Company Registration Number: C 1607
Annual Report and Financial Statements
31 December 2022
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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CONTENTS
Chairman’s Statement to the Members 2
Chief Executive Officer’s Review 4
Directors’ Report 8
Statement of Compliance with the Principles of Good Corporate Governance 25
Remuneration Report 34
Company Information 39
Financial Statements:
Statements of Financial Position 41
Income Statements 43
Statements of Comprehensive Income 44
Statements of Changes in Equity 45
Statements of Cash Flows 49
Notes to the Financial Statements 50
Additional Regulatory Disclosures 167
Five Year Summaries 199
Independent Auditor’s Report to the Shareholders of Lombard Bank Malta p.l.c.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chairman’s Statement to the Members
The Lombard Bank Group registered a record pre-tax profit of €27.7 million in the financial year 2022. For Lombard
Bank Malta p.l.c. (the ‘Bank’) the year’s performance was facilitated by a generally improved operating
environment characterised by the return to positive interest rates after years of a highly accommodative monetary
policy, a marked recovery of the domestic economy and the resolution of a large non-performing credit exposure.
The operations of the Bank’s subsidiary, MaltaPost p.l.c., on the other hand, continued to be affected by pandemic
and Brexit-related logistical difficulties, generally higher operating costs and unsustainably low postal tariffs,
leading to reduced profitability.
As in previous years net interest income was the Bank’s main revenue source, reflecting the strong growth in loans
and advances to customers in the first half of the year and increased earnings on balances with counterparties and
on the securities portfolio, in part the result of asset switching to take advantage of higher market rates. Net fees
and commission income from our credit and other activities also made a positive contribution to earnings such
that the Bank’s total income resumed its rising trend to reach €29.7 million.
Operating costs partly offset these income flows, though to a lesser extent than in the previous year. Employee
compensation and benefits remained the major cost item. While the staff complement did not increase on
average, the need to attract and retain professional expertise in a highly competitive segment of the labour market
implied greater outlays. The Bank also continued to invest in new information technologies, with an emphasis on
automation of reporting and other systems. Staff training was given increased attention, with several new internal
and external courses being introduced. The Bank’s cost to income ratio eased to 57.4%.
During 2022, after years of judicious management and guidance, the Bank secured the repayment of a large
corporate loan. This was a concrete example of effective credit risk management. This one-off factor contributed
significantly to the Bank’s profit before tax of €28.8 million, making for a return on equity of 14.0%.
At the same time, the Bank’s low-risk business model continued to deliver sound financial fundamentals. This is
an important consideration for both existing and prospective shareholders. The Total Capital Ratio and the
Liquidity Coverage Ratio were both above the statutory minimum levels at 15.4% and 210.7%, respectively, while
the leverage ratio, at 10.8%, was more than three times the required level. The Lombard brand continued to enjoy
the trust of the market, as reflected in the steady growth of deposits and lending and a prudent ratio of loans to
deposits of 70.4%. The Bank’s sound banking practices and reputation were also recognised in 2022 when a leading
US bank accepted to enter into a correspondent banking relationship for dealings in US dollars.
Another encouraging development during the year was the further decline to 3.5% in the ratio of facilities that are
classified as Non-Performing Loans. This ratio is well below the regulatory threshold. The quality of the Bank’s loan
book is also reflected in the relatively low loan-to-value ratios and high levels of collateral. The planned process of
credit diversification meanwhile continued with the share of personal and retail lending increasing to 26%, mainly
reflecting growth in the home loan portfolio.
In a forward-looking perspective, the consolidation of the Bank’s market position called for more investment in a
number of operational areas, not least in our automated anti-money laundering transaction monitoring system,
the IT infrastructure and the introduction of a new core banking system. Specialised personnel were recruited in
the process, while external consultants were contracted to complement in-house expertise in areas such as the
ESG action plan. As part of the Bank’s strategy of providing its services to a wider customer base in response to
market demand, nine branches are now in operation and work on others is underway.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chairman’s Statement to the Members (continued)
Translating the Bank’s undoubted potential to create further value for its stakeholders into tangible results
depends on the availability of sufficient capital. To this end, each year in the past the Bank retained a part of its
profits to strengthen its capital base, without the need to resort to the shareholders for further capital. In recent
times, however, this method has proved insufficient due particularly to the imposition of ever-higher capital
requirements for banks by the regulators and the growing demand for credit. The Board accordingly drew up a
Capital Plan, validated by external consultants, which concluded that in the current market conditions the interests
of the Bank would be best served by a Rights Issue of shares. As you are aware, however, at a specially convened
EGM in November 2022 the Bank’s Qualifying Shareholder chose to block this proposal. Despite the Bank’s
repeated efforts, however, the Qualifying Shareholder has, to date, not changed its stance. Consequently, the
Bank’s plans for growth have been obstructed due to the Qualifying Shareholder exercising such control over the
Bank’s operations.
In such circumstances the conservation of capital must take precedence and therefore the Board has reluctantly
decided not to recommend the payment of a dividend. Instead, it proposes to issue one bonus share for every
forty-five shares held, such that the Bank’s capital is not reduced.
The Bank’s subsidiary, MaltaPost p.l.c. experienced another challenging year in its financial year ending September
2022 and recorded a reduced net profit after tax of €0.3 million. The persisting economic fallout from the COVID-
19 pandemic was compounded by the wider effects of the war in Ukraine, notably disruptions in global supply
chains and widespread inflationary pressures, and of Brexit on UK-EU trade. The company’s financial performance
was also significantly impacted by low postal tariffs that do not cover the related cost, and this in the context of
further declines in mail volumes and marked increases in labour and other operating costs. These factors, however,
were not allowed to interrupt the company’s investment programme, including the provision of a wider range of
postal services, life and general insurance products and initiatives designed to further reduce carbon emissions.
While the Bank started this year from a strong position, numerous challenges still need to be faced if our growth
momentum is to be maintained. These include the unpredictable effects of higher interest rates on business cash
flows, the economic fallout of the heightened geopolitical tensions in Europe, the increasingly costly one-size-fits-
all regulatory regime and the conduct of the largest shareholder in its role as the Bank’s Qualifying Shareholder in
the context of our plans to raise capital.
The Board is nevertheless determined to ensure the sustainability of its business model which has consistently
created wealth and earned the Bank a reputation for delivering reliable banking services to both personal and
corporate customers underpinned by solid values and best-practice standards. In this spirit we will continue to
implement the growth strategy we outlined to shareholders last November, taking advantage of the market
opportunities we have identified while addressing wider stakeholder interests, but without assuming a higher risk
appetite than at present. If the necessary capital is made available, Lombard Bank is well positioned to realise its
growth potential.
In conclusion, on behalf of the Board I would like to thank the Bank’s staff and management team, ably led by the
Chief Executive Officer, Joseph Said, whose professional expertise and unwavering efforts made the past year’s
encouraging results possible in spite of the capital constraint and other challenges I have described. I would also
like to thank those stakeholders who continue to support the Group by their loyalty and commitment.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) as per the
Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chief Executive Officer’s Review
The results of the Lombard Bank Group for the financial year ended 31 December 2022 include the financial
performance of Lombard Bank Malta p.l.c. and Redbox Limited which is the company holding the Bank’s shares in
MaltaPost p.l.c.
Summary Overview
The Maltese economy has proven to be resilient, assisted not least by the removal during the year of Malta from
the FATF Grey List. The economy showed strong growth in both private and public consumption and our customers
reported a favourable performance having benefitted from the positive macro-economic conditions.
Against this scenario, the Bank’s performance was a positive one both in terms of financial results as well as
progress registered in the implementation of those strategic priorities that were within its control. Our approach
to business remains consistent in that we continue to embrace the norm of ‘safety first’ by shying away from those
activities which we consider that, sooner or later, may result to be detrimental, both financially as well as
reputationally.
We are proud of our uncomplicated, straightforward and transparent business model, which continues to serve
us consistently well and to the benefit of all stakeholders. Under no circumstances will we compromise our
prudent and traditional approach to the business of banking. With us, the building of long-term and solid
relationships take precedence over the prospect of short-term gains.
In Credit, the single largest Non-Performing Loan was resolved with the resulting write-back being a significant
contributor to the year’s results. We sought to maintain a high-quality Commercial Loans book, with the respective
ratios well within our risk appetite parameters and in line with those of our peers. Home Loans continued to
register encouraging growth, and we also strengthened our offering by the inclusion of related insurance services.
Both these activities are managed by trained and certified staff members in conformity with regulatory
requirements.
