A retiring Director shall only be eligible for re-election provided that such person did not occupy the office of Non-Executive Director for an
aggregate period of more than 12 years in any period of 15 years.
Pursuant to Article 28.2 of the Bank's Articles of Association, one-third of the Bank’s Non-Executive Directors shall retire at the Annual General
Meeting (AGM).
The most senior Directors who have been longest in office, including persons who became Directors on the same day, due to retire during the
2022 AGM are Mr Stephen Agius (re-appointed on the Board in May 2018) and Mr James Grech (re-appointed on the Board in May 2019).
Directors Stephen Agius and James Grech are both eligible for re-appointment on the Board.
Therefore, the Bank has two vacancies for Non-Executive Directors to be filled during the 2022 AGM. On the 9 February 2022, the Bank issued
a call for interested persons who would like to submit their nomination for appointment as Non-Executive Directors on the Board pursuant to
Article 25 of its Articles of Association. The Bank received nominations from four (4) individuals. An assessment of each nomination will be carried
out by the Nominations and Remuneration Committee (previously Nominations and Governance Committee). As from 1 January 2022, the
Remuneration Committee and the Nominations and Governance Committee were amalgamated into a single committee namely the Nominations
and Remuneration Committee, with the functions currently being served by each committee to continue being carried out by the new committee.
The Nominations and Remuneration Committee is co-chaired by Gordon Cordina and Antonio Piras. Stephen Agius is a member of the
Committee.
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.
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c
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.
.
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NNuummbbeerr ooff DDiirreeccttoorrsshhiippss hheelldd::
EExxeeccuuttiivvee DDiirreeccttoorr ((EEDD)) && NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr ((NNEEDD))
Gordon Cordina (Chairman)*
2 NED and 1 ED
Stephen Agius
1 NED
Kevin J. Borg
1 NED
Miguel Borg**
3 NED and 1 ED
Diane Bugeja
1 NED
Elizabeth Camilleri
1 NED
James Grech
3 NED
Rick Hunkin
1 NED and 1 ED
Alfred Lupi
3 NED
Anita Mangion*
1 NED
Alfred Mifsud
1 NED and 1 ED
Antonio Piras
2 NED
Godfrey Swain
2 NED and 1 ED
*Gordon Cordina and Anita Mangion are not subject to the provisions of Article 91 of the CRD IV (Capital Requirements Directive) and Article 14 (3) (a) of the Banking Act, 1994
(Chapter 371, Laws of Malta) as regards the number of directorships held by them in view of their appointment in a national representative capacity.
**Two of the directorships held by Miguel Borg refer to directorships of companies in the same group (BOV Group) and therefore count as a single directorship pursuant to
Article 14 2A (c) (i) of the Banking Act.
Bank of Valletta p.l.c.
Annual Report 2021
19
Corporate governance statement of compliance (continued)
P
P
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5
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:
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The Board meets approximately once a month, unless further meetings are required for the Board to discharge its duties effectively. The
Board discusses and decides upon matters relating to the Bank’s business. During the financial year under review, the Board met
seventeen (17) times.
The Board regularly reviews and evaluates corporate strategy, major operational and financial plans, risk policies, performance objectives
which are benchmarked against industry norms and business alternatives. The strategy, processes and policies adopted for
implementation are regularly reviewed by the Board so that corrective measures can be taken to address any deficiencies and ensure
the future sustainability of the enterprise. The Board also monitors implementation and corporate performance within the parameters of
all relevant laws, regulations and codes of best business practice. The Board has a formal schedule of matters reserved for its decision
and also delegates specific responsibilities to Board Committees.
The Board ensures that it has the appropriate policies and procedures in place which guarantee that the Bank and its employees maintain
the highest standards of corporate conduct, including compliance with applicable laws, regulations, business and ethical standards.
Notice of the dates of upcoming meetings, together with supporting material, are circulated well in advance to Directors to allow ample
time to appropriately consider the information prior to the next board meeting. Furthermore, advance notice is also provided of ad hoc
meetings to allow sufficient time to re-arrange commitments.
After each Board meeting, minutes that faithfully record attendance, matters discussed and decisions taken, are prepared and circulated
to all Directors as soon as practicable after the meeting.
Members of Senior Management attend Board Meetings by invitation on a regular basis.
Directors’ attendance for Board Meetings during FY 2021 was as follows:
D
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(
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)
)
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(
N
N
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)
)
N
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:
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7
7
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:
:
Gordon Cordina (Chairman)
Independent NED
17
Stephen Agius
Independent NED
15
Kevin J. Borg*
Independent NED
11
(out of 12)
Miguel Borg**
ED
16
Diane Bugeja
Independent NED
16
Elizabeth Camilleri*
Independent NED
12
(out of 12)
James Grech
Non-Independent NED
17
Rick Hunkin**
ED
16
Alfred Lupi
Independent NED
15
Anita Mangion
Independent NED
17
Alfred Mifsud
Independent NED
16
Antonio Piras
Independent NED
17
Godfrey Swain*
Independent NED
12
(out of 12)
*Kevin J. Borg, Elizabeth Camilleri and Godfrey Swain were appointed to the Board during the Annual General Meeting held on 20 May 2021. Their appointment was subject
to regulatory approval which was duly received on the 14 December 2021 in the case of Godfrey Swain, and on the 17 December 2021 in the case of Kevin J. Borg and
Elizabeth Camilleri. Pending receipt of their regulatory approval, Mr Swain, Mr Borg and Ms Camilleri attended Board meetings as part of their directors’ induction process.
**Both the Chief Executive Officer and the Chief Risk Officer were excused from attending one Board Meeting which was convened solely for Non-Executive Directors
.
.
I
n view of the COVID-19 pandemic situation, and as a measure to safeguard the health and safety of Board members and other
participants, most Board of Directors meetings held during Financial Year 2021 were held via video conferencing. Accordingly, th
e
at
tendance and participation of Directors as enlisted above during Board of Directors meetings, was in the majority of cases via video
conferencing.
B
B
o
o
a
a
r
r
d
d
C
C
o
o
m
m
m
m
i
i
t
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t
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e
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s
s
T
he Board also delegates specific responsibilities to Committees, which operate under their respective formal Terms of Reference. In this
respect, the Board has established the following Committees:
Bank of Valletta p.l.c.
Annual Report 2021
20
Corporate governance statement of compliance (continued)
T
T
h
h
e
e
A
A
u
u
d
d
i
i
t
t
C
C
o
o
m
m
m
m
i
i
t
t
t
t
e
e
e
e
T
he Audit Committee’s Terms of Reference include the monitoring of the financial reporting process, the effectiveness of the Bank’s
internal control, internal audit and risk management systems and the audit of the Bank’s annual and consolidated accounts. The Audit
Committee is also responsible to oversee the establishment of accounting policies by the Bank. The primary purpose of the Audit
Committee is to protect the interests of the Bank’s shareholders and assist the Directors in conducting their role effectively so that the
Bank’s decision-making capability and the accuracy of its reporting and financial results are maintained at high level at all times. The Audit
Committee has established internal procedures and monitors these on a regular basis. The Audit Committee also scrutinizes and
approves related party transactions in line with the Related Party Transaction Policy. The Audit Committee considers the materiality and
the nature of the related party transactions carried out by the Bank to ensure that the arms’ length principle is adhered to at all times.
The Audit Committee, in line with the Capital Markets Rules, is involved in and monitors the external audit processes, performs oversight
on the internal audit function and facilitates communication between the two.
During the period under review, the Committee has conducted its annual self-assessment, confirming its effectiveness in adding significant
value to the oversight function of the Board.
In terms of Capital Markets Rules 5.117, 5.118 and 5.118A, the Audit Committee is composed of the following three Non-Executive
Directors, all of whom are considered as independent of the Bank, since they are free from any business, family or other relationship with
the Bank or its management that may create a conflict of interest such as to impair their judgement:
Alfred Lupi FCCA, FIA, BSc Econ is a professional accountant with an economics degree and is currently engaged in consultancy
services. He is appointed Chairman of the Audit Committee by the Board and is the Director whom the Bank considers as
competent in accounting. Alfred Lupi is independent of the Bank. More detail on his brief resume is found on pages (ii) to (iv) of
the Annual Report.
Anita Mangion is an experienced Business and IT Consultant and her area of expertise is Technology Intrapreneurship. During her
career, she successfully drove critical projects to completion and implemented sustainable profitable frameworks. Ms Mangion
was also a Board Director of Malta Industrial Parks and a member of their Audit Committee. More detail on her brief resume is
found on pages (ii) to (iv) of the Annual Report. Ms Mangion is independent of the Bank and is considered as competent to be
a
m
ember of the Audit Committee.
Alfred Mifsud has occupied various senior positions during his career. Mr Mifsud was the Deputy Governor of the Central Bank of
Malta, Chairman of Crystal Finance Investments Limited, Governor on the Board of Malta Financial Services Centre (which is no
w
t
he MFSA) and Chairman of Mid-Med Bank. More detail on his brief resume is found on pages (ii) to (iv) of the Annual Report. Mr
Mifsud is independent of the Bank and is considered as competent to be a member of the Audit Committee.
In view of the diverse skills and professional experience of each of the Audit Committee Members, the Bank considers the Audit
Committee as a whole to have the adequate competence and to meet the independence criteria as required by the Capital Markets Rules
5.118.
Audit Committee Members’ Attendance during FY 2021 was as follows:
M
M
e
e
m
m
b
b
e
e
r
r
s
s
MMeeeettiinnggss HHeelldd:: 1100
MMeeeettiinnggss aatttteennddeedd bbyy mmeemmbbeerr::
Alfred Lupi (Chairman)
10
Anita Mangion
9
Alfred Mifsud
10
In view of the COVID-19 pandemic situation, and as a measure to safeguard the health and safety of Committee members and other
participants, most Audit Committee meetings held during Financial Year 2021 were held via video conferencing. Accordingly, the
attendance and participation of Members as enlisted above, during Audit Committee meetings was via video conferencing.
The CEO, the Chief Risk Officer and the Chief Group Internal Auditor attend Audit Committee meetings. The Chief Financial Officer, the
Executive Risk Management and a representative of the External Auditors attend the Audit Committee meetings by invitation. KPMG
Malta are the Group’s statutory auditors. A designated person from the Office of the Company Secretary acts as Secretary to the Audit
Committee.
T
T
h
h
e
e
R
R
e
e
m
m
u
u
n
n
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r
r
a
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n
n
C
C
o
o
m
m
m
m
i
i
t
t
t
t
e
e
e
e
–
–
This is considered under the Report of the Remuneration Committee.
T
T
h
h
e
e
N
N
o
o
m
m
i
i
n
n
a
a
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–
–
This is considered under the Nominations Report.
T
T
h
h
e
e
R
R
i
i
s
s
k
k
C
C
o
o
m
m
m
m
i
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t
t
t
t
e
e
e
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T
he Risk Committee assists the Board in assessing the different types of risks to which the organisation is exposed. This Committee is
responsible for the proper implementation and review of the Group’s risk policies related mainly, but not restricted to, Credit, Market and
Operational Risks. It reports to the Board on the adequacy, or otherwise, of such policies. The Committee is also responsible to review
delegated limits, together with an oversight of the Group’s monitoring and reporting systems, to ensure regular and appropriate monitoring
and reporting on the Group’s risk positions.
Bank of Valletta p.l.c.
Annual Report 2021
21
Corporate governance statement of compliance (continued)
D
uring the period under review, the Risk Committee self-assessed its operation against the Risk Coalition Voluntary Code and determined
that the Committee materially meets the 54 guidelines covering the 8 Principles.
R
isk Committee Members’ attendance during FY 2021 was as follows:
MM
e
e
m
m
b
b
e
e
r
r
s
s
MMeeeettiinnggss HHeelldd:: 1133
MMeeeettiinnggss aatttteennddeedd bbyy mmeemmbbeerr::
Alfred Mifsud (Chairman)
13
Diane Bugeja (Member until 30 June 2021)
4
(out of 4)
Antonio Piras
12
Godfrey Swain (Appointed member on 1 July 2021)
7
(out of 7)
I
n view of the COVID-19 pandemic situation, and as a measure to safeguard the health and safety of Committee members and other
participants, most Risk Committee meetings held during Financial Year 2021 were held via video conferencing. Accordingly, the
attendance and participation of Members as enlisted above, during Risk Committee meetings, was in the majority of cases via video
conferencing.
The CEO and the Chief Risk Officer attend Risk Committee meetings. The Executive Risk Management and the Head Regulatory and
Economic Capital Unit attend the Risk Committee meetings by invitation. A designated person from the Office of the Company Secretary
acts as Secretary to the Risk Management Committee.
As at date of publication of this Annual Report, the Risk Committee is composed of the following members: Alfred Mifsud (Chairman),
Antonio Piras and Godfrey Swain.
The above information on the Risk Committee, together with the information contained in the Pillar 3 disclosures which are available on
the Bank’s website, is also to be considered as a disclosure for the purposes of Regulation 575/2013 of the European Parliament and of
the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.
T
T
h
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e
e
C
C
o
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m
m
p
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A
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n
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i
-
-
F
F
i
i
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C
r
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m
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C
C
o
o
m
m
m
m
i
i
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t
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t
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T
he primary objective of the Compliance and Anti-Financial Crime Committee is to assist and guide the Board of Directors in the discharge
of their obligations imposed from time to time by regulation in the area of financial services and in light of the Bank acting as a credit and
financial institution licensed to provide services under different laws and within the framework of the Compliance Function as defined in
the Compliance Charter and as approved by the Board of Directors. The Committee is also responsible to assist the Bank in combatting
financial crime and money laundering activities.
Compliance and Anti Financial Crime Committee Members’ attendance during FY 2021 was as follows:
MM
e
e
m
m
b
b
e
e
r
r
s
s
MMeeeettiinnggss HHeelldd:: 66
MMeeeettiinnggss aatttteennddeedd bbyy mmeemmbbeerr
Diane Bugeja (Chairperson)
6
Kevin J. Borg (Appointed member on 1 July 2021)
2
(out of 2)
Alfred Mifsud (Member until 30 June 2021)
4
(out of 4)
Gordon Cordina
5
In view of the COVID-19 pandemic situation, and as a measure to safeguard the health and safety of Committee members and other
participants, most Compliance and Anti-Financial Crime Committee meetings held during Financial Year 2021 were held via video
conferencing. Accordingly, the attendance and participation of Members as enlisted above, during Compliance and Anti-Financial Crime
Committee meetings, was in the majority of cases via video conferencing.
The CEO, the Chief Risk Officer, the Group Chief Compliance Officer and the Money Laundering Reporting Officer attend the Compliance
and Anti-Financial Crime Committee meetings. A designated person from the Office of the Company Secretary acts as Secretary to the
Compliance and Anti-Financial Crime Committee.
S
S
u
u
i
i
t
t
a
a
b
b
i
i
l
l
i
i
t
t
y
y
P
P
o
o
l
l
i
i
c
c
y
y
T
he Bank’s Suitability Policy is applicable to all Directors, Executive Committee Members and Key Function Holders within the BOV Group
(collectively termed as “Subject Persons”). The aim of the Suitability Policy is to ensure the suitability of the members of the Management
Body (Directors & Executive Committee) and Key Function Holders, not just at the inception of their appointment but also throughout the
duration of their appointment. In this context, suitability refers to the ability of all Subject Persons to ensure, at all times, a sound and
prudent management of the financial institution, viewing, in particular, the safeguarding of the financial system and the interests of
respective clients, depositors, investors and other creditors. Subject Persons must comply with requirements of fitness and
appropriateness, professional qualification, independence of mind and time-commitment (availability).
Bank of Valletta p.l.c.
Annual Report 2021
22
Corporate governance statement of compliance (continued)
B
B
o
o
a
a
r
r
d
d
D
D
i
i
v
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s
s
i
i
t
t
y
y
P
P
o
o
l
l
i
i
c
c
y
y
This Policy was adopted by the Bank’s Board during the period under review, to set out the approach towards gender diversity on the
Board of Directors. The under-represented gender on the Bank’s Board of Directors is currently the female gender. As at end of Financial
Year 2021, the Bank had 3 female directors out of a total of 13 directors.
Through the implementation of this Policy the Bank is committed to maintain at least three female Directors and aims to achieve a
minimum of 33% female representation on the Board of Directors by end of FY 2023.
The Policy has been drafted in line with European Securities and Markets Authority (ESMA) and European Banking Authority (EBA)
guidelines on the assessment of suitability of members of the management body and key function holders, as well as in line with the
requirements of Article 88 of the CRD V (Capital Requirements Directive).
The Policy prescribes that during the nomination process, both men and women shall be approached to submit their nominations,
provided they meet the Bank’s suitability criteria. All nominees will be assessed on the same criteria, irrespective of gender. On an annual
basis the Nominations and Governance Committee will submit a report to the Board on the process implemented in relation to Board
members appointment. Gender diversity balance will also be taken into consideration, when conducting the annual evaluation of the
Board and its Committees effectiveness.
L
L
e
e
a
a
r
r
n
n
i
i
n
n
g
g
a
a
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S
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e
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-
-
D
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e
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n
n
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P
P
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i
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y
y
T
he Bank’s Learning & Development Centre is an integral part of the Bank’s strategy to invest in human capital by providing professional
training programs. Its main goal is to develop employees’ skills, improve employee retention and address business and regulatory
exigencies in an increasingly demanding and rigorous regulatory landscape. Internally developed training programs are blended with
available external training opportunities to broaden our employees’ existing skill sets, whilst bringing in new ways of thinking and problem-
solving. To this end, the BOV Learning & Development Centre has an e-learning platform, intended to give its employees the opportunity
to develop themselves further, both at the workplace and in the comfort of their home.
The Bank remains committed to keep supporting its employees both professionally and academically, thus it commits the necessary
resources and time to ensure continuous development through the Learning and Self-Development Policy. This Policy encourages all
Group employees both on indefinite and definite employment to continuously seek self-development. It offers assistance by way of grants,
study loans and study/dissertation leave in line with the Bank’s current business needs. The main scope is to broaden the knowledge
and skills required for a suitable performance in their current role. The following table depicts the average hours of training undertaken by
all employees.
HHoouurrss
Average number of hours of training (per person) that the
Group’s employees have undertaken during FY 2021
40
Total number of hours of training during FY 2021
81,893
The Bank also has a performance management process which is aligned and consistent with the Bank’s structure and objectives. This
process aims to deliver open and continuous communication through various channels for both appraisers and appraisees, provide
improved templates, hands-on training, and clearly defined timelines. At the end of 2021, employees were requested to complete their
self-appraisal and reflect on their respective achieved targets, agree on a performance rating with their appraiser, as well as take this
opportunity to discuss areas of future focus and objectives for 2022. The number of employees receiving regular performance and career
development is 1786. Specifically, 40% of the performance reviews were conducted with male employees and 60% with female
employees. 96% of the total employees who received a performance review were on a permanent employment contract.
P
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CClleerrkk
%%
LLeevveell 11
%%
LLeevveell 22
%%
LLeevveell 33
%%
LLeevveell 44
%%
F
50%
F
27%
F
56%
F
67%
F
73%
M
50%
M
73%
M
44%
M
33%
M
27%
LLeevveell 55
%%
LLeevveell 66
%%
LLeevveell 77
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LLeevveell 88
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LLeevveell 99
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F
68%
F
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F
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M
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64%
M
57%
LLeevveell 1100
%%
EEXXCCOO--11
%%
F
38%
F
24%
M
62%
M
76%
Bank of Valletta p.l.c.
Annual Report 2021
23
Corporate governance statement of compliance (continued)
N
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T
otal employee headcount part of the performance review process is 1783.
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T
he Nominations and Governance Committee undertakes a suitability assessment of members proposed to the Executive Committee,
which assessment is based on such individual’s knowledge, skills and expertise. Following such suitability assessment, the Nominations
and Governance Committee then nominates and recommends for Board Approval, members of the Executive Committee. Members of
the Executive Committee also require regulatory approval before being appointed on the Executive Committee.
For Financial Year 2021, the Bank, through its Nominations and Governance Committee, engaged an independent third party to
undertake a suitability assessment of the fitness and properness of members of the Board of Directors, Executive Committee and Key
Function Holders. The objective of this suitability assessment was to determine the individual and collective suitability of Subject Persons.
This assessment exercise commenced in January 2022 and the outcome of this exercise will be concluded by the end of March 2022.
E
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T
he Executive Committee is entrusted with the overall responsibility for monitoring and managing the Bank’s financial and operational
performance, overseeing the execution of the Bank’s strategy, monitoring customer experience and taking the necessary decisions so
as to ensure that the Bank is operating with the applicable rules and regulations.
During FY2021, the Bank has reviewed its organisation structure and has reviewed the composition of the Executive Committee by
adding new roles that will enable the Executive Committee to deliver the Bank’s strategy. With expertise in accountancy, risk, economics,
business and IT, the Members of the Executive Committee are deemed to have the necessary collective knowledge, skills and
competence to manage the business of the Group, exert oversight of the Group’s operations, recommend and follow a strategic plan for
the Bank, oversee the Group’s financial, business and operational performance, establish and maintain a risk appetite framework,
organised the allocation and adequacy of the Group’s human resources and ensure that the Bank has a reliable and sustainable IT
infrastructure, amongst other functions.
The Bank’s Executive Committee meets at least on a monthly basis. It is chaired by the Chief Executive Officer and the Chief Risk Officer
acts as Deputy Chair. The other members of the Committee are:
Chief Finance Officer
Chief Operations Officer
Chief Retail Banking Officer
Chief Business Banking Officer
Chief Wealth Management Officer
Group Chief Compliance Officer
Chief Technology Officer
Chief Digital Officer
Chief People and Change Officer
Chief Marketing & Customer Intelligence Officer
The appointment of Theodoros Papadopoulos as Chief Digital Officer is still subject to regulatory approval.
The Group Chief Internal Auditor has an open invitation to attend Executive Committee meetings at her discretion. Other Chief Officers
and Bank Executives attend Executive Committee Meetings by invitation.
More detail on the Executive Committee members and their experience is found in their brief CV on page xix of this Annual Report.
Bank of Valletta p.l.c.
Annual Report 2021
24
Corporate governance statement of compliance (continued)
E
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B
esides the Executive Committee, the Bank also has the following six (6) Executive Committees:
Asset and Liability Management Committee
I
nternal Control and Risk Management Committee
Credit Committee
Product Governance and Pricing Committee
Change Management Committee
Credit Sanctioning Committee
More detail on each of these Executive Committees is found below.
The A
A
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(
(
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)
)
is an integral part of the Bank. The Committee takes an integrated view in managing
the Group’s assets and liabilities to achieve an optimal balance between risk and return. ALCO evaluates the asset and liability cash
flows, and the management of integrated exposures at a consolidated level, to enable it to give strategic direction to the business.
Consideration is given, inter alia, to the funding and investment strategy, solvency, liquidity and interest rate risks. ALCO monitors the
liquidity and capital position of the Group on a continuous basis by evaluating and approving the Internal Liquidity Adequacy Assessment
Process (ILAAP) and Internal Capital Adequacy Assessment Process (ICAAP) respectively on an annual basis and making use of forecasts
to ensure that business and regulatory requirements are met. Additionally, the Committee ensures that the investment of the Bank’s
funds is conducted in accordance with the approved investment strategy and exercises executive authority in the area of interest rate
management by setting the interest rates payable on deposit products. The Committee further serves as a Steering Committee for the
Bank’s Recovery and Resolution Plan. ALCO meets at least once a month to analyse financial information and to ensure cautious
management of balance sheet and market risks. The Committee is chaired by the Chief Executive Officer and is composed of members
of Senior Management.
The I
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(
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)
was set up with the responsibility for the oversight and coordination
of risk management, internal controls, compliance, and AML/CFT across the Group. The ICRMC was originally constituted in February
2020 as an amalgamation of the Group Risk Compliance Committee and the Anti-Money Laundering Committee. It continued to meet
regularly during 2021. The ICRMC is responsible for the proper implementation and review of the Group's risk and internal control
policies. It reports to the Board on the adequacy, or otherwise, of such policies. The ICRMC is also responsible to advise and support
the Executive Committee in the formulation of the Bank's risk appetite and to advise and support in the monitoring of the Group's actual
and future risks. The ICRMC meets at least once a month to advise and support the Board in assessing the different types of risks to
which the Group is exposed, whilst also taking a forward-looking perspective in respect of emerging risks. One such risk – Environmental,
Social, and Governance – provides an example of the emerging risk landscape which is being focused upon by the ICRMC. The
Committee is also responsible to review and discuss issues raised by the control functions on the effectiveness of the internal control
systems. The Committee provides effective management oversight over the Group's main risks, AML and Compliance initiatives as well
as the progress on any remediation action required by the supervisory authorities. The ICRMC is chaired by the Chief Risk Officer, whilst
the Chief Compliance Officer serves as the Deputy Chair. All other ExCo members are members of the ICRMC. In late 2021, an ICRMC
effectiveness review was conducted with recommendations made to further boost the Committee’s effectiveness going forward. The
implementation of such is expected by the end of Q1 2022.
The C
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is responsible for assisting the Executive Committee in implementing and monitoring the credit strategy, Non-
Performing Loan (NPL) strategy, level of credit provisioning and debt management. It advises and supports the Executive Committee in
the formulation of the Bank’s risk appetite and strategy on credit and also approves policies in relation to credit in line with the Policy
Governance Framework. The Credit Committee is chaired by the Chief Risk Officer whilst the Chief Executive Officer acts as Deputy
Chair. The other members of the Committee are the Chief Business Banking Officer, Chief Retail Banking Officer, Chief Financial Officer
and Executive Credit Underwriting. Other members of Senior Management may attend the Committee by invitation, when required.
The C
C
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(
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was established to sanction/decide on credit facilities both in the performing and non-
performing categories. The CSC is a management committee reporting to the Executive Committee with escalation to Board of Directors
in line with the terms of reference. The Credit Underwriting Session, for assets within the performing category handles connected
exposures above €10,000,000 whilst the Non-Performing Loans session, decides on Non-Performing exposures above €5,000,000. The
CSC is chaired by the Chief Risk Officer and is made up of five members including the Chief Business Banking Officer. Three members
represent the Risk function whereas the other two members represent the Corporate business side. The Executive Debt Management
Department replaces one of the Risk members as a voting member for the Non-Performing Loans session. Non-voting representatives
from Corporate Business and Risk may attend the Committee meetings by invitation.
The P
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is entrusted with ensuring that the Bank has in place a product governance and
pricing framework:
a product approval matrix inclusive of delegated authority outline;
a periodic review program of all products and services; and
assessment of product/service pricing and approval of changes in fees and charges.
In discharging its responsibilities, the Committee will ensure that both existing and new products are analysed in terms of target market,
appropriateness, testing validation of methodologies have been considered, appropriateness of distribution channels for the target
market, that any potential conflicts of interest are managed and that pricing adequately covers the risk and costs involved.
Bank of Valletta p.l.c.
Annual Report 2021
25
Corporate governance statement of compliance (continued)
T
he Committee is composed of the Chief Executive Officer, Chief Finance Officer, the Chief Retail Banking Officer, Chief Risk Officer,
Group Chief Compliance Officer and the Chief Business Banking Officer.
The
C
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’
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(
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)
primary role is to develop, oversee and direct the Bank’s major change programmes in
order to fulfil the strategic objectives. This includes reviewing, prioritising, establishing, resourcing, allocating capital investment and
monitoring all the Bank’s major strategic initiatives. Throughout the progression of the year, the Committee absorbed within it the
responsibilities previously carried out by the Strategy Implementation Steering Committee.
The above responsibilities are achieved by ensuring alignment and support of all selected initiatives with the major goals, strategy and
overall direction of the Bank. In addition to this, the CMC ensures that all initiatives currently in execution are well-optimised and provides
good value and return on investment. Apart from maintaining continual oversight of in-flight programmes, the Change Management
Committee resolves resource conflicts as well as redundancies between or among potential new investment and continuing initiatives.
The Committee, which meets on a monthly basis, is chaired by the Chief Executive Officer and is composed of members of the Executive
Committee and other Senior Management.
S
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D
uring Q1 2022, the Bank established a Succession Policy for the BOV Board of Directors. The objectives of this Succession Policy are
primarily the following:
i) T
o establish guidelines and processes for a planned, orderly succession of Directors (both Executive and Non-Executive Directors)
and filling any unplanned vacancy on the Board;
ii) To enable new Board members to effectively succeed the Board’s departing members and to contribute to governing the
organization as quickly as possible;
iii) To ensure that collectively the members of the Board have the knowledge and skills necessary to performance the governance
role effectively whilst taking into account the objectives and targets defined in the Bank’s Diversity Policy;
iv) To effectively prepare Board members for leadership positions on the Board and prevent the risk of key people dependencies at
the governing level.
Furthermore, in Q1 2022, the Bank established a Succession Policy for Executive Committee members and Key Function Holders. This
policy aims to define and sustain the Bank's management and governance profiles through time, lessen any emerging gaps, identify and
develop new talent in order to mitigate any risks that may arise from the change in the executive function and leadership whilst securing
a sound and cautious management of the Bank during planned or inadvertent transitional periods.
The Nominations and Remuneration Committee is responsible for the Succession Policy for the BOV Board of Directors and the
Succession Policy for Executive Committee members and Key Function Holders. Alignment with Code Provision 4.2.7 of the Capital
Markets Rules is achieved given that the Chairman of the Board of Directors is also co-chairman of the Nominations and Remuneration
Committee. Moreover, the Succession Policy for the BOV Board of Directors is approved by the Board of Directors, upon the
recommendations of the Nominations and Remuneration Committee.
P
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6
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The CEO is appointed by the Board and is inter alia responsible for the recruitment and selection of Senior Management and consults
with the Nominations and Governance Committee and with the Board on the appointment of Senior Management. Training of
management and employees is a priority and internal and external training is provided by the Bank’s Training Centre specifically set up
for this purpose. The Bank also has a system in place which monitors management and staff morale.
On joining the Board, a Non-Executive Director is provided with briefings by the CEO and Chief Officers on the activities of the Bank. All
Directors are provided with appropriate induction training and a dossier that, apart from incorporating relevant information on the Bank,
also includes the Bank’s Policy documents.
The Bank has a Board Governance Manual which provides a clear overview of the Governance arrangements in place for the BOV Board
of Directors. It also has the objective of showing how various key elements of Governance, oversight, risk management and control link
together and serves as a useful reference point for existing Directors and an induction manual for Directors newly appointed to the Board.
Directors may, where they judge it necessary to discharge their duties as Directors, take independent professional advice on any matter
at the Bank’s expense. Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring
adherence to Board procedures as well as good information flows within the Board and its Committees.
In addition, the Company Secretary directs members of the Board to seminars or conferences which serve as professional development
for Directors in the discharge of their functions on the Board and on the Committees.
During the reporting year, Directors attended training on the roles and responsibilities of directors, conduct and ethics, regulatory
expectations of banks’ boards and compliance. Directors are also required to attend mandatory e-learning modules on a number of
subjects including Anti-Financial Crime (AFC), Information Security Awareness, conflicts of interest, market abuse and GDPR.
Bank of Valletta p.l.c.
Annual Report 2021
26
Corporate governance statement of compliance (continued)
P
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7
7
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D
uring the period under review, the Nominations and Governance Committee undertook an evaluation of the performance of the Board,
the Chairman and the Board Committees. The evaluation exercise was conducted through a Board Effectiveness Questionnaire (the
“Questionnaire”) prepared by the Nominations and Governance Committee. All Directors, including the Executive Directors, responded
to this Questionnaire. The result of the Questionnaire was subsequently analysed by the Nominations and Governance Committee and
discussed at Board level.
The outcome result of the Board Effectiveness Questionnaire was a positive one, highlighting the need for improvement in the following
areas:
Quality and timeliness of information;
Structured Induction training for new Non-Executive Directors; and
More collaboration between Board and Management to enhance good governance and effectiveness
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he Remuneration Committee is dealt with under the Report of the Remuneration Committee, which also includes the Remuneration
Statement of Compliance in terms of Code Provisions 8.A.3 and 8.A.4.
The Nominations and Governance Committee is dealt with under the Nominations Report as per Code Provision 8.B.7.
P
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he Bank recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that
its strategies and performance are well understood.
The Board is of the view that during the year under review, the Bank has communicated effectively with the market through a number of
company announcements and press releases.
The Bank also communicates with its shareholders through the Bank’s Annual General Meeting (AGM) (further detail is provided under
the section entitled General Meetings). During 2021, the COVID-19 pandemic situation did not permit the holding of the AGM in the usual
physical manner. Following health authority guidelines on the prohibition of mass gatherings, the AGM held on 20 May 2021 was held
remotely and was streamed live on the Bank’s website. Albeit the shareholders could not physically attend the AGM, shareholders could
participate during the AGM by appointing the Chairman as their proxy and indicating their voting preferences. Moreover, shareholders
had the right to ask questions, ahead of the AGM and to have such questions answered by the Directors during the AGM. A full report
of the meeting, including answers to shareholders questions, was uploaded on the Company’s website within 48 hours from termination
of the meeting.
The Chairman and the CEO also ensure that sufficient contact is maintained with major shareholders to understand issues and concerns.
During these meetings no market sensitive information is disclosed.
The Chairman also ensures that arrangements are made for all Directors to attend the AGM and for the Chairman of the Audit Committee,
Remuneration and Nominations and Governance Committees to be available to answer questions at the AGM.
Apart from the AGM, the Bank communicates with its shareholders by way of the Annual Report and Financial Statements, by publishing
its results on a six-monthly basis and through an annual newsletter to shareholders. The Bank also issues the Interim Directors’ Statement
for Quarter 1 and Quarter 3 of its financial year. In addition, the Bank’s website (www.bov.com) contains information about the Bank and
its business, including an Investor Relations Section.
Furthermore, the Bank holds a meeting for stockbrokers and financial intermediaries, usually on a quarterly basis, to coincide with the
publication of its Financial Statements and the Interim Directors’ Statement. Other meetings with stockbrokers and financial intermediaries
are held as necessary. From time to time, the Bank also holds meetings with the Malta Association of Small Shareholders. In view of the
COVID-19 pandemic situation, these meetings were held online via video conference.
The Office of the Company Secretary maintains two-way communication between the Bank and its investors. Individual shareholders can
raise matters relating to their shareholding and the business of the Group, at any time throughout the financial year and are given the
opportunity to ask questions at the AGM or submit written questions in advance. In terms of Article 18.3 of the Articles of Association of
the Bank and Article 129 of the Companies Act,1995 (Chapter 386, Laws of Malta), the Directors may call an Extraordinary General
Meeting on the requisition of shareholders holding not less than one-tenth of the paid up share capital of the Company.
P
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Should an actual or potential conflict arise during the tenure of a directorship, a Director must disclose and record the conflict in full and
in time to the Board. A Director shall not participate in a discussion concerning matters in which he has a conflict of interest unless the
Board finds no objection to the presence of such Director. In any event, the Director shall refrain from voting on the matter.
Bank of Valletta p.l.c.
Annual Report 2021
27
Corporate governance statement of compliance (continued)
A director having a continuing material interest that conflicts with the interests of the Group, should take effective steps to eliminate the
grounds of conflict. Each director should declare to the Group his or her interest in the share capital of the Group and should only deal
in such shares as allowed by law and in accordance with internal policies.
Directors’ interest in the share capital of the Bank as at 31 December 2021 was as follows:
BBeenneeffiicciiaall IInntteerreesstt**
Miguel Borg
7,635 shares
Diane Bugeja
29,310 shares
Alfred Lupi
34,204 shares
*
Includes any shares held by spouses or partners
No Director has any other benefit or non-beneficial interest in the share capital of the Bank.
P
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T
he year 2021 ended in a very similar way as 2020, with people worldwide yearning for stability, and even though many accepted the
fact that the ‘old’ lives would not be back anytime soon, if ever, major events throughout history have modelled the way of life for
consequent years, maybe the latest most significant one being the September 11, 2001 terrorist attacks that transformed the way we
travelled.
The COVID pandemic has disrupted life at its core, the way we interact with each other, the way we work, where most interactions are
through a screen, that while being effective, have denied us the face-to-face contact that we have come to miss.
The COVID-19 pandemic continues to impact the community in which we operate, including subdued activity within the business
community, which ultimately is impacting negatively the Bank’s profitability. This notwithstanding, we, more than ever, felt the need to
maintain our commitment as a socially responsible member of this community.
BOV’s CSR Highlights for 2021 are detailed below:
A
A
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– The Artistic sector was one of the worst hit by the Pandemic, with very few events being held throughout the year.
The Bank continued looking to the future through the collaboration with the Maltese Tenor through the BOV Joseph Calleja Foundation,
supporting promising youths to further their studies in their art form. Since the Foundation was formed in 2013, many of its scholars have
moved on to national acclaim, both locally and on the international scene.
H
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– The Bank’s Long Term collaboration with Heritage Malta for the restoration of the Gran Salon, a majestic hall within the
Auberge de Provence in Valletta, is reaching its half-way mark, and this year we were rewarded with the discovery of part of the original
decorations, from the times of the Knights by the restorers.
The Bank continued to support the Major Heritage trusts such as Fondazzjoni Wirt Artna, Fondazzjoni Patrimonju Malti and Din l-Art
Ħelwa who have continued to work in the background to preserve our rich cultural and historical heritage throughout this period.
E
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– The Bank continued to create awareness about the importance of safeguarding the environment and its flora and fauna
through its support of Dinja Waħda, Birdlife Malta’s educational arm, with Birdlife also launching Dinja Waħda+, an action guide offering
activities and resources tailor made for each age group.
The Bank introduced Green Financing Initiatives in the form of the BOV HomeEnergy Loan, a loan at subsidised interest rates for
environmentally friendly upgrades for one’s home. The loan benefits from the guarantee granted in the framework of the Energy Efficiency
and Renewable Energy Fund of Funds (“EERE” Malta)
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– The Pandemic continued to cause disruptions for philanthropic events during 2021, but the Bank’s altruistic spirit was
nonetheless kept alive through a number of initiatives organized by the Bank’s CSR and Communications team for its staff.
S
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– Sports made a return in 2021, following the forced hiatus in 2020, and despite the restrictions, mainly due to the lack of
supporters at the sporting venues, with sporting associations getting creative with online streaming and limited access in line with health
authority directives.
The Bank continued to be the main supporter of sporting initiatives through its partnership with the main associations such as the Malta
and Gozo Football Associations, the Aquatic Sports Association of Malta, the Malta Basketball Association, The Malta Ten Pin Bowling
Association, the Malta Racing Club, The Malta Tennis Federation and the Royal Malta Yacht Club among others.
Bank of Valletta p.l.c.
Annual Report 2021
28
Corporate governance statement of compliance (continued)
E
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– Bank of Valletta’s educational efforts during 2021 focused mainly on creating awareness about alternative methods of
payment, such as contactless cards and secure online payments to reduce the usage of cash and cheques, further restricting the spread
of the virus.
The Bank continued to promote excellence in education through its support of initiatives such as the Dean’s List within the Faculty of
Arts at the University of Malta and the Chamber of Engineers Annual Awards for best projects in different categories.
B
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– The Business Community continued to feel the effects of the Pandemic through subdued activity throughout the year. The
Bank continued to promote online payments to stimulate buying and organised numerous educational seminars about a variety of topics
such as Youth Entrepreneurship, Brexit, Business in Times of the Pandemic and Tourism with Malta’s leading constituted bodies.
The Bank officially inaugurated a new concept branch in Sliema with the aim of creating a comfortable business banking ambient using
environmentally friendly materials. This branch was the first utilising this concept with other BOV Branches from its extensive network
being renovated to these new standards over the coming years.
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The Code recommends “the development of a succession policy for the future composition of the Board of Directors and particularly the
executive component thereof, for which the Chairman should hold key responsibility”. A Succession Policy for the Board of Directors
was established during Q1 2022. Notwithstanding that before that date the Bank did not have a Succession Policy for the Board, the
concept of Rotation of Directors (as further explained under Principle 3 above) was intended to ensure continuity at Board level and is
embedded within the Bank’s Memorandum and Articles of Association.
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During the financial year under review the Bank did not have a system in place to establish a succession plan for Senior Management.
This notwithstanding, the Bank has always been successful in appointing suitable individuals internally and externally. Furthermore, during
Q1 2022 the Bank established a Succession Policy for Executive Committee members and Key Function Holders.
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Code Provision 9.2 provides that minority shareholders should be able to call special meetings on matters of importance to the company.
However a minimum threshold of share ownership, as established in the Memorandum or Articles of Association of the company, should
be set up before a Group or an individual may call a special meeting. The Bank does not have such a threshold included in its
Memorandum or Articles. Nevertheless, as required in terms of the Capital Markets Rules, shareholders holding not less than 5% of the
voting issued share capital of the Bank may request the Bank to include items on the agenda of a general meeting, of the Bank and to
table draft resolutions for items included in the agenda of such general meeting.
Code Provision 9.3 requires the Bank to have in place a mechanism to resolve conflicts between minority shareholders and controlling
shareholders. Despite the fact that the Bank does not have such a mechanism in place, the Bank maintains an open dialogue with all its
Qualifying and Non-Qualifying shareholders to ensure no such conflicts arise.
Code Provision 9.4 requires that minority shareholders should be allowed to formally present an issue to the Board of Directors. Although
the Bank does not have a policy in terms of this Code Provision, the Bank maintains an open dialogue with the Malta Association of
Small Shareholders.
These Code Provisions were not applicable to the Bank during the financial year.
D
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A
uthority to manage the activities of the Bank is delegated to the CEO within the limits set by the Board.
The Board is ultimately responsible for the Bank’s systems of internal control and for reviewing their effectiveness. Such systems are
designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable as opposed
to absolute assurance against material misstatement or loss. Through the Audit Committee, the Risk Committee and the Compliance
and Anti Financial Crime Committee, the Board reviews the process and procedures to ensure the effectiveness of the Group’s systems
of internal control, which are monitored by the Group Internal Audit Department.
The key features of the Group’s systems of internal control are as follows:
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he Group operates through the Board of Directors of subsidiary companies and equity-accounted investee companies with clear
reporting lines and delegation of powers.
Bank of Valletta p.l.c.
Annual Report 2021
29
Corporate governance statement of compliance (continued)
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he Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations.
Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an
appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group
objectives.
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he Management of each of the Group members is responsible for the identification and evaluation of key risks applicable to their areas
of business. The risk management model adopted by BOV is the classic “three lines of defence model”, wherein, the first line of defence
is constituted by the functions that own and manage risks, namely the business units; the second line is constituted by the functions that
oversee risks, namely Risk Management, Compliance and Anti-Financial Crime; and the third line is constituted by Internal Audit, which
is the function that provides independent assurance. The Risk Management function, within the second line of defence, falls under the
responsibility of the Chief Risk Officer, and operates within a wider Bank structure that reflects the risk appetite and risk management
philosophy articulated by the Board of Directors.
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Functional, operating and financial reporting standards are applicable to all entities of the Group. These are supplemented by operating
standards set, as required, by the Bank’s Board and the Executive Committee. Systems and procedures are in place to identify, control
and to report on the major risks including credit risk, changes in the market prices of financial instruments, liquidity, operational error and
fraud. Exposure to these risks is monitored by ALCO and by the Risk Committee. The Board receives periodic management information
giving comprehensive analysis of financial and business performance including variances against budgets.
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W
hilst Capital Markets Rule 5.97.5 is not applicable, the information relating to the shareholder register required by this Capital Markets
Rule is found in the Directors’ Report.
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The general meeting is the highest decision-making body of the Bank. A general meeting is called by twenty-one days’ notice and it is
conducted in accordance with the Articles of Association of the Bank.
The AGM deals with what is termed as “ordinary business”, namely, the receiving or adoption of the annual financial statements, the
declaration of a dividend, if any, the appointment of the auditors, Board authorisation to fix the auditors’ emoluments and the election of
Directors. Other business which may be transacted at a general meeting (including at the AGM) will be dealt with as special business.
All shareholders registered in the Shareholders’ Register on the Record Date as defined in the Capital Markets Rules, have the right to
attend, participate and vote in the general meeting. A shareholder or shareholders holding not less than 5% in nominal value of all the
shares entitled to vote at the general meeting may request the Bank to include items on the agenda of a general meeting and/or table
draft resolutions for items included in the agenda of a general meeting. Such requests are to be received by the Bank at least forty-six
days before the date set for the relative general meeting.
A shareholder who cannot participate in the general meeting can appoint a proxy by written or electronic notification to the Bank. Every
shareholder represented in person or by proxy is entitled to ask questions which are pertinent and related to items on the agenda of the
general meeting and to have such questions answered by the Directors or by such persons as the Directors may delegate for that
purpose. Pursuant to Legal Notice 288 of 2020, during the 2021 AGM, shareholders could not attend physically for the AGM and
shareholders could only participate during the AGM by appointing the Chairman of the Meeting as their proxy.
Annual General Meeting 2021
P
ursuant to Legal Notice 288 of 2020, and in accordance with the guidelines issued by the health authorities on public gatherings and
mass events, the Annual General Meeting was held remotely on 20 May 2021. Notwithstanding that shareholders could not attend
physically for the AGM, shareholders could participate during the AGM by appointing the Chairman of the Meeting as their proxy and
indicating their voting preferences. Shareholders were also granted the right to submit any questions they might have in writing to the
Company Secretary, ahead of the Meeting. These questions were subsequently responded to by the Chairman during the AGM itself,
which was also streamed live on the Bank’s website. The questions and answers of questions submitted by shareholders prior to the
AGM, were uploaded on the Bank’s website.
Bank of Valletta p.l.c.
Annual Report 2021
30
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as at 31 December 2021
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he Remuneration Committee (the Committee) is charged with overseeing the development and implementation of the remuneration and
related policies of the Group. Its primary purpose is to make recommendations to the Board of Directors on the remuneration policy of
the Group, support the Board of Directors in overseeing the remuneration system’s design and operation and ensure that remuneration
is appropriate and consistent with the Bank’s culture, long term business and risk appetite, performance and control environment as
well as with any legal or regulatory requirements. The role of the Committee is to devise the appropriate remuneration packages needed
to attract, retain and motivate Directors, as well as key function holders required for the proper governance of the Group.
During FY 2021 the Committee was composed of Antonio Piras (Chairman), Alfred Lupi and Steve Agius as members, all of whom are
Independent Non-Executive Directors. The Chief Executive Officer attends meetings of the Committee. The Chief Human Resources and
Ethics Officer attends meetings of the Committee by invitation. None of the Executives participated in the discussion regarding their
remuneration. The Company Secretary acts as secretary to the Committee.
As from 1 January 2022 the Remuneration Committee and the Nominations and Governance Committee were amalgamated into a
single committee namely the Nominations and Remuneration Committee, with the functions served by each committee to continue being
carried out by the new committee. The Nominations and Remuneration Committee is co-chaired by Gordon Cordina and Antonio Piras.
Stephen Agius is a member on the Nominations and Remuneration Committee.
2
2
.
.
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The Committee held seven (7) meetings during the period under review. Antonio Piras and Steve Agius attended all seven (7) meetings.
Alfred Lupi attended six (6) meetings.
3
3
.
.
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3.1 Bank of Valletta p.l.c Remuneration Policy – Executive Management
T
he Board of Directors determines the framework of the overall remuneration policy for Executive Management based on
recommendations from the Committee. The Committee, on the recommendations of the Chief Executive Officer, then establishes the
individual remuneration arrangements of the Group’s Executive Management, namely the members of the Executive Committee.
The Remuneration Policy applies consistently to all employees within the Group. Its objective is to align employees’ remuneration with
t
he Group’s performance, business strategy and business models, risk appetite framework, values and long term goals. The overriding
principle of the Remuneration Policy is that individual performance is evaluated according to both quantitative/financial and
qualitative/behavioural measures.
D
uring 2021, the Bank reviewed its Remuneration Policy to ensure that it is compliant with the EU Capital Requirements Directive (CRD)
V on variable pay and to ensure that risk taking is within the Bank’s risk appetite framework and risk culture, and in compliance with the
Bank’s Code of Conduct and Ethics. The Remuneration Policy was also revised to align it with the BOV Variable Remuneration Share
Plan that was approved during the Annual General Meeting held on the 26 November 2020.
Fur
ther details about the Bank’s Remuneration Policy are found in the Pillar 3 disclosures which are published on the Bank’s website.
The Committee considers that the current Executive Management remuneration packages are based upon the appropriate local marke
t
equivalents and are adequate for the responsibilities involved. The Committee is of the opinion that the remuneration packages are such,
as to enable the Bank to attract, retain and motivate executives having the appropriate skills and qualities, in order to ensure the proper
management of the organisation. Such packages should therefore be kept under constant review.
H
ereinafter, for the purposes of this Remuneration Statement, references to “Senior Executives” shall mean the Chief Executive Officer
and the other twelve members of the Executive Committee.
Senior Executives enjoy the health insurance arrangements and death in service benefits as all Bank employees. Senior Executives are
also entitled to the use of a company car. Certain members of the Executive Committee have a clause in their contract, wherein should
their contract be terminated without due reason, they may be eligible for monetary compensation.
The Chief Executive Officer’s remuneration is reviewed and approved by the Committee. The Chief Executive Officer is eligible fo
r an
annual bonus entitlement by reference to the attainment of pre-established objectives and targets as laid down in the Chief Executive
Officer’s contract of engagement or as may be determined by the Committee.
The Members of the Executive Committee are eligible for an annual bonus entitlement. The Members of the Executive Committee are
also eligible for an annual salary increase which is approved by the Committee.
Bank of Valletta p.l.c.
Annual Report 2021
31
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as at 31 December 2021 (continued)
N
o supplementary pension or other pension benefits are payable to the Senior Executives. Insofar as early retirement schemes are
concerned, the Senior Executives are subject to the schemes which are set out and defined in the Collective Agreement (for Managerial
and Clerical Grades) as may be applicable to employees from time to time.
T
he Committee is of the view that the amount of performance bonus paid out at all staff levels is not significant.
Total emoluments received by Senior Executives during FY 2021 are reported under Section 3.3 within this Report, in terms of Code
Provisions 8.A.5.
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T
he Variable Remuneration of Senior Executives is determined by the Remuneration Committee. Early in 2021, all Senior Executives were
given targets for the year. Risk set out the performance metrics against which each Senior Executive was individually assessed. There
are 4 core elements to each performance assessment as follows:
1. P
ersonal Performance against Targets
2. Risk Management Performance
3. Customer and Employee
4. Leadership Behavioural Assessment
During Q1 2022, an assessment of the performance of the Senior Executives was carried out by the Chief Executive Officer and approved
by the Nominations and Remuneration Committee (previously Remuneration Committee). All reviews were conducted by the CEO.
However, in the case of the Chief Risk Officer, Group Chief Internal Auditor and Group Chief Compliance Officer, further discussions were
held with the respective Committee Chairs.
V
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I
nformation on the performance assessment and the variable remuneration of the Chief Executive Officer is reported in the Directors’
Remuneration Report, within this Annual Report in terms of Chapter 12 of the Capital Markets Rules.
3.2 Remuneration Policy – Directors
T
he Remuneration Policy for Directors was drawn up in accordance with Capital Markets Rules 12.26 and was approved during the
Bank’s Annual General Meeting. The maximum annual aggregate emoluments that may be paid to the Directors is approved by
shareholders at the General Meeting in terms of Article 33.1 of the Bank’s Articles of Association. The aggregate emoluments of all
directors of €450,000 per annum, was fixed at an Extraordinary General Meeting held on 27 July 2017. This amount excludes the salaries
of Directors in the Bank’s employment.
D
uring FY 2021, a base annual fee of €20,500 was paid to each Director and €80,000 was paid to the Chairman of the Board. In addition
to the base fee, Non-Executive Directors who are also appointed as members of one of the Board Committees receive additional
compensation. The additional remuneration paid depends on whether the Non-Executive Director is Chair or a member of such Board
Committee. During 2021, Non-Executive Directors who were appointed Chair of a Board Committee were granted an annual €5,000
Committee fee whilst Non-Executive Directors who were appointed Members of a Board Committee were granted an annual €3,000
Committee fee.
T
he Directors on the Board carry significant personal responsibilities in view of the size and complexity of the institution and of the
regulatory environment. They are executing their duties in an especially complex framework conditioned by the transformation process
which the Bank is undergoing, the difficulties wrought by COVID and ongoing challenges from the legal and regulatory dimensions. It is
worthwhile to observe that the remuneration received by Directors for their roles in Board and Committees has with the passage of time
come to not sufficiently reflect these realities, especially when compared to the general market situation.
