Izola Bank p.l.c.
Annual Report
and
Financial Statements
2025
Company Registration Number: C 16343
Izola Bank p.l.c.
Annual Report 2025
Contents
Directors’ and Other Statutory Reports
Financial Statements
Independent Auditor’s Report
Appendices
Izola Bank p.l.c.
Directors’ and
Other Statutory Reports
2025
Izola Bank p.l.c.
Page
Chairperson’s Statement
i
Directors’ Report
iv
Directors’ Statement of Compliance with the Code of Principles of Good Corporate
Governance
vii
Report of the Remuneration and Nomination Committee
xvi
Independent Auditors’ Report - Report required by Capital Markets Rule 5.98, issued by
the Malta Financial Services Authority
109
Izola Bank p.l.c.
Chairperson’s Statement
For the Year Ended 31 December 2025
i
On behalf of the Board of Directors, I am pleased to present the Chairperson’s Statement for Izola Bank
p.l.c. for the financial year ended 31 December 2025.
Financial Performance Overview
The 2025 financial results reflect a year of disciplined balance sheet and cost management in a gradually
normalising interest-rate environment, with a clear focus on funding-cost optimisation, margin
preservation, and prudent execution. This strategic discipline is evidenced by the successful return to
profitability, representing a material turnaround in financial performance within a single year following the
challenges experienced in recent years.
The Bank generated a profit before tax of €0.68 million for the year (2024: loss of €4.1 million). Net interest
income increased by 25% to €7.7 million (2024: €6.2 million), driven by funding cost optimisation and pricing
improvements. Interest and similar income declined by 15% to €19.0 million (2024: €22.4 million), reflecting
the reduction in market interest rates and balance sheet recalibration. This reduction was more than offset
by materially lower funding costs, with interest expense decreasing by 30% to €11.3 million (2024: €16.2
million).
Fee and commission income increased to €0.31 million (2024: €0.23 million), whilst fee and commission
expenses amounted to €0.14 million (2024: €0.15 million), resulting in net fee and commission income of
€0.18 million (2024: €0.09 million).
Operating expenses declined year on year, reflecting disciplined cost control while maintaining targeted
investment in core operational capabilities. Employee compensation and benefits amounted to €3.35
million (2024: €3.40 million), and other administrative expenses decreased significantly to €3.18 million
(2024: €5.45 million), primarily the result of the absence of Depositor Compensation Scheme contributions
for the year and a significantly reduced marketing spend.
Amortisation and depreciation charges totalled €0.99 million, comprising depreciation of €0.34 million
(2024: €0.30 million) and amortisation of €0.65 million (2024: €0.85 million). The decrease in amortisation
primarily reflects the full amortisation or write-off of certain intangible assets which were decommissioned
in prior years.
Following the recognition of an income tax expense of €87,419 (2024: income tax credit of €1.1 million), the
Bank reported a profit after tax of €0.6 million, compared to a loss of €2.97 million in the prior year.
Total comprehensive income for the year amounted to €0.82 million (2024: total comprehensive loss of
€0.42 million), including other comprehensive income of €0.23 million (2024: €2.55 million). The reduction
in other comprehensive income reflects lower valuation gains on property and financial instruments
compared to the prior year.
Balance Sheet Strength and Capital Position
Izola Bank maintained a resilient balance sheet during the year, with total assets of €399.7 million (2024:
€503.8 million).
The year-on-year contraction reflects deliberate balance sheet optimisation and selective origination
aligned with margin, liquidity, and risk appetite considerations. Loans and advances to customers stood at
€136.7 million (2024: €194.0 million), while factored receivables amounted to €116.6 million (2024: €138.2
million).
Customer deposits, the Bank’s principal source of funding, totalled €338.1 million (2024: €448.6 million).
This recalibration of deposit volumes is consistent with the calibration of the asset base.
Overall, these movements reflect a focused realignment of the balance sheet to support profitability, capital
optimisation and long-term sustainability, while still preserving some capacity to support customers and to
deploy selectively as market conditions evolve.
Izola Bank p.l.c.
Chairperson’s Statement
For the Year Ended 31 December 2025
ii
The Bank closed the year with a Tier 1 capital ratio of 15.54%, comfortably exceeding the minimum
regulatory requirement, including guidance, of 12.80%.
Total equity stood at €31.5 million (2024: €30.7 million), reflecting ongoing consolidation following the
capital actions undertaken in the prior year, together with the accounting impact arising from a Malta
Financial Services Authority decision. This resulted in all Malta Government Bond holdings being accounted
for at Fair Value through Other Comprehensive Income as disclosed to the market on 30 January 2026 by
way of a Company Announcement issued in accordance with the Capital Markets Rules.
Reversal of a Correction in the Audited Financial Statements
Reference is made to the Malta Financial Services Authority’s (“MFSA”) Enforcement of Financial
Information examination of the Bank’s Annual Report and Audited Financial Statements for the financial
year ended 31 December 2023. The review focused on the IAS 8 retrospective adjustment disclosed in
relation to the initial classification of Malta Government Bonds acquired in 2021. At the time, the Bank
considered the accounting treatment adopted to be appropriate. However, the MFSA reached a different
conclusion, and, accordingly, the Bank has implemented the required reversal of the correction in its audited
financial statements, commencing with the financial year ending 31 December 2025.
This implementation includes the restatement of comparative figures, as applicable, in accordance with IAS
8, and as requested by the MFSA. While the revised accounting treatment results in a reduction in corrected
accounting equity, the Bank expects annual total comprehensive income to increase in subsequent periods
due to the recovery of unrealised fair value losses. This is anticipated to be driven by declining yields and
the corresponding increases in bond prices.
The restatement covers the following periods:
Opening position as at 1 January 2024
Financial position as at 31 December 2024
Interim figures as at 30 June 2025
Year-end figures as at 31 December 2025
The retrospective accounting adjustments do not affect reported regulatory capital ratios up to 31
December 2025. This is due to the application of the prudential treatment under Article 468 of the Capital
Requirements Regulation (CRR), which provides for the temporary exclusion of unrealised gains/losses
measured at FVOCI from own funds calculations until 31 December 2025. Under this treatment, unrealised
losses on bonds issued by euro area sovereigns and measured at FVOCI are excluded from regulatory capital.
From 1 January 2026, regulatory capital ratios (CET1, Tier 1, Total Capital, and Leverage Ratio) fully reflect
the prudential impact of relevant FVOCI movements on Own Funds and are therefore lower than reported
in 2025. Notwithstanding this impact, the Bank continues to remain above its applicable minimum
regulatory capital requirements and guidance levels.
Further details on the impact of the above-mentioned retrospective accounting adjustments on the Bank’s
financial statements are set out in Note 2.8 to the financial statements.
Strategic Developments
During 2025, the Bank continued to build on earlier achievements through a number of key strategic
initiatives designed to further enhance its operational and financial foundations.
Izola Bank p.l.c.
Chairperson’s Statement
For the Year Ended 31 December 2025
iii
Significant progress was achieved in the Bank’s digital transformation programme. Migration to the new
core and internet banking systems was successfully completed, representing a major operational milestone.
Enhancements to the enterprise data warehouse continued during the year and are progressing well, with
completion targeted for the second half of 2026. These initiatives are intended to enhance the customer
digital experience, improve operational efficiency, and strengthen the Bank’s data, risk, and reporting
capabilities.
In parallel, the Bank continued implementing a comprehensive capital action plan focused on strengthening
its regulatory capital position and improving financial performance. The plan centred on balance sheet
consolidation, prudent risk-weighted asset management to support long-term sustainability, alongside
process optimisation and cost-efficiency measures. These initiatives, together with ongoing investment in
governance, risk management, and talent development, underscore Izola Bank’s commitment to building a
resilient, agile, and customer-centric financial institution.
Outlook for 2026 and Beyond
Looking ahead, the operating environment in 2026 is expected to remain challenging and uncertain.
Heightened geopolitical tensions, including developments in the Middle East, together with ongoing
macroeconomic volatility, inflationary pressures, and evolving interest rate expectations, continue to shape
market conditions and present challenges for the banking sector.
Against this backdrop, the Bank’s priorities for 2026 are firmly centred on preserving financial stability and
sustaining capital and liquidity strength within a disciplined and prudent risk framework. Despite potential
headwinds affecting near-term performance, the Board and senior management remain focused on
disciplined execution and ensuring ongoing balance-sheet resilience.
In parallel, senior management remains fully committed to the continued strengthening of governance, risk
management, and operational capabilities. The Bank will also continue progressing its digital transformation
initiatives, supporting operational efficiency and service quality, while maintaining a cautious and measured
approach to business activity.
Despite the external challenges, the Board is confident that the actions being undertaken will support the
Bank’s resilience and sustainability, enabling it to navigate a complex and uncertain environment while
remaining focused on the interests of its customers, shareholders, and other stakeholders.
Separately, the shareholders have advised the Board that discussions remain ongoing with multiple
potential investors regarding a possible change in the Bank’s ownership structure. The Board will consider
any binding offer once it is formally submitted and subject to receipt of all necessary regulatory approvals.
Conclusion
I remain confident that Izola Bank is well-positioned to navigate future challenges and capitalise on
opportunities as they arise.
On behalf of the Board of Directors, I would like to express our sincere appreciation to our customers for
their continued trust, to our shareholders for their ongoing support, and to our employees for their
professionalism, commitment, and resilience.
Ms. Caroline Van Marcke
Chairperson/Director
Izola Bank p.l.c.
29 April 2026
Izola Bank p.l.c.
iv
Directors' Report
For the Year Ended 31 December 2025
The directors have prepared this report for Izola Bank p.l.c. ("the Bank"), in accordance with Article 177 of
the Companies Act 1995 (Chapter 386, Laws of Malta) ("the Act"), including the further provisions as set out
in the sixth schedule of the Act, together with the financial statements of the Bank for the year ended 31
December 2025.
Board of directors
The directors who served throughout the year were as follows:
Members
Ms. Caroline Van Marcke (Chairperson)
Ms. Magdalena De Roeck
Mr. Simon Azzopardi
Mr. Francis Gouder (resigned 29 April 2025)
Mr. Alain Malschaert
Mr. Andrew Mifsud
Mr. Guido Mizzi
Mr. Patrick H. Van Leynseele
Mr. David Demarco (appointed 1 October 2025)
Company secretary
Mr. Calvin Bartolo (resigned 31 October 2025)
Dr. Mikiel Calleja (appointed 31 October 2025)
Principal activities
Izola Bank p.l.c. is registered in Malta as a public limited liability company under the Companies Act, 1995
(Chapter 386, Laws of Malta). The Bank is licensed by the Malta Financial Services Authority to carry out the
business of banking in terms of the Banking Act, 1994 (Chapter 371, Laws of Malta).
The Bank is principally engaged in providing corporate banking and factoring services to resident and non-
resident customers, including related parties, with simple and easy-to-use savings products for both local
and foreign individuals and businesses.
A review of the business of the Bank for the year ended 31 December 2025and an indication of future
developments are provided in the Chairperson’s Statement, which can be found in the front section of this
Annual Report.
Principal risks and uncertainties
The main risks that the Bank has identified are credit risk arising from changes in credit quality and the
recoverability of loans and amounts due from Maltese and Belgian counterparties; concentration risk arising
from an uneven distribution of counterparties; and liquidity and interest rate risks, which are inherent in
the nature of the banking business. Other risks which are closely monitored by management include foreign
exchange risk and investment price risk, reputational risk, operational risk, as well as cybersecurity and
business continuity risks.
Izola Bank p.l.c.
v
Directors’ Report – continued
For the Year Ended 31 December 2025
Risk management policies have been established to identify and analyse the risks faced by the Bank, to set
out appropriate risk limits and controls, and to monitor risks and adherence to limits. A detailed overview
of these risks, together with the respective financial metrics are outlined in Note 4 of the Financial
Statements.
Directors' responsibilities for the financial statements
The Directors are required by the Companies Act, 1995, to prepare financial statements which give a true
and fair view of the state of affairs of the Bank as at the end of each reporting period and of the profit or
loss for that period. In preparing the financial statements, the Directors are responsible for:
• ensuring that the financial statements have been drawn up in accordance with International
Financial Reporting Standards as adopted by the EU;
• selecting and applying appropriate accounting policies;
• making accounting estimates that are reasonable in the circumstances; and
• ensuring that the financial statements are prepared on the going concern basis unless it is
inappropriate to presume that the Bank will continue in business as a going concern.
The Directors are also responsible for designing, implementing and maintaining such internal controls as
they deem necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and that comply with the Companies Act, 1995 and the
Banking Act, 1994. They are also responsible for safeguarding the assets of the Bank and, hence, for taking
reasonable steps to prevent and detect fraud and other irregularities.
The financial statements of the Bank for the year ended 31 December 2025 are included in this Annual
Report and made available on the Bank’s website. The Directors are responsible for the maintenance and
integrity of the Annual Report on the website, given their responsibility for the controls over, and the
security of, the website. Access to information published on the Bank’s website is available in other
countries and jurisdictions where legislation governing the preparation and dissemination of financial
statements may differ from requirements or practice in Malta.
Dividends and reserves
In the interest of preservation of capital and liquidity, the Directors have neither declared an interim
dividend nor proposed the payment of a final dividend for the financial year 31 December 2025.
Going concern pursuant to Capital Markets Rule 5.62
As required by the Capital Markets Rule 5.62, upon due consideration of the Bank’s performance, financial
position, capital adequacy and solvency, the Directors confirm that, at the time of approving these Financial
Statements, the Bank is capable of continuing to operate as a going concern for the foreseeable future.
Information pursuant to Capital Markets Rule 5.64
The Bank does not have any listed securities carrying voting rights.
Izola Bank p.l.c.
vi
Directors’ Report – continued
For the Year Ended 31 December 2025
Statement of the Directors pursuant to Capital Markets Rule 5.68
The Directors confirm that, to the best of their knowledge:
• the financial statements give a true and fair view of the financial position of the Bank as at 31
December 2025, and of its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards as adopted by the EU; and
• the Annual Report provides a fair review of the Bank’s business development and performance, as
well as its financial position, together with a description of the principal risks and uncertainties
faced during the year.
Information pursuant to Capital Markets Rule 5.70.1
The Bank provides a range of banking services to the Van Marcke Group, of which the Bank itself is a
member. Ms. Caroline Van Marcke, Ms, Magdalena de Roeck, and Mr. Patrick Van Leynseele are indirectly
interested in this business relationship by virtue of their directorships of various companies within the Van
Marcke Group.
Further details can be found within Note 31 of the Financial Statements.
Information pursuant to Capital Markets Rule 5.68
Pursuant to Capital Markets Rule 5.68, we, the undersigned, declare that to the best of our knowledge the
financial statements included in the Annual Report, and prepared in accordance with the requirements of
International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Bank, and that the Directors’ Report includes a fair
review of the development and performance of the business and position of the Bank, together with a
description of the principal risks and uncertainties that it faces.
Auditors
BDO Malta has expressed its willingness to continue in office. A resolution proposing the re-appointment of
BDO Malta as auditors of the Bank will be submitted at the forthcoming Annual General Meeting.
Signed on behalf of the Board of Directors on 29 April 2026 by Mr. Andrew Mifsud (Chief Executive
Officer/Director) and Mr. Guido Mizzi (Director) as per the Directors' Declaration on ESEF Annual Financial
Report submitted in conjunction with the Annual Financial Report.
Registered Address
4 Castille Place,
Valletta
VLT 1062
Malta
Tel: +356 27922040
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
vii
Pursuant to Capital Markets Rule 5.97 as issued by the Malta Financial Services Authority, Izola Bank p.l.c.
(the ‘Bank’) hereby includes a Statement of Compliance reporting on the extent to which the Bank has
adopted the Code of Principles of Good Corporate Governance appended as Appendix 5.1 to the said
Capital Markets Rules (the ‘Principles’) and the effective measures that the Bank has taken to ensure
compliance with these Principles during the financial year under review.
Introduction
The adoption of the Principles is not mandatory; however, the Board of Directors (the ‘Board’) of Izola Bank
p.l.c. believes that the adoption of these Principles is in the best interest of the Bank and its shareholders.
The Bank applies all the provisions of the Code of Principles of Good Corporate Governance (the
"Principles"), save where there exist circumstances that warrant non-adherence thereto, as outlined in Part
Two of this Statement. During the financial year under review, the Bank did not apply any corporate
governance practices beyond those required by national law.
PART ONE - Compliance with the Code
Principle 1: The Board
The Bank is headed by an effective Board, and all directors exercise prudent controls which enable risk to
be assessed and managed. The Board is composed of members who are honest and competent, making
them fit and proper to conduct the business of the Bank. The directors are of the appropriate calibre, having
the necessary experience to provide leadership, integrity, and judgement in directing the Bank. All directors
are responsible for determining the Bank’s strategic aims and its organisational structure. The directors
regularly review management performance and ensure that the Bank has the appropriate mix of financial
and human resources to meet its objectives. Every director is conversant with the statutory and regulatory
requirements connected to the business of the Bank and regularly attends meetings of the Board. Directors
are appointed by the shareholders during the Bank’s Annual General Meeting for a period of one year.
The Board delegates specific responsibilities to the Audit and Risk Committee, the Remuneration and
Nomination Committee, the Credit Committee, the Strategy Committee and the Asset and Liability
Committee. Each Committee has its own terms of reference, which are in turn approved by the Board.
Principle 2: Chairperson and Chief Executive Officer (‘CEO’)
The Bank’s current organisational structure includes the positions of CEO and Chairperson, both held by
different individuals. In line with the Board of Directors’ terms of reference, there is a clear division of
responsibilities between the running of the Board and the CEO’s responsibility for managing the Bank’s
business. The separation of the roles of the Chairperson and the CEO prevents the concentration of
authority and power in a single individual.
The Chairperson is responsible for leading the Board and setting out the agenda, and ensuring that the
directors receive precise, timely and objective information so that they can take sound decisions and
effectively monitor the performance of the Bank.
During the Board meeting, the Chairperson encourages active engagement from all Board members and
ensures that the opinions of all directors are considered when discussing complex or contentious issues.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
viii
Principle 2: Chairperson and Chief Executive Officer (‘CEO’) - continued
The CEO is responsible for driving and delivering performance within strategic goals and business plans
agreed by the Board. He actively leads the senior management in the day-to-day running of the Bank and
the execution of the agreed strategy. He makes decisions on all matters affecting the business's operations,
performance, and strategy, except those reserved for the Board or specifically delegated by the Board to its
Committees.
Principle 3: Composition of the Board
The Board considers that it is of sufficient size for the requirements of the business and its members possess
the required diversity of knowledge and experience to properly execute their duties as directors. Each of
the directors is skilful, competent, knowledgeable, and experienced, and is able to fulfil the role diligently.
The CEO was appointed to the Board of Directors in 2019 and provides the Board with all necessary
management and operational information.
During the year under review, the Board consisted of four independent Non-Executive Directors, three Non-
Independent Non-Executive Directors, including the Chairperson (as set out in the Directors’ Report) and
one Executive Director, being the CEO. In determining the independence of its directors, the Board has
referred to the principles relating to independence contained in the Code. Each independent non-executive
director has made a declaration in writing to that effect in line with the requirements emanating from Code
Provisions 3.4. All directors shall disclose their interests and external commitments, both ahead of their
appointment and, where significant changes arise, during their tenure as directors. This ensures that
directors’ business interests and commitments do not give rise to potential conflicts of interest and allow
them to devote the necessary time and attention to properly execute their duties on the Board.
Principle 4: Responsibilities of the Board
The Board’s role and responsibility is to execute the four basic functions of corporate governance, namely:
accountability, monitoring, strategy formation and policy development.
The Board regularly reviews and evaluates corporate strategy, major operational and financial plans, risk
policy and performance objectives, and monitors implementation and corporate performance within the
parameters of all relevant laws, regulations, and codes of best business practice. The Board ensures that
policies and procedures are in place to maintain the highest standards of corporate conduct, including
compliance with laws, regulations, business and ethical standards by the Bank and its employees.
Board members receive regular training and information sessions on topical matters, such as developments
in banking regulation and emerging trends in the industry.
The Board requires management to constantly monitor performance and, at least quarterly, report to its
satisfaction fully and accurately on the key performance indicators (‘KPIs’). Business risks and KPIs are
benchmarked against industry norms to effectively evaluate the Bank’s performance.
The Board delegates specific responsibilities to the following Committees:
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
ix
Principle 4: Responsibilities of the Board - continued
Board Committees
Audit and Risk Committee
The Audit and Risk Committee’s Terms of Reference include monitoring the financial reporting process, the
effectiveness of the Bank’s internal control, internal audit, and risk management systems, and the statutory
audit of the Bank’s annual financial statements. The vetting and approvals of related party transactions,
which remain consistent from year to year, are handled by the same Committee.
The Audit and Risk Committee protects the interests of the Bank’s shareholders and assists 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 always maintained at a high level. It ensures that the Bank maintains a
robust finance function responsible for accounting and financial data. This Committee has non-executive
responsibility for oversight of, and advice to, the Board on matters relating to financial reporting. The
Committee monitors the integrity of the Bank’s financial statements, any formal announcements relating
to the Bank’s financial performance, and reviews significant financial reporting judgements contained
therein.
The Committee approves the internal audit work plan, which will include an assessment of controls relating
to financial reporting and other risks as appropriate. The Audit and Risk Committee is also responsible for
providing recommendations to the Board regarding the appointment of the external auditors, reviewing
and monitoring their independence, and assessing the effectiveness of the statutory audit process.
In terms of Capital Markets Rules 5.117, 5.118 and 5.119, the Audit and Risk Committee comprises three
non-executive directors. Mr. Guido Mizzi and Mr. Simon Azzopardi serve as non-executive directors and are
considered independent, as they are free from any business, family or other relationships with the Bank or
its management that could give rise to a conflict of interest or impair their judgement.
The Chairman of the Audit and Risk Committee is appointed by the Board of Directors.
In terms of Capital Markets Rule 5.119, Mr. Guido Mizzi is the director whom the Board considers
independent of the Bank and competent in accounting, given his extensive experience as a former managing
partner of a local accountancy firm. Mr. Van Leynseele is a partner in a Brussels law firm and a member of
the Bar in both Brussels and New York. Mr. Azzopardi has an extensive background in product development,
predominantly in the financial services sector and technology-focused businesses.
All three directors have experience serving on various other boards and are considered competent to fulfil
their responsibilities as members of the Audit and Risk Committee of the Bank. The Board thus considers
that the committee members have the competence relevant to the banking sector.
Meetings held: 6
Members Attended
Mr. Guido Mizzi (Chairperson) 6
Mr. Simon Azzopardi 6
Mr. Patrick H. Van Leynseele 5
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
x
Principle 4: Responsibilities of the Board - continued
Other Board members have the right to attend the meetings. The Audit and Risk Committee has direct
access to the Head of Finance and Treasury, who is responsible for the preparation and integrity of financial
statements. The Head of Risk and Compliance has a direct reporting line to the Audit and Risk Committee.
S/he is responsible for ensuring proper execution of the risk management and control framework. The Head
of ICT, who is responsible for the maintenance of internal controls in relation to Information and
Communications Technology (‘ICT’), attends meetings when ICT-related topics are discussed. Both the
internal and external auditors are also invited to attend meetings on an ad-hoc basis. The Company
Secretary acts as Secretary to the Committee.
Remuneration and Nomination Committee
In its nomination function, the Committee is primarily tasked with identifying and nominating new Board
candidates for the Board's approval. The Committee periodically assesses the structure, size, composition,
and performance of the Board and makes recommendations to the Board regarding any changes. The
Committee is also responsible for periodically assessing the skills, knowledge, and experience of individual
directors, and of the Board collectively, and reporting on this to the Board. It is also tasked with reviewing
the remuneration structure for the Bank’s senior management and all staff, evaluating the impacts of
remuneration considerations on its overall risk profile and corporate culture.
The Remuneration and Nomination Committee is composed of three non-executive directors, two of whom
are independent and meets at least once a year. The Remuneration and Nomination Committee is tasked
with overseeing performance and remuneration practices, making proposals to the Board on the
remuneration policy for directors and leading the process for Board appointments.
The Committee also assesses the size, composition and performance of the Board and the individual and
collective suitability of directors. The terms of reference of this Committee are in line with Code Provisions
of 8.A.2 - 8.A.6 and 8.B.2 - 8.B.8.
Further information on the Bank’s remuneration practices is included within the Report of the
Remuneration and Nomination Committee immediately following the Directors’ Statement of Compliance
with the Code of Principles of Good Corporate Governance.
Meetings held: 2
Members Attended
Mr. Francis Gouder (Chairperson - (resigned 29 April 2025)) 0
Mr. Alain Malschaert (Interim Chairperson) 1
Mr. David Demarco (Chairperson - (appointed 1 October 2025)) 1
Ms. Caroline Van Marcke 2
Mr. Patrick H. Van Leynseele 2
The Company Secretary acts as Secretary to the Committee.
Credit Committee
The Credit Committee shall consist of at least three members, the majority of whom shall be directors. To
secure management representation, the Chief Executive Officer shall serve as an ex officio member of the
Credit Committee. The Head of Risk and Compliance shall be a non-voting member.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
xi
Principle 4: Responsibilities of the Board - continued
The Chairperson shall be an independent non-executive director. It operates within Board-approved credit
sanctioning limits. Proposals falling outside the Committee’s limits are referred, together with the
Committee’s recommendations, to the Board for consideration and determination.
Meetings held: 5
Members Attended
Mr. Alain Malschaert (Chairperson) 5
Mr. Francis Gouder (resigned 29 April 2025) 1
Mr David Demarco (appointed 1 October 2025) 1
Mr. Andrew Mifsud 5
Mr. John Abdilla (non-voting member) 5
Following 29 April 2025, Mr Francis Gouder acted as consultant to the Committee and attended the
remaining four meetings in that capacity. The Head of Commercial Banking and Operations regularly
attends the meetings, whereas the Company Secretary acts as Secretary to the Committee.
Strategy Committee
The Committee is responsible for making recommendations to the Board of Directors regarding the Bank’s
business model and forward-looking strategy, taking into account the risks and opportunities associated
with various strategies. The Committee is also responsible for analysing the implementation of the business
model and strategy or any changes thereto, including any potential ICT implications.
It is composed of three directors and meets at least once a year. The Bank’s Senior Management team and
other bank executives may be invited to attend meetings. The Company Secretary acts as Secretary to the
Committee.
No Strategy Committee meetings were held in 2025, as strategic matters were addressed directly by the
Board during the year.
Members
Mr. Simon Azzopardi (Chairperson)
Ms. Caroline Van Marcke
Mr. Andrew Mifsud
Asset and Liability Management Committee (ALCO)
The ALCO meets at least quarterly to monitor the Bank’s financial performance, and review and manage
financial risks in accordance with Bank policies, namely: interest rate, liquidity and funding risk, solvency,
market sector and country risk, and counterparty and foreign exchange risk. The ALCO reports to the Board
quarterly.
The ALCO is chaired by the CEO and is composed of the Head of Finance and Treasury, the Head of Risk and
Compliance and the Assistant Treasury Manager. The Assistant Treasury Manager acts as Secretary to the
Committee.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
xii
Principle 4: Responsibilities of the Board - continued
Meetings held: 4
Members Attended
Mr. Andrew Mifsud (Chairperson) 4
Mr. Calvin Bartolo (Resigned on 31 October 2025) 4
Mr. Kurt Grima (Resigned on 31 December 2025) 4
Mr. John Abdilla 4
Mr. Joseph Cauchi 4
Principle 5: Board Meetings
During the financial year ended 31 December 2025, the Board met eight times. Notice of the dates of
forthcoming meetings, together with all board papers, was circulated well in advance to the directors so
that they had ample opportunity to consider the information and prepare for each meeting.
After each Board meeting and before the next meeting, minutes that faithfully recorded attendance and
decisions were prepared and circulated to all directors.
Attendance of the Board members during the financial year ended 31 December 2025 was as follows:
Meetings Held: 8
Members Attended
Ms. Caroline Van Marcke (Chairperson) 8
Ms. Magdalena De Roeck 8
Mr. Simon Azzopardi 7
Mr. Francis Gouder (resigned 29 April 2025) 2
Mr. Alain Malschaert 8
Mr. Andrew Mifsud 8
Mr. Guido Mizzi 8
Mr. Patrick H. Van Leynseele 6
Mr. David Demarco (appointed 1 October 2025) 2
Company Secretary
Mr. Calvin Bartolo (resigned 31 October 2025)
Dr. Mikiel Calleja (appointed 31 October 2025)
Principle 6: Information and Professional Development
The CEO and Company Secretary brief all new directors on the Bank’s organisation, activities, and their
responsibilities as directors.
When they judge it necessary, all directors can access independent professional advice at the Bank’s
expense to enable them to discharge their responsibilities as directors. All directors also have access to the
services of the Company Secretary for advice on all governance matters.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
xiii
Principle 6: Information and Professional Development- continued
The Bank is committed to providing for the development and training of management and employees. The
Board is updated at least annually with the latest staff development programme. In accordance with Code
Provision 6, the Board is responsible for the appointment of the CEO, whilst, in line with Code Provision 6.5,
the CEO is responsible for the recruitment and appointment of senior management. Training of
management and employees is a priority, and, in this respect, access to internal and external training is
provided by the Bank to management and employees.
The Bank also has a system in place which monitors management and staff engagement. As part of
succession planning and talent management, the Board and the CEO ensure that the Bank implements
appropriate schemes to recruit, retain and motivate high-quality staff members.
Principle 7: Evaluation of the Board’s Performance
The Board has established the Remuneration and Nomination Committee to periodically review and
monitor the effectiveness of the Bank’s Board suitability policy and to guide the execution of suitability
assessments of directors. The Chairperson reports on the Committee’s activities and submits
recommendations on areas falling within its remit upon request of the Board of Directors. In line with its
policies, the Bank performs a suitability assessment every 2-3 years, with the most recent performed in
September 2025.
The Committee may request information or reports from internal departments to facilitate discussions and
decision-making. It may also provide guidance on how policies pertaining to performance, remuneration
and training are to be communicated internally.
Principle 8: Committees
The Board established a Remuneration and Nomination Committee to oversee matters of remuneration
and nomination in line with best practice. More detailed information regarding remuneration is presented
in the Report of the Remuneration and Nomination Committee following the Directors’ Statement of
Compliance with the Code of Principles of Good Corporate Governance.