We proceeded with our plans to expand into the retail market. Increasing the scale of our operation did not come
without its challenges not least by way of engagement of staff in sufficient numbers, aptitude and competencies.
Healthy counterparty relationships were maintained as these remain important for our continued access to
international currency and money markets. During the year we enhanced our correspondent banking network by
the inclusion of an indigenous US bank. We consider this to be an endorsement of our prudent and judicious
approach to business. We now look forward to working closely with Bank of New York Mellon.
In Wealth Management, our advisory and discretionary portfolio services both picked up pace with a growing
number of customers choosing to avail themselves of our services. As to Fund Management, we should be in a
position to launch this new activity once the issue concerning our project to raise capital is resolved.
The year was a particularly challenging one for our subsidiary, MaltaPost p.l.c. which, although made to bear
significant increases in costs, still continued to sustain the Universal Service Obligation despite the persistent
decline of Letter Mail volumes and delays of over two years by the Regulator to approve increases in postal tariffs.
A long-awaited Regulatory decision allowing a tariff revision towards the latter part of the financial year was a
much-needed development. Meanwhile the Company proceeded with its investments in life and general
insurance, as we continued to support its financial services activities.
Review of Financial Performance
Group Profit before Tax for the FYE 2022 stood at €27.68 million, an increase of 119%.
Loans and Advances to Customers rose by 11% reaching €711.61 million. Total Interest Income increased by 13%
with Interest Receivable and Similar Income on Loans and Advances reaching €25.52 million. Interest Expense was
up by 9% reflecting a higher volume of Amounts Owed to Customers, which stood at €1,008.43 million. Net Interest
Income also rose by 14% to €22.28 million when compared to the previous year.
Net Fee and Commission Income improved by 4% to reach €5.42 million, supported by a positive trend registered
in the Bank’s various business lines during the year.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chief Executive Officer’s Review (continued)
Group Employee Compensation and Benefits decreased by 1% to €24.01 million, while Group operating costs
decreased by 15% to €20.87 million. The Bank’s Cost Efficiency Ratio was 57.4% (FYE 2021: 60.8%), a reflection of
effective cost management.
Impairment Allowances, as determined by International Financial Reporting Standard 9 (IFRS 9), for the FYE 2022
stood at €10.66 million. The change in ‘Expected Credit Losses’ (ECL) resulted in a net impairment reversal of
€16.24 million compared to a reversal of €1.46 million in the previous year. Besides the full recovery of our single
largest Non-Performing Loan, which had been provided for in previous years, Pandemic-related management
overlays set in the previous year were reversed, reflecting the prevailing changed economic circumstances.
Liquidity and Own Funds
The Bank relies on a diversified liquidity funding base which has proven to be relatively stable, largely from local
retail deposits with emphasis placed on long-term tenors, as we believe that the benefits of such tenors outweigh
the higher interest rate that they command.
Advances to Deposits Ratio stood at 70.6% compared to 65.8% same period last year.
Total Assets stood at €1,203.42 million (2021: €1,172.65 million), while Equity Attributable to the Shareholders of
the Bank stood at €136.21 million. Net Asset Value (NAV) per share stood at €1.50 (2021: €1.53). Group Earnings
Treasury Management
Just past the first half of 2022, as had been widely anticipated, the European Central Bank (ECB) raised its key
interest rates for the first time in 11 years – raising them again in September, October and December.
Consequently, opportunities to place funds earning positive interest once again emerged. However, our prudent
approach of investing primarily in the local economy continued, with the main objective being that of protecting
assets, particularly in view of the geopolitical crises resulting from the Russia / Ukraine war.
Thus overall, we reduced our exposure to international markets by engaging mostly in short-term interbank
transactions with reputable counterparties and local government, where our positions consisted mainly of
Government of Malta Treasury Bills and Stocks. Despite that as a matter of policy such holdings are held to
maturity, book losses were registered consequent to the sudden, frequent and sharp increases in interest rates.
Risk Management
The Bank has in place an Enterprise-wide Risk Management Framework that covers a comprehensive and
coordinated approach to identify, monitor and measure potential risks. As necessary, such risks are mitigated and
measures taken to bring these within the parameters set in our Risk Appetite Statement.
The acceptance, management and control of risk all are governed by approved policies and procedures that form
the basis of our decision-making processes – always within the risk tolerance parameters set by the Board of
Directors and strictly in compliance with statutory requirements.
In keeping with the principles of the three lines of defence framework, our Risk Management function, reports
directly to the Audit & Risk Committee and Board of Directors. Periodically, a detailed insight into the Bank’s risk
management environment and situation of tolerance limits, as per our Risk Appetite Statement, is submitted and
reviewed also taking into consideration macro-economic developments, the changing policy environment and
current views on relative risks. This ensures that the parameters set within the Statement remain valid and
consistent with the Bank’s business objectives.
In terms of capital planning, in the third quarter of 2022, the Bank informed the market of its intention to raise
capital so as to satisfy current and future regulatory requirements, pursue its growth objectives and also to cater
for any unforeseen adverse economic conditions exogenous to the Bank.
The Bank’s Total Capital Ratio (‘TCR’) at the end of 2022 stood at 15.4%.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chief Executive Officer’s Review (continued)
The Leverage Ratio, which is also monitored and reported to the Board regularly, allows for the assessment of the
Bank’s exposure to the risk of excessive leverage. At end 2022 this stood at 10.8%, more than three times the
minimum regulatory requirement of 3%.
The Bank ensures that it invariably remains sufficiently liquid. In this respect, key liquidity metrics such as the
Liquidity Coverage Ratio (‘LCR’), the Net Stable Funding Ratio (‘NSFR’) and the Loan-to-Deposit Ratio are constantly
monitored and regularly reported to the Board. At the end of 2022, these key metrics stood at 210.7%, 148.3%
and 70.4%, respectively and well within our risk appetite parameters.
Also, our Internal Capital Adequacy Assessment Process (ICAAP) is reviewed annually. In line with the Bank’s robust
stress-testing framework, such testing is regularly carried out on Capital and Liquidity to assess the Bank’s
resilience to extreme but plausible shocks.
Human Resources
The investment in human resources was ongoing and this by way of improved remuneration packages for all staff,
various benefits such as advantageous interest rates on lending, health and life insurance cover.
We are aware that attracting, motivating and retaining staff is a challenge in a labour market which remained very
competitive within the financial services sector and more so by way of competition for talent from sectors
perceived as offering better reward and career opportunities. Attrition rates returned to pre-Pandemic levels such
that keeping up with the demand for staff consequent to the Bank’s growth called for intensified recruitment
programmes. These remain based on searching, selecting and engaging a mix of suitably experienced staff with
those starting their career. We also participated in the Malta College of Arts, Science and Technology (MCAST)
Apprenticeship Scheme. Having completed their course of studies, a number of students joined the Bank as full-
time staff members.
The investment in the skills and development of staff members by way of internal and external training and
development opportunities coupled with on-the-job training, was ongoing.
Our human resources remain instrumental for the achievement of objectives and the success of the Group. Indeed
I am proud and grateful to be leading a staff team that, at all levels and grades is truly professional. At year end
the staff complement at the Bank stood at 209 while that of the Group reached 961 members.
Projects
Projects were predominantly related to technology and premises. The ATM network was extended by further
installations at branches and at selected offsite locations. We also introduced modern depository services on the
most recent ATM additions. Our ATM fleet now consists of 18 machines. Besides the ongoing investment in
cybersecurity and reporting systems, work related to replacement of the core banking system proceeded in
earnest. This project also has within its scope the refreshing of customer-facing digital channels.
We continued with our investment in our retail network, and as at the end of FY 2022 operated from eight
branches in Malta and one in Gozo. One new branch was opened in Santa Venera and others are set to follow in
2023. As a matter of policy, rather than lease the Bank seeks the outright ownership of properties it uses to run
its business from. This reflects solid commitment to Malta, while also benefitting from capital appreciation which
in turn enhances the underlying value of the Bank.
Continuing on the success of previous years, in collaboration with the Central Bank of Malta we participated in a
gold bullion coin issue. The Melita coin was struck in four denominations and the issue was well received by
collectors.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Chief Executive Officer’s Review (continued)
Corporate Social Responsibility
While we support various entities in their socially meaningful, charitable and cultural initiatives, however, we
prefer doing so unobtrusively.