S
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No
n-Executive Directors
The Non-Executive Directors have service contracts with the Bank, none of which provide for severance payments upon termination of
their respective directorship. In terms of the said service contracts as well as pursuant to the Remuneration Policy for Directors, the Non-
Executive Directors are entitled to certain benefits after the termination of their directorship, including discounts on products and services
offered by the Group. Service contracts regulate the term of office of Non-Executive Directors, referring specifically to the concept of
Rotation of Directors provided within the Memorandum and Articles of Association (as further explained under Principle 3 of the Corporate
Governance Statement of Compliance). Non-Executive Directors are not paid any benefits linked to the termination of their office and
they do not benefit from any pension or early retirement schemes by virtue of their office.
Bank of Valletta p.l.c.
Annual Report 2021
32
R
R
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as at 31 December 2021 (continued)
Executive Directors
The Chief Executive Officer is appointed as Executive Director, on an ex officio basis, by virtue of his role of Chief Executive Officer. By
virtue of his contract of engagement, the current Chief Executive Officer is not entitled to any pension, retirement scheme or other
entitlements upon termination of contract.
The second Executive Director on the Board is currently the Chief Risk Officer, who has a term of office of three (3) years and shall
thereafter be eligible for reappointment. The Bank currently does not have a formal pension plan, although on a non-contractual basis,
the Chief Risk Officer may be eligible to a retirement gratuity of up to a 3 times salary, subject to a prescribed level of service, by virtue of
his being an employee of the Bank.
V
acation of office of Directors shall be served in writing. Service contracts also provide for the Directors’ powers and duties vis à-vis the
Bank and their obligation to dedicate sufficient time to carry out their responsibilities. Directors are obliged to avoid conflicts of interest
and shall take reasonable steps to keep the Bank’s matters confidential. Directors’ emoluments are designed to reflect the time committed
by Directors to the Bank’s affairs, including the different Board Committees of which Directors are members, and their responsibilities on
such Committees.
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None of the Non-Executive Directors, in the capacity as a Director of the Bank, is entitled to profit sharing, share options or pension
benefits.
P
ursuant to the Remuneration Policy for Directors, in the case of Executive Directors, subject to the de minimis rule, in order to align the
interests of Executive Directors with the long-term interests of shareholders, at least 50% of the annual bonus outcome will normally be
paid out in ordinary shares of the Bank, with the balance normally be paid out in cash. For Financial Year 2021, given that the de minimis
exceptions permitted by relevant banking regulations apply for the variable pay granted both to Rick Hunkin and to Miguel Borg, the
bonus awarded to both Executive Directors shall be paid fully in cash and no part thereof will be deferred to a later year/s.
I
n terms of non-cash benefits, Directors are entitled to health insurance. They are also entitled to a refund of out-of-pocket expenses. In
addition, the Executive Directors only are entitled to the use of a company car.
One of the Non-E
xecutive Directors, as well as both the Executive Directors, are employees of the Bank and therefore also receive
remuneration by virtue of their employment.
3.3 Code Provision 8.A.5
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FFiixxeedd RReemmuunneerraattiioonn
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FFrriinnggee BBeenneeffiittss
€2,346,204* €56,000** €214,500 None
Non-cash benefits: health
insurance and refund of out-of-
pocket expenses: €12,839
*This amount includes €289,614 and €249,691 compensation paid to two (2) former Senior Executives in connection with the termination
of
their activities during FY2021. Directors Fees earned by the two (2) Executive Directors are included in the Directors’ Fees table below.
**This amount represents emoluments received by Senior Executives in relation to their directorships on the Bank’s subsidiary companies.
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€371,003 €15,952 None None
Non-cash benefits: health
insurance and refund of out-
of-pocket expenses: €19,616
*In addition to the fees paid to Non-Executive Directors, this table also includes fees earned by Executive Directors in relation to their
directorships on the Bank’s subsidiary companies and their membership on Board Committees of the bank’s subsidiary companies.
Bank of Valletta p.l.c.
Annual Report 2021
33
R
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as at 31 December 2021 (continued)
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During the Annual General Meeting of the Bank which was held on the 26 November 2020, the general meeting approved the
Remuneration Policy for Directors. The votes obtained with respect to the resolution relating to the Remuneration Policy for Directors
were as follows:
V
otes in favour: 329,042,014
Votes against: 3,318,598
Votes abstained: 3,453,468
T
he Remuneration Policy for Directors (the “Policy”) regulates the remuneration of the Non-Executive Directors as well as that of the
Executive Directors. The Remuneration Committee is tasked with keeping the Policy under review and considers whether it requires
revision or updating in line with market demands in order to ensure that the Bank’s Board of Directors attracts and retains, suitable
members that provide the collective skills and experience required for the proper functioning of the Board. The Policy shall be reviewed
and any material amendments to the Policy shall be submitted to a vote by the general meeting before adoption, and in any case at least
every four years.
T
he Remuneration Policy for Directors is available on the Bank’s website on
https://www.bov.com/content/remuneration-policy-for-
directors and on https://www.bov.com/content/financial-reports.
T
here were no deviations from the procedure for the implementation of the Remuneration Policy for Directors.
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The Executive Directors’ total remuneration as salaried employees is regulated pursuant to the Remuneration Policy for Directors, the
Remuneration Policy and the Executive Director’s respective contract of engagement. The Bank’s policy is that the remuneration of
Executive Directors ought to reflect mainly their executive positions within the Bank. Such remuneration consists of a fixed salary, variable
remuneration and benefits as may be provided for in their employment contract with the Bank.
The Bank believes that a combination of fixed and variable remuneration aims to attract and retain suitable executives who have the
n
ecessary competence, skills, qualities and experience to enable them to discharge their duties according to the highest standards.
The fixed remuneration component gives due consideration to the level of responsibility which such position entails, whereas the variable
component is subject to the performance assessment by the Remuneration Committee. This assessment may include risk adjusted
performance indicators and shall be aligned with the strategic objectives and delivery value to shareholders.
A
ny variable component of Executive Director remuneration is subject to malus and clawback provisions which allow a reduction or
reversal of any variable remuneration. The Remuneration Committee may enforce such provisions up to 7 years from the date of the
performance assessment (which may be increased to 10 years if there is an on-going investigation) in case of:
- (
Malus only) material misstatement of the Bank’s financial results
- (Malus only) material error
- (Malus and clawback) circumstances warranting summary dismissal
- (Malus and clawback) material failure of risk management
- (Malus only) material downturn in economic activity
During the period under review no malus and clawback provisions were exercised.
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Besides being a Non-Executive Director on the Bank’s Board of Directors, Mr James Grech holds an indefinite salaried office with the
Bank. However, James Grech is not considered to be an Executive Director because his position is not one of executive decision making
with the Bank, and he is appointed to the Board by shareholders in general meeting.
Bank of Valletta p.l.c.
Annual Report 2021
34
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as at 31 December 2021 (continued)
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350,273 166,503 68,067
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49,755 9,349 5,134
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20,500 20,500 22,583**
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420,528 205,352 95,784
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467,028 228,352 99,105
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(
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90 - 10 90 - 10 97 - 3
*
The €46,500 bonus covers the period 1 July 2020 till 31 December 2021, following an interim period assessment undertaken by the
Nominations and Remuneration Committee. The CEO contract provides for the possibility of a final bonus at the conclusion of the
contract.
**Includes remuneration as member of the Strategy Advisory Group, a temporary group set up to advise the Board on the Bank’s strategic
implementation plan.
No Shares and Share Options were awarded in 2021.
In terms of the requirements within Appendix 12.1 of the Capital Markets Rules, the table hereunder represents the annual change of
remuneration of the executive directors, of the Bank’s performance, and of average remuneration on a full-time equivalent basis of the
Bank’s employees (excluding directors) over the previous two financial years.
A
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((22002200--22002211))
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((22002200--22002211))
€€
%%
%%
%%
%%
RRiicckk HHuunnkkiinn
467,028
2%
8 percentage
points*
2698%** 3.2%*** 2.7%***
MMiigguueell BBoorrgg
228,352
6%
JJaammeess GGrreecchh
99,105
7%
*The Bank’s Cost to Income ratio for FY 2021 increased by 8 percentage points when compared to 74% for FY2020.
** The percentage annual change for the Bank’s performance appears to be elevated in view of the substantial impact of the pandemic
on the Bank’s financial results for the year ended 31 December 2020, with subdued profits driven primarily by the increase in credit loss
allowances. The Bank’s Profit before Tax for FY 2021 was €61,846,000 whereas Profit Before Tax for FY 2020 was €2,210,000.
***
The increase in average remuneration was computed after considering the total remuneration to employees (excluding directors)
divided by full-time equivalent employees for Bank and Group for 2020 and 2021. For the purposes of this computation, total remuneration
paid to employees excluded Early Retirement Scheme lump sum payments to allow for a meaningful comparison.
D
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The performance assessment of Rick Hunkin was based on the evaluation of the targets achieved against the objectives laid down in his
contract of engagement. These objectives are in line with the Bank’s overall targets, strategy, risk appetite framework and long-term
goals. These objectives together with their respective weighting are listed below:
Bank of Valletta p.l.c.
Annual Report 2021
35
R
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as at 31 December 2021 (continued)
R
egulatory Compliance: 33%
Transformation Business Plan: 33%
Leadership Team Composition: 33%
T
he assessment of the Chief Executive Officer’s performance was carried out by first calculating the performance bonus payout of Senior
Executives based on performance metrics, followed by applying a performance bonus rate calculation model, to calculate the respective
bonus percentage.
In accordance with the Remuneration Policy for Directors, the percentage of variable remuneration received by Rick Hunkin:
i) for the last 6 months of 2020, was approximately 10% of his fixed salary (excluding benefits), and is therefore lower than the
100% of fixed remuneration threshold ; and
ii) for the period January to December 2021, was approximately 8% of his fixed salary (excluding benefits) and is therefore lower
than 100% of fixed remuneration threshold.
In accordance with the Remuneration Policy for Directors, given that the percentage of variable remuneration received by Rick Hunkin is
lower than the 100% of fixed remuneration threshold, no deferral principle applies for Rick Hunkin’s bonus.
The performance and the variable remuneration of the Chief Executive Officer were reviewed and approved by the Nominations and
Remuneration Committee (previously Remuneration Committee).
An assessment of the performance of Miguel Borg was carried out by the Chief Executive Officer, following discussions with the Chairman
of the Risk Committee, and approved by the Remuneration Committee. The performance assessment of the Independent Control
functions, including the role of the Chief Risk Officer, was based on two fixed Bank triggers, namely the Bank paying a bonus and the
Bank not breaching capital requirements, individual behaviour scores, as well as individual KPIs carrying a weighting of 60%, which were
based on independent metrics. In accordance with Banking Rule 21/19, the Bank adopted an assessment for the Independent Control
functions, which was primarily based on fixed triggers rather than behaviours and individual objectives. The performance bonus for the
Independent Control functions was also directly linked to individual independent objectives and not bank performance, in order to ensure
independence.
Gi
ven that the de minimis exceptions permitted by relevant banking regulations apply for the variable pay granted to Miguel Borg for
Financial Year 2021, the bonus awarded to him shall be paid fully in cash and no part thereof will be deferred to a later year/s. The
amount of variable pay to be received by Miguel Borg amounts to approximately 14% of his fixed salary and is lower than the 100% of
fixed pay threshold.
In the case of James Grech, his variable remuneration as a salaried employee of the Bank, is governed by the Remuneration Policy. The
Key Performance Indicators of James Grech consisted of business objectives and behavioural competencies. The performance
assessment of James Grech was carried out by the Chief Officer Treasury to whom James Grech reports. The amount of variable pay
to be received by James Grech amounts to approximately 5% of his fixed salary and is lower than the 95% of fixed pay threshold. No
deferral requirements applied to James Grech during performance year 2021.
N
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T
he maximum annual aggregate emoluments that may be paid to the Directors is approved by shareholders at the General Meeting in
terms of Article 33.1 of the Bank’s Articles of Association. The aggregate emoluments of all directors of €450,000 per annum, was fixed
at an Extraordinary General Meeting held on 27 July 2017. This amount excludes the salaries of Directors in the Bank’s employment.
I
nformation on annual emoluments paid to Non-Executive Directors is outlined in section 3.2 above.
Non-Executive Directors may receive various benefits as approved by the Remuneration Committee. Currently, all Non-Executive
Directors are entitled to health insurance and to a reimbursement of out-of-pocket expenses incurred by them. As per Bank’s
Remuneration Policy for Directors, Non-Executive Directors are not eligible to participate in the annual bonus plan or pension
arrangement. In this regard, the ratio of Fixed vs Variable Pay for the Bank’s Non-Executive Directors is 100% - 0%.
Bank of Valletta p.l.c.
Annual Report 2021
36
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as at 31 December 2021 (continued)
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€
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%
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*
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19,228 - 19,228 88,833 1,444 90,277 -2%*
8 percentage
points**
2698%***** 3.2%****** 2.7%******
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26,500 1,534 28,034 27,083 2,063 29,146 4%
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32,230 729 32,959 30,000 2,302 32,302 -2%
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53,741 1,976 55,717 31,500 3,185 34,685 -38%
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2
2
0
0
M
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y
2
2
0
0
2
2
1
1
)
)
*
*
*
*
*
*
*
*
- - - 16,140 - 16,140 n/a
G
G
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f
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y
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2
2
0
0
2
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1
1
)
)
*
*
*
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*
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*
- - - 14,890 441 15,331 n/a
K
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n
J
J
.
.
B
B
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2
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0
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)
*
*
*
*
*
*
*
*
- - - 14,890 588 15,478 n/a
T
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t
t
a
a
l
l
237,216 9,855 247,071 330,002 17,927 347,929
*
Percentage annual change of aggregate emoluments (2020-2021) was based on annualised remuneration for 2020. Dr Gordon Cordina
was appointed Chairman of the Bank on the 13th of October 2020.
**The Bank’s Cost to Income ratio for FY 2021 increased by 8 percentage points when compared to 74% for FY2020.
***Alfred Lupi occupied the position of Interim Chairman of Bank of Valletta from 16th May 2020 till 12th October 2020 and during such
period was paid the remuneration of Chairman of the Bank.
****Elizabeth Camilleri, Godfrey Swain and Kevin J. Borg were appointed Directors on the Board of Directors during the Bank’s Annual
General Meeting held on the 20 May 2021. Their appointment was subject to regulatory approval which was subsequently received in
December 2021.
*****The percentage annual change for the Bank’s performance appears to be elevated in view of the substantial impact of the pandemic
on the Bank’s financial results for the year ended 31 December 2020, with subdued profits driven primarily by the increase in credit loss
allowances. The Bank’s Profit before Tax for FY 2021 was €61,846,000 whereas Profit Before Tax for FY 2020 was €2,210,000.
******The increase in average remuneration was computed after considering the total remuneration to employees (excluding directors)
divided by full-time equivalent employees for Bank and Group for 2020 and 2021. For the purposes of this computation, total remuneration
paid to employees excluded Early Retirement Scheme lump sum payments to allow for a meaningful comparison.
The directors’ remuneration takes into consideration the Board members’ required competencies, skills, effort and scope of the Board
work. It is intended to ensure that the Bank can attract and retain high-quality people, enabling the Bank to execute its business strategy
and serve its long-term interests, including its sustainability goals.
T
he Bank has complied in full with the procedure for the implementation of the Remuneration Policy for Directors as defined in Chapter
12 of the Capital Markets Rules.
Bank of Valletta p.l.c.
Annual Report 2021
37
R
R
e
e
m
m
u
u
n
n
e
e
r
r
a
a
t
t
i
i
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p
p
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t
as at 31 December 2021 (continued)
T
he Directors’ Remuneration Report for 2020 was approved at the Annual General Meeting held on 20 May 2021, with 311,724,454
votes in favour,1,895,323 votes against and 8,591,766 abstentions. There were no issues raised on the Report during the said Annual
General Meeting.
The Directors’ Remuneration Report in terms of Chapter 12 of the Capital Markets Rules is being put forward to an advisory vote during
the 2022 Annual General Meeting pursuant to the requirements of Capital Markets Rule 12.26L.
I
n accordance with Capital Markets Rule 12.26N, the External Auditors have checked that all information, as required in terms of Appendix
12.1 of Chapter 12 of the Capital Markets Rules, has been included in the Directors’ Remuneration Report within this Remuneration
Report.
Bank of Valletta p.l.c.
Annual Report 2021
38
N
N
o
o
m
m
i
i
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n
a
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t
i
i
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as at 31 December 2021
T
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N
N
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n
a
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t
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T
he Nominations and Governance Committee (the Committee) was set up by the Board of Directors and is enshrined within the Bank’s
Memorandum and Articles of Association. The Committee works under the guidance of its Terms of Reference as approved by the Board of
Directors.
The role of the Committee is twofold, namely (i) to ensure that the composition of the Bank’s Board of Directors has the appropriate level and
mix of experience, skills and competence which are required for the operation of a credit institution and (ii) to ensure that persons occupying
the post of Directors meet the requirements of governance standards, prevailing legislation and regulation.
From time to time, the Board of Directors reviews the Terms of Reference of the Committee. However, certain fundamentals are entrenched
in the Memorandum and Articles of Association, which set out both the basic role of the Committee as well as its functions, namely:
i) To recommend to the Board of Directors, candidates having the right attributes, including integrity, skill, competence and experien
ce
i
ndividually; and who can contribute to the collective skills, experience and competence required at Board level;
ii) To make recommendations to the Board of Directors on persons considered as independent to occupy positions on the Board;
iii) To make recommendations on matters such as succession planning, establishment of policies and procedures related to the selectio
n
o
f Senior Management/key function holders and the optimal size of the Board of Directors and the Executive Committee;
iv) To ensure that nominations to the Board of Directors are made on merit and in line with the overall requirements of the skills an
d
c
ompetence required;
v) To ensure that persons whose nomination is approved and recommended to shareholders or the Board of Directors as the case may
be, are in a position to dedicate sufficient time and resources to the office of Director;
vi) To monitor on an ongoing basis any significant additional time commitments of the Board Members;
vii) To evaluate and test each candidate to the Board against guidelines issued from time to time by the Regulators; and
viii) Periodically assess the skills, knowledge and experience that may be required within the Board and ensure that such arrangements
are consistent with high corporate governance standards and best practice and make recommendations thereon to the Board.
With a view to avoid possible perceptions of conflicts of interest in the scrutiny and approval of candidates for appointment as Non-Executive
Directors, the Articles of Association provide that no member of the Committee shall be present when his nomination as a director or a matter
which concerns that member in question, is being evaluated by the Committee. In these instances such member shall be substituted by
another director.
The Committee is Chaired by the Chairman of the Bank and composed of two other Independent Non-Executive Directors.
The Committee held seven meetings during the period under review.
MMeeeettiinnggss HHeelldd:: 77
MMeemmbbeerrss
MMeeeettiinnggss aatttteennddeedd bbyy mmeemmbbeerr
Gordon Cordina (Chairman)
7 (out of 7)
Stephen Agius*
4 (out of 4)
Diane Bugeja
6 (out of 7)
Elizabeth Camilleri**
3 (out of 3)
* Ceased to be a member on 30 June 2021
** Appointed member on 1 July 2021
During FY 2021, the Committee focused on the nomination process and suitability for the appointment of Non-Executive Directors. The
Committee conducted a suitability assessment on candidates seeking appointment on the Board. During the year, the Committee ensured
that persons whose nomination is approved and recommended to shareholders or the Board of Directors for the post of Non-Executive
Directors have the necessary competences and skills, and are in a position to dedicate sufficient time commitment to their position as Non-
Executive Directors on the Bank’s Board. This is in accordance with the Bank’s Board Governance Manual. The Committee was also
responsible to monitor any additional time commitments by Board members.
In addition, the Committee also assessed the suitability of persons nominated as members of the Executive Committee and Key Function
Holders. In this respect, the Committee was actively involved in the engagement of the new Chief People and Change Officer, Chief Digital
Officer, Chief Marketing and Customer Intelligence Officer and the MLRO. The Committee was also responsible for the evaluation of the
effectiveness of the performance of the Board of Directors, the Chairman and the Board Committees (as further explained under
Principle 7
of the Corporate Governance Statement of Compliance).
Bank of Valletta p.l.c.
Annual Report 2021
39
N
N
o
o
m
m
i
i
n
n
a
a
t
t
i
i
o
o
n
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s
s
r
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p
p
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r
r
t
t
as at 31 December 2021 (continued)
I
n Q1 2021, as part of the Bank’s obligations pursuant to the Joint EBA and ESMA Guidelines on Fitness and Properness of members of the
Management Body and Key Function Holders (KFHs), the Nominations and Governance Committee conducted an annual ongoing
assessment of the suitability of the Board Members, Executive Committee members and Key Function Holders. The assessment of suitability
was done on a individual and a collective basis.
The Committee considered the Board Diversity Policy, which policy was subsequently approved by the Board. In principle, the Board Diversity
Policy sets out the approach to diversity on the Board of Directors of the Bank. By virtue of this Policy the Board commits itself to maintain
at least three (3) female Board members and aims to achieve a minimum 33% female representation on the Board by end of 2023.
D
D
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:
:
While information about every member of the Board is found on the section entitled “Board of Directors and Company Secretary” a detailed
curriculum vitae of every member of the Board and of the nominees is available at the Office of the Company Secretary.
As from 1st January 2022 the Remuneration Committee and the Nominations and Governance Committee were amalgamated into a single
committee namely the Nominations and Remuneration Committee, with the functions currently being served by each committee to continue
being carried out by the new committee.
Bank of Valletta p.l.c.
Annual Report 2021
40
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report
To the Shareholders of Bank of Valletta p.l.c.
Report required by Capital Markets Rules 5.98 and 12.26N issued by the Malta
Financial Services Authority (the “MFSA”)
We were engaged by the Directors of Bank of Valletta p.l.c. (the “Bank”) to report on the
disclosures of specific elements in the Corporate Governance Statement and the
Remuneration Report (the “Disclosures”) as at 31 December 2021 as to whether they
are in compliance with the corporate governance regulations and information to be
provided in the Remuneration Report set out in the Capital Markets Rules issued by the
MFSA (the “Capital Markets Rules”). More specifically, we are required to report on the
Disclosures in the form of an independent reasonable assurance conclusion about
whether:
(a) i
n light of our knowledge and understanding of the Bank and its environment
obtained in the course of the statutory audit, we have identified material
misstatements with respect to the information referred to in Capital Markets Rules
5.97.4 (dealing with the Bank’s internal control and risk management systems in
relation to the financial reporting process) and 5.97.5 (where a takeover bid
applies). Where material misstatements are identified in relation to those
requirements, we shall, in addition to our conclusion, provide an indication of the
nature of such misstatements;
(b) the Disclosures include the other information required by Capital Markets Rule 5.97,
insofar as it is applicable to the Bank; and
(c) the Disclosures include the information required by Appendix 12.1, ‘Information to
be provided in the Remuneration Report’, to Chapter 12 of the Capital Markets
Rules (as applicable).
Bank of Valletta p.l.c.
Annual Report 2021
41
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
Internati
onal Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report
To the Shareholders of Bank of Valletta p.l.c.
R
esponsibilities of the Directors
The Directors are responsible for preparing and presenting the Disclosures in
accordance with the requirements of the Capital Market Rules.
This responsibility includes designing, implementing and maintaining internal control as
they determine is necessary to enable the preparation and presentation of the
Disclosures that are free from misstatement.
The directors are also responsible for preventing and detecting fraud and for identifying
and e
nsuring that the Bank complies with laws and regulations applicable to its activities.
The directors are responsible for ensuring that personnel involved in the preparation and
presentation of the Disclosures are properly trained, systems are properly updated and
that any changes in reporting relevant to the Disclosures encompass all significant
business units.
Our Responsibilities
Our responsibility is to examine the Disclosures prepared by the Bank and to report
thereon in the form of an independent reasonable assurance conclusion based on the
evidence obtained. We conducted our engagement in accordance with International
Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information (“ISAE 3000”) issued by the
International Auditing and Assurance Standards Board. That standard requires that we
plan and perform our procedures to obtain reasonable assurance about whether the
Disclosures are properly prepared and presented, in all material respects, in accordance
with the requirements set out in the relevant Capital Markets Rules.
The firm applies International Standard on Quality Control 1 Quality Control for Firms
that Perform Audits and Reviews of Historical Financial Information, and Other
Assurance and Related Services Engagements and, accordingly, maintains a
comprehensive system of quality control including documented policies and procedures
regarding compliance with ethical requirements, professional standards and applicable
legal and regulatory requirements.
Bank of Valletta p.l.c.
Annual Report 2021
42
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
Internati
onal Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
In
dependent Assurance Report
To the Shareholders of Bank of Valletta p.l.c.
O
ur Responsibilities (continued)
We have complied with the independence and other ethical requirements of the
International Ethics Standards Board for Accountants’ International Code of Ethics for
Professional Accountants (including International Independence Standards) (IESBA
Code), together with the ethical requirements that are relevant to our assurance
engagement in accordance with the Accountancy Profession (Code of Ethics for Warrant
H
olders) Directive issued in terms of the Accountancy Profession Act (Chapter 281,
Laws of Malta), and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the IESBA Code.
The procedures selected and our determination of the nature, timing and extent of those
procedures, will depend on our judgment, including the assessment of the risks of
material misstatement of the preparation and presentation of the Disclosures whether
due to fraud or error.
In making those risk assessments, we have considered internal control relevant to the
preparation and presentation of the Disclosures in order to design assurance
procedures that are appropriate in the circumstances, but not for the purposes of
expressing a conclusion as to the effectiveness of the Bank’s internal control over the
preparation and presentation of the Disclosures.
Reasonable assurance is less than
absolute assurance.
We are not required to, and we do not, consider whether the directors’ statements on
internal control and risk management systems cover all the risks and controls in relation
to the financial reporting process or form an opinion on the effectiveness of the Bank’s
corporate governance procedures or its risks and control procedures, nor on the ability
of the Bank to continue in operational existence. Our opinion in relation to the disclosures
pursuant to Capital Markets Rules 5.97.4 and 5.97.5 (as appropriate) is based solely on
our knowledge and understanding of the Bank and its environment obtained in forming
our opinion on the audit of the financial statements.
As part of this engagement, we have not performed any procedures by way of audit,
review or verification of the Disclosures nor of the underlying records or other sources
from which the Disclosures were extracted.
Bank of Valletta p.l.c.
Annual Report 2021
43
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
Internati
onal Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report
To the Shareholders of Bank of Valletta p.l.c.
O
ther Information
We also read the other information included in the Annual Report that contains the
Disclosures, and our report thereon, in order to identify material inconsistencies, if any,
with the Disclosures. We have nothing to report in this regard.
Conclusion
Our conclusion has been formed on the basis of, and is subject to, the matters outlined
in this report.
We believe that the evidence we have obtained is sufficient and appropriate to provide
a basis for our conclusion.
In our opinion:
(a) in light of our knowledge and understanding of the Bank and its environment
obtained in the course of the statutory audit, we have not identified material
misstatements with respect to the information requirements referred to in Capital
Markets Rules 5.97.4 and 5.97.5;
(b) the Disclosures include the other information required by Capital Markets Rule
5.97; and,
(c) the Disclosures include the information required by Appendix 12.1 to Chapter 12 of
the Capital Markets Rules.
The Principal authorised to sign on behalf of KPMG on the work resulting in this
assurance report is Noel Mizzi.
K
PMG 22 March 2022
Registered Auditors
44 Bank of Valletta p.l.c.
Annual Report 2021
Statements of profit or loss
For the year ended 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
Interest and similar income
- on loans and advances
2
172,429
166,995
172,429
166,995
- on debt and other fixed income instruments
2
22,384
23,287
22,384
23,287
Interest expense
3
(38,503)
(43,476)
(38,503)
(43,476)
Net interest income
156,310
146,806
156,310
146,806
Fee and commission income
84,273
75,981
74,462
67,095
Fee and commission expense
(9,678)
(8,689)
(9,678)
(8,689)
Net fee and commission income
4
74,595
67,292
64,784
58,406
Dividend income 1,447 219 2,946 2,239
Trading profits
5
10,511 16,641 10,470 16,683
Net gain on investment securities and hedging instruments
6
45
657
45
657
Operating income
242,908
231,615
234,555
224,791
Employee compensation and benefits
7
(81,568)
(79,389)
(79,067)
(76,594)
General administrative expenses
(93,897)
(71,186)
(92,546)
(69,866)
Amortisation of intangible assets
20
(11,708) (11,395) (11,708) (11,395)
Depreciation of property and equipment
21
(8,430)
(8,412)
(8,244)
(8,174)
Net impairment reversal/(charge)
8
18,856 (65,136) 18,856 (65,136)
Operating profit/(loss) before litigation provision
66,161
(3,903)
61,846
(6,374)
Litigation provision reversal
33
- 8,584 - 8,584
Operating profit
66,161
4,681
61,846
2,210
Share of results of equity-accounted investees, net of tax
18
14,498
10,520
-
-
Profit before tax
9
80,659
15,201
61,846
2,210
Income tax expense
10
(24,468) (1,399) (22,947) (544)
Profit for the year
56,191
13,802
38,899
1,666
Earnings per share
11
9.6c
2.4c 6.7c 0.3c
45 Bank of Valletta p.l.c.
Annual Report 2021
Statements of profit or loss and other comprehensive income
For the year ended 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
Profit for the year
56,191
13,802
38,899
1,666
Other comprehensive income
Items that are/or may be reclassified subsequently to profit or loss:
Debt investments at FVOCI
- change in fair value
(151)
(2,998)
(151)
(2,998)
tax thereon
53
1,049
53
1,049
- change in fair value transferred to profit or loss
-
(652)
-
(652)
tax thereon
-
228
-
228
Items that will not be reclassified to profit or loss:
Equity investments at FVOCI
- change in fair value
(2,640)
(1,445)
(2,640)
(1,445)
tax thereon
924
506
924
506
Property revaluation
21
5,306
4,503
5,306
4,503
tax thereon
(531)
(450)
(531)
(450)
Remeasurement of actuarial losses on defined benefit plans
35
42
426
42
426
tax thereon
(15)
(149)
(15)
(149)
Other comprehensive income for the year, net of tax
2,988
1,018
2,988
1,018
Total comprehensive income
59,179
14,820
41,887
2,684
The notes are an integral part of these financial statements.
46 Bank of Valletta p.l.c.
Annual Report 2021
Statements of financial position
For the year ended 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
ASSETS
Balances with Central Bank of Malta, treasury bills
and cash
13
4,626,066 3,798,449 4,626,066 3,798,449
Financial assets at fair value through profit or loss 14 138,986 168,500 138,823 168,340
Investments
15
3,568,669
3,279,412
3,568,669
3,279,412
Loans and advances to banks 16 452,469 479,409 452,469 479,409
Loans and advances to customers at amortised cost 17 5,097,598 4,741,443 5,097,598 4,741,443
Investments in equity-accounted investees
18
145,501
111,999
72,870
52,870
Investments in subsidiary companies 19 - - 6,230 6,230
Intangible assets 20 56,074 59,666 56,074 59,666
Property and equipment 21 130,622 128,646 130,484 128,155
Current tax
28,640
26,759
29,205
26,093
Deferred tax 23 84,563 91,259 84,563 91,259
Assets held for realisation 40 11,740 9,958 11,740 9,958
Other assets
24
5,423
5,251
5,423
5,257
Prepayments
12,091
10,020
10,165
9,125
Total Assets
14,358,442
12,910,771
14,290,379
12,855,666
LIABILITIES
Derivative liabilities held for risk management 14 5,485 12,391 5,485 12,391
Amounts owed to banks
25
560,117
88,031
560,117
88,031
Amounts owed to customers 26 12,176,854 11,272,289 12,185,989 11,277,692
Deferred tax 23 6,717 6,186 6,717 6,186
Other liabilities
27
203,141
161,617
202,522
160,396
Provisions 33 104,449 113,880 104,449 113,880
Derivatives designated for hedge accounting 29 12,157 16,015 12,157 16,015
Subordinated liabilities 30 163,237 163,237 163,237 163,237
Total Liabilities
13,232,157
11,833,646
13,240,673
11,837,828
EQUITY
Called up share capital 31 583,849 583,849 583,849 583,849
Share premium account 49,277 49,277 49,277 49,277
Revaluation reserves 32 58,438 55,477 58,326 55,365
Retained earnings 32 434,721 388,522 358,254 329,347
Total Equity
1,126,285
1,077,125
1,049,706
1,017,838
Total Liabilities and Equity
14,358,442
12,910,771
14,290,379
12,855,666
MEMORANDUM ITEMS
Contingent liabilities 33 351,362 285,775 351,362 285,775
Commitments 34 1,898,310 1,811,954 1,898,310 1,811,954
The notes are an integral part of these financial statements.
These financial statements on pages 44 to 148 were approved by the Board of Directors and authorised for issue on 22 March 2022
and signed on its behalf by Dr Gordon Cordina (Chairman), Alfred Lupi (Director) and Rick Hunkin (Chief Executive Officer) as per the
Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Accounts 2021.
47 Bank of Valletta p.l.c.
Annual Report 2021
Statements of changes in equity
For the year ended 31 December 2021
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Retained
Earnings
Total
The Group
€000
€000
€000
€000
€000
At 1 January 2020
583,849
49,277
54,898
374,281
1,062,305
Profit for the year
-
-
-
13,802
13,802
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax
-
-
(1,949)
-
(1,949)
- change in fair value transferred to profit or loss, net of tax
-
-
(424)
-
(424)
Equity investments at FVOCI
- change in fair value, net of tax
-
-
(939)
-
(939)
- change in fair value transferred to retained earnings, net of tax
-
-
(162)
162
-
Property revaluation, net of tax
-
-
4,053
-
4,053
Remeasurement of actuarial losses on defined benefit plans, net of tax
-
-
-
277
277
Total other comprehensive income
-
-
579
439
1,018
Total comprehensive income for the year
-
-
579
14,241
14,820
At 1 January 2021
583,849
49,277
55,477
388,522
1,077,125
Profit for the year
-
-
-
56,191
56,191
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax
-
-
(98)
-
(98)
Equity investments at FVOCI
- change in fair value, net of tax
-
-
(1,716)
-
(1,716)
Property revaluation, net of tax
-
-
4,775
-
4,775
Remeasurement of actuarial losses on defined benefit plans, net of tax
-
-
-
27
27
Total other comprehensive income
-
-
2,961
27
2,988
Total comprehensive income for the year
-
-
2,961
56,218
59,179
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
(10,019)
(10,019)
At 31 December 2021
583,849
49,277
58,438
434,721
1,126,285
The notes are an integral part of these financial statement
48 Bank of Valletta p.l.c.
Annual Report 2021
Statements of changes in equity
For the year ended 31 December 2021 (continued)
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Retained
Earnings
Total
€000
€000
€000
€000
€000
The Bank
At 1 January 2020
583,849
49,277
54,786
327,242
1,015,154
Profit for the year
-
-
-
1,666
1,666
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax
-
-
(1,949)
-
(1,949)
- change in fair value transferred to profit or loss, net of tax
-
-
(424)
-
(424)
Equity investments at FVOCI
- change in fair value, net of tax
-
-
(939)
-
(939)
- change in fair value transferred to retained earnings, net of tax
-
-
(162)
162
-
Property revaluation, net of tax
-
-
4,053
-
4,053
Remeasurement of actuarial losses on defined benefit plans, net of tax
-
-
-
277
277
Total other comprehensive income
-
-
579
439
1,018
Total comprehensive income for the year
-
-
579
2,105
2,684
At 1 January 2021
583,849
49,277
55,365
329,347
1,017,838
Profit for the year
-
-
-
38,899
38,899
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax
-
-
(98)
-
(98)
Equity investments at FVOCI
- change in fair value, net of tax
-
-
(1,716)
-
(1,716)
Property revaluation, net of tax
-
-
4,775
-
4,775
Remeasurement of actuarial losses on defined benefit plans, net of tax
-
-
-
27
27
Total other comprehensive income
-
-
2,961
27
2,988
Total comprehensive income for the year
-
-
2,961
38,926
41,887
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
(10,019)
(10,019)
At 31 December 2021
583,849
49,277
58,326
358,254
1,049,706
The notes are an integral part of these financial statements.
49 Bank of Valletta p.l.c.
Annual Report 2021
Statements of cashflows
For the year ended 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
Cash flows from operating activities
Interest and commission receipts
269,028
250,428
259,179
237,254
Interest, commission and compensation payments
(42,405)
(45,708)
(42,405)
(45,708)
Payments to employees and suppliers
(168,867)
(161,641)
(163,920)
(158,765)
Operating profit before changes in operating assets and liabilities 57,756 43,079 52,854 32,781
(Increase)/decrease in operating assets:
Loans and advances
(329,153)
(336,161)
(329,234)
(331,832)
Reserve deposit with Central Bank of Malta
(7,059)
(7,293)
(7,059)
(7,293)
Fair value through profit or loss financial assets
(12,732)
54,449
(12,732)
54,449
Fair value through profit or loss equity instruments
1,668
5,027
1,668
5,027
Treasury bills with original maturity of more than 3 months
69,600
(86,669)
69,600
(86,669)
Other assets
(1,580)
38,621
(1,568)
39,928
Increase/(decrease) in operating liabilities:
Amounts owed to banks and to customers
1,384,221
639,840
1,387,953
642,702
Other liabilities
13,071
(29,272)
13,225
(29,421)
Net cash from operating activities before tax 1,175,792 321,621 1,174,707 319,672
Tax paid (18,691) (26,581) (17,704) (24,860)
Net cash from operating activities 1,157,101 295,040 1,157,003 294,812
Cash flows from investing activities
Dividends received
2,443
219
2,251
219
Interest received from amortised and other fixed income
instruments
36,575
40,332
36,575
40,332
Injection of capital in associate (note 18)
(20,000)
-
(20,000)
-
Purchase of debt instruments
(812,470)
(1,064,821)
(812,470)
(1,064,821)
Proceeds from sale or maturity of debt instruments
523,367
805,350
523,367
805,350
Proceeds from sale of equity instruments
-
562
-
562
Purchase of property and equipment and intangible assets
(11,849)
(15,724)
(11,789)
(15,718)
Net cash used in investing activities (281,934) (234,082) (282,066) (234,076)
Cash flows from financing activities
Interest paid on debt securities and subordinated liabilities
(5,776)
(6,457)
(5,776)
(6,457)
Repayment of debt securities
-
(70,993)
-
(70,993)
Payment of lease liabilities
(1,919)
(1,704)
(1,689)
(1,482)
Net cash used in financing activities (7,695) (79,154) (7,465) (78,932)
Net change in cash and cash equivalents before fx changes
867,472
(18,196)
867,472
(18,196)
Effect of exchange rate changes on cash and cash equivalents
(250)
112
(250)
112
Net change in cash and cash equivalents after effect of
exchange rate changes
867,722
(18,308)
867,722
(18,308)
Net change in cash and cash equivalents
867,472
(18,196)
867,472
(18,196)
Cash and cash equivalents at 1 January
3,950,672
3,968,868
3,950,672
3,968,868
Cash and cash equivalents at 31 December
36
4,818,144
3,950,672
4,818,144
3,950,672
The notes are an integral part of these financial statements.
Bank of Valletta p.l.c.
Annual Report 2021
50
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31 December 2021
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Legal Notice 19 of 2009 as amended by Legal Notice 233 of 2016, Accountancy Profession (Accounting and Auditing Standards)
(Amendments) Regulations, 2016, defines compliance with generally accepted accounting principles and practice as adherence to
International Financial Reporting Standards (IFRS) as adopted by the EU for financial periods starting on or after 1 January 2008.
These Regulations have come into force on 17 June 2016.
Article 4 of R
egulation 1606/2002/EC requires that, for each financial period starting on or after 1 January 2005, companies governed
by the law of an EU Member State shall prepare their consolidated financial statements in conformity with IFRS as adopted by the EU
if, at their reporting date, their securities are admitted to trading on a regulated market of any EU Member State. This Regulation
prevails over the provisions of the Companies Act, 1995, (Chapter 386, Laws of Malta) to the extent that the said provisions of the
Companies Act, 1995, (Chapter 386, Laws of Malta) are incompatible with the provisions of the Regulation. Consequently, the separate
and the consolidated financial statements are prepared in conformity with IFRS as adopted by the EU. These financial statements
have also been prepared in accordance with the provisions of the Banking Act, 1994 (Chapter 371, Laws of Malta) and the Companies
Act, 1995 (Chapter 386, Laws of Malta).
The financial statements have been prepared on the historical cost basis. Assets and liabilities are measured at historical cost except
fo
r the following that are measured at fair value: financial assets measured at fair value through other comprehensive income (FVOCI),
financial instruments classified at fair value through profit or loss (FVTPL), derivatives and land and buildings. Additionally, assets held
for realisation are measured at fair value less costs to sell, if it is lower than their cost.
References to the ‘Group’ applies also to the ‘Bank’
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Stress testing scenarios were carried out to evaluate the appropriateness of the going concern basis in preparing the financial
statements for 2021.
In making this assessment, the Directors considered the Group’s business, profitability projections, funding and capital plans, together
with a range of other factors such as the uncertainty that the global COVID-19 pandemic has brought about, the outlook for the
Maltese and European economy, and the eventuality of losing the Deiulemar appeal case (note 33). The matters of primary
consideration by the Directors are set out below:
Capital: The Group has developed capital plans under base and stress scenarios and the Directors believe that the Group has sufficient
capital to meet its regulatory capital requirements throughout the period of assessment. The capital ratios will be materiality impacted
under an improbable extreme scenario amalgamating a prolonged latent COVID-19 economic recession with the materialisation of
the claim on the Deiulemar case. However, under such extreme scenario, the Bank would still be able to meet the Total SREP (the
supervisory review and evaluation process) Capital requirement.
Taking the full Deiulemar loss of €371m as at the end of December 2021, the Bank will still be able to meet all capital requirements
including the Pillar 2 requirement (P2R) and the combined buffer requirements. The deterioration in the capital ratios will only result in
a minor breach of the Pillar 2 guidance (P2G) which is not a binding regulatory requirement.
Funding and Liquidity: The Directors have considered the Group's funding and liquidity position and are satisfied that the Group has
sufficient funding and liquidity throughout the period of assessment. This statement is based on the development of different stress
testing scenarios. Given the excessive liquidity position, with an LCR above 400%, the liquidity position can only trigger a breach in
the Liquidity Coverage Ratio (LCR) ratio following deposit withdrawals above €5bn.
The Bank has an MREL deficit that it needs to remedy by the end 2023, in line with supervisory expectations. The Bank in currently
not in breach of MREL requirements, however, it has an approved issuance plan to remedy this deficit. In the meantime, the Bank is
meeting the interim targets.
Based on the above, the Directors consider it appropriate to prepare the financial statements on a going concern basis having
concluded that there are no material uncertainties related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern over the period of assessment.
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The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1
January 2021:
- Amendments to IFRS 4 Insurance Contracts – deferral of IFRS19 (issued on 25 June 2020)
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August
2020)
- COVID-19-Related Rent Concessions (Amendment to IFRS 16) (issued in May 2020)
Bank of Valletta p.l.c.
Annual Report 2021
51
Notes to the financial statements 31 December 2021 (continued)
1
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A
number of new standards and amendments were endorsed by the EU but effective for periods starting on or after 1 January 2022
as disclosed hereunder. The impact that the adoption of other International Financial Reporting Standards and amendments will have
on the financial statements of the Group and the Bank in the period of initial application is currently being assessed by the Directors
but is not expected to have a significant impact on the Group's financial statements. These standards and amendments include the
following:
EEffffeeccttiivvee ddaattee
TTiittllee
KKeeyy RReeqquuiirreemmeennttss
1 January 2022
Property, Plant and Equipment:
Proceeds before intended use –
Amendments to IAS 16 (issued on 14
May 2020)
The amendment to IAS 16 Property, Plant and Equipment (PP&E) prohibits
an entity from deducting from the cost of an item of PP&E any proceeds
received from selling items produced while the entity is preparing the asset
for its intended use. It also clarifies that an entity is ‘testing whether the
asset is functioning properly’ when it assesses the technical and physical
performance of the asset. The financial performance of the asset is not
relevant to this assessment.
Entities must disclose separately the amounts of proceeds and costs
relating to items produced that are not an output of the entity’s ordinary
activities.
1 January 2022
Annual Improvements to IFRS
Standards 2018–2020 (issued on 14
May 2020)
The following improvements were finalised in May 2020:
IFRS 9 Financial Instruments – clarifies which fees should be included
in the 10% test for derecognition of financial liabilities
.
I
FRS 16 Leases – amendment of illustrative example 13 in the
standard to remove the illustration of payments from the lessor
relating to leasehold improvements, to remove any confusion about
the treatment of lease incentives.
1 January 2022
Reference to the Conceptual
Framework – Amendments to IFRS 3
Business Combinations (issued on 14
May 2020)
Minor amendments were made to IFRS 3 Business Combinations to update
the references to the Conceptual Framework for Financial Reporting and
add an exception for the recognition of liabilities and contingent liabilities
within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent
Assets and Interpretation 21 Levies. The amendments also confirm that
contingent assets should not be recognised at the acquisition date.
1 January 2022
Onerous Contracts – Cost of Fulfilling
a Contract Amendments to IAS 37
(issued on 14 May 2020)
The amendment to IAS 37 clarifies that the direct costs of fulfilling a contract
include both the incremental costs of fulfilling the contract and an allocation
of other costs directly related to fulfilling contracts. Before recognising a
separate provision for an onerous contract, the entity recognises any
impairment loss that has occurred on assets used in fulfilling the contract.
Bank of Valletta p.l.c.
Annual Report 2021
52
Notes to the financial statements 31 December 2021 (continued)
1
1
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.
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1 January 2023
IFRS 17 Insurance Contracts (issued
on 25 June 2020)
IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance
Contracts. It requires a current measurement model where estimates are
re-measured in each reporting period. Contracts are measured using the
building blocks of:
• discounted probability-weighted cash flows
• an explicit risk adjustment, and
• a contractual service margin (CSM) representing the unearned profit of
the contract which is recognised as revenue over the coverage period.
The standard allows a choice between recognising changes in discount
rates ei
ther in the statement of profit or loss or directly in other
comprehensive income.
An optional, simplified premium allocation approach is permitted for the
liability for the remaining coverage for short duration contracts and a
modification of the general measurement model is also presented.
The new rules will affect the financial statements and key performance
indicators of all entities that issue insurance contracts or investment
contracts with discretionary participation features.
1 January 2023
Amendments to IAS 1 Presentation of
Financial Statements and IFRS
Practice Statement 2: Disclosure of
Accounting policies (issued on 12
February 2021)
'Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)' with amendments are intended to help preparers in deciding
which accounting policies to disclose in their financial statements.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2) amends IAS 1 in the following ways:
An entity is now requi
red to disclose its material accounting policy
information instead of its significant accounting policies;
• several paragraphs are added to explain how an entity can identify
material accounting policy information and to give examples of when
accounting policy information is likely to be material;
•
the amendments clarify that accounting policy information may be
material because of its nature, even if the related amounts are immaterial;
• the amendments clarify that accounting policy information is material if
users of an entity’s financial statements would need it to understand
other material information in the financial statements; and
• the amendments clarify that if an entity discloses immaterial accounting
policy information, such information shall not ob
scure material
accounting policy information.
In addition, IFRS Practice Statement 2 has been amended by adding
guidance and examples to explain and demonstrate the application of the
‘four-step materiality process’ to accounting policy information in order to
support the amendments to IAS 1.
Bank of Valletta p.l.c.
Annual Report 2021
53
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
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)
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S
t
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a
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n
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d
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b
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(
(
c
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n
n
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)
)
1 January 2023
Amendments to IAS 8 Accounting
policies, Changes in Accounting
Estimates and Errors: Definition of
Accounting Estimates (issued on 12
February 2021)
This amendment has been published to help entities to distinguish between
accounting policies and accounting estimates.
The changes to IAS 8 focus entirely on accounting estimates and clarify the
following:
• The definition of a change in accounting estimates is replaced with a
definition of accounting estimates. Under the new definition,
accounting estimates are “monetary amounts in financial statements
that are subject to measurement uncertainty”.
• Entities develop accounting estimates if accounting policies require
items in financial statements to be measured in a way that involves
measurement uncertainty.
• The Board clarifies that a change in accounting estimate that results
from new information or new developments is not the correction of an
error. In addition, the effects of a change in an input or a measurement
technique used to develop an accounting estimate are changes in
accounting estimates if they do not result from the correction of prior
period errors.
• A change in an accounting estimate may affect only the current period’s
profit or loss, or the profit or loss of both the current period and future
periods. The effect of
the change relating to the current period is
recognised as income or expense in the current period. The effect, if
any, on future periods is recognised as income or expense in thos
e
f
uture periods.
S
S
t
t
a
a
n
n
d
d
a
a
r
r
d
d
s
s
a
a
n
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b
b
y
y
t
t
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E
E
U
U
T
he following new standards and amendments have not yet been endorsed by the EU:
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and
Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 23 January 2020 and 15 July 2020
respectively) – Effective 1 January 2023
- Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued
on 7 May 2021) - Effective 1 January 2023.
- Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (issued on 9
December 2021) - Effective 1 January 2023.
1
1
.
.
2
2
B
B
a
a
s
s
i
i
s
s
o
o
f
f
c
c
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o
n
n
s
s
o
o
l
l
i
i
d
d
a
a
t
t
i
i
o
o
n
n
The Group financial statements comprise the financial statements of Bank of Valletta p.l.c., (the Bank), a public liability company
domiciled and incorporated in Malta, and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group 'controls' an
entity if it is exposed to, or has rights to, variable returns from its involvement with the entity. The Group reassesses whether it has
control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held
(e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee. The results
of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control
ceases. Intragroup balances, transactions, income and expenses are eliminated on consolidation. Non-controlling interests that
represent ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation
may be initially measured either at their present ownership interests' proportionate share in the recognised amounts of the acquiree's
identifiable net assets or at fair value. The choice of measurement basis is made on an acquisition-by-acquisition basis. After initial
recognition, non-controlling interests in the net assets consist of the amount of those interests at the date of the original business
combination and the non-controlling interests’ share of changes in equity since the date of the combination.
The ex
cess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities is recognised as
goodwill and is included within the carrying amount of the investment and assessed for impairment as part of the investment. If the
cost of acquisition is less than the Group’s share of the net fair value of the identifiable assets and liabilities, the difference is included
as income in the determination of the Group's share of the profit or loss in the period in which the investment is acquired. Equity-
accounted investees comprise interests in associates. The results and assets and liabilities of equity-accounted investees are
incorporated in the consolidated financial statements using the equity method of accounting from the date that significant influence
or joint control commences until the date that significant influence or joint control ceases. Equity-accounted investees are those
entities in which the Group has significant influence, but not control or joint control over the financial and operating policies.
The significant accounting policies adopted are set out in the following pages.
Bank of Valletta p.l.c.
Annual Report 2021
54
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
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O
L
L
I
I
C
C
I
I
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(
(
c
c
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)
)
1
1
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3
3
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F
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1
1
.
.
3
3
.
.
1
1
A
A
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f
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e
Interest income and expense is recognised using the effective interest method, by reference to the principal outstanding and the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the instrument or, when appropriate, a shorter period to that instrument’s gross carrying amount. When calculating
the effective interest rate, the Group estimates cash flows considering all contractual terms of the instrument but not future credit
losses. The calculation includes payments and receipts that are an integral part of the effective interest rate, transaction costs and all
other discounts or premiums upon initial recognition.
Transaction co
sts include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial
liability.
The ‘amortised cost’ of a financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or
m
inus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity
amount and, for financial assets adjusted for any expected credit loss allowance.
1
1
.
.
3
3
.
.
2
2
I
I
n
n
t
t
e
e
r
r
e
e
s
s
t
t
i
i
n
n
c
c
o
o
m
m
e
e
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:
- Financial assets that are not purchased or originated credit-impaired (POCI) but have subsequently become credit-impaired
(or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of
the expected credit loss provision), or
- POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the amortised cost of the financial
asset.
1
1
.
.
3
3
.
.
3
3
I
I
n
n
i
i
t
t
i
i
a
a
l
l
R
R
e
e
c
c
o
o
g
g
n
n
i
i
t
t
i
i
o
o
n
n
Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument. All
loans and advances to customers and to banks are recognised when cash is advanced to borrowers. All purchases and sales of securities
are recognised and derecognised on settlement date, which is the date that an asset is delivered to or by the Group.
1
1
.
.
3
3
.
.
4
4
M
M
e
e
a
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n
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c
c
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g
g
n
n
i
i
t
t
i
i
o
o
n
n
At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in the case of financial asset or
financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or
issue of the financial asset or financial liability, such as fees and commissions. Transaction costs of financial assets and financial liabilities
carried at fair value through profit or loss are expensed in profit or loss.