Principles 9 and 10: Relations with Shareholders and with the Market and Institutional Shareholders
The Bank provides the market with regular, timely, accurate and detailed information in accordance with
the requirements of the Capital Markets Rules by way of company announcements.
The Bank communicates with its shareholders through the Bank’s Annual General Meeting as well as by way
of the Annual Report and Financial Statements.
The Bank has an Internal Code of Dealing Policy to give guidance to the Bank’s directors and employees on
procedures to be followed when dealing in the Bank’s securities and on the treatment of Inside Information
in line with the provisions of the Market Abuse Regulation and any related subsidiary legislation and
regulations.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
xiv
Principles 9 and 10: Relations with Shareholders and with the Market and Institutional Shareholders -
continued
The Bank’s shareholders are not custodians, banks, financial institutions, fund managers, stockbrokers, or
investment managers; therefore, Principle 10 is not applicable.
Principle 11: Conflicts of Interest
The directors are always strongly aware of their responsibility to act in the interest of the Bank and its
shareholders and of their obligation to avoid conflicts of interest. The latter may and do arise on specific
matters. In such instances, the Bank ensures that such conflicts, actual or potential, are managed in the best
interest of the Bank. Each director is required to disclose in full any matter where there is a potential or
actual conflict of interest, whether such conflict arises from personal interests or the interests of the
companies in which such person is a director or officer. To effectively mitigate potential conflicts of interest,
the Bank has implemented a comprehensive and robust framework.
Directors do not participate in a discussion concerning matters in which they have a conflict of interest
unless the Board finds no objection to the presence of such a director. In any event, the director shall refrain
from voting on the matter.
On joining the Board and regularly thereafter, the directors are informed of their obligations on dealing in
securities of the Bank within the parameters of the law, including the Capital Markets Rules, and the
directors follow the required procedures. Interests of directors are disclosed within Note 31 - Related Parties
- to the accompanying Financial Statements.
Principle 12: Corporate Social Responsibility
The Bank’s approach to CSR is to invest in community-based organisations that directly address pressing
issues within the country – issues that, if left unattended, would have dire consequences for people in need.
Foodbank Lifeline Foundation
Since 2018, the Bank has proudly served as an official sponsor of Foodbank Lifeline Foundation Malta, an
esteemed NGO dedicated to providing essential food assistance to individuals in immediate need,
irrespective of their background.
Over the years, the Bank’s collaboration with Foodbank Lifeline has remained constant, reflecting its
unwavering commitment to addressing food insecurity in Malta. The Bank’s financial backing has enabled
the Foundation to cultivate a robust online presence, garnering significant engagement and support across
various platforms.
An annual highlight in recent years, the Reverse Advent Calendar Campaign is an initiative co-led by Izola
Bank and Foodbank Lifeline. Embraced eagerly by local stakeholders, including schools and businesses, this
campaign embodies the spirit of giving and solidarity within the community.
Izola Bank p.l.c.
Directors’ Statement of Compliance with the Code of Principles of
Good Corporate Governance
xv
PART TWO – Non-Compliance with the Code
Principle 2 – Code Provision 2.3
The Chairperson of the Bank cannot be considered independent in accordance with the principles relating
to independence contained in the Code.
Principle 4 – Code Provision 4.2.7
The Code Provision recommends that the Board develops a succession policy for the future composition of
the Board and particularly the executive component thereof, for which the Chairman should hold key
responsibility. The Board does not have a succession policy in place for the future composition of the Board
of Directors. This approach may be revised in the future in line with changes to the Bank’s size and/or
organisational structure.
Principle 6 – Code Provision 6.4.4
Code Provision 6.4.4 recommends that the CEO establishes a succession plan for senior management. The
Bank does not have a formal succession plan in place for senior management. This approach may be revised
in the future in line with changes to the Bank’s size and/or organisational structure.
Principle 7 – Code Provision 7.3
Code Provision 7.3 recommends that the non-executive directors be responsible for the evaluation of the
Chairperson, taking into account the views of the executive director. This evaluation has not been adopted
but may be revised in light of future policy changes.
Capital Markets Rule 5.97.4
The information required by this Capital Markets Rule is found in the Directors’ Report, within the Directors’
Responsibilities section.
The Directors’ Statement of Compliance with the Code of Principles of Good Corporate Governance was
approved by the Board of Directors on 29 April 2026.
Izola Bank p.l.c.
Report of the Remuneration and Nomination Committee
For the Year Ended 31 December 2025
xvi
Governance
The Bank’s Remuneration and Nomination Committee comprises three non-executive directors and is
tasked with overseeing the Bank’s remuneration and nomination practices. Information regarding the
Committee's functions, composition, and attendance at meetings is disclosed within the Directors’
Statement of Compliance with the Code of Principles of Good Corporate Governance.
The Remuneration Policy was updated and approved by the Board of Directors at its meeting on 27
November 2025.
Remuneration Policy
The Bank’s Remuneration Policy aims to increase transparency in remuneration matters, to support the
business goals of the Bank through efficient remuneration structures, and to create common basic values
and guidelines for the Bank when offering remuneration and benefits to the senior management team and
Directors of the Bank.
Remuneration Statement
Executive Management
Reference to senior management shall mean the CEO, the Head of Finance & Treasury, the Head of
Commercial Banking & Operations, the Head of IT, the Head of Risk and Compliance, and the Head of Human
Resources. The Board is of the opinion that the remuneration packages for senior management are in line
with local market expectations and are at an appropriate level to attract and retain executives with the
appropriate skills, qualities, and experience to ensure the effective management of the Bank.
The terms and conditions of senior management employment are set out in the respective indefinite
employment contracts. Senior management is not entitled to share options or profit sharing. There are no
supplementary pension or early retirement schemes in place, and notice periods are as established by law.
Senior management is eligible for an annual salary increase and a discretionary performance bonus (not
exceeding fixed remuneration) in line with the Bank’s overall performance, individual performance and
general market remuneration trends.
Senior management is entitled to non-cash benefits, including the use of a company car or equivalent car
cash allowance. Other benefits afforded to all staff members, including senior management, are personal
accident, life, and health insurance coverage.
Loans amounting to €549,330 were advanced to key management personnel as disclosed in Note 31.3 to
the financial statements.
There have been no significant changes in the Bank’s remuneration policy for senior management during
the year under review. During 2025, the Bank continued offering all staff members, including senior
management, subsidies on home and personal loan interest rates.
Total emoluments of senior management for the year ended 31 December 2025 are as follows:
Fixed Remuneration
Variable Remuneration
Share Options
Others
€682,375
€68,770
None
Non-cash benefits
referred to
immediately above.
Izola Bank p.l.c.
Report of the Remuneration and Nomination Committee
For the Year Ended 31 December 2025
xvii
Remuneration Statement - continued
Executive Management - continued
During the year under review, no special payments (sign-on and/or severance pay), payments exceeding €1
million or any payments subject to deferral were made to key management personnel.
Directors
As of 31 December 2025, the Board was composed of non-executive directors and one executive director.
The maximum annual aggregate emoluments that may be paid to the directors are approved by the
shareholders in a General Meeting. This amount was fixed at an aggregate sum of €175,000 at the Annual
General Meeting held on 29 April 2025.
None of the directors had service contracts with the Bank as at the end of the financial year.
Furthermore, none of the directors, in their capacity as directors of the Bank, are entitled to profit sharing,
share options, pension benefits or any other remuneration.
In line with the Bank’s Remuneration Policy, none of the Directors are eligible to receive variable
remuneration as Directors. In this respect, there is no formal provision for the reclamation of variable
remuneration.
Total emoluments received by directors relative to their directorship of the Bank in respect of the financial
year ended 31 December 2025 are disclosed in the table below:
Fixed Remuneration
Variable Remuneration
Share Options
Others
€131,665
None
None
None
Izola Bank p.l.c.
Financial Statements
2025
Izola Bank p.l.c.
Financial Statements:
Page
Statement of Profit or Loss and Other Comprehensive Income
1
Statement of Financial Position
2
Statement of Changes in Equity
3
Statement of Cash Flows
5
Notes to the Financial Statements
7
Independent Auditors’ Report
109
1
Izola Bank p.l.c.
Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended 31 December 2025
Notes
2025
2024
€
€
Interest and similar income
5
18,995,324
22,354,878
Interest expense
5
(11,299,459)
(16,177,770)
Net interest income
7,695,865
6,177,108
Fee and commission income
6
311,814
233,584
Fee and commission expense
6
(136,144)
(145,966)
Net fee and commission income
175,670
87,618
Net trading loss
7
(103,749)
(186,045)
Other operating income/(loss)
8
219,223
(124,213)
Total operating income
7,987,009
5,954,468
Depreciation of property and equipment
18
(341,155)
(301,862)
Amortisation of intangible assets
19
(648,492)
(848,309)
Changes in expected credit losses and other credit
impairment charges
9
212,298
(42,279)
Employee compensation and benefits
10
(3,348,161)
(3,397,525)
Other administrative expenses
10
(3,179,048)
(5,446,469)
Profit/(Loss) before tax
682,451
(4,081,976)
Income tax (expense)/credit
11
(87,419)
1,112,204
Profit/(Loss) for the year
595,032
(2,969,772)
Other comprehensive income
Items that will not be reclassified to profit or loss
Gain on property revaluation
-
1,000,000
Income taxes
55,983
(228,112)
55,983
771,888
Items that may be reclassified subsequently to profit or
loss
Debt instruments measured at fair value through
other comprehensive income:
- Net movement in fair value, before tax
389,303
2,733,715
- Movement in expected credit losses, before tax
(26,879)
1,865
- Related tax
(192,181)
(957,453)
170,243
1,778,127
Other comprehensive income for the year, net of tax
226,226
2,550,015
Total comprehensive income for the year, net of tax
821,258
(419,757)
Earnings per share
12
1c03
(5c12)
The accompanying notes on pages 7 to 108 are an integral part of these financial statements.
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-
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-
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-
--
-
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--
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-
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2
Izola Bank p.l.c.
Statement of Financial Position
As at 31 December 2025
Notes
31 December 2025
31 December 2024
Restated
1 January 2024
Restated
€
€
€
ASSETS
Balances with Central Bank of Malta and cash
cash
13
47,626,503
57,483,508
56,242,720
Loans and advances to banks
14
5,760,799
4,168,921
6,757,337
Financial Investments
15
64,586,170
81,629,749
92,894,978
Factored receivables
16
116,591,575
138,236,733
140,049,872
Loans and advances to customers
17
136,701,167
194,013,127
180,964,061
Property and equipment
18
11,088,564
11,157,880
13,939,136
Property held for sale
18
4,838,007
4,838,007
-
Intangible assets
19
5,190,144
4,155,696
3,630,203
Deferred tax asset
25
5,600,364
2,993,32574,25277
44
5,632,796
2,993,32574,25277
44
5,252,276
2,993,32574,25
27744
Current tax asset
74,252
74,252
183,341
Other assets
20
1,630,705
2,456,536
2,310,022
Total assets
399,688,250
503,847,205
502,223,946
LIABILITIES
Amounts owed to institutions
21
10,000,000
-
20,000,000
Amounts owed to banks
22
-
-
271,105
Amounts owed to customers
23
338,081,138
448,613,950
429,743,262
Debt securities in issue
24
13,755,590
16,773,480
16,861,501
Deferred tax liability
25
1,365,993
808,0578,343,3566,
558,062
1,174,806
808,0578,393,3566,
558,062
808,057
808,088,393,35
66,558,062
Accruals and other liabilities
26
4,937,363
6,558,061
8,393,356
Total liabilities
368,140,084
473,120,297
476,077,281
EQUITY
Called up share capital
27
29,000,000
29,000,000
29,000,000
Capital contribution reserve
27
2,032,675
2,032,675
32,675
Perpetual capital notes
27
3,000,000
3,000,000
-
Property revaluation reserve
27
4,795,243
4,739,260
3,967,372
Fair value reserve
27
(5,402,405)
(5,572,648)
(7,350,775)
Depositor compensation scheme reserve
-
-
1,038,647
Reserve for general banking risk
-
-
55,025
Accumulated losses
27
(1,877,347)
(2,472,379)
(596,279)
Total equity
31,548,166
30,726,908
26,146,665
Total liabilities and equity
399,688,250
503,847,205
502,223,946
Memorandum items
Commitments
28
54,812,271
179,182,237
288,377,842
The accompanying notes on pages 7 to 108 are an integral part of these financial statements.
The financial statements on pages 7 to 108 were approved and authorised for issue by the Board of Directors
on 29 April 2026. The financial statements were signed on behalf of the Bank's Board of Directors by Mr.
Andrew Mifsud (Chief Executive Officer) and Mr. Guido Mizzi (Director) as per the Directors' Declaration on
ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial Statements
2025.
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·=·
·
:::··
·
:::··
·
:::··
·
:::··
·
::::··
·
::::··
·
::::··
·
=··
·
=··
·:::··:::·· ::::
...
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...
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...
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...
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...
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...
:::
...
:::
..
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...
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...
3
Izola Bank p.l.c.
Statement of Changes in Equity
For the Year Ended 31 December 2025
Share
Capital
Property
Revaluation
Reserve
Fair Value
Reserve
Depositor
Compensation
Scheme
Reserve
Capital
Contribution
Reserve
Perpetual
Capital Notes
Reserve
Reserve For
General
Banking
Risks
Accumulated
Losses
Total
€
€
€
€
€
€
€
€
€
Balance at 1 January
2025
29,000,000
4,739,260
(5,572,648)
-
2,032,675
3,000,000
-
(2,472,379)
30,726,908
Profit for the year
595,032
595,032
Other comprehensive
income
55,983
170,243
-
226,226
Total comprehensive
income for the year
55,983
170,243
-
595,032
821,258
Balance at 31 December
2025
29,000,000
4,795,243
(5,402,405)
-
2,032,675
3,000,000
-
(1,877,347)
31,548,166
The accompanying notes on pages 7 to 108 are an integral part of these financial statements.
4
Izola Bank p.l.c.
Statement of Changes in Equity
For the Year Ended 31 December 2025
Depositor
Compensation
Perpetual
Reserve
for
Called up
Revaluation
Fair value
Scheme
Capital
Capital
General
Accumulated
share capital
reserve
reserve
reserve
contribution
notes
risks
losses
Total
€
€
€
€
€
€
€
€
€
Balance at 1 January 2024, as previously reported
29,000,000
3, 967,372
(1,708,321)
1,038,647
32,675
-
55,025
(596,279)
31,789,119
Impact of change in accounting policy
-
-
(5,642,454)
-
-
-
-
-
(5,642,454)
-
-
-
-
-
Restated balance as at 1 January 2024
29,000,000
3, 967,372
(7,350,775)
1,038,647
32,675
-
55,025
(596,279)
26,146,665
Total comprehensive income/(loss) for the year
Loss for the year
-
-
-
-
-
-
-
(2,969,772)
(2,969,772)
Other comprehensive income for the year
-
771,888
1,778,127
-
-
-
-
-
2,550,015
Total comprehensive income/(loss) for the year
-
771,888
1,778,127
-
-
-
-
(2,969,772)
(419,757)
Transfers within reserves
Other transfers
-
-
-
(1,038,647)
-
-
(55,025)
1,093,672
-
Total transfers within reserves
-
-
-
(1,038,647)
-
-
- (55,025)
1,093,672
-
Transactions with owners
Contributions by owners
-
-
-
-
2,000,000
-
-
-
2,000,000
Issue of perpetual capital notes
-
-
-
-
-
3,000,000
-
-
3,000,000
Distributions to owners
Total transactions with owners recognised directly
in equity
-
-
-
-
2,000,000
3,000,000
-
-
5,000,000
Balance at 31 December 2024
29,000,000
4,739,260
(5,572,648)
-
2,032,675
3,000,000
-
(2,472,379)
30,726,908
The accompanying notes on pages 7 to 108 are an integral part of these financial statements.
5
Izola Bank p.l.c.
Statement of Cash Flows
For the Year Ended 31 December 2025
Note
2025
2024
€
€
Cash used in/from operating activities
29
(31,434,469)
(17,121,158)
Income tax paid
-
-
Income tax refunds
-
109,089
Net cash flows used in operating activities
(31,434,469)
(17,012,069)
Cash flows from/used in investing activities
Payments to acquire property and equipment and
intangible assets
(1,954,779)
(2,900,137)
Payments to acquire investments
(865,000)
(399,300)
Proceeds from disposal of investment securities
18,646,725
13,247,605
Interest received from financial investments
1,236,753
2,037,701
Net cash flows generated from investing activities
17,063,699
11,985,869
Cash flows from/used in financing activities
Redemption of debt securities
(3,056,801)
(129,200)
Interest paid on perpetual capital notes
-
(81,333)
Proceeds from main refinancing operations
10,000,000
-
Interest paid on debt securities in issue
(837,556)
(839,790)
Capital contributions
Issue of perpetual capital notes
-
2,000,000
Issue of perpetual capital notes
-
3,000,000
Net cash flows generated from financing activities
6,105,643
3,949,677
Net decrease in cash and cash equivalents
(8,265,127)
(1,076,523)
Cash and cash equivalents at beginning of year
60,131,865
61,208,388
Cash and cash equivalents at end of year
30
51,866,738
60,131,865
The accompanying notes on pages 7 to 108 are an integral part of these financial statements.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
6
Page
Page
1
Reporting entity
7
18
Properties
92
2
Basis of preparation
7
19
Intangible assets
95
3
Material accounting policies
12
20
Other assets
95
4
Financial risk management and
review
31
21
Amounts owed to institutions
96
5
Net interest and similar income
84
22
Amounts owed to banks
96
6
Net fee and commission income
84
23
Amounts owed to customers
96
7
Net trading income
85
24
Debt securities in issue
96
8
Other operating income
85
25
Deferred tax assets and liabilities
97
9
Changes in expected credit losses
and other credit impairment
charges
86
26
Accruals and other liabilities
99
10
Loss before tax
86
27
Share capital and reserves
99
11
Income tax expense
87
28
Commitments
100
12
Earnings per share
88
29
Net cash absorbed by / from
operating activities
101
13
Balances with Central Bank of
Malta and cash
88
30
Cash and cash equivalents
102
14
Loans and advances to banks
89
31
Related parties
102
15
Financial investments
89
32
Operating segments
104
16
Factored receivables
91
33
Critical accounting estimates and
judgements
107
17
Loans and advances to customers
91
34
Subsequent events
108
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
7
1 Reporting entity
Izola Bank p.l.c. (the “Bank”) is a public limited liability company domiciled and incorporated in
Malta. The Bank is a credit institution licenced in Malta and is primarily involved in the provision of
lending and factoring services to corporate and retail customers, as well as the raising of deposits
from retail customers.
2 Basis of preparation
2.1 Statement of compliance with IFRSs as adopted by the European Union
These financial statements have been drawn up in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”),
including interpretations issued by the IFRS Interpretations Committee (“IFRIC”), and as adopted
by the European Union (“EU”).
These financial statements have also been prepared and presented in accordance with the
provisions of the Companies Act, 1995 (Chapter 386, Laws of Malta) and the Banking Act, 1994
(Chapter 371, Laws of Malta).
2.2 Basis of measurement
These financial statements have been prepared on a historical cost basis, except for:
• Financial investments measured at fair value through other comprehensive income
(“FVOCI”);
• Financial investments designated at FVOCI or at fair value through profit or loss (“FVTPL”);
and
• Property within ‘Property and equipment’ and ‘Property held for sale’ measured at
revalued amount and fair value, respectively.
2.3 Standards, interpretations and amendments to published standards effective in 2025
The following new standards, amendments and interpretations are effective for the first time in
these financial statements, but none have had a material effect on the Bank:
Issued on
Effective from
Amendments to IAS 21: Lack of
exchangeability
15/08/2023
01/01/2025
The applications of these new standards and amendments have had no impact on the disclosures
or amounts recognized in the company’s financial statements
2.4 Standards, interpretations and amendments to published standards that are not yet effective
a) New standards, interpretations and amendments as adopted by the EU but not yet effective
The following new standards, interpretations and amendments, which have not been applied
in these financial statements, will or may have an affect on the Bank’s future financial
statements:
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
8
2 Basis of preparation – continued
2.4 Standards, interpretations and amendments to published standards that are not yet effective -
continued
a) New standards, interpretations and amendments as adopted by the EU but not yet effective -
continued
Issued on
Effective from
Annual Improvements Volume 11
18/07/2024
01/01/2026
Amendments to IFRS 9 and IFRS 7 (Contracts Referencing
Nature-dependent Electricity)
18/12/2024
01/01/2026
Amendments to IFRS 9 and IFRS 7 (Amendments to the
Classification and Measurement of Financial Instruments)
30/05/2024
01/01/2026
IFRS 18: Presentation and Disclosure in Financial
Statements
09/04/2024
01/01/2027
The Bank has not early adopted all these revisions to the requirements of IFRSs and the Bank’s
management is of the opinion that, with the exception of IFRS 18, there are no requirements that
will have a possible significant impact on the Bank’s financial statements in the period of initial
application.
IFRS 18 was issued by the IASB in April 2024 and was endorsed by the European Union. It replaces
IAS 1 Presentation of Financial Statements and will be effective for annual reporting periods
beginning on or after 1 January 2027, with retrospective application required. Earlier application is
permitted.
IFRS 18 introduces significant changes to the presentation and disclosure of financial statements,
and the Bank expects that its adoption will affect the presentation of the statement of profit or loss
and the accompanying notes. In particular, IFRS 18 introduces the following key requirements
which are expected to be relevant to the Bank:
- Classification of income and expenses into defined categories within the statement of profit or
loss — namely operating, investing, financing, income taxes and discontinued operations — with
specific guidance for entities whose main business activities include providing financing to
customers (such as banks). The Bank will need to determine the appropriate classification of its
interest income, interest expense, and other items consistent with the specified activities under
IFRS 18.
- Mandatory presentation of two new defined subtotals in the statement of profit or
loss: "operating profit or loss" and "profit or loss before financing and income taxes". The
composition of these subtotals, particularly for entities with main business activities of providing
financing to customers, will require careful analysis.
- Disclosure of Management-defined Performance Measures ("MPMs") — subtotals of income and
expenses used in public communications outside the financial statements that are not specified
by IFRS Accounting Standards. IFRS 18 requires reconciliation of such measures to the most
directly comparable IFRS subtotal, together with explanations and income tax and non-
controlling interests effects.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
9
2 Basis of preparation – continued
- Enhanced requirements for the aggregation and disaggregation of information in the primary
financial statements and in the notes, based on shared characteristics.
2.4 Standards, interpretations and amendments to published standards that are not yet effective -
continued
a)
New standards, interpretations and amendments as adopted by the EU but not yet effective -
continued
The Bank is in the process of assessing the impact of IFRS 18 on its financial statements. Given the
scope and complexity of the changes — particularly the application of the categories and subtotals
to a credit institution whose main business activities include providing financing to customers
— the Bank has not yet completed a full quantitative or qualitative assessment of the effects of
adopting IFRS 18. The Bank expects the standard to result in changes to the structure and
presentation of the statement of profit or loss, together with additional disclosures, but is not
expected to have a direct impact on the recognition or measurement of the Bank's assets, liabilities,
income or expenses.
The Bank intends to finalise its assessment of IFRS 18 during the financial year ending 31 December
2026, ahead of the mandatory effective date, and will disclose further information on the expected
impact in its 2026 annual financial statements
b)
New standards, interpretations and amendments issued by IASB but not yet adopted by EU:
Issued on
Effective from
IFRS 19: Subsidiaries without Public
Accountability: Disclosures
09/05/2024
01/01/2027
Amendments to IAS 21 (Translation to a
Hyperinflationary Presentation Currency)
13/11/2025
01/01/2027
The Bank’s management is of the opinion that the standards, interpretations and amendments
listed above are not expected to have a material impact on the Bank’s financial statements in the
period of initial application.
c)
New standards, interpretations and amendments issued by the IASB but not adopted by EU
i) IFRS 14 Regulatory Deferral Accounts (issued on 30/01/2014, effective from the year
beginning 01/01/2016) – European Commission has decided not to endorse the standard
ii) Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between Investor and
its Associate or Joint Venture (issued on 11/09/2014, effective from the year beginning
01/01/2016) – postponed indefinitely by European Commission
2.5 Functional and presentation currency
These financial statements are presented in Euro (€), which is the Bank’s functional and
presentation currency.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
10
2 Basis of preparation – continued
2.6 Use of judgements and estimates
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the
use of certain accounting estimates. In this respect, management is required to exercise their
judgement in the process of applying the Bank’s accounting policies. This requires assumptions to
estimate the carrying amount of assets and liabilities, as well as the recognition of income and
expenses. Due to the inherent uncertainty and high level of subjectivity involved in making such
judgements, actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates
are recognised prospectively.
Information about critical accounting judgements, assumptions and estimation uncertainties as at
31 December 2025 is disclosed within Note 33 – Critical accounting estimates and judgements in
applying the Bank’s accounting policies, as well as within the following notes to the financial
statements:
• Expected credit losses on factored receivables and loans and advances to customers: Note 4.3
• Valuation of financial instruments: Note 4.7
• Valuation of property within ‘Property and equipment’ and ‘Property held for sale’: Note 4.7
and Note 18.
2.7 Going Concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that
the Bank has the resources to continue in business for the foreseeable future. In making this
assessment, the Directors have considered a wide range of information relating to present and
future conditions, including future projections of profitability, cash flows, capital requirements and
capital resources. These considerations include the application of stressed scenarios that reflect
existing economic uncertainties triggered by geopolitical risks and associated impact, such as
exposure to interest rate hikes, drops in asset prices, and local jurisdiction risks, and the related
impact on profitability, capital and liquidity. Similar to recent years, the Bank will continue
managing the levels of risk weighted assets in order to ensure the retention of adequate capital
levels, exceeding both required and guidance levels.
2.8 Change in accounting policy
During the year ended 31 December 2025, the Bank reclassified a portfolio of sovereign bonds from
the fair value through other comprehensive income (FVOCI) category to the held-to-collect
category measured at amortised cost. This decision was made based on the understanding that
these financial instruments would be held within a business model aimed at collecting contractual
cash flows. The Bank makes reference to a Malta Financial Services Authority’s (“MFSA”)
Enforcement of Financial Information examination of the Bank’s Annual Report and Audited
Financial Statements for the financial years ended 31 December 2023 and 31 December 2024. This
review focused specifically on the IAS 8 retrospective adjustment disclosed therein in relation to
the initial classification of Malta Government Stocks acquired in 2021. At the time, the Bank
considered the adopted approach to be appropriate. However, the MFSA reached a different
conclusion, and as a result, the Bank is implementing the required reversal of the correction in
these financial statements. Such implementation includes the restatement of comparative figures,
as applicable, in accordance with IAS 8, and as requested by the MFSA.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
11
2 Basis of preparation – continued
2.8 Change in accounting policy - continued
The following table summarises the impact on the Bank’s financial statements.
2.8.1 Statement of financial position
Impact of reversal of reclassification
As previously
reported
Adjustments
As restated
€
€
€
01-Jan-24
Financial investments
101,589,059
(8,694,081)
92,894,978
Deferred tax asset
2,200,649
3,051,627
5,252,276
Others
404,158,025
(81,333)
404,076,692
Total assets
507,947,733
(5,723,787)
502,223,946
Total liabilities
476,077,281
-
476,077,281
Fair value reserve
(1,708,321)
(5,642,454)
(7,350,775)
Others
33,578,773
(81,333)
33,497,440
Total equity
31,870,452
(5,723,787)
26,146,665
31-Dec-24
Financial investments
89,144,374
(7,514,625)
81,629,749
Deferred tax asset
2,993,326
2,639,470
5,632,796
Other
416,584,660
-
416,584,660
Total assets
508,722,360
(4,875,155)
503,847,205
Total liabilities
473,120,297
-
473,120,297
Fair value reserve
(697,493)
(4,875,155)
(5,572,648)
Others
36,299,556
-
36,299,556
Total equity
35,602,063
(4,875,155)
30,726,908
2.8.2 Statement of profit or loss and other comprehensive income
Impact of reversal of reclassification
As previously
reported
Adjustments
As restated
€
€
€
For the year ended 31 December 2024
Loss for the year
(2,969,772)
-
(2,969,772)
Debt instruments measured at fair value
through other comprehensive income:
- Net movement in fair value, before tax
1,553,255
1,180,460
2,733,715
- Movement in expected credit losses,
before tax
1,865
-
1,865
- Related tax
(544,292)
(413,161)
(957,453)
Other
771,888
-
771,888
Total comprehensive income for the year, net
of tax
(1,187,056)
767,299
(419,757)
Earnings per share
(5c12)
(5c12)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
12
2 Basis of preparation – continued
2.8.3 Interim 2025 Results
The sovereign debt securities were presented at amortised cost in the Interim 2025 Results and
the below summary outlines the impact of the restatement on the amounts presented:
30 June 2025
€
Financial investments
Originally presented
78,347,009
Impact of restatement
(6,892,506)
Restated balance
71,454,503
Fair Value Reserve
Originally presented
(646,657)
Impact of restatement
(4,629,681)
Restated balance
(5,276,338)
Deferred taxation, net
Originally presented
1,758,012
Impact of restatement
2,507,292
Restated balance
4,265,304
3 Material accounting policies
3.1 Financial assets
3.1.1 Recognition and initial measurement
The Bank recognises a financial asset in its statement of financial position when it becomes a party
to the contractual provisions of the instrument. Regular way purchases and sales of financial assets
are recognised on trade date, being the date on which the Bank commits to purchase or sell the
asset. Financial assets are derecognised when the rights to receive cash flows from the financial
assets have expired or have been transferred and the Bank has transferred substantially all the risks
and rewards of ownership. A financial asset or financial liability is measured initially at fair value
plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or
issue. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.
3.1.2 Classification and measurement
At initial recognition, the Bank classifies its financial assets in the following measurement
categories:
• Financial assets measured at FVTPL;
• Financial assets measured at FVOCI; and
• Financial assets measured at amortised cost.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
13
3 Material accounting policies – continued
The classification of investments in debt instruments depends on the Bank’s business model for
managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI.
For investments in equity instruments that are not held for trading, this will depend on whether
the Bank has made an irrevocable election at the time of initial recognition to account for the equity
investment at FVOCI.
The Bank reclassifies debt instruments when and only when its business model for managing those
assets changes.
Debt instruments
Subsequent measurement of debt instruments depends on the Bank’s business model for
managing the asset and the cash flow characteristics of the asset.
Business model assessment
The Bank performs an assessment of the objective of a business model in which an asset is held at
a portfolio level and in specific circumstances at an instrument level since this is deemed to best
reflect the way the business is managed and the monitoring of financial information by
management.