An important aspect of CSR initiatives, also in line with our ESG agenda, is that of minimising the negative impact
that the Bank’s operations may have on society and the environment. In this respect, the restoration and
adaptation of important buildings as offices results in reduced building material consumption, less waste
generation and lower energy consumption when compared to new build. Among our branches and offices are
buildings of architectural significance such as those at Palazzo Spinola on Republic Street and Frederick Street in
Valletta and the branch on Tower Road in Sliema. Planning permission has recently been received to convert to a
branch another Grade A listed property, at Saqqajja, Rabat.
These properties are now a hallmark of the Bank and in synch with its image of being traditional and firmly
established in the Maltese community.
Our subsidiary MaltaPost p.l.c. continued to extend its support to the Malta Community Chest Fund, Id-Dar tal-
Providenza and other select social and cultural organisations. Another initiative which merits mention relates
to the MaltaPost p.l.c. facility in Gozo where over 60 persons with special needs are in gainful employment and
form an integral part of the team extending full document management services to a wide range of customers.
This project is being run in collaboration with Jobs Plus as well as the Lino Spiteri Foundation.
MaltaPost p.l.c. also runs a postal museum, housed in a restored building in Valletta. The museum is now also
acknowledged as part of Malta’s unique heritage. In line with its ESG agenda, the Company has continued to invest
in more electric vehicles which now number over 100, thereby substantially reducing carbon emissions. The Group
also continued with its investment in renewable energy sources, and currently has over 400 PV panels installed on
Group buildings.
Outlook
Given our growth plans and considering the current and forthcoming regulatory capital requirements it became
evident that the Bank would need to increase its capital by accessing the capital markets, the first time in over 20
years, as all capital needs since then have been satisfied internally from retained earnings. In consultation with
financial and legal experts several options were considered, and it was decided that the option that would best
serve the Bank was that of a Rights Issue of shares. Unfortunately, this initiative was effectively blocked by the
Bank’s Qualifying Shareholder at an appositely convened EGM in November 2022. One looks forward to having
this issue resolved, sooner rather than later, thereby allowing the Bank to proceed with its plans for growth.
Although the European Commission’s economic forecast for Malta in 2023 is for real GDP to grow by 3.1%, one
however cannot overlook the possible disruptive impact of the high levels of inflation and continued geopolitical
uncertainties. That said, our positive 2022 performance and robust financials, our loyal customer base and the
dedication and commitment of our staff encourage us to look ahead with cautious optimism. The ethos of the
Bank shall remain one of prudent custodianship of customers’ deposits and protection of shareholder funds. The
Bank is confident that it has the potential to grow considerably, thereby remaining a truly indigenous bank having
the exclusive mission and vocation to focus on servicing the needs of the Maltese community at large.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Joseph Said (Chief Executive Officer) as per
the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Directors’ Report
The Group
The Lombard Bank Group (the Group) consists of Lombard Bank Malta p.l.c. (the Bank), Redbox Limited, Lombard
Capital Asset Management Limited, Lombard Select SICAV p.l.c. and the MaltaPost p.l.c. Group.
Review of Performance
An overview of the development in the Bank’s business and that of its subsidiaries during the year under review
together with an indication of likely future developments may be found in the ‘Chief Executive Officer’s Review’
of this Annual Report.
Group profit before tax for the financial year ended 31 December 2022 amounted to €27.7 million (2021: €12.6
million). Profit attributable to equity holders of the Bank was €17.5 million (2021: €7.5 million).
Net interest income at €22.3 million was 13.9% higher than the previous year. Increase in credit activity and
increased interest earned on treasury operations contributed to this increase. Higher activity in most business
lines during the year resulted in an increase of 3.9% in net fee and commission income.
Net loans and advances to customers increased by 10.7% to €711.6 million. Customer deposits increased by 3.2%
to €1,008.4 million. Group post tax return on equity for 2022 was 12.8% (2021: 5.7%). Group total assets increased
to €1,203.4 million (2021: €1,172.6 million). Total capital ratio at 15.4% (2021: 15.9%) exceeded the minimum
regulatory requirements.
Bank cost efficiency ratio at 57.4% (2021: 60.8%) was affected by increases in human resource cost well offset by
revenues from increased business volumes.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Directors’ Report (continued)
Expected Credit Losses (ECL) as determined by International Financial Reporting Standard 9 (IFRS 9) resulted in a
release of €16.2 million compared to a reversal of €1.5 million taken in the previous year. This was mainly
attributable to a significant recovery on a commercial non-performing loan which had been largely provided for in
previous years. Management overlays reserved in the previous year in connection with the pandemic were
reversed in line with the changed circumstances pertaining as at the end of the financial year.
MaltaPost p.l.c. realised lower profitability as it continues to carry the unfair financial burden of subsidising out of
pocket, a number of postal services within the Universal Service Obligation, including those relating to Local Mail
and Outbound Parcels. While non-regulated postal and non-postal revenue streams continued to provide
reasonable profit margins, the full impact on revenue of Brexit and the EU’s removal of VAT exemption on all non-
EU origin small value items was felt. As traditional postal volumes continued to drop, other non-postal income
arose from document management services, bill collection, financial services and insurance.
Equity attributable to equity holders of the Bank stood at €136.2 million (2021: €137.3 million). Group net asset
value (NAV) per share stood at €1.5 (2021: €1.5). Group earnings per share (EPS) increased to 19.4 cents.
Profits after taxation of €17.6 million and €18.5 million for the Group and the Bank, respectively were registered
for the twelve months ended 31 December 2022.
The Board of Directors is proposing a bonus share issue of one (1) share for every forty-five (45) shares held. The
bonus issue will be funded by a capitalisation of reserves amounting to €252,022. Resolutions to this effect will be
proposed to the 2023 Annual General Meeting. No dividend is being proposed by the Board of Directors.
Board of Directors and Senior Management
The composition of the Bank’s Board of Directors and Senior Management is shown in the section on ‘Company
Information’ on page 39 of this Annual Report and further information is given in the ‘Statement of Compliance
with the Principles of Good Corporate Governance’.
Risk Management
The Financial Risk Management note to the Financial Statements (note 2), illustrates the process of how the Group
identifies and manages its risks and uncertainties. The main categories of risk described in this note are credit risk,
market risk, liquidity risk and operational risk. The same note includes extensive detail of the processes undertaken
by the Bank to manage these risks.
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 Group and the parent company as at the end of each reporting period and of the
profit or loss for that period.
Statement of Directors’ Responsibilities for the Financial Statements
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 Group and the parent company will continue in business as a going concern.
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Annual Report and Financial Statements 2022
10
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 Group and the parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The financial statements of the Bank for the year ended 31 December 2022 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 in view of 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.
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 2022,
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 includes a fair review of the development and performance of the business and the position
of the Bank, together with a description of the principal risks and uncertainties that they faced.
Investment Services Rules for Investment Service Providers
In accordance with R4- 4.3.4 of the Investment Services Rules for Investment Service Providers regulated by the
Malta Financial Services Authority, licence holders are required to disclose any regulatory breaches of the Rules
or other regulatory requirements in this Report. The Directors confirm that during the reporting period, there
were no breaches of the Investment Services Rules or other regulatory requirements, which were subject to an
administrative penalty or other regulatory sanction other than those in the public domain.
Information provided in accordance with Capital Markets Rule 5.70.1
There were no material contracts to which the Bank, or any of its subsidiaries were a party, and in which any one
of the Bank’s Directors was directly or indirectly interested, except for transactions disclosed in the notes to the
financial statements.
Capital Markets Rules – Disclosures
In terms of Capital Markets Rule 5.64, the Directors are required to disclose the following information.
As at the Annual General Meeting held on 26 May 2022, the authorised share capital of the Bank was €20,000,000
made up of 80,000,000 ordinary shares of a nominal value of 25 cent each. As at that date the issued and fully
paid-up share capital of the Bank was €11,191,740 divided into 44,766,961 ordinary shares of a nominal value of
25 cent each, all of one class.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
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Directors’ Report (continued)
Following the approval by the Bank’s shareholders at the above-mentioned 2022 Annual General Meeting, the
amount of €149,226.50 from the Bank’s Retained Earnings Account was capitalised for the purpose of issuing
596,906 fully paid ordinary shares of a nominal value of €0.25 per share representing 1 bonus share for every 75
shares held allotted to the eligible members appearing on the Bank’s Register of Members as at close of trading
on the Malta Stock Exchange on 22 June 2022. Following this allotment, the Issued and fully paid-up Share Capital
of the Bank increased to €11,340,966.75 divided into 45,363,867 ordinary shares of a nominal value of 25 cent
each, all of one class.