An ex
pected credit loss allowance (ECL) is also recognised immediately after initial recognition for financial assets measured at amortised
cost and investments in debt instruments measured at FVOCI, as described in note 39.2.1.2, which results in an accounting loss being
recognised in profit or loss when an asset is newly originated.
1
1
.
.
4
4
F
F
i
i
n
n
a
a
n
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a
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A
A
s
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s
1
1
.
.
4
4
.
.
1
1
C
C
l
l
a
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s
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a
a
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f
f
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c
c
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l
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a
a
s
s
s
s
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t
t
s
s
The Group classifies its financial assets in the following measurement categories:
- Fair value through profit or loss (FVTPL);
- Fair value through other comprehensive income (FVOCI); or
- Amortised cost.
D
D
e
e
b
b
t
t
i
i
n
n
s
s
t
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n
n
t
t
s
s
Debt instruments are those instruments that meet the definition of a financial liability from the issuer's perspective, such as loans,
government and corporate bonds.
Classification and subsequent measurement of debt instruments depend on:
(i) the Group's business model for managing the asset; and
(ii) the cash flow characteristics of the asset.
Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories:
• A
mortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments
o
f principal and interest (SPPI) on specified dates, and that are not designated at FVTPL, are measured at amortised cost. Th
e
car
rying amount of these assets is adjusted by any expected credit loss allowance recognised and measured as described in
note 39.2.1.1. Interest income from these financial assets is included in 'Interest and similar income' using the effective interest
rate method.
Bank of Valletta p.l.c.
Annual Report 2021
55
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
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I
E
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(
(
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)
)
1
1
.
.
4
4
F
F
i
i
n
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a
a
n
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A
A
s
s
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(
(
c
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)
1
1
.
.
4
4
.
.
1
1
C
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(
(
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)
)
• Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash flows
an
d for selling the assets, where the assets' cash flows represent solely payments of principal and interest, and that are not
designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for th
e
r
ecognition of impairment gains or losses on specified dates, interest revenue and foreign exchange gains and losses on the
instrument's amortised cost which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gai
n
o
r loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in 'Net gain on investment
securities and hedging instruments'. Interest income from these financial assets is included in 'Interest and similar income' using
the effective interest rate method.
• Fa
ir value through profit or loss (FVTPL): Assets that do not meet the criteria for amortised cost or FVOCI are measured at
FV
TPL. A gain or loss on a debt investment that is subsequently measured at FVTPL and is not part of a hedging relationship
is recognised in profit or loss and presented in the statement of profit or loss within 'Trading profits' in the period in which i
t
a
rises, unless it arises from debt instruments that were designated at fair value or which are not held for trading, in which
case they are presented separately in 'Net investment income'. Interest income from these financial assets is included i
n
'
Interest income' using the effective interest rate method.
Financial assets and liabilities are designated at fair value through profit or loss on initial recognition where such designation results in
m
ore relevant information because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes
referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and
losses on them on different bases.
Business Model Assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best
r
eflects the way the business is managed and information is provided to management. The information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether
management's strategy focuses on earning contractual interest revenue maintaining a particular interest rate profile, matching
the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through
the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Group's management;
- the risks that affect the performance of the business model (and the financial assets held within that business model) and how
those risks are managed;
- the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales
activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the
Group's stated objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading and whose performance is evaluated on a fair value basis are measured at FVTPL because
t
hey are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
Cash flows that represent solely payments of principal and interest
'Principal' i
s defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time
value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for
other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual
t
erms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing
or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:
• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and
• features that modify consideration of the time value of money – e.g. periodical reset of interest rates.
Embedded derivatives
D
erivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an embedded derivative
separately from the host contract when:
- the host contract is not an asset in the scope of IFRS 9;
- the host contract is not itself carried at FVTPL;
- the terms of the embedded derivative would meet the definition of a derivative if they were contained in a separate contract; and
- the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and
risks of the host contract.
Bank of Valletta p.l.c.
Annual Report 2021
56
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
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S
(
(
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)
)
1
1
.
.
4
4
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A
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(
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1
1
.
.
4
4
.
.
1
1
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f
f
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a
a
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(
(
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)
)
S
eparated embedded derivatives are measured at fair value, with all changes in fair value recognised in profit or loss unless they form
part of a qualifying cash flow or net investment hedging relationship. Separated embedded derivatives are presented in the statement
of financial position together with the host contract.
E
E
q
q
u
u
i
i
t
t
y
y
i
i
n
n
s
s
t
t
r
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e
n
n
t
t
s
s
Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is instruments that do not contain
a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. Examples of equity instruments include
basic ordinary shares.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes
in fair value in OCI. This election is made on an investment-by-investment basis and is irrevocable. Other equity instruments are classified
as measured at FVTPL.
Gains an
d losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised. Dividends are
recognised in profit or loss (see note 1.25) unless they clearly represent a recovery of part of the cost of the investment, in which
case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal
of an investment.
Gains and losses on equity investments at FVTPL are included in the ‘Trading profits’ line in the statement of profit or loss.
1
1
.
.
4
4
.
.
2
2
M
M
o
o
d
d
i
i
f
f
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f
f
t
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r
r
m
m
s
s
When modification of a loan agreement occurs as a result of commercial restructuring activity rather than due to the credit risk of the
borrower, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially
different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original
financial asset is derecognised (see 1.4.4) and a new financial asset is recognised at fair value. If the cash flows of the modified asset
carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In
this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount arising from adjusting the
gross carrying amount as a modification gain or loss in profit or loss.
Additionally, i
n the case of loans and advances which encountered actual or apparent financial difficulties, the Group may grant a
concession where a customer's financial difficulty indicates that with the original terms and conditions of the contract satisfactory
repayment may not be possible. Such concessions are recognised as revisions to the expected credit loss on the associated loan.
A concession refers to either of the following:
- a change in the previous terms and conditions of a contract the customer is considered unable to comply with due to its financial
difficulties to allow for sufficient debt service ability, that would not have been granted had the customer not been in financial
difficulties; or
- a total or partial refinancing of a troubled debt contract, that would not have been granted had the customer not been in financial
difficulties.
1
1
.
.
4
4
.
.
3
3
I
I
m
m
p
p
a
a
i
i
r
r
m
m
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e
n
n
t
t
The Group assesses on a forward-looking basis the expected credit losses (‘ECL’) associated with its debt instrument assets carried
at amortised cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Group
recognises a loss allowance for such losses at each reporting date. The measurement of ECL reflects:
- an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
- the time value of money; and
- reasonable and supportable information that is available without undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic conditions.
Note 39.2.1.2 provides more detail of how the expected credit loss allowance is measured.
Presentation of allowance for ECL in the statement of financial position
L
oss allowances for ECL are presented in the statement of financial position as follows:
- financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
- loan commitments and financial guarantee contracts: as a provision;
- where a financial instrument includes both a drawn and undrawn component, and the Group cannot identify the ECL on the
loan commitment component separately from those on the drawn component: the Group presents a combined loss allowance
for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn
component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and
- debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying
amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.
Bank of Valletta p.l.c.
Annual Report 2021
57
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
4
4
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
A
A
s
s
s
s
e
e
t
t
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
4
4
.
.
3
3
I
I
m
m
p
p
a
a
i
i
r
r
m
m
e
e
n
n
t
t
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Measurement of ECL
ECL are a probability-weighted estimate of credit losses. They are measured as follows:
- financial assets that are not credit-impaired at the reporting date: at the present value of all cash shortfalls (i.e. the difference
between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);
- financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the
present value of estimated future cash flows;
- undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group
if the commitment is drawn down and the cash flows that the Group expects to receive; and
- financial guarantee contracts: the present value of the expected payments to reimburse the holder less any amounts that the
Group expects to recover.
Modification of financial assets
When there is a modification of financial assets’ terms (note 1.4.2), the date of renegotiation is considered to be the date of initial
recognition for impairment calculation purposes including for the purpose of determining whether a significant increase in credit
risk has occurred.
1.4.4 D
D
e
e
r
r
e
e
c
c
o
o
g
g
n
n
i
i
t
t
i
i
o
o
n
n
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
a
a
s
s
s
s
e
e
t
t
s
s
A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the Group
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial asset and the transfer qualifies for derecognition.
1.4.5 F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
a
a
t
t
i
i
o
o
n
n
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
a
a
s
s
s
s
e
e
t
t
s
s
Where possible, fair value is based on quoted bid prices in an active market. A market is regarded as active if transactions for the asset
or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market for a financial
asset is not active, the Group establishes fair value by using valuation techniques that maximise the use of relevant 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.
1
1
.
.
5
5
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
1
1
.
.
5
5
.
.
1
1
C
C
l
l
a
a
s
s
s
s
i
i
f
f
i
i
c
c
a
a
t
t
i
i
o
o
n
n
a
a
n
n
d
d
m
m
e
e
a
a
s
s
u
u
r
r
e
e
m
m
e
e
n
n
t
t
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Financial liab
ilities are initially measured at fair value less, in the case of financial liabilities not at fair value through profit or loss, transaction
costs that are directly attributable to their issue. Financial liabilities are subsequently measured at amortised cost using the effective interest
method, except for financial liabilities at fair value through profit or loss, which are measured at fair value.
Financial liab
ilities at fair value through profit or loss include financial liabilities classified as held for trading and those designated at fair value
through profit or loss upon initial recognition. During the current and the previous year, the Group did not designate any financial liabilities
as at fair value through profit or loss upon initial recognition. Derivatives are categorised as held for trading, unless they are designated and
effective hedging instruments.
Financial liab
ilities that are measured at amortised cost using the effective interest method include amounts owed to banks, amounts
owed to customers, debt securities in issue and subordinated liabilities.
The gain or loss on financial liabilities at fair value through profit or loss is recognised in profit or loss. For financial liabilities carried at
amortised cost, the gain or loss is recognised in profit or loss when the financial liability is derecognised and through the amortisation
process whereby any difference between the proceeds net of transaction costs, and the settlement or redemption is recognised over
the term of the financial liability.
1
1
.
.
5
5
.
.
2
2
D
D
e
e
r
r
e
e
c
c
o
o
g
g
n
n
i
i
t
t
i
i
o
o
n
n
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
A financial liability is derecognised when it is extinguished. This occurs when the obligation specified in the contract is discharged,
cancelled or expires.
1
1
.
.
6
6
I
I
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
b
b
e
e
n
n
c
c
h
h
m
m
a
a
r
r
k
k
r
r
e
e
f
f
o
o
r
r
m
m
T
he amendments to various standards as a result of the interest rate reform – phase 2 (refer to note 1.1) were applied for the first time
in 2021.
Bank of Valletta p.l.c.
Annual Report 2021
58
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
6
6
I
I
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
b
b
e
e
n
n
c
c
h
h
m
m
a
a
r
r
k
k
r
r
e
e
f
f
o
o
r
r
m
m
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
W
hen the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortised cost changed
as a result of interest rate benchmark reform, the Group updated the effective interest rate of the financial asset or financial liability to
reflect the change that is required by the reform. A change in the basis for determining the contractual cash flows is required by
interest rate benchmark reform if the following conditions are met:
- the change is necessary as a direct consequence of the reform; and
- the new basis for determining the contractual cash flows is economically equivalent to the previous basis – i.e. the basis
immediately before the change.
When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual
cash flows required by interest rate benchmark reform, the Group first updated the effective interest rate of the financial asset or
financial liability to reflect the change that is required by interest rate benchmark reform. After that, the Group applied the policies on
accounting for modifications to the additional changes.
The Phase 2 amendments provide practical relief from certain requirements in the standards to ease adoption of alternative interest
rate benchmarks. These reliefs relate to modifications of financial instruments, lease contracts or hedge relationships when a
benchmark interest rate in a contract is replaced with a new alternative benchmark rate. The Phase 2 amendments also require
disclosure of the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The
Phase 2 amendments are effective for annual periods beginning on or after 1 January 2021. The Group has early adopted the Phase
2 amendments. As a result of the limited exposure to IBOR related financial instruments, these amendments had an insignificant effect
on the Group’s financial statements.
IBOR Phase 2 amendm
ents provide practical relief from certain requirements in the standards. These reliefs relate to modifications of
financial instruments, lease contracts or hedging relationships when a benchmark interest rate in a contract is replaced with a new
alternative benchmark rate. When the basis for determining the contractual cash flows of a financial instrument is changed as a direct
consequence of interest rate benchmark reform and is made on an economically equivalent basis, the Phase 2 amendments provide
a practical expedient to update the effective interest rate of a financial instrument before applying the existing requirements in the
standards. The amendments also provide an exception to use a revised discount rate that reflects the change in interest rate when
remeasuring a lease liability because of a lease modification that is required by interest rate benchmark reform. Finally, the Phase 2
amendments provide a series of reliefs from certain hedge accounting requirements when a change required by interest rate
benchmark reform occurs to a hedged item and/or hedging instrument and consequently the hedge relationship can be continued
without any interruption.
1
1
.
.
7
7
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
g
g
u
u
a
a
r
r
a
a
n
n
t
t
e
e
e
e
c
c
o
o
n
n
t
t
r
r
a
a
c
c
t
t
s
s
a
a
n
n
d
d
l
l
o
o
a
a
n
n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
‘Financial guarantees’ are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs
because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. ‘Loan
commitments’ are firm commitments to provide credit under pre-specified terms and conditions.
Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value.
Subsequently, they are measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially
recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15.
For financial guarantees issued or commitments the Group recognises a loss allowance.
Impairment allowances and provisions on loan commitments that comprise both a drawn and undrawn commitment are presented
in accordance with the policy set out in the note 1.4.3 Impairment.
1
1
.
.
8
8
O
O
f
f
f
f
s
s
e
e
t
t
t
t
i
i
n
n
g
g
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when the Group
currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously.
1
1
.
.
9
9
D
D
e
e
r
r
i
i
v
v
a
a
t
t
i
i
v
v
e
e
s
s
h
h
e
e
l
l
d
d
f
f
o
o
r
r
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
p
p
u
u
r
r
p
p
o
o
s
s
e
e
s
s
a
a
n
n
d
d
h
h
e
e
d
d
g
g
e
e
a
a
c
c
c
c
o
o
u
u
n
n
t
t
i
i
n
n
g
g
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or
liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position.
The Group designates certain derivatives held for risk management as well as certain non-d
erivative financial instruments as hedging
instruments in qualifying hedging relationships. On initial designation 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, together with the method that will be used to assess the effectiveness of the hedging relationship. The Group makes an
assessment, both on inception of the hedging relationship and on an ongoing basis, of whether the hedging instrument(s) is (are)
expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged item(s) during the
period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125%. For a cash
flow hedge of a forecast transaction, the Group makes an assessment of whether the forecast transaction is highly probable to occur
and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
Bank of Valletta p.l.c.
Annual Report 2021
59
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
9
9
D
D
e
e
r
r
i
i
v
v
a
a
t
t
i
i
v
v
e
e
s
s
h
h
e
e
l
l
d
d
f
f
o
o
r
r
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
p
p
u
u
r
r
p
p
o
o
s
s
e
e
s
s
a
a
n
n
d
d
h
h
e
e
d
d
g
g
e
e
a
a
c
c
c
c
o
o
u
u
n
n
t
t
i
i
n
n
g
g
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The Group normally designates a portion of the cash flows of a financial instrument for cash flow or fair value changes attributable to
a benchmark interest rate risk, if the portion is separately identifiable and reliably measurable.
These hedging relationships are discussed below.
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
h
h
e
e
d
d
g
g
e
e
s
s
When a derivative is designated as the 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 recognised immediately in profit or loss.
The change in fair value of the hedged item attributable to the hedged risk is recognised in profit or loss. If the hedged item would
otherwise be measured at cost or amortised cost, then its carrying amount is adjusted accordingly.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for fair value hedge
accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. However, if the derivative is
novated to a Central Counterparty Clearing (CCP) by both parties as a consequence of laws or regulations without changes in its
terms except for those that are necessary for the novation, then the derivative is not considered expired or terminated.
Any adjustment up to the point of discontinuation to a hedged item for which the effective interest method is used is amortised to
profit or loss as an adjustment to the recalculated effective interest rate of the item over its remaining life.
On hedge discontinuation, any hedging adjustment made previously to a hedged financial instrument for which the effective interest
method is used is amortised to profit or loss by adjusting the effective interest rate of the hedged item from the date on which
amortisation begins. If the hedged item is derecognised, then the adjustment is recognised immediately in profit or loss when the item
is derecognised.
O
O
t
t
h
h
e
e
r
r
n
n
o
o
n
n
-
-
t
t
r
r
a
a
d
d
i
i
n
n
g
g
d
d
e
e
r
r
i
i
v
v
a
a
t
t
i
i
v
v
e
e
s
s
Other non-trading derivatives are recognised on balance sheet at fair value on initial recognition. If a derivative is not held for trading,
and 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 trading profits and net income from other financial instruments at FVTPL (refer to note 5).
1
1
.
.
9
9
.
.
1
1
H
H
e
e
d
d
g
g
e
e
s
s
d
d
i
i
r
r
e
e
c
c
t
t
l
l
y
y
a
a
f
f
f
f
e
e
c
c
t
t
e
e
d
d
b
b
y
y
i
i
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
b
b
e
e
n
n
c
c
h
h
m
m
a
a
r
r
k
k
r
r
e
e
f
f
o
o
r
r
m
m
As yet, none of the Group’s hedging relationships has been impacted by the benchmark reform.
1
1
.
.
1
1
0
0
S
S
a
a
l
l
e
e
a
a
n
n
d
d
r
r
e
e
p
p
u
u
r
r
c
c
h
h
a
a
s
s
e
e
a
a
g
g
r
r
e
e
e
e
m
m
e
e
n
n
t
t
s
s
Securities sold subject to a linked repurchase agreement (repos) are retained in the financial statements as financial assets at fair value
through profit or loss or as investment securities as appropriate, and the counterparty liability is included in amounts owed to banks.
Securities purchased under agreements to resell (reverse repos) are not recognised but the amounts paid are recorded as loans and
advances to banks. The difference between sale and repurchase price or purchase and subsequent sale price is recognised over the
life of the repo/reverse repo agreements using the effective interest method and is treated as interest.
1
1
.
.
1
1
1
1
I
I
n
n
v
v
e
e
s
s
t
t
m
m
e
e
n
n
t
t
s
s
i
i
n
n
s
s
u
u
b
b
s
s
i
i
d
d
i
i
a
a
r
r
i
i
e
e
s
s
a
a
n
n
d
d
e
e
q
q
u
u
i
i
t
t
y
y
-
-
a
a
c
c
c
c
o
o
u
u
n
n
t
t
e
e
d
d
i
i
n
n
v
v
e
e
s
s
t
t
e
e
e
e
s
s
Investments in subsidiaries and equity-accounted investees are initially included in the Bank’s statement of financial position at cost
and subsequently at cost less any impairment loss which may have arisen. Interest in equity-accounted investees are accounted for
using the equity method at Group level. They are initially recognised at cost, which includes transaction costs. Subsequently, the
consolidated financial statements include the Group's share of profit or loss and other comprehensive income of equity-accounted
investees, until the date on which significant influence ceases. Dividends from the investments are recognised in the Bank's profit or
loss when its right to receive dividend is established.
Impairment
At the end of each reporting period, the Bank reviews the carrying amount of its investments in subsidiaries and equity-accounted
investees to determine whether there is any indication of impairment and if any such indication exists, the recoverable amount of the
asset is estimated.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount
is the higher of fair value less costs of disposal and value in use. An impairment loss recognised in a prior year is reversed if there has
been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, provided that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years. Impairment losses and reversals are recognised
immediately in profit or loss.
Bank of Valletta p.l.c.
Annual Report 2021
60
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
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G
P
P
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L
I
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(
(
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)
)
1
1
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.
1
1
2
2
P
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t
Property and equipment are classified into the following classes – land and buildings, IT infrastructure and equipment and other
(primarily furniture and fittings).
Property and equipment are initially measured at cost. Subsequent costs are included in the asset’s carrying amount when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. Expenditure on repairs and maintenance of property and equipment is recognised as an expense when incurred.
Subsequent to initial recognition, freehold and long-t
erm leasehold properties are stated in the statement of financial position at
revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.
Revaluations are performed by a professionally qualified architect on a regular basis such that the carrying amount does not differ
materially from that which would be determined using fair values at the end of the reporting period. Any surpluses arising on such
revaluation are recognised in other comprehensive income and accumulated in equity as a revaluation reserve unless they reverse a
revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss
to the extent of the decrease previously charged. Any deficiencies resulting from decreases in value are deducted from this revaluation
reserve to the extent that the balance held in this reserve relating to a previous revaluation of that asset is sufficient to absorb these,
and charged to profit or loss thereafter.
Other tangible assets are stated at cost less accumulated depreciation and any accumulated impairment losses.
Property and equipment are derecognised on disposal or when no future economi
c benefits are expected from their use or disposal.
Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying
amount, and are included in profit or loss in the period of derecognition.
1
1
.
.
1
1
3
3
L
L
e
e
a
a
s
s
e
e
s
s
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
1
1
.
.
1
1
3
3
.
.
1
1
G
G
r
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a
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a
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e
A
t commencement or on modification of a contract that contains a lease component, the Group allocates consideration in the contract
to each lease component on the basis of its relative stand-alone price. However, for leases of branches and office premises, the
Group has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease
component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove any improvements made
to branches or office premises.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the
lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using its incremental borrowing rate. This rate was based on the swap rate curves as proxies for the risk free rate, the
MGS yield to include the local context and applying a risk margin.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of
the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a
purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain to be exercised or a
termination option is reasonably certain not to be exercised.
The Group presents right-of-use assets in ‘property and equipment’ and lease liabilities in ‘other liabilities’ in the statement of financial
position.
Bank of Valletta p.l.c.
Annual Report 2021
61
Notes to the financial statements 31 December 2021 (continued)
S
S
I
I
G
G
N
N
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F
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C
A
A
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1
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3
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1
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1
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3
3
.
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2
2
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T
he Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets (below €5,000) and short-
term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the
lease term.
1
1
.
.
1
1
4
4
I
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n
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I
ntangible assets comprise computer software. In determining the classification of an asset that incorporates both intangible and tangible
elements, judgement is used in assessing which element is more significant. Computer software which is an integral part of the related
hardware is classified as property and equipment and accounted for in accordance with the Group’s accounting policy on property and
equipment. Where the software is not an integral part of the related hardware, this is classified as an intangible asset. Computer software
is externally generated.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it
r
elates.
Computer software is initially measured at cost. It is subsequently carried at cost less accumulated amortisation and any accum
ulated
impairment losses.
Computer software is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Gains
or
losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount, and are
included in profit or loss in the period of derecognition.
1
1
.
.
1
1
5
5
D
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p
p
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a
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a
a
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t
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s
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a
a
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n
n
Depreciation on property and equipment and amortisation on intangible assets commence when these assets are available for use and
are charged to profit or loss so as to write off the cost or revalued amount of assets, other than land, less any estimated residual value,
over their estimated useful life, using the straight line method, on the following bases:
Property and equipment
Freehold and long-term leasehold buildings
2%
per annum
IT infrastructure and equipment
10% - 25%
per annum
Other (primarily furniture and fittings)
5% - 33%
per annum
Right-of-use assets
Over the life of the lease
Intangible assets
Computer software
10% - 20%
per annum
The depreciation or amortisation method applied, the residual value and the useful life are reviewed at the end of each reporting period
and adjusted if appropriate.
1
1
.
.
1
1
6
6
I
I
m
m
p
p
a
a
i
i
r
r
m
m
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t
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q
q
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At the end of each reporting period the Group reviews the carrying amount of its property and equipment and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists the recoverable
amount is estimated in order to determine the extent of the impairment loss and the carrying amount of the asset is reduced to its
recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use.
An impairment loss is recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case the loss
is recognised in other comprehensive income to the extent that it does not exceed the amount in the revaluation surplus for that asset.
An impairment loss recognised in a prior year is reversed if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised. When an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its recoverable amount, to the extent that it does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset in prior years. Impairment reversals
are recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case the impairment reversal is
recognised in other comprehensive income, unless an impairment loss on the same asset was previously recognised in profit or loss.
Bank of Valletta p.l.c.
Annual Report 2021
62
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
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I
I
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P
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(
(
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)
)
1
1
.
.
1
1
7
7
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,
,
c
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s
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made
of the amount of the obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the
present obligation at the end of the reporting period. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability. In such case, the unwinding of the discount is recognised as finance cost.
A contingent liability is (a) a possible obligation that arises from past events and whose existence will be confirmed only by
the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or (b) a present
obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient
reliability. Contingent liabilities are not recognised but are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote.
A contingent asset is a possible asset th
at arises from past events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent assets are not recognised.
Contingent assets are disclosed where an inflow of economic benefits is probable.
1
1
.
.
1
1
8
8
N
N
o
o
n
n
-
-
c
c
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e
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n
n
t
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a
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f
f
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s
s
a
a
l
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e
Non-current assets and disposal groups are classified as held for sale if it is highly probable that they will be recovered primarily
through a sale transaction rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower
of their carrying amount and fair value less costs to sell and the asset or disposal group is available for immediate sale in its present
condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within a reasonable period from the date of classification. Non-current assets are not depreciated (or amortised) while they are
classified as held for sale or while they are part of a disposal group classified as held for sale.
1
1
.
.
1
1
9
9
C
C
a
a
s
s
h
h
a
a
n
n
d
d
c
c
a
a
s
s
h
h
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e
q
q
u
u
i
i
v
v
a
a
l
l
e
e
n
n
t
t
s
s
Cash and cash equivalents comprise cash in hand and deposits repayable on demand or with a contractual period to maturity of less
than 3 months; advances to banks repayable within 3 months from the date of the advance; balances with the Central Bank of Malta,
excluding reserve deposit requirements, and treasury bills with an original maturity of less than 3 months. Amounts owed to banks
that are repayable on demand or with a contractual period to maturity of less than 3 months and which form an integral part of the
Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statements of cash
flow.
1
1
.
.
2
2
0
0
D
D
i
i
v
v
i
i
d
d
e
e
n
n
d
d
s
s
p
p
a
a
y
y
a
a
b
b
l
l
e
e
Interim dividends approved by the Directors are recognised when paid. Final dividends are recognised as liability upon approval by
the shareholders at the Annual General Meeting.
1
1
.
.
2
2
1
1
O
O
p
p
e
e
r
r
a
a
t
t
i
i
n
n
g
g
s
s
e
e
g
g
m
m
e
e
n
n
t
t
s
s
An operating segment is a component of an entity (a) that engages in business activities from which it may earn revenues and incur
expenses, (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available.
Unallocated items comprise mainly head office expenses and tax assets and liabilities.
1
1
.
.
2
2
2
2
O
O
p
p
e
e
r
r
a
a
t
t
i
i
n
n
g
g
I
I
n
n
c
c
o
o
m
m
e
e
Operating income includes net interest income and net fee and commission income together with the dividend income, trading profits
and net gain on investment securities and hedging instruments components of the statement of profit or loss.
1
1
.
.
2
2
3
3
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
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e
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or in, its absence, the most advantageous market to which the Group has
access at the date. The fair value of a liability reflects its non-performance risk.
Fair value reflects conditions, including but not limited to liquidity in the market, at a specific date and may therefore differ significantly
from the amounts which will actually be received on the maturity or settlement date. The Bank's portfolio remains deployed across a
wide spread of holdings of moderate duration debt securities issued by quality, credit rated, sovereign, supranational, corporate and
financial institutions, as further disclosed in notes 14 and 15 to the financial statements.
The best evidence of fair value of an instrument is a quoted price in an actively traded market for that instrument. The determination
of what constitutes an active market is subjective and requires the collation of data and the exercise of judgement.
Bank of Valletta p.l.c.
Annual Report 2021
63
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
2
2
3
3
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
A
financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm's length basis. The Bank determines whether active market conditions exist by taking into consideration
various characteristics, including:
- a significant decline in volume and level of trading activity;
- significant variations in available prices either over time or among market participants;
- the absence of or stale prices;
- unusually wide bid/offer spreads; and
- exceptionally minimal transactions when compared with the quantum of the issue in question.
Where it is concluded that an active market d
oes not exist a valuation technique is used. The latter gives consideration to transaction
prices in inactive markets, however it makes use of other observable market data which include a combination of the following:
- the risk premium of more active instruments of the same issuer, the same type of debt, the same currency and with the same or
similar maturity;
- the spreads payable on Credit Default Swaps of the issuer;
- the risk premium over and above the risk free bonds for similarly rated issuers in the same industry sector;
- yield curve or Discounted Cash Flow (DCF) calculations to maturity using appropriate interest rate/discount factors;
- liquidity adjustments to reflect ability to sell asset over a reasonable timeframe; and
- other overall reasonableness tests.
The main assumptions and estimates which management considers when using valuation techniques are the likelihood and expected
timing of future cash flows on the instrument, selecting an appropriate discount rate for the instrument and a risk premium. The
v
aluation techniques used by the Group incorporate all factors that market participants would consider in setting a price and are
consistent with accepted economic methodologies for pricing financial instruments.
1
1
.
.
2
2
4
4
T
T
a
a
x
x
a
a
t
t
i
i
o
o
n
n
Income tax expense comprises current and deferred tax and is recognised in profit or loss, except when it relates to items recognised
in other comprehensive income or directly in equity, in which case it is dealt with in other comprehensive income or in equity, as
appropriate.
Current tax
Current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or
loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible in
other periods. Current tax also includes any tax arising from dividends. It is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period, and any adjustments in relation to the prior periods.
Deferred tax
Deferred tax is determined under the liability method in respect of all temporary differences between the carrying amount of an asset
or liability in the financial statements and its tax base. Deferred tax liabilities are generally recognised for all taxable temporary
differences subject to certain exceptions and deferred tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liabili
ty is settled
based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax is not recognised for temporary differences related to investments in subsidiaries to the extent that it is probable that
they will not reverse in the foreseeable future.
1
1
.
.
2
2
5
5
R
R
e
e
v
v
e
e
n
n
u
u
e
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e
e
c
c
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g
n
n
i
i
t
t
i
i
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o
n
n
Revenue is recognised to the extent that it is probable that future economic benefits will flow to the Group and these can be measured
reliably. The following specific recognition criteria must also be met before revenue is recognised.
Dividend income from investments is recognised when the right to receive payment has been established.
I
nterest income and expense is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the
instrument or, when appropriate, a shorter period to that instrument’s net carrying amount. When calculating the effective interest rate,
the Group estimates cash flows considering all contractual terms of the instrument but not future credit losses. The calculation includes
payments and receipts that are an integral part of the effective interest rate, transaction costs and all other discounts or premiums.
Generally fee and commission income, is recognised as the related services are performed.
Bank of Valletta p.l.c.
Annual Report 2021
64
Notes to the financial statements 31 December 2021 (continued)
1
1
.
.
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
2
2
5
5
R
R
e
e
v
v
e
e
n
n
u
u
e
e
r
r
e
e
c
c
o
o
g
g
n
n
i
i
t
t
i
i
o
o
n
n
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
A contract with a customer that results in a recognised financial instrument in the Group's financial statements may be partially in the
scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case then the Group first applies IFRS 9 to separate and measure
the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.
Other fee and commission expenses are expensed as the services are received.
1
1
.
.
2
2
6
6
F
F
o
o
r
r
e
e
i
i
g
g
n
n
c
c
u
u
r
r
r
r
e
e
n
n
c
c
y
y
t
t
r
r
a
a
n
n
s
s
l
l
a
a
t
t
i
i
o
o
n
n
For the purpose of the consolidated and separate financial statements, the presentation currency is the Euro. The functional currency
of the Bank and of all its subsidiaries is the Euro.
In preparing the financial statements of the individual group entities, transactions denominated in currencies other than the functional
currency are translated at the exchange rates ruling on the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated to Euro at the rates of exchange ruling at the end of the reporting period. Gains and losses arising
from such translation are dealt with in profit or loss and presented with trading income. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated to Euro at the exchange rate ruling on the date the fair value was
measured. Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost are not
retranslated.
1
1
.
.
2
2
7
7
E
E
m
m
p
p
l
l
o
o
y
y
e
e
e
e
b
b
e
e
n
n
e
e
f
f
i
i
t
t
s
s
The Group and the Bank contribute towards the state pension in accordance with local legislation. The only obligation of the Group
and the Bank is to make the required contribution. Costs are expensed in the period in which they are incurred in profit or loss.
For the Group’s and the Bank’s defined benefit plans, the cost of providing benefits is determined using the projected unit credit
method, with estimations being carried out at each reporting date. Past service cost is recognised as an expense at the earlier of the
following dates (a) when the plan amendment or curtailment occurs and (b) when the entity recognises related restructuring costs or
termination benefits. The amount recognised in the Statement of Financial Position represents the present value of the expected future
payments required to settle the obligation resulting from employee service in the current and prior periods.
The service cost and the net interest on the net defined benefit liability are recognised in profit or loss. Remeasurements of the net
defined benefit liability, comprising actuarial gains and losses are recognised in other comprehensive income and are not reclassified
to profit or loss in a subsequent period. Such remeasurements are recognised immediately in retained earnings. Actuarial gains and
losses are changes in the present value of the defined benefit obligation resulting from experience adjustments and the effects of
changes in actuarial assumptions. Actuarial assumptions are an entity’s best estimates of the variables that will determine the ultimate
cost of providing post-employment benefits. Due to the nature of the actuarial assumptions, in accordance with the provisions of IAS
19, Employee Benefits, the Group and the Bank did not involve a qualified actuary in the measurement of their post-employment benefit
obligations.
1
1
.
.
2
2
8
8
J
J
u
u
d
d
g
g
e
e
m
m
e
e
n
n
t
t
s
s
i
i
n
n
a
a
p
p
p
p
l
l
y
y
i
i
n
n
g
g
a
a
c
c
c
c
o
o
u
u
n
n
t
t
i
i
n
n
g
g
p
p
o
o
l
l
i
i
c
c
i
i
e
e
s
s
a
a
n
n
d
d
k
k
e
e
y
y
s
s
o
o
u
u
r
r
c
c
e
e
s
s
o
o
f
f
e
e
s
s
t
t
i
i
m
m
a
a
t
t
i
i
o
o
n
n
u
u
n
n
c
c
e
e
r
r
t
t
a
a
i
i
n
n
t
t
y
y
The amounts recognised in the financial statements are sensitive to the accounting policies, assumptions and estimates that underlie
the preparation of financial statements. The judgements made by management in applying the Group’s and the Bank's accounting
policies that have the most significant effect on the amounts recognised in the financial statements, together with information about the
key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period have been
disclosed in the financial statements.
1
1
.
.
2
2
8
8
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
I
I
m
m
p
p
a
a
i
i
r
r
m
m
e
e
n
n
t
t
Es
timates and underlying assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are either disclosed below or in note 39.2.1.2.5. This discloses the determination of inputs
in the IFRS 9 ECL measurement model, including key assumptions used in incorporation of forward-looking information.
1
1
.
.
2
2
8
8
.
.
2
2
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
n
n
o
o
t
t
q
q
u
u
o
o
t
t
e
e
d
d
i
i
n
n
a
a
c
c
t
t
i
i
v
v
e
e
m
m
a
a
r
r
k
k
e
e
t
t
s
s
The fair value of financial instruments that are not quoted in active markets is determined by using valuation techniques. Periodically, the
Group calibrates these valuation techniques and tests them for validity. Where possible the valuation techniques used by the Group
make use of observable data and incorporate all factors that market participants would consider in setting a price and are consistent
with accepted economic methodologies for pricing financial instruments. Management is required to make certain assumptions and
estimates in arriving at an appropriate fair value, based on available observable market data. A change in assumptions could affect the
reported fair value of these financial instruments. Further disclosures are provided in note 39.
1
1
.
.
2
2
8
8
.
.
3
3
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
o
o
f
f
l
l
a
a
n
n
d
d
a
a
n
n
d
d
b
b
u
u
i
i
l
l
d
d
i
i
n
n
g
g
s
s
The fair value of the Group's and the Bank's land and buildings is determined by using valuation techniques as further disclosed in note
21. In arriving at an estimate of fair value at the end of the reporting period, the Group and the Bank make use of significant unobservable
inputs. A change in such inputs could affect the reported fair value of these land and buildings.
Bank of Valletta p.l.c.
Annual Report 2021
65
Notes to the financial statements 31 December 2021 (continued)
S
S
I
I
G
G
N
N
I
I
F
F
I
I
C
C
A
A
N
N
T
T
A
A
C
C
C
C
O
O
U
U
N
N
T
T
I
I
N
N
G
G
P
P
O
O
L
L
I
I
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1
1
.
.
2
2
8
8
.
.
4
4
C
C
l
l
a
a
s
s
s
s
i
i
f
f
i
i
c
c
a
a
t
t
i
i
o
o
n
n
o
o
f
f
f
f
a
a
c
c
i
i
l
l
i
i
t
t
i
i
e
e
s
s
a
a
s
s
f
f
o
o
r
r
b
b
o
o
r
r
n
n
e
e
Management follows the European Banking Authority technical standard in identifying performing/non-performing exposures and in
determining forborne exposures. Judgement is exercised in determining whether the modification of the original terms of a facility are
granted, because of financial difficulties, which would result in the exposure being classified as forborne.
1
1
.
.
2
2
8
8
.
.
5
5
P
P
r
r
o
o
v
v
i
i
s
s
i
i
o
o
n
n
s
s
a
a
n
n
d
d
c
c
o
o
n
n
t
t
i
i
n
n
g
g
e
e
n
n
t
t
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
In the ordinary course of operations, the Group faces loss contingencies that may result in the recognition of a liability. Management
periodically assesses these issues based on information available and assessments from internal and/or external legal counsel.
The Group is currently involved in various claims and legal proceedings arising out of it normal business operations. Periodically, the
s
tatus of each significant loss contingency is reviewed to assess the potential financial exposure. If the potential loss from any claim or
legal proceeding is considered probable and the amount can be reasonably estimated, a liability for the estimated loss is provided for.
Due to the uncertainties inherent in such matters, provisions are based on the best information available at the reporting date. As
additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required,
estimates are revised. Such revisions in the estimates of the potential liabilities could have a material impact on results of operations and
the financial position of the Group. Where an individual provision is material, the fact that a provision has been quantified would not
constitute any admission of wrongdoing or legal liability.
TThhee GGrroouupp
TThhee BBaannkk
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2
2
.
.
I
I
N
N
T
T
E
E
R
R
E
E
S
S
T
T
A
A
N
N
D
D
S
S
I
I
M
M
I
I
L
L
A
A
R
R
I
I
N
N
C
C
O
O
M
M
E
E
On loans and advances to banks
-
144
-
144
On loans and advances to customers
172,429
166,851
172,429
166,851
172,429
166,995
172,429
166,995
On debt and other fixed income instruments
- fair value through other comprehensive income
5,405
6,084
5,405
6,084
- amortised cost
31,286
33,529
31,286
33,529
- fair value through profit or loss
4,163
727
4,163
727
40,854
40,340
40,854
40,340
Amortisation of discounts and premiums
- fair value through other comprehensive income
(1,409)
(2,253)
(1,409)
(2,253)
- amortised cost
(17,061)
(14,800)
(17,061)
(14,800)
(18,470)
(17,053)
(18,470)
(17,053)
Net interest income on debt and other fixed income instruments using
the effective interest rate method
22,384
23,287
22,384
23,287
194,813
190,282
194,813
190,282
33.. IINNTTEERREESSTT EEXXPPEENNSSEE
On amounts owed to banks
31
708
31
708
On interest rate swaps
4,256
4,198
4,256
4,198
On amounts owed to customers
10,229
16,325
10,229
16,325
On subordinated liabilities
5,776
6,457
5,776
6,457
Negative interest on loans to banks, treasury bills and
balances with Central Bank of Malta
18,211 15,788 18,211 15,788
38,503
43,476
38,503
43,476
44.. NNEETT FFEEEE AANNDD CCOOMMMMIISSSSIIOONN IINNCCOOMMEE
On loans and advances, similar activities and local business
39,375
35,065
39,419
35,065
On life assurance, fund management and similar activities
25,877
21,254
16,022
12,368
On other activities
9,343
10,973
9,343
10,973
74,595
67,292
64,784
58,406
The fees and commission presented in this note include income of €26.6 million (2020: €24.4 million) relating to financial assets and
financial liabilities not measured at FVTPL.
A significant portion of the fees and commissions earned by the Group are of a one time n
ature and are recognised at the point in time
when the transaction takes place.
The other fee and commission income earned from contracts with customers is measured based on the consideration specified in the
co
ntract with a customer. The Group recognises revenue over time as the services are provided.
Bank of Valletta p.l.c.
Annual Report 2021
66
Notes to the financial statements 31 December 2021 (continued)
T
T
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h
e
e
G
G
r
r
o
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u
u
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T
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B
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a
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5
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.
.
T
T
R
R
A
A
D
D
I
I
N
N
G
G
P
P
R
R
O
O
F
F
I
I
T
T
S
S
Net income on foreign exchange activities
9,036
11,302
8,998
11,343
Fair value movements and net gains on sale of financial instruments
designated at fair value through profit or loss
1,471
5,336 1,468 5,337
Fair value movements and net gains on sale of financial instruments
mandatorily measured at fair value through profit or loss
4
3 4 3
10,511
16,641
10,470
16,683
6
6
.
.
N
N
E
E
T
T
G
G
A
A
I
I
N
N
O
O
N
N
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
A
A
N
N
D
D
H
H
E
E
D
D
G
G
I
I
N
N
G
G
I
I
N
N
S
S
T
T
R
R
U
U
M
M
E
E
N
N
T
T
S
S
Amortised cost instruments
- net gain on disposal
51
-
51
-
Financial assets at FVOCI - debt instruments
- net gain on disposal
-
652
-
652
- net revaluation (loss)/gain attributable to hedged risk
(5,005) 3,906 (5,005) 3,906
(5,005)
4,558
(5,005)
4,558
Derivative financial instruments
- net gain/(loss) on derivative financial instruments held for hedging
4,999 (3,901) 4,999 (3,901)
45
657
45
657
7
7
.
.
E
E
M
M
P
P
L
L
O
O
Y
Y
E
E
E
E
C
C
O
O
M
M
P
P
E
E
N
N
S
S
A
A
T
T
I
I
O
O
N
N
A
A
N
N
D
D
B
B
E
E
N
N
E
E
F
F
I
I
T
T
S
S
Employee compensation and benefits
- wages and salaries
69,632
64,397
67,230
61,702
- social security costs
3,996
4,133
3,897
4,034
- retirement benefits
2,141
5,944
2,141
5,943
- other staff costs
5,799
4,915
5,799
4,915
81,568
79,389
79,067
76,594
NNoo.. ooff
p
p
e
e
r
r
s
s
o
o
n
n
s
s
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p
p
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e
r
r
s
s
o
o
n
n
s
s
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p
p
e
e
r
r
s
s
o
o
n
n
s
s
NNoo.. ooff
p
p
e
e
r
r
s
s
o
o
n
n
s
s
The average number of employees are analysed as follows:
Managerial 737 669 715 643
Supervisory and clerical
1,119
1,147
1,084
1,109
Others
66
68
57
60
1,922
1,884
1,856
1,812
Bank of Valletta p.l.c.
Annual Report 2021
67
Notes to the financial statements 31 December 2021 (continued)
T
T
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e
G
G
r
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8
8
.
.
N
N
E
E
T
T
I
I
M
M
P
P
A
A
I
I
R
R
M
M
E
E
N
N
T
T
R
R
E
E
V
V
E
E
R
R
S
S
A
A
L
L
/
/
(
(
C
C
H
H
A
A
R
R
G
G
E
E
)
)
Loans and advances to customers
- increase in expected credit losses
(62,824) (114,893) (62,824) (114,893)
- bad debts written off
(10,260) (4,329) (10,260) (4,329)
(73,084) (119,222) (73,084)
(119,222)
Loans and advances to customers
- decrease in expected credit losses
81,859 44,540 81,859 44,540
- recoveries of amounts previously written off
10,728 9,557 10,728 9,557
92,587 54,097 92,587 54,097
Investments
- increase in expected credit losses
(647) (11) (647) (11)
Net impairment reversal/(charge)
18,856 (65,136) 18,856 (65,136)
N
et Impairment for the year includes post-model adjustment charge of €19.3 million (2020: €56.7 million) (refer to note 39.2.1.2.5).
T
T
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e
e
G
G
r
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o
o
u
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p
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T
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B
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9
9
.
.
P
P
R
R
O
O
F
F
I
I
T
T
B
B
E
E
F
F
O
O
R
R
E
E
T
T
A
A
X
X
Profit before tax is stated after charging:
Total remuneration payable to the external auditors of the
parent company (including VAT)
- the audit of financial statements
844
651
804
620
- other assurance services
104
63
91
56
- tax advisory services
4
10
-
6
- other non audit services
98
71
96
71
1,050 795 991 753
Directors' emoluments:
- fees
406
337
389
326
- Directors' salaries as full-time bank employees
683
703
683
703
1,089 1,040 1,072 1,029
Compensation to other key management personnel is
analysed as follows
- other fees
156
177
-
-
- short term employee benefits
1,456
732
1,456
732
1,612 909 1,456 732
Total remuneration of Directors and other key management
personnel
2,701 1,949 2,528 1,761
Bank of Valletta p.l.c.
Annual Report 2021
68
Notes to the financial statements 31 December 2021 (continued)
T
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1
1
0
0
.
.
I
I
N
N
C
C
O
O
M
M
E
E
T
T
A
A
X
X
E
E
X
X
P
P
E
E
N
N
S
S
E
E
Through profit or loss:
Current
17,787 16,790 16,266 15,935
Deferred
6,681 (15,391) 6,681 (15,391)
24,468 1,399 22,947 544
The charge for income tax is based on the taxable profit for the period at a rate of 35%. The income tax expense and the product of
accounting profit multiplied by the statutory domestic income tax rate are reconciled as follows:
Profit before tax 80,659 15,201 61,846 2,210
Tax at the applicable rate of 35%
28,231
5,320
21,646
774
Tax effect of:
Exempt and untaxed dividends
(40) (11) (40) (11)
Share of results of equity-accounted investees
(5,074) (3,682) - -
Withholding tax on property sales
(224) (275) (224) (275)
Depreciation on premises
1,031 1,019 1,031 1,019
Non-deductible expenses
918 26 918 26
Over provision in prior years
- (560) - (560)
Other differences
(374) (438) (384) (429)
Income tax expense
24,468
1,399
22,947
544
Other comprehensive income
- current
(977) (1,783) (977) (1,783)
- deferred
546 599 546 599
(431) (1,184) (431) (1,184)
The credit in the current tax through other comprehensive Income is offset by the current tax expense in profit or loss.
Bank of Valletta p.l.c.
Annual Report 2021
69
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
c
c
e
e
n
n
t
t
s
s
p
p
e
e
r
r
s
s
h
h
a
a
r
r
e
e
c
c
e
e
n
n
t
t
s
s
p
p
e
e
r
r
s
s
h
h
a
a
r
r
e
e
c
c
e
e
n
n
t
t
s
s
p
p
e
e
r
r
s
s
h
h
a
a
r
r
e
e
c
c
e
e
n
n
t
t
s
s
p
p
e
e
r
r
s
s
h
h
a
a
r
r
e
e
1
1
1
1
.
.
E
E
A
A
R
R
N
N
I
I
N
N
G
G
S
S
P
P
E
E
R
R
S
S
H
H
A
A
R
R
E
E
Earnings per share 9.6c 2.4c 6.7c 0.3c
The earnings per share for the Group and Bank have been calculated on the profits of the Group and the Bank, as shown in the statements
of profit or loss, divided by number of shares in issue.
Earnings per share was calculated on profit attributable to shareholders of the Group €56,191,000 (2020: €13,802,000) and the Bank
€38,899,000 (2020: €1,666,000) divided by 583,849,270 shares outstanding as at 31 December 2021.
1
1
2
2
.
.
D
D
I
I
V
V
I
I
D
D
E
E
N
N
D
D
S
S
The amounts of dividends recognised as distributions to equity holders during the period, and the related amount per qualifying share,
are as follows:
TThhee BBaannkk
2021
2020
22002211
22002200
cents per
cents per
€€000000
€€000000
share
share
Gross of income tax
- interim paid
2.64
-
15,414
-
2.64 - 15,414 -
Net of income tax
- interim paid
1.72
-
10,019
-
1.72 - 10,019 -
During 2021, the Directors authorised a gross ordinary dividend of €0.0264 per share amounting to €15.4 million (net ordinary dividend
of €0.0172 per share net of tax amounting to €10.0million) to be paid to shareholders. Payment was affected subsequent to year end
on 28 January 2022.
Dividends were paid out of profits taxed at 35%.
1
1
3
3
.
.
B
B
A
A
L
L
A
A
N
N
C
C
E
E
S
S
W
W
I
I
T
T
H
H
C
C
E
E
N
N
T
T
R
R
A
A
L
L
B
B
A
A
N
N
K
K
O
O
F
F
M
M
A
A
L
L
T
T
A
A
,
,
T
T
R
R
E
E
A
A
S
S
U
U
R
R
Y
Y
B
B
I
I
L
L
L
L
S
S
A
A
N
N
D
D
C
C
A
A
S
S
H
H
TThhee GGrroouupp
TThhee BBaannkk
NNoottee
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Balances with Central Bank of Malta
4,351,884
3,569,907
4,351,884
3,569,907
Malta Government Treasury Bills
188,671
158,218
188,671
158,218
Cash
36
85,511
70,324
85,511
70,324
4,626,066 3,798,449 4,626,066 3,798,449
Balances with the Central Bank of Malta include Reserve Deposit, in terms of Regulation (EC) No.1745/2003 of the European Central
Bank amounting to €115.7 million (2020: €108.6 million) in respect of both the Group and the Bank. Balances with Central Bank of
Malta and Malta Government Treasury Bills are subject to negative interest rates (refer to note 3).
Bank of Valletta p.l.c.
Annual Report 2021
70
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
1
1
4
4
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
I
I
N
N
S
S
T
T
R
R
U
U
M
M
E
E
N
N
T
T
S
S
A
A
T
T
F
F
A
A
I
I
R
R
V
V
A
A
L
L
U
U
E
E
T
T
H
H
R
R
O
O
U
U
G
G
H
H
P
P
R
R
O
O
F
F
I
I
T
T
O
O
R
R
L
L
O
O
S
S
S
S
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
Financial assets mandatorily measured at FVTPL:
Debt and other fixed income instruments (note 14.1)
29
33
29
33
Derivative financial instruments (note 14.3)
1,204
2,016
1,204
2,016
1,233
2,049
1,233
2,049
Financial assets designated at FVTPL:
Debt and other fixed income instruments (note 14.1)
1,119
9,397
1,119
9,397
Equity and other non-fixed income instruments (note 14.2)
31,784
31,369
31,621
31,209
Loans and advances to customers (note 17)
104,850
125,685
104,850
125,685
137,753
166,451
137,590
166,291
138,986 168,500 138,823 168,340
I
n the comparative year, debt instruments of a nominal value of €12.5 million pledged in favour of the Italian Bank Intesa San Paolo against
the precautionary warrant of seizure in respect of Deiulemar case, had been redeemed and funds retained with the Italian Bank with such
funds classified within Loans and advances to banks (notes 15, 16 and 33). No such instruments have been pledged as at 31 December
2021.
FF
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
a
a
t
t
f
f
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
t
t
h
h
r
r
o
o
u
u
g
g
h
h
p
p
r
r
o
o
f
f
i
i
t
t
o
o
r
r
l
l
o
o
s
s
s
s
Financial liabilities classified as held for trading:
Derivative financial instruments (note 14.3)
5,485
12,391
5,485
12,391
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
1144..11 DDeebbtt aanndd ootthheerr ffiixxeedd iinnccoommee iinnssttrruummeennttss
Issued by public bodies
- local general government
1,114
9,395
1,114
9,395
- foreign general government
6
14
6
14
1,120
9,409
1,120
9,409
Issued by other issuers
- foreign banks
28
21
28
21
1,148
9,430
1,148
9,430
Listing status
- listed on Malta Stock Exchange
1,114
9,395
1,114
9,395
- listed elsewhere
34
35
34
35
1,148
9,430
1,148
9,430
Summary of movements during the year:
At the beginning of the year
9,430
33,061
9,430
33,061
Movement in accrued interest receivable
(155)
(309)
(155)
(309)
Disposals at carrying amount
(58)
-
(58)
-
Redemptions
(7,814)
(22,500)
(7,814)
(22,500)
Movement in fair value
(308)
(766)
(308)
(766)
Exchange adjustment
53
(56)
53
(56)
At the end of the year
1,148
9,430
1,148
9,430
Bank of Valletta p.l.c.