The information considered in the performance of this assessment includes:
• the stated policies and objectives for the portfolio and the operation of those policies in
practice. In particular, management considers whether the 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 assets;
• the manner in which the performance of the portfolio is evaluated and reported to the
Bank's management;
• the risks that affect the performance of the business model (and the financial assets held
within that business model) and its strategy for how those risks are managed;
• how managers of the business are compensated for business performance (e.g. whether
compensation is based on the fair value of the assets managed or the contractual cash
flows collected); and
• the frequency, volume, and timing of sales transacted in prior periods, the reasons for
such sales and management’s expectations in respect of future sales activity. Information
about sales activity is not considered in isolation but as part of an overall assessment of
how the Bank's stated objective for managing the financial assets is achieved and how
cash flows are realised.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
14
3 Material accounting policies – continued
Financial assets that are held for trading or financial assets that are managed and whose
performance is evaluated on a fair value basis are measured at FVTPL since such assets are neither
held with the objective to collect contractual cash flows nor held with the objective to collect
contractual cash flows and sell financial assets.
Assessment of whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, 'principal' is 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 a profit
margin that is consistent with a basic lending arrangement.
In assessing whether the contractual cash flows are solely payments of principal and interest
(“SPPI”), the Bank considers the contractual terms 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
Bank considers:
• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Bank's claim to cash flows from specified assets; and
• variable interest rates and features that modify consideration of the time value of money.
In some cases, loans originated by the Bank that are secured by collateral limit the Bank's claim to
cash flows from the underlying collateral (non-recourse loans). The Bank applies judgement in
assessing whether non-recourse loans meet the SPPI criterion.
The Bank typically considers the following information when making this judgement:
• whether the contractual arrangement specifically defines the amounts and dates of the
cash payments of the loan;
• the fair value of the collateral relative to the amount of the secured financial asset;
• the ability and willingness of the borrower to make contractual payments,
notwithstanding a decline in the value of collateral;
• whether the borrower is an individual or a substantive operating entity or is a special-
purpose entity;
• the Bank's risk of loss on the asset relative to a full-recourse loan;
• the extent to which the collateral represents all or a substantial portion of the borrower's
assets; and
• whether the Bank will benefit from any upside from the underlying assets.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
15
3 Material accounting policies – continued
Financial assets measured at amortised cost
A debt instrument is measured at amortised cost if it meets both of the following conditions and is
not designated at FVTPL:
• the financial asset is held within a business model where the objective is to hold financial
assets to collect contractual cash flows; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that
are SPPI.
Interest income from these financial assets is recognised in ‘Interest income’ using the effective
interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or
loss. Impairment losses are presented as a separate line item in the statement of profit or loss.
The 'amortised cost' of a financial instrument is the amount at which the financial instrument is
measured on initial recognition minus the principal repayments, plus or minus 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 (“ECL”)
allowance.
Such financial assets comprise primarily ‘Balances with Central Bank of Malta’, ‘Loans and advances
to banks’, debt securities at amortised cost within ‘Financial investments’, ‘Factored receivables’
and ‘Loans and advances to customers’.
Financial assets measured at fair value through other comprehensive income
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not
designated at FVTPL:
• the financial asset is held within a business model where the objective is achieved by both
collecting contractual cash flows and selling financial assets; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that
are SPPI.
Movements in the carrying amount are taken through OCI, except for the recognition of
impairment gains or losses, interest income and foreign exchange gains and losses, which are
recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss
previously recognised in OCI is reclassified from equity to profit or loss and recognised in ‘Other
operating income’. Interest income from these financial assets is recognised in ‘Interest income’
using the effective interest rate method. Foreign exchange gains and losses are presented in ‘Other
operating income’, and impairment losses are presented as a separate line item in the statement
of profit or loss.
Such financial assets comprise primarily debt securities measured at FVOCI and classified within
‘Financial investments’.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
16
3 Material accounting policies – continued
Equity investments designated at fair value through other comprehensive income
The Bank subsequently measures all equity investments at fair value. On initial recognition of an
equity investment that is not held for trading, the Bank may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on an instrument-by-instrument basis
and is irrevocable.
Where the Bank’s management has elected to present fair value gains and losses on equity
investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or
loss following the derecognition of the investment. Dividends from such investments continue to
be recognised in profit or loss as ‘Other operating income’ when the Bank’s right to receive
payments is established.
Such financial assets comprise primarily equity investments designated at FVOCI and classified
within ‘Financial investments’.
Financial assets measured at fair value through profit or loss
Debt instruments that do not meet the criteria for amortised cost or FVOCI are automatically
classified and measured at FVTPL. The Bank may irrevocably designate a financial asset that
otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if
doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. A
gain or loss on a debt instrument that is subsequently measured at FVTPL is recognised in profit or
loss and presented net within ‘Other operating income’ in the period in which it arises.
In addition, equity investments that are not designated at FVOCI at initial recognition are also
classified and measured at FVTPL. Changes in the fair value of financial assets measured at FVTPL
are recognised in ‘Other operating income’ in the statement of profit or loss as applicable.
Such financial assets comprise primarily equity investments designated at FVTPL at initial
recognition and classified within ‘Financial investments’.
3.1.3 Derecognition
The Bank derecognises a financial asset when the contractual rights to the cash flows from the
financial asset expire or it 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 Bank neither transfers nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or
the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the
consideration received (including any new asset obtained less any new liability assumed) and (ii)
any cumulative gain or loss that had been recognised in OCI, is recognised in profit or loss.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
17
3 Material accounting policies – continued
Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated
at FVOCI is not recognised in profit or loss on derecognition of such securities. Any interest in
transferred financial assets that qualify for derecognition that is created or retained by the Bank is
recognised as a separate asset or liability.
3.1.4 Modifications of terms
If the contractual terms of a financial asset are modified, the Bank evaluates whether the cash flows
arising from the modified asset are substantially different than those arising from the original
contractual terms of the asset. The Bank applies judgement in assessing whether a change in
contractual terms (such as a change in interest rates or the remaining term of the loan) is
substantial enough to represent an expiry of the original instrument by considering, among others:
• If the borrower is in financial difficulty, whether the modification merely reduced the
contractual cash flows to amounts the borrower is expected to be able to pay;
• Whether any new terms that substantially affect the risk profile of the asset are
introduced;
• Significant extensions to the term of the financial instrument when the borrower is not in
financial difficulty;
• Significant changes to the interest rate;
• Changes in the currency in which the asset is denominated; and
• The insertion of collateral, other security or credit enhancements that significantly affect
the associated credit risk.
If the cash flows are substantially different, 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
(Note 3.1.3) and a new financial asset is recognised at fair value plus any eligible transaction costs.
The date of renegotiation is consequently 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. However, the Bank also assesses whether the new financial
asset recognised is deemed to be credit-impaired at initial recognition, especially in circumstances
where the renegotiation was driven by the borrower being unable to make the originally agreed
payments.
Any fees received as part of the modification are accounted for as follows:
• fees that are considered in determining the fair value of the new asset and fees that
represent a reimbursement of eligible transaction costs are included in the initial
measurement of the asset; and
• other fees are included in profit or loss as part of the gain or loss on derecognition.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
18
3 Material accounting policies – continued
If the modification of a financial asset measured at amortised cost or FVOCI is not deemed to be
substantial and therefore does not result in the derecognition of the financial asset, the Bank
recalculates the gross carrying amount of the financial asset using the original effective interest
rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or
loss. For floating-rate financial assets, the original effective interest rate used to calculate the
modification gain or loss is adjusted to reflect current market terms at the time of the modification.
Any costs or fees incurred and fees received in relation to the modification of contractual terms
are reflected in an adjustment to the gross carrying amount of the modified financial asset and
amortised over the remaining term of the modified financial asset. Modification gains or losses are
presented within ‘Interest income’ in profit or loss.
If cash flows are modified in view of concessions granted to borrowers experiencing financial
difficulties, the objective of the modification is usually to maximise recovery of the original
contractual terms rather than to originate a new asset with substantially different terms. If the
modification of the financial asset results in the forgiveness of cash flows, the Bank considers
whether a portion of the asset should be written off before the modification takes place. This
approach impacts the result of the quantitative assessment and means that the derecognition
criteria are not usually met in such cases. Modification gains or losses arising as a result of
renegotiations in response to financial difficulties experienced by a borrower are presented
together with impairment losses in profit or loss.
3.1.5 Impairment
The Bank assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its
debt instruments carried at amortised cost and FVOCI and with the exposure arising from loan
commitments, including:
• Loans and advances to banks;
• Debt instruments classified within ‘Financial investments’;
• Factored receivables; and
• Loans and advances to customers.
The Bank recognises credit loss allowances in respect of the above portfolios of financial assets at
each reporting date. No credit loss allowances are recognised in respect of equity investments.
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.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
19
3 Material accounting policies – continued
The Bank measures credit loss allowances at an amount equal to lifetime ECL except for the
following financial instruments, in respect of which credit loss allowances are measured as 12-
month ECL:
• debt securities classified within ‘Financial investments’ that are determined to have low
credit risk at the reporting date; and
• financial instruments that have not had a significant increase in credit risk (“SICR”) since
initial recognition.
Balances held with credit institutions in reputable jurisdictions classified within ‘Loans and
advances to banks’ and debt securities classified within ‘Financial investments’ are considered to
have low credit risk when the financial instrument is assigned an ‘investment-grade’ credit risk
rating. The Bank does not apply the low credit risk exemption to any other financial instrument.
12-month ECLs are a portion of lifetime ECLs and represent the lifetime cash shortfalls that result
from default events on a financial instrument that are possible within 12 months from reporting
date. Financial instruments for which a 12-month ECL is recognised are referred to as 'Stage 1’
financial instruments.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the
financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not
credit-impaired are referred to as 'Stage 2’ financial instruments.
Note 4.3 provides more detail in respect of the methodology applied for the measurement of credit
loss allowances. Credit loss allowances 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;
• Undrawn loan commitments: generally, as a provision, measured as the present value of
the difference between the contractual cash flows that are due to the Bank if the
commitment is drawn down and the cash flows that the Bank expects to receive;
• Financial instruments having both a drawn and undrawn component, whereby the Bank
cannot identify the ECL on the loan commitment component separately from those on the
drawn component: the Bank presents a combined credit loss allowance for both
components as a deduction from the gross carrying amount of the drawn component;
• Debt instruments measured at FVOCI: no loss allowance is recognised in the statement of
financial position against the carrying amount of the asset because the carrying amount
of these assets represents their fair value. An amount equal to the allowance that would
arise if the assets were measured at amortised cost is recognised in other comprehensive
income as an accumulated impairment amount, with a corresponding charge to profit or
loss; and
• Financial guarantee contracts: generally, as a provision, measured as the expected
payments to reimburse the holder less any amounts that the Bank expects to recover.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
20
3 Material accounting policies – continued
Renegotiated financial assets
The Bank renegotiates loans and advances to customers in financial difficulties (referred to as
‘forbearance activities’) to maximise collection opportunities and minimise the risk of default. This
practice is not applied to exposures classified within ‘Factored receivables’.
If the terms of a financial asset are renegotiated or an existing financial asset is replaced with a new
one due to financial difficulties of the borrower, an assessment is performed to determine whether
the financial asset should be derecognised. The implications on the ECL calculation depend on
whether the renegotiation leads to derecognition or otherwise, as follows:
• If the restructuring does not result in the derecognition of the existing asset, renegotiated
loans are typically considered credit-impaired and accordingly classified as Stage 3 assets
unless no unlikeliness-to-pay (“UTP”) events are deemed to have occurred. Assets that are
credit-impaired at the time of renegotiation remain in Stage 3 post renegotiation. The
credit loss allowance in respect of such exposures is estimated by reference to the
expected cash flows arising from the modified financial asset. When evidence suggests
that the renegotiated loan is no longer credit-impaired, the asset is transferred out of
Stage 3 based on an assessment of historical and forward-looking information and an
evaluation of the credit risk over the expected life of the asset, including information
about the circumstances that led to the renegotiation.
• If the restructuring results in derecognition of the existing asset, the restructured asset is
considered a ‘new’ financial asset. Any new financial assets that arise following
derecognition events as a result of substantial modification to the terms of the instrument
are classified as Stage 1 assets, unless the new financial asset is credit-impaired on initial
recognition, in which case it will be classified as a purchased or credit-impaired (“POCI”)
financial asset. A loss is booked in profit or loss (normally as a write-off) since the new
instrument is recognised at fair value.
Other than originated credit-impaired loans, all other modified loans can be transferred out of
Stage 3 if they no longer exhibit any evidence of being credit-impaired and, in the case of
renegotiated loans, there is sufficient evidence to demonstrate a significant reduction in the risk of
non-payment of future cash flows over the minimum observation period, and there are no other
indicators of impairment.
Credit-impaired financial assets
At each reporting date, the Bank assesses whether financial assets carried at amortised cost and
debt instruments classified within ‘Financial investments’ and measured at FVOCI are credit-
impaired (referred to as 'Stage 3 financial assets'). A financial asset is classified as 'credit-impaired'
when one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
21
3 Material accounting policies – continued
Evidence that a financial asset is credit-impaired includes the following observable information:
• 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 Bank on terms that the Bank 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 that 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 default risk has reduced
significantly and if there are no other impairment indicators. In addition, a loan that is overdue for
90 days or more is considered credit-impaired.
In assessing whether a financial investment is credit-impaired, the Bank considers the following
factors:
• The market's assessment of creditworthiness as reflected in bond yields;
• The rating agencies' assessments of creditworthiness, if available;
• The issuer’s ability to access the capital markets for new debt issuance;
• The probability of debt restructuring, resulting in holders suffering losses through
voluntary or mandatory debt forgiveness; or
• In case of sovereign debt issuers, the international support mechanisms in place to
provide the necessary support as 'lender of last resort' to that country, as well as the
intention, reflected in public statements, of governments and agencies to use those
mechanisms. This includes an assessment of the depth of those mechanisms and,
irrespective of the political intent, whether there is the capacity to fulfil the required
criteria.
Write-off
Loans and debt securities are written off (either partially or in full) when there is no reasonable
expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the
case when the Bank determines that the borrower does not have assets or sources of income that
could generate sufficient cash flows to repay the amounts subject to the write-off. Indicators that
there is no reasonable expectation of recovery include (i) the cessation of enforcement activity and
(ii) instances where the Bank’s recovery method is foreclosing on collateral and the value of the
collateral is such that there is no reasonable expectation of recovering in full. This assessment is
performed at the individual asset level.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
22
3 Material accounting policies – continued
Recoveries of amounts previously written off are presented within 'Change in expected credit
losses and other credit impairment charges' in profit or loss.
Financial assets that are written off could still be subject to enforcement activities to comply with
the Bank's procedures for recovery of amounts due.
3.2 Financial liabilities
3.2.1 Initial recognition, classification and measurement
The Bank recognises a financial liability on the statement of financial position when it becomes a
party to the contractual provisions of the instrument. Financial liabilities not at fair value through
profit or loss are recognised initially at fair value, being the fair value of consideration received, net
of transaction costs that are directly attributable to the acquisition or the issue of the financial
liability.
The Bank classifies its financial liabilities, other than financial guarantees and loan commitments,
as subsequently measured at amortised cost. Financial liabilities measured at amortised cost
principally comprise ‘Amounts owed to institutions’, ‘Amounts owed to banks’, ‘Amounts owed to
customers’, ‘Debt securities in issue’, together with ‘Accruals’.
3.2.2 Derecognition
The Bank derecognises a financial liability when its contractual obligations are discharged,
cancelled, or expired.
In addition, the Bank derecognises a financial liability when its terms are modified, and the
contractual cash flows of the modified liability are substantially different. The terms are
substantially different if the discounted present value of the cash flows under the new terms,
including any fees paid net of any fees received and discounted using the original effective interest
rate, is at least 10% different from the discounted present value of the remaining cash flows of the
original financial liability. In addition, other qualitative factors, such as the currency that the
instrument is denominated in, changes in the type of interest rate, new conversion features
attached to the instrument, and change in covenants, are also taken into consideration. In this case,
a new financial liability based on the modified terms is recognised at fair value. The difference
between the carrying amount of the financial liability derecognised and consideration paid is
recognised in profit or loss. Any costs or fees incurred are recognised as part of the gain or loss on
the extinguishment.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
23
3 Material accounting policies – continued
If the modification of a financial liability is not deemed to be substantial and therefore does not
result in the derecognition of the original financial liability, the amortised cost of the financial
liability is recalculated by discounting the modified cash flows at the original effective interest rate
and the resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the
original effective interest rate used to calculate the modification gain or loss is adjusted to reflect
current market terms at the time of the modification. Any costs and fees incurred are recognised
as an adjustment to the carrying amount of the liability and amortised over the remaining term of
the modified financial liability by re-computing the effective interest rate on the instrument.
3.3 Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the statement
of financial position when, and only when, the Bank currently has a legally enforceable right to set
off the amounts and it intends either to settle them on a net basis or to realise the asset and settle
the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRS, or for gains
and losses arising from a group of similar transactions, such as in the Bank's trading activity.
3.4 Fair value measurement
'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date in the principal or, in
its absence, the most advantageous market to which the Bank has access at that date. The fair
value of a liability reflects its non-performance risk.
When one is available, the Bank measures the fair value of an instrument using the quoted price in
an active market for that instrument. 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 there is no quoted price in an active market, then the Bank uses valuation techniques that
maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The
chosen valuation technique incorporates all the factors that market participants would take into
account in pricing a transaction.
The best evidence of the fair value of a financial instrument on initial recognition is normally the
transaction price - i.e. the fair value of the consideration given or received. If the Bank determines
that the fair value on initial recognition differs from the transaction price and the fair value is
evidenced neither by a quoted price in an active market for an identical asset or liability nor based
on a valuation technique for which any unobservable inputs are judged to be insignificant in
relation to the measurement, then the financial instrument is initially measured at fair value,
adjusted to defer the difference between the fair value on initial recognition and the transaction
price.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
24
3 Material accounting policies – continued
Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of
the instrument but no later than when the valuation is wholly supported by observable market
data or the transaction is closed out.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Bank
measures assets and long positions at a bid price and liabilities and short positions at an ask price.
Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk
that are managed by the Bank on the basis of the net exposure to either market or credit risk are
measured on the basis of a price that would be received to sell a net long position (or paid to
transfer a net short position) for the particular risk exposure. Portfolio-level adjustments - e.g. bid-
ask adjustment or credit risk adjustments that reflect the measurement on the basis of the net
exposure - are allocated to the individual assets and liabilities on the basis of the relative risk
adjustment of each of the individual instruments in the portfolio.
The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than
the amount payable on demand, discounted from the first date on which the amount could be
required to be paid.
The Bank recognises transfers between levels of the fair value hierarchy as of the end of the
reporting period during which the change has occurred.
3.5 Property and equipment
3.5.1 Recognition and measurement
All property and equipment is initially recorded at historical cost, including transaction costs.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Items of property and equipment are measured at cost or revalued amount less accumulated
depreciation and any accumulated impairment losses.
Freehold property is subsequently measured at fair value based on periodic valuations by external
independent valuers, less subsequent depreciation. A revaluation is carried out if there is an
indication that the fair value of the property differs materially from the carrying amount as at the
reporting date. Any accumulated depreciation at the date of revaluation is eliminated against the
gross carrying amount of the asset and the net amount is restated to the revalued amount of the
asset.
Equipment is subsequently stated at historical cost less accumulated depreciation and impairment
losses.
3.5.2 Revaluation surplus or deficit
Increases in the carrying amount arising on revaluation of property are credited to the Property
revaluation reserve within equity. Decreases that offset previous increases of the same individual
asset are recognised in the Property revaluation reserve in equity; all other decreases are expensed
in profit or loss. Any subsequent increases are credited to profit or loss up to the amount previously
debited, at which point such increases continue to be credited to the Property revaluation reserve.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
25
3 Material accounting policies – continued
Upon disposal of the premises, the relevant portion of the revaluation reserve realised is released
and transferred from the Property revaluation reserve to retained earnings.
Where parts of an item of property and equipment have different useful lives, these are accounted
for as separate items of property and equipment.
3.5.3 Subsequent costs
The cost of replacing a component of an item of property and equipment is recognised in the
carrying amount of the item if it is probable that the future economic benefits emanating from
such component will flow to the Bank and its cost can be measured reliably. The carrying amount
of the replaced part is derecognised. The costs of the day-to-day servicing of property and
equipment are recognised in profit or loss as incurred.
3.5.4 Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives
of each part of an item of property and equipment from the date they are available for use.
Land is not depreciated. Upon revaluation of property, accumulated depreciation is eliminated
against the gross carrying amount of the asset.
The estimated useful lives for the current and comparative years are as follows:
Premises and improvements 10 – 100 years
Computer hardware 5 years
Motor vehicles 5 years
Other equipment 5 – 7 years
Items with an initial cost of less than €250 (including taxes) are expensed immediately.
3.5.5 Derecognition
Property and equipment are derecognised upon disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in
profit or loss in the year during which the asset is derecognised. The asset’s residual value, useful
life and method is reviewed, and adjusted if appropriate, at each financial year end.
3.6 Investment Property
Investment property is property held to earn rentals or for capital appreciation or both. Investment
property is recognised as an asset when it is probable that the future economic benefits that are
associated with the investment property will flow to the entity and the cost can be measured
reliably. Investment property is initially measured at cost and subsequently at fair value with any
change therein recognised in the profit or loss. Any gain on disposal of investment property
(calculated as the difference between the net proceeds from disposal and the carrying amount of
the item) is recognised in profit or loss.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
26
3 Material accounting policies – continued
Investment property is derecognised on disposal or when it is permanently withdrawn from use
and no future economic benefits are expected from its disposal. Gains or losses on derecognition
represent the difference between the net disposal proceeds, if any, and the carrying amount, are
recognised in profit or loss in the period of derecognition.
Transfers are made to (or from) investment property only when there is a change in use. If owner-
occupied property becomes an investment property, the Bank accounts for such property in
accordance with the policy stated under property and equipment up to the date of change in use.
3.6.1 Property held for sale
The Bank classifies assets and disposal groups as held for sale if their carrying value will be
recovered principally through a sale transaction rather through continuing use. The criteria for held
for sale classification is regarded as met only when the sale is highly probable, and the asset or
disposal group is available for immediate sale in its present condition. Actions required to complete
the sale should indicate that it is unlikely that significant changes to the sale will be made or that
the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset
and the sale expected to be completed within one year from the date of the classification. IFRS 5’s
classification, presentation and disclosure requirements apply to all recognised assets and disposal
groups, however, the measurement provisions of the standard do not apply to assets that are
accounted for in accordance with the fair value model is IAS 40 Investment Property.
3.7 Intangible assets - software
Software acquired by the Bank is stated at cost less accumulated amortisation and any
accumulated impairment losses.
Subsequent expenditure on software assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is
expensed as incurred.
Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from
the date on which it is available for use. The estimated useful life of software for the current and
comparative periods is three to fifteen years.
Amortisation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate.
3.8 Impairment of non-financial assets
The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
27
3 Material accounting policies – continued
For impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets.
An impairment loss is recognised if the carrying amount of an asset or cash-generating unit (“CGU”)
exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.
Impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss
is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
3.9 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of
ordinary shares are recognised as a deduction from equity net of any tax effects. The Bank presents
basic earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to the Bank’s ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period.
3.10 Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation
in the current year.
3.11 Financial guarantees and loan commitments
'Financial guarantees' are contracts that require the Bank to make specified payments to reimburse
the holder for a loss that it incurs because a specified debtor fails to honour payment commitments
when 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 below-market interest rates are
initially measured at fair value. Subsequently, they are measured at the higher of the credit 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. Loan commitments provided by the Bank are measured as the amount of the credit loss
allowance.
Liabilities arising from financial guarantees and loan commitments are included within provisions.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
28
3 Material accounting policies – continued
3.12 Interest income and expense
Effective interest rate
Interest income and expense are recognised in profit or loss using the effective interest method.
The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument to:
• the gross carrying amount of the financial asset; or
• the amortised cost of the financial liability.
When calculating the effective interest rate for financial instruments other than POCI financial
assets, the Bank estimates future cash flows by reference to the contractual terms of the financial
instrument, excluding expected credit losses. For POCI financial assets, a credit-adjusted effective
interest rate is calculated by reference to estimated future cash flows also taking into consideration
expected credit losses.
The calculation of the effective interest rate includes transaction costs and fees paid or received
that are an integral part of the effective interest rate. Transaction costs include incremental costs
that are directly attributable to the acquisition or issue of a financial asset or financial liability.
Calculation of interest income and expense
The effective interest rate of a financial asset or financial liability is calculated on initial recognition
of a financial asset or a financial liability. In calculating interest income and expense, the effective
interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-
impaired) or to the amortised cost of the liability. The effective interest rate is revised because of
periodic re-estimation of cash flows of floating rate instruments to reflect movements in market
rates of interest.
However, for financial assets that are classified as credit-impaired after initial recognition, interest
income is calculated by applying the effective interest rate to the net carrying amount of the
financial asset after deducting ECL. If the asset is no longer credit-impaired, then the calculation of
interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial recognition, interest income is calculated
by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The
calculation of interest income does not revert to a gross basis, even if the credit risk of the asset
improves.
Presentation
Interest income calculated using the effective interest method presented in profit or loss includes:
• interest on financial assets measured at amortised cost; and
• interest on debt instruments measured at FVOCI.
Interest expense presented in profit or loss represents interest in respect of financial liabilities
measured at amortised cost.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
29
3 Material accounting policies – continued
3.13 Fees and commission income and expense
Fees and commission income and expense that are integral to the effective interest rate on a
financial asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, credit administration charges
and similar fees, are recognised as the related services are performed. When a loan commitment
is not expected to result in the drawdown of a loan, the related loan commitment fees are
recognised on a straight-line basis over the commitment period.
A contract with a customer that results in a recognised financial instrument may be partially in
scope of IFRS 9 and partially in scope of IFRS 15. In such an event, the Bank first applies IFRS 9 to
separate and measure the part of the contract that is in scope of IFRS 9 and then applies IFRS 15
to the residual.
Other fee and commission expense relates mainly to transaction and service fees, which are
expensed as the services are received.
3.14 Other operating income
The line item primarily comprises realised gains on disposal of financial instruments measured at
FVOCI; foreign exchange differences attributable to the translation of monetary assets and
liabilities to the Bank’s functional currency at reporting date or foreign currency transactions; and
fair value movements, interest income, dividend income and foreign exchange differences
attributable to financial instruments measured at FVTPL.
3.15 Dividend income
Dividend income is recognised when the right to receive income is established. Usually, this is the
ex-dividend date for quoted equity investments. Dividends are presented in other operating
income. Dividends on equity instruments designated as at FVOCI that clearly represent a recovery
of part of the cost of the investment are presented in other comprehensive income.
3.16 Leases
At inception of a contract, the Bank 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. To assess whether a contract conveys the right to
control the use of an identified asset, the Bank uses the definition of a lease in IFRS 16.
The Bank does not have right-of-use over assets that span over a long term or that are of significant
value.
Short term leases and leases of low-value assets
The Bank has elected not to recognise right-of-use assets and lease liabilities for leases of low-value
assets and short-term leases. The Bank recognises the lease payments associated with these leases
as an expense on a straight-line basis over the lease term.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
30
3 Material accounting policies – continued
3.17 Employee benefits
The Bank contributes towards the State pension defined contribution plan in accordance with local
legislation and to which it has no commitment beyond the payment of fixed contributions.
Obligations for contributions to the defined contribution plan are recognised as an expense in
profit or loss as they fall due.
3.18 Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are
recognised in profit or loss except to the extent that it relates to items recognised directly in equity,
or in other comprehensive income.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the
year and any adjustment to the tax payable or receivable in respect of previous years. The amount
of current tax payable or receivable is the best estimate of the tax amount expected to be paid or
received that reflects uncertainty related to income taxes, if any. It is measured using tax rates
enacted or substantively enacted at the reporting date. Current tax also includes any tax arising
from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible
temporary differences to the extent that it is probable that future taxable profits will be available
against which they can be used. Future taxable profits are determined based on the reversal of
relevant taxable temporary differences. If the amount of taxable temporary differences is
insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for
reversals of existing temporary differences, are considered, based on business plans. 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. Such reductions are reversed when the
probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the
extent that it has become probable that future taxable profits will be available against which they
can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, using tax rates enacted or substantively enacted at the reporting
date. Deferred tax assets and liabilities are only offset when they arise in the same tax reporting
group and relate to income taxes levied by the same taxation authority, and when the Bank has a
legal right to offset.
3.19 Foreign currency transactions
Transactions in foreign currencies are translated into the functional currency of the Bank at the
spot exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency at the spot exchange rate at the reporting date. The foreign currency gain or loss on
monetary items is the difference between the amortised cost in the functional currency at the
beginning of the year, adjusted for effective interest and payments during the year, and the
amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
31
3 Material accounting policies – continued
Non-monetary assets and liabilities that are measured at fair value in a foreign currency are
translated into the functional currency at the spot exchange rate at the date on which the fair
value is determined. Non-monetary items that are measured based on historical cost in a foreign
currency are translated using the spot exchange rate at the date of the transaction.
Foreign currency differences arising on translation are generally recognised in profit or loss save
for foreign currency differences arising from equity investments in respect of which an election
has been made to present subsequent changes in fair value in other comprehensive income.
3.20 Cash and cash equivalents
Cash and cash equivalents comprise notes and coins in hand, unrestricted balances held with the
Central Bank of Malta and highly liquid financial assets with original maturities of three months or
less from the date of acquisition that are subject to an insignificant risk of changes in their fair
value, and are used by the Bank in the management of its short-term commitments.
Cash and cash equivalents are carried at amortised cost in the statement of financial position.
3.21 Segment reporting
An operating segment is a component of the Bank that engages in business activities from which it
may earn revenues and incur expenses, including revenue and expenses that relate to transactions
with any of the Bank’s other components, whose operating results are reviewed regularly by the
Bank’s Board of Directors (being the chief operating decision maker), to make decisions about
resources allocated to each segment and assess its performance, and for which discrete financial
information is available.
3.22 Dividend distribution
Dividend distribution to the Bank’s shareholders is recognised as a liability in the Bank’s financial
statements in the period in which the dividends are approved by the Bank’s shareholders.