The Bank held an Extraordinary General Meeting on 10 November 2022. Among other resolutions, the
shareholders approved a redenomination of nominal value of share capital (share split) and an increase in
authorised share capital.
By virtue of the above, the authorised share capital of the Bank was increased and redesignated to €37,500,000
divided into 300,000,000 Ordinary Shares of a nominal value of €0.125 each and the Issued and fully paid-up share
capital of the Bank was redesignated to €11,340,966.75 divided into 90,727,734 Ordinary Shares of a nominal
value of €0.125 each.
Amendments to the Memorandum and Articles of Association of the Bank are effected in conformity with the
provisions in the Companies Act, 1995. Furthermore, in terms of the Articles of Association:
• Directors may be authorised by the Bank to issue shares subject to the provisions of the Memorandum and
Articles of Association and the Companies Act;
• Directors may decline to register the transfer of a share (not being a fully paid share) to a person of whom they
do not approve;
• Directors may decline to recognise any instrument of transfer, unless accompanied by the necessary evidence;
• no registration of transfers of shares shall be made and no new particulars shall be entered in the register of
members when the register is closed for inspection; and
• the Bank may, from time to time, by extraordinary resolution reduce the share capital, any Capital Reserve
Fund, or any Share Premium Account in any manner.
Currently there are no matters that require disclosures in relation to:
• holders of any securities with special rights;
• employee share schemes;
• restrictions on voting rights or relevant agreements thereto; or
• significant agreements to which the Bank is a party, and which take effect, alter or terminate upon a change of
control of the Bank.
The Remuneration Report on page 34 refers to the financial contributions towards retirement gratuities that the
Board of Directors approves from time to time. The same Board had previously resolved that a retirement gratuity
be eventually paid on an ex-gratia basis to the Chief Executive Officer on his retirement.
The rules governing the changes in Board membership are contained in the ‘Statement of Compliance with the
Principles of Good Corporate Governance’.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
12
Directors’ Report (continued)
Shareholders holding five per cent (5%) or more of the share capital of the Bank:
Shares in Lombard Bank Malta p.l.c.
31 December 2022 31 March 2023
National Development & Social Fund (NDSF) 49.01% 49.01%
Virtu Holdings Ltd 9.89% 9.89%
First Gemini p.l.c. 5.31% 5.31%
LifeStar Insurance p.l.c. 5.01% 5.01%
Directors’ Interest in Group Companies
Joseph Said, who is a Director of the Bank, is also a Director of the following companies that have a shareholding
in the Group as follows:
Shares in Lombard
Bank Malta p.l.c.
at 31 December 2022
Shares in MaltaPost p.l.c.
at 31 December 2022*
Safaco Ltd 86,642 44,745
First Gemini p.l.c. 4,814,122 36,341
Shares in Lombard
Bank Malta p.l.c.
at 31 March 2023
Shares in MaltaPost p.l.c.
at 31 March 2023*
Safaco Ltd 86,642 92,774
First Gemini p.l.c. 4,814,122 75,350
* The increase in the shareholding of Safaco Ltd and First Gemini p.l.c. in MaltaPost p.l.c. between 31 December 2022 and 31
March 2023 is attributed to a Scrip Dividend and the redenomination (Share Split) of the Share Capital of MaltaPost p.l.c. from
€0.25 per share to €0.125 per share with effect from 21 March 2023.
In addition, Joseph Said holds preference shares in Safaco Ltd.
Audit & Risk Committee
The Audit & Risk Committee is composed of non-executive Directors and is intended to ensure effective internal
controls, compliance and accountability. The Committee also acts to ensure that high ethical standards are
maintained, as explained in the ‘Statement of Compliance with the Principles of Good Corporate Governance’ in
another section of this Annual Report.
Auditors
PricewaterhouseCoopers have expressed their willingness to continue in office as auditors of the Bank and a
resolution proposing their reappointment will be put at the forthcoming Annual General Meeting.
Events occurring after the end of the accounting period
There were no significant events affecting the Bank or any of its subsidiary undertakings which have occurred after
31 December 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
13
Directors’ Report (continued)
Other Information
During 2022, the Bank announced that it would be accessing the capital markets to raise circa €50 million through
the issue of new shares. In this regard an Extraordinary General Meeting was held on 10 November 2022 with
resolutions concerning the following submitted for consideration and approval by the shareholders:
1. Redenomination of Nominal Value of Share Capital (Share Split)
2. Increase in Authorised Share Capital
3. Amendments to Memorandum and Articles of Association
4. Authority for Directors to issue new shares
By way of background, a revised strategy was also presented to further place the said resolutions within a context.
While the first three resolutions were approved, the National Development & Social Fund, the Bank’s Qualifying
Shareholder, blocked the fourth resolution that was key to allow the Directors to issue new shares. (Refer to
Company Announcements Ref. LOM 272 to 278.)
The Board of Directors continues to seek a way forward with its share issue so as to allow the Bank meet both its
regulatory capital levels as well as reach its growth potential.
In the circumstances therefore, the Board has reluctantly decided not to recommend the payment of a dividend
so as to preserve its capital levels.
Non-Financial Statement
The Companies Act requires that a non-financial statement be included in this report containing information on
the Group’s development, performance, position and impact of its activity, relating to, as a minimum,
environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters and
this in the form of particular disclosures on certain aspects.
1. Business Model
The Bank is a Malta-based bank and for financial stability purposes is considered by the Central Bank of Malta
as a core domestic bank, catering mostly for the local economy, and therefore actively supporting economic
sectors in their activities. The lending activity of the Bank consists mainly of Commercial and Retail Lending.
Commercial Lending is largely characterised by loan facilities to the commercial sector with short to medium
term maturities. Retail Lending consists mainly of home loan facilities with medium to long term maturities.
Asset diversification strategy is intended to increase the resilience of the Bank’s loan book and its lending
capacity. The Bank was enrolled as a Tied Insurance Intermediary for long term insurance business and can
therefore provide its Home Loan customers with a more comprehensive service offering. Lending is funded by
a diversified deposit base and underpinned by solid financial fundamentals and stakeholder value. The Bank
has never relied, and does not intend to rely, on the interbank market for its funding requirements, and retains
ample liquidity from its retail operations. The Bank seeks prudent growth, while adhering to the highest
standards of professional conduct, as evidenced by the quality of its assets and relationships. The Bank follows
risk review processes to ensure that business is in line with its risk appetite frameworks and its compliance
standards, which themselves are also reviewed periodically in light of regulatory developments and emerging
risks. The Bank continues seeking to expand its product and services portfolio into the retail market. It firmly
believes that in the Maltese market physical presence remains an important element, more so in respect of
customers who demand a personalised service, being the service delivery ethos of the Bank. Concurrently with
its investment in digital banking services, the Bank seeks to foster new relationships across a wider
demographic spectrum, and for this reason widened its physical presence. Presently the Bank has 11 physical
customer contact points, with a further 2 Bank owned properties earmarked for this purpose.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
14
Directors’ Report (continued)
The Bank’s business model is based on building stakeholder value by delivering financial services and solutions
in a prudent manner and by setting the highest standards in professional behaviour and implementing the
highest standards of compliance. The Bank’s competitive strengths are in its unique business operating model,
its conservative outlook towards risk and its robust fundamentals. The characteristics of its business model
give the Bank a competitive advantage, enabling it to continue to deliver value to all its stakeholders in a
challenging environment which remains highly competitive and increasingly regulated. The Bank’s brand,
which stands for the provision of personalised and tailored financial services, remains strong.
The Bank’s subsidiary, MaltaPost p.l.c. (MaltaPost) is Malta’s leading postal services company, being the sole
licensed Universal Service Provider of postal services on the Maltese Islands in terms of the Postal Services Act
(Chapter 254 Laws of Malta) and under the terms of the Universal Postal Union Convention and Constitution
on behalf of the Government of Malta. The Company operates a network of 6 Postal Hubs, 41 Post Offices and
28 Sub-Post Offices around Malta and Gozo.
Postal services remain characterised by a decline in Letter Mail volumes and in the corresponding income, and
on an opposing trajectory, increasing costs. MaltaPost p.l.c. continues to pursue its diversification into logistics,
document management, insurance and financial services. In insurance, MaltaPost p.l.c. has a 25% shareholding
in IVALIFE Insurance Limited, a company licensed to conduct long-term business of insurance and a 49%
shareholding in PostaInsure Agency Limited, an insurance agency for MAPFRE Middlesea p.l.c.