Annual Report 2021
71
Notes to the financial statements 31 December 2021 (continued)
1
1
4
4
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
I
I
N
N
S
S
T
T
R
R
U
U
M
M
E
E
N
N
T
T
S
S
A
A
T
T
F
F
A
A
I
I
R
R
V
V
A
A
L
L
U
U
E
E
T
T
H
H
R
R
O
O
U
U
G
G
H
H
P
P
R
R
O
O
F
F
I
I
T
T
O
O
R
R
L
L
O
O
S
S
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
1144..22 EEqquuiittyy aanndd ootthheerr nnoonn--ffiixxeedd iinnccoommee iinnssttrruummeennttss
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Issued by other issuers
- local banks
326
442
326
442
- foreign other
31,075
30,767
31,075
30,767
- local other
383
160
220
-
31,784
31,369
31,621
31,209
Listing status
- listed on Malta Stock Exchange
709
602
546
442
- foreign unlisted
31,075
30,767
31,075
30,767
31,784
31,369
31,621
31,209
Summary of movements during the year:
At the beginning of the year
31,369
31,381
31,209
31,221
Acquisitions
307
29
307
29
Disposals at carrying amount
(1,832)
(5,056)
(1,835)
(5,056)
Movement in fair value
1,479
5,460
1,479
5,460
Exchange adjustment
461
(445)
461
(445)
At the end of the year
31,784
31,369
31,621
31,209
1
1
4
4
.
.
3
3
D
D
e
e
r
r
i
i
v
v
a
a
t
t
i
i
v
v
e
e
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
Fair value of assets
1,204
2,016
1,204
2,016
Fair value of liabilities
5,485
12,391
5,485
12,391
The above comprise over-the-counter forward exchange contracts and interest rate swaps that have not been designated as hedging
instruments stated at fair value, with notional amounts analysed with remaining life as follows:
- less than 3 months
212,088
268,086
212,088
268,086
- between 3 months and 1 year
14,120
16,507
14,120
16,507
- more than 1 year
85,466
102,860
85,466
102,860
311,674
387,453
311,674
387,453
Bank of Valletta p.l.c.
Annual Report 2021
72
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
1
1
5
5
.
.
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
Debt and other fixed income instruments
- measured at FVOCI (note 15.1)
106,327
124,279
106,327
124,279
- measured at amortised cost (note 15.2)
3,443,199
3,133,350
3,443,199
3,133,350
Equity and other non-fixed income instruments (note 15.3)
- measured at FVOCI
19,143
21,783
19,143
21,783
3,568,669
3,279,412
3,568,669
3,279,412
Investments with a nominal value of €640.1 million (2020: €144.5 million) have been pledged against the provision of credit lines by the
Central Bank of Malta.
Investments with a nominal value of €40.0 million (2020: €39.7 million) have been pledged in favour of Depositor Compensation Scheme
as at 31 December 2021.
As at 31 December 2021, Investments with a nominal value of €293 million (2020: €304 million) were pledged in favour of the Italian
bank Intesa San Paolo against the precautionary warrant of seizure in respect of Deiulemar case. A nominal value of €11 million has
during the year been redeemed and funds kept with the Italian bank Intesa San Paolo (notes 16 and 33).
As at 31 December 2021 the loss allowance on Debt Instruments at FVOCI amounts to €18,828 (2020: €30,508).
11
5
5
.
.
1
1
D
D
e
e
b
b
t
t
a
a
n
n
d
d
o
o
t
t
h
h
e
e
r
r
f
f
i
i
x
x
e
e
d
d
i
i
n
n
c
c
o
o
m
m
e
e
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
m
m
e
e
a
a
s
s
u
u
r
r
e
e
d
d
a
a
t
t
F
F
V
V
O
O
C
C
I
I
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Issued by public bodies
- local general government
32,839 52,164 32,839 52,164
- local public sector
73,488 72,115 73,488 72,115
106,327 124,279 106,327 124,279
Listing status
- listed on Malta Stock Exchange
106,327 124,279 106,327 124,279
106,327 124,279 106,327 124,279
Summary of movements during the year:
At the beginning of the year
124,279
144,011
124,279
144,011
Movement in interest receivable accrued
(299)
(198)
(299)
(198)
Acquisitions
-
104,438
-
104,438
Disposals at carrying amount
-
(109,708)
-
(109,708)
Redemptions and disposals
(17,156)
(5,562)
(17,156)
(5,562)
Amortisation
(1,549)
(2,253)
(1,549)
(2,253)
Movement in fair value
(4,928)
142
(4,928)
142
Expected credit losses
12
(5)
12
(5)
Profit on disposal
-
652
-
652
Exchange adjustment
5,968
(7,238)
5,968
(7,238)
At the end of the year
106,327 124,279 106,327 124,279
Bank of Valletta p.l.c.
Annual Report 2021
73
Notes to the financial statements 31 December 2021 (continued)
1155..22 DDeebbtt aanndd ootthheerr ffiixxeedd iinnccoommee iinnssttrruummeennttss mmeeaassuurreedd aatt aammoorrttiisseedd ccoosstt
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Issued by public bodies
- local general government
1,043,285
818,415
1,043,285
818,415
- foreign general government
1,334,643
1,171,906
1,334,643
1,171,906
2,377,928
1,990,321
2,377,928
1,990,321
Issued by other issuers
- foreign banks
880,785
991,834
880,785
991,834
- foreign other
182,051
148,767
182,051
148,767
- other local
2,435
2,428
2,435
2,428
1,065,271
1,143,029
1,065,271
1,143,029
3,443,199
3,133,350
3,443,199
3,133,350
Listing status
- listed on Malta Stock Exchange
1,045,720
820,843
1,045,720
820,843
- listed elsewhere
2,136,330
2,001,871
2,136,330
2,001,871
- foreign unlisted
261,149
310,636
261,149
310,636
3,443,199
3,133,350
3,443,199
3,133,350
A
t 31 December 2021, the fair value of debt and other fixed income instruments measured at amortised cost, without deducting
transaction costs, amounted to €3,464.7 million (2020: €3,207.9 million).
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Summary of movements during the year:
At the beginning of the year
3,133,350 2,903,359 3,133,350 2,903,359
Movement in interest receivable accrued
570 (212) 570 (212)
Acquisitions
812,470 960,383 812,470 960,383
Redemptions
(506,262)
(690,732)
(506,262)
(690,732)
Amortisation
(17,061) (14,800) (17,061) (14,800)
Realised profit on disposals
51 - 51 -
Impairment loss
(81) (206) (81) (206)
Exchange adjustment
20,162
(24,442)
20,162
(24,442)
At the end of the year
3,443,199
3,133,350
3,443,199
3,133,350
1155..33 EEqquuiittyy aanndd ootthheerr nnoonn--ffiixxeedd iinnccoommee iinnssttrruummeennttss mmeeaassuurreedd aatt FFVVOOCCII
Issued by other issuers
- local other
17,632
20,090
17,632
20,090
- local Banks
100
106
100
106
- local Public
1,411
1,587
1,411
1,587
19,143
21,783
19,143
21,783
Listing status
- listed on Malta Stock Exchange
19,143
21,783
19,143
21,783
19,143
21,783
19,143
21,783
Summary of movements during the year:
At the beginning of the year
21,783
23,790
21,783
23,790
Disposals at carrying amount
-
(562)
-
(562)
Movement in fair value
(2,640)
(1,445)
(2,640)
(1,445)
At the end of the year
19,143
21,783
19,143
21,783
Bank of Valletta p.l.c.
Annual Report 2021
74
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
1
1
6
6
.
.
L
L
O
O
A
A
N
N
S
S
A
A
N
N
D
D
A
A
D
D
V
V
A
A
N
N
C
C
E
E
S
S
T
T
O
O
B
B
A
A
N
N
K
K
S
S
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
Repayable on call and at short notice
334,848
312,243
334,848
312,243
Term placements with other banks
112,945
159,284
112,945
159,284
Cheques in course of collection
4,676
7,882
4,676
7,882
452,469
479,409
452,469
479,409
B
alances with a carrying amount of €16.4 million (2020: €26.4 million) were held as collateral against derivative contracts.
An amount of €70.5 million (2020: €59.5 million) have been pledged in favour of the Italian bank Intesa San Paolo against the precautionary
warrant of seizure in respect of Deiulemar case (notes 14,15 and 33).
TThhee GGrroouupp
TThhee BBaannkk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
1
1
7
7
.
.
L
L
O
O
A
A
N
N
S
S
A
A
N
N
D
D
A
A
D
D
V
V
A
A
N
N
C
C
E
E
S
S
T
T
O
O
C
C
U
U
S
S
T
T
O
O
M
M
E
E
R
R
S
S
Repayable on call and at short notice
404,216 441,492 404,216 441,492
Term loans and advances
4,857,167 4,466,626 4,857,167 4,466,626
5,261,383 4,908,118 5,261,383 4,908,118
Less impairment losses
(163,785) (166,675) (163,785) (166,675)
Net loans and advances at amortised cost
5,097,598
4,741,443
5,097,598
4,741,443
Loans and advances designated at fair value through profit or
loss (note 14)
104,850
125,685
104,850
125,685
Total loans and advances
5,202,448 4,867,128 5,202,448 4,867,128
Expected credit loss allowances
163,785 166,675 163,785 166,675
163,785 166,675 163,785 166,675
1
1
8
8
.
.
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
I
I
N
N
E
E
Q
Q
U
U
I
I
T
T
Y
Y
-
-
A
A
C
C
C
C
O
O
U
U
N
N
T
T
E
E
D
D
I
I
N
N
V
V
E
E
S
S
T
T
E
E
E
E
S
S
At the beginning of the year
111,999 101,479 52,870 52,870
Additions
20,000 - 20,000 -
Share of results, net of tax
14,498
10,520
-
-
Dividend received
(996) - - -
At the end of the year
145,501
111,999
72,870
52,870
Amounts include:
Local listed
34,568 31,302 22,304 22,304
Local unlisted
110,933 80,697 50,566 30,566
145,501
111,999
72,870
52,870
On the historical cost basis, shares in equity-accounted investees of the Group, would have been included at a cost of €72.9 million
(2020: €52.9 million).
On the 25 March 2021, the Bank made a capital injection of €20 million in it’s associate company MAPFRE MSV Life p.l.c (MMSV). MMSV
had approached it’s two shareholders, Bank of Valletta p.l.c. and MAPFRE International S.A for a capital injection of a total €40 million
(€20 million from MAPFRE International S.A and €20 million from the Bank). Following this capital injection, the Bank continues retaining
its 50% shareholding in MMSV and therefore, the Bank retains the same influence within MMSV.
The fair value of the equity-accounted investees that is publicly quoted amounted to €65.8 million (2020: €70.3 million) at 31 December
2021. The cost of this investment is €22.3 million (2020: €22.3 million).
The fair value of the publicly quoted investee is calculated using observable inputs and is regarded as Level 1 under the fair value hierarchy
of IFRS 13.
Bank of Valletta p.l.c.
Annual Report 2021
75
Notes to the financial statements 31 December 2021 (continued)
1
1
8
8
.
.
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
I
I
N
N
E
E
Q
Q
U
U
I
I
T
T
Y
Y
-
-
A
A
C
C
C
C
O
O
U
U
N
N
T
T
E
E
D
D
I
I
N
N
V
V
E
E
S
S
T
T
E
E
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
D
etails of the associates held by the Group and the Bank are as follows:
EEqquuiittyy IInntteerreesstt
CCllaassss
IInnccoorrppoorraatteedd iinn
NNaattuurree ooff
B
B
u
u
s
s
i
i
n
n
e
e
s
s
s
s
22002211 22002200
N
N
a
a
m
m
e
e
o
o
f
f
c
c
o
o
m
m
p
p
a
a
n
n
y
y
%
%
%
%
MAPFRE Middlesea p.l.c.
31.08 31.08
Ordinary
Shares
Malta
Insurance
MAPFRE MSV Life p.l.c.*
50.00 50.00
Ordinary
Shares
Malta
Life Assurance
GGrroouupp''ss sshhaarree ooff rreessuullttss
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
NNaammee ooff ccoommppaannyy
€€000000
€€000000
MAPFRE Middlesea p.l.c. 4,261 3,508
MAPFRE MSV Life p.l.c. 10,237 7,012
14,498 10,520
*
A further 15.54% (2020:15.54%) is held indirectly via another equity-accounted investee. Although the Bank has an effective participating
interest of 65.54% (2020: 65.54%), it does not exercise control over the financial and operating decisions of the associate as it only has
the right for equal representation on the Board of Directors of the associate together with the other shareholders. Furthermore, as from
1 October 2011 the Bank is deemed to exercise significant influence on MAPFRE MSV Life p.l.c. as opposed to joint control as a result
of a shareholders' agreement which gives the other shareholder control and as from the financial year 30 September 2012 it is being
treated as an equity-accounted investee.
The financial statements of the equity-acco
unted investees are prepared to 31 December. The registered addresses of the associates
are as follows:
MAPFRE Middlesea p.l.c. Middlesea House, Floriana FRN 1442, Malta
MAPFRE MSV Life p.l.c. The Mall, Mall Street, Floriana FRN 1470, Malta
Summarised financial information extracted from the published preliminary statement of annual results of the associates as at 31 December
2021 in respect of the equity-accounted investees:
22002211
22002200
€€000000
€€000000
Total assets
2,831,750
2,687,424
Total liabilities
2,609,779
2,506,124
Revenues
454,047
361,596
Profit for the year 12,923 14,398
Other comprehensive income
10,947
3,806
TThhee GGrroouupp
22002211
22002200
€€000000
€€000000
Share of net assets of equity-accounted investees
145,501
111,999
Share of results of equity-accounted investees
14,498
10,520
T
he share of results of equity-accounting investees, net of tax in the Statement of Profit and Loss includes both the profit and other
comprehensive income components of the associate.
The carrying amount of the equity-accounted investees is equal to the equity interest of the Bank in the net assets of the respective investees.
IFRS 9 is generally effective for years beginning on or after 1 January 2018. However, in September 2016, the IASB issued amendments
to IFRS 4 which provide optional relief to eligible insurers in respect of IFRS 9. The option permits entities whose predominant activity is
issuing insurance contracts within the scope of IFRS 4, a temporary exemption to defer the implementation of IFRS 9.
Bank of Valletta p.l.c.
Annual Report 2021
76
Notes to the financial statements 31 December 2021 (continued)
1
1
8
8
.
.
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
I
I
N
N
E
E
Q
Q
U
U
I
I
T
T
Y
Y
-
-
A
A
C
C
C
C
O
O
U
U
N
N
T
T
E
E
D
D
I
I
N
N
V
V
E
E
S
S
T
T
E
E
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Entities that apply the optional temporary relief will be required to adopt IFRS 9 on 1 January 2023 which aligns with the new effective
date of IFRS 17.
The Group is permitted to retain the relevant accounting policies applied by the equity-accounted investee for consolidation purposes
when the Group applies IFRS 9 but the associate applies the temporary exemption from IFRS 9.
The equity-accounted investees evaluated its liabilities at 31 December 2015, the prescribed date of assessment under the optional
temporary relief provisions and concluded that all of the liabilities are predominantly connected with insurance. More than 90% of the
equity-accounted Investees’ liabilities as at 31 December 2015 are liabilities arising from contracts within the scope of IFRS 4. As at
the same date the equity-accounted Investees’ predominant activities were also established to be insurance related as evidenced
through revenues reported in the Annual Report of that year.
Further to the above, the equity-accounted investees have not previously applied any version of IFRS 9. Therefore, the equity-
accounted investees are eligible insurers that qualify for optional relief from the application IFRS 9.
As at 1 January 2018, the equity-accounted investees have elected to apply the optional temporary relief under IFRS 4 that permits
the deferral of the adoption of IFRS 9 for eligible insurers. The equity-accounted investees will continue to apply IAS 39 until 1 January
2022.
The fair value of the financial assets held by the equity-accounted investees which would otherwise fall under the relevant IFRS 9
classification as at 31 December 2021 and the amount of change in the fair value during the year will be disclosed in the Associate’s
financial statements. These financial statements are available on the respective companies' websites.
The judgements made by the equity-accounted investees and the key sources of estimation uncertainties are disclosed below:
Estimate of in-force business
Assumptions
The value of in-force business is determined by the directors of the equity-accounted investee based on the advice of the entity's
consulting actuaries. The valuation represents the discounted value of projected future transfers to shareholders from policies in force at
the year end, after making provision for taxation. In determining this valuation, assumptions relating to future mortality, persistence and
levels of expenses are based on experience of the type of business concerned. Gross investment returns assumed vary depending upon
the mix of investments held by the associates and expected market conditions. The value depends on assumptions made regarding
future economic and demographic experience. The impact of the change of the present value of in-force (PVIF) accounts was 94% of
the result for the year. The PVIF represents 60% of the carrying value of the investments in equity-accounted investees.
This valuation assumes a spread of 1% (2020: 1%) between the weighted average projected investment return and the risk adjusted
discount factor applied of 4% (2020: 4%). Expenses are assumed to inflate at 2% (2020: 2%).
Changes in assumptions
Assumptions are reviewed on an annual basis to reflect the development of experience and to improve on the reliability of the
estimation process.
Ultimate liability arising from claims made under insurance contracts
There are several sources of uncertainty that need to be considered in the estimate of the liability that the equity-accounted investees
will ultimately pay for such claims. In particular insurance risks including exposure to liability can span over more than one accounting
year, and this increases the uncertainty surrounding the estimate for final settlement.
In calculating the estimated cost of unpaid claims, the equity-accounted investees uses a combination of estimation techniques,
based partly on known information at year end, partly on statistical analysis of historical experience and on actuarial valuations carried
out by an independent external actuary.
Further information can be found in the public release of financial results as issued by the associates.
Bank of Valletta p.l.c.
Annual Report 2021
77
N
otes to the financial statements
31 December 2021 (continued)
1
1
9
9
.
.
I
I
N
N
V
V
E
E
S
S
T
T
M
M
E
E
N
N
T
T
S
S
I
I
N
N
S
S
U
U
B
B
S
S
I
I
D
D
I
I
A
A
R
R
Y
Y
C
C
O
O
M
M
P
P
A
A
N
N
I
I
E
E
S
S
EEqquuiittyy iinntteerreesstt
CCllaassss
IInnccoorrppoorraatteedd iinn
NNaattuurree ooff BBuussiinneessss
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
NNaammee ooff
ccoommppaannyy
%
%
%
%
BOV Asset Management Limited
100 100 Ordinary Malta Fund Management
BOV Fund Services Limited
100 100 Ordinary Malta Fund Administration
T
T
h
h
e
e
B
B
a
a
n
n
k
k
22002211
22002200
NNaammee ooff ccoommppaannyy CCoosstt//CCaarrrryyiinngg aammoouunntt
€€000000
€€000000
BOV Asset Management Limited
5,481
5,481
BOV Fund Services Limited
749
749
6,230
6,230
The registered address of the above unlisted undertakings is as follows:
BOV Asset Management Limited 58, Triq San Zakkarija, Il-Belt Valletta VLT1130
BOV Fund Services Limited 58, Triq San Zakkarija, Il-Belt Valletta VLT1130
All subsidiaries prepared their financial statements to the same date, 31 December.
TThhee GGrroouupp
TThhee BBaannkk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
2
2
0
0
.
.
I
I
N
N
T
T
A
A
N
N
G
G
I
I
B
B
L
L
E
E
A
A
S
S
S
S
E
E
T
T
S
S
SSooffttwwaarree
Cost
1 January
101,706
91,205
101,706
91,205
Additions
8,116
10,598
8,116
10,598
Assets retired from active use
(4,355)
(97)
(4,355)
(97)
31 December
105,467 101,706 105,467 101,706
Accumulated amortisation
1 January
42,040
30,742
42,040
30,742
Charge for the year
11,708
11,395
11,708
11,395
Accumulated amortisation on assets retired from active use
(4,355)
(97)
(4,355)
(97)
31 December
49,393
42,040
49,393
42,040
Carrying amount at 31 December 56,074 59,666 56,074 59,666
Future capital expenditure:
- contracted but not provided for in the financial statements
1,136
269
1,136
269
- authorised by the directors but not contracted
42,304
33,115
42,304
33,115
Bank of Valletta p.l.c.
Annual Report 2021
78
Notes to the financial statements 31 December 2021 (continued)
2
2
1
1
.
.
P
P
R
R
O
O
P
P
E
E
R
R
T
T
Y
Y
A
A
N
N
D
D
E
E
Q
Q
U
U
I
I
P
P
M
M
E
E
N
N
T
T
RR
e
e
c
c
o
o
n
n
c
c
i
i
l
l
i
i
a
a
t
t
i
i
o
o
n
n
o
o
f
f
C
C
a
a
r
r
r
r
y
y
i
i
n
n
g
g
A
A
m
m
o
o
u
u
n
n
t
t
L
L
a
a
n
n
d
d
a
a
n
n
d
d
bbuuiillddiinnggss
I
I
T
T
i
i
n
n
f
f
r
r
a
a
s
s
t
t
r
r
u
u
c
c
t
t
u
u
r
r
e
e
a
a
n
n
d
d
eeqquuiippmmeenntt
OOtthheerr
TToottaall
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
€€000000
€€000000
€€000000
€€000000
C
C
o
o
s
s
t
t
o
o
r
r
v
v
a
a
l
l
u
u
a
a
t
t
i
i
o
o
n
n
Balance at 1 January 2020
120,504 35,637 28,839 184,980
Adjustment
665 - 76 741
Adjusted balance at 1 January 2020
121,169
35,637
28,915
185,721
Additions
1,037 3,268 1,520 5,825
Assets retired from active use
(1,630) (5,312) (1,261) (8,203)
Disposals
- - (11) (11)
Revaluation
4,503 - - 4,503
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
125,079
33,593
29,163
187,835
Balance at 1 January 2021
125,079 33,593 29,163 187,835
Adjustment
368 - (16) 352
Adjusted balance at 1 January 2021
125,447
33,593 29,147
188,187
Additions
3,960 1,248 261 5,469
Assets retired from active use
(416) (1,885) (3,804) (6,105)
Disposals
(1,106) - (65) (1,171)
Revaluation
5,306 - - 5,306
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
133,191
32,956
25,539
191,686
AAccccuummuullaatteedd ddeepprreecciiaattiioonn
Balance at 1 January 2020
17,686
20,806 20,292
58,784
Adjustment
166 - 30 196
Depreciation for the period
2,618
4,069
1,725
8,412
Accumulated depreciation on assets retired from active use
(1,630)
(5,312) (1,261)
(8,203)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
18,840
19,563 20,786
59,189
Balance at 1 January 2021
18,840 19,563 20,786 59,189
Adjustment
(246) - 13 (233)
Depreciation for the period
2,864 4,002 1,564 8,430
Accumulated depreciation on assets retired from active use
(416) (1,886) (3,787) (6,089)
Disposals
(233) - - (233)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
20,809
21,679
18,576
61,064
CCaarrrryyiinngg aammoouunntt aatt::
Balance at 31 December 2020
1
1
0
0
6
6
,
,
2
2
3
3
9
9
1
1
4
4
,
,
0
0
3
3
0
0
8
8
,
,
3
3
7
7
7
7
1
1
2
2
8
8
,
,
6
6
4
4
6
6
Balance at 31 December 2021
111122,,338822
1111,,227777
66,,996633
113300,,662222
A
s at 31 December 2021, Property and Equipment includes right-of-use assets of €7.2 million (2020: €9.2 million) related to office
premises and motor vehicles (note 22).
Adjustments represent IFRS 16 related movement emanating from updates to the subsidiaries opening balances.
Bank of Valletta p.l.c.
Annual Report 2021
79
Notes to the financial statements 31 December 2021 (continued)
2
2
1
1
.
.
P
P
R
R
O
O
P
P
E
E
R
R
T
T
Y
Y
A
A
N
N
D
D
E
E
Q
Q
U
U
I
I
P
P
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
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u
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e
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c
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y
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i
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a
a
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o
o
u
u
n
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t
t
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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d
d
)
)
L
L
a
a
n
n
d
d
a
a
n
n
d
d
bbuuiillddiinnggss
I
I
T
T
i
i
n
n
f
f
r
r
a
a
s
s
t
t
r
r
u
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a
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eeqquuiippmmeenntt
OOtthheerr
TToottaall
T
T
h
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B
B
a
a
n
n
k
k
€€000000
€€000000
€€000000
€€000000
C
C
o
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s
s
t
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r
r
v
v
a
a
l
l
u
u
a
a
t
t
i
i
o
o
n
n
Balance at 1 January 2020
120,465 34,993 27,045 182,503
Additions
1,040 3,261 1,505 5,806
Assets retired from active use
(1,630) (5,312) (1,261) (8,203)
Disposals
- - (11) (11)
Revaluation
4,503 - - 4,503
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
124,378
32,942
27,278
184,598
Balance at 1 January 2021
124,378 32,942 27,278 184,598
Additions
3,961 1,194 253 5,408
Assets retired from active use
(416) (1,886) (3,787) (6,089)
Disposals
(76) - (65) (141)
Revaluation
5,306 - - 5,306
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
133,153 32,250 23,679 189,082
A
A
c
c
c
c
u
u
m
m
u
u
l
l
a
a
t
t
e
e
d
d
d
d
e
e
p
p
r
r
e
e
c
c
i
i
a
a
t
t
i
i
o
o
n
n
Balance at 1 January 2020
17,593
19,983
18,896
56,472
Depreciation for the year
2,452
4,021
1,701
8,174
Accumulated depreciation on assets retired from active use
(1,630)
(5,312)
(1,261)
(8,203)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
18,415
18,692
19,336
56,443
Balance at 1 January 2021
18,415
18,692
19,336
56,443
Depreciation for the year
2,743
3,957
1,544
8,244
Accumulated depreciation on assets retired from active use
(416)
(1,886)
(3,787)
(6,089)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
20,742
20,763
17,093
58,598
C
C
a
a
r
r
r
r
y
y
i
i
n
n
g
g
a
a
m
m
o
o
u
u
n
n
t
t
a
a
t
t
:
:
Balance at 31 December 2020
110055,,996633
1144,,225500
77,,994422
112288,,115555
Balance at 31 December 2021
111122,,441111
1111,,448877
66,,558866
113300,,448844
As at 31 December 2021, Property and Equipment includes right-of-use assets of €8.5 million (2020: €8.8 million) related to office
premises and motor vehicles (see note 22).
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
Carrying amount of land and buildings occupied for own use
112,382
106,239
112,410
105,963
Future capital expenditure:
- contracted but not provided for in the financial statements
1,328 2,229 1,328 2,229
- authorised by the directors but not contracted for
25,863 15,774 25,863 15,774
Bank of Valletta p.l.c.
Annual Report 2021
80
Notes to the financial statements 31 December 2021 (continued)
2
2
1
1
.
.
P
P
R
R
O
O
P
P
E
E
R
R
T
T
Y
Y
A
A
N
N
D
D
E
E
Q
Q
U
U
I
I
P
P
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Land and buildings are revalued by professionally qualified architects in accordance with the policy documented in Note 1. The
carrying amounts of land and buildings that would have been included in the financial statements had these assets been carried at
cost less accumulated depreciation are:
2019: Group and Bank €49.0 million (2020: Group and Bank €47.8 million).
Property valuations are mainly valued using the 'comparative investment approach' whereby market value is arrived at by capitalising
at an appropriate yield rate, the annual income produced, should the property be leased out to third parties. The income is arrived at
by analysing a number of estate agent listings for comparative properties and determining a mean rental value rate. The valuation
techniques were consistent with those applied for the year ended 31 December 2020. Revaluations are carried out on a regular basis
in accordance with the Group's accounting policies.
Property fair value measurement is classified as Level 3. Significant unobservable inputs used in the valuation of these properties is
the rental income for office space and the percentage capitalisation rate which indicates the multiplier relationship between Net Rental
Income and Property Value. Further details about these significant inputs are summarised in the table below:
S
S
i
i
g
g
n
n
i
i
f
f
i
i
c
c
a
a
n
n
t
t
u
u
n
n
o
o
b
b
s
s
e
e
r
r
v
v
a
a
b
b
l
l
e
e
i
i
n
n
p
p
u
u
t
t
N
N
a
a
r
r
r
r
a
a
t
t
i
i
v
v
e
e
s
s
e
e
n
n
s
s
i
i
t
t
i
i
v
v
i
i
t
t
y
y
Buildings in Commercial Area
Price per square metre,
The higher the price per square
ranging from €130/sqm to €960/sqm
metre the higher the fair value
Capitalisation rate, ranging from
The higher the capitalisation rate
5.5% to 8.10%
the lower the fair value
Buildings in Residential Area
Price per square metre, ranging from
The higher the price per square metre
€120/sqm to €529/sqm
the higher the fair value
Capitalisation rate, ranging from
The higher the capitalisation rate
5.31% to 8.10%
the lower the fair value
Bank of Valletta p.l.c.
Annual Report 2021
81
Notes to the financial statements 31 December 2021 (continued)
2
2
2
2
.
.
L
L
e
e
a
a
s
s
e
e
s
s
The Group's lease arrangements comprise long-term leasehold properties, other immovable property leaseholds, equipment leases
and property space for ATMs. The Group does not recognise low value items (below €5,000) or short-term arrangements of one year
or less.
Information about leases for which the Group is a lessee is presented below.
ii.. RRiigghhtt--ooff--uussee aasssseettss
Right-of-use assets relate to office premises and motor vehicles that are
presented within property and equipment (see note 21)
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
L
L
a
a
n
n
d
d
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Balance at 1 January 2020
8,559
1,040
9,599
Net adjustment
499
46
545
Additions
390
309
699
Depreciation charge for the year
(1,337)
(274)
(1,611)
Disposals
-
(11)
(11)
Balance at 31 December 2020
8,111
1,110
9,221
Balance at 1 January 2021
8,111
1,110
9,221
Net adjustment
622
(11)
611
Additions
1,217
51
1,268
Depreciation charge for the year
(1,388)
(271)
(1,659)
Disposals
(883)
(65)
(948)
Balance at 31 December 2021
7,679
814
8,493
T
T
h
h
e
e
B
B
a
a
n
n
k
k
L
L
a
a
n
n
d
d
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Balance at 1 January 2020
8,559
1,040
9,599
Additions
391
295
686
Depreciation charge for the year
(1,171)
(258)
(1,429)
Disposals
-
(11)
(11)
Balance at 31 December 2020
7,779
1,066
8,845
Balance at 1 January 2021
7,779
1,066
8,845
Additions
1,217
50
1,267
Depreciation charge for the year
(1,241)
(258)
(1,499)
Disposals
(76)
(65)
(141)
Balance at 31 December 2021
7,679
793
8,472
See note 27 for maturity analysis of lease liabilities as at 31 December 2021.
Bank of Valletta p.l.c.
Annual Report 2021
82
Notes to the financial statements 31 December 2021 (continued)
2
2
2
2
.
.
L
L
e
e
a
a
s
s
e
e
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
iiii.. AAmmoouunnttss rreeccooggnniisseedd iinn pprrooffiitt oorr lloossss
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
L
L
a
a
n
n
d
d
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Interest on lease liabilities 2020
235
23
258
Expenses relating to short-term leases 2020
324
38
362
559
61
620
Interest on lease liabilities 2021
240
18
258
Expenses relating to short-term leases 2021
356
18
374
596
36
632
TThhee BBaannkk
LLaanndd aanndd
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Interest on lease liabilities 2020
213
19
232
Expenses relating to short-term leases 2020
324
32
356
537
51
588
Interest on lease liabilities 2021
197
16
213
Expenses relating to short-term leases 2021
356
18
374
553
34
587
iiiiii.. AAmmoouunnttss rreeccooggnniisseedd iinn ssttaatteemmeenntt ooff ccaasshh fflloowwss
TThhee GGrroouupp
LLaanndd aanndd
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Total cash outflow for leases 2020
1,413
291
1,704
Total cash outflow for leases 2021
1,640
287
1,927
TThhee BBaannkk
L
L
a
a
n
n
d
d
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
Total cash outflow for leases 2020
1,210
272
1,482
Total cash outflow for leases 2021
1,417
272
1,689
i
i
v
v
.
.
E
E
x
x
t
t
e
e
n
n
s
s
i
i
o
o
n
n
o
o
p
p
t
t
i
i
o
o
n
n
s
s
Some property leases contain extension options exercisable by the Group and not by the lessors. The Group assesses at lease
commencement date whether it is reasonably certain to exercise the extension options, and if it is reasonably certain to exercise the
extension option, the Group includes this period in the lease term and the potential future lease payments in the lease liability.
Bank of Valletta p.l.c.
Annual Report 2021
83
Notes to the financial statements 31 December 2021 (continued)
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
T
T
h
h
e
e
B
B
a
a
n
n
k
k
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
€
€
0
0
0
0
0
0
2233.. DDEEFFEERRRREEDD TTAAXX
D
eferred taxation is analysed as follows:
Net deferred tax asset arising on:
Fair value movement of financial instruments
281 281 281 281
Impairment allowances
65,669 69,992 65,669 69,992
Allowance for employee benefits
2,943 4,046 2,943 4,046
Excess of capital allowances over depreciation
(15,669) (14,414) (15,669) (14,414)
Defined benefit plans
3,339 3,354 3,339 3,354
Provisions and other temporary differences
28,000 28,000 28,000 28,000
84,563 91,
259 84,563 91,259
Deferred tax liability arising on:
Property revaluation
6,717 6,186 6,717 6,186
AAtt
3
3
1
1
D
D
e
e
c
c
e
e
m
m
b
b
e
e
r
r
22002200
RReeccooggnniisseedd
i
i
n
n
p
p
r
r
o
o
f
f
i
i
t
t
o
o
r
r
lloossss
RReeccooggnniisseedd
i
i
n
n
O
O
C
C
I
I
AAtt
3
3
1
1
D
D
e
e
c
c
e
e
m
m
b
b
e
e
r
r
22002211
€€000000
€€000000
€€000000
€€000000
Movement in temporary differences relating to:
Fair value movement of financial instruments
281 - - 281
Impairment allowances
69,992 (4,323) - 65,669
Allowance for employee benefits
4,046
(1,103) - 2,943
Excess of capital allowances over depreciation
(14,414) (1,255) - (15,669)
Defined benefit plans
3,354 - (15) 3,339
Property revaluation
(6,186) - (531) (6,717)
Provisions and other temporary differences
28,000 - - 28,000
85,073
(6,681)
(546)
77,846
AAtt 3311
D
D
e
e
c
c
e
e
m
m
b
b
e
e
r
r
22001199
RReeccooggnniisseedd
i
i
n
n
p
p
r
r
o
o
f
f
i
i
t
t
o
o
r
r
lloossss
RReeccooggnniisseedd
i
i
n
n
O
O
C
C
I
I
AAtt 3311 DDeecceemmbbeerr
2
2
0
0
2
2
0
0
€€000000
€€000000
€€000000
€€000000
Movement in temporary differences relating to:
Fair value movement of financial instruments
281 - - 281
Impairment allowances
43,802 26,190 - 69,992
Allowance for employee benefits
4,785 (739) - 4,046
Excess of capital allowances over depreciation
(11,354) (3,060) - (14,414)
Defined benefit plans
3,503 - (149) 3,354
Property revaluation
(5,736) - (450) (6,186)
Provisions and other temporary differences
35,000 (7,000) - 28,000
70,281
15,391
(599)
85,073
The Group's deferred tax assets and liabilities on the statement of financial position have not been off-set to the extent that there is no
legally enforceable right of set-off with the tax authorities.
The Bank is expected to have sufficient profits in the future to absorb the deferred tax asset recognised.
Bank of Valletta p.l.c.
Annual Report 2021
84
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
2
2
4
4
.
.
O
O
T
T
H
H
E
E
R
R
A
A
S
S
S
S
E
E
T
T
S
S
Settlement account
4,388
3,566
4,388
3,572
Deferred expenditure
1,035
1,685
1,035
1,685
5,423
5,251
5,423
5,257
2
2
5
5
.
.
A
A
M
M
O
O
U
U
N
N
T
T
S
S
O
O
W
W
E
E
D
D
T
T
O
O
B
B
A
A
N
N
K
K
S
S
Term deposits
515,790
43,844
515,790
43,844
Repayable on demand
44,327
44,187
44,327
44,187
560,117
88,031
560,117
88,031
During the first quarter of 2021, the Bank participated in the third targeted longer-term refinancing operations (TLTRO III) Eurosystem
funding. A negative borrowing rate applies on this loan depending on the lending patterns of the Bank. The reduced interest rate is
subject to the achievement of predefined lending performance thresholds and interest will be settled in arrears on the maturity of the
TLTRO III operation or on early repayment. This will contribute to mitigate the costs of funding liabilities through which the Bank will
continue to sustain its position as a key player in the provision of finance to local businesses and households.
Eurosystem funding as a financial liability at amortised cost in accordance with the requirements of IFRS 9
Financial Instruments
.
Negative interest on this loan is calculated using the effective interest rate.
2
2
6
6
.
.
A
A
M
M
O
O
U
U
N
N
T
T
S
S
O
O
W
W
E
E
D
D
T
T
O
O
C
C
U
U
S
S
T
T
O
O
M
M
E
E
R
R
S
S
Term deposits
1,341,761
1,520,017
1,341,761
1,520,017
Repayable on demand
10,835,093 9,752,272 10,844,228 9,757,675
12,176,854 11,
272,289 12,185,989 11,277,692
2277.. OOTTHHEERR LLIIAABBIILLIITTIIEESS
Post employment and termination liabilities (see note 35)
18,042
21,239
18,042
21,239
Cash collateral for commitments
70,351 59,231 70,351 59,231
Deposits from companies in formation
3,428 2,202 3,428 2,202
Bills payable
46,299 32,405 46,299 32,405
Accruals and deferred income
25,780 19,511 25,288 18,910
Payment orders outwards
3,184 3,459 3,184 3,459
Lease liability (see note 28)
8,703 9,402 8,682 9,042
Dividend payable
10,019 - 10,019 -
Other
17,335 14,168 17,229 13,908
203,141 161,617 202,522 160,396
Bank of Valletta p.l.c.
Annual Report 2021
85
Notes to the financial statements 31 December 2021 (continued)
2
2
8
8
.
.
L
L
E
E
A
A
S
S
E
E
L
L
I
I
A
A
B
B
I
I
L
L
I
I
T
T
Y
Y
At 3
1 December 2021, the future minimum lease payments under non-cancellable operating leases were payable as follows:
TThhee GGrroouupp
LLaanndd
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
M
M
a
a
t
t
u
u
r
r
i
i
t
t
y
y
a
a
n
n
a
a
l
l
y
y
s
s
i
i
s
s
-
-
C
C
o
o
n
n
t
t
r
r
a
a
c
c
t
t
u
u
a
a
l
l
u
u
n
n
d
d
i
i
s
s
c
c
o
o
u
u
n
n
t
t
e
e
d
d
c
c
a
a
s
s
h
h
f
f
l
l
o
o
w
w
s
s
Less than one year
1,277
279
1,556
Between one and five years
4,623
593
5,216
More than five years
3,985
-
3,985
TToottaall uunnddiissccoouunntteedd lleeaassee lliiaabbiilliittiieess aatt 3311 DDeecceemmbbeerr 22002211
9,885
872
10,757
Lease liabilities included in statement of financial position at 31 December 2021:
Current
1,071
265
1,336
Non-current
6,801
566
7,367
7,872
831
8,703
TThhee BBaannkk
LLaanndd
a
a
n
n
d
d
BBuuiillddiinnggss
OOtthheerr
TToottaall
€€000000
€€000000
€€000000
M
M
a
a
t
t
u
u
r
r
i
i
t
t
y
y
a
a
n
n
a
a
l
l
y
y
s
s
i
i
s
s
-
-
C
C
o
o
n
n
t
t
r
r
a
a
c
c
t
t
u
u
a
a
l
l
u
u
n
n
d
d
i
i
s
s
c
c
o
o
u
u
n
n
t
t
e
e
d
d
c
c
a
a
s
s
h
h
f
f
l
l
o
o
w
w
s
s
Less than one year
1,277
264
1,541
Between one and five years
4,623
569
5,192
More than five years
3,985
-
3,985
TToottaall uunnddiissccoouunntteedd lleeaassee lliiaabbiilliittiieess aatt 3311 DDeecceemmbbeerr 22002211
9,885
833
10,718
Lease liabilities included in statement of financial position at 31 December 2021:
Current
1,071
253
1,324
Non-current
6,802
556
7,358
7,873
809
8,682
Bank of Valletta p.l.c.
Annual Report 2021
86
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
2299.. DDEERRIIVVAATTIIVVEESS DDEESSIIGGNNAATTEEDD FFOORR HHEEDDGGEE AACCCCOOUUNNTTIINNGG
Derivative financial instruments designated as fair
value hedges
12,157
16,015
12,157
16,015
Refer to note 6: Net gain on Investments and hedging instruments for the net gain/loss on the bond and hedging instrument. The
impact on hedging relationships as a consequence of the interest rate benchmark reform has been disclosed in note 39.9.
The above comprise over-the-counter interest rate swaps, stated at fair value with notional amounts analysed by the remaining life
as follow:
-more than 1 year
57,375 52,940 57,375 52,940
57,375
52,940
57,375
52,940
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
3
3
0
0
.
.
S
S
U
U
B
B
O
O
R
R
D
D
I
I
N
N
A
A
T
T
E
E
D
D
L
L
I
I
A
A
B
B
I
I
L
L
I
I
T
T
I
I
E
E
S
S
3.50% Euro subordinated unsecured bonds
113,130
113,130
113,130
113,130
3.75% Euro subordinated unsecured bonds
50,107
50,107
50,107
50,107
163,237
163,237
163,237
163,237
The 3.5% Euro subordinated bonds are redeemable at par on 8 August 2030 and are listed on the Malta Stock Exchange. The fair
value of these unsecured bonds as at 31 December 2021 is €116.1 million (2020: €112.3 million).
The 3.75% Euro subordinated bonds are redeemable at par on 15 June 2031 and are listed on the Malta Stock Exchange. The fair
value of these unsecured bonds as at 31 December 2021 is €52.0 million (2020: 51.0 million).
The bonds are unsecured and subordinated to the claims of all holders of senior indebtedness.
TThhee BBaannkk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€€000000
€€000000
3
3
1
1
.
.
S
S
H
H
A
A
R
R
E
E
C
C
A
A
P
P
I
I
T
T
A
A
L
L
A
A
N
N
D
D
S
S
H
H
A
A
R
R
E
E
P
P
R
R
E
E
M
M
I
I
U
U
M
M
Share Capital
Authorised:
1,000,000,000 Ordinary shares of €1.00 each
1,000,000 1,000,000
(2020: 1,000,000,000 Ordinary shares of €1.00 each)
Issued and paid up:
583,849,270 Ordinary shares of €1.00 each fully paid
583,849
583,849
(2020: 583,849,270 Ordinary shares of €1.00 each fully paid)
Bank of Valletta p.l.c.
Annual Report 2021
87
Notes to the financial statements 31 December 2021 (continued)
3
3
2
2
.
.
O
O
T
T
H
H
E
E
R
R
R
R
E
E
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R
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S
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n
e
e
d
d
E
E
a
a
r
r
n
n
i
i
n
n
g
g
s
s
Retained earnings represent the profits retained over the years and primarily comprise the profit attributable to equity holders and
transfers to share capital in respect of the bonus issue. This reserve includes the amount held in respect of General Banking
Reserves.
G
G
e
e
n
n
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e
r
r
a
a
l
l
B
B
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k
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R
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e
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s
s
e
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r
r
v
v
e
e
s
s
The revised Banking Rule 09 requires banks in Malta to hold additional reserves for general banking risks against non-performing
loans. This reserve is deductible from distributable funds. As at the reporting date this reserve amounts to €3.3million (2020:
€4.1million).
R
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e
e
v
v
a
a
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Revaluation reserves represent fair value movements on land and buildings and financial assets at FVOCI net of tax, which are
recognised in Other Comprehensive Income.
T
T
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G
G
r
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o
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u
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p
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a
a
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k
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€€000000
€€000000
OOnn llaanndd aanndd bbuuiillddiinnggss::
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22001199
40,194 40,194
Property revaluation
4,503 4,503
Deferred tax and effect of changes in property tax rates
(450) (450)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
44,247 44,247
Property revaluation
5,306 5,306
Deferred tax and effect of changes in property tax rates
(531) (531)
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
4499,,002222
4499,,002222
OOnn ffaaiirr--vvaalluuee--tthhrroouugghh--ootthheerr ccoommpprreehheennssiivvee iinnccoommee::
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22001199
14,704 14,592
Fair value adjustments
(4,443) (4,443)
Transfer to profit or loss on disposal
(652) (652)
Transfer to retained earnings on disposal
(249) (249)
Tax thereon
1,870 1,870
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002200
1111,,223300
1111,,111188
Fair value adjustments
(2,791) (2,791)
Tax thereon
977 977
BBaallaannccee aatt 3311 DDeecceemmbbeerr 22002211
99,,441166
99,,330044
TToottaall
5
5
8
8
,
,
4
4
3
3
8
8
5
5
8
8
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,
3
3
2
2
6
6
3
3
3
3
.
.
P
P
R
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O
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I
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S
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I
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N
N
S
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A
A
N
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D
D
C
C
O
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N
N
T
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I
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N
N
G
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N
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a
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o
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a
a
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n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
pprroovviissiioonnss
C
C
u
u
s
s
t
t
o
o
d
d
y
y
a
a
n
n
d
d
t
t
r
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u
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s
s
t
t
l
l
i
i
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g
g
a
a
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i
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o
n
n
pprroovviissiioonn
O
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l
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a
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pprroovviissiioonn
TToottaall
PPrroovviissiioonnss
€€000000
€€000000
€€000000
€€000000
CCaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002211
32,380
80,000
1,500
113,880
Movement
(9,431)
945
(945)
(9,431)
CCaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr
2222,,994499
8800,,994455
555555
110044,,444499
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
CCoonnttiinnggeenncciieess
€€000000
€€000000
€€000000
€€000000
Acceptances and endorsements
32
-
32
-
Guarantees
333,564
267,390
333,564
267,390
Other contingent liabilities
17,766
18,385
17,766
18,385
335511,,336622
228855,,777755
335511,,336622
228855,,777755
Bank of Valletta p.l.c.
Annual Report 2021
88
Notes to the financial statements 31 December 2021 (continued)
3
3
3
3
.
.
P
P
R
R
O
O
V
V
I
I
S
S
I
I
O
O
N
N
S
S
A
A
N
N
D
D
C
C
O
O
N
N
T
T
I
I
N
N
G
G
E
E
N
N
C
C
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The movement of financial guarantees and loan commitments provisions relates to the off-balance sheet expected credit losses whilst
the movement of custody and trust litigation provision consist of an increase in expected legal costs. Other litigation provision
movement represents the release of liability following settlement of a claim.
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
g
g
u
u
a
a
r
r
a
a
n
n
t
t
e
e
e
e
c
c
o
o
n
n
t
t
r
r
a
a
c
c
t
t
s
s
a
a
n
n
d
d
l
l
o
o
a
a
n
n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
p
p
r
r
o
o
v
v
i
i
s
s
i
i
o
o
n
n
The amount in respect of financial guarantee contracts and loan commitments issued represent the expected credit loss as at 31
December 2021.
C
C
o
o
n
n
t
t
i
i
n
n
g
g
e
e
n
n
t
t
l
l
i
i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
Contingent liabilities are backed by corresponding obligations from third parties. Bank of Valletta is a party to legal proceedings arising
out of its normal business operations. Matters arising from a set of similar circumstances can give rise to either a provision or a contingent
liability, depending on the relevant facts and circumstances. The recognition of provisions and the disclosure of contingent liabilities in
relation to such matters involves critical accounting estimates and judgements and is determined in accordance with the relevant
accounting policies described in Note 1 (1.28.5). Except as disclosed hereunder, it is not practicable to provide an aggregate estimate
of potential liability for the Bank’s other legal proceedings as a class of contingent liabilities.
The Bank considers the provisions recognised to be the best estimate of the amounts likely required to settle its claims.
L
L
i
i
t
t
i
i
g
g
a
a
t
t
i
i
o
o
n
n
a
a
n
n
d
d
c
c
l
l
a
a
i
i
m
m
s
s
p
p
r
r
o
o
v
v
i
i
s
s
i
i
o
o
n
n
s
s
The significant developments in the principal legal outstanding cases in relation to custody and trusts are disclosed below:
Deiulemar case
In November 2014, court action was instituted against the Bank by the curators of Deiulemar group which was declared insolvent
when the shares in the ultimate holding company were held in trust by the Bank. The claim was initially for €363 million.
Independent legal advice from a highly reputed Italian professor and from the law firm representing the Bank in the proceedings confirms
that the claim is entirely without merit.
However, significant uncertainties remain about this claim on account of factors that should not have an impact on its outcome. Indeed,
the Bank has, on a number of occasions, expressed concerns about the fairness of the trial, in particular because it is being held in
Torre Annunziata, a small town in which some 13,000 bondholders lost their savings as a result of the Deiulemar group’s failure. This
has created a hostile environment. The Bank raised these concerns before the Tribunal of Torre Annunziata, only to have them turned
down. The Bank then sought a remedy from the European Court of Human Rights (ECHR). The Bank’s request has been declared
inadmissible at this stage because, according to the ECHR, the Bank still has remedies to pursue in Italy and it has to exhaust those
remedies before petitioning the ECHR again.
The case was up for judgement as at year end. The Bank strongly believed that the Tribunal of Torre Annunziata should have appointed
an independent expert to value the shares held by the Bank. Based on legal advice and economic analysis, the Bank is of the view that
the shares were worthless.
Subsequent to the reporting period, on 8 February 2022, the Bank was informed by the Tribunal of Torre Annunziata that a decision
against the Bank has been delivered in the aggregate of €371 million including legal interest and costs. The Bank has immediately
issued a Company announcement that in line with advice received from legal counsel, and consistent with several legal opinions as to
the underlying strength of the case, the Bank shall be immediately appealing this decision. As per advice of legal counsel, the judgement
does not highlight any new information that might have a different bearing on the merits of the case. The Bank intends to pursue every
appeal available to it.
In 2018, the Bank had placed in excess of €363m in the hands of an independent entity, following an order from the Tribunal of Torre
Annunziata as precautionary security. No new assets will be made available as a result of the above decision but execution of the
judgement shall take place in the coming months and this may result in the provisional transfer of title of such assets in the name of the
curators. In such a case, the curators would be debarred by law from disposing of or otherwise use the proceeds from the sale of the
financial instrument (Pledged Assets).
The current provision is set at €81 million and is represented by an offer of €75 million for an out-of-court settlement by the Bank to the
Deiulemar bondholders plus an estimate covering legal costs. During 2020, this offer was not accepted. However, the Board of Directors
as at 31 December 2021 continue to be of the view that the offer makes commercial sense in an effort to close the claim against it.
On the basis of the above, the Bank considers the claim against it to be without merit and the Board continue to believe that a fair
hearing would eventually confirm this unless settled out of court.
Bank of Valletta p.l.c.
Annual Report 2021
89
Notes to the financial statements 31 December 2021 (continued)
TThhee GGrroouupp
TThhee BBaannkk
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
3344.. CCOOMMMMIITTMMEENNTTSS
Undrawn documentary credits
27,710
26,730
27,710
26,730
Undrawn formal standby facilities, credit facilities and other commitments to
lend
1,867,939
1,782,528
1,867,939
1,782,528
Capital expenditure contracted but not provided for in the financial statements
2,463
2,498
2,463
2,498
Commitments to financial institutions
198
198
198
198
11,,889988,,331100
11,,881111,,995544
11,,889988,,331100
11,,881111,,995544
3
3
5
5
.
.
P
P
O
O
S
S
T
T
E
E
M
M
P
P
L
L
O
O
Y
Y
M
M
E
E
N
N
T
T
A
A
N
N
D
D
T
T
E
E
R
R
M
M
I
I
N
N
A
A
T
T
I
I
O
O
N
N
L
L
I
I
A
A
B
B
I
I
L
L
I
I
T
T
I
I
E
E
S
S
The Group’s and the Bank’s major post-employment benefit plan (the “plan”) applies to eligible individuals. The benefits provided to
the individuals in terms of the plan are computed on a specified formula which takes into consideration, amongst other things, the
employees’ salary on retirement and the pension entitlement in terms of Maltese law.
The provision is computed in accordance with the accounting policy for post-employment benefit plans. This provision represents the
Group’s and the Bank’s obligation:
(i) discounted to the net present value at the rate which has been determined by reference to market yields at the end of the reporting
period on high-quality corporate bonds;
(ii) after considering the life expectancy of such employees based on the latest publicly available mortality tables;
(iii) the expected terminal salaries; and
(iv) the Bank’s expectations of the employees’ retirement date.