4 Financial risk management and review
4.1 Organisation
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s
risk management framework. The Board has established the Audit and Risk Committee and the
Credit Committee with the responsibility for monitoring risk in their specified areas. Non-executive
directors sit on these Committees whereas the Chief Executive Officer (“CEO”) is either a member
of, or otherwise attends, all Committees. The Committees report regularly to the Board of
Directors on their activities. The Board has also established an Asset and Liability Management
Committee (“ALCO”) which is a management committee that reports to the Board of Directors on
a quarterly basis.
Risk management policies have been established to identify and analyse the risks faced by the
Bank, to set out appropriate risk limits and controls, and to monitor risks and adherence to limits.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
32
4 Financial risk management and review– continued
The risk management policies and systems are reviewed regularly to reflect changes in market
conditions, products and services offered. The Bank has developed appropriate risk management
training for the needs of the relevant staff members.
4.2 Risk exposure
The Bank is exposed to a number of risks, which it manages at different organisational levels.
The main categories of risk are:
• Credit risk;
• Market risk;
• Liquidity risk; and
• Operational risk.
4.3 Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Bank’s factored
receivables, loans and advances to customers and banks, investment debt securities, and loan
commitments arising from lending activities. For risk management reporting purposes, the Bank
considers and consolidates all elements of credit risk exposure (such as individual obligor default
risk, country and sector risk).
The Bank follows standards, policies and procedures established by the Bank’s Board of Directors
for the control and monitoring of credit risk. The Board of Directors has delegated the
responsibility for the management of credit risk to the Credit Committee within a Board-approved
credit sanctioning limit. The Bank’s management reports to the Credit Committee and the Board
of Directors in respect of their responsibility for the management and oversight of credit risk
within the Bank’s portfolios of financial instruments. The responsibilities comprise the following:
• Formulating credit policies in consultation with business units, in respect of collateral
requirements, credit risk assessments, risk grading and reporting, legal procedures, and
compliance with regulatory and statutory requirements.
• Establishing the authorisation structure for the approval and renewal of credit facilities.
Authorisation limits are allocated to the CEO, the Head of Finance and Treasury, the Credit
Committee or the Board of Directors, as appropriate.
• Reviewing and assessing credit risk: the Bank’s Credit department assesses the level of
credit risk exposure in respect of all credit exposures, both prior to origination as well as
thereafter. In this respect, the Credit department performs credit risk reviews on a
periodic basis to monitor the level of credit risk subsequent to origination date. Exposures
in excess of designated limits are referred for approval to the Credit Committee or the
Board of Directors, as necessary.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
33
4 Financial risk management and review– continued
• Limiting concentrations of exposure to counterparties, geographies and industries (for
lending exposures) and to issuers, credit rating bands, markets and countries (for financial
investments).
• Developing and maintaining the Bank's risk gradings to categorise exposures according to
the degree of default risk. The current risk grading framework consists of 5 grades
reflecting varying degrees of default risk, as described in Note 4.3.4 of the financial
statements. The responsibility for setting risk grades lies with the final approving executive
or committee, as appropriate. Risk grades are subject to regular reviews by senior
management.
• Developing and maintaining the Bank's processes for measuring expected credit losses
(“ECLs”), including:
• The initial approval, regular validation and back-testing of the models used;
• The identification of SICR and UTP events; and
• The incorporation of forward-looking information in the ECL calculation.
• Reviewing compliance of departments with agreed exposure limits, including those for
selected industries, country risk and product types. Regular reports on the credit quality
of the Bank’s portfolios are provided to the Credit Committee, which may require
appropriate corrective action to be taken. These include reports containing estimates of
ECL allowances.
• Providing advice, guidance and specialist skills to departments to promote best practice
throughout the Bank in respect of the management of credit risk.
The Bank’s principal exposure to credit risk arises from the ‘Factored receivables’ portfolio as well
as the Bank’s lending portfolio classified as ‘Loans and advances to customers’. The former portfolio
comprises two sub-portfolios, both of which represent factoring of receivables on a non and with
recourse basis: i) factoring of local bills of exchange (hereinafter referred to as the “Bills of
exchange factoring” sub-portfolio) amounting to € 85.5 million as at 31 December 2025 (2024:
€102.3million); and ii) factoring of invoices issued by local and foreign customers (hereinafter
referred to as the “Invoice factoring” sub-portfolio) amounting to €31.3 million as at 31 December
2025 (2024: €35.9 million).
‘Loans and advances to customers’ comprises the sanctioning of term loans, advances and
overdraft facilities to corporate customers, amounting to €136.7 million as at 31 December 2025
(2024: €164.9 million), of which €12.9 million were provided to related parties on an arm’s length
basis (2024: €49.5 million). These exposures to local and foreign corporate customers are managed
in a similar manner for credit risk management purposes and are hereinafter collectively referred
to as the “Corporate lending” sub-portfolio.
‘Loans and advances to customers’ also comprises retail mortgage lending and other consumer
loans amounting to €29.6 million as of 31 December 2025 (2024: €29.1 million).
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
34
4 Financial risk management and review– continued
Given that retail mortgage lending exposures (hereinafter referred to as the “Retail mortgage
lending” sub-portfolio) are managed in a different manner than corporate lending facilities, the
Bank’s credit risk management activities in respect of the former sub-portfolio are being described
and presented separately from the latter.
In this respect, the Bank has continued to support its customers and adapted its credit risk
management processes accordingly to enable the identification of deterioration in credit risk within
its portfolios as early as possible and estimating credit loss allowances using the best possible
judgement.
The Bank continued to individually rate borrowers deemed mostly impacted by the heightened
levels of economic uncertainty through individual credit risk assessments, on the basis of recently
obtained management information and, where available, forecasts, enabling management to
assess borrower-specific credit risk levels and identify SICR or UTP events.
In respect of the Bills of exchange factoring sub-portfolio, the Bank assesses credit risk at
origination through a scorecard designed to assess the individual debtor’s level of credit risk by
reference to the debtor’s net disposal income and employment status, amongst other factors
featuring in the scorecard.
4.3.1 Credit risk measurement
Measurement of credit risk considers that an exposure varies with changes in market conditions,
expected cash flows and the passage of time. The Bank’s internal models measure expected credit
losses by portfolio using probability of default (“PD”), exposure at default (“EAD”) and loss given
default (“LGD”) parameters.
(a) Loans and advances to customers
The Bank uses internal credit risk grades (refer to Note 4.3.4) to reflect its assessment of the
probability of default of individual counterparties or facilities. Internal credit risk gradings are based
on payment behaviour, loan specific information and expert judgement of the Bank’s Credit
Committee.
For corporate lending exposures, information considered by the Bank when determining the
internal credit risk grades includes the payment behaviour of the borrower, compliance with
financial covenants, and other information impacting a corporate borrower’s creditworthiness
assessment, including historical information in respect of its financial performance and financial
position as well as forecasted financial information. Management also takes into consideration
non-financial indicators in the performance of credit risk assessments, such as the timeliness of the
provision of financial information, the industry-specific outlook and the impact of general
macroeconomic conditions on the borrower’s financial performance.
The internal credit risk grades are calibrated such that they reflect the increased risk of default at
each higher risk grade. The rating is determined at borrower level through the performance of a
creditworthiness assessment of the borrower in each periodic review, performed at least annually.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
35
4 Financial risk management and review– continued
For retail mortgage lending exposures, internal credit risk grades are determined on the basis of
payment behaviour and days past due. Refer to Note 4.3.4 for the definition of the internal retail
credit risk grades used by the Bank.
(b) Factored receivables
Unlike corporate exposures classified within ‘Loans and advances to customers’, bills of exchange
factoring and invoice factoring facilities classified within ‘Factored receivables’ are not managed on
a credit-by-credit basis due to the high volume of relatively low value and homogeneous exposures.
In respect of bills of exchange factoring facilities, the credit risk assessment after the date of initial
recognition is based on the payment behaviour of debtors, which is monitored on an ongoing basis.
The Bank therefore distinguishes between ‘problematic’ and ‘non-problematic’ exposures by
reference to the number of overdue monthly bill payments at any given point in time.
In respect of invoice factoring facilities, the Bank performs its credit risk assessment at the debtor
level by (i) monitoring the payment behaviour of any particular debtor by reference to the
proportion of invoices which are past due at any given point in time; and (ii) determining PDs by
reference to a credit score assigned to each debtor, which credit score is sourced from a third party
external vendor and captures other information about the borrower which impacts their
creditworthiness, such as financial performance and previous delinquency history.
(c) Other financial assets
Other financial assets include balances with the Central Bank of Malta, loans and advances to banks
and financial investments. The Bank considers public credit ratings determined by external credit
rating agencies to assess the probability of default of individual counterparties. Such public credit
ratings are continuously monitored and updated, with the associated PD being determined by
reference to realised default rates over the prior 12 months. In determining the probability of
default of individual counterparties, the Bank distinguishes between investment-grade and sub-
investment grade counterparties.
4.3.2 Expected credit loss measurement
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 upon initial recognition is classified in
‘Stage 1’.
• 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 4.3.2.1 for a description of how the Bank determines when a SICR has
occurred.
• If the financial instrument becomes credit-impaired, the financial instrument is moved to
‘Stage 3’. Refer to Note 4.3.2.2 for the Bank’s definition of credit-impaired.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
36
4 Financial risk management and review – continued
• Financial instruments in ‘Stage 1’ have their ECL measured at an amount equal to the
portion of lifetime expected credit losses that result from default events possible within
the next 12 months. Instruments in ‘Stage 2’ or ‘Stage 3’ have their ECL measured based
on expected credit losses on a lifetime basis. Refer to Note 4.3.2.3 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 forward-looking
information is considered. Note 4.3.2.4 includes an explanation of how the Bank has
incorporated forward looking information into ECL models.
• Purchased or originated credit-impaired financial assets are those financial assets that are
credit-impaired upon initial recognition. The ECL in respect of POCI exposures is always
measured on a lifetime basis (‘Stage 3’).
The expected credit loss requirements apply to financial assets measured at amortised cost and
FVOCI, and certain loan commitments. At initial recognition, a credit loss allowance (or provision
in the case of loan commitments) is required for ECL resulting from default events that are possible
within the next 12 months (“12-month ECL”). In the event of a significant increase in credit risk, an
allowance (or provision) is required for ECL resulting from all possible default events over the
expected life of the financial instrument (“lifetime ECL”).
The Bank recognises credit loss allowances at an amount equal to 12-month ECL for debt
investment securities that are determined to have low credit risk at the reporting date. The Bank
considers a debt security to have low credit risk when it is considered ‘investment-grade’, as
defined by external credit rating agencies. The following diagram summarises the impairment
requirements under IFRS 9 (other than POCI financial assets):
4.3.2.1 Significant increase in credit risk
When determining whether the risk of default on a financial instrument has increased significantly
since initial recognition, the Bank 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 Bank's historical experience and expert credit assessment
and including forward-looking information.
For Corporate lending exposures classified within ‘Loans and advances to customers’, the Bank
primarily identifies whether a SICR has occurred since initial recognition by reference to the internal
risk gradings determined on an individual borrower level. The Bank allocates each exposure to an
internal credit risk grade based on financial and non-financial information which is deemed to be
predictive of the risk of default.
Change in credit quality since
in
i
ti
al recognition
Stage 1
(Initial recognition)
12-month expected credit losses
Stage 2
(Significan t
in
crease in credit risk
since initial recognition)
Lifetime expected cred it losses
Stage 3
(Credit-impaired assets)
Lifetime expected credit losses
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
37
4 Financial risk management and review – continued
Amongst other things, reference is made to audited financial statements, management accounts,
budgets and projections. Management applies expert credit judgement in assessing the level of
credit risk attributable to specific borrowers. Exposures are subject to ongoing monitoring, which
may result in an exposure being moved to a different internal rating grade (refer to Note 4.3.4).
The Bank classifies non-defaulted exposures into ‘Stage 2’ when the borrower is classified within
the ‘Substandard’ internal credit risk grade and / or forbearance measures have been granted to
the borrower, unless additional UTP events have been identified.
In relation to retail mortgage lending exposures classified within ‘Loans and advances to customers’
and ‘Factored receivables’, SICR is generally determined on the basis of delinquency related
indicators since less information is available at asset level to enable the timely identification of a
SICR.
Due to the short-term nature of facilities within the invoice factoring portfolio, the Bank does not
distinguish between exposures classified within Stage 1 or Stage 2 since the lifetime PD is deemed
to be equivalent to the 12-month PD.
In the case of other financial assets (including loans and advances to banks and debt investment
securities), the Bank applies the low credit risk simplification to exposures having an ‘investment
grade’ public credit rating. In this respect, such exposures are not subject to the SICR assessment.
Moving from ‘investment-grade’ to ‘sub-investment grade’ does not automatically trigger a SICR.
4.3.2.2 Definition of default and credit-impaired assets
The Bank’s assessment to determine the extent of increase in credit risk of a financial instrument
since initial recognition is performed by considering the change in the risk of default occurring over
the remaining life of the financial instrument.
The Bank applies the definition of default in a consistent manner with internal credit risk
management practice for the relevant instruments and the definition considers qualitative and
quantitative factors where appropriate.
The Bank determines that a financial instrument is credit-impaired or in default, and accordingly
classified as Stage 3, by considering relevant objective evidence, primarily:
• whether contractual payments of either principal or interest are past due for more than
90 days for any material credit obligations to the Bank; and
• for corporate lending exposures classified within loans and advances to customers,
whether there are other indicators that the borrower is unlikely to pay without realisation
of collateral, such as an observed deterioration in the financial performance and / or
financial position of the borrower; covenant breaches; and concessions granted to a
borrower experiencing financial difficulties.
As described earlier, the staging determination in respect of retail mortgage lending exposures and
factored receivables is based on payment behaviour, since these portfolios comprise exposures
which are homogeneous and individually low in value.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
38
4 Financial risk management and review – continued
The default definition is applied consistently when modelling PD, EAD and LGD parameters
throughout the Bank’s expected credit loss calculations.
Due to the elevated level of uncertainty induced by the current economic environment, as well as
the potential delayed default emergence due to the implementation of government support
schemes, the Bank performed borrower-level assessments in respect of corporate lending
exposures classified within loans and advances to customers to determine whether the economic
shock may transform into long-term borrower financial difficulties, thereby potentially requiring a
downgrade of individual exposures to Stage 3 to reflect the level of change in credit risk.
An instrument is considered to have cured from defaulted status when it no longer meets any of
the default criteria for a period of three consecutive months and, in case of forborne exposures, a
period of 12 consecutive months.
The Bank considers other financial assets to be in default when a payment (including a coupon
payment) becomes overdue by 1 day or more.
4.3.2.3 Measurement of ECL
The key inputs into the measurement of ECL comprise the PD, LGD and EAD, with the term structure
being determined in respect of each parameter.
ECL for exposures in Stage 1 is calculated by multiplying the 12-month PD by LGD and EAD. Lifetime
ECL is calculated by multiplying the lifetime PD by LGD and EAD.
ECL is determined by projecting the PD, LGD and EAD for each future period until maturity and for
each individual exposure. These three components are multiplied and adjusted for the likelihood
of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively
calculates ECL for each future month, which are then discounted back to the reporting date. The
discount rate used in the ECL calculation is the original effective interest rate.
Probability of default
The PD represents the likelihood of a borrower defaulting on its financial obligation (as defined in
Note 4.3.2.2), either over the next 12 months (12-month PD) or over the remaining lifetime
(lifetime PD) of the obligation.
The Bank adopts a credit risk modelling solution developed by an external vendor to estimate PDs
in respect of corporate lending exposures classified within loans and advances to customers, in
view of the lack of internal history of defaults within this sub-portfolio.
In this respect, the Bank employs statistical models to analyse financial statement data collected in
respect of each individual borrower and assign a credit score accordingly. Specifically, the Bank
benchmarks the borrower’s financial statements with those of an underlying model dataset
comprising obligors which are comparable to the Bank’s corporate borrowers in terms of size and
industry. Borrower-specific credit scores are then mapped to a PD, which is first adjusted to capture
country- and industry-specific credit risk characteristics and then assigned to each obligor. The
credit score to PD matrices are calibrated based on historical default data observed in the market,
where the data was sourced from publicly available information.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
39
4 Financial risk management and review – continued
As described in Note 4.3.2, the determination of staging is based on a qualitative assessment
performed at borrower level. In this respect, the estimation of 12-month or lifetime PDs in respect
of any given borrower is determined by reference to assigned internal credit risk grades.
Lifetime PDs are estimated by applying a scalar to the 12-month PD. The scalar, which is based on
historical observed data and is assumed to be the same across all assets within a portfolio, looks at
how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of
the loans.
For retail mortgage lending exposures, PDs are determined by reference to comparable portfolios
at peer banks, as well as a hybrid matrix incorporating information from credit rating agencies,
given that the portfolio is still in its infancy and the Bank does not have any internally observable
default data.
In the case of bills of exchange factoring facilities, the Bank’s PDs are determined by reference to
an internally developed statistical model based on a Markov chain approach. In this respect, 12-
month transition matrices were derived from internal historical data. Default is considered to be
an absorbing state, whereby if an exposure is defaulted, it subsequently remains in default for the
purposes of estimation of PDs.
A five-tier rating scale has been developed, designed to capture different potential states of
delinquency, ranging from a ‘current’ status to a ‘360DPD+’ status. Exposures classified within each
of the five-tier rating scales are assigned a PD determined on the basis of internal historical
delinquency information. Each tier is then mapped to a relative stage, as described in Note 4.3.4.
A cure rate is also applied, also estimated by reference to internal historical delinquency
information in respect of this portfolio.
In the case of invoice factoring facilities, PDs are sourced from an external vendor. In this respect,
a debtor-specific credit score is assigned by the external vendor based on borrower-specific
information. PDs are then determined by reference to the debtor-specific credit score. Due to the
short-term maturity profile of such exposures, no distinction is made between 12-month and
lifetime PDs for the purposes of the ECL calculation.
For financial investments issued by corporates, the PD is estimated using the same methodology
applied in respect of exposures classified within loans and advances to customers. In this respect,
PDs are determined through the use of a credit risk modelling solution developed by an external
vendor.
For sovereign debt securities, the Bank estimates PDs by reference to market data issued by
external credit rating agencies. In this respect, the PDs used in the ECL calculation reflects historical
default rates determined by external credit rating agencies for issuers assigned an external credit
rating which is equivalent to the Bank’s financial investments. If a counterparty or exposure
migrates between external credit ratings, this will lead to a change in PD.
As described in further detail in Note 4.3.2.4, the 12-month and lifetime PDs estimated in respect
of loans and advances to customers and bills of exchange factoring facilities also take into
consideration forward-looking economic information.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
40
4 Financial risk management and review – continued
Loss given default
The LGD represents the Bank’s expectation of the extent of the loss on a defaulted exposure. LGD
is expressed as a percentage loss per unit of exposure at the time of default (EAD). The Bank
estimates the LGD on the basis of historical recovery rates of claims against defaulted
counterparties. The estimation of LGD considers the structure and seniority of the claim, together
with the nature and recoverability / enforceability of collateral and associated recovery costs.
Loans and advances to customers are primarily secured by residential and / or commercial real
estate, as well as cash pledges. In respect of the former, the LGD takes into consideration projected
collateral values, historical discounts to market values to reflect a deduction in future proceeds due
to costs to sell and potential loss in value in a forced sale scenario, and time to repossession. A key
determinant for the LGD applied to exposures secured by real estate is the Loan-to-Value ratio of
individual facilities, where the value of the property takes into account the expected recovery from
the sale of the property.
The Bank applies LGDs developed by an external vendor and determined by reference to the
carrying amount of tangible assets recognised on the borrower’s balance sheet. Expected
recoveries from the sale of such assets are used to determine the expected loss and are modelled
by reference to assumptions in relation to different haircuts to sale proceeds depending on asset
type and the time value of money. The LGD determined through the use of statistical techniques
by the external vendor also takes into consideration a correlation factor between PDs and LGDs,
with higher LGDs being assigned to borrowers to whom a higher PD is determined by the model.
For bills of exchange factoring facilities, the LGD is determined by reference to the value of the
motor vehicle being financed. Specifically, it is assumed that the original value of the motor vehicle
is depreciated on a straight-line basis over its useful life. In addition, the LGD calculation also takes
into consideration the collateral provided by the factoring clients, which comprises pledged cash
held with the Bank to cover potential losses from factored bills of exchange.
In the case of invoice factoring facilities, the Bank purchases credit insurance from a foreign third-
party underwriter which provides insurance cover in respect of losses up to 95% of each eligible
invoice. In this respect, the LGD applied to invoice factoring facilities is determined on this basis.
Exposure at default
EAD represents the expected exposure in the event of a default. The EAD of a financial asset is its
gross carrying amount at the time of default. For lending commitments, the EAD reflects an
estimation of potential future drawdowns permissible in terms of the contract, which are
estimated based on historical observations and forward-looking expectations.
For loans and advances to customers, the Bank estimates the EAD by reference to the expected
balance at default. In this respect, the EAD for term lending exposures (including retail mortgage
exposures) takes into consideration the current exposure to the counterparty as well as future
expected drawdowns of committed facilities, with different drawdown factors applied to partially
drawn and fully unutilised facilities. For revolving exposures, the EAD is estimated by reference to
the maximum potential exposure at default.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
41
4 Financial risk management and review – continued
For bills of exchange factoring facilities, the Bank estimates the EAD by reference to the current
exposure to the counterparty and potential changes to the exposure due to contractual
repayments.
For invoice factoring facilities, the EAD is assumed to be equal to the gross carrying amount of the
exposure at reporting date, since repayments from each facility are expected to be made in one
instalment in line with the invoice credit terms.
Period over which ECL is measured
The Bank measures ECL considering the risk of default over the maximum contractual period over
which it is exposed to credit risk (including any extension options), even if, for credit risk
management purposes, the Bank considers a longer period. The maximum contractual period
extends to the date at which the Bank has the right to require repayment of an advance or
terminate a loan commitment.
However, for revolving facilities that include both a loan and an undrawn commitment component,
the Bank measures ECL over a period longer than the maximum contractual period if the Bank's
contractual ability to demand repayment and cancel the undrawn commitment does not limit the
Bank'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 Bank can cancel them with
immediate effect, albeit this contractual right is not enforced in the normal day-to-day
management unless the Bank becomes aware of an increase in credit risk at facility level. This
longer period is estimated considering the credit risk management actions that the Bank 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.
4.3.2.4 Forward-looking information incorporated in the ECL model
The calculation of ECL incorporates forward-looking information. The Bank performs a historical
analysis to identify the key economic variables affecting credit risk and expected credit losses for
each portfolio. These economic variables and their associated impact on ECL may vary by portfolio.
Expert judgement has been applied in the process.
The key drivers of credit risk and credit losses for each portfolio were determined on the basis of a
statistical regression analysis of historical relationships between macroeconomic variables and
market default data. These key macroeconomic variables determined in respect of each portfolio
are disclosed below:
• The Bank estimates forward-looking ECL by reference to the GDP growth rate,
unemployment rate, inflation rate, and interest rates, all specific to the local Maltese
economy, reflecting the impact of general economic activity on the financial performance
of corporate entities; and
• Bills of exchange factoring: the Euro area real GDP, which is deemed to be a good indicator
of general economic activity.
Given the short-term nature of invoice factoring facilities, the impact of forward-looking
information on the estimation of ECL in respect of these exposures is not deemed to be significant.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
42
4 Financial risk management and review – continued
Similarly, the impact of forward-looking information on the estimation of ECL in respect of retail
mortgage lending exposures classified within loans and advances to customers is also deemed to
be insignificant due to the fact that the portfolio is still in its infancy.
Three possible scenarios are considered to capture non-linearity across credit portfolios. The
‘baseline’ scenario represents the most-likely outcome. Macroeconomic forecasts in respect of
these macroeconomic variables are sourced from an authoritative source on a semi-annual basis,
providing the best estimate view of the economy over a forecasted time horizon.
As a result of the implementation of the new model developed by an external vendor and used to
estimate ECLs for corporate lending exposures classified within loans and advances to customers,
macroeconomic forecasts are modelled over a 12-month time horizon. The macroeconomic
modelling approach used to estimate ECL for bills of exchange factoring exposures remains
unchanged.
In addition to the ‘baseline’ scenario, the Bank considers an ‘upside’ and a ‘downside’
macroeconomic scenario, which respectively represent a more optimistic and a more pessimistic
outcome, reflecting economically plausible upside and downside scenarios. The relative paths for
the macroeconomic variables in the ‘upside’ and ‘downside’ scenarios are determined through
statistical variance analysis techniques applied to the ‘baseline’ scenario.
Each scenario is weighted by a probability of occurrence, determined by a combination of
macroeconomic research and expert credit judgment, taking into account the range of possible
outcomes each chosen scenario represents. The ECL under each scenario is multiplied by the
appropriate scenario weighting to determine a probability-weighted ECL.
As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high
degree of inherent uncertainty and, as a result, the actual outcomes may be significantly different
to those projected.
The heightened level of macroeconomic uncertainty experienced in both global and local
economies has had varying effects on different industry sectors. At the same time, measures
designed to soften the extent of the damage to economic activity and the labour market were
announced by the Maltese government in the form of subsidised energy prices.
In view of the above, a significant judgement within the Bank’s estimation of credit loss allowances
relates to the determination of forward-looking scenarios reflecting potential future economic
conditions under different scenarios and their impact on the ECL calculation. The Bank considers
these forecasts to represent its best estimate of the possible outcomes. The most significant year
end assumptions used for the ECL estimate as at 31 December 2025 and 31 December 2024 are set
out below.
As at 31 December 2025
Projection for Malta in 2026
Baseline
Upside
Downside
GDP growth rate
3.4
4.3
-0.3
Unemployment rate
2.8
2.0
4.1
Inflation rate
2.1
1.6
5.2
Interest rates
2.1
1.4
3.5
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
43
4 Financial risk management and review – continued
Euro area real GDP growth rate (%)
Baseline
Upside
Downside
2026
1.1
1.55
-2
2027
1.3
1.6
-0.7
2028
1.4
1.7
0.2
As at 31 December 2024
Projection for Malta in 2025
Baseline
Upside
Downside
GDP growth rate
3.6
4.5
0.5
Unemployment rate
3.1
2.4
4.7
Inflation rate
2.1
1.6
5.2
Interest rates
3.0
2.3
4.6
The weightings assigned to the ‘baseline’, ‘upside’ and ‘downside’ scenarios are 50% (2024: 50%),
25% (2024: 25%) and 25% (2024: 25%) respectively.
Economic scenarios sensitivity analysis of ECL estimates
The outcome of the Bank’s credit loss allowances estimation process is sensitive to judgements and
estimations made throughout the incorporation of forward-looking economic conditions.
Management has assessed the sensitivity of ECLs by assigning a 100% weighting to the baseline,
downside and upside scenarios respectively. The Bank’s credit loss allowances would increase by
€555,547 (2024: €556,123) if these had to be estimated solely on the basis of the downside
scenario and would reduce by €363,437 (2024: €391,694) if these had to be estimated solely on
the basis of the upside scenario.
4.3.3 Maximum exposure to credit risk
The Bank’s maximum credit risk exposure to on and off-balance sheet financial instruments, before
taking account of any collateral held or other credit enhancements, can be classified in the
following categories:
• Financial assets recognised in the statement of financial position comprise balances with
Central Bank of Malta, loans and advances to banks, financial investments, factored
receivables, and loans and advances to customers. The maximum exposure to credit risk in
respect of these financial assets equals their carrying amount.
Euro area real GDP growth rate (%)
Baseline
Upside
Downside
2025
1.1
1.8
-0.2
2026
1.4
2.2
0.2
2027
1.3
2
0.1
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
44
4 Financial risk management and review – continued
• Commitments in respect of factored receivables, overdrafts, and loans - the maximum
exposure to credit risk is the full amount of the committed facilities (Note 28).
The following table presents the maximum exposure to credit risk from on-balance sheet and off-
balance sheet financial instruments before taking account of any collateral held or other credit
enhancements.
Accrued income substantially arises from factored receivables and loans and advances to
customers. Expected credit losses in respect of accrued income, which are not deemed material,
have been allocated to factored receivables and loans and advances to customers. Similarly,
expected credit losses in respect of undrawn commitments are also allocated to loans and
advances to customers.
2025
2024
Gross
Gross
carrying
Allowance
carrying
Allowance
amount
For ECL
amount
For ECL
€
€
€
€
Credit risk exposure relating to on-
balance sheet assets
Subject to IFRS 9 impairment
requirements
Financial assets measured at
amortised cost
Balances with Central Bank of Malta
47,626,503
-
57,513,990
(30,482)
Debt securities
-
-
51,245,889
(26,718)
Loans and advances to banks
5,794,877
(34,078)
4,213,710
(44,789)
Factored receivables
- Bills of exchange factoring
85,580,488
(80,867)
102,667,483
(368,281)
- Invoice factoring
31,351,404
(259,450)
36,369,185
(431,654)
Loans and advances to customers
- Corporate Lending
107,974,796
(831,840)
165,751,166
(836,284)
- Retail mortgages
29,596,778
(38,567)
29,137,446
(39,201)
Accrued income and other
receivables
1,063,062
-
1,860,854
-
Debt securities measured at FVOCI
64,520,753
(59,381)
37,863,530
(59,543)
Credit risk exposure
373,508,661
(1,304,183)
486,623,253
(1,836,952)
Credit risk exposure relating to off-
balance sheet instruments
Undrawn commitments to lend
54,812,271
-
179,182,237
-
Total credit risk exposure
428,320,932
(1,304,183)
665,805,490
(1,836,952)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
45
4 Financial risk management and review – continued
4.3.4 Credit quality analysis
As described in Note 4.3, the Bank’s internal credit risk grades are designed to highlight exposures
which require closer management attention because of their greater probability of default and
potential loss. The credit quality of the Bank’s portfolios of financial instruments is assessed by
reference to the Bank’s standard credit rating system, as described below:
Credit quality
Financial
Bills of exchange
Invoice factoring /
classification
investments
factoring
Retail mortgage lending
Regular
B+ and above
0 to 30 days past due
0 to 30 days past due
Watch
B to CCC-
31 to 60 days past due
31 to 60 days past due
Substandard
61 to 90 days past due
61 to 90 days past due
Doubtful
CC+ and
below till
Default
Past due by more than
90 days
Past due by more than
90 days
Loss
Amount partially or fully
written off
Amount partially or fully
written off
2025
2024
Fair
Fair
Value
value
€
€
Credit risk exposure relating to on-balance sheet assets
not
subject to IFRS 9 impairment requirements
Equity investments designated at FVOCI
18,730
16,079
Equity investments measured at FVTPL
46,687
45,594
Credit risk exposure
65,417
61,673
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
46
4 Financial risk management and review – continued
The credit quality of loans and advances to customers is managed by the Bank’s Credit department
using internal credit ratings, defined as follows.