Document management services are offered through a fully owned subsidiary, Tanseana Limited. While
MaltaPost p.l.c. remains committed to be the trusted postal and logistics operator offering a comprehensive
product portfolio, these investments in non-postal sectors are intended to supplement income streams from
the core activity. MaltaPost p.l.c. continues with its engagement with the Regulator with a view of ensuring
that regulated postal tariffs are at a level which enable the company sustain the Universal Service Obligation.
As evident from the above disclosures, there were no notable changes to the core business strategies and
business models of Group entities.
2. Anti-Corruption and Bribery Matters
The Group remains committed to a zero-tolerance policy to bribery and corruption, financial crime and
breaches of the relative laws and regulations. The Group developed and maintains robust policies designed to
prevent and detect potential bribery and corruption in the form of an Anti-Bribery and Corruption (ABC) Policy
and Whistleblowing Policy.
The implementation of these policies is by means of processes, procedures and respective controls, which are
embedded in the Group’s structures and manuals in order to ensure that staff members act responsibly within
the workplace and outside. Guidelines and instructions regarding ABC and Whistleblowing are applicable and
available to all staff members. All staff members, including Directors and, where relevant, associated persons
are required to comply with the principles outlined. The Group supports a ‘speak-up attitude’ to encourage
reporting of concerns relating to what might appear to be suspected illegal, unethical or otherwise improper
acts or their concealment. The same standards are expected from any third parties providing services for or on
behalf of the Group. Staff members who fail to comply with the Group’s policies and standards may face
disciplinary action, up to and including dismissal or termination of employment. Training sessions keep staff
members abreast of their obligations at all times.
The Risk Management and Compliance functions exercise oversight over the implementation of respective
Policies, the former by including ABC in risk assessments and the latter by ensuring constant standards of
compliance. The Risk and Compliance functions also work together to ensure the proper functioning of these
policies, while the Internal Audit reviews results. Matters arising, if any, out of the adoption of these policies
are reported by the Compliance function in its reports to the Audit & Risk Committee and Board of Directors.
Policies are reviewed annually, or more often as required, by the relative business and internal control
functions with suitable recommendations, as is necessary, made to the Audit & Risk Committee and the Board
of Directors. During the year under review, there were no reported cases on the basis of the abovementioned
policies and therefore no necessary investigations.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
15
Directors’ Report (continued)
3. Social and employee-related matters
Social and employee matters are given full attention by the Group. The Group’s human capital is a key resource
for the carrying out of business. The ability to attract and retain human resources of the right skill-mix and
experience condition to a large extent the Group’s performance. The risk of not attracting or retaining the
appropriate quality staff in line with the Group’s business needs is mitigated generally by the approach to
managing this resource and specifically through a number of measures. Further information on employees may
be found in the Chief Executive Officer’s Review, Human Resources on page 6 and Note 31 to the Financial
Statements.
Collective Agreements are in place at the Bank and MaltaPost p.l.c., setting the conditions of work and
generally regulating the employer/employee relationship. The prevailing Agreements contain a number of
measures of assistance to staff members including days of special paid leave additional to those stipulated at
law, such as Study Leave, and extended Bereavement Leave. The Group enjoys harmonious industrial relations
with the full co-operation of respective trade unions, staff members and their representatives.
Oversight of key indicators, by which human resource performance is evaluated is maintained by the Head of
the Human Resources function and reported to senior management and the Risk Management function as
appropriate for suitable action if and as required. Performance management takes into consideration
leadership and other competencies required by particular positions as well as the Group’s corporate values.
The Group does not place quotas on the number of staff members whose personal circumstances require them
to work on reduced hours or need to absent themselves from work for an extended period of time on Child
Care Leave or other absences related to immediate family matters. In this regard, the Group is committed to
supporting and developing work-life balance measures further.
The Bank also extends a number of products and services to Group staff members on favourable terms
including, among others, advantageous terms on home loans and other personal borrowing. The Group keeps
an active line of communication with staff members through circulars, branch / department staff meetings and
one-to-one meetings among others and is committed to maintaining a working environment where staff is
valued, respected and supported to fulfil potential.
All members of staff are treated on equal terms with regard to career development and appointments and the
Group supports and practises gender equality and diversity. The Group, however, does not set specific targets
in this regard, as it firmly believes that progress is dependent largely on skill, competencies, attributes and
performance, rather than gender and / or other diversity factors. Being the largest employer in the Group,
MaltaPost p.l.c. was awarded the Equality Certification Mark following certification by local authorities in
recognition of its non-discriminatory values and as a provider of equal opportunities to its staff.
The Group abides by all applicable laws, rules and regulations relating to employment. While conscious of the
fact that the legal obligations are the minimum acceptable standard, the Group strives to surpass standards in
this area and continues to increase awareness among staff. The Group, for example, with circa 8%, well exceeds
the obligation to have 2% of the total staff complement composed of persons with disabilities. This reaffirms
the Group’s social outlook and its commitment to create a positive impact in society. Remuneration levels are
regularly reviewed to ensure that they are in line with the Group’s Remuneration Policy.
Investment in human capital was and still remains a fundamental pillar of sustainability for the company and
to this effect the Group has committed to invest in developing the skills of its workforce through both internal
and external training.
As in previous years, during 2022, Group staff members participated in several training sessions and on-the-
job training programmes. Training is driven by the requirement to meet identified training needs rather than
by the pursuit of specific numerical targets, which are therefore not set.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
16
Directors’ Report (continued)
The Group remains committed towards extending its support to a number of charitable, social and cultural
organisations.
Regarding consumer relations and protection, the Group adheres to all respective regulatory requirements
such as, inter alia, those arising from Markets in Financial Instruments Directive II (MiFID II), as also reflected
in the MFSA Conduct of Business Rulebook, the Cross Border Payments Regulation II (CBPR II), Payment
Services Directive II (PSD II), Payment Accounts Directive (PAD) and Banking Rule BR/22 Complaints Handling
Procedures for Credit Institutions Authorised Under the Banking Act, 1994.
The Group Complaints Management policies and relevant details on respective web sites provide the
information required for a consumer to submit complaints. During 2022 the Bank had no complaints brought
in front of the Arbiter for Financial Services for hearing and adjudication. In the case of MaltaPost p.l.c.,
customer complaints accounted for 0.002% of all mail items handled.
The Group does not actively push customers away from physical delivery channels. Maintaining a presence in
core community areas is given importance so as to facilitate accessibility and delivery of important services to
the community.
Please also refer to the Chief Executive Officer’s Review, Corporate Social Responsibility on page 7 and to
Principle 12 ‘Corporate Social Responsibility’ on page 31 for further information concerning social matters.
4. Health and safety
Maintaining the highest levels of health and safety and physical security of staff is of paramount importance.
As a minimum, the Group meets with all the statutory obligations set out in the Occupational Health and Safety
Authority Act, 2000. Further measures for the management of health and safety are adopted by way of
standards in Collective Agreements, appointment of Health & Safety Officers and appointment of local first
aiders and fire wardens. Regular checks of related processes and systems are carried out with outcomes
reported to the Health & Safety Officers, who will take action as and if required. Furthermore, health and safety
risk assessments are carried out to ensure that situations that may pose risks to the health and safety of staff
and others on Group premises are identified and mitigated. Occupational health awareness training is also
provided. No Health and Safety incidents were reported at the Bank, while MaltaPost Group registered a
decrease in the number of such incidents when compared to previous years and this result is mostly attributed
to investment in education, equipment and awareness. Some Group staff benefit from personal accident
insurance cover and others benefit from private health care insurance, as well as death in service cover.
5. Human rights
The Group is aware of the importance of ensuring that human rights are upheld across its operations. In this
respect the Group carries out its business without discrimination, respecting the standards set by national law
or higher standards as applicable, such as effective information and consultation processes, particularly where
these affect the place and conditions of work. Business conduct policies are in place to support this stance,
which extend also to counterparties. The Group avoids business with counterparties operating in economic
sectors that may be linked to or present a significant risk to violation of human rights or to social vices.
Additionally, the Bank’s AML/CFT processes, inter alia, assist in the identification of the proceeds of potential
human rights abuses. Any suspicions resulting from these processes are reported to law enforcement as per
current legislative requirements. Services that promote financial inclusion have been introduced also by way
of the PostaPay&Save account which serves as a basic payment account. This account was introduced to
encourage financial inclusion well before this was required by regulation. The account allows persons who may
have been unable to open bank accounts to enjoy the facilities of basic payment accounts with relative services.