The Group and the Bank have during financial year 2019 l
aunched three Voluntary Retirement Schemes and a Gradual Retirement
Scheme. These schemes remained open up to 31 December 2021. Accepted applicants under the respective schemes shall be
given:
(i) a lump sum payment of three times their terminal salary; or
(ii) a lump sum payment of one time their terminal salary and a proportion of the terminal annual salary depending on the aggregate
years of services; or
(iii) a sum equivalent to 1 year's terminal salary paid by way of a Retirement Gratuity, reduced pro-rata, up to the age of 61.
Applicants were eligible to the different schemes according to the schemes' individual criteria.
Furthermore, the Group and the Bank make payments to certain eligible employees in consideration of the liquidation of a defunct
pension scheme.
The movement in the plans is analysed as follows:
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
a
a
n
n
d
d
t
t
h
h
e
e
BBaannkk
22002211
22002200
€€000000
€€000000
Present value at 1 January
21,239 23,772
Payments effected (5,297) (8,053)
Recognised in profit or loss:
- Interest expense
(133) 199
- Terminal benefits
2,275 5,747
Remeasurement of actuarial gains/(losses) recognised in other comprehensive income resulting from:
- Experience adjustments
(272) (435)
- Changes in financial assumptions
(116) (162)
- Changes in demographic assumptions
346 171
Present value at 31 December
18,042 21,239
Bank of Valletta p.l.c.
Annual Report 2021
90
Notes to the financial statements 31 December 2021 (continued)
3
3
5
5
.
.
P
P
O
O
S
S
T
T
E
E
M
M
P
P
L
L
O
O
Y
Y
M
M
E
E
N
N
T
T
A
A
N
N
D
D
T
T
E
E
R
R
M
M
I
I
N
N
A
A
T
T
I
I
O
O
N
N
L
L
I
I
A
A
B
B
I
I
L
L
I
I
T
T
I
I
E
E
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The year-end obligation in relation to the plan is mainly in relation to retired employees.
The plan exposes the Group and the Bank to the following main risks:
(i) interest risk, since a decrease in market yields will increase the plan liability; and
(ii) longevity risk, since an increase in the life expectancy of the plan participants will increase the plan liability.
The significant actuarial assumptions applied by the Group and the Bank in respect of the plan were as follows:
TThhee GGrroouupp aanndd tthhee BBaannkk
22002211
22002200
Weighted discount rates - Euro corporate yield per Bloomberg 0.24% 0.13%
Males
81 81
Females
85
85
T
he Group and the Bank are providing sensitivity analysis in connection with each significant actuarial assumption applied in respect of
the plan. These analysis are prepared as of the end of the reporting period, showing how the liability would have been affected by
hypothetical changes in the relevant actuarial assumptions that were reasonably possible at that date, while holding all other
assumptions constant. The analysis presented below are for illustrative purposes only and may not be representative of the actual
change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another. In
presenting the sensitivity analysis, the present value of the obligation has been calculated using the projected unit credit method at the
end of the reporting period. The amounts generated from the analysis represent forward-looking estimates and hence, actual results in
the future may differ materially from those projected results. In accordance with the transitional provisions in the revised IAS 19, the
Group and the Bank have not disclosed comparative information in this respect.
- If the discount rate is 100 basis points higher (lower) with all other assumptions held constant, the defined benefit obligation
decreases by €1 million (increases by €1.1 million).
- If the life expectancy increases (decreases) by two years for both men and women with all other assumptions held constant,
the defined benefit obligation increases by €3.3 million (decreases by €3.3 million).
The weighted average duration of the liability in respect of the plan at 31 December 2021 is 8 years (2020: 8 years).
The Bank does not fund these pensions by assigning specific assets as there is sufficient liquidity to meet the required payments as
these arise. In view of the non complexity of the inputs involved, no actuary was deemed necessary in estimating this obligation.
3
3
6
6
.
.
N
N
O
O
T
T
E
E
S
S
T
T
O
O
T
T
H
H
E
E
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
O
O
F
F
C
C
A
A
S
S
H
H
F
F
L
L
O
O
W
W
S
S
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
T
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h
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e
B
B
a
a
n
n
k
k
NNoottee
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
Cash
13
85,511
70,324
85,511
70,324
Balances with Central Bank of Malta
(excluding Reserve Deposit)
4,236,230 3,461,312 4,236,230 3,461,312
Treasury bills (with original maturity of less than 3 months)
135,582
35,529
135,582
35,529
Money at call and short notice
447,811
471,532
447,811
471,532
Amounts owed to banks
(86,990)
(88,025)
(86,990)
(88,025)
C
C
a
a
s
s
h
h
a
a
n
n
d
d
c
c
a
a
s
s
h
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e
q
q
u
u
i
i
v
v
a
a
l
l
e
e
n
n
t
t
s
s
i
i
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n
c
c
l
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u
u
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d
e
e
d
d
i
i
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n
t
t
h
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e
e
s
s
t
t
a
a
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e
e
m
m
e
e
n
n
t
t
s
s
o
o
f
f
c
c
a
a
s
s
h
h
f
f
l
l
o
o
w
w
s
s
4
4
,
,
8
8
1
1
8
8
,
,
1
1
4
4
4
4
3
3
,
,
9
9
5
5
0
0
,
,
6
6
7
7
2
2
4
4
,
,
8
8
1
1
8
8
,
,
1
1
4
4
4
4
3
3
,
,
9
9
5
5
0
0
,
,
6
6
7
7
2
2
Balances with contractual maturity of more than 3 months
(415,380)
130,560
(415,380)
130,560
4,402,764 4,081,232
4,402,764
4,081,232
Equivalent items reported in the statements of financial position:
Balances with Central Bank of Malta, Treasury bills and cash
(excluding Reserve Deposit)
4,510,412 3,689,854 4,510,412 3,689,854
Loans and advances to banks
452,469
479,409
452,469
479,409
Amounts owed to banks
(560,117)
(88,031)
(560,117)
(88,031)
4,402,764
4,081,232
4,402,764
4,081,232
Bank of Valletta p.l.c.
Annual Report 2021
91
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
L
A
A
T
T
E
E
D
D
P
P
A
A
R
R
T
T
Y
Y
T
T
R
R
A
A
N
N
S
S
A
A
C
C
T
T
I
I
O
O
N
N
S
S
During the current and prior year, the Group and the Bank entered into transactions during the course of their normal business, with
equity-accounted investees, subsidiaries, the Government of Malta ("The Government") (which has a 25% holding in the Bank),
Government related entities, key management personnel, and other related parties. Government related entities are those where, in
the opinion of the Bank, the Government is either deemed to exercise control, that is, it has the power to govern the financial and
operating policies of the entity or linked to the Government but not controlled by the Government.
Key management personnel includes the Chairman, Directors, the members of the Management Board and their respective spouses,
spousal equivalent and dependants. Other related parties are those companies over which the key management personnel hold
control or significant influence (directorship).
Transactions with related parties are made on an arm's length basis.
The Bank also entered into related party transactions on an arm's length basis with its subsidiaries and equity-accounted investees.
Transactions between the Bank and its subsidiaries have been eliminated on consolidation.
The amounts due to or from related parties are settled in cash and the amount of related party transactions and outstanding balances
at the reporting date are disclosed below:
TThhee GGrroouupp
22002211
22002200
R
R
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l
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%% ooff
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%% ooff
€€000000
€€000000
ttoottaall
€€000000
€€000000
ttoottaall
IInntteerreesstt aanndd ssiimmiillaarr iinnccoommee::
-- oonn llooaannss aanndd aaddvvaanncceess
Equity-accounted investees
21
-
The Government
1,198
1,083
Government related entities
14,207
14,448
Key management personnel
24
34
Other related parties
426
602
15,876
172,429
9%
16,167
166,995
10%
IInntteerreesstt aanndd ssiimmiillaarr iinnccoommee::
-- oonn ddeebbtt aanndd ootthheerr ffiixxeedd iinnccoommee
The Government
6,693
22,384
30%
8,010
23,287
34%
IInntteerreesstt eexxppeennssee
Equity-accounted investees
1,587
2,041
The Government
17,282
14,811
Government related entities
92
596
Key management personnel
2
7
18,963
38,503
49%
17,455
43,476
40%
FFeeee aanndd ccoommmmiissssiioonn iinnccoommee
Equity-accounted investees
6,078
5,139
The Government
2,762
1,876
Government related entities
1,530
1,158
Key management personnel
2
3
Other related parties
19
19
10,391
84,273
12%
8,195
75,981
11%
Bank of Valletta p.l.c.
Annual Report 2021
92
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
L
A
A
T
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D
D
P
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T
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TThhee GGrroouupp
22002211
R
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T
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%% ooff
22002200
R
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T
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%% ooff
€€000000
€€000000
ttoottaall
€€000000
€€000000
ttoottaall
SShhoorrtt tteerrmm eemmppllooyyeeee ccoommppeennssaattiioonn aanndd bbeenneeffiittss
Key management personnel
2,701
81,568
3%
1,949
79,389
2%
GGeenneerraall aaddmmiinniissttrraattiivvee eexxppeennsseess
Equity-accounted investees
156
111
Key management personnel
27
27
Other related parties
21
48
204
93,897
0%
186
71,186
0%
MMoovveemmeenntt iinn iimmppaaiirrmmeenntt aalllloowwaanncceess
The Government
(808)
817
Government related entities
1,001
657
Key management personnel
5
(7)
Other related parties
(18)
(4)
180
18,856
1%
1,463
(65,136)
-2%
BBaallaanncceess wwiitthh CCeennttrraall BBaannkk ooff MMaallttaa
ttrreeaassuurryy bbiillllss aanndd ccaasshh
The Government
4,541,065
4,626,066
98%
3,728,780
3,798,449
98%
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr lloossss
The Government
1,114
138,986
1%
9,395
168,500
6%
IInnvveessttmmeennttss
The Government
1,076,124
3,568,669
30%
870,579
3,279,412
27%
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss ((nneett))
The Government
32,452
37,258
Government related entities
441,603
468,365
Key management personnel
3,969
3,107
Other related parties
11,914
15,280
489,938
5,097,598
10%
524,010
4,741,443
11%
IImmppaaiirrmmeenntt aalllloowwaanncceess
The Government
(50)
(858)
Government related entities
(3,220)
(2,219)
Key management personnel
(8)
(3)
Other related parties
1
(17)
(3,277)
(163,785)
2%
(3,097)
(166,675)
2%
Bank of Valletta p.l.c.
Annual Report 2021
93
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
L
A
A
T
T
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D
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TThhee GGrroouupp
22002211
R
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%
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ooff
22002200
R
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T
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%
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€€000000
€€000000
ttoottaall
€€000000
€€000000
ttoottaall
AAmmoouunnttss oowweedd ttoo ccuussttoommeerrss
Equity-accounted investees
189,161
242,954
The Government
373,436
282,746
Government related entities
193,576
143,352
Key management personnel
4,482
4,594
Other related parties
3,379
4,434
764,034
12,176,854
6%
678,080
11,272,289
6%
TToottaall AAsssseettss lleessss LLiiaabbiilliittiieess
Equity-accounted investees
(189,161)
(242,954)
The Government
5,277,269
4,362,408
Government related entities
244,807
322,794
Key management personnel
(521)
(1,490)
Other related parties
8,536
10,829
5,340,930
4,451,587
CCoommmmiittmmeennttss
Equity-accounted investees
317
303
The Government
76,817
19,709
Government related entities
79,567
70,113
Key management personnel
331
345
Other related parties
566
900
157,598
1,898,310
8%
91,370
1,818,970
5%
TThhee BBaannkk
IInntteerreesstt aanndd ssiimmiillaarr iinnccoommee::
-- oonn llooaannss aanndd aaddvvaanncceess
The Government
1,198
1,083
Government related entities
14,207
14,448
Key management personnel
13
16
Other related parties
423
592
15,841
172,429
9%
16,139
166,995
10%
IInntteerreesstt aanndd ssiimmiillaarr iinnccoommee::
-- oonn ddeebbtt aanndd ootthheerr ffiixxeedd iinnccoommee iinnssttrruummeennttss
The Government
6,693
22,384
30%
8,010
23,287
34%
IInntteerreesstt eexxppeennssee
Equity-accounted investees
1,587
2,041
The Government
17,282
14,811
Government related entities
92
596
Key management personnel
1
6
18,962
38,503
49%
17,454
43,476
40%
Bank of Valletta p.l.c.
Annual Report 2021
94
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
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A
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T
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2
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%% ooff
2
2
0
0
2
2
0
0
R
R
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T
T
o
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%% ooff
€€000000
€€000000
ttoottaall
€€000000
€€000000
ttoottaall
FFeeee aanndd ccoommmmiissssiioonn iinnccoommee
Equity-accounted investees
6,078
5,139
Subsidiaries
2,275
1,944
The Government
2,762
1,876
Government related entities
1,530
1,158
Key management personnel
2
2
Other related parties
19
14
12,666
74,462
17%
10,133
67,095
15%
DDiivviiddeenndd iinnccoommee
Equity-accounted investees
1,499
-
Subsidiaries
-
2,020
1,499
2,946
51%
2,020
2,239
90%
EEmmppllooyyeeee ccoommppeennssaattiioonn aanndd bbeenneeffiittss
Key management personnel
2,528
79,067
3%
1,761
76,594
2%
GGeenneerraall aaddmmiinniissttrraattiivvee eexxppeennsseess
Equity-accounted investees
156
111
Key management personnel
26
25
Other related parties
21
48
203
92,546
0%
184
69,866
0%
MMoovveemmeenntt iinn iimmppaaiirrmmeenntt aalllloowwaanncceess
The Government
(808)
817
Government related entities
1,001
657
Key management personnel
1
(7)
Other related parties
(1)
-
193
18,856
1%
1,467
(65,136)
-2%
BBaallaanncceess wwiitthh CCeennttrraall BBaannkk ooff MMaallttaa
ttrreeaassuurryy bbiillllss aanndd ccaasshh
The Government
4,541,065
4,626,066
98%
3,728,780
3,798,449
98%
FFiinnaanncciiaall aasssseettss aatt ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt oorr
The Government
1,114
138,823
1%
9,395
168,340
6%
IInnvveessttmmeennttss
The Government
1,076,124
3,568,669
30%
870,579
3,279,412
27%
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss ((nneett))
The Government
32,452
37,258
Government related entities
441,603
468,365
Key management personnel
2,915
2,527
Other related parties
11,914
15,114
488,884
5,097,598
10%
523,264
4,741,443
11%
Bank of Valletta p.l.c.
Annual Report 2021
95
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
L
A
A
T
T
E
E
D
D
P
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A
A
R
R
T
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Y
Y
T
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N
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S
S
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TThhee BBaannkk
22002211
R
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22002200
R
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%
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IImmppaaiirrmmeenntt aalllloowwaanncceess
The Government
(50)
(858)
Government related entities
(3,220)
(2,219)
Key management personnel
(4)
(3)
Other related parties
1
-
(3,273)
(163,785)
2%
(3,080)
(166,675)
2%
OOtthheerr aasssseettss
Subsidiaries
866
141,096
1%
1,560
141,692
1%
AAmmoouunnttss oowweedd ttoo ccuussttoommeerrss
Equity-accounted investees
189,161
242,954
Subsidiaries
9,135
5,403
The Government
373,436
282,746
Government related entities
193,576
143,352
Key management personnel
3,850
2,993
Other related parties
3,379
3,704
772,537
12,185,989
6%
681,152
11,277,692
6%
TToottaall AAsssseettss lleessss LLiiaabbiilliittiieess
Equity-accounted investees
(189,161)
(242,954)
Subsidiaries
(7,776)
(3,843)
The Government
5,277,269
4,362,408
Government related entities
244,807
322,794
Key management personnel
(939)
(469)
Other related parties
8,536
11,410
5,332,736
4,449,346
CCoommmmiittmmeennttss
Equity-accounted investees
317
303
The Government
76,817
19,709
Government related entities
79,567
70,113
Key management personnel
301
313
Other related parties
566
722
157,568
1,898,310
8%
91,160
1,818,970
5%
TThhee GGrroouupp
TThhee BBaannkk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€€000000
€€000000
€€000000
€€000000
All outstanding balances are secured except
for the following:
Loans and advances to customers:
- Key management personnel
678
186
361
153
- Other related parties
-
118
-
-
678
304
361
153
Details of guarantees received are disclosed
Loans and advances to customers:
- Amounts guaranteed by The Government
350,699
365,664
350,699
365,664
Bank of Valletta p.l.c.
Annual Report 2021
96
Notes to the financial statements 31 December 2021 (continued)
3
3
7
7
.
.
R
R
E
E
L
L
A
A
T
T
E
E
D
D
P
P
A
A
R
R
T
T
Y
Y
T
T
R
R
A
A
N
N
S
S
A
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Loans to and commitments on behalf of directors and other key management personnel (including connected persons):
TThhee GGrroouupp
TThhee BBaannkk
LLooaannss
aanndd
LLooaannss aanndd
aaddvvaanncceess
CCoommmmiittmmeennttss
aaddvvaanncceess
CCoommmmiittmmeennttss
€€000000
€€000000
€€000000
€€000000
DDiirreeccttoorrss
At 31 December 2019
1,282
61
669
49
Additions
-
69
-
50
1,282
130
669
99
Less reductions/repayments
(126)
-
(93)
-
At 31 December 2020
1,156
130
576
99
Additions
1,528
51
475
31
2,684
181
1,051
130
Less reductions/repayments
(715)
(67)
(136)
(45)
At 31 December 2021 1,969 114 915 85
OOtthheerr kkeeyy mmaannaaggeemmeenntt ppeerrssoonnnneell
At 31 December 2019
2,056
370
2,056
370
Additions
-
-
-
-
2,056
370
2,056
370
Less reductions/repayments
(105)
(155)
(105)
(155)
At 31 December 2020
1,951
215
1,951
215
Additions
241
18
241
18
2,192
233
2,192
233
Less reductions/repayments
(192)
(17)
(192)
(17)
At 31 December 2021
2,000 216 2,000 216
The above facilities do not involve more than the normal risk of repayment or present other unfavourable features and were made in the
ordinary course of business on substantially the same terms as for comparable transactions with persons of a similar standing, or where
applicable, other employees.
Bank of Valletta p.l.c.
Annual Report 2021
97
Notes to the financial statements 31 December 2021 (continued)
3
3
8
8
.
.
S
S
E
E
G
G
M
M
E
E
N
N
T
T
A
A
L
L
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
I
I
O
O
N
N
B
B
Y
Y
C
C
L
L
A
A
S
S
S
S
E
E
S
S
O
O
F
F
B
B
U
U
S
S
I
I
N
N
E
E
S
S
S
S
The Group's reportable segments are shown in the table below.
RReeppoorrttaabbllee
OOppeerraattiioonnss
Personal
Loans and other transactions and balances with retail customers, including wealth and asset management related
Corporate
Loans and other transactions and balances with corporate customers
Proprietary
Funding and centralised risk management activities through borrowings and issues of debt securities
Liquidity
Investments in liquid assets such as short-term placements and corporate and government debt securities
Interest income is the main revenue generating activity for all segments. The customer-oriented segments also have income derived from
fees and commissions and earnings arising on foreign exchange transactions.
P
P
e
e
r
r
s
s
o
o
n
n
a
a
l
l
B
B
a
a
n
n
k
k
i
i
n
n
g
g
&
&
WWeeaalltthh MMaannaaggeemmeenntt
C
C
o
o
r
r
p
p
o
o
r
r
a
a
t
t
e
e
BBaannkkiinngg
P
P
r
r
o
o
p
p
r
r
i
i
e
e
t
t
a
a
r
r
y
y
IInnvveessttmmeennttss
L
L
i
i
q
q
u
u
i
i
d
d
i
i
t
t
y
y
MMaannaaggeemmeenntt
T
T
o
o
t
t
a
a
l
l
R
R
e
e
p
p
o
o
r
r
t
t
a
a
b
b
l
l
e
e
SSeeggmmeennttss
22002211
22002200
22002211
22002200
22002211
22002200
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
Interest income
82,896
79,742
89,532
87,111
17,298
22,563
5,087
866
194,813
190,282
Interest expense
(2,610)
(4,083)
(2,636)
(4,146)
(3,211)
(4,877)
(30,046)
(30,370)
(38,503)
(43,476)
Fee and commission
income
52,496
45,782
22,553
19,893
209
-
9,015
10,306
84,273
75,981
Fee and commission
expense
(8,543)
(7,376)
(764)
(871)
-
-
(371)
(442)
(9,678)
(8,689)
Trading income
224
315
5,873
6,162
-
-
2,939
4,825
9,036
11,302
Gains from financial
assets
-
-
-
-
1,520
5,996
-
-
1,520
5,996
Dividend income
-
-
-
-
1,447
219
-
-
1,447
219
Depreciation/amortisation
(11,098)
(11,609)
(3,884)
(3,488)
-
-
(5,156)
(4,710)
(20,138)
(19,807)
Other costs
(83,405)
(70,105)
(38,456)
(27,887)
(9,115)
(5,740)
(44,489)
(46,843)
(175,465)
(150,575)
Impairment
(charge)/reversal
(1,805)
(14,411)
20,764
(50,516)
(103)
(209)
-
-
18,856
(65,136)
Operating profit/(loss)
before litigation provision
28,155
18,255
92,982
26,258
8,045
17,952
(63,021)
(66,368)
66,161
(3,903)
Litigation provision
reversal
-
8,584
-
-
-
-
-
-
-
8,584
Operating profit/(loss)
before share of results of
equity-accounted
investees
28,155
26,839
92,982
26,258
8,045
17,952
(63,021)
(66,368)
66,161
4,681
Group share of results
after tax of equity-
accounted investees
-
-
-
-
14,498
10,520
-
-
14,498
10,520
G
G
r
r
o
o
u
u
p
p
p
p
r
r
o
o
f
f
i
i
t
t
b
b
e
e
f
f
o
o
r
r
e
e
ttaaxxaattiioonn ffoorr tthhee yyeeaarr
80,659
15,201
Bank of Valletta p.l.c.
Annual Report 2021
98
Notes to the financial statements 31 December 2021 (continued)
38. S
S
E
E
G
G
M
M
E
E
N
N
T
T
A
A
L
L
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
I
I
O
O
N
N
B
B
Y
Y
C
C
L
L
A
A
S
S
S
S
E
E
S
S
O
O
F
F
B
B
U
U
S
S
I
I
N
N
E
E
S
S
S
S
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
P
P
e
e
r
r
s
s
o
o
n
n
a
a
l
l
B
B
a
a
n
n
k
k
i
i
n
n
g
g
&
&
WWeeaalltthh MMaannaaggeemmeenntt
CCoorrppoorraattee BBaannkkiinngg
PPrroopprriieettaarryy IInnvveessttmmeennttss
LLiiqquuiiddiittyy MMaannaaggeemmeenntt
TToottaall RReeppoorrttaabbllee SSeeggmmeennttss
22002211
22002200
22002211
22002200
22002211
22002200
22002211
22002200
22002211
22002200
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
ASSETS
2,716,349
2,478,324
2,576,040
2,483,969
3,655,322
3,370,309
5,078,534
4,277,858
14,026,245
12,610,460
Property and
equipment and
intangible
assets
-
-
-
-
173,173
171,889
-
-
173,173
171,889
Additions to
property and
equipment and
intangible
assets
-
-
-
-
13,523
16,423
-
-
13,523
16,423
Carrying value
of equity-
accounted
investees
-
-
-
-
145,501
111,999
-
-
145,501
111,999
TToottaall AAsssseettss
2,716,349
2,478,324
2,576,040
2,483,969
3,987,519
3,670,620
5,078,534
4,277,858
14,358,442
12,910,771
LIABILITIES
TToottaall LLiiaabbiilliittiieess
2,950,430
2,699,706
3,258,188
2,897,852
3,828,526
3,499,490
3,195,013
2,736,598
13,232,157
11,833,646
T
he revenue which is reported above represents revenue generated from external customers. There were no inter-segment revenue during the year
(2020: nil).
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segment's
o
perating profit represents the profit earned by each segment.
There are no material activities which are carried out outside Malta.
Bank of Valletta p.l.c.
Annual Report 2021
99
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
3
3
9
9
.
.
1
1
U
U
s
s
e
e
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
By their nature, the Group's activities are principally related to the use of financial instruments including derivatives. The Group
accepts deposits from customers at both fixed and floating rates and for various periods, and seeks to earn interest margins by
investing these funds in high-quality assets. The Group seeks to increase these margins by consolidating short-term funds and
lending for longer periods at higher rates, while maintaining sufficient liquidity to meet all claims that might fall due.
The Group also seeks to increase its interest margins through lending to commercial and retail borrowers with a range of credit
standings. Such exposures involve both on-balance sheet loans and advances, as well as guarantees and other commitments such
as performance and other bonds and letters of credit.
The Board places trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions.
Foreign exchange and interest rate exposures are normally offset by entering into counterbalancing positions, thereby controlling
the variability in the net cash amounts required to liquidate market positions.
Given that the difference between the Group and the Bank balances in respect of financial instruments, and the corresponding
effect on the statement of profit or loss and other comprehensive income and reserves in respect thereof, are not material, references
in this note to the Group are to be construed as references to the Bank, unless otherwise stated.
The principal areas of financial risk are detailed below:
3
3
9
9
.
.
2
2
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an
obligation.
Financial assets which could potentially exp
ose the Group to credit risk, mainly include balances with Central Bank of Malta, treasury bills
and cash, derivative financial assets, debt and other fixed income instruments, and loans and advances to banks and customers.
39.2.1 C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(i) L
L
o
o
a
a
n
n
s
s
a
a
n
n
d
d
a
a
d
d
v
v
a
a
n
n
c
c
e
e
s
s
The purpose of credit risk management is to keep credit risk exposure to a permissible level relative to capital, to maintain the
soundness of assets, and to ensure returns commensurate with risk. This leads to a loan portfolio that achieves high returns on
capital and assets.
Credit risk is managed and controlled throughout the Bank on the basis of established credit processes, and within a framework of
credit policy and delegated authorities based on responsibility, skill and experience.
Credit grading and monitoring systems are in place to accommodate the early identification and management of deterioration in
loan quality. In addition, the credit management process is underpinned by an independent system of credit review.
Credit risk analysis is carried out on two levels: the single name; and the bank’s lending portfolio review. The Bank uses a number
of tools to limit its exposure to undue credit risk. These include the application of:
• High-level credit policies designed to ensure a balanced and managed approach to the identification and mitigation of credit
risk;
• Lending guidelines defining the responsibilities of lending officers that seek to provide a disciplined and focused benchmark
for credit decisions;
• Independent reviews of credit exposures;
• Sector caps, encompassing both industry and specific product types, to communicate the Board’s risk appetite for specific
types of business;
• Establishment and maintenance of large exposures and provisioning policies in accordance with regulatory reporting
requirements; and
• Communication and provision of general guidance on all credit-related risk issues, including regulatory changes to promote
consistent and best practice throughout the Bank.
Where po
ssible the Bank aims to reduce and control risk concentrations. Broadly stated, concentration results when the Bank has
a high level of exposure to a single or related group of borrowers, credit exposures secured by a single security, or credit exposures
with common characteristics within an industry, such that adverse developments in this exposure would be damaging to the Bank.
Bank of Valletta p.l.c.
Annual Report 2021
100
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Given the size and nature of the domestic financial sector and the local economy, the Bank is exposed to concentration risk in its
credit business. The Bank has systems in place to identify material concentrations in the loan portfolio, and to ensure adherence to
prudential limits set by the Board of Directors and/or the regulator to single borrowers or groups of related borrowers and other
significant risk concentrations. The CEO and the Board of Directors are regularly informed on the concentration of the Bank’s portfolio.
The following is a list of industry concentrations in connection with loans and advances to banks and customers:
TThhee GGrroouupp
22002211
22002200
€€000000
€€000000
Households and individuals
2,719,877
2,486,909
Real estate activities
402,974 479,
102
Financial and insurance activities
456,171 444,395
Wholesale and retail trade
374,139
367,563
Accommodation and food service activities
302,155 251,747
Construction
273,135
194,219
Transportation and storage
176,354 166,646
Manufacturing
128,525 129,533
Electricity, gas, steam and air conditioning supply
112,147
127,355
Administrative and support service activities
127,890 121,695
Professional, scientific and technical activities
122,848 100,186
Human health and social work activities
42,732
45,739
Information and communication
23,592 29,709
Arts, entertainment and recreation
38,974
28,548
Education
25,552 27,673
Other services activities
16,772
18,006
Public administration and defence, compulsory social security
15,376
9,047
Agriculture
4,506 4,679
Fishing
545
409
Water supply, sewerage waste management and remediation activities
1,890
377
Mining and quarrying
76 266
Activities of extraterritorial organisations and bodies
3
-
Loans and advances to customers
5,366,233
5,033,803
Loans and advances to banks
452,469
479,409
55,,881188,,770022
55,,551133,,221122
Loans and advances to customers comprises gross loans and advances at amortised cost and loans and advances designated at
fair value through profit and loss as per Note 17.
(
(
i
i
i
i
)
)
O
O
t
t
h
h
e
e
r
r
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
a
a
s
s
s
s
e
e
t
t
s
s
The credit risk in respect of other financial assets is mitigated through limits set in the Treasury Management Policy. The Bank assigns
limits on the level of credit risk undertaken in relation to any single counterparty or sovereign exposure in accordance with external
ratings based on Fitch’s ratings or on those of other major rating agencies.
Changes in credit ratings are monitored on a daily basis and are subject to frequent review, when considered necessary. The limits
on the level of credit risk are reviewed consistently and approved by the Board of Directors at regular intervals. Actual exposures are
monitored against limits on an on-going basis. The Bank enters into security transactions only with such authorised counterparties
and it invests only in securities or paper with credit quality within specific parameters stated in the Treasury Management Policy.
The level of concentration in respect of other significant financial assets is disclosed in the remaining notes to the financial statements.
Bank of Valletta p.l.c.
Annual Report 2021
101
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Collateral and other credit enhancements
Credit risk mitigation is one of the key elements of the Group’s credit policy. This includes the requirement to obtain collateral,
depending on the nature of the proposal, as set out in the Bank’s policies and procedures. The nature and level of collateral required
depends on a number of factors, including, but not limited to the amount of the exposure, the type of facility provided, the term of
the facility, the amount of the counterparty’s contribution and an evaluation of the level of the credit risk or probability of default
involved (see note 39.2.1.5).
Settlement Risk
The Group’s activity may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due
to failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. Settlement risk
in respect of security transactions is mitigated through settlement limits assigned to counterparties based on external credit ratings
or by effecting payment on a delivery versus payment (DVP) basis.
Sovereign Debt
S
overeign risk refers to the risk that a government may default on its obligations, and includes refinancing risk related to the inability
to raise capital to repay maturing bonds. The Group monitors sovereign risks through sovereign credit ratings issued by credit rating
agencies which include Fitch, Moody’s, and Standard & Poor’s. The Treasury Management Policy seeks to mitigate sovereign risk,
whether directly or indirectly through exposures to corporate and financial institutions domiciled therein, through investment limits
assigned on the basis of the long-term credit rating of such sovereigns. This is further supplemented by in depth economic reviews
undertaken periodically and assessments of the fiscal, economic and socio-political aspects upon which such limits are accordingly
aligned.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
Q
Q
u
u
a
a
l
l
i
i
t
t
y
y
(i) Financial Assets by rating agency (Fitch) designation
BBaallaanncceess wwiitthh
C
C
B
B
M
M
a
a
n
n
d
d
TTrreeaassuurryy BBiillllss
DDeebbtt SSeeccuurriittiieess
LLooaannss aanndd
A
A
d
d
v
v
a
a
n
n
c
c
e
e
s
s
t
t
o
o
BBaannkkss
DDeerriivvaattiivveess
TToottaall
TThhee GGrroouupp
€€000000
€€000000
€€000000
€€000000
€€000000
AAss aatt 3311 DDeecceemmbbeerr 22002211
AAA
4,351,884
510,476
42,747
9
4,905,116
AA- to AA+
-
596,324
89,780
-
686,104
A- to A+
188,671
2,154,469
152,288
153
2,495,581
BBB- to BBB+
-
282,861
106,924
-
389,785
Lower than BBB-
-
6,535
17,687
-
24,222
Unrated
-
9
43,043
1,042
44,094
44,,554400,,555555
33,,555500,,667744
445522,,446699
11,,220044
88,,554444,,990022
AAss aatt 3311 DDeecceemmbbeerr 22002200
AAA
3,569,907 526,289 - 212 4,096,408
AA- to AA+
- 600,078 44,345 - 644,423
A- to A+
158,218 1,912,603 322,127 1,388 2,394,336
BBB- to BBB+
- 221,753 94,843 - 316,596
Lower than BBB-
- 6,333 8,256 - 14,589
Unrated
- 3 9,838 416 10,257
3
3
,
,
7
7
2
2
8
8
,
,
1
1
2
2
5
5
3
3
,
,
2
2
6
6
7
7
,
,
0
0
5
5
9
9
4
4
7
7
9
9
,
,
4
4
0
0
9
9
2
2
,
,
0
0
1
1
6
6
7
7
,
,
4
4
7
7
6
6
,
,
6
6
0
0
9
9
Bank of Valletta p.l.c.
Annual Report 2021
102
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
Q
Q
u
u
a
a
l
l
i
i
t
t
y
y
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The tables below analyse debt securities by sector, classification and residency.
SSeeccttoorr
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
AAmmoorrttiisseedd ccoosstt
FFVVOOCCII
FFVVTTPPLL
22002211
€€000000
€€000000
€€000000
Banks
880,785 - 28
Government
2,377,928 32,839 1,120
Public
- 73,488 -
Others
184,486 - -
3,443,199 106,327 1,148
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
AAmmoorrttiisseedd ccoosstt
FFVVOOCCII
FFVVTTPPLL
22002200
€€000000
€€000000
€€000000
Banks
991,834 - 21
Government
1,990,321 52,164 9,409
Public
- 72,115 -
Others
151,195
-
-
3,133,350 124,279 9,430
RReessiiddeennccyy
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
AAmmoorrttiisseedd ccoosstt
FFVVOOCCII
FFVVTTPPLL
22002211
€€000000
€€000000
€€000000
Malta
1,045,720 106,327 1,114
Monetary Union member states
1,421,997 - 6
Rest of the world
975,482 - 28
3,443,199
106,327
1,148
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
AAmmoorrttiisseedd ccoosstt
FFVVOOCCII
FFVVTTPPLL
22002200
€€000000
€€000000
€€000000
Malta
820,843 124,279 9,395
Monetary Union member states
1,291,561 - 14
Rest of the world
1,020,946 - 21
3,133,350 124,279 9,430
Bank of Valletta p.l.c.
Annual Report 2021
103
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
Q
Q
u
u
a
a
l
l
i
i
t
t
y
y
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
(ii) Loans and advances to customers analysed into performing and non-performing exposures
TThhee GGrroouupp
TThhee GGrroouupp
TToottaall GGrroossss//FFoorrbboorrnnee EExxppoossuurreess
TToottaall
OOff wwhhiicchh
FFoorrbboorrnnee
TToottaall
OOff wwhhiicchh
FFoorrbboorrnnee
2
2
0
0
2
2
1
1
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
0
0
€€000000
€€000000
€€000000
€€000000
PPeerrffoorrmmiinngg
Stage 1
4,506,916 - 4,216,884 -
Stage 2
637,392 164,047 579,430 23,234
5,144,308 164,047 4,796,314 23,234
NNoonn--ppeerrffoorrmmiinngg
Stage 3
221,925 115,118 237,489 92,641
221,925 115,118 237,489 92,641
TToottaall GGrroossss//FFoorrbboorrnnee EExxppoossuurreess
5,366,233 279,165 5,033,803 115,875
Gross Forborne Exposures are analysed as follows:
MMooddiiffiiccaattiioonn iinn
TTeerrmmss
RReeffiinnaanncciinngg
MMooddiiffiiccaattiioonn iinn
TTeerrmmss
RReeffiinnaanncciinngg
2
2
0
0
2
2
1
1
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
0
0
PPeerrffoorrmmiinngg
€€000000
€€000000
€€000000
€€000000
Personal
18,321 191 6,920 293
Business
144,027 1,508 15,029 992
162,348 1,699 21,949 1,285
NNoonn--ppeerrffoorrmmiinngg
Personal
23,025 219 18,870 307
Business
87,510 4,364 69,280 4,184
110,535
4,583
88,150
4,491
Bank of Valletta p.l.c.
Annual Report 2021
104
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
Q
Q
u
u
a
a
l
l
i
i
t
t
y
y
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The movement in forbearance activity during the period is as follows:
LLooaannss && AAddvvaanncceess
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€€000000
€€000000
1 January
115,875 114,960
Additions
183,103 12,793
Retired from forborne
(19,813) (11,878)
31 December
279,165 115,875
(iii) Analysis of past due balances
Past due up to 29 days
50,428
31,051
Past due 30 - 59 days
15,251
9,133
Past due 60 - 89 days
4,763
6,291
70,442
46,475
Analysis of past due balances comprise all loan exposures (including forborne exposures).
A financial asset is past due when a counterparty has failed to make a payment when contractually due.
Defaulted gross loans by segment:
Business
167,523 181,348
Personal
54,402 56,141
2
2
2
2
1
1
,
,
9
9
2
2
5
5
2
2
3
3
7
7
,
,
4
4
8
8
9
9
Defaulted facilities are those credit facilities with payments of interest and/or capital overdue by 90 days or more or where the Group
has reasons to doubt the eventual recoverability of funds. A variety of types of collateral are accepted including property, securities,
cash, guarantees and insurance, as disclosed in note 39.2.1.5.
Information about impairment allowances is disclosed in note 39.2.1.2 in respect of the Group’s exposures as at 31 December 2021
and 31 December 2020.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
E
E
x
x
p
p
e
e
c
c
t
t
e
e
d
d
c
c
r
r
e
e
d
d
i
i
t
t
l
l
o
o
s
s
s
s
m
m
e
e
a
a
s
s
u
u
r
r
e
e
m
m
e
e
n
n
t
t
IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below:
• A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1 and has its credit risk continuously
monitored by the Group.
• If a significant increase in credit risk (SICR) since initial recognition is identified, the financial instrument is moved to Stage 2 but
is not yet deemed to be credit-impaired. Refer to note 39.2.1.2.1 for a description of how the Group determines when a
significant increase in credit risk has occurred.
• If the financial instrument is credit-impaired, the financial instrument is then moved to Stage 3. Refer to note 39.2.1.2.2 for a
description of how the Group defines credit-impaired and default.
• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losse
s
t
hat result from default events possible within the next 12 months. Instruments in Stages 2 and 3 have their ECL measure
d
ba
sed on expected losses on a lifetime bases. Refer to note 39.2.1.2.4 for a description of inputs, assumptions and estimation
techniques used in measuring the ECL.
• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information. Note
39.2.1.2.5 includes an explanation of how the Group has incorporated this in its ECL models.
Bank of Valletta p.l.c.
Annual Report 2021
105
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
E
E
x
x
p
p
e
e
c
c
t
t
e
e
d
d
c
c
r
r
e
e
d
d
i
i
t
t
l
l
o
o
s
s
s
s
m
m
e
e
a
a
s
s
u
u
r
r
e
e
m
m
e
e
n
n
t
t
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
Further explanation is also provided of how the Group determines appropriate groupings when ECL is measured on a collective basis
(refer to note 39.2.1.2.8).
The following diagram summarises the impairment requirements under IFRS 9 (other than purchased or originated credit-impaired
financial assets):
C
C
h
h
a
a
n
n
g
g
e
e
i
i
n
n
c
c
r
r
e
e
d
d
i
i
t
t
q
q
u
u
a
a
l
l
i
i
t
t
y
y
s
s
i
i
n
n
c
c
e
e
i
i
n
n
i
i
t
t
i
i
a
a
l
l
r
r
e
e
c
c
o
o
g
g
n
n
i
i
t
t
i
i
o
o
n
n
SSttaaggee 11
SSttaaggee 22
SSttaaggee 33
(Initial recognition)
(Significant increase in credit risk since initial recognition)
(Credit-impaired assets)
12-month expected credit losses
Lifetime expected credit losses
Lifetime expected credit losses
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
1
1
S
S
i
i
g
g
n
n
i
i
f
f
i
i
c
c
a
a
n
n
t
t
i
i
n
n
c
c
r
r
e
e
a
a
s
s
e
e
i
i
n
n
c
c
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
With the exception of instruments measured at FVTPL, exposures with low credit risk at the reporting date and any originated credit-
impaired financial assets (note 39.2.1.2.2), the Group assesses whether financial instruments have experienced a significant increase in
credit risk since initial recognition.
When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group
considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the Group’s historical experience and expert credit assessment and
including forward-looking information.
In the case of the Group’s advances portfolio, the objective of the assessment is to identify whether a significant increase in credit risk
has occurred for an exposure by comparing:
- the remaining lifetime probability of default (PD) as at the reporting date; with
- the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where
relevant for changes in prepayment expectations).
The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of
default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are
indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower.
Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates
so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk
grades 2 and 3.
SSttaaggee
IInntteerrnnaall rraattiinngg
1
1 - 3 Regular
2
4 - 5 Watch
3
6 - 11 Default
Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are
subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically
involves use of the following data.
Bank of Valletta p.l.c.
Annual Report 2021
106
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
1
1
S
S
i
i
g
g
n
n
i
i
f
f
i
i
c
c
a
a
n
n
t
t
i
i
n
n
c
c
r
r
e
e
a
a
s
s
e
e
i
i
n
n
c
c
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
CCoommmmeerrcciiaall eexxppoossuurreess
PPeerrssoonnaall eexxppoossuurreess
AAllll eexxppoossuurreess
• Information obtained during periodic
review of customer files - e.g. audited
financial statements, management
accounts, budgets and projections.
Examples of areas of particular focus
are: gross profit margins, financial
leverage ratios, debt service coverage,
compliance with covenants, quality of
management, senior management
changes
• Actual and expected significant
changes in the political, regulatory and
technological environment of the
borrower or in its business activities
• Internally collected data on
customer behaviour -e.g. utilisation
of credit card facilities
• Affordability metrics
• Payment record - this includes overdue status
as
well as a range of variables about payment
ratios
• Utilisation of the granted limit
• Requests for and granting of forbearance
•
E
xisting and forecast changes in business
•
F
inancial and economic conditions
The Group applies the low credit risk simplification for all investments which are of an investment grade, which comprises the vast
majority of its treasury portfolio. The Group accordingly only assesses SICR for investments in those debt securities which are rated
as sub-investment grade. For sub-investment grade securities, the Group considers a security to have experienced a significant
increase in credit risk if the security has been the subject to a credit rating downgrade since initial recognition.
C
C
O
O
V
V
I
I
D
D
-
-
1
1
9
9
i
i
m
m
p
p
a
a
c
c
t
t
o
o
n
n
c
c
r
r
e
e
d
d
i
i
t
t
q
q
u
u
a
a
l
l
i
i
t
t
y
y
The Bank has followed the provisions of Directive 18, issued by the Central Bank of Malta, to allow a moratorium on capital and
interest to eligible borrowers temporarily unable to serve their loan obligations due to COVID-19, for a period not exceeding a total
of 9 months. Specific guidelines with respect to the granting of these loans were issued, in particular that eligible borrowers had to
have good credit quality. The deferred payments were spread over the term of the facilities, wherever possible, to ensure that the
loans did not extend beyond retirement age, for personal customers, and to limit the forbearance measure to the short-term. For
shorter-term business facilities, an extension to the term was granted. In line with the European Banking Authority ('EBA') guidance
'Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID-19 measures'
dated 25
th
March 2020, the application of moratoria or deferral of payments, aimed at addressing the adverse systemic economic
impact of the COVID-19 pandemic, should not by itself act as a trigger to conclude that significant increase in credit risk occurred.
However, this does not remove the obligations of a credit institution to assess the credit quality of the exposures benefitting from
these measures and identifying any situation of the borrower’s unlikeliness to pay.
The Bank also participated in the Malta Development Bank COVID-19 loan facility scheme, which also included a moratorium on
capital and interest for a maximum period of 1 year. In general, the Bank granted moratoria of 6 months renewable for a further 6
months, without implications on the Forbearance status of the borrowers.
The moratoria period is considered a suitable measure to give relief to borrowers temporarily unable to serve their loan obligations
due to COVID-19 disruptions. The credit analysis makes use of specific information available, coupled with expert judgement to
identify whether a significant increase in credit risk exists by distinguishing between a borrower taking up payment deferrals for
temporary liquidity issues related to Government imposed restrictions and borrowers taking up payment deferrals that shall lead to
long term financial difficulties over the life of the exposure.
Over the past 2 years, ongoing monitoring has been undertaken on customers and related facilities impacted by COVID market
disruptions. This resulted in adjustments being made on the affected portfolios both in terms of credit grading and related ECL
levels. One of the most material actions taken, included downgrading a very high percentage of the Accommodation sector to stage
2 / 3 thus moving to a lifetime PD calculation and increasing the provisioning coverage. Despite that nearly all moratoria extended
have now expired, and customers have started repaying their facilities, no material restaging has been effected either way to allow
time for market conditions to stabilise further and for operational metrics to continue to improve.
From a single name perspective, during Q1 2021, the Bank commissioned an independent review of the Bank’s top 50 groups
whose total balances cover 56% of the Bank’s business portfolio balances. This review was independently performed by consultants
where a viability assessment has been prepared and which showed that apart from some exceptions, all groups were deemed to
be on the viable list. The impact from this exercise was reflected in the 2020 financial statements, in which some exposures were
downgraded one notch. Since that assessment, the Bank’s relationship managers and risk analysts have been monitoring these
exposures closely in terms of the Credit Policy to identify any possible indicators of SICR (Significant Increase in Credit Risk) or UTP
(Unlikely to Pay).
The forbearance policy provides clear guidelines about the actions that need to be taken when a concession is granted in terms of
viability assessment and credit grading. This ensures that any customer who is granted a forbearance measure is adequately graded
and thus the relative ECL applied.
Bank of Valletta p.l.c.
Annual Report 2021
107
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
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A
A
N
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A review of the COVID impacted portfolio reveals that 95% of total moratoria have now expired and repayments have initiated. Only
8% of balances benefitting from a moratorium since inception of pandemic have not started repaying upon expiry. A high number
of facilities have now been repaying for number of months. The total collections in terms of repayment schedule from these facilities
over the last 12 months amounted to €135 million of which €130 million or 96% of total have been repaid on time. As at reporting
date no major deterioration has been noticed and the absolute majority of COVID-19 loans are being repaid according to the
established schedule. The number of balances with days in arrears (over 30 days) on this mostly impacted portfolio is deemed low
at around 4% of total balances.
The table below presents the Bank's credit portfolio grouped by type of COVID-19 assistance availed of and industry risk.
22002211
22002200
CCoovviidd--1199 AAssssiissttaannccee
I
I
n
n
d
d
u
u
s
s
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t
r
r
y
y
R
R
i
i
s
s
k
k
B
B
a
a
l
l
a
a
n
n
c
c
e
e
MMaallttaa DDeevveellooppmmeenntt
BBaannkk CCoovviidd AAssssiisstt
MMoorraattoorriiaa
ggrraanntteedd
ooff wwhhiicchh eexxppiirreedd
mmoorraattoorriiaa
B
B
a
a
l
l
a
a
n
n
c
c
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e
€€000000
€€000000
€€000000
€€000000
€€000000
High
811,179
140,782
289,447
254,736
1,033,555
Medium
878,704
57,098
174,855
174,224
654,714
Other
3,676,350
82,928
339,628
337,833
3,345,534
TToottaall
5,366,233
280,808
803,930
766,793
5,033,803
T
he total balance comprises gross loans and advances at amortised cost and loans and advances designated at fair value through
profit and loss as per Note 17.
The majority of exposures with expired moratoria are now following the agreed repayment program. In those instances where loan
r
epayments were not following the agreed repayment schedule following the expired moratoria, such exposures were deemed to
have incurred a significant increase in credit risk. Consequently, such loans have been downgraded accordingly.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
2
2
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The Group considers financial assets in the advances portfolio to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as
realising security (if any is held); or
• the borrower is past due more than 90 days on any material credit obligation to the Group.
Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit lower than
the current amount outstanding.
In assessing whether a borrower is in default, the Group considers indicators that are:
• qualitative – e.g. breaches of covenant;
• quantitative – e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and
• based on data developed internally and obtained from external sources.
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes
in circumstances.
The definition of default aligns with that applied by the Group for regulatory capital purposes.
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at
FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or past due event;
• the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.
A loan t
hat has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless
there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of
impairment. In addition, a retail loan that is overdue for 90 days or more is considered impaired.
In t
he case of the treasury portfolio, the Group considers investments in debt instruments to be in default when a payment, including a
coupon payment, is missed.
Bank of Valletta p.l.c.
Annual Report 2021
108
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
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N
N
A
A
N
N
C
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An instrument in the Group’s advances portfolio is considered to be no longer in default (i.e. to have cured) when it no longer meets
any of the default criteria for a consecutive period of three months. This period of three months has been determined based on an
analysis which considers the likelihood of a financial instrument returning to default status after cure using different possible cure
definitions.
A forborne instrument is considered to no longer be in default when it no longer meets any of the criteria for a consecutive period of
twelve months.
The Group’s experience is that defaulted debt investments within the treasury portfolio do not cure given that a security’s default
mechanism is triggered when a security’s issuer misses a coupon payment. Any new instruments which the Group receives as part
of an eventual debt restructuring exercise is considered to be a new instrument altogether.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
4
4
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E
E
C
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L
L
The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or Lifetime basis depending on whether a significant increase
in credit risk has occurred since initial recognition or whether an asset is considered to be credit impaired. Expected credit losses are
the discounted product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows:
• T
he PD represents the likelihood of a borrower defaulting on its financial obligation (as per "Definition of default and credit-impaired"
above), either over the next 12 months (12M PD), or over the remaining lifetime (Lifetime PD) of the obligation.
• EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months (12M EAD) or over
the remaining lifetime (Lifetime EAD). For example, for a revolving overdraft, the Group includes the current drawn balance plus any
further amount that is expected to be drawn up to the current contractual limit by the time of default, should it occur.
• LGD represents the Group’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, typ
e
an
d seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure
at the time of default (EAD). LGD is calculated on a 12 month or lifetime basis, where 12-month LGD is the percentage of loss
expected to be made if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if
the default occurs over the remaining expected lifetime of the loan.
The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual exposure or collective
s
egment. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid
or defaulted in an earlier month). This effectively calculates an ECL for each future month, which is then discounted back to the
reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation
thereof.
These parameters are generally derived from internally developed statistical models and other historical data. They are adjuste
d to
reflect forward-looking information as described in note 39.2.1.2.5.
PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating tools
tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data
comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large
corporate counterparties. If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate
of the associated PD. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates.
The Group derives the EAD from the curren
t exposure to the counterparty and potential changes to the current amount allowed under
the contract including amortisation. The EAD of a financial asset is its gross carrying amount. For lending commitments and financial
guarantees, the EAD includes the amount drawn, as well as potential future amounts that may be drawn under the contract, which
are estimated based on historical observations and forward-looking forecasts. For some financial assets, EAD is determined by
modelling the range of possible exposure outcomes at various points in time using scenario and statistical techniques.
The Group estimates LGD parameters on its advances portfolio based on the history of recovery rates of claims against defaulted
counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of
any collateral that is integral to the financial asset. For loans secured by retail property, LTV ratios are a key parameter in determining
LGD. In the case of the Group’s treasury portfolio, the Group lacks historical experience of defaults, and accordingly makes use of
the LGD parameters set out by the Bank for International Settlements.
As described above, and subject to using a maximum of a 12-mo
nth PD for financial assets for which credit risk has not significantly
increased, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower’s
extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period.
The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate
a loan commitment or guarantee.
Notes to the financial statements 31 December 2021 (continued)
3399.. FFIINNAANNCCIIAALL RRIISSKK MMAANNAAGGEEMMEENNTT ((ccoonnttiinnuueedd))
3399..22..11 CCrreeddiitt rriisskk mmaannaaggeemmeenntt aanndd eexxppoossuurree ((ccoonnttiinnuueedd))
3399..22..11..22..44 MMeeaassuurriinngg EECCLL ((ccoonnttiinnuueedd))
However, for retail overdrafts and credit card facilities that include both a loan and an undrawn commitment component, the Group
measures ECL over a period longer than the maximum contractual period if the Group’s contractual ability to demand repayment and
cancel the undrawn commitment does not limit the Group’s exposure to credit losses to the contractual notice period. These facilities
do not have a fixed term or repayment structure and are managed on a collective basis. The Group can cancel them with immediate
effect but this contractual right is not enforced in the normal day-to-day management, but only when the Group becomes aware of
an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions
that the Group expects to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or
turning the outstanding balance into a loan with fixed repayment terms.