Credit quality
Risk attributes
classification
Regular
A customer having overdue repayments by up to 30 days. Regular
exposures are typically deemed to have minimal risk of future losses
based on a strong financial position and performance.
Watch
A customer having overdue balances by more than 30 days and less
than 60 days. ‘Watch’ exposures typically exhibit initial signs of
financial difficulties and necessitate closer monitoring and follow up.
Substandard
A customer having overdue balances by more than 60 days and less
than 90 days. ‘Substandard’ exposures typically exhibit a potentially
prolonged deterioration in financial position and performance which
raises concerns in respect of settlement of the outstanding Invoice,
without recourse to the Insurer.
Doubtful
A customer having overdue balances by more than 90 days and less
than 120 days. ‘Doubtful’ exposures are considered to be defaulted
whereby it becomes evident that the Bank will potentially encounter
notable difficulty in obtaining settlement of the outstanding Invoice
without recourse to the Insurer.
Loss
Amount partially or fully written off
The following tables summarise the credit loss allowances recognised as at 31 December 2025 and
2024 in respect of each class of financial instruments by stage distribution.
The credit loss allowances in respect of balances with Central Bank of Malta and Loans and
advances to banks is deemed to be minimal, given the current account nature of the balances and
the ongoing transaction activity.
The following tables present information in respect of the credit quality of financial assets
measured at amortised cost and debt securities measured at FVOCI.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
47
4 Financial risk management and review – continued
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Balances with Central
Bank of Malta and cash
measured at amortised
cost
€
€
€
€
Grade 1: Regular
47,626,503
-
-
47,626,503
Gross carrying amount
47,626,503
-
-
47,626,503
Allowance for ECL
-
-
-
-
Net carrying amount
47,626,503
-
-
47,626,503
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Balances with Central Bank of
Malta and cash measured at
amortised cost
€
€
€
€
Grade 1: Regular
57,513,990
-
-
57,513,990
Gross carrying amount
57,513,990
-
-
57,513,990
Allowance for ECL
(30,482)
-
-
(30,482)
Net carrying amount
57,483,508
-
-
57,483,508
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Loans and advances to banks
measured at amortised cost
€
€
€
€
Grade 1: Regular
5,794,877
-
-
5,794,877
Gross carrying amount
5,794,877
-
-
5,794,877
Allowance for ECL
(34,078)
-
-
(34,078)
Net carrying amount
5,760,799
-
-
5,760,799
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Loans and advances to banks
measured at amortised cost
€
€
€
€
Grade 1: Regular
4,213,710
-
-
4,213,710
Gross carrying amount
4,213,710
-
-
4,213,710
Allowance for ECL
(44,789)
-
-
(44,789)
Net carrying amount
4,168,921
-
-
4,168,921
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
48
4 Financial risk management and review – continued
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Debt securities measured
at FVOCI
€
€
€
€
Grade 1: Regular
64,520,753
-
-
64,520,753
Fair value
64,520,753
-
-
64,520,753
Allowance for ECL
(59,381)
-
-
(59,381)
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Debt securities measured at
FVOCI
€
€
€
€
Grade 1: Regular
37,863,530
-
-
37,863,530
Fair value
37,863,530
-
-
37,863,530
Allowance for ECL
(59,543)
-
-
(59,543)
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Debt securities measured
at Amortised Cost
€
€
€
€
Grade 1: Regular
-
-
-
-
Gross carrying amount
-
-
-
-
Allowance for ECL
-
-
-
-
-
-
-
-
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Debt securities measured
at Amortised Cost
€
€
€
€
Grade 1: Regular
51,245,889
-
-
51,245,889
Gross carrying amount
51,245,889
-
-
51,245,889
Allowance for ECL
(26,718)
-
-
(26,718)
51,219,171
51,219,171
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
49
4 Financial risk management and review – continued
The following tables present information in respect of the credit quality of financial assets measured at
amortised cost or at FVOCI.
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Loans and advances to
customers measured
at amortised cost
€
€
€
€
Corporate lending
Grade 1: Regular
97,563,306
-
-
97,563,306
Grade 2: Watch
1,608,596
-
-
1,608,596
Grade 3: Substandard
-
1,553,575
-
1,553,575
Grade 4: Doubtful
-
-
6,317,055
6,317,055
Grade 5: Loss
-
-
-
-
Gross carrying amount
99,171,902
1,553,575
6,317,055
107,042,532
Allowance for ECL
(546,115)
(54,079)
(193,378)
(793,572)
Net carrying amount
98,625,787
1,499,496
6,123,677
106,248,960
Retail lending, including
retail mortgages
Grade 1: Regular
30,016,439
-
-
30,016,439
Grade 2: Watch
474,334
-
-
474,334
Grade 3: Substandard
-
-
-
-
Grade 4: Doubtful
-
-
38,269
8,588
Grade 5: Loss
-
-
-
-
Gross carrying amount
30,490,773
-
38,269
30,529,042
Allowance for ECL
(38,567)
-
(38,269)
(76,835)
Net carrying amount
30,452,206
-
-
30,452,206
Total
Grade 1: Regular
127,579,745
-
-
127,579,745
Grade 2: Watch
2,082,930
-
-
2,082,930
Grade 3: Substandard
-
1,553,575
-
1,553,575
Grade 4: Doubtful
-
-
6,355,324
6,355,324
Grade 5: Loss
-
-
-
-
Gross carrying amount
129,662,675
1,553,575
6,355,324
137,571,574
Allowance for ECL
(584,682)
(54,079)
(231,647)
(870,408)
Net carrying amount
129,077,993
1,499,496
6,123,677
136,701,167
---------·····························-
--------
---------
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
50
4 Financial risk management and review – continued
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Loans and advances to
customers measured
at amortised cost
Corporate lending/Total
€
€
€
€
Grade 1: Regular
157,661,709
-
-
157,661,709
Grade 2: Watch
-
-
-
-
Grade 3: Substandard
-
6,696,080
-
6,696,080
Grade 4: Doubtful
-
-
1,393,377
1,393,377
Grade 5: Loss
-
-
-
-
Gross carrying amount
157,661,709
6,696,080
1,393,377
165,751,166
Allowance for ECL
(652,633)
(49,328)
(134,323)
(836,284)
Net carrying amount
157,009,076
6,646,752
1,259,054
164,914,882
Retail lending, including
retail mortgages
Grade 1: Regular
28,613,787
-
-
28,613,787
Grade 2: Watch
212,248
-
-
212,248
Grade 3: Substandard
-
-
-
-
Grade 4: Doubtful
-
-
311,411
311,411
Grade 5: Loss
-
-
-
-
Gross carrying amount
28,826,035
-
311,411
29,137,446
Allowance for ECL
(38,525)
-
(676)
(39,201)
Net carrying amount
28,787,510
-
310,735
29,098,245
Total
Grade 1: Regular
186,275,496
-
-
186,275,496
Grade 2: Watch
212,248
-
-
212,248
Grade 3: Substandard
-
6,696,080
-
6,696,080
Grade 4: Doubtful
-
-
1,704,788
1,704,788
Grade 5: Loss
-
-
-
-
Gross carrying amount
186,487,744
6,696,080
1,704,788
194,888,612
Allowance for ECL
(691,158)
(49,328)
(134,999)
(875,485)
Net carrying amount
185,796,586
6,646,752
1,569,789
194,013,127
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
51
4 Financial risk management and review – continued
As at 31 December 2025
Stage 1
Stage 2
Stage 3
Total
Factored receivables
measured at amortised
cost
€
€
€
€
Grade 1: Regular
87,820,699
-
-
87,820,699
Grade 2: Watch
1,481,317
-
-
1,481,317
Grade 3: Substandard
-
16,256,307
-
16,256,307
Grade 4: Doubtful
-
-
10,967,482
10,967,482
Grade 5: Loss
-
-
406,087
406,087
Gross carrying amount
89,302,016
16,256,307
11,373,569
116,931,893
Allowance for ECL
(98,129)
-
(242,189)
(340,318)
Net Carrying amount
89,203,887
16,256,307
11,131,380
116,591,575
As at 31 December 2024
Stage 1
Stage 2
Stage 3
Total
Factored
Receivables
measured at
amortised cost
€
€
€
€
Grade 1: Regular
103,932,493
-
-
103,932,493
Grade 2: Watch
2,271,064
-
-
2,271,064
Grade 3: Substandard
-
17,387,578
-
17,387,578
Grade 4: Doubtful
-
-
13,092,152
13,092,152
Grade 5: Loss
-
-
2,353,381
2,353,381
Gross carrying amount
106,203,557
17,387,578
15,445,533
139,036,668
Allowance for ECL
(98,918)
(74,712)
(626,305)
(799,935)
Net Carrying amount
106,104,639
17,312,866
14,819,228
138,236,733
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
52
4 Financial risk management and review – continued
The following tables present information in respect of the overdue status of the gross carrying
amount of factored receivables and loans and advances to customers analysed by stage
distribution.
As at 31 December 2025
As at 31 December 2024
Factored
receivables
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
€
€
€
€
Current
87,820,699
-
-
87,820,699
103,932,493
-
-
103,932,493
Overdue < 30
days
1,481,317
-
-
1,481,317
2,271,064
-
-
2,271,064
Overdue > 30
days
-
16,256,307
-
16,256,307
-
17,387,578
-
17,387,578
Overdue > 90
days
-
-
11,373,569
11,373,569
-
-
15,445,533
15,445,533
Total
89,302,016
16,256,307
11,373,569
116,931,893
106,203,557
17,387,578
15,445,533
139,036,668
As at 31 December 2025
As at 31 December 2024
Loans and
advances to
customers
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
€
€
€
€
€
€
€
€
Current
127,579,745
-
-
127,579,745
185,587,673
5,637,408
87,006
191,312,088
Overdue < 30
days
2,082,930
-
-
2,082,930
900,071
613,531
-
1,513,602
Overdue > 60
days
-
1,553,575
-
1,553,575
-
445,141
-
445,141
Overdue > 90
days
-
-
6,355,324
6,355,324
-
-
1,617,781
1,617,781
Total
129,662,675
1,553,575
6,355,324
137,571,574
186,487,744
6,696,080
1,704,788
194,888,612
4.3.5 Reconciliation of changes in gross carrying amount and allowances for ECL
The credit loss allowance recognised is impacted by a variety of factors, as described below:
• 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 during the
period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL;
• additional allowances for new financial instruments recognised during the period, as well as
releases in respect of financial instruments derecognised during the period;
• impact on the measurement of ECL due to changes in PD, LGD or EAD during the period;
• impacts on the measurement of ECL due to changes made to models and assumptions; and
• write-offs of allowances related to assets that were written off during the period.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
53
4 Financial risk management and review – continued
The allowance for ECL in respect of loans and advances to customers as at 31 December 2025
decreased marginally compared to the prior year, resulting in an ECL reversal for the financial year
ended 31 December 2025 amounting to €5,078 (2024: ECL charge of €4,117).
In addition, the reconciliation of ECL in respect of loans and advances to customers also shows
downward migrations of borrowers from Stage 1 to Stage 2 and 3.
The allowance for ECL in respect of factored receivables as at 31 December 2025 decreased
compared to the prior year, resulting in an ECL reversal for the financial year ended 31 December
2025 amounting to €459,618 (2024: €56,890).
In respect of the invoice factoring portfolio, the Bank reviewed long outstanding exposures as at
31 December 2025 in order to assess their recoverability, resulting in write-offs amounting to
€320,287 (2024: €145,288).
The following tables provide a reconciliation of the gross carrying amount and credit loss
allowances relating to loans and advances to customers and factored receivables. A full
reconciliation of changes in expected credit losses and other credit impairment charges is
presented in Note 9 of the financial statements.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
54
4 Financial risk management and review – continued
Stage 1
Stage 2
Stage 3
Total
Gross
Gross
Gross
Gross
carrying
Allowance
carrying
Allowance
carrying
Allowance
carrying
Allowance
amount
for ECL
amount
for ECL
amount
for ECL
amount
for ECL
Loans and advances to customers
€
€
€
€
€
€
€
€
At 1 January 2025
186,487,744
(691,158)
6,696,080
(49,328)
1,704,788
(134,999)
194,888,612
(875,485)
New and further lending
18,783,923
(99,912)
426,232
(11,326)
42,066
(90,528)
19,252,221
(201,766)
Repayments and disposals
(76,616,751)
206,843
(610,016)
-
(63,130)
-
(77,289,897)
206,843
Transfers of financial instruments:
Stage 1 to Stage 2
-
-
-
-
-
-
-
-
Stage 2 to Stage 3
-
-
(4,958,721)
6,575
4,958,721
2
(6,575)
-
-
Stage 3 to Stage 1
287,121
(455)
-
-
(287,121)
455
-
-
Net remeasurement of ECL arising from
stage transfers and changes in risk
Parameters
-
-
-
-
-
-
-
-
Net impact from effective interest rate
method
720,638
-
-
-
-
-
720,638
-
Amounts written off
-
-
-
-
-
-
-
-
At 31 December 2025
129,662,675
(584,682)
1,553,575
(54,079)
6,355,324
(231,647)
137,571,574
(870,408)
Total income statement charge for the
year
5,078
====:::::::::::::::::::::::==================
====:::::::::::::::::::::::
:
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
55
4 Financial risk management and review – continued
Stage 1
Stage 2
Stage 3
Total
Gross
Gross
Gross
Gross
carrying
Allowance
carrying
Allowance
carrying
Allowance
carrying
Allowance
amount
for ECL
amount
for ECL
amount
for ECL
amount
for ECL
Loans and advances to customers
€
€
€
€
€
€
€
€
At 1 January 2024
178,785,561
(757,341)
1,674,070
-
1,375,798
(114,027)
181,835,429
(871,368)
New and further lending
33,468,411
(66,183)
554,622
(49,328)
45,331
(20,972)
34,068,364
(136,483)
Repayments and disposals
(21,460,610)
132,366
(94,153)
-
(30,550)
-
(21,585,313)
132,366
Transfers of financial instruments:
Stage 1 to Stage 2
(4,561,541)
-
4,561,541
-
-
-
-
-
Stage 1 to Stage 3
(314,209)
-
-
-
314,209
-
-
-
Stage 2 to Stage 3
-
-
-
-
-
-
-
Net remeasurement of ECL arising from
stage transfers and changes in risk
Parameters
-
-
-
-
-
-
-
-
Net impact from effective interest rate
method
570,132
-
-
-
-
-
570,132
-
Amounts written off
-
-
-
-
-
-
-
-
At 31 December 2024
186,487,744
(691,158)
6,696,080
(49,328)
1,704,788
(134,999)
194,888,612
(875,485)
Total income statement charge for the
year
(4,117)
====:::::::::::::::::::::::==================
====:::::::::::::::::::::::
:
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
56
4 Financial risk management and review – continued
Stage 1
Stage 2
Stage 3
Total
Gross
Gross
Gross
Gross
carrying
Allowance
carrying
Allowance
carrying
Allowance
carrying
Allowance
amount
for ECL
amount
for ECL
amount
for ECL
amount
for ECL
Factored receivables
€
€
€
€
€
€
€
€
At 1 January 2025
106,203,557
(98,918)
17,387,578
(74,712)
15,445,533
(626,305)
139,036,668
(799,935)
New and further lending (*)
43,256,719
98,574
4,297,873
-
175,743
-
)
47,730,335
98,574
Repayments and disposals
(63,698,761)
(95,553)
(1,330,708)
74,960
(4,483,731)
462,502
(69,513,200)
441,909
Transfers of financial instruments:
Stage 1 to Stage 2
(3,231,744)
(71)
3,231,744
71
-
-
-
-
Stage 1 to Stage 3
(4,176,590)
(2,480)
-
-
4,176,590
(78,386)
-
(80,866)
Stage 2 to Stage 1
5,298,104
319
(5,298,104)
(319)
-
-
-
-
Stage 2 to Stage 3
-
-
(2,204,734)
-
2,204,734
-
-
-
Stage 3 to Stage 1
5,650,731
-
-
-
(5,650,731)
-
-
-
Stage 3 to Stage 2
-
-
172,658
-
(172,658)
-
-
-
Net remeasurement of ECL arising from
stage transfers and changes in risk
parameters
-
-
-
-
-
-
-
-
Amounts written off
-
-
-
-
(321,911)
-
(321,911)
-
At 31 December 2025
89,302,016
(98,129)
16,256,307
-
11,373,569
(242,189)
116,931,893
(340,318)
Total income statement charge for the
year
459,618
=====::::::::::::::::::::::::==:::::::::::::::::::::::=====:::::::::::::::::::::::::::::::::::::::::::::::::
:
:::::::::::::::::::::::::====
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
57
4 Financial risk management and review – continued
Stage 1
Stage 2
Stage 3
Total
Gross
Gross
Gross
Gross
carrying
Allowance
carrying
Allowance
carrying
Allowance
carrying
Allowance
amount
for ECL
amount
for ECL
amount
for ECL
amount
for ECL
Factored receivables
€
€
€
€
€
€
€
€
At 1 January 2024
94,804,161
(102,481)
26,378,542
(56,815)
19,723,995
(697,529)
140,906,698
(856,825)
New and further lending (*)
78,569,977
(204,085)
10,618,379
(62,491)
2,302,757
(822,652)
)
91,491,113
(1,089,228)
Repayments and disposals
(56,517,628)
171,171
(27,678,903)
20,418
(9,019,324)
954,529
(93,215,855)
1,146,118
Transfers of financial instruments:
Stage 1 to Stage 2
(12,619,457)
11,826
12,619,457
(11,826)
-
-
-
-
Stage 1 to Stage 3
(1,004,049)
26,067
-
-
1,004,049
(26,067)
-
-
Stage 2 to Stage 1
1,488,297
(1,397)
(1,488,297)
1,397
-
-
-
-
Stage 2 to Stage 3
-
-
(3,054,297)
35,253
3,054,297
(35,253)
-
-
Stage 3 to Stage 1
1,482,256
(19)
-
-
(1,482,256)
19
-
-
Stage 3 to Stage 2
-
-
(7,303)
(648)
7,303
648
-
-
Net remeasurement of ECL arising from
stage transfers and changes in risk
parameters
-
-
-
-
-
-
-
-
Amounts written off
-
-
-
-
(145,288)
-
(145,288)
-
At 31 December 2024
106,203,557
(98,918)
17,387,578
(74,712)
15,445,533
(626,305)
139,036,668
(799,935)
Total income statement charge for the year
56,890
*New and further lending classified within Stages 2 and 3 in the tables above represents exposures originated during the financial years ended 31 December 2025 and 31
December 2024, and migrated to Stages 2 and 3 on the basis of missed repayments.
=====::::::::::::::::::::::::==:::::::::::::::::::::::======::::::::::::::::::::::::::::::::::::::::::::
:
:=::::::::::::::::::::::::::=====
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
58
4 Financial risk management and review – continued
4.3.6 Renegotiation of financial instruments and forbearance
The contractual terms of a loan may be modified for several reasons, including changing market
conditions, customer retention and other factors not related to a current or potential credit
deterioration of the customer. Where terms have been modified, an existing exposure may be
derecognised if the modification is deemed to be substantial, with the renegotiated instrument
being recognised as a new instrument measured at the fair value as at the date of modification and
allocated to Stage 1 (assuming it is not credit-impaired at that time).
When the terms of an instrument 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:
• the residual lifetime PD at the reporting date based on the modified terms; with
• the residual lifetime PD estimated based on data on initial recognition and the original
contractual terms.
The Bank has aligned its policies with the European Securities and Markets Authority (“ESMA”)
Public Statement on the Treatment of Forbearance Practices in IFRS Financial Statements of
Financial Institutions. Under certain circumstances, the Bank may renegotiate the terms and
conditions of a loan in response to actual or perceived financial difficulties of a customer.
Renegotiations of exposures to customers in financial difficulties (referred to as 'forbearance
activities') are designed to maximise collection opportunities and minimise the risk of default.
Under the Bank's forbearance policy, loan forbearance is granted on a selective basis if the debtor
is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor
made all reasonable efforts to pay under the original contractual terms and the debtor is expected
to be able to meet the revised terms.
The revised terms usually include maturity extensions, changes to the timing of interest payments,
and amendments to the terms of loan covenants. Both retail and corporate loans are subject to
the forbearance policy. The Credit Committee regularly reviews reports on forbearance activities.
For financial assets modified as part of the Bank's forbearance policy, the Bank assesses whether
the modification has improved or restored the Bank's ability to collect interest and principal and
the probability of default in view of previous experience of similar forbearance activity. As part of
this process, the Bank 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 may
constitute evidence that an exposure is credit-impaired. A renegotiated loan is typically presented
as credit-impaired when there has been a change in contractual cash flows as a result of a
concession which the lender would otherwise not consider and it is probable that, without the
concession, the borrower would be unable to meet contractual payment obligations in full.
Accordingly, this will represent a significant concern regarding the borrower’s ability to meet
contractual payments, and the loan will be classified as credit-impaired, unless the concession
granted is insignificant.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
59
4 Financial risk management and review – continued
Renegotiated loans are classified as non-credit impaired where the renegotiation has resulted from
significant concern about a borrower’s ability to meet contractual payment terms, but contractual
cash flows are expected to be collected in full following the renegotiation and no other unlikely-to-
pay indicators are evident.
In the event that a forborne exposure is deemed to be credit-impaired, the renegotiated loan will
continue to be disclosed as credit-impaired until there is sufficient evidence to demonstrate a
significant reduction in the risk of non-payment of future cash flows, and there are no other
indicators of impairment. In this respect, a customer needs to demonstrate consistently good
payment behaviour over a period before the exposure is no longer considered to be credit
impaired.
As at 31 December 2025 and 2024, there were no forborne exposures within the factored
receivables portfolio.
As at 31 December 2025, forborne loans and advances to customers comprised exposures with
eight borrowers (2024: five borrowers), operating within the wholesale and retail trade industry.
The carrying amount in respect of these exposures, as at 31 December 2025 is €7,361,742 (2024:
€6,222,713). Credit loss allowances in respect of these exposures amount to €200,922 as at 31
December 2025 (2024: €18,504).
Interest income recognised during the financial year ended 31 December 2025 in respect of
forborne exposures amounted to €638,829 (2024: €110,109).
The movement in the carrying amount of forborne loans and advances, before impairment
allowances, is analysed below. Exposures eligible for a general payment moratorium of €5,583,213
(2024: 3,550,179) are not considered to be forborne loans and are therefore not included in the
table below.
Forborne exposures
2025
2024
€
€
At 1 January
6,222,713
1,152,249
Increase/(Decrease) in exposure amount
1,139,029
5,070,464
At 31 December
7,361,742
6,222,713
4.3.7 Analysis of collateral
The Bank employs a range of policies and practices to mitigate credit risk. The most common of
these is accepting collateral for funds advanced. The Bank has internal policies on the acceptability
of specific classes of collateral or credit risk mitigation.
The Bank’s policies regarding obtaining collateral have not changed during the reporting period
and there has been no significant change in the overall quality of the collateral held by the Bank
since the prior period.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
60
4 Financial risk management and review – continued
Loans and advances to customers
The Bank holds collateral against loans and advances to customers in the form of pledges over
deposits held with the Bank, charges over real estate and corporate receivables. In response to the
Covid-19 pandemic, the Bank provided support to its customers by offering loans originated in
terms of the Malta Development Bank (“MDB”) Covid-19 Guarantee Scheme (“CGS”). In this
respect, up to 90% of such exposures are guaranteed by the Government of Malta, with the
guarantee amount capped to 50% of all MDB CGS exposures originated by the Bank. The following
is an analysis of the extendible value of the collateral (capped at the carrying amount of the loan)
held by the Bank against exposures of loans and advances to customers:
Carrying amounts
2025
2024
€
€
Loans and advances to customers (Gross carrying
amount)
137,571,574
194,888,612
Of which secured by:
Real estate
87,498,795
101,921,820
Cash deposits held with the Bank
7,271,910
43,426,968
MDB CGS guarantee
2,145,786
5,718,313
Bills of exchange with recourse
10,048,481
16,618,990
Assignment of receivables and others
6,001,797
5,734,952
Total carrying amount secured by collateral
112,966,769
173,421,043
Residual unsecured exposure amounts
24,604,805
21,467,569
Allowance for ECL
(870,408)
(875,485)
During 2020, the Bank had confirmed its participation in the MDB CGS, whereby the risk of newly
originated loans under the scheme to viable businesses experiencing liquidity pressures resulting
from the effects of the pandemic are mitigated by a government guarantee. In this respect, as at 31
December 2025, gross loans subject to the MDB CGS amounted to €2,384,207 (2024: €6,353,681),
of which a maximum of €2,145,786 (2024: €5,718,313) is considered guaranteed. As at 31
December 2025, gross loans originated under this scheme classified as Stage 1 and Stage 2
amounted to €667,521 (2024: €4,298,015) and €444,254 (2024: €765,405) respectively. As at 31
December 2025, loans originated under this scheme classified in Stage 3 amounted
to €1,272,432 (2024: €1,290,260).
The allowance for ECL in respect of the corresponding loans classified as Stage 1, Stage 2 and Stage
3 amounted to €98 (2024: €168), €nil (2024: €nil) and €186,803 (2024: €1,734) respectively.
Factored receivables
Factored receivables comprise bills of exchange and invoices factored on a no-recourse basis. The
former sub-portfolio is secured by the motor vehicles being financed, with a pledge on cash
deposits placed by factoring clients and held with the Bank also providing coverage on a first loss
basis.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
61
4 Financial risk management and review – continued
The value of motor vehicles held as collateral in respect of factored bills of exchange as at 31
December 2025 and 2024, estimated by reference to the depreciated value of the motor vehicle
to capture the loss in value through use, is presented in the table below.
2025
2024
€
€
Type of collateral
Motor vehicles
93,258,017
101,854,220
Invoice factoring facilities are secured by credit insurance from a foreign third-party underwriter
providing insurance cover in respect of losses up to 95% of each eligible invoice.
Collateral held in respect of credit-impaired financial assets
The Bank closely monitors collateral held for financial assets considered to be credit-impaired, as
it becomes more likely that the Bank will take possession of collateral to mitigate potential credit
losses. Financial assets that are credit-impaired and in respect of which related collateral is held in
order to mitigate potential losses are shown below:
As at 31 December 2025
Extendible
Gross
value of
Carrying
Allowance
Carrying
collateral
Amount
for ECL
amount
held
€
€
€
€
Loans and advances to customers
Overdrafts
447,939
-
447,939
-
Fixed term loans
5,907,385
(231,647)
5,675,738
14,122,363
Factored receivables
Bills of exchange factoring
Invoice factoring
9,225,659
(80,867)
9,144,792
7,727,226
Invoice factoring
135,114
(12,465)
122,649
-
15,716,097
(324,979)
15,391,118
21,849,589
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
62
4 Financial risk management and review – continued
The LTV ratio in respect of credit-impaired loans and advances to customers as at 31 December
2025 is 43% (2024: 334%). As at 31 December 2025, credit-impaired loans and advances to
customers comprise eight exposures (2024: three) with a carrying amount of €6,123,677 (2024:
€1,393,377) classified as forborne stage 3 exposure and another four exposures (2024: nine) with
a carrying amount of €38,269 (2024: €310,735) classified as non-forborne stage 3 exposures. These
exposures are secured by commercial, residential real estate, and others which are secured by the
MDB CGS guarantee and cash collateral.
Credit-impaired invoice factoring facilities are secured by credit insurance cover procured from
third party insurers up to 95% of credit losses in respect of each insured exposure.
No collateral is held in respect of financial investments and loans and advances to banks.
4.3.8 Write-off policy
The Bank writes off a loan, security and/or factored receivable balances (and any related credit loss
allowances) when management determines that the loan, security and/or factored receivable is
uncollectible. This determination is reached after considering information such as occurrence of
significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can
no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the
entire exposure. During the current year, amounts receivable of €321,911 (2024: €145,288) were
written off by the Bank.
4.3.9 Settlement risk
'Settlement risk' is the risk of loss due to the failure of an entity to honour its obligations to deliver
cash, securities or other assets as contractually agreed. The Bank's activities do not expose it to
significant settlement risk.
As at 31 December 2024
Extendible
Gross
value of
Carrying
Allowance
Carrying
collateral
Amount
for ECL
amount
held
€
€
€
€
Loans and advances to customers
Overdrafts
103,116
-
103,116
-
Fixed term loans
1,601,671
(134,999)
1,466,672
470,000
Factored receivables
Bills of exchange factoring
Invoice factoring
12,756,154
(289,662)
12,466,492
9,631,500
Invoice factoring
2,689,379
(336,644)
2,352,735
2,108,326
17,150,320
(761,305)
16,389,015
12,209,826
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
63
4 Financial risk management and review – continued
4.3.10 Industry concentration
The following table analyses the Bank’s loans and advances to customers and factored receivables
by business segment:
2025
2024
€
%
€
%
Accommodation and food services
2,099,474
1%
-
-
Construction and real estate activities
35,720,990
14%
48,617,487
15%
Households and individuals
115,789,833
46%
128,163,547
38%
Manufacturing
11,213,820
4%
14,001,862
4%
Services
51,743,999
20%
52,267,545
16%
Transportation
1,394,988
1%
2,902,473
1%
Wholesale and retail trade
23,557,865
9%
43,084,418
13%
Other sectors
13,628,551
5%
43,212,528
13%
255,149,520
100%
332,249,860
100%
The following table analyses the Bank’s investment portfolio by business segment:
2025
2024
€
%
€
%
Sovereign debt
56,821,400
79%
70,634,821
79%
Local corporate bonds:
- Real estate
6,769,600
10%
6,819,500
8%
- Financial services
4,199,300
5%
4,929,300
6%
- Tourism
1,658,800
2%
2,539,800
3%
- Telecommunications
1,964,600
3%
2,363,325
3%
- Other
500,000
1%
1,795,955
1%
Equity investments
65,417
-
61,673
-
71,959,117
100%
89,144,374
100%
4.3.11 Concentration risk
In addition to industry concentration mentioned in Note 4.3.10, the Bank monitors concentration
of credit risk by counterparty and by geographic location. An analysis of credit risk concentration
(net of credit loss allowances) is shown on the next page.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
64
4 Financial risk management and review – continued
Loans and advances
Factored
Loans and advances
Financial
to customers
receivables
to banks
Investments
2025
2024
2025
2024
2025
2024
2025
2024
€
€
€
€
€
€
€
€
Carrying amount
136,701,167
194,013,127
116,591,575
138,236,733
5,760,799
4,168,921
64,586,170
89,144,374
Concentration by counterparty
Corporates
105,384,145
164,914,881
29,648,740
43,952,027
-
-
6,538,783
13,518,580
Private individuals
31,317,022
29,098,246
83,292,816
91,966,700
-
-
-
-
Sovereign
-
-
3,650,019
2,318,006
-
-
56,801,400
70,634,821
Banks and financial services
-
-
-
-
5,760,799
4,168,921
1,245,987
4,990,973
Concentration by location
Europe:
- Malta
122,961,805
144,098,801
92,441,927
110,166,933
2,513,391
3,384,581
63,244,753
87,591,856
- Belgium
13,734,580
40,651,076
19,445,572
21,961,199
1,450,635
711,965
18,730
16,079
- France
186
3,500,000
1,059,493
2,704,019
-
-
46,687
42,313
- Other
4,596
5,763,250
3,644,583
3,404,582
1,796,773
72,375
1,276,000
1,494,125
Concentration by location for loans and advances to customers and banks and investment securities is measured based on the location of the borrower or issuer of the security.