PostaPay&Save accounts have now been opened for more than 14,000 individuals, though about 12,000
remain active.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
17
Directors’ Report (continued)
The Group did not encounter any issues, claims or reports on any human rights related matters and / or
violations. A grievance procedure is in place to provide effective remedy as and when needed. The Group is
committed to investigate any reports of human rights violations. As previously stated, the Bank has in place a
Whistleblowing Policy which covers among others, related issues. In accordance with this Policy reports are
submitted to the Heads of Risk Management and Internal Audit. During the year ending 2022, no reports in
accordance with this Policy were submitted.
Premises, including self service areas and ATMs, meet all accessibility regulations, apart from where physical
restrictions make this impossible, in which case discussions with the relevant regulatory bodies are held.
Property added to the Group’s real estate during 2022 provides full accessibility to persons with disabilities.
6. Environmental Matters
The Group does not execute a formal policy relating to environmental matters given its size, scale and nature
of operations. Nonetheless, the Group is mindful of the important role it has to play to contribute towards
safeguarding the environment as much as is possible, thereby minimising the environmental impact of its
operations. Besides assisting in the reduction of costs, being environmentally friendly and taking measures to
reduce its carbon footprint fits within the overall corporate social responsibility initiatives of the Group. The
Group continues with its programme of investment aimed at reducing reliance on fossil fuel power and demand
on the national power grid, as far as practical and opportune.
Relative initiatives included installation of PV panels. The Group has 426 PV panels on its buildings producing
7.6% of electrical energy requirements. Investment is aimed at reducing emissions from purchased electricity
through investment in renewable sources and energy efficient systems, such as installations of modern Heating
Ventilation Air Conditioning (HVAC) systems and Light Emitting Diodes (LED) light fittings. Waste separation
facilities and recycling processes are in place and are ongoing throughout the Group.
The Group operates approximately 100 electric vehicles, which replace internal combustion motor vehicles
and reduce the demand for more fossil fuelled vehicles, thereby contributing to an overall reduction of
approximately 118,000 kg of CO
2
per year. The Group continues with its efforts to reduce paper use. In this
respect, during 2022, the Group implemented a major paper-saving initiative with a view to reduce carbon
emissions.
The Group continues with its efforts to preserve buildings of architectural importance now serving as modern
and functional branches/offices. ‘Restoration with respect’ continues to be the Group’s motto when acquiring
and renovating buildings of architectural heritage value, delivering them back to society in their original
splendour.
Preservation and reuse of such property reduces resources and material consumption, generates less waste
and consumes less energy than developing greenfield and / or brownfield sites.
MaltaPost p.l.c. runs a postal museum also in a restored building in Valletta housing a collection of artefacts
related to Malta’s postal history. Additions to the collection of artefacts are made as opportunities arise,
thereby enriching further the country’s postal heritage.
The Group’s business is mostly carried out in Malta. The Malta climate-related risks are not expected to have
a consequence on the impairment or fair value of assets, give rise to credit losses and/or potential provisions
or contingent liabilities. Therefore, the impact of climate change on the financial performance is not expected
to be material. That said, like any other business the Group is however not shielded from the economic risks
of climate change, which in turn can have an impact on the financial performance.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
18
Directors’ Report (continued)
The Bank is mindful of the evolving Environmental, Social & Governance (ESG) regulatory landscape. It
continues following developments closely so as to further determine how ESG considerations influence the
manner in which it carries out its business and the extent to which such considerations are incorporated within
its risk management framework. ESG initiatives geared towards the Bank meeting with regulatory expectations
remain on-going. During the year, an ESG Working Group was set up with the aim of coordinating, advising and
providing recommendations on ESG related matters. This Working Group will also be responsible for ensuring
compliance with regulatory expectations and liaising with Senior Management, the Board-appointed
Committees and the Board of Directors in this regard. The Group also intends to further enhance its data
collection efforts in order to widen its scope for further improving its ESG credentials.
7. Risk Reporting
A Group enterprise-wide risk management framework is in place. It lays down the foundation for the risk
management reporting processes. This framework is subject to constant evaluation to ensure it constantly
meets the requirements of the markets in which the Group operates, including regulatory standards and
industry best practices.
The Group’s robust governance framework is supplemented by well-defined procedures embedded in
processes and subject to ongoing review and clear organisational structures and reporting lines.
The simple but clear organisation structure ensures that responsibilities and duties are well-defined and
communicated. Within the functions defined, processes are in place to identify, monitor, manage and report
risks. Internal control mechanisms, together with appropriate administrative and accounting procedures are
in place to ensure that the first line of defence complies with relevant processes.
To achieve an appropriate balance between sound practices and adequate returns to shareholders, a formal
Risk Management Policy, which is reviewed periodically, is in place. This overarching Policy allows for the
application of strict internal controls and discretionary limits, and optimising the returns thereof, in line with
the Bank’s risk appetite.
The risk appetite determines the maximum risk the Bank is willing to accept to meet business objectives. It is
updated for the purposes of strategic direction, macro-economic developments and changes in the regulatory
environment, this after a thorough analysis of the current risk profile. The risk appetite is reviewed by the
Board of Directors at least once a year.
The main categories of risk to which the Group is exposed to are:
Capital Risk Management – This is the inability to hold sufficient capital to safeguard the Group’s ability to
continue as a going concern, provide suitable returns for shareholders, maintain a strong capital base to
support the development of the business, comply with regulatory requirements and ensure sufficient capital
in the event of unexpected shocks. Capital management includes constant monitoring of capital positions
against regulatory and management limits as set in the Risk Appetite Statement. This monitoring is
supplemented by robust capital planning which process establishes suitable capital levels tailored for the
Bank’s risk profile and regulatory requirements (Notes to the Financial Statements note 2.7; Additional
Regulatory Disclosures notes 6 and 7).
Credit Risk – This is the risk of suffering loss should any of the Group’s customers or counterparties fail to
honour their contractual obligations to the Group. In this respect, Credit risk mainly arises from customer loans
and advances, since credit risk arising from its exposures to credit institutions and investment activities is
considered to be low. It constitutes the Bank’s single largest risk in view of its significant lending and securities
portfolio. Prior to granting a facility, a comprehensive assessment of the customer’s repayment capability is
carried out. To further minimise this risk, facilities are generally adequately secured by tangible security that is
reviewed periodically in line with regulatory requirements to ensure that the collateral still covers the facilities.
Also, periodic reviews are carried out to ensure that the conduct of facilities is in line with stipulated terms and
conditions (Notes to the Financial Statements note 2.3; Additional Regulatory Disclosures note 2).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
19
Directors’ Report (continued)
Liquidity Risk – This is the risk arising when the Bank is unable to meet current and future payment obligations
as they fall due. Liquidity management includes the constant monitoring of liquidity positions through
established ratios against internal limits as set in the Risk Appetite Statement, taking cognisance of minimum
regulatory requirements. Through its Assets & Liabilities Committee, the Bank’s liquidity profile is managed in
such a way that cash flows and all anticipated obligations are met when due. During the year, the Bank
continued to maintain robust liquidity buffers and adequate stable funding that the Liquidity Coverage Ratio
(LCR) and Net Stability Funding Ratio (NSFR) remain well above regulatory minima. (Notes to the Financial
Statements note 2.5; Additional Regulatory Disclosures note 4).
Market Risk – This is associated with fluctuations in the fair value or future cash flows because of changes in
market prices. The Bank does not operate a Trading Book and hence this is limited to Interest Rate Risk,
Currency Risk and Equity Price Risk. The Bank is accordingly able to manage the interest rate terms of its
financial assets and simultaneously to effect changes to interest terms of liabilities reflecting the Bank’s
strategy together with market developments. Currency risk for the Group is low since a natural hedge strategy
is adopted whereby Customer Deposits in one currency are matched with a corresponding asset of a similar
currency almost instantaneously. Also, Equity Price risk is also deemed to be low given that the Group’s assets
in the form of equity is less than 1% of the Group’s assets (Notes to the Financial Statements note 2.4;
Additional Regulatory Disclosures note 3).
Non-Financial Risks – These are the risk of losses that relate to inadequate or failed internal processes, people
or systems. Non-financial risks and losses cover a wide spectrum of areas including financial crime, regulatory
compliance, fraud, people, systems and processes which would in turn affect income and capital. Non-financial
risks are described in depth in the Risk Appetite Statement which acts as one of the four pillars of the Risk
Management Framework. These risks are benchmarked by using set parameters that are reviewed periodically
and determined by the Board. To ensure that the Bank remains in compliance with the limits set within its Risk
Appetite, operational policies and procedures are in place and are reviewed on an on-going basis. Since the
nature and frequency of non-financial risks materialising cannot be predicted, the Bank has in place adequate
insurance cover to cater for operational failures. To allow for such losses, as part of the Bank’s Capital Risk
management, a capital charge for unforeseeable losses arising from these risks is also taken (Notes to the
Financial Statements note 2.6; Additional Regulatory Disclosures note 5).