FFoorrwwaarrdd--llooookkiinngg iinnffoorrmmaattiioonn
The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed historical
analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio.
These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. Forecasts of these
economic variables (the "base economic scenario") are calculated using statistical models and forecasts are obtained for all maturities
to which the Bank has exposure. Macroeconomic factors that are found to be statistically significant for all portfolios are forecasted
using a vector autoregressive model (VAR). On an annual basis, as part of the model recalibration exercise an assessment is carried
out to ensure that these economic variables are still statistically significant.
The impact of these economic variables on the PD, EAD and LGD has been determined by performing statistical regression analysis
to understand the impact changes in these variables have had historically on default rates and on the components of LGD.
As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to represent
its best estimate of the possible outcomes.
CCOOVVIIDD--1199 iimmppaacctt oonn PPDDss
As at 31st December 2021, the IFRS 9 model was updated with the Central Bank of Malta, (CBM) Quarter 4, 2021 baseline macro-
economic projections instead of the model generated forecasts for GDP growth, inflation rate and unemployment rate for 2021-2024.
The model generated forecasts were used for projections of these variables beyond 2024, as well as for the other macro-economic
variables used in the model. The change to forecasts which reflect the national impact brought about by the pandemic is also in line
with recommendations outlined in the letter sent to Banks by the European Central Bank (ECB), dated December 2020, ‘Identification
and measurement of credit risk in the context of the coronavirus (COVID-19) pandemic'. The resulting change coming from the change
in macro-economic variables is a reversal in provision of €1.3 million.
The following table compares the three key forecasts as per CBM issue Quarter 4: 2020 to those issued by the CBM in Quarter 4:
2021.
EECCLL iimmppaacctt oonn
cchhaannggee iinn ffoorreeccaassttss
DDeecceemmbbeerr 2200 CCBBMM FFoorreeccaassttss
DDeecceemmbbeerr 2211 CCBBMM FFoorreeccaassttss
22002200
22002211
22002222
22002233
22002211
22002222
22002233
22002244
MMaaccrroovvaarriiaabbllee
%%
%%
%%
%%
%%
%%
%%
%%
GDP
(7.5)
5.9
4.4
4.2
6.0
6.5
5.3
3.8
Inflation
0.8
0.9
1.4
1.6
0.7
2.1
1.9
1.8
Unemployment
4.1
3.9
3.9
3.9
3.4
3.4
3.6
3.6
As at 31 December 2021, the IFRS 9 model was updated from the two scenarios adopted as at 31 December 2020 consisting of
Baseline and Severe with a 50/50 weighting, to three economic scenarios comprising of Positive, Baseline and Pessimistic with a
25/50/25 weightings, respectively. This change was deemed necessary to reflect the more positive outlook of the Maltese economy
as at the end of the reporting period.
Bank of Valletta p.l.c.
Annual Report 2021
109
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
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I
A
A
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L
R
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S
K
K
M
M
A
A
N
N
A
A
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G
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M
M
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N
N
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3
3
9
9
.
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2
2
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1
1
.
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2
2
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4
4
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(
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)
)
However, for retail overdrafts and credit card facilities that include both a loan and an undrawn commitment component, the Group
measures ECL over a period longer than the maximum contractual period if the Group’s contractual ability to demand repayment and
cancel the undrawn commitment does not limit the Group’s exposure to credit losses to the contractual notice period. These facilities
do not have a fixed term or repayment structure and are managed on a collective basis. The Group can cancel them with immediate
effect but this contractual right is not enforced in the normal day-to-day management, but only when the Group becomes aware of
an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions
that the Group expects to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or
turning the outstanding balance into a loan with fixed repayment terms.
F
F
o
o
r
r
w
w
a
a
r
r
d
d
-
-
l
l
o
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k
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f
f
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t
i
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n
The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed historical
analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio.
These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. Forecasts of these
economic variables (the "base economic scenario") are calculated using statistical models and forecasts are obtained for all maturities
to which the Bank has exposure. Macroeconomic factors that are found to be statistically significant for all portfolios are forecasted
using a vector autoregressive model (VAR). On an annual basis, as part of the model recalibration exercise an assessment is carried
out to ensure that these economic variables are still statistically significant.
The impact of these economic variables on the PD, EAD and LGD has been determined by performing statistical regression analysis
to understand the impact changes in these variables have had historically on default rates and on the components of LGD.
As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to represent
its best estimate of the possible outcomes.
C
C
O
O
V
V
I
I
D
D
-
-
1
1
9
9
i
i
m
m
p
p
a
a
c
c
t
t
o
o
n
n
P
P
D
D
s
s
As at 31st December 2021, the IFRS 9 model was updated with the Central Bank of Malta, (CBM) Quarter 4, 2021 baseline macro-
economic projections instead of the model generated forecasts for GDP growth, inflation rate and unemployment rate for 2021-2024.
The model generated forecasts were used for projections of these variables beyond 2024, as well as for the other macro-economic
variables used in the model. The change to forecasts which reflect the national impact brought about by the pandemic is also in line
with recommendations outlined in the letter sent to Banks by the European Central Bank (ECB), dated December 2020, ‘Identification
and measurement of credit risk in the context of the coronavirus (COVID-19) pandemic'. The resulting change coming from the change
in macro-economic variables is a reversal in provision of €1.3 million.
The following table compares the three key forecasts as per CBM issue Quarter 4: 2020 to those issued by the CBM in Quarter 4:
2021.
E
E
C
C
L
L
i
i
m
m
p
p
a
a
c
c
t
t
o
o
n
n
cchhaannggee iinn ffoorreeccaassttss
DDeecceemmbbeerr 2200 CCBBMM FFoorreeccaassttss
DDeecceemmbbeerr 2211 CCBBMM FFoorreeccaassttss
22002200
22002211
22002222
22002233
22002211
22002222
22002233
22002244
MMaaccrroovvaarriiaabbllee
%%
%%
%%
%%
%%
%%
%%
%%
GDP
(7.5)
5.9
4.4
4.2
6.0
6.5
5.3
3.8
Inflation
0.8
0.9
1.4
1.6
0.7
2.1
1.9
1.8
Unemployment
4.1
3.9
3.9
3.9
3.4
3.4
3.6
3.6
As at 31 December 2021, the IFRS 9 model was updated from the two scenarios adopted as at 31 December 2020 consisting of
Baseline and Severe with a 50/50 weighting, to three economic scenarios comprising of Positive, Baseline and Pessimistic with a
25/50/25 weightings, respectively. This change was deemed necessary to reflect the more positive outlook of the Maltese economy
as at the end of the reporting period.
Bank of Valletta p.l.c.
Annual Report 2021
110
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
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A
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L
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K
K
M
M
A
A
N
N
A
A
G
G
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E
M
M
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N
N
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(
(
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9
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1
.
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2
2
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5
5
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w
w
a
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-
l
l
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o
o
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k
k
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g
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f
f
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m
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M
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a
a
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a
a
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m
m
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n
t
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a
a
d
d
j
j
u
u
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s
t
t
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n
n
t
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s
s
t
t
o
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m
m
o
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l
l
s
s
f
f
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i
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m
m
p
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a
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m
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t
t
Management adjustments to impairment models are applied in order to factor in certain conditions or changes in policy that are not
fully incorporated into the impairment models, or to additional facts and circumstances at the period end. Management adjustments
are reviewed and incorporated into future model development where applicable.
Adjustments to the model including those predominantly due to COVID-19
COVID-19 impacted the global economy throughout 2020 and 2021, however recent macro-economic forecasts do indicate an
improvement in unemployment levels and customer / client stress. Notwithstanding, uncertainty still prevails as COVID-19 situation
remains fluid and volatile while the economy is still being highly supported by Government measures. Withdrawal of such measures
is likely to have an impact on the economy, and thus on the Bank’s high/medium risk outstanding exposures.
In light of the above, management has retained the COVID-19 specific adjustments to modelled outputs to ensure the full potential
impacts of stress are provided for. These adjustments address the temporary nature of ongoing government support, the uncertainty
in relation to the timing of stress and the degree to which economic consensus has not yet captured the range of economic
uncertainty.
A total of €76 million (2020: €56.7 million) are held as post model adjustments, of which €24.9 million are directly attributable to
COVID-19 and €51.1 million related to non-performing exposures. The adjustments have been applied mainly to the Bank’s business
lending, which is the product most highly susceptible to estimation uncertainty as a result of the above conditions. In the case of retail
lending, represented mainly by mortgages, no management adjustments were deemed necessary as the assumed macro-economic
inputs have been determined to sufficiently capture the longer-term impacts. The adjustments broadly comprised of the following:
• Management applied judgement to reflect the higher probability of default in respect of performing exposures operating in
high and medium risk sectors. Due to the lack of individual customer information and the degree of uncertainty, management
considered necessary to apply a higher probability of default to all performing exposures operating in high and medium risk
sectors which are not subject to an individual assessment. At the reporting date the asset quality of such exposures remains
sound and there is no evidence that significant increase in credit risk has occurred for these exposures. However, a higher
applied PD (Lifetime as a proxy instead of the 12-month PD) is deemed appropriate since the circumstances relating t
o
C
OVID-19 remain uncertain. This resulted in an increase in ECL charge for the year of €7.3 million.
• The ‘Accommodation and Food Services Activities’ sector was by far the worst hit sector by the pandemic. Inbound tourists
for 2021 were still 64.8% below 2019 levels, despite an increase of 47.0% over 2020
1
. Hotel occupancy rates increased to
33.1% (2020: 25.4%), however, remain well below the 2019 occupancy rates of 65.7%
2
. Restaurants and bars were closed
down during 2021, albeit for a shorter period than for 2020, whilst a decrease in seating capacity was retained.
Consequently, the sector’s output contracted by an extraordinary 53.1% in real terms since 2019
3
. The ‘Accommodation
and Food Services Activities’ sector is mainly made up of hotels and other accommodation property as well as restaurants,
bars etc. The additional haircut on this sector of 10% remains appropriate and was maintained for 2021.
• The post model adjustment in respect of long outstanding non-performing exposures with a net charge of €11.3 million in
2021 remains appropriate and thus maintained. This is on the basis that the current economic conditions with potential
latent impact of COVID-19 will continue to exacerbate the recovery process through the liquidation of collateral held. This
adjustment has been determined by reference to reasonably possible recovery scenarios over an extended period of time
and factoring in costs to dispose and additional haircuts to the underlying collateral held.
1
NSO News Release 019/2022 – Inbound Tourism: December 2021 dated 14 February 2022
2
NSO News Release 033/2022 – Collective Accommodation Establishments: Q4/2021 dated 25 February 2022
3
NSO News Release 037/2022 – Gross Domestic Product: 2021 dated 1 March 2022
Bank of Valletta p.l.c.
Annual Report 2021
111
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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n
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2
.
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1
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)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
6
6
C
C
r
r
i
i
t
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i
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c
a
a
l
l
e
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s
s
t
t
i
i
m
m
a
a
t
t
e
e
s
s
Total grossThe most significant key macroeconomic variables used for the ECL estimate as at 31 December 2021 are set out below.
The scenarios "baseline", “downside” and "upside" were used for all loan portfolios.
MMaaccrroo eeccoonnoommiicc ffoorreeccaassttss ((22002222--22002266))
DDoowwnnssiiddee
BBaasseelliinnee
UUppssiiddee
%
%
%
GGDDPP GGrroowwtthh rraattee
1.2
5.2
9.3
HHoouussiinngg iinnddeexx
-6.2
4.7
16.2
IInnffllaattiioonn rraattee
2.6
1.8
1.0
UUnneemmppllooyymmeenntt rraattee
5.0
2.5
1.9
PPrroobbaabbiilliittyy ((%%))
25.0
50.0
25.0
As part of the annual calibration exercise, the IFRS 9 model has been updated to include a reduced number of macroeconomic
variables (Gross domestic product, housing index, inflation rate and unemployment rate) to make the model more intuitive and
transparent. The forecasts for money supply, interest rate and trade ratio were excluded from the model.
Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory,
legislative or political changes, have also been considered, but are not deemed to have a material impact. This is reviewed and
monitored for appropriateness on a quarterly basis.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
7
7
S
S
e
e
n
n
s
s
i
i
t
t
i
i
v
v
i
i
t
t
y
y
o
o
f
f
E
E
C
C
L
L
t
t
o
o
f
f
u
u
t
t
u
u
r
r
e
e
e
e
c
c
o
o
n
n
o
o
m
m
i
i
c
c
c
c
o
o
n
n
d
d
i
i
t
t
i
i
o
o
n
n
s
s
ECL is sensitive to judgements and assumptions made regarding formulation of forward-looking scenarios and how such scenarios
are incorporated into the calculations. A sensitivity analysis is performed on the ECL requirement for the credit portfolio, assuming the
upside and downside forward-looking scenarios as the baseline and weighted at 100% instead of applying an unbiased set of
probability weights.
22002211
€€000000
GGrroossss ppeerrffoorrmmiinngg eexxppoossuurreess
5,144,308
EECCLL vvaarriiaannccee
- Upside
(4,091)
- Downside
4,907
Applying a baseline scenario would approximate the probability weighted scenario.
The Group performed additional ECL runs to sensitise expected credit loss requirements to changes in the impact of macro-variable
inputs and their impact on projected PD curves.
The most significant changes in ECL resulting from shifts in macro variable inputs are inflation and unemployment. Both variables
result in significant impact on the purchasing power and hence on the borrowers' ability to meet its contractual obligations.
Set out below are the changes to ECL as at 31 December 2021 that would result from changes in parameters from the actual
observations. The most significant sensitivity tests affecting the ECL allowance are as follows:
MMaaccrroovvaarriiaabbllee
SShhiifftt iinn bbaassiiss ppooiinnttss
IInnccrreeaassee iinn EECCLL
€€000000
Inflation rate
+150
9,182
Unemployment
+100
4,760
Gross Domestic Product
-150
1,617
House Price Index
-150
179
In a scenario of economic downturn assuming a 1% shift of exposures from Stage 1 to Stage 2 and applying the difference in Stage
2 and Stage 1 average impairment coverage ratios to the movement in gross exposure, is estimated to increase ECL by €1.4 million
(2020: €3.6 million), mostly arising on loans and advances to customers.
Bank of Valletta p.l.c.
Annual Report 2021
112
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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n
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3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
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d
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k
m
m
a
a
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m
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p
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(
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3
3
9
9
.
.
2
2
.
.
1
1
.
.
2
2
.
.
8
8
G
G
r
r
o
o
u
u
p
p
i
i
n
n
g
g
b
b
y
y
s
s
h
h
a
a
r
r
e
e
d
d
r
r
i
i
s
s
k
k
c
c
h
h
a
a
r
r
a
a
c
c
t
t
e
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r
r
i
i
s
s
t
t
i
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c
c
s
s
Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk
characteristics that include:
- instrument type;
- credit risk gradings;
- collateral type;
- LTV ratio for retail mortgages;
- date of initial recognition;
- remaining term to maturity;
- industry; and
- geographic location of the borrower.
The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous.
AAss aatt DDeecceemmbbeerr 22002211
EExxppoossuurree
EExxtteerrnnaall bbeenncchhmmaarrkkss uusseedd LLGGDD
Investments in debt securities within the
treasury portfolio
€ 3,550,159
8% - 55%
Bank for International Settlements parameters
AAss aatt DDeecceemmbbeerr 22002200
EExxppoossuurree
EExxtteerrnnaall bbeenncchhmmaarrkkss uusseedd LLGGDD
Investments in debt securities within the
treasury portfolio
€ 3,258,181
8% - 55%
Bank for International Settlements parameters
All instruments are of an investment grade and as such the Bank has applied simplification rules as permitted by IFRS 9.
Bank of Valletta p.l.c.
Annual Report 2021
113
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
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3
3
9
9
.
.
2
2
.
.
1
1
.
.
3
3
G
G
r
r
o
o
s
s
s
s
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
a
a
m
m
o
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t
a
a
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d
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x
x
p
p
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c
c
r
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d
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i
i
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t
r
r
i
i
s
s
k
k
The following table sets out information about the credit quality of financial assets measured at amortised cost, and FVOCI debt
investments. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.
Explanation of the terms: 12-month ECL, lifetime ECL and credit-impaired are included in Note 39.2.1.1.
S
S
t
t
a
a
g
g
e
e
1
1
1
1
2
2
-
-
mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
n
n
o
o
t
t
ccrreeddiitt--IImmppaaiirreedd
S
S
t
t
a
a
g
g
e
e
3
3
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
ccrreeddiitt-- IImmppaaiirreedd
TToottaall
€€000000
€€000000
€€000000
€€000000
LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss aatt aammoorrttiisseedd ccoosstt
AAss aatt 3311 DDeecceemmbbeerr 22002211
AAA
4,394,631
-
-
4,394,631
AA- to AA+
8,007
-
-
8,007
A- to A+
222,482
-
-
222,482
BBB- to BBB+
10,755
-
-
10,755
Lower than BBB-
-
17,671
-
17,671
4,635,875
17,671
-
4,653,546
Loss allowance
(11)
(35)
-
(46)
Carrying amount
4,635,864
17,636
-
4,653,500
LLooaannss aanndd aaddvvaanncceess ttoo bbaannkkss aatt aammoorrttiisseedd ccoosstt
AAss aatt 3311 DDeecceemmbbeerr 22002200
AAA
3,569,908
-
-
3,569,908
AA- to AA+
17,006
-
-
17,006
A- to A+
267,735
-
-
267,735
BBB- to BBB+
24,583
-
-
24,583
Lower than BBB-
- 8,195
- 8,195
3,879,232 8,195
- 3,887,427
Loss allowance
(18)
-
-
(18)
Carrying amount
3,879,214
8,195
-
3,887,409
T
he Group makes use of Standard & Poor’s credit ratings.
S
S
t
t
a
a
g
g
e
e
1
1
1122--mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
n
n
o
o
t
t
ccrreeddiitt--IImmppaaiirreedd
S
S
t
t
a
a
g
g
e
e
3
3
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
ccrreeddiitt-- IImmppaaiirreedd
TToottaall
€€000000
€€000000
€€000000
€€000000
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss aatt aammoorrttiisseedd ccoosstt
AAss aatt 3311 DDeecceemmbbeerr 22002211
Grades 1-3
4,402,066 3,918 290 4,406,274
Grades 4-5
- 633,
474 61
633,535
Grades 6-11
- - 221,574 221,574
4,402,066 637,
392 221,925 5,261,383
Loss allowance
(23,940) (19,789) (120,056) (163,785)
Carrying amount
4,378,126 617,603 101,869 5,097,598
LLooaannss aanndd aaddvvaanncceess ttoo ccuussttoommeerrss aatt aammoorrttiisseedd ccoosstt
AAss aatt 3311 DDeecceemmbbeerr 22002200
Grades 1-3
4,091,199
37,130
9,931
4,138,260
Grades 4-5
- 542,300 19,903 562,203
Grades 6-11
- - 207,655
207,655
4,091,199 579,430 237,489
4,908,118
Loss allowance
(17,362) (30,558) (118,755) (166,675)
Carrying amount
4,073,837 548,872 118,734 4,741,443
Fa
cilities under probation result in an ECL stage which is worse than the stage related to their internal grading.
Bank of Valletta p.l.c.
Annual Report 2021
114
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
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E
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M
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N
N
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T
(
(
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3
9
9
.
.
2
2
.
.
1
1
.
.
3
3
G
G
r
r
o
o
s
s
s
s
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
a
a
m
m
o
o
u
u
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
t
t
o
o
c
c
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The following table represents the average 12-month PD corresponding to the internal credit grading.
GGrraaddiinngg
1122--mmoonntthh aavveerraaggee PPDD
Grades 1-3: Regular 0.017
Grades 4-5: Watch 0.354
Grades 6-11: Default 1.000
S
S
t
t
a
a
g
g
e
e
1
1
1122--mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
n
n
o
o
t
t
ccrreeddiitt--IImmppaaiirreedd
S
S
t
t
a
a
g
g
e
e
3
3
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
c
c
r
r
e
e
d
d
i
i
t
t
-
-
IImmppaaiirreedd
TToottaall
€€000000
€€000000
€€000000
€€000000
IInnvveessttmmeennttss iinn ddeebbtt sseeccuurriittiieess
AAss aatt 3311 DDeecceemmbbeerr 22002211
AAA
510,508
-
-
510,508
AA- to AA+
596,336
-
-
596,336
A- to A+
2,143,847
9,882
-
2,153,729
BBB- to BBB+
282,994
-
-
282,994
Lower than BBB-
-
6,592
-
6,592
3,533,685
16,474
-
3,550,159
Loss allowance
(570)
(63)
-
(633)
Carrying amount
3,533,115
16,411
-
3,549,526
S
S
t
t
a
a
g
g
e
e
1
1
1122--mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
n
n
o
o
t
t
ccrreeddiitt--IImmppaaiirreedd
S
S
t
t
a
a
g
g
e
e
3
3
L
L
i
i
f
f
e
e
t
t
i
i
m
m
e
e
E
E
C
C
L
L
c
c
r
r
e
e
d
d
i
i
t
t
-
-
IImmppaaiirreedd
TToottaall
€€000000
€€000000
€€000000
€€000000
IInnvveessttmmeennttss iinn ddeebbtt sseeccuurriittiieess
AAss aatt 3311 DDeecceemmbbeerr 22002200
AAA
526,298
-
-
526,298
AA- to AA+
600,087
-
-
600,087
A- to A+
1,893,594
9,918
-
1,903,512
BBB- to BBB+
221,860
-
-
221,860
Lower than BBB-
-
6,424
-
6,424
3,241,839
16,342
-
3,258,181
Loss allowance
(447)
(105)
-
(552)
Carrying amount
3,241,392
16,237
-
3,257,629
T
he treasury portfolio is made up primarily of investment grade securities. Consequently, an insignificant number of downgrades were
registered in the treasury portfolio as a result of COVID-19.
3
3
9
9
.
.
2
2
.
.
1
1
.
.
4
4
M
M
a
a
x
x
i
i
m
m
u
u
m
m
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
t
t
o
o
c
c
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
o
o
n
n
F
F
V
V
T
T
P
P
L
L
s
s
e
e
c
c
u
u
r
r
i
i
t
t
i
i
e
e
s
s
,
,
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
g
g
u
u
a
a
r
r
a
a
n
n
t
t
e
e
e
e
s
s
a
a
n
n
d
d
l
l
o
o
a
a
n
n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
Maximum exposure
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the maximum
exposure to credit risk without taking account of the value of any collateral obtained, except as disclosed below.
Financial guarantees
The maximum exposure to credit risk is the full amount that the Group would have to pay if the guarantees are called upon (note 33).
Loan commitments
The maximum exposure to credit risk arising on loan commitments and other credit related commitments that are irrecoverable over
the life of the respective facilities is the full amount of the committed facilities (note 34).
Bank of Valletta p.l.c.
Annual Report 2021
115
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
4
4
M
M
a
a
x
x
i
i
m
m
u
u
m
m
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
t
t
o
o
c
c
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
o
o
n
n
F
F
V
V
T
T
P
P
L
L
s
s
e
e
c
c
u
u
r
r
i
i
t
t
i
i
e
e
s
s
,
,
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
g
g
u
u
a
a
r
r
a
a
n
n
t
t
e
e
e
e
s
s
a
a
n
n
d
d
l
l
o
o
a
a
n
n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
T
he following table contains an analysis of the maximum credit risk exposure from financial assets not subject to impairment (i.e. FVTPL):
MMaaxxiimmuumm eexxppoossuurree ttoo ccrreeddiitt rriisskk
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€€000000
€€000000
Financial assets mandatorily measured at FVTPL:
- Debt securities
29
33
2
2
9
9
3
3
3
3
Financial assets designated at fair value:
- Debt securities
1,119 9,397
- Loans and advances to customers
104,850 125,685
110055,,996699
113355,,008822
110055,,999988
113355,,111155
Derivatives financial instruments
1,204 2,016
3
3
9
9
.
.
2
2
.
.
1
1
.
.
5
5
C
C
o
o
l
l
l
l
a
a
t
t
e
e
r
r
a
a
l
l
The Group employs a range of policies and practices to mitigate credit risk. The most common of these is accepting collateral for funds
advanced. The Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation. The principal
collateral types for loans and advances are:
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equities; and
• Margin agreement for derivatives, for which the Group has master netting agreements imposed by way of law.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured.
Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Debt securities,
treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are
secured by portfolios of financial instruments. Derivatives are also collateralised.
The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no
significant change in the overall quality of the collateral held by the Group since the prior period.
A portion of the Group’s financial assets originated by the mortgage business has sufficiently low ‘loan to value’ (LTV) ratios, which
results in no loss allowance being recognised in accordance with the Group’s expected credit loss model. The carrying amount of such
financial assets is €305.6 million as at 31 December 2021.
Security values are reviewed on a regular basis and are also re-assessed at time of default if it is found that the carrying value of the
collateral item could have materially changed since last valuation. The Bank calculates the value of collateral as the market value less a
haircut, with the latter representing a conservative estimate of the costs to sell and the potential loss of value in a forced sale scenario.
For financial instruments, haircuts are calculated according to the risk profile of each individual security and depend on a number of
variables including price volatility and liquidity/marketability of the instrument.
Bank of Valletta p.l.c.
Annual Report 2021
116
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
5
5
C
C
o
o
l
l
l
l
a
a
t
t
e
e
r
r
a
a
l
l
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
T
he table below shows the financial effect and main types of collateral held against the Group's customer loan exposures:
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002211
L
L
o
o
a
a
n
n
s
s
a
a
n
n
d
d
a
a
d
d
v
v
a
a
n
n
c
c
e
e
s
s
ttoo ccuussttoommeerrss
U
U
n
n
d
d
r
r
a
a
w
w
n
n
c
c
r
r
e
e
d
d
i
i
t
t
f
f
a
a
c
c
i
i
l
l
i
i
t
t
i
i
e
e
s
s
a
a
n
n
d
d
o
o
t
t
h
h
e
e
r
r
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
ttoo lleenndd
€€000000
€€000000
Loans collateralised by:
Prime bank guarantees
30
10
Cash or quasi cash
81,861
28,495
Guarantees and/or letters of comfort issued by the Malta
Government, the Central Bank of Malta or Public agencies
629,708
219,195
Residential property
2,351,848
818,658
Commercial property
1,168,211
406,644
Personal guarantees and others
184,620
64,264
44,,441166,,227788
11,,553377,,226666
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002200
L
L
o
o
a
a
n
n
s
s
a
a
n
n
d
d
a
a
d
d
v
v
a
a
n
n
c
c
e
e
s
s
ttoo ccuussttoommeerrss
U
U
n
n
d
d
r
r
a
a
w
w
n
n
c
c
r
r
e
e
d
d
i
i
t
t
f
f
a
a
c
c
i
i
l
l
i
i
t
t
i
i
e
e
s
s
a
a
n
n
d
d
o
o
t
t
h
h
e
e
r
r
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
ttoo lleenndd
€€000000
€€000000
Loans collateralised by:
Prime bank guarantees
50 18
Cash or quasi cash
87,624 31,029
Guarantees and/or letters of comfort issued by the Malta
Government, the Central Bank of Malta or Public agencies
562,380
199,144
Residential property
2,082,413
737,407
Commercial property
1,135,471 402,083
Personal guarantees and others
49,892 17,667
33,,991177,,883300
11,,338877,,334488
A
n extensive collateral valuation exercise was carried out by the Bank during the reporting period resulting in an increase in collateral
of €24.8 million.
Bank of Valletta p.l.c.
Annual Report 2021
117
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
a
a
n
n
d
d
e
e
x
x
p
p
o
o
s
s
u
u
r
r
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
2
2
.
.
1
1
.
.
5
5
C
C
o
o
l
l
l
l
a
a
t
t
e
e
r
r
a
a
l
l
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
T
he Group closely monitors collateral held for financial assets considered to be credit-impaired, as it becomes more likely that the Group
will take possession of collateral to mitigate potential credit losses. Financial assets that are credit-impaired and related collateral held in
order to mitigate potential losses are shown below:
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002211
G
G
r
r
o
o
s
s
s
s
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
aammoouunntt
I
I
m
m
p
p
a
a
i
i
r
r
m
m
e
e
n
n
t
t
aalllloowwaannccee
N
N
e
e
t
t
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
aammoouunntt
FFaaiirr vvaalluuee ooff
c
c
o
o
l
l
l
l
a
a
t
t
e
e
r
r
a
a
l
l
h
h
e
e
l
l
d
d
p
p
o
o
s
s
t
t
h
h
a
a
i
i
r
r
c
c
u
u
t
t
aass ppeerr mmooddeell
€€000000
€€000000
€€000000
€€000000
Credit-impaired assets
Loans to individuals:
- Personal Loans
5,942
(4,569)
1,373
2,015
- Home Loans
47,160
(26,116)
21,044
37,582
- Personal Overdrafts
679
(594)
85
157
- Credit Cards
621
(469)
152
-
Loans to corporate entities:
- Business Loans
137,614
(68,131)
69,483
99,381
- Business Overdrafts
28,760
(19,036)
9,724
16,962
- Encroachments 1,149 (1,141) 8 -
TToottaall ccrreeddiitt--iimmppaaiirreedd aasssseettss
222211,,992255
((112200,,005566))
110011,,886699
115566,,009977
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002200
G
G
r
r
o
o
s
s
s
s
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
aammoouunntt
I
I
m
m
p
p
a
a
i
i
r
r
m
m
e
e
n
n
t
t
aalllloowwaannccee
N
N
e
e
t
t
c
c
a
a
r
r
r
r
y
y
i
i
n
n
g
g
aammoouunntt
FFaaiirr vvaalluuee ooff
c
c
o
o
l
l
l
l
a
a
t
t
e
e
r
r
a
a
l
l
h
h
e
e
l
l
d
d
p
p
o
o
s
s
t
t
h
h
a
a
i
i
r
r
c
c
u
u
t
t
aass ppeerr mmooddeell
€€000000
€€000000
€€000000
€€000000
Credit-impaired assets
Loans to individuals:
- Personal Loans
6,226
(4,068)
2,158
2,926
- Home Loans
47,523
(21,844)
25,679
36,897
- Personal Overdrafts
996
(735)
261
-
- Credit Cards
1,398
(1,345)
53
-
Loans to corporate entities:
- Business Loans
140,232
(69,386)
70,846
101,639
- Business Overdrafts
40,231
(20,500)
19,731
33,317
- Encroachments
883
(877)
6
-
TToottaall ccrreeddiitt--iimmppaaiirreedd aasssseettss
223377,,448899
((111188,,775555))
111188,,773344
117744,,777799
The impairment allowances on the credit-impaired assets comprises model driven expected credit loss amounting to €66.7 million (2020:
€73.4 million) and post model adjustments € 53.3 million (2020: € 45.6 million). Refer to note 39.2.1.2.5
Fair value of collateral refers to architect's valuation less applicable haircuts.
Collateral valuations vary from full valuations by external independent appraisers to desktop valuations according to the Bank’s collateral
policy. The frequency of collateral valuations range between 1 and 3 years depending on the type of property, exposure status (i.e.
whether performing or non-performing) as well as exposure range in line with the Bank’s collateral policy.
Bank of Valletta p.l.c.
Annual Report 2021
118
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
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t
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i
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u
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d
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)
)
3
3
9
9
.
.
2
2
.
.
1
1
C
C
r
r
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d
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k
k
m
m
a
a
n
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a
a
g
g
e
e
m
m
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n
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t
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a
n
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x
x
p
p
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s
s
u
u
r
r
e
e
(
(
c
c
o
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n
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d
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)
3
3
9
9
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2
2
.
.
1
1
.
.
5
5
C
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a
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c
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o
n
n
t
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i
i
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u
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d
d
)
)
L
ending covered by Residential Property
The table below stratifies credit exposures, covered by residential property, to customers by ranges of loan-to-value (‘LTV’). LTV is
calculated as the ratio of the gross amount of loan or the amount committed for loan commitments to the value of the collateral. The
gross amounts exclude any impairment allowances. The valuation of the collateral excludes any adjustments for obtaining and selling the
collateral. The value of the collateral for these loans is based on the collateral value at origination updated based on changes in house
price indices.
LLeennddiinngg aanndd ccoommmmiittmmeennttss ccoovveerreedd bbyy rreessiiddeennttiiaall lleennddiinngg
22002211
22002200
€€000000
€€000000
Less than 25%
347,928 146,061
25% to 50%
1,204,872 475,775
51% to 75%
841,772 915,452
76% to 90%
460,540 975,710
Total
2,855,112 2,512,998
T
he following table classifies the Group's mortgage credit - impaired exposures which are covered by residential property by ranges of
loan-to-value (LTV). The value of collateral for these loans is calculated by taking into consideration the eligibility of collateral pursuant to
Article 208 of the Capital Requirement Regulation.
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
MMoorrttggaaggee ppoorrttffoolliioo -- LLTTVV ddiissttrriibbuuttiioonn
C
C
r
r
e
e
d
d
i
i
t
t
I
I
m
m
p
p
a
a
i
i
r
r
e
e
d
d
((GGrroossss ccaarrrryyiinngg aammoouunntt))
C
C
r
r
e
e
d
d
i
i
t
t
I
I
m
m
p
p
a
a
i
i
r
r
e
e
d
d
((GGrroossss ccaarrrryyiinngg aammoouunntt))
€€000000
€€000000
Lower than 25%
3,450
963
25% to 50%
15,685
6,941
51% to 75%
3,597
10,198
76% to 90%
1,305
3,182
Total
24,037
21,284
3
3
9
9
.
.
2
2
.
.
2
2
T
T
h
h
e
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x
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p
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n
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d
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w
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-
-
o
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f
f
f
f
s
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f
f
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x
x
p
p
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s
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r
r
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s
s
3
3
9
9
.
.
2
2
.
.
2
2
.
.
1
1
R
R
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e
c
c
o
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n
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i
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l
l
i
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a
a
t
t
i
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o
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n
n
o
o
f
f
E
E
C
C
L
L
T
he following tables explain the changes in the loss allowance between the beginning and the end of the annual period due
to the following factors:
• Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of
credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and
Lifetime ECL. Changes in the staging allocation of balances existing at 1 January 2021 (and associated ECL changes) are
presented in "transfers to/(from)", whereas subsequent changes in the staging allocation of new assets originated during the
year are presented in "new financial assets originated";
• Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments
de-recognised in the period;
• Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of
inputs to models;
• Impacts on the measurement of ECL due to changes made to models and assumptions;
• Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis;
• Foreign exchange retranslations for assets denominated in foreign currencies and other movements; and
• Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the
period (see note 39.2.2.4)
Bank of Valletta p.l.c.
Annual Report 2021
119
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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n
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3
3
9
9
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2
2
.
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2
2
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-
-
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x
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(
(
c
c
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3
3
9
9
.
.
2
2
.
.
2
2
.
.
1
1
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c
c
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o
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f
f
E
E
C
C
L
L
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
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e
d
d
)
)
AAlllloowwaanncceess oonn OOnn--BBaallaannccee SShheeeett EExxppoossuurreess
SSttaaggee 11
1122--mmoonntthh EECCLL
SSttaaggee 22
LLiiffeettiimmee EECCLL
SSttaaggee 33
LLiiffeettiimmee EECCLL
T
T
o
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t
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a
a
l
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€€000000
€€000000
€€000000
€€000000
TToottaall aalllloowwaanncceess aatt 11 JJaannuuaarryy 22002211
1177,,336622
3300,,555588
111188,,775555
116666,,667755
HHoommee LLooaannss
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002211
2,224
1,383
21,844
2255,,445511
Transfer to/(from):
Stage 1
(8)
129
219
334400
Stage 2
5
(498)
287
((220066))
Stage 3
-
5
(363)
((335588))
New financial assets originated*
954
246
54
11,,225544
Financial assets that have been derecognised
(125)
(205)
(870)
((11,,220000))
Write-offs
-
-
(1,316)
((11,,331166))
Changes to model assumptions and methodologies
(465)
(25)
-
((449900))
Post-Model Adjustments
-
-
7,365
77,,336655
Other movements **
(1,236)
(499)
(1,104)
((22,,883399))
AAlllloowwaanncceess oonn hhoommee llooaannss aatt 3311 DDeecceemmbbeerr 22002211
1,349
536
26,116
2288,,000011
PPeerrssoonnaall
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002211
833
588
4,803
66,,222244
Transfer to/(from):
Stage 1
(35)
633
382
998800
Stage 2
4
(223)
118
((110011))
Stage 3
1
9
(205)
((119955))
New financial assets originated*
210
78
466
775544
Financial assets that have been derecognised
(87)
(31)
-
((111188))
Write-offs
-
-
(1,209)
((11,,220099))
Changes to model assumptions and methodologies
(163)
(16)
-
((117799))
Post-Model Adjustments
-
-
250
225500
Other movements **
(155)
(209)
558
119944
AAlllloowwaanncceess oonn ppeerrssoonnaall aatt 3311 DDeecceemmbbeerr 22002211
608
829
5,163
66,,660000
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002211
1,475 761 1,345 3
3
,
,
5
5
8
8
1
1
Transfer to/(from):
Stage 1
(86)
180
93
118877
Stage 2
102
(367)
166
((9999))
Stage 3
7
39
(322)
((227766))
New financial assets originated*
67
11
8
8866
Financial assets that have been derecognised
(86)
(104)
(324)
((551144))
Write-offs
-
-
-
--
Changes to model assumptions and methodologies
(271)
16
-
((225555))
Post-Model Adjustments
-
-
-
--
Other movements **
123
(132)
(497)
((550066))
AAlllloowwaanncceess oonn ccrreeddiitt ccaarrddss aatt 3311 DDeecceemmbbeerr 22002211
1,331
404
469
22,,220044
BBuussiinneessss
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002211
12,830
27,826
90,763
113311,,441199
Transfer to/(from):
Stage 1
(985)
1,327
579
992211
Stage 2
96
(7,406)
10,034
22,,772244
Stage 3
4
599
(17,626)
((1177,,002233))
New financial assets originated*
8,227
2,997
1,513
1122,,773377
Financial assets that have been derecognised
(377)
(1,050)
(1,185)
((22,,661122))
Write-offs
-
-
(7,528)
((77,,552288))
Changes to model assumptions and methodologies
(1,157)
(1,177)
-
((22,,333344))
Post-Model Adjustments
7,113
-
5,059
1122,,117722
Other movements **
(5,099)
(5,096)
6,699
((33,,449966))
AAlllloowwaanncceess oonn bbuussiinneessss aatt 3311 DDeecceemmbbeerr 22002211
20,652
18,020
88,308
112266,,998800
TToottaall aalllloowwaanncceess aatt 3311 DDeecceemmbbeerr 22002211
2233,,994400
1199,,778899
112200,,005566
116633,,778855
Bank of Valletta p.l.c.
Annual Report 2021
120
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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3
3
9
9
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2
2
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2
2
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3
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9
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2
2
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2
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(
c
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u
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d
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)
)
S
S
t
t
a
a
g
g
e
e
1
1
1122--mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
LLiiffeettiimmee EECCLL
SSttaaggee 33
L
L
i
i
f
f
e
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t
t
i
i
m
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e
e
EECCLL
TToottaall
€€000000
€€000000
€€000000
€€000000
TToottaall aalllloowwaanncceess aatt 11 JJaannuuaarryy 22002200
99,,114455
1199,,440055
7799,,777711
110088,,332211
HHoommee LLooaannss
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002200
1,773
1,824
8,871
1122,,446688
Transfer to/(from):
Stage 1
(11)
628
563
11,,118800
Stage 2
4
(716)
1,478
776666
Stage 3
-
2
(58)
((5566))
New financial assets originated*
1,045
368
22
11,,443355
Financial assets that have been derecognised
(130)
(202)
(277)
((660099))
Write-offs
-
-
(504)
((550044))
Changes to model assumptions and methodologies
(147)
(13)
-
((116600))
Post-Model Adjustments
1
(16)
9,219
99,,220044
Other movements **
(311)
(492)
2,530
11,,772277
AAlllloowwaanncceess oonn hhoommee llooaannss aatt 3311 DDeecceemmbbeerr 22002200
2,224
1,383
21,844
2255,,445511
PPeerrssoonnaall
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002200
896
451
3,419
44,,776666
Transfer to/(from):
Stage 1
(15)
230
338
555533
Stage 2
1
(79)
122
4444
Stage 3
-
4
(77)
((7733))
New financial assets originated*
231
69
820
11,,112200
Financial assets that have been derecognised
(83)
(104)
-
((118877))
Write-offs
-
-
(116)
((111166))
Changes to model assumptions and methodologies
(58)
(7)
-
((6655))
Post-Model Adjustments
-
(1)
473
447722
Other movements **
(139)
25
(176)
((229900))
AAlllloowwaanncceess oonn ppeerrssoonnaall aatt 3311 DDeecceemmbbeerr 22002200
833
588
4,803
66,,222244
CCrreeddiitt CCaarrddss
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002200
1,679
1,156
1,269
44,,110044
Transfer to/(from):
Stage 1
(142)
378
202
443388
Stage 2
113
(595)
292
((119900))
Stage 3
3
40
(436)
((339933))
New financial assets originated*
29
7
6
4422
Financial assets that have been derecognised
(58)
(125)
(358)
((554411))
Changes to model assumptions and methodologies
(80)
(15)
(1)
((9966))
Other movements **
(69)
(85)
371
221177
AAlllloowwaanncceess oonn ccrreeddiitt ccaarrddss aatt 3311 DDeecceemmbbeerr 22002200
1,475
761
1,345
33,,558811
BBuussiinneessss
AAlllloowwaanncceess aatt 11 JJaannuuaarryy 22002200
4,797
15,974
66,212
8866,,998833
Transfer to/(from):
Stage 1
(779)
11,403
6,188
1166,,881122
Stage 2
367
(2,987)
3,003
338833
Stage 3
41
924
(4,731)
((33,,776666))
New financial assets originated*
5,261
1,643
3,785
1100,,668899
Financial assets that have been derecognised
(192)
(2,085)
(3,853)
((66,,113300))
Write-offs
-
-
(3,214)
((33,,221144))
Changes to model assumptions and methodologies
(353)
(222)
-
((557755))
Post-Model Adjustments
9,610
242
27,502
3377,,335544
Other movements **
(5,922)
2,934
(4,129)
((77,,111177))
AAlllloowwaanncceess oonn bbuussiinneessss aatt 3311 DDeecceemmbbeerr 22002200
12,830
27,826
90,763
113311,,441199
TToottaall aalllloowwaanncceess aatt 3311 DDeecceemmbbeerr 22002200
1177,,336622
3300,,555588
111188,,775555
116666,,667755
Bank of Valletta p.l.c.
Annual Report 2021
121
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
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)
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3
3
9
9
.
.
2
2
.
.
2
2
T
T
h
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-
o
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f
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3
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(
c
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n
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u
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d
d
)
)
SSttaaggee 11
1122--mmoonntthh EECCLL
SSttaaggee 22
LLiiffeettiimmee EECCLL
SSttaaggee 33
LLiiffeettiimmee EECCLL
T
T
o
o
t
t
a
a
l
l
PPrroovviissiioonnss oonn OOffff--BBaallaannccee SShheeeett EExxppoossuurreess
€€000000
€€000000
€€000000
€€000000
TToottaall PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002211
99,,002244
99,,442277
1133,,882200
3322,,227711
HHoommee LLooaannss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002211
718
740
414
11,,887722
Transfer to/(from):
Stage 1
(1)
-
70
6699
Stage 2
-
(529)
42
((448877))
Stage 3
-
-
(210)
((221100))
New financial assets originated*
554
37
305
889966
Financial assets that have been derecognised
(65)
(115)
(18)
((119988))
Write-offs
-
-
(15)
((1155))
Changes to model assumptions and methodologies
(251)
(6)
-
((225577))
Post-Model Adjustments
-
-
258
225588
Other movements **
(338)
(73)
(82)
((449933))
PPrroovviissiioonnss oonn hhoommee llooaannss aatt 3311 DDeecceemmbbeerr 22002211
617
54
764
11,,443355
PPeerrssoonnaall
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002211
59
25
79
116633
Transfer to/(from):
Stage 1
-
-
8
88
Stage 2
-
(1)
1
--
Stage 3
-
-
(5)
((55))
New financial assets originated*
49
9
2
6600
Financial assets that have been derecognised
(12)
(15)
-
((2277))
Changes to model assumptions and
methodologies
(17) (1) - (
(
1
1
8
8
)
)
Post-Model Adjustments
-
-
122
112222
Other movements **
(17)
3
15
11
PPrroovviissiioonnss oonn ppeerrssoonnaall aatt 3311 DDeecceemmbbeerr 22002211
62
20
222
330044
CCrreeddiitt CCaarrddss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002211
413
27
49
448899
Transfer to/(from):
Stage 1
(13)
9
5
11
Stage 2
12
(14)
3
11
Stage 3
3
2
(27)
((2222))
New financial assets originated*
17
-
-
1177
Financial assets that have been derecognised
(36)
(5)
(13)
((5544))
Changes to model assumptions and methodologies
(82)
(2)
-
((8844))
Post-Model Adjustments
-
-
4
44
Other movements **
28
(2)
(1)
2255
PPrroovviissiioonnss oonn ccrreeddiitt ccaarrddss aatt 3311 DDeecceemmbbeerr 22002211
342
15
20
337777
BBuussiinneessss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002211
7,834
8,635
13,278
2299,,774477
Transfer to/(from):
Stage 1
(115)
343
378
660066
Stage 2
1
(844)
329
((551144))
Stage 3
2
1,402
(6,717)
((55,,331133))
New financial assets originated*
5,630
477
199
66,,330066
Financial assets that have been derecognised
(885)
(181)
(2,258)
((33,,332244))
Changes to model assumptions and methodologies
(527)
(517)
-
((11,,004444))
Post-Model Adjustments
196
-
(1,747)
((11,,555511))
Other movements **
(3,481)
(3,844)
2,593
((44,,773322))
PPrroovviissiioonnss oonn bbuussiinneessss aatt 3311 DDeecceemmbbeerr 22002211
8,655
5,471
6,055
2200,,118811
TToottaall PPrroovviissiioonnss aatt 3311 DDeecceemmbbeerr 22002211
99,,667766
55,,556600
77,,006611
2222,,229977
Bank of Valletta p.l.c.
Annual Report 2021
122
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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n
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3
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9
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2
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2
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-
-
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3
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9
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2
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2
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(
(
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)
)
SSttaaggee 11
1122--mmoonntthh EECCLL
SSttaaggee 22
LLiiffeettiimmee EECCLL
SSttaaggee 33
LLiiffeettiimmee EECCLL
TToottaall
€€000000
€€000000
€€000000
€€000000
TToottaall PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002200
33,,553366
33,,009955
99,,117711
1155,,880022
HHoommee LLooaannss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002200
483
465
249
11,,119977
Transfer to/(from):
Stage 1
(13)
208
210
440055
Stage 2
-
(10)
1
((99))
Stage 3
-
-
-
-
New financial assets originated*
610
444
123
11,,117777
Financial assets that have been derecognised
(66)
(53)
(149)
((226688))
Write-offs
-
-
(9)
((99))
Changes to model assumptions and methodologies
(60)
(2)
-
((6622))
Post-Model Adjustments
-
-
28
2288
Other movements **
(236)
(312)
(39)
((558877))
PPrroovviissiioonnss oonn hhoommee llooaannss aatt 3311 DDeecceemmbbeerr 22002200
718
740
414
11,,887722
PPeerrssoonnaall
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002200
60
48
117
222255
Transfer to/(from):
Stage 1
(1)
5
6
1100
Stage 2
-
-
-
--
Stage 3
-
-
(20)
((2200))
New financial assets originated*
42
15
3
6600
Financial assets that have been derecognised
(17)
(17)
-
((3344))
Write-offs
-
-
(91)
((9911))
Changes to model assumptions and methodologies
(4)
-
-
((44))
Post-Model Adjustments
-
-
2
22
Other movements **
(21)
(26)
62
1155
PPrroovviissiioonnss oonn ppeerrssoonnaall aatt 3311 DDeecceemmbbeerr 22002200
59
25
79
116633
CCrreeddiitt CCaarrddss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002200
440
36
44
552200
Transfer to/(from):
Stage 1
(18)
15
24
2211
Stage 2
17
(24)
15
88
Stage 3
2
1
(24)
((2211))
New financial assets originated*
10
1
2
1133
Financial assets that have been derecognised
(24)
(4)
(9)
((3377))
Write-offs
-
-
-
--
Changes to model assumptions and methodologies
(27)
(1)
-
((2288))
Other movements **
13
3
(3)
1133
PPrroovviissiioonnss oonn ccrreeddiitt ccaarrddss aatt 3311 DDeecceemmbbeerr 22002200
413
27
49
448899
BBuussiinneessss
PPrroovviissiioonnss aatt 11 JJaannuuaarryy 22002200
2,553
2,546
8,761
1133,,886600
Transfer to/(from):
Stage 1
(141)
4,331
1,708
55,,889988
Stage 2
80
(677)
125
((447722))
Stage 3
-
79
(374)
((229955))
New financial assets originated*
6,716
1,786
409
88,,991111
Financial assets that have been derecognised
(344)
(285)
(223)
((885522))
Write-offs
-
-
(202)
((220022))
Changes to model assumptions and methodologies
(146)
(59)
-
((220055))
Post-Model Adjustments
6,488
(1)
3,118
99,,660055
Other movements **
(7,372)
915
(44)
((66,,550011))
PPrroovviissiioonnss oonn bbuussiinneessss aatt 3311 DDeecceemmbbeerr 22002200
7,834
8,635
13,278
2299,,774477
TToottaall PPrroovviissiioonnss aatt 3311 DDeecceemmbbeerr 22002200
99,,002244
99,,442277
1133,,882200
3322,,227711
** Other movements is comprised of changes in impairment of accounts which have not been updated nor downgraded
Bank of Valletta p.l.c.
Annual Report 2021
123
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
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(
c
c
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9
9
.
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2
2
.
.
2
2
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2
2
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n
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t
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b
b
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r
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s
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c
c
h
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Significant changes in the gross carrying amount of financial assets that contributed to changes in the loss allowance were as follows:
- Gross loans and advances increased by 7% during the year (2020: 7%). The high volume of new loans originated during the period,
aligned with the Group’s organic growth objective, increased the gross carrying amount of the loan book by 15% (2020: 14%), with
a corresponding €14.8 million increase in loss allowance (2020: €13.3 million).
- There were no significant changes to the modification of facility contracts following renegotiation with customers facing financial
difficulties.
- The write-off of loans with a total gross carrying amount of €10.3 million (2020: €4.3 million) resulted in the reduction of the Stage 3
expected credit losses by €10.1 million (2020: €4.1 million).
The following tables further explain changes in the gross carrying amount of the loan portfolio to help explain their significance to the
changes in the loss allowance for the same portfolio as discussed above:
S
S
t
t
a
a
g
g
e
e
1
1
1122--mmoonntthh EECCLL
S
S
t
t
a
a
g
g
e
e
2
2
LLiiffeettiimmee EECCLL
S
S
t
t
a
a
g
g
e
e
3
3
LLiiffeettiimmee EECCLL
TToottaall
€€000000
€€000000
€€000000
€€000000
TToottaall GGrroossss CCaarrrryyiinngg AAmmoouunntt aatt 11 JJaannuuaarryy 22002211
44,,221166,,888844
557799,,443300
223377,,448899
55,,003333,,880033
HHoommee LLooaannss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002211
2,205,875 51,635 47,523
22,,330055,,003333
Transfer to/(from):
Stage 1
(21,116) 14,317 6,263
((553366))
Stage 2
12,984
(15,079)
2,952
885577
Stage 3
2,389 1,485 (4,125)
((225511))
New financial assets originated*
450,989
1,462
53
445522,,550044
Financial assets that have been derecognised
(114,722) (2,148) (4,783)
((112211,,665533))
Write-offs
- - (241) (
(
2
2
4
4
1
1
)
)
Other changes in carrying amount **
(93,885) (1,474) (482)
((9955,,884411))
HHoommee llooaannss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002211
2
2
,
,
4
4
4
4
2
2
,
,
5
5
1
1
4
4
5
5
0
0
,
,
1
1
9
9
8
8
4
4
7
7
,
,
1
1
6
6
0
0
2
2
,
,
5
5
3
3
9
9
,
,
8
8
7
7
2
2
PPeerrssoonnaall
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002211
144,906
7,752
7,222
115599,,888800
Transfer to/(from):
Stage 1
(5,735)
4,267
1,139
((332299))
Stage 2
1,673 (2,243) 200
((337700))
Stage 3
814
69
(1,017)
((113344))
New financial assets originated*
39,306 476 594 4
4
0
0
,
,
3
3
7
7
6
6
Financial assets that have been derecognised
(16,195)
(871)
-
((1177,,006666))
Write-offs
- - (2,524)
((22,,552244))
Other changes in carrying amount **
(16,871)
(900)
1,007
((1166,,776644))
PPeerrssoonnaall ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002211
114477,,889988
88,,555500
66,,662211
116633,,006699
Bank of Valletta p.l.c.