-------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
65
4 Financial risk management and review – continued
4.4 Market risk
Market risk comprises the risk of losses in value caused by unexpected changes in market prices
(interest rates, equity prices, foreign exchange rates and credit spreads) before the affected
positions can be closed out or hedged.
Market risk for the Bank consists of three elements:
• Interest rate risk, which is the risk of losses because of changes in interest rates.
• Exchange rate risk, which is the risk of losses on the Bank’s positions in foreign currency
because of changes in exchange rates.
• Investment price risk, which is the risk of losses because of changes in investments prices.
4.4.1 Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in
market interest rates. The Bank’s operations are subject to the risk of interest rate fluctuations to
the extent that interest-earning assets and interest-bearing liabilities mature or re-price at
different times or at different amounts. The Bank accepts deposits from customers at both fixed
and floating rates and for varying maturity periods. This risk is managed through the matching of
the interest resetting dates on assets and liabilities. However, the Bank seeks to maximise the
spread over the cost of capital by investing funds in a portfolio of securities and loans and
receivables with a longer tenure than the liabilities (therefore carrying a negative maturity gap
position) through the efficient management of shorter-term liabilities over the medium to longer
term. The table on the next page summarises re-pricing mismatches at reporting date together
with the effective interest rates where applicable.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
66
4 Financial risk management and review – continued
2025
Carrying
amount
Average
effective
interest
rate
Less than
three months
Between
three months
and one year
Between one
year and five
years
More than
five years
€
%
€
€
€
€
Assets
Balances with Central Bank of Malta
47,626,503
2%
47,626,503
-
-
-
Loans and advances to banks
5,760,799
2%
5,760,799
-
-
-
Financial investments:
- Debt securities measured at Amortised Cost
-
-
-
-
-
- Debt Securities measured at FVOCI
64,586,170
2%
-
-
-
64,520,753
Factored receivables
116,591,575
12%
31,055,535
8,862,905
59,444,228
17,228,907
Loans and advances to customers
136,701,166
5%
36,083,917
11,278,039
13,426,036
75,913,173
Total assets
371,266,213
120,526,754
20,140,944
72,870,264
157,662,834
Liabilities
Amounts owed to institutions
10,000,000
2%
10,000,000
-
-
-
Amounts owed to banks
-
-
-
-
-
-
Amounts owed to customers
338,081,138
2%
201,260,726
61,411,342
67,759,117
7,649,953
Debt securities in issue
13,755,590
5%
-
-
-
13,755,590
Total liabilities
361,836,728
211,260,726
61,411,342
67,759,117
21,405,543
Interest repricing gap
(90,733,972)
(41,270,398)
5,111,147
136,257,291
Cumulative gap
(90,733,972)
(132,004,370)
(126,893,223)
9,364,068
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
67
4 Financial risk management and review – continued
2024
Carrying
amount
Average
effective
interest
rate
Less than
three months
Between
three months
and one year
Between one
year and five
years
More than
five years
€
%
€
€
€
€
Assets
Balances with Central Bank of Malta
57,483,508
5%
57,483,508
-
-
-
Loans and advances to banks
4,168,921
2%
4,168,921
-
-
-
Financial investments:
- Debt securities measured at Amortised Cost
51,219,171
1%
-
-
24,477,586
26,741,585
- Debt Securities measured at FVOCI
37,863,530
4%
-
5,297,825
14,441,251
18,124,454
Factored receivables
138,236,733
7%
42,226,707
9,344,527
73,859,194
12,806,305
Loans and advances to customers
194,013,127
5%
136,781,010
27,205,000
850,001
29,177,116
Total assets
482,984,990
240,660,146
41,847,352
113,628,032
86,849,460
Liabilities
Amounts owed to institutions
-
-
-
-
-
-
Amounts owed to banks
-
-
-
-
-
-
Amounts owed to customers
448,613,950
3%
309,678,003
69,327,564
55,430,196
14,178,187
Debt securities in issue
16,773,480
5%
-
3,054,530
-
13,718,950
Total liabilities
465,387,430
309,678,003
72,382,094
55,430,196
27,897,137
Interest repricing gap
(69,017,857)
(30,534,742)
58,917,836
58,952,323
Cumulative gap
(69,017,857)
(99,552,599)
(41,354,763)
17,597,560
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
68
4 Financial risk management and review – continued
4.4.1.1 Interest rate profile
The interest rate profile of the Bank’s interest-bearing financial instruments as at 31 December
2025 and 2024 is presented below:
2025
2024
€
€
Fixed
Variable
Fixed
Variable
Interest-earning assets
Financial investments – debt
securities
64,586,170
-
89,144,374
-
Factored receivables:
- Invoice factoring
31,091,954
-
35,937,531
-
- Bills of exchange factoring
85,499,621
-
102,299,202
-
Loans and advances to customers:
- Corporate
34,915,837
71,338,715
53,190,499
111,724,383
- Retail
-
30,446,615
25,880,846
3,217,399
Balances with Central Bank of
Malta and cash
-
47,626,503
-
57,483,508
Loans and advances to banks
-
5,760,799
-
4,168,921
216,093,582
155,172,631
306,452,452
176,594,211
Interest-bearing liabilities
Amounts owed to institutions
(10,000,000)
-
-
-
Amounts owed to customers
(338,081,138)
(264,224,707)
(184,389,243)
Debt securities in issue
(13,755,590)
-
(16,773,480)
-
Amounts owed to banks
-
-
-
-
(361,836,729)
(280,998,187)
(184,389,243)
4.4.1.2 Fair value sensitivity analysis for fixed rate instruments
Financial instruments issued at fixed interest rates potentially expose the Bank to fair value interest
rate risk. Balances with Central Bank of Malta, loans and advances to customers and to banks,
amounts owed to Central Bank of Malta, customers and banks, and debt securities in issue are
measured at amortised cost and are therefore not subject to fair value interest rate risk.
In this respect, the fair value sensitivity for fixed rate instruments is only performed in respect of
debt financial investments measured at FVOCI. An increase of 250 basis points (2024: 250 basis
points) in the yield to maturity of each respective debt security would lead to a decrease in value
of debt financial investments measured at FVOCI amounting to €7,528,930 (2024 restated:
€10,233,792). Likewise, a decrease of 250 basis points (2024: 250 basis points) in interest rates
would lead to an increase in value of debt financial investments measured at FVOCI amounting to
€7,415,545 (2024 restated: €12,543,592). Such increases or decreases in fair value would be
recognised in other comprehensive income and in equity.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
69
4 Financial risk management and review – continued
4.4.1.3 Cash flow sensitivity analysis for variable rate instruments
The Bank is exposed to cash flow interest rate risk principally in respect of financial assets and
liabilities subject to variable interest rates. Taking cognisance of the nature of the Bank’s financial
assets and liabilities, a sensitivity analysis in respect of interest rate changes in relation to the
Bank’s variable rate financial assets is presented hereunder in line with the requirements
emanating from IFRS 7.
The Bank manages its exposure to interest rate risk using interest rates repricing gaps and both
economic value and earnings-based measures. The Bank’s interest rate risk management
framework is in line with the relevant guidelines issued by the EBA. The following tables show the
impact on the Bank’s economic value and earnings under different interest rate scenarios. The
Bank’s interest rate risk management framework follows relevant EBA Guidelines. These Guidelines
outline six shock scenarios that set out the change in interest rates under which the impact on the
economic value of equity is assessed. The scenarios are reviewed periodically by Management to
ensure that these capture all plausible scenarios.
2025
Parallel
shift up
200bp
Parallel
shift down
200bp
Flattener
Steepened
Short-
term
upward
Short-term
downward
Economic value
measures
2,451,155
(2,451,155)
1,354,187
(128,610)
(128,610)
128,610
Earnings measures
474,282
(474,282)
273,878
(36,737)
273,878
(273,878)
2024
Parallel
shift up
200bp
Parallel
shift down
200bp
Flattener
Steepened
Short-
term
upward
Short-term
downward
Economic value
measures
1,908,914
(1,908,914)
(287,184)
1,241,641
(287,184)
287,184
Earnings measures
(328,539)
328,539
(164,270)
-
(164,270)
164,270
4.4.2 Currency risk
Currency risk is the risk that the value of a financial instrument fluctuates due to changes in foreign
exchange rates. The Bank holds and deals in foreign currency with the aim to service the foreign
exchange buying and selling activity of its clients. The Bank does not speculate on its foreign
exchange holdings. The Bank’s foreign exchange exposure is mainly limited to the United States
Dollar and Swiss Francs, originating from the Bank's corporate banking business. The Bank manages
this risk by ensuring that its foreign currency denominated liabilities are matched to corresponding
assets in the same currency.
Exposure to foreign currencies is maintained at minimum levels and within the prescribed limits
set by the Bank’s Board of Directors. In the scenario whereby all foreign currencies fluctuate
upwards or downwards by 20% against the Euro, the carrying amounts of financial assets and
liabilities would fluctuate upwards or downwards by €150,059 (2024: €11,505) respectively.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
70
4 Financial risk management and review – continued
The following table provides an analysis of the financial assets and liabilities of the Bank into
relevant currency groupings:
2025
2024
Euro
Other
currencies
Total
Euro
Other
currencies
Total
€
€
€
€
€
€
Financial assets
Balances with Central Bank of
Malta and cash
47,626,503
-
47,626,503
57,483,508
-
57,483,508
Loans and advances to banks
4,837,838
922,961
5,760,799
2,209,271
1,959,650
4,168,921
Financial investments:
-
- Debt securities measured at
Amortised Cost
-
-
-
-
-
-
- Debt Securities measured at
FVOCI
64,586,170
-
64,586,170
81,629,749
-
81,629,749
Factored receivables
116,591,575
-
116,591,575
138,236,733
-
138,236,733
Loans and advances to
customers
136,701,167
-
136,701,167
194,013,127
194,013,127
Other assets
28,422,037
28,422,037
28,315,168
28,315,168
398,765,289
922,961
399,688,250
501,887,556
1,959,650
503,847,206
Financial liabilities
Amounts owed to institutions
10,000,000
-
10,000,000
-
-
-
Amounts owed to banks
-
-
-
-
-
-
Amounts owed to customers
337,908,470
172,668
338,081,138
446,711,824
1,902,126
448,613,950
Debt securities in issue
13,755,590
-
13,755,590
16,773,481
-
16,773,481
Other liabilities
6,303,358
-
6,303,358
7,732,868
-
7,732,868
367,967,418
172,668
368,140,086
471,218,172
1,902,126
473,120,298
Net currency position
30,797,870
750,293
31,548,163
30,669,384
57,524
30,726,908
As at 31 December 2025 and 2024, the Bank was not exposed to any significant currency risk in
respect of off-balance sheet exposures. Balances under other currencies represent exposures
predominantly to the US Dollar.
4.4.3 Investment price risk
The exposure of the Bank to this risk is not significant. Frequent management reviews are carried
out to ensure high quality of the portfolio.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
71
4 Financial risk management and review – continued
4.5 Liquidity risk
Liquidity risk is the risk that the Bank’s obligations to repay liabilities or fund new loans exceeds the
Bank’s ability to raise funds from either the liquidation of assets or the acceptance of new deposits.
Liquidity risk arises primarily due to mismatches in the maturity profile of a bank’s financial assets
and liabilities, which exposes a bank to the risk that it might not be able to meet its liabilities as
they become due or will have to do so at excessive cost. Liquidity risk may also be affected by the
depth of the market in which the Bank operates.
Liquidity risk is divided into two categories:
• Market (product) liquidity risk: risk of losses arising from difficulties in accessing a product
or market at the required time, price and volume.
• Funding liquidity risk: risk of losses arising from a timing mismatch in respect of the
maturities of financial assets and liabilities, resulting in a risk that the Bank does not meet
obligations when due or will have to raise funding at higher than normal rates.
The Bank’s approach to managing liquidity risk is to ensure, as far as possible, that it always has
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Bank’s reputation. The key
elements of the Bank's liquidity strategy are as follows.
• Maintaining a diversified funding base consisting of customer deposits (both retail and
corporate) and wholesale market deposits, whilst also maintaining contingency facilities.
• Carrying a portfolio of highly liquid assets, diversified by currency and maturity.
• Monitoring maturity mismatches, behavioural characteristics of the Bank's financial assets
and financial liabilities, and the extent of asset encumbrance which might prevent financial
assets from being used as collateral to obtain further funding.
• Stress testing of the Bank's liquidity position against various exposures and global, country-
specific and Bank-specific events.
Liquidity policies and procedures are reviewed by internal audit. All liquidity policies are subject to
review by the Asset and Liability Management Committee and the approval of the Board of
Directors.
The Bank’s liquidity and funding risk management framework employs two key measures to define,
monitor and control the liquidity and funding risk:
• The Liquidity Coverage Ratio (“LCR”), which measures the Bank’s level of High-Quality Liquid
Assets (“HQLAs”) against expected net cash outflows over a one-month period. This ratio is
used to gauge the short-term resilience of the Bank’s liquidity profile in terms of the
requirements emanating from European Commission (‘EC’) Delegated Regulation 2015/61.
• The Net Stable Funding Ratio (“NSFR”) is used to monitor the structural long-term funding
position of the Bank. The NSFR requires institutions to maintain sufficient stable funding
relative to required stable funding, and reflects a bank’s long-term funding profile (funding
with a term of more than a year). It is designed to complement the LCR.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
72
4 Financial risk management and review – continued
4.5 Liquidity risk – continued
Details of the Bank’s ratios at the reporting dates and during the reported periods are presented
below:
LCR
NSFR
2025
2024
2025
2024
As at 31 December
3,293%
1,967%
134%
141%
Average for the year
2,864%
2,775%
133%
155%
Maximum for the year
4,022%
6,254%
135%
181%
Minimum for the year
1,332%
1,254%
130%
141%
4.5.1 Contractual maturity ladder
The Bank also monitors the contractual maturity ladder, which provides insight into the extent to
which the Bank relies on maturity transformation in respect of contractual cash flows. More
precisely, the maturity ladder is used to determine the availability of liquid assets to meet liquidity
gaps for diverse time horizons.
The following table provides an analysis of the financial assets and liabilities of the Bank into
relevant remaining maturity groupings based on the ability of recovery or repayment:
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
73
4 Financial risk management and review – continued
At 31 December 2025
Less than
one month
Between one
and three
months
Between
three
months and
one year
Between one
and five
years
More than five
years
No maturity
date
Total
€
€
€
€
€
€
€
Financial assets
Balances with Central Bank of Malta
46,105,939
-
-
-
-
1,520,564
47,625,503
Loans and advances to banks
5,760,799
-
-
-
-
-
5,760,799
Financial investments:
- Equity investments
-
-
-
-
-
65,417
65,417
- Debt securities at amortised cost
-
-
-
-
-
-
-
- Debt securities at FVOCI
-
-
-
-
64,520,753
-
64,520,753
Factored receivables
28,917,809
2,137,726
8,862,905
59,444,228
17,228,907
-
116,591,575
Loans and advances to customers
36,008,050
75,867
11,278,039
13,426,036
75,913,173
-
136,701,166
Other assets
28,422,037
-
-
-
-
-
28,422,037
Total assets
145,214,634
2,213,593
20,140,944
72,870,264
157,662,834
1,585,981
399,688,250
Financial liabilities
Amounts owed to institutions
10,000,000
-
-
-
-
-
10,000,000
Amounts owed to customers
152,297,218
48,944,154
61,411,342
67,759,117
7,649,953
-
338,061,785
Debt securities in issue
-
-
-
-
13,755,590
-
13,755,590
Other liabilities
6,322,711
-
-
-
-
-
6,322,711
Total liabilities
168,619,929
48,944,154
61,411,342
67,759,117
21,405,544
-
368,140,086
Liquidity gap
(23,405,296)
(46,730,560)
(41,270,398)
5,111,147
136,257,290
1,585,981
31,548,164
Cumulative gap
(23,405,296)
(70,135,856)
(111,406,254)
(106,295,107)
29,962,183
31,548,164
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
74
4 - Financial risk management and review – continued
At 31 December 2024
Less than
one month
Between one
and three
months
Between
three months
and one year
Between
one and five
years
More than five
years
No maturity
date
Total
€
€
€
€
€
€
€
Financial assets
Balances with Central Bank of Malta
55,962,944
-
-
-
-
1,520,564
57,483,508
Loans and advances to banks
4,168,921
-
-
-
-
-
4,168,921
Financial investments:
- Equity investments
-
-
-
-
-
61,673
61,673
- Debt securities at amortised cost
-
-
-
24,477,586
26,741,585
-
51,219,171
- Debt securities at FVOCI
-
-
5,297,825
14,441,251
18,124,454
-
37,863,530
Factored receivables
31,053,288
11,173,419
9,344,527
73,859,194
12,806,305
-
138,236,733
Loans and advances to customers
22,694,875
11,382,434
54,441,152
32,382,759
73,111,907
-
194,013,127
Other assets
2,456,536
-
-
-
-
-
2,456,536
28,422,037
28,422,037
28,422,037
28,422,037
Total assets
116,336,564
22,555,853
69,083,504
145,160,790
130,784,251
1,582,237
485,503,199
Financial liabilities
Amounts owed to institutions
-
-
-
-
-
-
-
Amounts owed to customers
201,803,194
107,874,809
69,327,564
55,430,196
14,178,187
-
448,613,950
Debt securities in issue
-
-
3,054,530
-
13,718,950
-
16,773,480
Other liabilities
6,558,061
-
-
-
-
-
6,558,061
Total liabilities
208,361,255
107,874,809
72,382,094
55,430,196
27,897,137
-
471,945,491
Liquidity gap
(92,024,691)
(85,318,956)
(3,298,590)
89,730,594
102,887,114
1,582,237
13,557,708
Cumulative gap
(92,024,691)
(177,343,647)
(180,642,237
)
(90,911,643)
11,975,471
13,557,708
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
75
4 Financial risk management and review – continued
Amounts owed to customers of €115,079,410 (2024: €124,061,541) as at 31 December 2025 are repayable on demand and included in the ‘less than one month’ bucket
in the tables above. However, the Bank’s experience is that a significant portion of such deposits remains stable. Additionally, a significant part of other deposits
maturing within 3 months from the end of the reporting period is typically renewed.
4.5.2 Cash flows payable by the Bank under financial liabilities by residual maturity
The table below shows a maturity analysis of undiscounted cash flows payable in respect of financial liabilities by residual contractual maturities of the instruments:
Carrying
amount
Gross nominal
outflow
Repayable on
demand
Less than three
months
Between three
months and
one year
Between one
and five years
More than five
years
€
€
€
€
€
€
€
At 31 December 2025
Balance owed to Central Bank of Malta
10,000,000
(10,000,000)
-
(10,000,000)
-
-
-
Amounts owed to customers
338,081,138
(338,081,138)
(115,079,410)
(8,953,368)
(112,485,910)
(73,969,505)
(27,592,945)
Debt securities in issue
13,755,590
(13,755,590)
-
-
-
-
(13,755,590)
Other liabilities
4,937,363
(4,937,363)
-
(4,937,363)
-
-
-
366,774,091
(366,774,091)
(115,079,410)
(23,890,731)
(112,485,910)
(73,969,505)
(41,348,535)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
76
4 Financial risk management and review – continued
Carrying amount
Gross nominal
outflow
Repayable on
demand
Less than three
months
Between three
months and
one year
Between one
and five years
More than five
years
€
€
€
€
€
€
€
At 31 December 2024
Balance owed to Central Bank of Malta
-
-
-
-
-
-
-
Amounts owed to customers
448,613,950
(456,934,694)
(124,061,541)
(186,179,327)
(70,502,670)
(59,392,613)
(16,798,543)
Debt securities in issue
16,773,480
(22,313,926)
-
-
(3,123,309)
-
(19,190,617)
Other liabilities
6,558,061
(6,558,061)
-
(6,558,061)
-
-
-
471,945,491
(485,806,681)
(124,061,541)
(192,737,388)
(73,625,979)
(59,392,613)
(35,989,160)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
77
4 Financial risk management and review – continued
4.6 Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated
with the Bank’s processes, personnel, technology, and infrastructure, as well as from external
factors other than credit, market, and liquidity risks, such as risks arising from legal and regulatory
requirements and generally accepted standards of corporate behaviour. Operational risks arise
from all the Bank’s operations.
Management of operational risk
The Bank’s objective is to manage operational risk to balance the avoidance of financial losses and
damage to the Bank’s reputation with overall cost effectiveness. The Bank’s operational risk
management activities comprise actions to:
• Adopt policies, processes, and procedures to control and/or mitigate material operational
risks.
• Identify and assess the operational risk inherent in all material products, activities,
processes, and systems. Before new products, activities, processes, and systems are
introduced or undertaken, the inherent operational risk is subject to adequate assessment.
• Monitor all potential operational risks and material exposures to losses.
• Monitor whether there is motive, means and opportunity within the overall control
environment to commit fraudulent acts.
• Adopt contingency and business continuity plans to ensure the Bank’s ability to operate on
an ongoing basis and limit losses in the event of severe business disruption.
The primary responsibility for the development and implementation of controls to address
operational risk is assigned to senior management. Periodic operational risk reports are submitted
to the Bank’s Audit and Risk Committee. A financial measurement of this risk is estimated by the
Bank for the purpose of allocating risk capital using the Basic Indicator Approach under the Capital
Requirements Directive rules. The capital requirement for operational risk under this method was
calculated at €1,705,030 as at 31 December 2025 (2024: €1,040,473).
4.7 Fair value measurement of financial instruments
The fair value of financial assets that are traded in active markets are based on quoted market
prices or dealer price quotations. For all other financial instruments, the Bank determines fair value
using other valuation techniques.
(a) Valuation models
The Bank measures fair value using the following fair value hierarchy, which reflects the significance
of the inputs used in making the measurements:
• Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical
instruments.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
78
4 Financial risk management and review – continued
4.7 Fair value measurement of financial instruments – continued
• Level 2: inputs other than quoted prices included within Level 1 that are observable either
directly (i.e. as prices) or indirectly (i.e. derived from prices). 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 that are unobservable. This category includes all instruments for which the
valuation technique includes inputs that are not observable, and the unobservable inputs
have a significant effect on the instrument's 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.
Valuation techniques include net present value and discounted cash flow models. Assumptions and
inputs used in valuation techniques include risk-free and benchmark interest rates.
Fair values reflect the credit risk of the instrument and include adjustments to take into account
the credit risk of the counterparty as appropriate.
The objective of valuation techniques is to arrive at a fair value measurement that reflects the price
that would be received to sell the asset or paid to transfer 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 Bank has access at that date.
(b) Valuation framework
The Bank’s financial assets measured at fair value comprise investments in Malta Government
Stocks, corporate bonds listed on the Malta Stock Exchange, and collective investment schemes. A
selected group of Malta Government Stocks, corporate bonds and unquoted equity investments
are classified as financial investments measured at FVOCI. Equity investments representing units in
collective investment schemes are classified as financial investments measured at FVTPL. The Head
of Finance and Treasury has overall responsibility for independently verifying the results of all fair
value measurements.
(c) Financial instruments measured at fair value
The table below analyses financial instruments measured at fair value at the reporting date by fair
value measurement categorisation within the fair value hierarchy. The amounts reflect the carrying
amount recognised in the statement of financial position.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
79
4 Financial risk management and review – continued
Level 1
Level 2
Level 3
Total
€
€
€
€
31 December 2025
Financial investments:
- Debt securities
64,520,753
-
-
64,520,753
- Equity investments
-
-
18,730
18,730
64,520,753
-
18,730
64,539,483
31 December 2024 - restated
Financial investments:
- Debt securities
81,568,076
-
-
81,568,076
- Equity investments
-
-
16,079
16,079
81,568,076
-
16,079
81,584,155
Financial investments – Corporate Debt securities and sovereign debt securities held within a held-
to-collect and sell business model
This category of assets is carried at fair value, measured primarily by reference to quoted market
prices as at 31 December 2025 and 2024.
Financial investments – Equity investments
The Bank has an interest in an open-ended investment fund as disclosed in Note 15.5, which is
carried at fair value, determined by reference to the net asset value of the fund as at 31 December
2025 and 2024. The Bank’s exposure to unquoted equity investments is deemed immaterial as at
31 December 2025 and 2024.
(d) Financial instruments not measured at fair value
Debt securities in issue
The fair value of the debt securities in issue as at 31 December 2025 amounted to €13,300,000
(2024: €17,056,800) whilst the carrying amount of these debt securities was €13,755,590 (2024:
€16,773,480). The fair value has been determined by reference to the market price (level 1).
Balances with Central Bank of Malta, loans and advances to banks and factored receivables
These categories of assets are reported net of credit loss allowances to reflect the estimated
recoverable amounts. Balances with Central Bank of Malta and loans and advances to banks re-
price within 3 months, whilst factored receivables are relatively short-term in nature. The carrying
amounts of these financial assets are therefore deemed to be a reasonable approximation of their
fair value.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
80
4 Financial risk management and review – continued
Loans and advances to customers
Loans and advances to customers are carried at amortised cost in the statement of financial
position. The board considers the carrying amounts of these loans to be a reasonable estimate of
their fair value in view of the relatively short periods to repricing or maturity from the end of the
reporting periods.
Amounts owed to institutions
Amounts owed to institutions amounting to €10,000,000 (2024: nil) represent loans contracted in
terms of the ‘Eurosystem Monetary Policy Operations - Central Bank of Malta Directive No.8’ and
are carried at amortised cost. These amounts are secured by a pledge on a portion of the Bank’s
portfolio of investments in Malta Government Stocks as disclosed in Note 15.2. The fair value of
these amounts is deemed to approximate the carrying amount in view of the short-term nature of
the financial liability.
Amounts owed to customers
This category of liabilities is carried at amortised cost and amounts to €338,081,138 (2024:
€448,613,950). The majority of the customer deposits reprice within one year or less and, in this
respect, their carrying amount is deemed to be a reasonable approximation of their fair value.
Amounts owed to banks
This category of liabilities is carried at amortised cost and amounts to nil (2024: nil). These liabilities
are short-term in nature and, in this respect, their carrying amount is deemed to approximate their
fair value.
(e) Non-financial instruments measured at fair value
The judgements and estimates made in determining the fair values of property classified within
‘Property and equipment’ and ‘Property held for sale’, which is recognised and measured at fair
value in the statement of financial position are described hereunder.
The Bank engages external, independent and qualified valuers to determine the fair value of its
properties at least every five years. At the end of each reporting period, the directors update their
assessment of the fair value of each property, taking into account the most recent independent
valuations and other market factors.
The Bank is required to analyse non-financial assets carried at fair value by level of the fair
value hierarchy within which the recurring fair value measurements are categorised in their
entirety (Level 1, 2 or 3). The different levels of the fair value hierarchy have been defined as fair
value measurements using:
• Quoted prices (unadjusted) in active markets for identical assets (Level 1);
• Inputs other than quoted prices included within Level 1 that are observable for the
asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2);
• Inputs for the asset that are not based on observable market data (i.e. unobservable
inputs) (Level 3).
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
81
4 Financial risk management and review – continued
The Bank’s property, classified within ‘Property and equipment’, comprises the Bank’s offices and
other operational premises. The last independent valuation of this property was performed as at
19 July 2024. During 2024, the carrying value of the 4, Castille Place property, was adjusted to
reflect the updated valuation, resulting in a net increase of €1,000,000 in the carrying values for
the Bank. The Bank’s property, classified within ‘Property held for sale’, comprise the 53-58, East
Street, Valletta properties.
These two adjacent properties were used as the Bank’s offices up until June 2024. The last
independent valuation of these properties was performed as at 26 June 2024. During 2023, the
carrying values of the properties, classified within property and equipment, was adjusted to the
valuations and the net resultant adjustment comprised an increase of €1,170,375 in the carrying
value for the Bank. For all Bank properties, their current use equates to the highest and best use.
A reconciliation from the opening balance to the closing balance of land and buildings for recurring
fair value measurements categorised within Level 3 of the fair value hierarchy, is reflected in Note
18.1 and 18.2. The principal movements reflect changes in fair value, additions, disposals and
depreciation charge for the years ended 31 December 2025 and 2024.
The external valuations of the Level 3 property have been performed using predominantly the
traditional residual method of valuation. In view of the limited market information available, the
valuations have been performed using unobservable inputs. In relation to the capitalised rentals
approach, the significant unobservable inputs include:
• a capitalisation rate applied at 5-6% (2024: 5-6%) which is effectively the discount rate
adjusted for anticipated growth; and
• the expected annual rental value (“ERV”) taking into account the rental rate per square
metre for comparable properties located in proximity to the Bank’s property with
adjustments for differences in the size, age, exact location and condition of the property.
The assumed monthly rental rate per square metre is €20.83 - €41.67 (€250/sqm to
€500/sqm on an annual basis) (2024: monthly rental rate of €20.83 - €41.67/sqm or
€250/sqm to €500/sqm on an annual basis).
Effectively, the capitalisation rate indicates the return the investor expects to receive through
annual rental value.
4.8 Capital base
The Bank is a licensed credit institution and must therefore comply with the minimum capital
requirements prescribed by the Capital Requirements Regulation. The Bank has adopted the
Standardised Approach to calculate its capital requirements for credit risk and the Basic Indicator
Approach for operational risk and foreign exchange risk in order to calculate the Pillar 1 minimum
capital requirements.