Compliance Risk – This is the risk of legal sanctions, material financial loss, or loss to reputation which the Bank
may suffer because of failure to comply with regulations, code of conduct, and standards of best practice. This
risk is managed by the Compliance function which identifies, assesses, advises, monitors and reports on the
Bank’s compliance risks. The Function acts as the Bank’s central point through which all interaction with
regulatory and enforcement bodies is channelled.
Financial Crime Risk – This is the risk related to offences such as money laundering, terrorist financing, fraud,
bribery & corruption, market abuse, insider trading and sanctions. The Bank through its various policies,
procedures and systems in place, is committed to combating financial crime and ensuring that its products and
services are not misused for the purpose of money laundering, terrorism financing and fraud events.
Information Security Risk – This is associated with the risk of data and/or financial loss resulting from deliberate
or accidental loss, alteration, falsification or leakage of information, destruction, disruption, errors or misuse
of information systems. Also, in its daily operations, the Bank runs the risk of losses from threats or malicious
attacks from internal staff and/or potential malicious intruders. While cognisant of these threats, having zero
appetite for such losses, the Bank has in place an Information & Cyber Security Policy, with robust procedures
supporting its implementation that ensures that strict internal controls and adequate measures are set and
maintained at all times to mitigate such threats. This Policy is reviewed annually to ensure it remains relevant.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
20
Directors’ Report (continued)
Key Performance Indicators (KPIs)
The Group has in place a set of financial and non-financial key performance indicators (KPIs) that are set by the
Board of Directors in its Risk Appetite Statement, monitored by the Risk Management Function and regularly
submitted to the Audit & Risk Committee for continuous assessment. They are a set of quantifiable measures
which ensure that material risks faced are kept within established parameters as detailed in the Risk Appetite
Statement and relevant policies. A selection of key metrics as at 31 December 2022 are presented hereunder.
Solvency TCR 15.4%
Leverage 10.8%
Liquidity LCR 210.7%
NSFR 148.3%
Profitability
Asset Quality
ROE
1
NPL
12.8%
3.5%
1
After tax
The KPIs are reported regularly to the Audit & Risk Committee and Board of Directors in the form of a Risk
scorecard. The scorecard takes the form of the “traffic light” approach and compares the actual metric to the
objectives set in the Risk Appetite Statement. As at the end of December 2022, all KPIs were within acceptable
ranges and/or tolerance limits as set within the Bank’s Risk Appetite.
Disclosures pursuant to Article 8 of the Taxonomy Regulation
To achieve the targets established by the European Union of reaching net zero greenhouse gas emissions (GHG)
by 2050, with an interim target of reducing GHG emissions by 55%, compared to 1990 levels by 2030, the
European Commission (’EC’) has developed a taxonomy classification system, by virtue of EU Regulation
2020/852, (‘the Taxonomy Regulation’ or ‘the EU Taxonomy’), which establishes the criteria for determining
whether an economic activity qualifies as environmentally sustainable.
The EU Taxonomy establishes criteria in terms of six environmental objectives against which entities will be
able to assess whether economic activities qualify as environmentally sustainable. To qualify as such, an
economic activity must be assessed to substantially contribute to one of these environmental objectives, whilst
doing no significant harm to the remaining objectives by reference to technical screening criteria established
in Delegated Acts. The economic activity is also required to meet minimum safeguards established in the
Taxonomy Regulation. The six environmental objectives considered by the EU taxonomy are the following:
i. Climate change mitigation;
ii. Climate change adaptation;
iii. Sustainable use and protection of water and marine resources;
iv. Transition to a circular economy;
v. Pollution prevention and control; and
vi. Protection and restoration of biodiversity and ecosystems.
The EC subsequently adopted the Delegated Act supplementing Article 8 of the Taxonomy Regulation (‘the
Disclosures Delegated Act’) in 2021 which establishes the disclosure requirements of entities within the scope
of the Taxonomy Regulation. At this stage, this solely comprises entities subject to an obligation to publish non-
financial information pursuant to Article 19a or Article 29a of Directive 2013/34/EU (being those entities
subject to the Non-Financial Reporting Directive, ‘NFRD’).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
21
Directors’ Report (continued)
The Disclosures Delegated Act became applicable for the first time on 1 January 2022, with the first disclosures
applicable for the financial reporting period ended 31 December 2021, adopting a phased-in approach to the
disclosure requirements of key performance indicators. In the first two years of its adoption, the Bank is only
required to disclose its proportion of exposures towards taxonomy-eligible and non-eligible activities, along
with its out-of-scope exposures in accordance with the Disclosure Delegated Act.
Identifying taxonomy-eligible economic activities will serve as a basis for determining taxonomy-alignment of
economic activities with reference to the technical screening criteria established in the Climate Delegated Act
and eventually the Environmental Delegated Act to the Taxonomy Regulation, and subsequently the
determination of the Bank’s Green Asset Ratio (‘GAR’), which it will be required to disclose from 1 January
2024.
The following table was prepared in accordance with the disclosure requirement established in the Disclosures
Delegated Act. Accordingly, for the purposes of classifying exposures as either taxonomy-eligible or non-
eligible, the Bank has only considered the first two environmental objectives established in the Taxonomy
Regulation (being climate change mitigation and climate change adaptation), with reference to the Climate
Delegated Act. The remaining four environmental objectives are expected to be captured as from 1 January
2024, in accordance with the draft Environmental Delegated Act (‘EDA’) which was published on 5 March 2023
and is subject to a feedback period until expected adoption by EC by June 2023. The Bank will therefore
continue to monitor market regulation and guidance in respect of this aspect of its Taxonomy reporting, given
the imminent nature of such reporting requirements.
Carrying amount
As a proportion of
total assets
2022 2021 2022 2021
€ 000 € 000 % %
Taxonomy eligible
251,192 196,678
21.5 17.3
Taxonomy non-eligible 48,466 90,851 4.1 8.0
Out-of-scope exposures* 870,962
852,085 74.4 74.8
of which non-NFRD counterparties 474,786 462,605 40.6 40.6
of which derivatives - -
- -
of which on demand interbank loans 17,584 22,916 1.5 2.0
of which other assets (incl. cash-related
assets) 70,841
88,649 6.1 7.8
of which trading portfolio -
-
- -
of which central governments, central
banks and supranational exposures 307,751 293,647 26.3 25.8
Total assets 1,170,620 1,139,614 100.0 100.0
*Out of scope exposures consist of (i) non-NFRD counterparties, (ii) derivatives, (iii) on demand interbank loans, (iv) other assets
including retail loans not related to residential real estate, house renovation and motor vehicles, and other assets not related to lending
or investments, (v) trading portfolio and (vi) governments, central banks and supranational exposures.
Scope of consolidation
The ratios disclosed above represent the Bank’s exposures on a standalone basis as a proportion of total assets
as at 31 December 2022 and 2021.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
22
Directors’ Report (continued)
Assets in scope
The amounts disclosed above as taxonomy-eligible and taxonomy non-eligible economic activities consider on-
balance sheet financial assets not held for trading by the Bank. These include:
i) Loans and advances, debt securities and equity instruments in relation to undertakings that are subject to
Non-Financial Reporting Directive;
ii) Real estate collaterals obtained by the Bank by taking possession in exchange for the cancellation of debts;
iii) Loans and advances towards individuals in respect of residential real estate, house renovation and motor
vehicles (the latter of which was nil as at 31 December 2022 and 2021); and
iv) The investment in the Bank’s subsidiary.
Other assets considered to be out-of-scope of the Taxonomy Regulation have been disclosed separately in the
table above.
Taxonomy-eligible and Taxonomy non-eligible economic activities
Taxonomy-eligible economic activities are those activities for which technical screening criteria have been
established by virtue of the Climate Delegated Act, and therefore may be assessed to determine whether the
activity is performed in an environmentally sustainable manner (i.e. taxonomy alignment may be assessed). By
contrast, taxonomy non-eligible economic activities are those activities which cannot be assessed as
environmentally sustainable as technical screening criteria against which one can assess the activity have not
been established. In assessing whether or not an exposure is taxonomy-eligible, the Bank must consider the
activity being financed rather than the principle operating activity of the counterparty. However, due to data
limitations from counterparties or lack of required information, this was not always possible, as explained
further below.