Annual Report 2021
124
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
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T
(
(
c
c
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3
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2
2
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2
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-
-
o
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x
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p
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(
(
c
c
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)
)
3
3
9
9
.
.
2
2
.
.
2
2
.
.
2
2
C
C
o
o
n
n
t
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r
r
i
i
b
b
u
u
t
t
o
o
r
r
s
s
t
t
o
o
c
c
h
h
a
a
n
n
g
g
e
e
s
s
i
i
n
n
p
p
r
r
o
o
v
v
i
i
s
s
i
i
o
o
n
n
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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d
d
)
)
CCrreeddiitt ccaarrddss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002211
36,415 7,404 1,398
4455,,221177
Transfer to/(from):
Stage 1
(2,374) 2,848 131
660055
Stage 2
3,391
(4,080)
226
((446633))
Stage 3
214 427 (673)
((3322))
New financial assets originated*
2,000
153
8
22,,116611
Financial assets that have been derecognised
(2,324) (813) (409)
((33,,554466))
Write-offs
- - - -
-
Other changes in carrying amount **
1,864 (10) (60)
11,,779944
CCrreeddiitt ccaarrddss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002211
3399,,118866
55,,992299
662211
4455,,773366
BBuussiinneessss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002211
1,829,688 512,639 181,346 2
2
,
,
5
5
2
2
3
3
,
,
6
6
7
7
3
3
Transfer to/(from):
Stage 1
(118,408) 113,627 6,394 1
1
,
,
6
6
1
1
3
3
Stage 2
22,121 (59,311) 37,204
1144
Stage 3
935
32,226
(38,328)
((55,,116677))
New financial assets originated*
228,556
33,571
2,340
226644,,446677
Financial assets that have been derecognised
(74,864)
(23,624)
(6,172)
((110044,,666600))
Write-offs
-
-
(7,495)
((77,,449955))
Other changes in carrying amount **
(10,710)
(36,413)
(7,766)
((5544,,888899))
BBuussiinneessss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002211
1
1
,
,
8
8
7
7
7
7
,
,
3
3
1
1
8
8
5
5
7
7
2
2
,
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7
7
1
1
5
5
1
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6
6
7
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5
5
2
2
3
3
2
2
,
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6
6
1
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7
7
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5
5
5
5
6
6
TToottaall GGrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002211
4,506,916 637,392 221,925 5
5
,
,
3
3
6
6
6
6
,
,
2
2
3
3
3
3
Less Allowances
(23,940)
(19,789)
(120,056)
((116633,,778855))
NNeett LLooaannss aanndd AAddvvaanncceess ttoo ccuussttoommeerrss
44,,448822,,997766
661177,,660033
110011,,886699
55,,220022,,444488
Bank of Valletta p.l.c.
Annual Report 2021
125
Notes to the financial statements
3
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SSttaaggee 11
1122--mmoonntthh EECCLL
SSttaaggee 22
LLiiffeettiimmee EECCLL
SSttaaggee 33
LLiiffeettiimmee EECCLL
TToottaall
€€000000
€€000000
€€000000
€€000000
TToottaall GGrroossss CCaarrrryyiinngg AAmmoouunntt aatt 11 JJaannuuaarryy 22002200
44,,112277,,999977
334477,,661100
221177,,994488
44,,669933,,555555
HHoommee LLooaannss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002200
2,089,969
43,725
40,665
2,174,359
Transfer to/(from):
Stage 1
(19,540)
18,382
4,087
2,929
Stage 2
5,675
(10,706)
5,066
35
Stage 3
265
410
(672)
3
New financial assets originated *
295,754
2,089
45
297,888
Financial assets that have been derecognised
(92,310)
(2,230)
(2,491)
(97,031)
Write-offs
-
-
(428)
(428)
Other changes in carrying amount **
(73,938)
(35)
1,251
(72,722)
HHoommee llooaannss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002200
22,,220055,,887755
5511,,663355
4477,,552233
22,,330055,,003333
PPeerrssoonnaall
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002200
158,555
6,044
5,898
170,497
Transfer to/(from):
Stage 1
(3,435)
2,223
557
(655)
Stage 2
245
(649)
218
(186)
Stage 3
324
63
(171)
216
New financial assets originated *
30,114
1,123
919
32,156
Financial assets that have been derecognised
(17,814)
(699)
-
(18,513)
Write-offs
-
-
(640)
(640)
Other changes in carrying amount **
(23,083)
(353)
441
(22,995)
PPeerrssoonnaall ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002200
114444,,990066
77,,775522
77,,222222
115599,,888800
Bank of Valletta p.l.c.
Annual Report 2021
126
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
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A
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L
L
R
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K
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M
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2
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)
Stage 1
12-month ECL
€000
Stage 2
Lifetime ECL
€000
Stage 3
Lifetime
ECL
€000
Total
€000
CCrreeddiitt ccaarrddss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002200
43,522
9,822
1,361
54,705
Transfer to/(from):
Stage 1
(3,863)
3,914
357
408
Stage 2
3,187
(4,918)
569
(1,162)
Stage 3
71
286
(437)
(80)
New financial assets originated *
670
79
15
764
Financial assets that have been derecognised
(1,465)
(831)
(359)
(2,655)
Other changes in carrying amount **
(5,707)
(948)
(108)
(6,763)
CCrreeddiitt ccaarrddss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002200
3366,,441155
77,,440044
11,,339988
4455,,221177
BBuussiinneessss
GGrroossss ccaarrrryyiinngg aammoouunntt aatt 11 JJaannuuaarryy 22002200
1,835,951
288,019
170,024
2,293,994
Transfer to/(from):
Stage 1
(260,376)
305,188
29,780
74,592
Stage 2
76,988
(94,700)
12,547
(5,165)
Stage 3
1,549
8,250
(13,151)
(3,352)
New financial assets originated*
287,388
37,404
7,886
332,678
Financial assets that have been derecognised
(66,506)
(18,488)
(11,610)
(96,604)
Write-offs
-
-
(3,277)
(3,277)
Other changes in carrying amount **
(45,306)
(13,034)
(10,853)
(69,193)
BBuussiinneessss ggrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002200
11,,882299,,668888
551122,,663399
118811,,334466
22,,552233,,667733
TToottaall GGrroossss ccaarrrryyiinngg aammoouunntt aatt 3311 DDeecceemmbbeerr 22002200
4,216,884
579,430
237,489
5,033,803
Less Allowances
(17,362)
(30,558)
(118,755)
(166,675)
NNeett LLooaannss aanndd AAddvvaanncceess ttoo ccuussttoommeerrss
44,,119999,,552222
554488,,887722
111188,,773344
44,,886677,,112288
Gross carrying amount comprises of loans and advances to customers at amortised cost and loans and advances to customers
designated as fair value through profit or loss.
* Newly originated financial assets during the period comprises of:
- In stage 2 - assets that have been originated to counterparties in stage two that are still subject to the Bank's cure/probation criteria,
- In stage 3 - include €2.6 million (2020: €1.7 million) of originated credit impaired assets which relate to new facilities granted to
counterparties in default as part of existing commitments.
** Other changes in carrying amount is comprised of changes in carrying amount balance of accounts which have not been upgraded
nor downgraded
Bank of Valletta p.l.c.
Annual Report 2021
127
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
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M
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TThhee GGrroouupp
TThhee GGrroouupp
TToottaall
OOff wwhhiicchh
FFoorrbboorrnnee
TToottaall
OOff wwhhiicchh
FFoorrbboorrnnee
22002211
22002211
22002200
22002200
€€000000
€€000000
€€000000
€€000000
PPeerrffoorrmmiinngg
Stage 1
23,940
-
17,362
-
Stage 2
19,789 6,044 30,558 1,716
43,729
6,044
47,920
1,716
NNoonn--ppeerrffoorrmmiinngg
Stage 3
120,056 58,005 118,755 29,364
120,056
58,005
118,755
29,364
TToottaall IImmppaaiirrmmeenntt AAlllloowwaanncceess
163,785 64,049 166,675 31,080
T
he movement in allowance accounts for loans and advances to customers are as follows:
T
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e
G
G
r
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AAlllloowwaanncceess
AAlllloowwaanncceess
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
€€000000
€€000000
Change in allowances for uncollectability:
At 1 January
166,675
108,321
Additions
59,852 92,545
Reversals
(62,742)
(34,191)
AAtt 3311 DDeecceemmbbeerr
163,785
166,675
Interest income recognised during the year ended 31 December 2021 in respect of forborne assets amounted to €12.6 million (2020:
€6.5 million).
Bank of Valletta p.l.c.
Annual Report 2021
128
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
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Loans and debt securities are written off in full when there is no realistic prospect of recovery. This is generally the case when the
Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay
the amounts. However, financial assets that are written off could be subject to enforcement activities on order to comply with the
Group’s procedures for recovery of amounts due.
3
3
9
9
.
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2
2
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2
2
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5
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f
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The contractual amount outstanding on financial assets that were written off during the year ended 31 December 2021 and that are
still subject to enforcement activity is €10.3 million (2020: €4.3 million).
3
3
9
9
.
.
2
2
.
.
3
3
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The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention
and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been
modified may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance with the accounting
policy set out in note 1.4.2.
When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether
the asset’s credit risk has increased significantly reflects comparison of:
- its remaining lifetime PD at the reporting date based on the modified terms; with
- the remaining lifetime PD estimated based on date at initial recognition and the original contractual terms.
For financial assets modified as part of the Group’s policy, the estimate of PD reflects whether the modification has improved or
r
estored the Group’s ability to collect interest and principal and the Group’s previous experience of similar forbearance action. As part
of this process, the Group evaluates the borrower’s payment performance against the modified contractual terms and considers
various behavioural indicators.
Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may constitute
evidence that an exposure is credit-impaired (see Note 39.2.1.1 (ii)). A customer needs to demonstrate consistently good payment
behaviour over a period of 12 months before the exposure is no longer in default or a period of 3 months before the exposure’s PD
is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECL.
During the current financial year there were no significant modification of financial assets.
3
3
9
9
.
.
2
2
.
.
4
4
E
E
q
q
u
u
i
i
t
t
y
y
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
d
d
e
e
s
s
i
i
g
g
n
n
a
a
t
t
e
e
d
d
a
a
s
s
a
a
t
t
F
F
V
V
O
O
C
C
I
I
The fair value of equity instruments designated at FVOCI and the dividend income recognised is detailed below.
FFaaiirr vvaalluuee
D
D
i
i
v
v
i
i
d
d
e
e
n
n
d
d
i
i
n
n
c
c
o
o
m
m
e
e
rreeccooggnniisseedd
FFaaiirr vvaalluuee
D
D
i
i
v
v
i
i
d
d
e
e
n
n
d
d
i
i
n
n
c
c
o
o
m
m
e
e
rreeccooggnniisseedd
2
2
0
0
2
2
1
1
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
2
2
0
0
2
2
0
0
€€000000
€€000000
€€000000
€€000000
Local Other
17,632 119 20,090 128
Local Banks
100 2 106 -
Local Public
1,411 62 1,587 62
19,143 183 21,783 190
During financial year ending 2020 a number of equity instruments were sold in line with the Bank's risk appetite strategy. The fair value
of these equity instruments upon disposal was €0.6 million. Transfers of cumulative gains within equity amounted to €0.2 million. There
were no sales in current year.
Bank of Valletta p.l.c.
Annual Report 2021
129
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
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i
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n
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u
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d
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)
)
3
3
9
9
.
.
3
3
L
L
i
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q
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u
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i
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t
y
y
r
r
i
i
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s
k
k
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.
Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Group monitors and manages this
risk by maintaining sufficient cash and, where possible, financial assets for which there is a liquid market and that are readily saleable
to meet liquidity needs. The Group is exposed to daily calls on its available cash resources from overnight deposits, current and call
deposits, maturing term deposits, loan drawdowns, guarantees and from margin and other calls on cash-settled derivatives. In order
to ensure that maturing funds are always available to meet expected demand for cash, the Board sets parameters within which
maturities of assets and liabilities may be mismatched. Unmatched positions potentially enhance profitability, but also increase the risk
of losses. In addition, the Group manages its risk to a shortage of funds by monitoring forecast and actual cashflows, by monitoring
the availability of raising funds to meet commitments associated with financial instruments and by holding financial assets which are
expected to generate cash inflows that will be available to meet cash outflows on liabilities.
The ta
ble below analyses Group financial liabilities into relevant maturity groupings, based on the remaining period at the reporting date to
the contractual maturity date. The balances in this table will not agree directly to the balances in the statement of financial position as
the table incorporates all cash flows, on an undiscounted basis, related to both principal as well as those associated with all future
coupon payments. Furthermore, loan commitments do not meet the criteria for recognition in the statement of financial position.
Financial liabilities at fair value through profit or loss and derivatives designated for hedge accounting, disclosed below,
r
epresent amounts for which net cash flows are exchanged.
TThhee GGrroouupp
DDuuee wwiitthhiinn
DDuuee
b
b
e
e
t
t
w
w
e
e
e
e
n
n
33 aanndd 1122
DDuuee
b
b
e
e
t
t
w
w
e
e
e
e
n
n
11 aanndd 55
DDuuee aafftteerr
G
G
r
r
o
o
s
s
s
s
NNoommiinnaall
CCaarrrryyiinngg
33 mmoonntthhss
mmoonntthhss
yyeeaarrss
55 yyeeaarrss
oouuttffllooww
aammoouunntt
AAtt 3311 DDeecceemmbbeerr 22002211
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
Derivative liabilities held for risk management
210 1,784 4,350 1,179 7,523 5,485
Amounts owed to banks
61,118 891 496,459 - 558,468 560,117
Amounts owed to
customers
11,144,050 755,574 279,315 6,572 12,185,511 12,176,854
Subordinated liabilities
1,953 3,828 22,623 185,964 214,368 163,237
Derivatives designated for hedge accounting
140 2,349 8,964 824 12,277 12,157
Other financial liabilities
207,809 82,080 12,346 13,308 315,543 314,307
1
1
1
1
,
,
4
4
1
1
5
5
,
,
2
2
8
8
0
0
8
8
4
4
6
6
,
,
5
5
0
0
6
6
8
8
2
2
4
4
,
,
0
0
5
5
7
7
2
2
0
0
7
7
,
,
8
8
4
4
7
7
1
1
3
3
,
,
2
2
9
9
3
3
,
,
6
6
9
9
0
0
1
1
3
3
,
,
2
2
3
3
2
2
,
,
1
1
5
5
7
7
Loan commitments
1,867,939
AAtt 3311 DDeecceemmbbeerr 22002200
Derivative liabilities held for risk management
506
2,410
8,062
3,198
14,176
12,391
Amounts owed to banks
88,056 8 - - 88,064 88,031
Amounts owed to customers
10,089,314
817,723
374,582
5,438
11,287,057
11,272,289
Subordinated liabilities
1,953
3,828
22,623
191,619
220,023
163,237
Derivatives designated for hedge accounting
128
2,325
10,979
2,652
16,084
16,015
Other financial liabilities
172,124 82,063 12,374 15,828 282,389 281,683
1100,,335522,,008811
990088,,335577
442288,,662200
221188,,773355
1111,,990077,,779933
1111,,883333,,664466
Loan commitments
1,782,528
Bank of Valletta p.l.c.
Annual Report 2021
130
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
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n
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)
3
3
9
9
.
.
3
3
L
L
i
i
q
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r
i
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(
(
c
c
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n
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n
u
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)
)
Assets available to meet these liabilities, and to cover outstanding commitments, include balances with Central Bank of Malta, treasury
bills and cash, cheques in course of collection, loans to banks and to customers and marketable securities and undrawn credit lines.
The table below analyses the assets and liabilities that are recognised in the statement of financial position into relevant maturity
groupings, based on the remaining period at the reporting date to their contractual maturity date.
TThhee GGrroouupp
LLeessss tthhaann
BBeettwweeeenn 33
mmoonntthhss
BBeettwweeeenn 11
aanndd
MMoorree tthhaann
CCaarrrryyiinngg
33 mmoonntthhss
aanndd 11 yyeeaarr
55 yyeeaarrss
55 yyeeaarrss
OOtthheerr
AAmmoouunntt
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAtt 3311 DDeecceemmbbeerr 22002211
AAsssseettss
Balances with Central Bank of Malta,
treasury bills and cash
4,487,468 53,087 - - 85,511 4,626,066
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
- - 1,114 34 - 1,148
- Equity and other non-fixed income instruments
- - - - 31,784 31,784
- Loans and advances
- 2,152 23,812 78,886 - 104,850
- Derivative financial instruments
1,144
60
-
-
-
1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI
- 13,441 3,277 89,609 - 106,327
- Amortised cost
160,878
314,460
1,573,843
1,394,018
-
3,443,199
- Equity and other non-fixed income instruments
- FVOCI
-
-
-
-
19,143
19,143
Loans and advances to banks
452,469 - - - - 452,469
Loans and advances to customers
435,497 34,800 628,082 3,999,219 - 5,097,598
Investments in equity-accounted
investees
- - - - 145,501 145,501
Other assets
- - - - 329,153 329,153
55,,553377,,445566
441188,,000000
22,,223300,,112288
55,,556611,,776666
661111,,009922
1144,,335588,,444422
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or loss
886 100 568 3,931 - 5,485
Amounts owed to banks
61,111 889 498,117 - - 560,117
Amounts owed to customers
11,143,414 751,654 275,570 6,216 - 12,176,854
Other liabilities
-
-
-
-
314,307
314,307
Derivatives designated for hedging
accounting
- - - 12,157 - 12,157
Subordinated liabilities
- - - 163,237 - 163,237
Equity holders of the Bank
-
-
-
-
1,126,285
1,126,285
1111,,220055,,441111
775522,,664433
777744,,225555
118855,,554411
11,,444400,,559922
1144,,335588,,444422
Bank of Valletta p.l.c.
Annual Report 2021
131
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
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)
3
3
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9
.
.
3
3
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L
i
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(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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d
d
)
)
TThhee GGrroouupp
LLeessss tthhaann
BBeettwweeeenn
33 mmoonntthhss
BBeettwweeeenn
11 aanndd
MMoorree
tthhaann
CCaarrrryyiinngg
33 mmoonntthhss
aanndd 11 yyeeaarr
55 yyeeaarrss
55 yyeeaarrss
OOtthheerr
AAmmoouunntt
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAtt 3311 DDeecceemmbbeerr 22002200
AAsssseettss
Balances with Central Bank of Malta,
treasury bills and cash
3,605,436 122,
689 - - 70,324 3,798,449
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
- 8,222 1,174 34 - 9,430
- Equity and other non-fixed income instruments
-
-
-
-
31,369
31,369
- Loans and advances
- - 4,582 121,103 - 125,685
- Derivative financial instruments
2,016
-
-
-
-
2,016
Investments
- Debt and other fixed income financial
instruments
- FVOCI
- 18,077 17,167 89,035 - 124,279
- Amortised cost
118,118 328,806 1,675,927 1,010,499 - 3,133,350
- Equity and other non-fixed income instruments
- FVOCI
- - - - 21,783 21,783
Loans and advances to banks
479,409
-
-
-
-
479,409
Loans and advances to customers
466,240
43,799
391,119
3,840,285
-
4,741,443
Investments in equity-accounted investees
- - - - 111,999 111,999
Other assets
-
-
-
-
331,559
331,559
44,,667711,,221199
552211,,559933
22,,008899,,996699
55,,006600,,995566
556677,,003344
1122,,991100,,777711
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or loss
4,024
250
790
7,327
-
12,391
Amounts owed to banks
88,023 8 - - - 88,031
Amounts owed to customers
10,087,441 811,585 368,140 5,123 -
11,272,289
Other liabilities
- - - - 281,683 281,683
Derivatives designated for hedging accounting
-
-
-
16,015
-
16,015
Subordinated liabilities
-
-
-
163,237
-
163,237
Equity holders of the Bank
- - - - 1,077,125 1,077,125
1100,,117799,,448888
881111,,884433
336688,,993300
119911,,770022
11,,335588,,880088
1122,,991100,,777711
Bank of Valletta p.l.c.
Annual Report 2021
132
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
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S
S
K
K
M
M
A
A
N
N
A
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G
G
E
E
M
M
E
E
N
N
T
T
(
(
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3
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TThhee BBaannkk
LLeessss tthhaann
BBeettwweeeenn 33
mmoonntthhss
BBeettwweeeenn 11
aanndd
MMoorree tthhaann
CCaarrrryyiinngg
33 mmoonntthhss
aanndd 11 yyeeaarr
55 yyeeaarrss
55 yyeeaarrss
OOtthheerr
AAmmoouunntt
AAtt 3311 DDeecceemmbbeerr 22002211
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta,
treasury bills and cash
4,487,468 53,087 - - 85,511 4,626,066
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
-
-
1,114
34
-
1,148
- Equity and other non-fixed income instruments
- - - - 31,621 31,621
- Loans and advances
- 2,152 23,812 78,886 - 104,850
- Derivative financial instruments
1,144 60 - - - 1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI
- 13,441 3,277 89,609 - 106,327
- Amortised cost
160,878 314,460 1,573,843 1,394,018 - 3,443,199
- Equity and other non-
fixed income instruments
- FVOCI
- - - - 19,143 19,143
Loans and advances to banks
452,469 - - - - 452,469
Loans and advances to customers
435,497
34,800
628,082
3,999,219
-
5,097,598
Investments in equity-accounted investees and
subsidiaries
- - - - 79,100 79,100
Other assets
- - - - 327,654 327,654
55,,553377,,445566
441188,,000000
22,,223300,,112288
55,,556611,,776666
554433,,002299
1144,,229900,,337799
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or
loss
886 100 568 3,931 - 5,485
Amounts owed to banks
61,111 889 498,117 - - 560,117
Amounts owed to customers
11,152,549 751,654 275,570 6,216 - 12,185,989
Debt securities in issue
- - - - - -
Other liabilities
-
-
-
-
313,688
313,688
Derivatives designated for hedge accounting
-
-
-
12,157
-
12,157
Subordinated liabilities
- - - 163,237 - 163,237
Equity holders of the Bank
-
-
-
-
1,049,706
1,049,706
1
1
1
1
,
,
2
2
1
1
4
4
,
,
5
5
4
4
6
6
7
7
5
5
2
2
,
,
6
6
4
4
3
3
7
7
7
7
4
4
,
,
2
2
5
5
5
5
1
1
8
8
5
5
,
,
5
5
4
4
1
1
1
1
,
,
3
3
6
6
3
3
,
,
3
3
9
9
4
4
1
1
4
4
,
,
2
2
9
9
0
0
,
,
3
3
7
7
9
9
Bank of Valletta p.l.c.
Annual Report 2021
133
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
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M
M
E
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N
N
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TThhee BBaannkk
LLeessss tthhaann
BBeettwweeeenn
33 mmoonntthhss
BBeettwweeeenn
11 aanndd
MMoorree tthhaann
CCaarrrryyiinngg
33 mmoonntthhss
aanndd 11 yyeeaarr
55 yyeeaarrss
55 yyeeaarrss
OOtthheerr
aammoouunntt
AAtt 3311 DDeecceemmbbeerr 22002200
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta,
treasury bills and cash
3,605,436 122,689 - - 70,324 3,798,449
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
-
8,222
1,174
34
-
9,430
- Equity and other non-fixed income instruments
- - - - 31,209 31,209
- Loans and advances
-
-
4,582
121,103
-
125,685
- Derivative financial instruments
2,016
-
-
-
-
2,016
Investments
- Debt and other fixed income financial
instruments
- FVOCI
- 18,077 17,167 89,035 - 124,279
- Amortised cost
118,118 328,806 1,675,927
1,010,499
- 3,133,350
- Equity and other non-fixed income instruments
- FVOCI
- - - - 21,783 21,783
Loans and advances to banks
479,409 - - - - 479,409
Loans and advances to customers
466,240 43,799 391,119
3,840,285
- 4,741,443
Investments in equity-accounted investees and
subsidiaries
- - - - 59,100 59,100
Other assets
- - - - 329,513 329,513
44,,667711,,221199
552211,,559933
22,,008899,,996699
55,,006600,,995566
551111,,992299
1122,,885555,,666666
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or loss
4,024
250
790
7,327
-
12,391
Amounts owed to banks
88,023 8 - - - 88,031
Amounts owed to customers
10,092,844 811,585 368,140 5,123 -
11,277,692
Debt securities in issue
- - - - - -
Other liabilities
-
-
-
-
280,462
280,462
Derivatives designated for hedge accounting
- - - 16,015 - 16,015
Subordinated liabilities
- - - 163,237 - 163,237
Equity holders of the Bank
- - - -
1,017,838
1,017,838
1100,,118844,,889911
881111,,884433
336688,,993300
119911,,770022
11,,229988,,330000
1122,,885555,,666666
Bank of Valletta p.l.c.
Annual Report 2021
134
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
3
3
L
L
i
i
q
q
u
u
i
i
d
d
i
i
t
t
y
y
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
The ratio of net liquid assets to deposits from customers and short-term funding is used by the Group for managing liquidity risk. For this
purpose, ‘net liquid assets’ includes cash and cash equivalents and high quality liquid assets for which there is an active and liquid market.
‘Deposits from customers and short-term funding’ includes deposits from banks, customers, debt securities issued, other borrowings
and commitments due within 30 days from reference date. Details of the reported Group ratio of net liquid assets to deposits from
customers at the reporting date and during the reporting period were as follows.
22002211
22002200
At 31 December
47.62%
46.59%
Average for the period
45.92% 46.84%
Maximum for the period
47.62%
48.23%
Minimum for the period
44.55% 45.74%
B
anking Rule 07 transposing the provisions of the EBA Guidelines on Disclosures of Encumbered and Unencumbered Assets (EBA/
GL/2014/03) requires disclosure on asset encumbrance. The Group is in compliance with the contents thereof.
This disclosure provides details of available and unrestricted assets that could be used to support potential future funding and co
llateral
needs. An asset is considered as encumbered when it has been pledged as collateral against an existing liability, and as a result is no
longer available to the Group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement.
This disclosure is limited to assets available for central bank refinancing and securities that are transferable and i
s not designed to
identify assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the
event of a resolution or bankruptcy.
AAsssseett EEnnccuummbbrraannccee
CCaarrrryyiinngg aammoouunntt ooff
FFaaiirr vvaalluuee ooff
CCaarrrryyiinngg aammoouunntt
FFaaiirr vvaalluuee ooff
eennccuummbbeerreedd
eennccuummbbeerreedd
ooff uunneennccuummbbeerreedd
uunneennccuummbbeerreedd
aasssseettss
aasssseettss
aasssseettss
aasssseettss
€€000000
€€000000
€€000000
€€000000
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002211
Equity instruments
-
-
50,927
50,927
Debt securities
892,086
902,124
2,847,260
2,859,080
Loans and advances
71,000
-
9,935,801
-
Other assets
-
-
561,368
-
963,086
902,124
13,395,356
2,910,007
TThhee GGrroouupp
AAss aatt 3311 DDeecceemmbbeerr 22002200
Equity instruments
-
-
53,152
53,152
Debt securities
405,447
419,854
3,019,830
3,075,847
Loans and advances
60,055
-
8,856,388
-
Other assets
-
-
515,899
-
446655,,550022
441199,,885544
1122,,444455,,226699
33,,112288,,999999
TThhee BBaannkk
AAss aatt 3311 DDeecceemmbbeerr 22002211
Equity instruments
-
-
50,764
50,764
Debt securities
892,086
902,124
2,847,260
2,859,080
Loans and advances
71,000
-
9,935,801
-
Other assets
-
-
493,468
-
963,086
902,124
13,327,293
2,909,844
TThhee BBaannkk
AAss aatt 3311 DDeecceemmbbeerr 22002200
Equity instruments
-
-
52,992
52,992
Debt securities
405,447
419,854
3,019,830
3,075,847
Loans and advances
60,055
-
8,856,388
-
Other assets
-
-
460,954
-
446655,,550022
441199,,885544
1122,,339900,,116644
33,,112288,,883399
Bank of Valletta p.l.c.
Annual Report 2021
135
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
3
3
9
9
.
.
3
3
L
L
i
i
q
q
u
u
i
i
d
d
i
i
t
t
y
y
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
e
e
d
d
)
)
A
A
s
s
s
s
e
e
t
t
E
E
n
n
c
c
u
u
m
m
b
b
r
r
a
a
n
n
c
c
e
e
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
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e
e
d
d
)
)
The Group does not encumber any of the collateral received or any of its debt securities issued.
For the financial years ended 31 December 2021 and 31 December 2020, the Bank has an outstanding liability with regards to significant
claims associated with encumbered assets.
The Group and the Bank undertake the following:
i. Pledging of debt securities against the provision of credit lines by the Central Bank of Malta;
ii. Pledging of debt securities in favour of the Depositor Compensation Scheme.
iii. Pledging of assets in favour of the Italian bank Intesa San Paolo against the precautionary warrant of seizure in respect of Deilumar
Trust. This amount does not necessarily reflect BOV's potential financial exposure.
3
3
9
9
.
.
4
4
M
M
a
a
r
r
k
k
e
e
t
t
r
r
i
i
s
s
k
k
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. It arises in all areas of the Group’s activities
and is managed by a variety of different techniques as detailed below.
The objective of the Group is to manage and control market risk exposures in order to optimise return on risk while maintaining a market
profile consistent with the Bank’s status as a leading Bank in providing financial products and services.
The market risk appetite is articulated in the Treasury Management Policy. It is defined as the quantum and composition of market risk
that the Bank is currently exposed to and the direction in which the Bank desires to manage this risk. Market risk is managed through
limits set in the Treasury Management Policy. The Policy is reviewed by Treasury department in co-ordination with Risk Management
department and is approved by the Asset and Liability Management Committee (ALCO) and the Board of Directors.
3
3
9
9
.
.
4
4
.
.
1
1
I
I
n
n
t
t
e
e
r
r
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s
s
t
t
r
r
a
a
t
t
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e
r
r
i
i
s
s
k
k
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument would fluctuate because of changes in market
interest rates.
The Group is exposed to fair value interest rate risk arising from financial assets and liabilities with fixed interest rates and to cash flow
interest rate risk arising from financial assets and liabilities with floating interest rates. The Group is not directly exposed to interest rate
risk on investment in equity instruments. The Group uses interest rate swaps to hedge the interest rate risk of certain financial
instruments.
The analysis of interest rate risk has evolved from assessing the sensitivity of the treasury portfolio, using a modified duration method,
to a more comprehensive methodology. The latter approach covers all interest sensitive assets and liabilities, as well as off-balance
sheet items; this effectively widens the analysis and enables the stressing of various movements in the yield curve. The tables below
depict the movement of stressed yield curves and the changes in the Report Equity and Net Interest Income to such movement. For
further information related to the measurement of interest rate risk can be found in the Pillar 3 Disclosures Report as included in the
Bank’s website.
BBppss
DDiirreeccttiioonn
PPaarraalllleell SShhoocckk UUpp
200
Up
PPaarraalllleell SShhoocckk DDoowwnn
200
Down
SShhoorrtt RRaatteess UUpp
250
Up
SShhoorrtt RRaatteess DDoowwnn
250
Down
SStteeeeppeenneerr
250
Short Rates Down
100
Long Rates Up
FFllaatttteenneerr
250
Short Rates Up
100
Long Rates Down
Bank of Valletta p.l.c.
Annual Report 2021
136
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
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u
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e
d
d
)
)
39.4 M
M
a
a
r
r
k
k
e
e
t
t
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
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u
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d
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)
)
3
3
9
9
.
.
4
4
.
.
1
1
I
I
n
n
t
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e
r
r
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e
s
s
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r
r
a
a
t
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r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
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i
i
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u
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d
d
)
)
The below table applies both the Group and the Bank.
PPaarraalllleell SShhoocckk
UUpp
PPaarraalllleell SShhoocckk
DDoowwnn
SShhoorrtt RRaatteess
UUpp
SShhoorrtt RRaatteess
DDoowwnn
SStteeeeppeenneerr
FFllaatttteenneerr
€€ mmiilllliioonnss
€€ mmiilllliioonnss
€€ mmiilllliioonnss
€€ mmiilllliioonnss
€€ mmiilllliioonnss
€€ mmiilllliioonnss
S
S
e
e
n
n
s
s
i
i
t
t
i
i
v
v
i
i
t
t
y
y
o
o
f
f
r
r
e
e
p
p
o
o
r
r
t
t
e
e
d
d
e
e
q
q
u
u
i
i
t
t
y
y
t
t
o
o
iinntteerreesstt rraattee mmoovveemmeennttss
22002211
At 31 December
13 56 21 - (23) 31
Average for the year
3
42
19
10
(23)
31
Most favourable for the year
13
56
23
16
(20)
37
Least favourable for the year
(7) 29 13 - (26) 25
22002200
At 31 December
(9) 14 8 5 (30)
11
Average for the year
11
20
63
14
(28)
52
Most favourable for the year
54 32 113 20 (17) 83
Least favourable for the year
(28)
13
8
5
(39)
11
PPaarraalllleell SShhoocckk
UUpp
PPaarraalllleell SShhoocckk
DDoowwnn
€€ mmiilllliioonnss
€€ mmiilllliioonnss
SSeennssiittiivviittyy ooff pprroojjeecctteedd nneett
i
i
n
n
t
t
e
e
r
r
e
e
s
s
t
t
i
i
n
n
c
c
o
o
m
m
e
e
t
t
o
o
i
i
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
mmoovveemmeennttss
22002211
At 31 December
20 (65)
Average for the year
21 (64)
Most favourable for the year
25
(63)
Least favourable for the year
19 (65)
22002200
At 31 December
24 (64)
Average for the year
4
(67)
Most favourable for the year
24 (56)
Least favourable for the year
(25)
(77)
Bank of Valletta p.l.c.
Annual Report 2021
137
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
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d
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)
)
3
3
9
9
.
.
4
4
M
M
a
a
r
r
k
k
e
e
t
t
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
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d
d
)
)
3
3
9
9
.
.
4
4
.
.
1
1
I
I
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
r
r
i
i
s
s
k
k
(
(
c
c
o
o
n
n
t
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i
n
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u
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d
d
)
)
Interest rate repricing gap
The table below summarises the Group's exposure to interest rate risk. Included in the table are Group assets and liabilities, including
d
erivative financial instruments which are principally used to reduce exposure to interest rate risk, categorised by repricing date.
The Group's assets and liabilities are set to reprice as follows:
33 mmoonntthhss oorr
11 yyeeaarr oorr
UUpp ttoo
lleessss bbuutt
oovveerr
lleessss bbuutt
oovveerr
OOvveerr
11 MMoonntthh
11 mmoonntthh
33 mmoonntthhss
11 yyeeaarr
OOtthheerrss
TToottaall
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta,
treasury bills and cash
4,381,900 105,573 53,083 - 85,510 4,626,066
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
-
-
-
1,148
-
1,148
- Equity and other non-fixed income instruments
-
-
-
-
31,784
31,784
- Loans and advances
104,850
-
-
-
-
104,850
- Derivative financial instruments
934
210
51
9
-
1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI
-
-
13,440
92,887
-
106,327
- Amortised cost
173,753
269,794
234,676
2,764,976
-
3,443,199
- Equity and other non-fixed income
instruments
- FVOCI
-
-
-
-
19,143
19,143
Loans and advances to banks
49,582
63,245
-
-
339,642
452,469
Loans and advances to customers
3,562,712
630,119
670,257
234,510
-
5,097,598
Investments in equity-accounted investees
-
-
-
-
145,501
145,501
Other assets
-
-
-
-
329,153
329,153
TToottaall 22002211
88,,227733,,773311
11,,006688,,994411
997711,,550077
33,,009933,,553300
995500,,773333
1144,,335588,,444422
Total 2020
7,487,239
1,103,580
666,866
2,763,958
889,128
12,910,771
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or
loss
760 123 99 4,503 - 5,485
Amounts owed to banks
17,673
-
-
500,000
42,444
560,117
Amounts owed to customers
10,949,226
198,299
741,475
255,190
32,664
12,176,854
Other liabilities
-
-
-
-
314,307
314,307
Derivatives designated for hedge accounting
-
-
-
12,157
-
12,157
Subordinated liabilities
-
-
-
163,237
-
163,237
Equity holders of the Bank
-
-
-
-
1,126,285
1,126,285
TToottaall 22002211
1100,,996677,,665599
119988,,442222
774411,,557744
993355,,008877
11,,551155,,770000
1144,,335588,,444422
Total 2020
9,884,353
239,721
819,072
512,426
1,455,199
12,910,771
IInntteerreesstt rraattee sswwaappss -- 22002211
((2211,,884455))
((3399,,224400))
((8811,,775566))
114422,,884411
--
Interest rate swaps - 2020
(25,370)
(54,646)
(75,784)
155,799
-
GGaapp -- 22002211
((22,,771155,,777733))
883311,,227799
114488,,117777
22,,330011,,228844
--
Gap - 2020
(2,422,484)
809,213
(227,990)
2,407,331
-
CCuummuullaattiivvee GGaapp -- 22002211
((22,,771155,,777733))
((11,,888844,,449944))
((11,,773366,,331177))
556644,,996677
--
Cumulative Gap - 2020
(2,422,484)
(1,613,271)
(1,841,261)
566,070
-
Bank of Valletta p.l.c.
Annual Report 2021
138
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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)
)
3
3
9
9
.
.
4
4
M
M
a
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(
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39.4.2
C
C
u
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r
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k
k
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Board of Directors sets limits on the level of exposure by currency and in total, which levels are monitored daily.
The following table summarises the Group's exposure to foreign currency exchange rate risk at the reporting date. Included in the table
are the Group's assets and liabilities at carrying amounts, analysed into relevant currency groupings.
OOtthheerr
TThhee GGrroouupp
EEUURR
UUSSDD
GGBBPP
AAUUDD
CCuurrrreenncciieess
TToottaall
DDeecceemmbbeerr 3311,, 22002211
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta
treasury bills and cash
4,621,318 2,055 1,913 231 549 4,626,066
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
income instruments
1,148 - - - - 1,148
- Equity and other non-fixed income instruments
15,729 16,055 - - - 31,784
- Loans and advances
104,850 - - - - 104,850
- Derivative financial instruments
1,204
-
-
-
-
1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI
32,839 73,488 - - - 106,327
- Amortised Cost
3,099,357 90,486 184,569 68,787 - 3,443,199
- Equity and other non-fixed income instruments
- measured at FVOCI
19,143 - - - - 19,143
Loans and advances to banks
138,808
90,335
24,458
3,950
194,918
452,469
Loans and advances to customers
5,057,476 23,702 16,360 - 60 5,097,598
Other assets
475,084 (717) 277 - 10 474,654
1
1
3
3
,
,
5
5
6
6
6
6
,
,
9
9
5
5
5
5
2
2
9
9
5
5
,
,
4
4
0
0
4
4
2
2
2
2
7
7
,
,
5
5
7
7
7
7
7
7
2
2
,
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9
9
6
6
8
8
1
1
9
9
5
5
,
,
5
5
3
3
7
7
1
1
4
4
,
,
3
3
5
5
8
8
,
,
4
4
4
4
2
2
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or loss
5,487 (93) 68 23 - 5,485
Amounts owed to banks
529,522 18,350 3,526 50 8,669 560,117
Amounts owed to customers
11,413,493 275,046 251,697 53,105 183,513 12,176,854
Other liabilities
205,288 4,045 (1,619) 18 2,126 209,858
Provision
104,449
-
-
-
-
104,449
Derivatives designated for hedge accounting
- 12,157 - - - 12,157
Subordinated liabilities
163,237 - - - - 163,237
Equity
1,121,102 5,169 14 - - 1,126,285
1
1
3
3
,
,
5
5
4
4
2
2
,
,
5
5
7
7
8
8
3
3
1
1
4
4
,
,
6
6
7
7
4
4
2
2
5
5
3
3
,
,
6
6
8
8
6
6
5
5
3
3
,
,
1
1
9
9
6
6
1
1
9
9
4
4
,
,
3
3
0
0
8
8
1
1
4
4
,
,
3
3
5
5
8
8
,
,
4
4
4
4
2
2
Net on balance sheet financial position
(19,270)
(26,109)
19,772
1,229
Notional amount of derivative instruments
15,229
31,829
(19,374)
(2,363)
Net open position
(4,041)
5,720
398
(1,134)
Bank of Valletta p.l.c.
Annual Report 2021
139
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
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(
(
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3
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4
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a
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3
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4
4
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2
2
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)
OOtthheerr
TThhee GGrroouupp
EEUURR
UUSSDD
GGBBPP
AAUUDD
CCuurrrreenncciieess
TToottaall
DDeecceemmbbeerr 3311,, 22002200
€€000000
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta
treasury bills and cash
3,793,454 1,642 2,127 264 962 3,798,449
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
9,430
-
-
-
-
9,430
- Equity and other non-fixed income instruments
16,260
15,108
-
-
-
31,368
-Loans and advances
125,686 - - - - 125,686
- D
erivative financial instruments
2,016 - - - - 2,
016
Investments
- Debt and other fixed income financial instruments
- FVOCI
52,164
72,115
-
-
-
124,279
- Amortised cost
2,705,706 183,216 125,171 114,258 4,999 3,133,350
- Equity and other non-fixed income instruments
- measured at FVOCI
21,783 - - - - 21,783
Loans and advances to banks
114,631
92,724
87,325
4,579
180,150
479,409
Loans and advances to customers
4,708,248 15,758 17,255 - 182 4,741,443
Other assets
443,999
(641)
177
-
23
443,558
1111,,999933,,337777
337799,,992222
223322,,005555
111199,,110011
118866,,331166
1122,,991100,,777711
LLiiaabbiilliittiieess aanndd EEqquuiittyy
Financial liabilities at fair value through profit or loss
12,390 (86) 64 23 - 12,391
Amounts owed to banks
23,377
47,597
6,402
53
10,602
88,031
Amounts owed to customers
10,492,104 321,321 235,955 50,854 172,055 11,272,289
Debt securities in issue
-
-
-
-
-
-
Other liabilities
165,952 (4,339) 3,391 445 2,354 167,803
Provision
113,880 - - - - 113,880
Derivatives designated for hedge accounting
-
16,015 - - - 16,015
Subordinated liabilities
163,237
-
-
-
-
163,237
Equity
1,075,856
27,913
14
-
(26,658)
1,077,125
1
1
2
2
,
,
0
0
4
4
6
6
,
,
7
7
9
9
6
6
4
4
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0
8
8
,
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4
4
2
2
1
1
2
2
4
4
5
5
,
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8
8
2
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6
6
5
5
1
1
,
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3
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7
7
5
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2
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9
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,
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7
7
7
7
1
1
Net on balance sheet financial position
(28,499) (13,771) 67,726 27,963
Notional amount of derivative instruments
48,878 22,615 (68,183) (154)
Net open position
20,379 8,844 (457) 27,809
Currency risk, commonly referred to as exchange-rate risk, arises from the change in price of one currency in relation to another where
a possibility of losing money due to unfavourable moves in exchange rates can arise. The following table shows how a 1% change in the
exchange rate of the Group's main three foreign currencies would impact the institution. The sensitivity analysis performed shows that
the impact on the balance sheet is minimal. No other currency other than the domestic currency, exceeded the 5% aggregate amount
of liabilities, thus only the euro-denominated currency is considered significant. In fact, 93.9% of total liabilities are euro-denominated and
in principle, BOV does not finance its assets in a currency different from that in which the assets are denominated.
CCuurrrreennccyy RRiisskk SSeennssiittiivviittyy AAnnaallyyssiiss iimmppaacctt oonn NNeett OOppeenn ppoossiittiioonn
UUSSDD
GGBBPP
AAUUDD
T
T
o
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t
t
a
a
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l
€€000000
€€000000
€€000000
€€000000
+1% change in foreign exchange
40
(57)
(4)
(21)
-1% change in foreign exchange
(41)
58
4
21
Bank of Valletta p.l.c.
Annual Report 2021
140
Notes to the financial statements 31 December 2021 (continued)
39. F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
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3
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4
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3
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O
ther price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
The Group is exposed to equity price risks arising from the holding of equity instruments classified either as FVOCI or at fair value
through profit or loss.
The carrying amounts of financial instruments at the reporting date which could potentially subject the Group to equity price risk are
disclosed in the notes to the financial statements.
This risk is monitored and managed by the Risk management function of the Bank, as disclosed in more detail above.
3
3
9
9
.
.
5
5
T
T
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a
a
n
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s
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f
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c
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TThhee GGrroouupp aanndd tthhee BBaannkk
22002211
22002200
€€000000
€€000000
Debt securities classified as amortised cost
17,664 43,839
Amounts owed to banks
17,664
43,839
These transactions are covered by the TBMA/ISMA Global Repurchase Master Agreement (“the Agreement”) and involve the sale of
financial assets with a simultaneous agreement to repurchase them at a pre-determined price at a future date. The securities sold
comprise investment securities. The counterparty’s liability is included in amounts owed to banks. The Group and the Bank continue to
recognise the transferred assets since all the risks and rewards of the assets will be substantially retained in a manner that does not
result in the transferred assets being derecognised for accounting purposes.
Each party to a transaction is subject to the events of default listed in the Agreement. In the event that any of the events of default is/are
triggered, transactions are immediately terminated. Consequently, performance of the respective obligations of the parties with respect
to the delivery of securities, the payment of the repurchase prices for any equivalent securities and the repayment of any cash margin
shall become due and payable.
3
3
9
9
.
.
6
6
F
F
a
a
i
i
r
r
v
v
a
a
l
l
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o
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f
f
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s
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n
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s
The Group's accounting policy for determining the fair value of financial instruments is described in note 1.3, 1.23 and 1.28 to these
Financial Statements.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs
to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are
described as follows:
- L
evel 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly
or indirectly. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all
significant inputs are directly or indirectly observable from market data.
- Level 3 inputs are unobservable inputs for the asset or liability. 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 instruments'
valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group and the Bank
d
etermine when transfers are deemed to have occurred between Levels in the hierarchy at the end of each reporting period. There
were no material transfers between the levels during the year.
Bank of Valletta p.l.c.
Annual Report 2021
141
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
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e
d
d
)
)
3
3
9
9
.
.
6
6
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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d
d
)
)
Bases of valuing financial assets and liabilities measured at fair value
FFaaiirr vvaalluuee mmeeaassuurreemmeenntt
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
€€000000
€€000000
€€000000
€€000000
TThhee GGrroouupp
AAtt 3311 DDeecceemmbbeerr 22002211
AAsssseettss
Financial assets at fair value through profit or loss
- debt and other fixed income instruments
1,133
15
-
1,148
- equity and other non-fixed income instruments
710
21,185
9,889
31,784
- loans and advances
-
104,850
-
104,850
- derivative financial instruments
-
1,204
-
1,204
Investments
Debt and other fixed income instruments
- FVOCI
32,839
-
73,488
106,327
Equity and other non-fixed income instruments
- FVOCI
12,073
7,070
-
19,143
4466,,775555
113344,,332244
8833,,337777
226644,,445566
LLiiaabbiilliittiieess
Financial liabilities at fair value through profit or loss
-
5,485
-
5,485
Derivatives designated for hedge accounting
-
12,157
-
12,157
--
1177,,664422
--
1177,,664422
FFaaiirr vvaalluuee mmeeaassuurreemmeenntt
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
€€000000
€€000000
€€000000
€€000000
TThhee GGrroouupp
AAtt 3311 DDeecceemmbbeerr 22002200
AAsssseettss
Financial assets at fair value through profit or loss
- debt and other fixed income instruments
9,414
16
-
9,430
- equity and other non-fixed income instruments
603
20,539
10,227
31,369
- loans and advances
-
125,685
-
125,685
- derivative financial
instruments
- 2,016 - 2,016
Investments
Debt and other fixed income instruments
- FVOCI
52,164
-
72,115
124,279
Equity and other non-fixed income instruments
- FVOCI
13,770
8,013
-
21,783
7755,,995511
115566,,226699
8822,,334422
331144,,556622
LLiiaabbiilliittiieess
Financial liabilities at fair value through profit or loss
-
12,391
-
12,391
Derivatives designated for hedge accounting
-
16,015
-
16,015
--
2288,,440066
--
2288,,440066
Bank of Valletta p.l.c.
Annual Report 2021
142
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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e
d
d
)
)
3
3
9
9
.
.
6
6
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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e
d
d
)
)
C
C
o
o
n
n
t
t
r
r
o
o
l
l
F
F
r
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a
a
m
m
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e
w
w
o
o
r
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k
k
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent
of the risk taker and that they are appropriately performed and reviewed by competent personnel. To this end, the determination of fair
values is a process which is performed by Financial Markets and Investments and reviewed by Finance. Finance establishes the
accounting policies and, in conjunction with Financial Markets and Investments, it establishes the procedures governing valuation, and
is responsible for ensuring that they comply with all relevant accounting standards. The valuation techniques and procedures applied
are subject to a process of due diligence, which process was duly approved by the Board and the Audit Committee and documented
accordingly.
For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing inputs to
valuation techniques, independent price determination or validation is utilised, to the extent practicable. In inactive markets, direct
observation of a traded price may not be possible. In these circumstances, the Bank sources alternative market information to validate
the financial instrument's fair value, with greater weight given to information that is considered to be more relevant and reliable. The
factors which are mainly considered are the following:
- t
he extent to which prices may be expected to represent genuine traded or tradable prices;
- the degree of similarity between financial instruments;
- the degree of consistency between different sources;
- the process followed by the pricing provider to derive the data;
- the elapsed time between the date to which the market data relates and the end of the reporting period; and
- the manner in which the data was sourced.
In d
etermining the fair values for financial instruments measured at fair value the credit risk adjustment for the counterparty, the Bank or
both, as the case may be, is deemed to be immaterial and hence no adjustment to the fair value of financial instruments at fair value
through profit or loss was effected.
The Group calculates the credit risk adjustment by applying the probability of default of the counterparty to the expected positive
exposure to the counterparty and multiplying the result by the loss expected in the event of default. The calculation is performed over
t
he life of the potential exposure.
Financial instruments at fair value through profit or loss and financial assets which are held for investment purposes as FVOCI are carried
at their fair value.
The Treasury Bills captioned with Balances with Central Bank of Malta and cash are held as FVOCI.
Financial instruments not measured at fair value:
(i) Investments - Debt and other fixed income instruments held to collect
This category of asset is carried at amortised cost. Their fair value is disclosed separately in the respective note to the financial
statements.
(ii) Loans and advances to customers
Loans and advances to customers are the largest financial asset held by the Group, and are reported net of allowances to reflect the
estimated recoverable amounts. The carrying amount of loans and advances to customers is a reasonable approximation of fair value
because these are re-priced to take into account changes in both benchmark rate and credit spreads. Their fair value measurement is a
Level 2 input.
(iii) Lo
ans and advances to banks, balances with Central Bank
The majority of these assets reprice or mature in less than 1 year. Hence their fair value is not deemed to differ materially from their
carrying amount at the respective reporting dates.
(iv) Amounts owed to banks and customers
These liabilities are carried at amortised cost. The majority of these liabilities reprice or mature in less than 1 year. Hence their fair value is not
deemed to differ materially from their carrying amount at the respective reporting dates. Their fair value measurement is a Level 2 input.
(v) Subordinated liabilities
These liabilities are carried at amortised cost. Their fair value is disclosed separately in the respective notes to the financial statements.
(vi) Other financial liabilities
The fair value of other financial liabilities is not deemed to differ materially from their carrying amount at the respective reporting dates.
Bank of Valletta p.l.c.
Annual Report 2021
143
Notes to the financial statements 31 December 2021 (continued)
39. F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
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)
)
3
3
9
9
.
.