4.8.1 Capital management
The Bank is required to maintain sufficient capital to comply with regulatory capital requirements.
The Bank’s capital management processes ensure an efficient use of capital in relation to risk
appetite as well as business development. The Bank’s regulatory capital comprises Tier 1 capital
and Tier 2 capital, which includes ordinary share capital, the capital contribution reserve, retained
earnings, other reserves and subordinated debt.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
82
4 Financial risk management and review – continued
All financial instruments arising from the Bank’s operations are categorised as banking book
exposures, and risk-weighted assets are determined according to specified requirements that seek
to reflect the varying levels of risk attached to assets and to exposures not recognised in the
statement of financial position.
In 2025, the Bank did not encounter any breaches of its Pillar 2 Guidance (P2G) ratio, following the
continued execution of the capital management plan approved by the Board of Directors. As at the
end of 2025, the Bank’s Tier 1 capital ratio stood at 15.54%, comfortably exceeding the regulatory
requirement of 12.80%, further demonstrating the strengthening of the Bank’s capital position.
4.8.2 Calculation of minimum capital requirement and risk-weighted assets
Minimum capital requirements are computed for credit, market and operational risks. The Banking
Act, 1994 requires a bank to maintain a ratio of total regulatory capital to risk-weighted assets and
instruments (the Capital requirements ratio) at or above the prescribed minimum of 8%.
The Bank is compliant with the CRD IV capital requirements and in addition to the prescribed
minimum, Banking Rule BR/15: ‘Capital Buffers of Credit Institutions authorised under the Banking
Act 1994’ requires Banks to hold additional buffers, namely the ‘capital conservation buffer’ and
the ‘countercyclical buffer’. Automatic restrictions on capital distributions apply if the Bank’s CET1
capital falls below the level of its CRD IV combined buffer.
The Bank is required to maintain a capital conservation buffer of 2.5% and the institution-specific
countercyclical buffer as determined by Article 140(1) of Directive 2013/36/EU which is composed
of CET1 capital. These buffers were phased in over the period from 1 January 2016 to 31 December
2020.
CRD IV contemplates a countercyclical buffer in line with Basel III, in the form of an institution-
specific countercyclical buffer and the application of increased requirements to address macro-
prudential or systemic risk. This is expected to be set in the range of 0-2.5% of relevant credit
exposure risk-weighted assets, whereby the rate shall consist of the weighted average of the
‘countercyclical buffer’ rates that apply in the jurisdiction where the relevant exposures are
located. The Bank's current 'countercyclical buffer' rate amounts to 0.12%
On 27 April 2023, the Bank received from the MFSA a SREP Decision letter, whereby in addition to
the regulatory requirements stated above, the Bank is expected to maintain a Pillar 2 Requirement
(P2R) of 3.25% to be held in excess of the minimum own funds requirement and to be maintained
at all times in accordance with Article 104a of the EU’s Capital Requirements Directive (CRD V). In
addition, a Pillar 2 Guidance (P2G) of 1.50% and made up entirely of CET 1 Capital is to be held over
and above the Overall Capital Requirement (OCR)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
83
4 Financial risk management and review – continued
The following is an analysis of the Bank’s Capital Base in accordance with the CRD’s requirements,
as reported by the Bank in the COREP return:
2025
2024
€
€
Tier 1 Capital
Ordinary share capital
29,000,000
29,000,000
Capital Contribution
2,032,675
2,032,675
Accumulated Losses (excluding Depositor
compensation scheme)
(3,000,465)
(3,987,094)
Property revaluation reserve
4,795,243
4,739,260
Fair value movement reserve
(5,402,405)
(697,493)
Perpetual capital notes
3,000,000
3,000,000
Other reserves
-
-
Deductions related to intangible assets
(1,640,899)
(3,537,293)
Deductions in relation to deferred tax assets that
rely on future profitability
(2,257,227)
(1,971,077)
Total Tier 1 Capital
26,526,922
28,578,978
Tier 2 Capital
Subordinated debt
14,000,000
14,000,000
Total Tier 2 Capital
14,000,000
14,000,000
Total Own Funds
40,526,922
42,578,978
Based on the regulatory returns submitted to the MFSA for the financial year ending 31 December
2025, as well as those submitted up to the date of signing these financial statements for reporting
periods after 31 December 2025, the Bank is considered to have fulfilled all minimum capital
requirements up to the signing date.
Further information in respect of the Bank's capital ratios may be found in the Pillar 3 disclosures
as at 31 December 2025 yet to be published at a later date.
------------------------------------------------
----------------------------
-
-----------
-
--
-
----
------------------------------------------------
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
84
5 Net interest income
2025
2024
€
€
Interest income
Factored Receivables
8,664,660
9,067,716
Loans and advances to customers
7,836,875
8,739,303
Amounts owed to institutions
1,339,837
3,076,377
Financial assets measured at amortised cost
508,830
434,329
Financial assets measured at FVOCI
890,747
1,385,325
Amortisation of premium on financial assets
(245,625)
(348,172)
Total interest income
18,995,324
22,354,878
Interest expense
On amounts owed to banks
(210,860)
-
On amounts owed to customers
(10,280,911)
(15,296,801)
On debt securities in issue
(768,778)
(839,790)
Amortisation of debt issuance costs
(38,910)
(41,179)
Total interest expense
(11,299,459)
(16,177,770)
Net interest income
7,695,865
6,177,108
6 Net fee and commission income
2025
2024
€
€
Account maintenance and other bank charges
311,814
233,584
Fee and commission income
311,814
233,584
SWIFT and bank charges
(136,144)
(145,966)
Fee and commission expense
(136,144)
(145,966)
Net fee and commission income
175,670
87,618
Performance obligations and revenue recognition policies
Fee and commission income from contracts with customers is measured based on the consideration
specified in a contract with a customer. The Bank recognises revenue when it transfers control over a
service to a customer.
The following table provides information about the nature and timing of the satisfaction of
performance obligations in contracts with customers, including significant payment terms, and the
related revenue recognition policies.
----------------------------------------·
----------------------------------------·
----------------------------------------
·
----------------------------------------·
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
85
6 Net fee and commission income – continued
Type of service
Nature and timing of satisfaction of performance
obligations, including significant payment terms
Revenue recognition under IFRS 15
Retail and
corporate
banking service
The Bank provides banking services to corporate
customers, including the provision of credit facilities,
foreign currency transactions, account maintenance
and servicing fees.
Transaction-based fees for foreign currency
transactions and credit facilities are charged to the
customer's account when the transaction takes place.
Servicing fees are charged on a periodical basis and are
based on fixed rates reviewed annually by the Bank.
No fees are charged to the Bank’s retail customer base.
Revenue from account maintenance and
servicing fees is recognised over time as
the services are provided.
Revenue related to transactions is
recognised at the point in time when the
transaction takes place.
7 Net trading income
2025
2024
€
€
Net loss from other financial instruments at FVTPL
(206,846)
(226,574)
Net gain from other financial instruments at FVOCI
-
-
Net (loss)/gain from foreign exchange
103,097
40,529
(103,749)
(186,045)
8 Other operating income/(loss)
2025
2024
€
€
Other income/(loss)
219,223
(124,213)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
86
9 Changes in expected credit losses and other credit impairment charges
2025
2024
€
€
Changes in expected credit losses:
Factored receivables
459,618
56,890
Loans and Advances to customers
5,078
(4,117)
Debt financial investments measured at FVOCI
26,879
32,784
Balances with the Central Bank and other banks
41,193
(75,272)
532,768
10,285
Other credit impairment charges:
Write-offs
- Factored receivables
(321,911)
(145,288)
- Loans and advances to customers
-
(7,568)
Recoveries
- Factored receivables
1,441
96,453
- Loans and advances to customers
-
3,839
(320,470)
(52,564)
212,298
(42,279)
10 Profit/(Loss) before tax
10.1 Profit/(Loss) before income tax is stated after fees, exclusive of VAT, charged by the Bank’s
statutory auditor in relation to the financial years ended 31 December 2025 and 2024, which
comprise the following:
2025
2024
€
€
Auditors’ remuneration
87,000
84,000
Other assurance services
5,000
2,832
92,000
86,832
10.2 Employee compensation and benefits incurred by the Bank during the respective financial years
are analysed as follows:
2025
2024
€
€
Directors’ fees
131,665
140,000
Staff costs:
- wages, salaries and allowances
3,038,845
3,066,037
- defined contribution social security costs
177,651
191,488
3,348,161
3,397,525
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
87
10 Profit/(Loss) before tax - continued
10.3 The weekly average number of persons employed by the Bank during the respective financial years
was as follows:
2025
2024
€
€
Managerial
9
8
Supervisory and clerical
56
69
65
77
10.4 Other expenses incurred by the Bank during the respective financial years are analysed as follows:
2025
2024
€
€
Credit servicing fees
612,114
724,642
IT support and maintenance costs
1,065,333
1,235,814
Marketing expenses
82,163
553,822
Professional fees
409,205
516,503
Regulatory related fees
689,256
1,754,194
Other expenses
320,977
661,495
3,179,048
5,446,470
Regulatory related fees are inclusive of Depositor Compensation Scheme contributions of nil (2024:
€1,110,825).
11 Income tax expense
11.1 Total income tax expense
2025
2024
€
€
Income Statement
Current income tax – current year expense
-
-
Deferred tax credit
(87,419)
1,112,204
(87,419)
1,112,204
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
88
11 Income tax expense - continued
11.2 The income tax expense for the year and the result of the accounting profit multiplied by the tax
rate applicable in Malta, the Bank’s country of incorporation, are reconciled as follows:
2025
2024
€
€
Profit/(Loss) before income tax
682,451
(4,081,976)
Tax at the applicable tax rate of 35%
(238,858)
1,428,692
Tax effect of:
- Non-deductible expenses
-
(8,951)
- Other differences
151,439
(307,537)
(87,419)
1,112,204
12 Earnings per share
Earnings per share is calculated by dividing the profit or loss after tax attributable to ordinary
shareholders of the Bank by the number of ordinary shares in issue and ranking equally for dividend
during the year.
Note
2025
2024
€
€
Income Statement
Net loss attributable to equity holders of the
Bank
595,032
(2,969,772)
Number of ordinary shares in issue
27
58,000,000
58,000,000
Earnings per share
1c03
(5c12)
13 Balances with Central Bank of Malta and cash
2025
2024
€
€
Balances with Central Bank of Malta
47,625,002
57,483,508
Cash and items in transit
1,501
-
Balances with the Central Bank of Malta comprise mandatory reserve deposits of € 1,520,564
(2024: €1,520,564) and are not available for use in the Bank’s day-to-day operations. During the
current and prior years, the Bank has been compliant with the reserve deposit requirement. These
balances also comprise an amount of €1,520,564 (2024: €1,520,564) pledged in favour of the
Depositor Compensation Scheme. Credit loss allowances in respect of balances with the Central
Bank of Malta are deemed to be negligible. At 31 December 2025, expected credit loss allowances
in respect of Balances with Central Bank of Malta measured at amortised cost amounted to nil
(2024: €30,482).
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
89
14 Loans and advances to banks
2025
2024
€
€
Repayable on call and at short notice
5,760,799
4,168,921
At 31 December 2025, expected credit loss allowances in respect of loans and advances to banks
measured at amortised cost amounted to €34,078 (2024: €44,789).
15 Financial investments
15.1 Composition of investment portfolio
2025
2024
Restated
2023
Restated
€
€
€
Debt securities measured at FVOCI
64,520,753
81,568,076
92,538,717
Equity investments designated at FVOCI
18,730
16,079
38,800
Equity investments designated at FVTPL
46,687
45,594
317,461
64,586,170
81,629,749
92,894,978
15.2 Debt financial investments measured at FVOCI comprise:
2025
2024
Restated
2023
Restated
€
€
€
Malta Government Stocks
49,760,290
63,120,196
63,780,768
Local corporate bonds listed on the
Malta Stock Exchange
14,760,463
18,447,880
28,757,949
64,520,753
81,568,076
92,538,717
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
90
15 Financial investments – continued
15.2 Debt financial investments measured at FVOCI - continued
At 31 December 2025, expected credit loss allowances in respect of debt securities measured
at FVOCI amounted to €59,381 (2024: €86,261).
The Bank’s holdings of debt financial investments measured at FVOCI represent securities
quoted on the Malta Stock Exchange.
As at 31 December 2025, a portion of the Bank’s investment in Malta Government Stocks with
a fair value of €49,761,539 (2024: €63,120,196) was pledged in favour of the Central Bank of
Malta as collateral held in respect of the Bank’s participation in the Long-Term Refinancing
Operations (“LTROs”) €10,000,000 (2024: nil) as at that date.
15.4 Equity investments designated at FVOCI comprise:
2025
2024
€
€
Unquoted equity holding
(Society for Worldwide Interbank Financial
Telecommunications SCRL – SWIFT)
18,730
16,079
15.5 Equity investments measured at FVTPL comprise:
2025
2024
€
€
Collective investment schemes
46,687
45,594
Collective investment schemes represent holdings in investment-grade money market funds as
part of the active liquidity management of the Bank. Furthermore, the unrated financial
investments disclosed above represent equity investments listed on the Malta Stock Exchange
which are unrated by international credit rating agencies.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
91
15 Financial Investments – continued
15.6 The table below summarises the movement in financial investments:
2025
2024
Restated
2023
Restated
€
€
€
At 1 January
81,629,749
92,894,978
91,550,927
Acquisitions
865,000
399,300
100,000
Disposals / Maturities
(18,401,100)
(13,247,605)
(1,302,167)
Amortisation of premium
(245,625)
(348,172)
(399,673)
Net fair value movement
738,146
1,931,248
2,945,891
At 31 December
64,586,170
81,629,749
92,894,978
16 Factored receivables
2025
2024
€
€
Receivables factored on a non-recourse basis:
- Invoice factoring
31,351,404
36,369,185
- Bills of exchange factoring
85,580,488
102,667,483
Allowance for ECL
(340,317)
(799,935)
116,591,575
138,236,733
17 Loans and advances to customers
17.1 Loan and advances at amortised cost:
2025
2024
€
€
Term loans and advances to third parties
91,579,757
96,217,660
Term loans and advances to related parties
12,916,348
53,087,963
Overdrafts
33,075,469
45,582,989
Allowance for ECL
(870,407)
(875,485)
136,701,167
194,013,127
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
92
18 Properties
18.1 Property and equipment
Premises and
Computer
Motor
Other
Total
improvements
hardware
vehicles
equipment
€
€
€
€
€
Cost/revalued amount
At 1 January 2024
15,863,668
13,599,914
1,237,420
104,924
921,410
Acquisitions
1,356,339
643,244
160,357
-
552,738
Premises revaluation
1,000,000
1,000,000
-
-
-
Disposals / write-offs
(112,953)
-
-
-
(112,953)
Transfers to property held for
sale*
(5,097,785)
(5,097,785)
-
-
-
At 31 December 2024
13,009,269
10,145,373
1,397,777
104,924
1,361,195
At 1 January 2025
13,009,269
10,145,373
1,397,777
104,924
1,361,195
Acquisitions
271,839
202,096
65,208
-
4,535
Disposals / write-offs
(857,752)
-
(389,202)
(11,162)
(457,388)
Transfers**
-
366,165
-
-
(366,165)
At 31 December 2025
12,423,356
10,713,634
1,073,783
93,762
542,177
Depreciation
At 1 January 2024
1,924,532
345,870
115,612
876,874
88,572
613,216
Charge for the year
301,862
115,612
145,814
6,015
34,421
Depreciation released
(115,227)
-
-
-
(115,227)
Transfers*
(259,778)
(259,778)
-
-
-
At 31 December 2024
1,851,389
201,704
1,022,688
94,587
532,410
At 1 January 2025
1,851,389
201,704
1,022,688
94,587
532,410
Charge for the year
341,155
159,142
123,327
5,962
52,724
Depreciation released
(857,752)
-
(396,741)
(11,161)
(449,849)
Transfers**
-
7,816
-
-
(7,816)
At 31 December 2025
1,334,792
368,662
749,274
89,388
127,469
Carrying amount
At 1 January 2024
13,939,136
13,254,044
360,546
16,352
308,194
At 31 December 2024
11,157,880
9,943,669
375,089
10,337
828,785
At 31 December 2025
11,088,564
10,344,972
324,509
4,374
414,708
* The transfers during the year ending 31 December 2024 relate to the revalued amount and accumulated depreciation
of the two adjacent and prestigious houses – Nos. 53 and 58 in East Street, Valletta. Until June 2024, these properties
were utilised by the Bank as its offices. Following the completion of the multi-year refurbishment project, the Board
resolved to change the Bank's registered office to 4, Castille Place, Valletta, VLT1062, Malta.
** Certain items of 'Other Equipment' were presented under 'Premises and improvements' as at 31 December 2025 to
better reflect the nature of these assets.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
93
18 Properties – continued
18.1 Property and equipment - continued
The Bank’s property, classified within ‘Property and equipment’, comprises the Bank’s offices and
other operational premises. The last independent valuation of this property was performed as at
19 July 2024. During 2024, the carrying value of the 4, Castille Place property, was adjusted to
reflect the updated valuation, resulting in a net increase of €1,000,000 in the carrying values for
the Bank.
The carrying amount of premises and improvements that would have been included in the
financial statements had these assets not been revalued (see Note 3.5) but had been carried at
cost less depreciation would have been:
2025
2024
€
€
Cost
9.713,634
9,511,538
Accumulated depreciation
(353,718)
(204,520)
9,359,916
9,307,018
18.2 Property held for sale
2025
2024
€
€
Opening balance as at 1 January
4,838,007
-
Transfer from Property and equipment (Note
18.1) - revalued amount, net of accumulated
depreciation
-
4,838,007
Closing balance as at 31 December
4,838,007
4,838,007
The Bank’s property, classified within ‘Property held for sale', as at 31 December 2025 comprise of
the two adjacent and prestigious houses - 53-58 in East Street, Valletta. These are close to the
Lower Barrakka Gardens and with views of the Grand Harbour and the Three Cities. The buildings
date back to the eighteenth century and are structurally sound and complete of finishes of a very
high standard. These properties were used as the Bank’s offices up until June 2024 (Company
Announcement number 118 on the Malta Stock Exchange dated 21 June 2024). The properties
were transferred to ‘Property held for sale’ as management feel that the criteria as held-for-sale
have been met. In August 2024, the Bank entered into a promise of sale agreement to sell the
properties, which agreement was extended in August 2025. The Bank is ready to execute the
promise of sale immediately at the buyer’s discretion. In any case, the final deed shall be signed by
not later than the second half of 2027.
The last independent valuation of these properties were performed as at 26 June 2024.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
94
18 Properties – continued
18.3 Revaluation of premises
The Bank’s premises and property held for sale are measured at fair value based on open market
values provided periodically, at least every five years, by independent valuers. Information in
respect of the fair value measurement of the properties measured at revalued amount is disclosed
in Note 4.7. For all Bank properties, their current use equates to the highest and best use.
The valuations were determined by using an asset-based approach with reference to market
prices based on a database of valuations and sales of properties in the relevant area,
as applicable.
Valuation
technique
Significant
unobservable
inputs
Range
Sensitivity’s narrative
Premises and
improvements
Asset-
based
Price per square
meter per
annum
€250/sqm
to
€500/sqm
The higher the price
per sqm, the higher
the fair value.
Property held
for sale
Asset-
based
Price per square
meter per
annum
€250/sqm
to
€500/sqm
Rent growth per
annum
5-6%
The higher the
discount rate, the
lower the fair value
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
95
19 Intangible assets
Computer
software
€
Cost
At 1 January 2024
8,668,658
Acquisitions
1,543,798
Disposals/write-off
(169,996)
At 31 December 2024
10,042,460
At 1 January 2025
10,042,460
Acquisitions
1,682,940
Disposals/write-off
(1,705,980)
At 31 December 2025
10,019,420
Amortisation
At 1 January 2024
5,038,455
Charge for the year
848,309
At 31 December 2024
5,886,764
At 1 January 20254
5,886,764
Charge for the year
648,492
Disposals/write-off
(1,705,980)
At 31 December 2025
4,829,276
Carrying amount
At 1 January 2024
3,630,203
At 31 December 2024
4,155,696
At 31 December 2025
5,190,144
As at 31 December 2025, commitments in respect of capital expenditure authorised and contracted
for amounted to €322,078 (2024: €748,401). This expenditure will be directed towards post go-live
enhancements to the new core and internet banking systems.
20 Other assets
2025
2024
€
€
Accrued interest
977,331
1,273,106
Prepayments
567,643
595,682
Other receivables
85,731
587,748
1,630,705
2,456,536
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
96
21 Amounts owed to institutions
The Bank participates in the ECB MROs and LTROs. In this respect, a portion of the Malta
Government Stocks held by the Bank as at 31 December 2025 and 2024 (see Note 15) were pledged
in favour of the Central Bank of Malta as collateral in respect of the Bank’s participation in the
MROs and LTROs. As at 31 December 2025, LTROs amounted to €10,000,000 (2024: nil).
22 Amounts owed to banks
2025
2024
€
€
Repayable on demand
-
-
Saving accounts
-
-
23 Amounts owed to customers
2025
2024
€
€
Repayable on demand
10,732,125
127,395,740
Term deposits
327,349,013
321,218,210
338,081,138
448,613,950
24 Debt securities in issue
2025
2024
€
€
At 1 January
16,773,480
16,861,501
Debt securities purchased and cancelled
-
(129,200)
Redemption of the remaining 4.5% unsecured debt securities
(3,056,800)
-
Amortisation of debt issuance costs during the year (Note 5)
38,910
41,179
At 31 December
13,755,590
16,773,480
As at 31 December 2025 and 31 December 2024, the contractual amount due at maturity is of €
14,000,000 and €17,056,800 respectively. The balance as at 31 December 2024 included
€3,056,800 of 4.5% unsecured debt securities (ISIN: MT0000531211), which were fully redeemed
on 30 June 2025. The remaining €14,000,000 comprises of 5% unsecured subordinated bonds
(ISIN: MT0000531229), maturing on 15 September 2032, with an early redemption option
exercisable by the Bank on 15 September 2027 and annually thereafter. The €14,000,000 5%
unsecured subordinated bonds are listed on the Malta Stock Exchange, are denominated in Euro,
pay interest at a fixed rate of 5% and are redeemable at par. These debt securities will, in the event
of winding up of the Bank, be subordinated to the claims of depositors and all other creditors. At
the close of the last trading day for the year 2025, the quoted price of the €14,000,000 5%
unsecured subordinated bonds was €95 (2024: €100).
The Bank has not had any defaults of interest or any other breaches with respect to these debt
securities during the financial years ended 31 December 2025 and 2024.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
97
25 Deferred tax assets and liabilities
The recognised deferred tax assets and liabilities are expected to be recovered or settled
principally after more than 12 months from the end of the reporting period, and are attributable
to the following:
2025
2024
Restated
2023
Restated
€
€
€
Deferred tax assets
Fair value changes on financial
investments measured at FVOCI
2,908,988
3,045,187
3,971,492
Unutilised tax losses & capital allowances
2,257,226
1,977,590
663,291
Allowance for ECL
434,150
610,019
617,493
5,600,364
5,632,796
5,252,276
Deferred tax liabilities
Depreciation of property and equipment
and amortisation of intangible assets
(577,145)
(385,958)
(185,458)
Revaluation of properties
(788,848)
(788,848)
(616,719)
Fair value changes on financial
investments measured at FVTPL
-
-
(5,808)
(1,365,993)
(1,174,806)
(808,057)
Net deferred tax assets/(liabilities)
4,234,371
4,457,990
4,444,219
Deferred taxes are calculated on all temporary differences under the liability method and are
measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled based on tax rates (and tax laws) that have been substantively enacted by the end
of the reporting period.
The principal tax rate used is 35 % (2024: 35%), with the exception of deferred taxation on the fair
valuation of non-depreciable property, which is computed on the basis applicable to disposals of
immovable property mainly giving rise to a tax effect of 10% of the transfer value (2024: 10%).
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
98
25 Deferred tax assets and liabilities – continued
Movement in temporary differences relates to:
At 1 January
Recognised in
Recognised in
At 31
December
2025
profit or loss
OCI
2025
€
€
€
€
Depreciation of property and
equipment
and amortisation of intangible
assets
(385,958)
(191,187)
-
(577,145)
Revaluation of properties
(788,848)
-
-
(788,848)
Fair value changes on financial
investments
- measured at FVOCI
3,045,187
-
(136,199)
2,908,988
- measured at FVTPL
-
-
-
-
Unutilised tax losses & capital
allowances
1,977,590
279,636
-
2,257,226
Allowance for ECL
610,019
(175,869)
-
434,150
p
4,457,990
(87,420)
(136,199)
4,234,371
At 1
January
Recognised
in
Recognised
in
At 31
December
2024
profit or
loss
OCI
2024
€
€
€
€
Depreciation of property and equipment
and amortisation of intangible assets
(185,458)
(200,500)
-
(385,958)
Revaluation of properties
(616,719)
-
(172,129)
(788,848)
Fair value changes on financial
investments
- measured at FVOCI
3,971,492
-
(926,305)
3,045,187
- measured at FVTPL
(5,880)
(5,880)
-
-
Unutilised tax losses & capital allowances
663,291
1,314,299
-
1,977,590
Allowance for ECL
617,493
(7,474)
-
610,019
4,444,219
1,112,205
(1,098,434)
4,457,990
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
99
26 Accruals and other liabilities
2025
2024
€
€
Accrued interest payable
3,131,208
6,040,709
Accrued expenses & other payables
1,806,155
517,352
4,937,363
6,558,061
27 Share capital and reserves
27.1 Share capital
2025
2024
No. of Shares
€
No. of
Shares
€
Authorised
Ordinary shares of €0.50
each
120,000,000
60,000,000
120,000,000
60,000,000
Issued and fully paid up
Ordinary shares of €0.50
each
58,000,000
29,000,000
58,000,000
29,000,000
At 31 December 2025 and 2024, the authorised and issued share capital comprised 120,000,000
and 58,000,000 ordinary shares of €0.50 each respectively. The holders of ordinary shares are
entitled to receive dividends as declared from time to time and are entitled to one vote per share
at shareholders’ meetings of the Bank.
27.2 Capital contribution reserve
On 9 December 2024, one of the shareholders of the Bank contributed €2,000,000 as a capital
contribution to the distributable reserves of the Bank (Company Announcement number 122 on
the Malta Stock Exchange dated 12 December 2024). These amounts represent irrevocable and
unconditional contributions by the shareholders and are interest free and are repayable at the sole
discretion of the Bank.
27.3 Perpetual Note
On 28 August 2024, the Bank issued €3,000,000 Fixed Rate Perpetual Additional Tier 1 Capital Notes
in denomination of €10,000 each, all fully paid up to one of its shareholders (Company
announcement number 122 on the Malta Stock Exchange dated 12 December 2024). The notes
have no fixed date for redemption and carry interest at a rate of 8% per annum subject to an
'interest cancellation' clause.
These capital instruments qualify as additional Tier 1 instruments in accordance with the
requirements of Articles 51 to 54 of the Regulation (EU) No. 575/2013 and are categorised as equity
within the Bank's Statement of Financial Position under the requirements of IFRS as adopted by the
EU.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
100
27 Share capital and reserves - continued
27.4 Property revaluation reserve
The property revaluation reserve represents the surplus arising on the revaluation of the Bank’s
premises, net of related deferred tax effects. This reserve is not available for distribution.
27.5 Fair value reserve
The fair value reserve, comprises:
• the cumulative movement in the fair value of equity investments measured at FVOCI, net
of deferred tax; and
• the cumulative movement in the fair value of debt securities measured at FVOCI net of
deferred tax and allowances for ECL.
27.6 Retained Earnings/(Accumulated Losses)
Retained earnings represent retained profits which are available for distribution to Shareholders
subject to qualification as realised profits in accordance with the requirements of the Companies
Act, Cap. 386 of the Laws of Malta.
Retained earnings for the year 2025 is inclusive of €1,465,033 (2024: €1,514,715) set aside for
Depositor Compensation Scheme. This represents funds with the Central Bank of Malta and
pledged in favour of the Depositor Compensation Scheme.
27.7 Dividends
No dividends are being declared in respect of the financial year ended 31 December 2025 (2024:
Nil).
28 Commitments
2025
2024
€
€
Unutilised factoring, overdraft and loan facilities’
commitments
54,812,271
179,182,237
The Bank may unconditionally cancel undrawn factoring commitments at 31 December 2025
amounting to €46,990,328 (2024: €109,995,135) at its discretion.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
101
29 Net cash absorbed by/from operating activities
2025
2024
€
€
Profit for the year
595,032
(2,969,772)
Adjustments for:
Depreciation of property and equipment
341,155
301,862
Amortisation of intangible assets
648,492
848,309
Income tax expense
87,419
(1,112,204)
Allowance for ECL
212,298
(26,055)
Interest income on debt financial investments
(1,399,577)
(1,819,654)
Interest expense on debt securities in issue
837,556
839,790
Net unrealised loss from financial investments measured
at FVTPL
4,130
226,574
Amortisation of premiums and discounts on debt financial
investments
245,625
348,172
Amortisation of debt issuance costs
(38,910)
(88,020)
1,533,220
(3,450,998)
Movements in loans and advances to customers
57,383,124
(13,053,183)
Movements in factored receivables
21,648,276
1,870,029
Movements in amounts owed to institutions
-
(20,000,000)
Movements in amounts owed to customers
(110,532,812)
18,870,688
Movements in other assets and other liabilities
(1,466,277)
(1,357,694)
(31,434,469)
(17,121,158)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
102
30 Cash and cash equivalents
2025
2024
€
€
Balances with Central Bank of Malta
46,105,939
55,962,944
Loans and advances to banks with contractual
maturity of three months or less
5,760,799
4,168,921
Amounts owed to banks
-
-
51,866,738
60,131,865
Balances with the Central Bank of Malta exclude mandatory reserve deposits of €1,520,564 (2024:
€1,520,564) which are not available for use in the Bank’s day-to-day operations. Balances with the
Central Bank of Malta also comprise an amount of € 1,465,033 (2024: €1,514,715) pledged in favour
of the Depositor Compensation Scheme.
31 Related parties
31.1 Identity of related parties, and parent and ultimate controlling party
Related parties of the Bank include the ultimate parent, all entities controlled by the ultimate
parent, key management personnel, close family members of key management personnel and
entities which are controlled or jointly controlled by key management personnel or their close
family members.
Key management personnel are defined as those persons having authority and responsibility for
planning, directing and controlling the activities of the Bank, being the directors and the Bank’s
executive management. Reference to executive management shall mean the CEO, the Head of
Finance & Treasury, the Head of Strategy & Value, the Head of Operations, the Head of Credit, the
Head of Information & Technology, the Head of Risk and Compliance and the Head of Human
Resources.
The Bank’s immediate parent is IBL T Limited, the registered office of which is 4, Castille Place,
Misrah Kastilja, Valletta, VLT 1062, Malta.
The financial results and assets and liabilities of the Bank are included in the consolidated financial
statements of Carlenco Finance NV, with registration number 0755.471.533, the registered office
of which is Lar Blok Z5, 8511 Kortrijk, Belgium.
Magdalena De Roeck and Caroline Van Marcke have an indirect beneficial interest in the
shareholding of the Bank and have significant control in the ultimate parent.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
103
31 Related parties - continued
31.2 Related party transactions
Interest, fees, and other income/expenses in respect of related parties, principally comprising
entities within the Van Marcke Group, in the statement of profit or loss and other comprehensive
income comprise:
2025
2024
€
€
Interest and similar income
3,710,432
5,037,821
Fee and commission income
60,000
76,550
Other operating income
26,909
-
Interest expense
206,203
422,525
31.3 Related party balances
The statement of financial position includes outstanding loans on an arm’s length basis,
transactions and balances with related parties, principally comprising entities within the Van
Marcke Group, as follows:
2025
2024
€
€
Assets
Loans and advances to customers
13,465,677
49,541,213
Prepayments and accrued income
38,162
511,756
Liabilities
Amounts owed to customers
8,498,326
47,905,527
Debt securities held by directors
299,000
364,300
Accruals
3,738
4,157
Loans and advances to customers include six (2024: nine) outstanding loans to key management
personnel amounting to € 549,330 (2024: €1,359,518). Two loans are secured against property in
Malta and are provided at subsidised interest rates. All six loans are repayable after more than one
year from the reporting date. The remaining amounts are unsecured and bear interest.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
104
31 Related parties - continued
31.4 Transactions with key management personnel
2025
2024
€
€
Directors’ fees
131,665
140,000
Compensation to key management personnel - salaries
751,145
833,275
32 Operating segments
32.1 The segment reporting of the Bank is presented in terms of the following business segments,
determined in accordance with the disclosure requirements in respect of reportable segments
under IFRS 8 – Operating Segments:
Reportable segment
Description of activities
Factoring
Principally factoring of bills of exchange and invoices on a no-recourse
basis
Lending
Principally lending to corporate clients and mortgages
Other
Principally treasury and other central functions
Revenues earned and expenses incurred in respect of each of the reportable business segments
are presented in the table below. No reconciliation is required since there are no differences
between the measurements of the reportable segments’ profits or losses and the information
disclosed in the statement of profit or loss and other comprehensive income.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
105
32 Operating segments – continued
2025
2025
2025
2025
2024
2024
2024
2024
Total
Lending
Factoring
Other
Total
Lending
Factoring
Other
€
€
€
€
€
€
€
€
Interest and similar
income
Loans and advances to
customers
7,836,876
7,836,876
-
-
8,739,303
8,739,303
-
-
Factored receivables
8,664,660
-
8,664,660
-
9,067,716
-
9,067,716
-
Amounts owed to
institutions
1,339,837
-
-
1,339,837
3,076,377
-
-
3,076,377
Financial assets measured
at amortised cost
508,830
-
-
508,830
434,329
-
-
434,329
Financial assets measured
at FVOCI
890,747
-
-
890,747
1,385,325
-
-
1,385,325
Amortisation on financial
assets measured at FVOCI
(245,625)
-
-
(245,625)
(348,172)
-
-
(348,172)
Total interest income
18,995,324
7,836,876
8,664,660
2,493,788
22,354,878
8,739,303
9,067,716
4,547,859
Interest expense
Loans and advances to
banks
(210,860)
(77,639)
(66,218)
(67,003)
-
-
-
-
Amounts owed to
customers
(10,280,911)
(3,785,458)
(3,228,593)
(3,266,860)
(15,296,801)
(6,143,879)
(4,377,589)
(4,775,333)
Debt securities issued
(768,778)
(283,066)
(241,425)
(244,287)
(839,790)
(337,297)
(240,328)
(262,164)
Amortisation of debt
issuance costs
(38,910)
(14,327)
(12,219)
(12,364)
(41,179)
(16,539)
(11,784)
(12,855)
Total Interest expense
(11,299,459)
(4,160,490)
(3,548,456)
(3,590,514)
(16,177,770)
(6,497,715)
(4,629,702)
(5,050,353)
Net Interest Income
7,695,865
3,676,387
5,116,204
(1,096,726)
6,177,108
2,241,588
4,438,015
(502,493)
Net fee and commission
income/(expense)
175,670
255,645
(62,102)
(17,874)
87,618
176,521
(59,208)
(29,695)
Net trading income
(103,749)
-
-
(103,749)
(186,045)
-
-
(186,045)
Other operating income
219,223
-
-
219,223
(124,213)
-
-
(124,213)
Operating profit/(loss)
7,987,008
3,932,032
5,054,102
(999,126)
5,954,468
2,418,109
4,378,807
(842,448)
Depreciation and
amortisation
(989,647)
(416,461)
(458,356)
(114,830)
(1,150,171)
(459,887)
(480,197)
(210,087)
Changes in expected credit
losses and other credit
impairment charges
212,298
(2,688)
214,986
-
(42,279)
(4,117)
4,326
(42,488)
Employee compensation
and benefits
(3,348,161)
(1,165,645)
(1,493,866)
(688,651)
(3,397,525)
(1,367,187)
(1,493,481)
(536,857)
Other administrative
expenses
(3,179,048)
(1,059,036)
(1,783,013)
(336,998)
(5,446,469)
(1,857,825)
(2,507,251)
(1,081,393)
(Loss)/profit before tax
682,451
1,288,202
1,533,853
(2,139,604)
(4,081,976)
(1,270,907)
(97,796)
(2,713,273)
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
106
32 Operating segments – continued
2025
2025
2025
2025
2024
2024
2024
2024
Total
Lending
Factoring
Other
Total
Lending
Factoring
Other
€
€
€
€
€
€
€
€
Assets
Segment assets
371,266,213
136,701,167
116,591,575
117,973,472
483,046,664
194,013,128
138,236,733
150,796,803
Unallocated
assets
28,422,037
-
-
-
25,675,696
-
-
-
Total Assets
399,688,250
136,701,167
116,591,575
117,973,472
508,722,360
194,013,128
138,236,733
150,796,803
Liabilities
Segment liabilities
361,836,729
133,229,206
113,630,362
114,977,161
465,387,431
186,920,390
133,183,071
145,283,970
Unallocated
liabilities
6,303,357
-
-
-
7,732,868
-
-
-
Total Liabilities
368,140,086
133,229,206
113,630,362
114,977,161
473,120,299
186,920,390
133,183,071
145,283,970
32.2 Geographical information
The Bank provides all its services from Malta. In presenting information on the basis of geographical
segments, segment revenue is based on the geographical location of customers. Segment assets
are based on the geographical location of the assets.
2025
2024
€
€
Revenue
Malta
16,613,413
18,631,905
Belgium
2,809,199
4,761,578
19,422,612
23,393,483
2025
2024
Non-current assets
€
€
Malta - tangible and intangible assets
21,116,715
20,151,583
Further geographical information about Loans and advances to customers, Factored receivables,
Loans and advances to banks, and Financial Investments is set out in Note 4.3.1.1.
The Bank’s major customer is the Van Marcke Group of which it forms part. Belgium is the country
of domicile of this Group.
Information about revenues, expenses, and balances as a result of transactions with the Group is
set out in Note 31.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
107
33 Critical accounting estimates and judgements
The preparation of financial statements in accordance with the requirements emanating from
IFRSs as adopted by the EU requires the use of accounting estimates which, by definition, will
seldom equal the actual results. Management also needs to exercise judgement in applying the
Bank’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or
complexity, and of items which are more likely to be materially adjusted due to estimates and
assumptions turning out to be wrong. Detailed information about these estimates and judgements
is included in other notes together with information about the basis of calculation for affected line
items in the financial statements.
Measurement of ECL in respect of loans and advances to customers and factored receivables
The estimation of credit loss allowances in respect of loans and advances to customers and
factored receivables is an area that requires the use of complex models and significant
assumptions about future economic conditions and credit behaviour.
A number of significant judgements are required in the measurement of ECL, including:
• The determination of criteria for the identification of significant increase in credit risk and
unlikeliness-to-pay events;
• The choice of appropriate models and assumptions for the measurement of ECL; and
• The selection of forward-looking scenarios used in the estimation of credit loss
allowances, including judgements and assumptions in relation to the number and severity
of scenarios as well as the relative probability weights assigned to each scenario.
The measurement of the credit loss allowances is an area that requires the use of complex models
and of statistical analyses of historical information, supplemented with significant management
judgement, to assess whether current and future macroeconomic conditions are such that the level
of ECL is likely to be greater or less than historical experience. The ECL models are reviewed
regularly in light of differences between loss estimates and actual loss experience, although
available information in respect of the Bank’s historical loss experience since the initial adoption of
IFRS 9 is still contained.
A detailed description of the inputs, assumptions and estimation techniques used in measuring ECL
in respect of loans and advances to customers and factored receivables is disclosed in Note 4.3.2.
The underlying risk factors have a high degree of interdependency and there is no single factor to
which credit loss allowances as a whole is sensitive.
Significant judgement is required in establishing the number, severity and relative weightings of
forward-looking economic scenarios in the context of the heightened level of macroeconomic
uncertainty being experienced. The level of expert judgement required is exacerbated by the
heightened level of uncertainty around predictions in respect of the potential impacts of
assumptions in relation to inflation and interest rates, particularly the potential market response
to further increases in interest rates, and of the effectiveness of government support schemes
together with the impacts of their unwinding, on key macroeconomic variables and, as a result on
forward-looking PDs. The determination of economic forecasts in the current environment thus
represents a significant source of uncertainty, which in turn significantly increases the level of
subjectivity around the estimation of credit loss allowances in respect of loans and advances to
customers and factored receivables.
Izola Bank p.l.c.
Notes to the Financial Statements
For the Year Ended 31 December 2025
108
33 Critical accounting estimates and judgements - continued
For loans and advances to customers, the Bank performs periodic credit assessments at borrower
level by reference to recent historical management information and financial forecasts, where
available. As part of these credit assessments, judgement is exercised in evaluating all relevant
information on indicators of impairment, particularly where factors indicate deterioration in the
financial condition and outlook of borrowers affecting their ability to pay. In particular, corporate
borrowers operating in industry sectors which are most likely to be impacted by inflationary
pressures and an increasing interest rate environment, as well as being most reliant on the Maltese
government’s subsidization of energy prices, were monitored closely in order to determine
whether these economic shocks may transform into long-term financial difficulties.
In relation to factored receivables, ECL models are generally reliant on the assumption that default
emergence is directly impacted by delinquency related indicators since less information is available
at asset level to enable the timely identification of SICR or UTP events. For credit-impaired loans
and advances to customers, management estimates credit loss allowances by reference to the
realisable value of security under different scenarios. Judgement is applied in estimating the
forecasted recoveries from the sale of collateralised properties, including around valuation
haircuts and time to recovery.
34 Subsequent events
There are no subsequent events up to the date of approval of the financial statements.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
109
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Izola Bank Plc («the Bank»), set out on pages 7 to
108, which comprise:
◼ the statement of financial position as at 31 December 2025;
◼ the statement of comprehensive income, statement of changes in equity, and
statement of cash flows for the year then ended; and
◼ notes to the financial statements, including material accounting policy and other
explanatory information.
In our opinion, the accompanying financial statements give a true and fair view of the financial
position of the Bank as at 31 December 2025, and of its financial performance and its cash
flows for the year then ended in accordance with International Financial Reporting Standards as
adopted by the EU (EU IFRSs) and have been prepared in accordance with the requirements of
the Companies Act (Cap. 386), and the Banking Act (Cap. 371) of the Laws of Malta.
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 Auditor’s Responsibilities for
the Audit of the Financial Statements section of our report. We are independent of the Bank in
accordance with the International Code of Ethics for Professional Accountants issued by the
International Ethics Standards Board for Accountants (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 (Cap. 281) in 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.
An overview of the scope of our audit
We apply the concept of materiality both in planning and performing the audit, and in
evaluating the effect of material misstatements on our audit and on the financial statements.
For the purposes of determining whether the financial statements are free from material
misstatements we define materiality as the magnitude of misstatement that makes it probable
that the economic decisions of a reasonably knowledgeable person, relying on the financial
statements, would be changed or influenced.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters. We have fulfilled
the responsibilities described in the Auditor’s responsibilities for the audit of the financial
statements section of our report, including in relation to these matters. Accordingly, our audit
included the performance of the procedures designed to respond to our assessment of the risks
of material misstatement of the financial statements. The result of our audit procedures,
including the procedures performed to address the matters below, provide the basis for the
audit opinion on the accompanying financial statements.
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1824
Malla
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
110
1
Expected credit loss allowances on loans and advances to customers
and factored receivables
Key Audit Matter
Most of the Bank’s assets comprise of the loans provided to customers and factored receivables.
The Bank has adopted a specific impairment assessment approach by way of an internally
developed expected credit losses (ECL) model The assessment involved significant management
judgements and estimates.
Related Disclosures
Refer to note 9, 16 and 17 of the accompanying financial statements.
Audit Response
▪ We obtained an understanding of the Bank’s credit policy and tested the design and
TOC over the processes in Bank.
▪ We analysed the impairment model, data input and management assumptions.
▪ We assessed the impact of management decisions on business rules updated during the
year under review.
▪ We have tested the mathematical accuracy of the expected credit loss model.
▪ We have assessed, compared to historical actuals and challenged management’s view of
credit risk that impacts the recognition of expected losses upon initial recognition over
the life of the loans.
▪ We have performed sensitivity analysis in relation to the key forward looking
assumptions.
▪ We have assessed the adequacy of the disclosures outlining the uncertainty relating to
expected loan losses.
▪ We have audited the parameters and assumptions made within the model.
▪ We have also obtained and tested, on a sample basis, the parameters in relation to the
aging of loans and advances to customers as well as performed a recalculation.
We have found the approach adopted by the management reasonable based on information
made available up till the date of this audit report.
__________________________________________________________________________________
Our application of materiality
We determine materiality for the Bank’s performance to be EUR 386,600 which is
approximately 2% of gross revenue, and for the Bank’s financial position to be EUR 5,995,300
which is approximately 1.5% of the total assets. Our evaluation of materiality requires
professional judgement and necessarily takes into account qualitative as well as quantitative
considerations implicit in the definition. On the basis of risk assessments, our judgement was
that overall performance materiality for the Bank should be 70% of planning materiality, and
clearly trivial error threshold set at 4%.
Other Information
The directors are responsible for the other information. The other information comprises the
directors’ report, Chairperson’s Statement, Directors Report, Directors’ Statement of
Compliance with the Code of Principles of Good Corporate Governance, Report of the
Remuneration and Nomination Committee and Appendices, but does not include the financial
I
BDO
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
111
statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and 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 other
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.
With respect to the Directors’ Report, we also considered whether the Directors’ Report
includes the disclosures required by Article 177 of the Maltese Companies Act (Cap. 386). Based
on the work we have performed, in our opinion:
▪ the information given in the directors’ report for the financial yf
▪ ear for which the financial statements are prepared is consistent with the financial
statements; and
▪ the directors’ report has been prepared in accordance with the Maltese Companies Act
(Cap.386).
In addition, in light of the knowledge and understanding of the Bankand its environment
obtained in the course of the audit, we are required to report if we have identified material
misstatements in the directors’ report. We have nothing to report in this regard.
We have nothing to report to you in respect of the other responsibilities, as explicitly stated
within the Other information section.
With respect to Report of the Remuneration and Nomination Committee, we are required to
consider whether the information that should be provided within the Remuneration report, as
required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules, has been
included.
In our opinion, the Report of the Remuneration and Nomination Committee has been properly
prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta
Financial Services Authority.
Responsibilities of the Directors
The directors are responsible for the preparation of the financial statements that give a true
and fair view in accordance with EU IFRS and the requirements of the Maltese Companies Act
(Cap.386), and for such internal control as the directors 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 Bank’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 Bank or to cease operations, or has no realistic alternative but to do so.
The directors are responsible for overseeing the Bank’s financial reporting process.
Auditor’s 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
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but
is not a guarantee that an audit conducted in accordance with ISAs will always detect a
I
BDO
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
112
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 judgment and maintain
professional scepticism throughout the audit. 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 from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
▪ Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Bank’s internal control.
▪ Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
▪ Conclude on the appropriateness of management’s 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 Bank’s ability to
continue as a going concern. If we conclude that material uncertainty exists, we are
required to draw attention in our auditor’s 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 to the date of our auditor’s report. However,
future events or conditions may cause the Bank 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 the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with the directors, 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 those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, 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 auditor’s
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.
I
BDO
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
113
Report on Other Legal and Regulatory Requirements
Report on compliance with the requirements of the European Single Electronic Format
Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements
of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act
(Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance
Directive (the “ESEF Directive 6”) on the Annual Report of the Bank for the year ended 31
December 2025, 112 entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The Directors are responsible for the preparation of the Report and Financial Statements and
the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in
accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the Report and Financial
Statements, complies in all material respects with the ESEF RTS based on the evidence we have
obtained. We conducted our reasonable assurance engagement in accordance with the
requirements of ESEF Directive 6.
Our procedures included:
▪ Obtaining an understanding of the entity's financial reporting process, including the
preparation of the Report and Financial Statements, in accordance with the requirements of
ESEF RTS.
▪ Obtaining the Annual Report and performing validations to determine whether the Annual
Report has been prepared in accordance with the requirements of the technical
specifications of the ESEF RTS (in XHTML format).
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Opinion
In our opinion, the Annual Report for the year ended 31 December 2025 has been prepared, in
all material respects, in accordance with the requirements of the ESEF RTS (in XHTML format).
Report on the Statement of Compliance with the Code of Principles of Good Corporate
Governance
The Capital Markets Rules issued by the Malta Listing Authority require the Directors to prepare
and include in their Annual Report a Statement of Compliance with the Code of Principles of
Good Corporate Governance providing an explanation of the extent to which they have adopted
the Code of Principles of Good Corporate Governance and the effective measures that they
have taken to ensure compliance throughout the accounting period with those Principles within
Appendix 5.1 to Chapter 5 of the Capital Markets Rules. The Statement’s required minimum
contents are determined by reference to Capital Markets Rule 5.97.
I
BDO
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
114
The Capital Markets Rules also require us, as the auditor of the Bank, to include a report on the
Statement of Compliance with the Code of Principles of Good Corporate Governance prepared
by the Directors by expressing an opinion as to whether, in light of the knowledge and
understanding of the Bank and its environment obtained in the course of the audit, we have
identified any material misstatements with respect to the information referred to in Capital
Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements.
We read the Statement of Compliance with the Code of Principles of Good Corporate
Governance and consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements included in the Annual
Report. Our responsibilities do not extend to considering whether this statement is consistent
with any other information included in the Annual Report.
We are not required to, and we do not, consider whether the Board’s statements on internal
control included in the Statement of Compliance with the Code of Principles of Good Corporate
Governance cover all risks and controls, or form an opinion on the effectiveness of the Bank’s
corporate governance procedures or its risk and control procedures.
In our opinion, the Statement of Compliance with the Code of Principles of Good Corporate
Governance has been properly prepared in accordance with the requirements of the Capital
Markets Rules.
We have nothing to report to you in respect of the other responsibilities, as explicitly stated
within the Other information section.
Other matters on which we are required to report by exception
We also have responsibilities under the Companies Act, Cap 386 to report to you if, in our
opinion:
▪ adequate accounting records have not been kept
▪ the financial statements are not in agreement with the accounting records
▪ we have not received all the information and explanations we require for our audit
▪ certain disclosures of directors’ remuneration specified by law are not made in the financial
statements, giving the required particulars in our report.
We also have responsibilities in terms of Capital Markets Rules to review the statement made
by the Directors that the business is a going concern together with supporting assumptions or
qualifications as necessary.
We have nothing to report to you in respect of these responsibilities.
Appointment
We were appointed as the statutory auditor of the Bank for the financial year ended 31
December 2023, at the annual general meeting held by the shareholders. This appointment will
be renewed on an annual basis by the shareholders. The total uninterrupted engagement
periods as statutory auditor, including previous renewals and reappointments amounts to 3
years.
I
BDO
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Izola Bank Plc
(continued)
115
Consistency with the additional report to the audit committee
Our audit opinion on the financial statements expressed herein is consistent with the additional
report to the audit committee of the Bank which was issued on 27 April 2026.
Non-audit services
No prohibited non-audit services referred to in Article 18A(1) of the Accountancy Profession Act
(Cap.281) were provided by us to the Bank and we remain independent of the Bank as
described in the Basis for the Opinion section of our report.
No other services besides statutory audit services and services disclosed in the annual report
and in the financial statements, were provided by us to the Bank.
Other matter — Use of this report
Our report, including the opinion, has been prepared for and only for the Bank’s shareholders
as a body in accordance with Article 179 of the Maltese Companies Act (Cap.386) and for no
other purpose. We do not, in giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior written consent.
Sam Spiridonov
on behalf of BDO Malta
Certified Public Accountants
Registered Audit
Firm Triq
It-Torri
Msida MSD
1824
Malta
30 April 2026
I
BDO
Izola Bank p.l.c.
Appendices
2025
Izola Bank p.l.c.
Page
Appendix I - Five-Year Summary i
Appendix II – Supplementary Financial Information v
Izola Bank p.l.c.
Appendix I - Five-Year Summary
i
Statement of Profit or Loss and Other Comprehensive Income
2025
2024
2023
2022
2021
€
€
€
€
€
Interest receivable and
similar income
18,995,324
22,354,878
19,039,346
13,087,771
10,704,557
Interest payable and
similar charges
(11,299,459)
(16,177,770)
(12,052,370)
(5,412,645)
(4,513,733)
------------------
------------------
------------------
------------------
------------------
Net interest income
7,695,865
6,177,108
6,986,976
7,675,126
6,190,824
Fee and commission income
175,670
87,618
16,433
55,912
(10,195)
Net trading income/(Loss)
(103,749)
(186,045)
(37,800)
8,490
473,563
Other operating income/(Loss)
219,223
(124,213)
129,864
101,325
97,746
Other operating charges
(7,516,856)
(9,994,165)
(8,623,671)
(7,309,512)
(5,546,089)
Changes in expected credit
losses and other credit
impairment charges
212,298
(42,279)
(441,180)
(919,147)
(385,692)
------------------
------------------
------------------
------------------
------------------
(Loss)/Profit before tax
682,451
(4,081,976)
(1,969,378)
(387,806)
820,157
Income tax credit/(expense)
(87,419)
1,112,204
727,010
103,587
(372,176)
------------------
------------------
------------------
------------------
------------------
(Loss)/Profit for the year
595,032
(2,969,772)
(1,242,368)
(284,219)
447,981
===========
===========
===========
===========
===========
Other comprehensive income
for the year, net of income tax
226,226
2,550,015
3,909,583
(9,596,928)
(1,251,797)
------------------
------------------
------------------
------------------
------------------
Total comprehensive income
for the year
821,258
(419,757)
2,667,215
(9,881,147)
(803,816)
===========
===========
===========
===========
===========
Earnings per share
1c03
(5c12)
(0c21)
(0c49)
1c12
===========
===========
===========
===========
===========
Izola Bank p.l.c.
Appendix I - Five-Year Summary
ii
Statement of Financial Position
2025
2024
2023
2022
2021
€
€
€
€
€
ASSETS
Balances with Central Bank of Malta
and cash
47,626,503
57,483,508
56,242,720
17,598,287
16,193,768
Loans and advances to banks
5,760,799
4,168,921
6,757,337
10,214,993
25,420,282
Financial investments
64,586,170
81,629,749
92,894,978
91,550,927
117,280,712
Factored receivables
116,591,575
138,236,733
140,049,872
118,363,724
95,051,834
Loans and advances to customers
136,701,167
194,013,127
180,964,061
160,329,282
131,369,341
Property and equipment
11,088,564
11,157,880
13,939,136
11,712,225
12,565,395
Property held for sale
4,838,007
4,838,007
-
-
-
Intangible assets
5,190,144
4,155,696
3,630,203
1,975,593
1,774,370
Deferred tax asset
5,600,364
5,632,796
5,252,276
5,920,924
388,435
Current tax asset
74,252
74,252
183,341
641,499
793,029
Other assets
1,630,705
2,456,536
2,310,022
3,181,811
1,971,720
-----------------
-----------------
-----------------
-------------------
-------------------
Total assets
399,688,250
503,847,205
502,223,946
421,489,265
402,808,886
==========
==========
==========
===========
===========
LIABILITIES
Amounts owed to institutions
10,000,000
-
20,000,000
40,000,000
55,000,000
Amounts owed to banks
-
-
271,105
275,815
274,715
Amounts owed to customers
338,081,138
448,613,950
429,743,262
335,660,870
297,780,509
Debt securities in issue
13,755,590
16,773,480
16,861,501
16,820,322
11,940,167
Deferred tax liability
1,365,993
1,174,806
808,057
436,414
558,446
Accruals and other liabilities
4,937,363
6,558,061
8,393,356
4,759,914
3,975,122
------------------
------------------
------------------
-------------------
-------------------
Total liabilities
368,140,084
473,120,297
476,077,281
397,953,335
369,528,959
==========
==========
==========
===========
===========
EQUITY
Called up share capital
29,000,000
29,000,000
29,000,000
29,000,000
10,000,000
Capital contribution reserve
2,032,675
2,032,675
32,675
32,675
17,032,675
Perpetual capital notes
3,000,000
3,000,000
-
-
-
Property revaluation reserve
4,795,243
4,739,260
3,967,372
2,977,302
3,521,238
Fair value reserve
(5,402,405)
(5,572,648)
(7,350,775)
(10,295,141)
(612,547)
Depositor compensation scheme reserve
-
-
1,038,647
831,860
1,288,168
Reserve for general banking risk
-
-
55,025
72,782
45,091
Accumulated (Losses)/Retained Earnings
(1,877,347)
(2,472,379)
(596,279)
916,452
2,005,302
------------------
------------------
------------------
-------------------
-------------------
Total equity attributable to
equity holders of the Bank
31,548,166
30,726,908
26,146,665
23,535,930
33,279,927
==========
==========
==========
==========
==========
Total liabilities and equity
399,688,250
503,847,205
502,223,946
421,489,265
402,808,886
==========
==========
==========
==========
==========
Memorandum items Commitments
54,812,271
179,182,237
288,377,842
185,068,135
92,738,305
==========
==========
==========
==========
==========
Izola Bank p.l.c.
Appendix I - Five-Year Summary
iii
Statement of Cash Flows
2025
2024
2023
2022
2021
€
€
€
€
€
Net cash from operating activities
(31,434,469)
(17,012,069)
36,907,071
(30,370,480)
9,818,579
-------------------
-------------------
-------------------
-------------------
-------------------
Cash flows from investing activities
Payments to acquire property,
equipment and intangible assets
(1,954,779)
(2,900,137)
(3,765,160)
(2,478,688)
(1,639,455)
Proceeds from disposal of property
-
-
-
2,204,000
-
Payments to acquire investments
(865,000)
(399,300)
(100,000)
(40,740,036)
(85,996,927)
Proceeds from disposals of investments
18,646,725
13,247,605
1,302,167
51,362,776
76,537,399
Interest received from financial investments
1,236,753
2,037,701
2,152,107
1,612,389
2,066,104
Payments on investments which are
traded but not yet acquired
-
-
-
-
-
-------------------
-------------------
-------------------
-------------------
-------------------
Net cash from/(used in) investing activities
17,063,699
11,985,869
(410,886)
11,960,441
(9,032,879)
-------------------
-------------------
-------------------
-------------------
-------------------
Cash flows from financing activities
Proceeds from issue of debt securities
-
-
-
13,633,597
-
Redemption of debt securities
(3,056,801)
(129,200)
(8,814,000)
-
Interest and premium paid on debt
conversion
-
-
-
(284,663)
-
Interest paid on perpetual capital notes
-
(81,333)
-
-
-
Proceeds from main refinancing operations
10,000,000
-
-
-
-
Interest paid on debt securities
(837,556)
(839,790)
(843,370)
(540,000)
(540,000)
Capital contributions
-
2,000,000
-
-
-
Issue of Perpetual capital notes
-
3,000,000
-
-
-
-------------------
-------------------
-------------------
-------------------
-------------------
Net cash from / (used in)
financing activities
6,105,643
3,949,677
(843,370)
3,994,934
(540,000)
-------------------
-------------------
-------------------
-------------------
-------------------
Net movement in cash and
cash equivalents
(8,265,127)
(1,076,523)
35,652,815
25,555,573
245,700
============
============
============
============
============
Izola Bank p.l.c.
Appendix I - Five-Year Summary
iv
Accounting Ratios
2025
2024
2023
2022
2021
%
%
%
%
%
Net interest income and other
operating income to total assets
1.98
1.20
1.42
1.86
1.68
Operating expenses to total assets
1.83
1.99
1.80
1.91
1.47
Profit before tax to total assets
0.17
(0.81)
0.39
(0.09)
0.20
Pre-tax return on capital employed
2.16
(13.28)
7.53
(1.29)
2.82
Profit after tax to equity
1.89
(9.67)
(4.75)
(1.21)
1.35
Izola Bank p.l.c.
Appendix II – Supplementary Financial Information
Directors’ interest in the share capital of the Bank or in any related company as at 31
December 2025
v
No director has a direct beneficial or non-beneficial interest in the share capital of the Bank.
Magdalena De Roeck and Caroline Van Marcke have an indirect beneficial interest in the shareholding of
the Bank through their indirect shareholding in Carlenco Finance NV, a company registered in Belgium with
registration number 0755.471.533.
Furthermore, Magdalena De Roeck and Caroline Van Marcke are also directors of IBL I Limited and IBL T
Limited and other companies forming part of the Group.
Shareholder holding 5% or more of the Share Capital as at 31st December 2025
IBL T Limited
Ordinary
As at date of publication of the annual report, no changes were effected to the shareholding structure.