6
6
F
F
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f
f
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a
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c
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B
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i
a
a
b
b
i
i
l
l
i
i
t
t
i
i
e
e
s
s
n
n
o
o
t
t
m
m
e
e
a
a
s
s
u
u
r
r
e
e
d
d
a
a
t
t
f
f
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
The following table provides an analysis of financial instruments that are not measured at fair value subsequent to initial recognition:
FFaaiirr vvaalluuee mmeeaassuurreemmeenntt
CCaarrrryyiinngg
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
AAmmoouunntt
€€000000
€€000000
€€000000
€€000000
€€000000
22002211
FFiinnaanncciiaall aasssseettss
Investments
Debt and other fixed income instruments
-Amortised
3,201,300
263,440
-
3,464,740
3,443,199
FFiinnaanncciiaall lliiaabbiilliittiieess
Subordinated liabilities
168,055
-
-
168,055
163,237
168,055
-
-
168,055
163,237
FFaaiirr vvaalluuee mmeeaassuurreemmeenntt
CCaarrrryyiinngg
LLeevveell 11
LLeevveell 22
LLeevveell 33
TToottaall
AAmmoouunntt
€€000000
€€000000
€€000000
€€000000
€€000000
22002200
FFiinnaanncciiaall aasssseettss
Investments
Debt and other fixed income instruments
-Amortised
2,865,094
342,845
-
3,207,939
3,133,350
FFiinnaanncciiaall lliiaabbiilliittiieess
Subordinated liabilities
163,251
-
-
163,251
163,237
163,251
-
-
163,251
163,237
T
he reconciliation of Level 3 fair value measurements of financial instruments is disclosed below:
22002211
22002200
FFVVTTPPLL
FFVVOOCCII
FFVVTTPPLL
FFVVOOCCII
EEqquuiittyy aanndd ootthheerr
DDeebbtt aanndd ootthheerr
EEqquuiittyy aanndd
ootthheerr
DDeebbtt aanndd
ootthheerr
nnoonn--ffiixxeedd
iinnccoommee
ffiixxeedd iinnccoommee
nnoonn--ffiixxeedd
iinnccoommee
ffiixxeedd
iinnccoommee
iinnssttrruummeennttss
iinnssttrruummeennttss
iinnssttrruummeennttss
iinnssttrruummeennttss
€€000000
€€000000
€€000000
€€000000
Opening balance
10,227
72,115
16,136
79,539
Total gains or losses
- in profit or loss
2,339 - (4,445) -
- in other comprehensive income
- 1,373 - (7,424)
Purchases
- - 29 -
Sales
(2,677) - (1,493) -
Closing balance
9,889
73,488 10,227 72,115
Bank of Valletta p.l.c.
Annual Report 2021
144
Notes to the financial statements 31 December 2021 (continued)
39. F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
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d
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)
)
3
3
9
9
.
.
6
6
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
u
u
m
m
e
e
n
n
t
t
s
s
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
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e
d
d
)
)
T
he instruments classified within Level 3 comprise:
- an externally managed fund: the Bank has determined that the reported net asset value of the fund represents its fair value at the
end of the reporting period;
- shares in a global payments technology company; the shares held in the technology company are valued using the intrinsic value
of the conversion shares less a discount for liquidity and litigation risk; and
- debt placed with the institutional investors: the Bank values its holding in the bond on the basis of MGS yields to maturity on the
premises that the bond is guaranteed by the Government of Malta. A haircut is also included in the pricing of the bond to factor in
differences between the bond and the MGSs used as a comparable in relation to the price of other risks, including illiquidity premium,
guarantee enforcement risk, currency risk and make whole call prepayment risk,
U
U
n
n
o
o
b
b
s
s
e
e
r
r
v
v
a
a
b
b
l
l
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i
i
n
n
p
p
u
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t
t
s
s
u
u
s
s
e
e
d
d
i
i
n
n
m
m
e
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a
a
s
s
u
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r
i
i
n
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g
g
f
f
a
a
i
i
r
r
v
v
a
a
l
l
u
u
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e
The following table sets out information about significant unobservable inputs used at 31 December 2021 and 2020 in measuring
financial instruments categorised as Level 3 in the fair value hierarchy.
TTyyppee ooff
f
f
i
i
n
n
a
a
n
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c
c
i
i
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a
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l
iinnssttrruummeennttss
F
F
a
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3
3
1
1
DDeecceemmbbeerr 22002211
VVaalluuaattiioonn tteecchhnniiqquuee
S
S
i
i
g
g
n
n
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f
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uunnoobbsseerrvvaabbllee iinnppuutt
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
m
m
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e
a
a
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r
r
e
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m
m
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e
n
n
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s
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n
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s
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i
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v
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i
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t
y
y
ttoo uunnoobbsseerrvvaabbllee iinnppuutt
€€000000
FVTPL Equity
(unlisted fund)
4,661
(2020: 5,341)
Based on reported
NAV
Reported share of
assets representing the
fair value at year-end
Significant increase in
NAV would result in a higher fair value.
FVTPL Equity
5,228
(2020: 4,886)
Price-based adjusted
with a discount
Discount for liquidity
and litigation risk
50%
(2020: 50%)
Significant increase in discount
would result in a lower fair value.
FVOCI Debt
73,488
(2020: 72,115)
Price-based adjusted
with a haircut
Haircut representative
of the related risks
6%
(2020: 6%)
Significant increase in haircut would
result in a lower fair value.
3
3
9
9
.
.
7
7
C
C
a
a
p
p
i
i
t
t
a
a
l
l
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
The Group’s capital management approach ensures a sufficient level of capitalisation to manage the risk exposures whilst supporting
business growth and providing adequate returns to the shareholders. Risk capital management does not in any way substitute risk
mitigation measures. It is vital that the structure of limits and thresholds should be able to prevent concentrations of risk from building
up in such a way as to compromise a significant proportion of the Group’s capital resources.
On 1 January 2014 the Capital Requirements Directive (CRD) and the Capital Requirements Regulations (CRR) came into effect,
constituting the European implementation of the Basel capital and liquidity agreement of 2010. The Group has made the necessary
changes in order to ensure that it is compliant with the Pillar I capital requirements set by the CRR. Other material risks are also
allocated capital as part of the Internal Capital Adequacy Process (ICAAP) embedded in the Pillar II process. This process helps to
measure with greater risk sensitivity the amount of regulatory capital which the Group requires to cover risks assumed in the course
of its business, including risks not covered in Pillar I. The Board submitted the latest ICAAP capital document to the JST in April 2021.
Capital management is under the direct control of the Asset and Liability Committee (ALCO). During the financial period, ALCO has
monitored the adequacy of the Group’s capital and gave strategic direction on the most efficient use of capital.
During the period under review and during the comparative period, there were no reported breaches in respect of the externally
imposed capital requirements. The Group uses the Standardised Approach for credit risk, the Basic Indicator Approach for operational
risk and the Base Method with respect to the Group's foreign exchange risk in line with CRR requirements.
Bank of Valletta p.l.c.
Annual Report 2021
145
Notes to the financial statements 31 December 2021 (continued)
39. F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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e
d
d
)
)
3
3
9
9
.
.
7
7
C
C
a
a
p
p
i
i
t
t
a
a
l
l
r
r
i
i
s
s
k
k
m
m
a
a
n
n
a
a
g
g
e
e
m
m
e
e
n
n
t
t
(
(
c
c
o
o
n
n
t
t
i
i
n
n
u
u
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e
d
d
)
)
T
he following table shows the components and basis of calculation of the Group's and the Bank's own funds.
TThhee GGrroouupp
TThhee BBaannkk
22002211
€€000000
€€000000
OOwwnn ffuunnddss
Tier 1
-Paid up capital instruments
583,849
583,849
-Share premium
49,277
49,277
-Retained earnings*
358,786
354,952
-Accumulated other comprehensive income
9,416
9,304
-Other reserves
49,021
49,021
-Funds for general banking risk
3,302
3,302
-Deductions:
Prudential Valuation fair valued assets and liabilities
(596)
(529)
Other intangible assets
(32,106)
(32,106)
Depositor Compensation Scheme Reserve
(35,507)
(35,507)
Total Tier 1 Capital
985,442
981,563
*Retained earnings include current period's profit which is subject to regulatory approval.
Tier 2
-Capital instruments and subordinated loans
163,237
163,237
Total Tier 2 Capital
163,237
163,237
Total Own Funds
1,148,679
1,144,800
TThhee GGrroouupp
TThhee BBaannkk
22002200
€€000000
€€000000
OOwwnn ffuunnddss
Tier 1
-Paid up capital instruments
583,849
583,849
-Share premium
49,277
49,277
-Retained earnings*
311,564
315,237
-Accumulated other comprehensive income
11,231
11,231
-Other reserves
44,246
44,246
-Funds for general banking risk
4,109
4,109
-Deductions:
Prudential Valuation fair valued assets and liabilities
(613)
(613)
Other intangible assets
(23,152)
(23,152)
Depositor Compensation Scheme Reserve
(42,350)
(42,350)
Total Tier 1 Capital
938,161
941,775
*Retained earnings include current period's profit which is subject to regulatory approval
.
Tier 2
-Capital instruments and subordinated loans
163,237
163,237
Total Tier 2 Capital
163,237
163,237
Total Own Funds
1,101,398
1,105,012
Further information on the Group's capital adequacy ratios may be found in the Pillar 3 Disclosures Report – section 4.2, table CC1.
The report will be available on the Bank’s website.
Bank of Valletta p.l.c.
Annual Report 2021
146
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
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3
3
9
9
.
.
8
8
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f
f
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s
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g
f
f
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n
a
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c
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i
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a
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s
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e
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t
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s
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a
a
n
n
d
d
f
f
i
i
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n
a
a
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n
c
c
i
i
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a
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l
l
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i
i
a
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i
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s
s
The derivative financial assets with a positive carrying amount and the derivative financial liabilities with a negative carrying amount are
set-off to the extent that there are liabilities and if not, they are presented separately in the Statement of Financial Position. These
instruments are subject to the ISDA Master Agreement. The ISDA Master Agreement provides, amongst others, for the netting of
termination values for purposes of determining a single lump-sum termination amount upon the insolvency of a counterparty. By virtue
of the Set-off and Netting on Insolvency Act, 2003 (Chapter 459, Laws of Malta), the close-out netting provisions contained in the ISDA
Master Agreement are valid and enforceable under Maltese law. The set-off provisions under the ISDA Master Agreement can be
triggered where an event of default, credit event upon merger or any termination event has been declared.
The Bank also has in place credit support annexes "CSAs" with a number of its financial counterparties for purposes of the
collateralisation of exposures between the Bank and its counterparties. The CSA is a schedule to the ISDA Master Agreement. By virtue
of such CSAs, a party to a derivative that has an exposure to its counterpart, will post collateral to its counterpart to cover such exposure
by way of an outright title transfer of such collateral. All CSAs that the Bank has in place are of a two-way nature.
In the case of non-financial counterparties, the Bank enters into pledging collateral arrangements with the counterparties, in favour of
the Bank. Such pledging agreements are of a one-way nature, in favour of the Bank.
TThhee GGrroouupp
22002211
22002200
€€000000
€€000000
DDeerriivvaattiivvee ffiinnaanncciiaall aasssseettss
Gross amounts of recognised financial assets
3,080
4,339
Gross amounts of recognised financial liabilities set off in the statement of financial position
(1,876)
(2,323)
Net amounts of financial assets presented in the statement of financial position
1,204 2,016
Related amounts not set off in the statement of financial position:
Financial instruments
(1,204) (2,016)
Net amount
- -
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
DDeerriivvaattiivvee ffiinnaanncciiaall lliiaabbiilliittiieess
Gross amounts of recognised financial liabilities
19,518
30,729
Gross amounts of recognised financial assets set off in the statement of financial position
(1,875)
(2,323)
Net amounts of financial liabilities presented in the statement of financial position
17,643 28,406
Related amounts not set off in the statement of financial position:
Financial instruments
(1,204) (2,016)
Financial collateral pledged
(16,439) (26,390)
Net amount
-
-
A
number of financial assets and financial liabilities are being offset and it is the intention to settle net, since they relate to the same
counterparties and have the same maturities.
Bank of Valletta p.l.c.
Annual Report 2021
147
Notes to the financial statements
31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
n
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d
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)
)
3
3
9
9
.
.
9
9
I
I
n
n
t
t
e
e
r
r
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s
s
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R
a
a
t
t
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B
B
e
e
n
n
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m
m
a
a
r
r
k
k
R
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f
f
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m
m
i) Overview
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank
offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). The Group does not have significant exposure
to IBORs on its financial instruments which are subject to this market-wide initiative. Most reforms affecting the Group have been
completed by the end of 2021. However, although sterling LIBOR and US dollar LIBOR were planned to be discontinued by the end of
2021, consultations and possible regulatory changes are in progress.
In March 2021, the Financial Conduct Authority (FCA), as the regulator of ICE (the authorised administrator of LIBOR), announced that
after 31 December 2021 LIBOR settings for sterling, euro and the one-week and two-month US dollar setting will either cease to be
provided or no longer be representative. The remaining US dollar settings will either cease to be provided or no longer be representative
after 30 June 2023.
The Group deems that IBOR reform has not and will not have significant operational, risk management and accounting impacts across
all of its business lines. Financial risk is predominantly limited to interest rate risk. The Bank has entrusted its Treasury and Business
Banking functions to manage its transition to alternative rates. Their objectives included: evaluating the extent to which loans granted
and financial instruments which are based on IBOR cash flows; whether such contracts need to be amended as a result of IBOR reform;
and how to manage communication about IBOR reform with counterparties.
For contracts indexed to an IBOR that matures after the expected cessation of the IBOR rate, the IBOR committee has establish policies
to amend the contractual terms. These amendments include the additional fallback clauses or replacement of the IBOR rate with an
alternative benchmark rate. With effect from 1 November 2021, all newly originated floating-rate loans and advances to customers
incorporate fallback provisions.
The Group monitors the progress of transition from IBOR to new benchmark rates by reviewing the total amounts of contracts that have
yet to transition to an alternative benchmark rate and the amounts of such contracts that include an appropriate fallback clause. The
Group considers that a contract is not yet transitioned to an alternative benchmark rate when interest under the contract is indexed to
a benchmark rate that is still subject to IBOR reform, even if it includes a fallback clause that deals with the cessation of the existing
IBOR.
As at 31 December 2021, the IBOR reform in respect of currencies to which the Group has exposure has been largely completed. The
table below sets out the IBOR rates that the Group had exposure to, the new benchmark rates to which these exposures have or are
being transitioned, and status of transition, mainly GBP LIBOR to Sterling Overnight Interbank Average Rate (SONIA), USD LIBOR to
Secured Overnight Financing Rate (SOFR), JPY LIBOR to Tokyo Over-Night Average Rate (TONAR) and EONIA to €STR.
ii) Non-derivative financial assets
During 2020 and 2021, the Group had the following principal IBOR exposures in respect of non-derivative financial assets subject to
the reform:
- Floating rate loans and advances to customers: EURIBOR, GBP LIBOR, USD LIBOR and JPY LIBOR;
- Floating rate indexed assets and investment securities indexed to EURIBOR, GBP Libor and USD Libor held throughout its
operations.
As at 31 December 2021, the Group amended all existing loans and advances to customers contracts indexed to IBOR and inserted
fallback provisions.
All loans and advances to customers indexed to IBOR as at 31 December 2021 were transitioned on 3 January 2022.
During 2021 floating rate securities amounting to £19.3 million held in GBP changed the benchmark from GBP LIBOR to SONIA.
iii) Non -derivative financial liabilities:
The Bank does not have any financial liabilities linked to interbank offer rates (IBOR) as at 31 December 2021 and 31 December 2020.
Bank of Valletta p.l.c.
Annual Report 2021
148
Notes to the financial statements 31 December 2021 (continued)
3
3
9
9
.
.
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
I
I
S
S
K
K
M
M
A
A
N
N
A
A
G
G
E
E
M
M
E
E
N
N
T
T
(
(
c
c
o
o
n
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3
3
9
9
.
.
9
9
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R
a
a
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B
B
e
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n
n
c
c
h
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m
m
a
a
r
r
k
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R
R
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f
f
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(
(
c
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n
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d
d
)
)
iv) Derivatives and hedge accounting:
The derivatives held by the Group in US Dollar (refer to note 39.4.2) are held for risk management purposes and have floating legs that
are indexed to USD LIBOR. The Group’s derivative instruments are governed by ISDA’s 2006 definitions. ISDA has reviewed its
definitions in light of IBOR reform and issued an IBOR fallbacks supplement on 23 October 2020. This sets out how the amendments
to new alternative benchmark rates (e.g. SOFR, SONIA) in the 2006 ISDA definitions will be accomplished. The effect of the supplement
is to create fallback provisions in derivatives that describe what floating rates will apply on the permanent discontinuation of certain key
IBORs or on ISDA declaring a non-representative determination of an IBOR. The Group has adhered to the protocol to implement the
fallbacks to derivative contracts that were entered into before the effective date of the supplement. If derivative counterparties also
adhere to the protocol, then new fallbacks will be automatically implemented in existing derivative contracts when the supplement
becomes effective – i.e. on 25 January 2021. From that date, all new derivatives that reference the ISDA definitions will also include the
fallbacks.
4
4
0
0
.
.
A
A
S
S
S
S
E
E
T
T
S
S
H
H
E
E
L
L
D
D
F
F
O
O
R
R
R
R
E
E
A
A
L
L
I
I
S
S
A
A
T
T
I
I
O
O
N
N
T
he assets held for realisation mainly comprise immovable properties that were held as collateral for outstanding loans, which properties
were taken into the possession of the Bank following defaults by the counterparty. The Bank’s policy is to dispose of such assets within
a reasonable timeframe from the date of classification, unless events or circumstances which are beyond the Bank’s control extend the
period to complete the sale.
4
4
1
1
.
.
T
T
R
R
U
U
S
S
T
T
A
A
C
C
T
T
I
I
V
V
I
I
T
T
I
I
E
E
S
S
T
he Group acts as trustee and provides trust activities that result in the holding and placing of assets on behalf of third parties. Trust
assets are not assets of the Group and therefore they are not included in its Statement of Financial Position.
Income derived from trust assets is excluded from revenue. Fees arising from the rendering of trustee services are recognised in the
Group's profit or loss.
At 31 December 2021, the total assets held by the Group on behalf of its customers amounted to €63.9 million (2020: €90.6 million).
Details on significant claims related to trusts are given in note 33.
4
4
2
2
.
.
R
R
E
E
G
G
U
U
L
L
A
A
T
T
O
O
R
R
Y
Y
C
C
O
O
M
M
P
P
E
E
N
N
S
S
A
A
T
T
I
I
O
O
N
N
S
S
C
C
H
H
E
E
M
M
E
E
S
S
A
s at 31 December 2021, no balances with Central Bank of Malta have been pledged in favour of the Depositor Compensation Scheme
(refer to note 16).
In accordance with the provisions of the Investor Compensation Scheme Regulations, 2003, issued under the Investment Services Act,
1994, licence holders are required to transfer a variable contribution to an Investor Compensation 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.
Bank of Valletta p.l.c. has elected to pay the amount of the variable contribution directly to the Scheme.
Regulatory contributions amounting to €15.0 million (2020: €10.7 million), included with administrative expenses, reflect the G
roup's
annual obligations arising from the recent EU Directives on Deposit Guarantee Scheme and Single Resolution Fund.
4
4
3
3
.
.
E
E
V
V
E
E
N
N
T
T
S
S
S
S
U
U
B
B
S
S
E
E
Q
Q
U
U
E
E
N
N
T
T
T
T
O
O
T
T
H
H
E
E
F
F
I
I
N
N
A
A
N
N
C
C
I
I
A
A
L
L
R
R
E
E
P
P
O
O
R
R
T
T
I
I
N
N
G
G
D
D
A
A
T
T
E
E
On 8 February 2022, the Bank received the judgement from the Tribunal of Torre Annuziata in relation to Deiulemar case as further
detailed in Note 33.
In addition, subsequent to the reporting date, Russia invaded Ukraine with consequential economic sanctions being imposed by other
co
untries against Russia. This is expected to impact significantly those associated with the affected jurisdictions, with heightened
economic risk.
The Group performed an initial assessment of the current situation on the business and therefore of the direct exposure to asse
ts in
those jurisdictions and concluded that there should not be material consequences given the minimal direct association with the countries
involved. The Group is following and shall continue to follow closely how such events will develop. The Russia / Ukraine war elevated
uncertainty and instability on the global economic scene in early 2022 and, most likely, will intensify the rise in inflation, especially if
prolonged. Nonetheless, although the Bank does not envisage a significant indirect impact on its lending portfolio, the precise nature
and effect of such a conflict, including any adverse consequence on the economy, cannot be determined at this stage.
4
4
4
4
.
.
R
R
E
E
G
G
I
I
S
S
T
T
E
E
R
R
E
E
D
D
O
O
F
F
F
F
I
I
C
C
E
E
The registered and principal office of the Bank is 58, Triq San Zakkarija, Il-Belt Valletta, VLT1130, Malta.
Bank of Valletta p.l.c.
Annual Report 2021
149
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent
member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report
To the Shareholders of Bank of Valletta p.l.c.
1 R
eport on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Bank of Valletta p.l.c. (the “Bank” or the
“Company”) and of the Group of which the Company is the parent, which comprise the
statements of financial position as at 31 December 2021, the statements of profit or loss
and other comprehensive income, changes in equity and cash flows for the year then
ended, and notes, comprising significant accounting policies and other explanatory
information.
In our opinion, the accompanying financial statements:
(a) give a true and fair view of the financial position of the Bank and the Group as at 31
December 2021, and of their financial performance and their cash flows for the year
then ended in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the EU; and
(b) have been properly prepared in accordance with the provisions of the Companies
Act, 1995 (Chapter 386, Laws of Malta) (the “Act”) and the Banking Act, 1994
(Chapter 371, Laws of Malta) (the “Banking Act”) and, additionally, specifically in
relation to those of the Group, with the requirements of Article 4 of the Regulation on
the application of IFRS as adopted by the EU.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”).
Our responsibilities under those standards are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We are
independent of the Company in accordance with the International Ethics Standards Board
for Accountants’ International Code of Ethics for Professional Accountants (including
International Independence Standards) (IESBA Code), together with the ethical
requirements that are relevant to our audit of the financial statements in accordance with
the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in
terms of the Accountancy Profession Act (Chapter 281, Laws of Malta), and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Bank of Valletta p.l.c.
Annual Report 2021
150
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements of the current year (selected from
those communicated to the audit committee), and include a description of the most
significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team.
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.
We summarise below the key audit matters, together with our response by way of the
audit procedures we performed to address that matter in our audit, and key observations
arising with respect to such risks of material misstatement.
Measurement of impairment allowances on loans and advances to customers at
amortised cost, including off-balance sheet elements of those exposures and
related disclosures
Accounting policy notes 1.4.3 to the financial statements and notes 8, 17, 33, 34 and 39.2
for further disclosures.
Expected credit loss allowance on ‘Loans and advances to customers at amortised cost’
(Bank and Group: €5.1 billion) amounted to €163.8 million. Expected credit loss provision
on ‘Financial guarantees contracts and loan commitments’ (Bank and Group: €2.2 billion)
amounted to €22.9 million.
The calculation of the expected credit loss (‘ECL’) involves significant judgement and
estimates. Of all the Group’s financial instruments, the most significant impact in terms of
complexities around the measurement of the ECL and of the materiality of the resultant
allowances was in relation to the loans and advances to customers’ portfolio (and the
related off-balance sheet elements). In that regard, our key areas of audit focus in the
Group’s calculation of the ECL were the following:
Bank of Valletta p.l.c.
Annual Report 2021
151
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters (continued)
• Model estimations – Inherently judgmental modelling is used to estimate ECL which
i
nvolves determining Probabilities of Default (“PD”), Loss Given Default (“LGD”)
and
E
xposures at Default (“EAD”). In particular, the PD models are the key drivers of the
Group’s ECL calculation and are therefore the most significant judgmental element of
the Group’s ECL modelling approach.
• Economic Scenarios - Significant management judgement is applied in determining
t
he selection of (i) forward looking macroeconomic scenarios, (ii) the associated
scenario probabilities and (iii) the material economic variables which drive the
scenarios and the related weightings, especially when considering the potentially
latent effects of COVID-19 on the economy.
• Qualitative adjustments to the model-driven ECL raised by the Group to address
known impairment model limitations or emerging trends as well as risks not captur
ed
by
the model. These adjustments are inherently uncertain and significant management
judgement is involved in the estimation process.
• Identification of a significant increase in credit risk (‘SICR’) is also a key area of
judgement within the Group’s ECL calculation, which remains heightened as a result
of COVID-19 as the application of the SICR criteria determines whether a twelve
month or lifetime provision is recorded.
• Individually assessed stage 3 exposures may be materially misstated if individual
impairments are not appropriately identified and estimated. The calculation of
expected credit losses on stage 3 exposures includes a range of estimates of futur
e
c
ash flows and valuation of collateral, which are inherently uncertain and judgmental.
The disclosures regarding the application of IFRS 9 are key to explaining the key
judgements made, as referred to in this key audit matter, and inputs used to generate the
IFRS 9 ECL results.
Bank of Valletta p.l.c.
Annual Report 2021
152
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters (continued)
Our response
As part of our procedures:
• We tested the design and implementation as well as the operating effectiveness of
relevant manual and automated controls (that is, Information Technology based).
More specifically, the following controls were covered:
— the Group’s review and approval of loan credit ratings;
— the monitoring control performed on delinquent personal facilities maintained
across the Group;
— the Group’s review control over the completeness and accuracy of loan exposures’
inputs, data and assumptions keyed into the ECL model;
— The key controls relating to selection of material macro-economic variables and
forward looking data sources;
— the Group’s review control over model validation and monitoring;
— Management’s review control over ECL movements, authorization and calculation
of post model adjustments and management overlays; and
— Testing the design and operating effectiveness of the key controls over the
application of the staging criteria.
• We involved our own financial risk modelling specialists in evaluating the
appropriateness of the Group’s IFRS 9 impairment methodologies (including the SICR
criteria used). We inspected model code for the calculation of certain components of
the ECL model to assess its consistency with the Group’s approved methodology. We
used our experience of the Group to independently assess PD, LGD and EAD
assumptions. On a sample basis, we assessed the reasonableness of the model
predictions by comparing them against actual results. We made enquiries of the Group
as to the reasons for any significant variations identified and assessed t
he
r
easonableness of the explanations provided, against the specialists’ expectations on
the direction and extent of variations identified.
Bank of Valletta p.l.c.
Annual Report 2021
153
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
K
ey audit matters (continued)
• We involved our economics specialist to assist in assessing:
— the appropriateness of the methodology for determining the macroeconomic
scenarios used and the reasonableness of the probability weightings applied to
them;
— the key macroeconomic variables (as set out in note 39.2.1.2.5 to the financial
statements) as well as the accuracy of macroeconomic data feeding the ECL
model; and
— The reasonableness of the Group’s considerations of the ECL impact due to
economic environment factors particularly latent COVID-19 implications.
• In evaluating the Group’s credit grading process, we performed credit reviews on a
selection of corporate exposures selected qualitatively based on risk, including a
sample of stage 3 loans and advances to customers. In performing those reviews, we:
— considered relevant internal information available used in the Group’s assessment
and any external data in relation to those exposures;
— evaluated whether those exposures were graded in line with the Group’s credit
policy; and
— determined whether a SICR was appropriately identified.
In addition, for the selected stage 3 corporate exposures, we independently re-
performed the impairment calculation to assess the reasonableness of the Bank’s
related ECL.
• On a sample of loans and advances to customers, we:
— performed testing over key data elements (EAD, PD and LGD) impacting the ECL
calculations to assess the accuracy of information used; and
— re-performed model calculations for accuracy for all stages.
Bank of Valletta p.l.c.
Annual Report 2021
154
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key Audit Matters (continued)
• We assessed the post model adjustments, in order to assess the reasonableness of
the adjustments by challenging key assumptions, inspecting the calculati
on
met
hodology and tracing a sample of the data used back to source data.
• We assessed whether the disclosures in relation to IFRS 9 adequately explain the key
judgements made and significant inputs used in the recognition of expected credit
losses as at the end of the financial reporting period. In particular, we assessed the
appropriateness of the sensitivity analysis disclosures.
We have no key observations to report, specific to this matter.
R
ecognition and measurement of provisions for litigation and claims, including
related disclosures
Accounting policy notes 1.17 and 1.28.5 to the financial statements and note 33 for further
disclosures.
Litigation provision of €81.5 million shown as part of ‘Provisions’ on the face of
‘Statements of financial position’ and included within the ‘Provisions and Contingencies’
note, together with significant claims disclosures.
T
he Group is exposed to litigation and claims, which may potentially have a material
impact on the financial statements as a whole, and which are subject to varying degrees
of complexity.
Significant judgement is involved in determining whether an obligation is a present
obligation or a possible one. That assessment determines whether such an obligation is
recognised as a provision (in the statement of financial position), or is disclosed in the
notes as a contingent liability. The measurement of any such provision, which is based
on the determination of the extent of the outflow of economic resources, is subject to
significant estimation uncertainty.
Bank of Valletta p.l.c.
Annual Report 2021
155
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
T
o the Shareholders of Bank of Valletta p.l.c.
Key Audit Matters (continued)
In the event that it is not probable that an outflow of resources will be required to settle a
present obligation and there is more than a remote likelihood of an adverse outcome for
a possible obligation, the related contingent liability disclosure is necessary to understand
the risks and potential effects on the Group’s financial statements.
Our response
As part of our procedures, we evaluated the assessment made by the Group’s internal
legal counsel, the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer and
the Board of Directors on the (i) status of the litigation claims as well as the (ii) action
being taken by the Group in relation to those claims.
Specifically, for the significant litigation claims, we assessed the developments to date of
this auditors’ report. We directly obtained written opinions from, and held discussions with,
the Group’s external legal counsel, and evaluated their views on the final outcome of such
claims. Additionally, we challenged the directors’ best estimate of the provisions
recognised by corroborating their responses directly with the Group’s external legal
advisors.
We assessed whether the financial statements, in relation to the significant litigation
claims adequately disclose the amount of provision, the potential liabilities and the
significant uncertainties that exist.
We have no key observations to report, specific to this matter.
Bank of Valletta p.l.c.
Annual Report 2021
156
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Other information
The directors are responsible for the other information which comprises the:
— Contents and General Information;
— Board of Directors and Group Company Secretary;
— Chairman’s Statement;
— CEO’s Commentary;
— Executive Committee and Group Chief Internal Auditor;
— Corporate Social Responsibility
— Directors’ Report;
— Corporate Governance Statement of Compliance;
— Remuneration Report;
— Nominations Report;
— The Group’s five year summary; and
— Group’s Financial Highlights in US dollars.
but does not include the financial statements and our auditors’ report thereon.
Our opinion on the financial statements does not cover the other information and, other
than in the case of the Directors’ report on which we report separately below in our
‘Opinion on the Directors’ Report’, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the
ot
her information, and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work we 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.
Bank of Valletta p.l.c.
Annual Report 2021
157
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
T
o the Shareholders of Bank of Valletta p.l.c.
R
esponsibilities of the directors for the financial statements
The directors are responsible for the preparation of financial statements that (a) give a
true and fair view in accordance with IFRS as adopted by the EU, and (b) are properly
prepared in accordance with the provisions of the Act and the Banking Act, and,
additionally, specifically in relation to those of the Group, with the requirements of Article
4 of the Regulation on the application of IFRS as adopted by the EU. The directors are
also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the
Company’s and the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Company and/or the Group
or to cease operations, or have no realistic alternative but to do so.
The directors are also responsible for overseeing the financial reporting process.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion. ‘Reasonable assurance’ is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and 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 financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and
maintain professional scepticism throughout the audit.
Bank of Valletta p.l.c.
Annual Report 2021
158
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
A
uditors’ responsibilities for the audit of the financial statements (continued)
We also:
• Identify and assess the risks of material misstatement of the financial statements,
whether due 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 our opinion. The risk of not detecting a material misstatement resulting fr
om
f
raud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Consider the extent of compliance with those laws and regulations that directly affect
the financial statements, as part of our procedures on the related financial statement
items. For the remaining laws and regulations, we make enquiries of directors and
other management, and inspect correspondence with the regulatory authority, as well
as legal correspondence. As with fraud, there remains a higher risk of non-detection
of other irregularities (whether or not these relate to an area of law directly related to
the financial statements), as these may likewise involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’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.
Bank of Valletta p.l.c.
Annual Report 2021
159
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta plc.
Auditors’ responsibilities for the audit of the financial statements (continued)
• Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’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 our auditors’ report to the
related disclosures in the financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained
up
t
o the date of our auditors’ report. However, future events or conditions may caus
e
the Company and/or the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent t
he
under
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 activities within the Group to express an opinion on the
c
onsolidated financial statements. We are responsible for the direction, supervisi
on
and
performance of the Group audit. We remain solely responsible for our audit
opinion.
We communicate with the audit committee regarding, among other matters, 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 audit committee with a statement that we have complied with relevant
ethical requirements regarding independence, and 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 audit committee, we determine those matters
that were of most significance in the audit of the financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditors’ report
unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should 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.
Bank of Valletta p.l.c.
Annual Report 2021
160
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
2. O
pinion on the Directors’ Report
T
he directors are responsible for preparing a directors’ report in accordance with the
provisions of article 177 of the Act and other applicable legal requirements, and is to
include a statement that the Company is a going concern with supporting assumptions or
qualifications as necessary, as required by Capital Markets Rule 5.62 issued by the
Listing Authority in Malta.
We are required to consider whether the information given in the directors’ report for the
accounting period for which the financial statements are prepared is consistent with those
financial statements; and, if we are of the opinion that it is not, we shall state that fact in
our report. We have nothing to report in this regard.
Pursuant to article 179(3) of the Act, other than for the non-financial information that is
exclusively required to be disclosed by paragraph 8 of the Sixth Schedule of the Act with
respect to the Bank, and paragraph 11 of the Sixth Schedule of the Act with respect to
the Group (and on which we report separately below in our ‘Report on Other Legal and
Regulatory Requirements’), we are also required to:
• express an opinion on whether the directors’ report has been prepared in accordance
w
ith the applicable legal requirements; and
• state whether, in the light of the knowledge and understanding of the entity and its
environment obtained in the course of our audit of the financial statements, we have
identified material misstatements in the directors’ report, giving an indication of th
e
nature of any such misstatements.
Pursuant to Capital Markets Rule 5.62 of the Capital Markets rule issued by the Listing
A
uthority in Malta, we are required to review the directors’ statement in relation to going
concern.
In such regards:
• in our opinion, the directors’ report has been prepared in accordance with the
applicable legal requirements;
• we have not identified material misstatements in the directors’ report; and
• we have nothing to report in relation to the statement on going concern.
Bank of Valletta p.l.c.
Annual Report 2021
161
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
3 R
eport on Other Legal and Regulatory Requirements
Matters on which we are required to report by the Act, specific to public-interest
entities
Pursuant to article 179B(1) of the Act, we report as under matters not already reported
upon in our ‘Report on the Audit of the Financial Statements’:
• we were first appointed as auditors by the shareholders on 19 June 2015, and
subsequently reappointed at the Company’s general meetings for each financial
period thereafter. The period of total uninterrupted engagement is seven years;
• our opinion on our audit of the financial statements is consistent with the additional
report to the audit committee required to be issued by the Audit Regulation (as referred
to in the Act); and
• we have not provided any of the prohibited services as set out in the APA.
Matters on which we are required to report by the Act, specific to large
undertakings which are public-interest entities and public-interest entities which
are parent undertakings of a large group that (individually and on a consolidated
basis, respectively) exceed the criterion of an average number of five hundred
employees during the financial year
Pursuant to article 179(3) of the Act, we report as under matters not already reported
upon in our ‘Opinion on the Directors’ Report:
The Directors’ Report contains the information required by paragraph 8 of the Sixth
Schedule, with respect to the Bank and paragraph 11 of the Sixth Schedule with respect
to the Group.
Bank of Valletta p.l.c.
Annual Report 2021
162
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
M
atters on which we are required to report by the Banking Act and by exception by
the Act
Pursuant to article 31(3)(a), (b) and (c) of the Banking Act, in our opinion:
• 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;
• proper books of account have been kept by the Bank so far as appears from our
examination thereof; and
• the Bank’s financial statements are in agreement with the books of account.
Furthermore, we have nothing to report in respect of the above matters, where the Act
requires us to report to you by exception pursuant to articles 179(10) and 179(11).
Pursuant to article 31(3)(d) of the Banking Act, 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.
R
eport on compliance with the requirements of the Commission Delegated
Regulation (EU) 2018/815 supplementing Directive 2004/109/EC (the “ESEF
Regulation”), by reference to Capital Markets Rule 5.55.6 issued by the Listing
Authority
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, 1979 (Chapter 281, Laws of Malta), the Accountancy
Profession (European Single Electronic Format) Assurance Directive, on the Group’s
Annual Report for the year ended 31 December 2021, prepared in a single electronic
reporting format.
Bank of Valletta p.l.c.
Annual Report 2021
163
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Responsibilities of the directors for compliance with the requirements of the ESEF
Regulation
As required by Capital Markets Rule 5.56A, the directors are responsible for the
preparation of the Annual Report in XHTML format, including the specified mark-ups, in
accordance with the requirements of the ESEF Regulation.
In addition, the directors are responsible for such internal control as they determine is
necessary to enable the preparation of the Annual Report that is in compliance with the
requirements of the ESEF Regulation.
Auditors’ responsibilities to report on compliance with the requirements of the ESEF
Regulation
Our responsibility is to obtain reasonable assurance about whether the Annual Report
in XHTML format, including the specified mark-ups, comply in all material respects with
the ESEF Regulation based on the evidence we have obtained.
In discharging that responsibility, we:
• obtain an understanding of the entity's financial reporting process, including the
preparation of the Annual Report, in accordance with the requirements of the ESEF
Regulation;
• perform validations to determine whether the Annual Report has been prepared in
accordance with the requirements of the technical specifications of the ESEF
Regulation; and
• examine the information in the Annual Report to determine whether all the required
mark-ups therein have been applied and whether, in all material respects, they ar
e
i
n accordance with the requirements of the ESEF Regulation.
We believe that the evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Bank of Valletta p.l.c.
Annual Report 2021
164
KPM
G
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a
par
tnership of Certified Public
Accountants in terms of the
Accountancy Profession Act.
A
list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
O
pinion
In our opinion, the Annual Report for the year ended 31 December 2021 has been
prepared, in all material respects, in accordance with the requirements of the ESEF
Regulation,
by reference to Capital Markets Rule 5.55.6.
The Principals authorised to sign on behalf of KPMG on the audit resulting in this
independent auditors’ report are Noel Mizzi and Michael McGarry.
Noel Mizzi
Partner, for and on behalf of
KPMG
Registered Auditors,
92
Marina Street,
Pietà PTA 9044,
Malta
Michael McGarry
Partner, for and on behalf of
KPMG LLP
Chartered Accountants,
15 Canada Square,
Canary Wharf,
London E14 5GL,
United Kingdom
22 March 2022
Bank of Valletta p.l.c.
Annual Report 2021
165
T
T
h
h
e
e
G
G
r
r
o
o
u
u
p
p
’
’
s
s
f
f
i
i
v
v
e
e
y
y
e
e
a
a
r
r
s
s
u
u
m
m
m
m
a
a
r
r
y
y
- extracted from the respective audited
financial statements
A. S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
O
O
F
F
P
P
R
R
O
O
F
F
I
I
T
T
O
O
R
R
L
L
O
O
S
S
S
S
F
F
o
o
r
r
t
t
h
h
e
e
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
s
s
y
y
e
e
a
a
r
r
s
s
The calculation of the earnings per share for all periods presented was adjusted retrospectively in view of the increase in the number of
ordinary shares outstanding as a result of the bonus issue of shares.
22002211
22002200
22001199
22001188
22001177
1
1
2
2
m
m
o
o
n
n
t
t
h
h
s
s
t
t
o
o
D
D
e
e
c
c
e
e
m
m
b
b
e
e
r
r
22002211
1
1
2
2
m
m
o
o
n
n
t
t
h
h
s
s
t
t
o
o
DDeecceemmbbeerr 22002200
1
1
2
2
m
m
o
o
n
n
t
t
h
h
s
s
t
t
o
o
DDeecceemmbbeerr 22001199
1
1
2
2
m
m
o
o
n
n
t
t
h
h
s
s
t
t
o
o
DDeecceemmbbeerr 22001188
1
1
5
5
m
m
o
o
n
n
t
t
h
h
s
s
t
t
o
o
SSeepptteemmbbeerr 22001177
€€000000
€€000000
€€000000
€€000000
€€000000
Interest and similar income
194,813
190,282
206,963
213,896
259,194
Interest expense
(38,503)
(43,476)
(54,113)
(57,350)
(76,247)
NNeett iinntteerreesstt iinnccoommee
156,310
146,806
152,850
156,546
182,947
Other operating income
86,598
84,809
96,436
101,220
117,526
Other operating charges
(195,603)
(170,382)
(162,540)
(130,598)
(151,251)
Net impairment (charge)/reversal
18,856
(65,136)
11,562
10,816
6,227
Litigation provision reversal/(charge)
-
8,584
(25,000)
(75,000)
-
Share of results of equity-accounted
investees
14,498
10,520
15,897
8,214
19,287
PPrrooffiitt bbeeffoorree ttaaxx
80,659
15,201
89,205
71,198
174,736
Income tax expense
(24,468)
(1,399)
(25,713)
(19,788)
(55,238)
PPrrooffiitt ffoorr tthhee yyeeaarr
56,191
13,802
63,492
51,410
119,498
Attributable to:
Equity holders of the Bank
56,191
13,802
63,492
51,410
119,498
56,191
13,802
63,492
51,410
119,498
EEaarrnniinnggss ppeerr sshhaarree
9.6c
2.4c
10.9c
8.8c
20.5c
Bank of Valletta p.l.c.
Annual Report 2021
166
The Group’s five year summary - extracted from the respective audited
financial statements (continued)
B. STATEMENTS OF FINANCIAL POSITION
22002211
22002200
22001199
22001188
22001177
€€000000
€€000000
€€000000
€€000000
€€000000
AAsssseettss
Balances with Central Bank of Malta, treasury bills and cash
4,626,066
3,798,449
3,669,580
3,400,588
3,066,655
Investments and financial assets at fair value through profit or
loss
3,707,655
3,447,912
3,276,299
3,521,161
3,700,832
Loans and advances to banks
452,469
479,409
501,686
490,644
524,412
Loans and advances to customers
5,097,598
4,741,443
4,445,812
4,362,983
4,162,032
Investments in equity-accounted investees
145,501
111,999
101,479
108,510
109,461
Property and equipment and intangible assets
186,696
188,312
186,659
161,198
133,675
Current tax
28,640
26,759
15,185
7,606
12,034
Deferred tax
84,563
91,259
76,017
71,769
60,217
Assets held for realisation
11,740
9,958
10,123
4,335
5,972
Other assets
5,423
5,251
42,627
7,880
5,955
Prepayments and accrued income
12,091
10,020
5,142
10,314
39,385
TToottaall AAsssseettss
1144,,335588,,444422
1122,,991100,,777711
1122,,333300,,660099
1122,,114466,,998888
1111,,882200,,663300
LLIIAABBIILLIITTIIEESS
Financial liabilities at fair value through profit or loss and
derivatives held for hedging
17,642
28,406
24,870
19,018
24,010
Amounts owed to banks
560,117
88,031
66,047
146,021
192,196
Amounts owed to customers
12,176,854
11,272,289
10,629,719
10,414,908
10,100,625
Debt securities in issue
-
-
-
40,197
95,400
Deferred tax
6,717
6,186
5,736
5,743
4,519
Other liabilities
203,141
161,617
189,593
196,960
208,202
Provisions
104,449
113,880
118,109
95,767
2,000
Subordinated liabilities
163,237
163,237
234,230
234,241
231,591
TToottaall LLiiaabbiilliittiieess
13,232,157
11,833,646
11,268,304
11,152,855
10,858,543
EEQQUUIITTYY
Called up share capital
583,849
583,849
583,849
530,772
525,000
Share premium account
49,277
49,277
49,277
49,277
45,427
Revaluation reserve
58,438
55,477
54,898
50,034
33,194
Retained earnings
434,721
388,522
374,281
364,050
358,466
TToottaall EEqquuiittyy
1,126,285
1,077,125
1,062,305
994,133
962,087
TToottaall LLiiaabbiilliittiieess aanndd EEqquuiittyy
1144,,335588,,444422
1122,,991100,,777711
1122,,333300,,660099
1122,,114466,,998888
1111,,882200,,663300
MMEEMMOORRAANNDDUUMM IITTEEMMSS
Contingent liabilities
351,362
285,775
341,618
335,405
253,851
Commitments
1,898,310
1,811,954
1,828,756
1,881,392
1,858,191
The Group’s five year summary - extracted from the respective audited
financial statements (continued)
C. SSTTAATTEEMMEENNTTSS OOFF CCAASSHH FFLLOOWWSS
22002211
22002200
22001199
22001188
22001177
€€000000
€€000000
€€000000
€€000000
€€000000
NNeett ccaasshh ffrroomm ooppeerraattiinngg aaccttiivviittiieess
1,157,101
295,040
90,157
251,776
1,020,077
CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess
Dividends received from equity shares
2,443
219
24,186
10,774
8,794
Interest received from investing securities
36,575
40,332
50,840
54,953
74,725
Injection of capital in associate (note 18)
(20,000)
-
-
-
-
Proceeds from sale of equity instruments
-
562
-
12,296
4,350
Net inflow/(outflow) on investment securities
(289,103)
(259,471)
263,225
129,240
258,283
Purchase of property and equipment
(11,849)
(15,724)
(34,996)
(26,295)
(33,341)
Proceeds on disposal of property and equipment
-
-
330
2,000
-
NNeett ccaasshh ((uusseedd iinn))//ffrroomm iinnvveessttiinngg aaccttiivviittiieess
(281,934)
(234,082)
303,585
182,968
312,811
CCaasshh fflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
Proceeds from rights issue
-
-
-
-
149,439
Interest paid on debt securities and subordinated liabilities
(5,776)
(6,457)
(10,050)
(13,414)
(17,875)
Repayment of debt securities
-
(70,993)
(40,208)
(55,400)
-
Payment of lease liabilities
(1,919)
(1,704)
(1,475)
-
-
Dividends paid
-
-
-
(17,678)
(33,883)
NNeett ccaasshh ((uusseedd iinn))//ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
(7,695)
(79,154)
(51,733)
(86,492)
97,681
IInnccrreeaassee iinn ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss
867,472
(18,196)
342,009
348,252
1,430,569
D. PPEERRFFOORRMMAANNCCEE EEXXPPRREESSSSEEDD IINN RREELLAATTIIOONN TTOO AAVVEERRAAGGEE TTOOTTAALL AASSSSEETTSS AANNDD AAVVEERRAAGGEE CCAAPPIITTAALL EEMMPPLLOOYYEEDD
22002211
22002200
22001199
22001188
22001177
%%
%%
%%
%%
%%
Operating income to total assets 1.8 1.8 2.0 2.2 2.1
Operating expenses to total assets 1
.4 1.4 1.3 1.1 1.1
Profit before tax to total assets 0
.6 0.1 0.7 0.6 1.2
Profit before tax to capital employed 7
.3 1.4 8.7 7.3 16.5
Profit attributable to equity holders to total assets 0
.4 0.1 0.5 0.4 0.8
Profit attributable to equity holders to capital employed 5
.1 1.3 6.2 5.3 11.3
Bank of Valletta p.l.c.
Annual Report 2021
167
The Group’s five year summary - extracted from the respective audited
financial statements (continued)
C. S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
O
O
F
F
C
C
A
A
S
S
H
H
F
F
L
L
O
O
W
W
S
S
22002211
22002200
22001199
22001188
22001177
€€000000
€€000000
€€000000
€€000000
€€000000
NNeett ccaasshh ffrroomm ooppeerraattiinngg aaccttiivviittiieess
1,157,101
295,040
90,157
251,776
1,020,077
CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess
Dividends received from equity shares
2,443
219
24,186
10,774
8,794
Interest received from investing securities
36,575
40,332
50,840
54,953
74,725
Injection of capital in associate (note 18)
(20,000)
-
-
-
-
Proceeds from sale of equity instruments
-
562
-
12,296
4,350
Net inflow/(outflow) on investment securities
(289,103)
(259,471)
263,225
129,240
258,283
Purchase of property and equipment
(11,849)
(15,724)
(34,996)
(26,295)
(33,341)
Proceeds on disposal of property and equipment
-
-
330
2,000
-
NNeett ccaasshh ((uusseedd iinn))//ffrroomm iinnvveessttiinngg aaccttiivviittiieess
(281,934)
(234,082)
303,585
182,968
312,811
CCaasshh fflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
Proceeds from rights issue
-
-
-
-
149,439
Interest paid on debt securities and subordinated liabilities
(5,776)
(6,457)
(10,050)
(13,414)
(17,875)
Repayment of debt securities
-
(70,993)
(40,208)
(55,400)
-
Payment of lease liabilities
(1,919)
(1,704)
(1,475)
-
-
Dividends paid
-
-
-
(17,678)
(33,883)
NNeett ccaasshh ((uusseedd iinn))//ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
(7,695)
(79,154)
(51,733)
(86,492)
97,681
IInnccrreeaassee iinn ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss
867,472
(18,196)
342,009
348,252
1,430,569
D. P
P
E
E
R
R
F
F
O
O
R
R
M
M
A
A
N
N
C
C
E
E
E
E
X
X
P
P
R
R
E
E
S
S
S
S
E
E
D
D
I
I
N
N
R
R
E
E
L
L
A
A
T
T
I
I
O
O
N
N
T
T
O
O
A
A
V
V
E
E
R
R
A
A
G
G
E
E
T
T
O
O
T
T
A
A
L
L
A
A
S
S
S
S
E
E
T
T
S
S
A
A
N
N
D
D
A
A
V
V
E
E
R
R
A
A
G
G
E
E
C
C
A
A
P
P
I
I
T
T
A
A
L
L
E
E
M
M
P
P
L
L
O
O
Y
Y
E
E
D
D
22002211
22002200
22001199
22001188
22001177
%%
%%
%%
%%
%%
Operating income to total assets 1.8 1.8 2.0 2.2 2.1
Operating expenses to total assets 1.4 1.4 1.3 1.1 1.1
Profit before tax to total assets 0.6 0.1 0.7 0.6 1.2
Profit before tax to capital employed 7.3 1.4 8.7 7.3 16.5
Profit attributable to equity holders to total assets 0.4 0.1 0.5 0.4 0.8
Profit attributable to equity holders to capital employed 5.1 1.3 6.2 5.3 11.3
Bank of Valletta p.l.c.
Annual Report 2021
168
G
G
r
r
o
o
u
u
p
p
F
F
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
H
H
i
i
g
g
h
h
l
l
i
i
g
g
h
h
t
t
s
s
i
i
n
n
U
U
S
S
d
d
o
o
l
l
l
l
a
a
r
r
s
s
31 December 2021
The following figures were converted from Euro to US Dollars using the rate of exchange ruling on 31 December 2021. The rate used
was €1 = US$ 1.1329. This does not reflect the effect of the change in the rate of exchange since 31 December 2020 which was
€1 = US$ 1.2278.
2
2
0
0
2
2
1
1
2
2
0
0
2
2
0
0
UUSS$$000000
UUSS$$000000
Net income attributable to equity holders of the Bank 63,659 16,946
Net income per share
12.0c
3.0c
Total assets 16,266,679 15,851,843
Liquid funds 5,240,870 4,663,736
Investments and financial assets at fair value through profit or loss
4,200,402
4,233,346
Advances
6,287,671
6,410,162
Investments in equity-accounted investees
164,838
137,512
Share capital
661,443
716,850
Capital reserves
122,030
128,617
Retained earnings
492,495
477,027
Bank of Valletta p.l.c.
Annual Report 2021
169
Notes
Bank of Valletta p.l.c.
Annual Report 2021
170
Notes
Bank of Valletta p.l.c.
Annual Report 2021
171
Notes
Bank of Valletta p.l.c.
Annual Report 2021
172
Notes
Issued by Bank of Valletta p.l.c.
Bank of Valletta p.l.c. (C 2833) with registered office 58, Triq San Żakkarija, Il-Belt Valletta VLT1130 - Malta, is a public limited company
regulated by the Malta Financial Services Authority (MFSA) and is licensed to carry out the business of banking and investment services
in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta). Bank of
Valletta p.l.c. is authorised to act as a trustee by the MFSA. Bank of Valletta p.l.c. is an enrolled Tied Insurance Intermediary under the
Insurance Distribution Act (Cap. 487 of the Laws of Malta) for MAPFRE MSV Life p.l.c. (MMSV). MMSV (C-15722) is authorised under
the Insurance Business Act (Cap. 403 of the Laws of Malta) to carry out long term business of insurance. Both entities are regulated by
the MFSA with address Triq L-Imdina, Central Business District, Birkirkara CBD 1010 – Malta.
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