Total exposures to undertakings not subject to the Non-Financial Reporting Directive (NFRD)
Exposures to undertakings that are not obliged to publish Non-Financial Reporting Information as per Article
19a or Article 29a of Directive 2013/34/EU as a proportion of total assets are also being disclosed separately.
Data limitations
The Bank relies on several data sources to determine Taxonomy-eligible and non-eligible exposures and
exposures not subject to NFRD. As scoped-in entities adopt the Taxonomy Regulation requirements for their
own disclosures, this could lead to a lack of comparability between the data reported in the current reporting
period and that reported in future periods.
To establish the taxonomy-eligibility of exposures, the Bank has relied on the NACE classification of the
principal activity of the counterparty. However, this is considered to be work-in-progress as certain NACE
classifications do not necessarily reflect the economic activity for which the exposure has been granted. An
assessment has been carried out, on a sampled basis and for significant exposures, where the purpose of the
facility differs significantly from the primary economic activity of the entity to determine the correct
classification of taxonomy-eligible financed activities.
As per Article 19a or Article 29a of Directive 2013/34/EU, large public undertakings with more than an average
of 500 employees during the reporting year are subject to NFRD. Given limited data availability, it has not been
possible to identify with certainty all entities falling within the scope of NFRD.
The Bank is in the process of continuing to implement procedures to overcome such limitations, adopting
methodologies with the aim of improving the accuracy of the information being reported over time.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
23
Directors’ Report (continued)
Other information
As the Bank does not finance or perform any activities related to natural gas and nuclear energy (activities 4.26
– 4.31), the Bank is not using the dedicated template introduced by the Complementary Delegated Act as
regards activities in certain energy sectors.
Additional Voluntary Disclosures in Respect of the Bank’s Subsidiary MaltaPost p.l.c.
The Bank’s subsidiary MaltaPost p.l.c. is subject to the NFRD and is therefore also subject to disclosure
requirements stemming from the Delegated Act supplementing Article 8 of the Taxonomy Regulation.
However, given that that MaltaPost p.l.c. is consolidated at the level of the Bank (its parent entity), the
company may claim an exemption from such disclosure requirements given that its parent entity complied
with the requirements of the Disclosure Delegated Act.
Despite this, the Group has opted to disclose, on a voluntary basis, the disclosure requirements with respect
to non-financial undertakings in accordance with the Disclosure Delegated Act for MaltaPost p.l.c. on a stand-
alone basis. However, given that such disclosures are presented on a voluntary basis, the Bank has opted to
not disclose taxonomy alignment, which is required for non-financial undertakings as from 1 January 2023, and
will do so as from the following year, as of when it is required for financial undertakings to do so.
The table below shows the taxonomy-eligible share of economic activities for the year ending 30 September
2022 and in accordance with Regulation (EU) 2020/852, Article 8:
Taxonomy Eligible
Activities
Taxonomy non-Eligible
Activities
Total
Share % €000 Share % €000 Share % €000
Turnover 83 26,162 17 5,351 100 31,513
CapEx 44 990 56 1,256 100 2,246
OpEx 78 895 22 251 100 1,146
The company also provides comparatives for the financial year ended 30 September 2021.
Taxonomy Eligible
Activities
Taxonomy non-Eligible
Activities
Total
Share % €000 Share % €000 Share % €000
Turnover 88 30,095 20 7,433 100 37,528
CapEx 54 1,828 46 1,539 100 3,367
OpEx 40 726 60 1,104 100 1,830
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
24
Directors’ Report (continued)
i) Turnover consists of the revenue generated by MaltaPost p.l.c. during the financial year ended 30
September 2022 from all of its business activities. When determining taxonomy eligibility, the
company has identified the following economic activities that fall within the scope of the Taxonomy
Regulation in the transport sector:
- 6.4 Operation of personal mobility devices, cycle logistics -
- 6.5 Transport by motorbikes, passenger cars and light commercial vehicles -
- 6.6 Freight transport services by road
Whilst the company currently assesses its operating activities in accordance with activities classified
under section 6 ‘Transport’ of the Climate Delegated Act , it should be noted that in September 2022,
PostEurop, the trade association that represents European public postal operators, submitted a
position paper on the EU Taxonomy recommending that the postal sector be captured under a
specific sector, as opposed to ‘Transport’. Therefore, in the future, should the Climate Delegated Act
be amended in light of such a proposal, the company may assess the eligibility of its revenue
generating activities under different activities.
ii) CapEx consists of additions to property, plant and equipment and intangible assets during the
financial year ending 30 September 2022 considered before depreciation, amortisation, and any re-
measurements (including those resulting from revaluations and impairments, if applicable). When
determining taxonomy eligibility, the company has identified the following economic activities that
fall within the scope of the Taxonomy Regulation:
- 6.15 Infrastructure enabling low-carbon road transport and public transport;
- 7.2 Renovation of existing buildings;
- 7.3 Installation, maintenance and repair of energy efficiency equipment;
- 7.4 Installation, maintenance and repair of charging stations for electric vehicles in buildings
(and parking spaces attached to buildings);
- 7.6 Installation, maintenance and repair of renewable energy technologies; and
- 7.7 Acquisition and ownership of buildings.
iii) OpEx consists of direct non-capitalised costs incurred during the financial year ending 30 September
2022 that relate to day-to-day servicing of assets of property, plant and equipment (including also
intangible assets) that are necessary to ensure the continued and effective functioning of such assets.
As the company does not perform any activities related to natural gas and nuclear energy (activities 4.26 –
4.31), the company is not using the dedicated template introduced by the Complementary Delegated Act as
regards activities in certain energy sectors.
Sustainability Reporting
Apart from submitting data in accordance with the disclosure requirement as stipulated in the Disclosures
Delegated Act, the Group also recognises the need to integrate environmental protection, corporate social
responsibilities and business ethics within its vision, operations and manner in which it conducts its business.
In fact, for the first time, Environment, Social and Governance (ESG) was incorporated within MaltaPost p.l.c.’s
Business Plan for the next three years.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) and Joseph
Said (Director and Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report
submitted in conjunction with the Annual Report and Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
25
Statement of Compliance with the Principles of Good Corporate Governance
A. Introduction
In terms of the Capital Markets Rules of the Malta Financial Services Authority (Rule 5.94), Lombard Bank Malta
p.l.c. (the Bank), as a company having its securities admitted to trading on a regulated market, is obliged to report
on the extent to which it has adopted the ‘Code of Principles of Good Corporate Governance’ (the Principles)
embodied in Appendix 5.1 to Chapter 5 of the same Capital Markets Rules, as well as the measures which have
been taken by the Bank to ensure compliance with these Principles.
While the Principles are not mandatory, the Board of Directors of the Bank has endeavoured to ensure that they
are upheld to the fullest extent possible, and this while acknowledging that good corporate governance is indeed
beneficial to all the Bank’s stakeholders. The instances in which the Bank has departed from the Principles are
explained below under Section C - ‘Non- Compliance with the Code’.
After having carried out a review of the extent to which the Bank has been compliant with the Principles throughout
the financial year ended 31 December 2022, the Board of Directors, in terms of Capital Markets Rule 5.97, presents
its report as follows:
B. COMPLIANCE WITH THE CODE
PRINCIPLE 1: THE BOARD
As at 31 December 2022, the Board of Directors of the Bank consisted of five (5) Directors, four (4) of whom being
non- executive Directors together with the Chief Executive Officer of the Bank being also a Director.
The Directors, individually and collectively, are considered fit and proper to direct the business of the Bank, having
the necessary skills and experience to be able to do so.
In order to assist it in the execution of its duties and responsibilities, the Board of Directors has set up a number of
committees and these include the Audit & Risk Committee, the Assets & Liabilities Committee, the Credit Committee
and the Suitabilities & Evaluations Committee, all of which are regulated by their own Terms of Reference as approved
and periodically reviewed by the Board.
Principle 2: Chairman and Chief Executive Officer
Different individuals occupy the positions of Chairman and Chief Executive Officer. A clear division of
responsibilities exists between the Chairman’s responsibility for the running of the Board of Directors and the
Chief Executive Officer’s responsibility for the running and managing of the Bank’s business. This separation of
roles of the Chairman and Chief Executive Officer avoids concentration of power, authority and unfettered
discretion in one individual alone and differentiates leadership of the Board from the running of the Bank’s
business.
The Chairman’s responsibilities, inter alia, include: (i) leading the Board and helping it reach its full potential,
particularly by facilitating the effective contribution of Directors and encouraging discussion; (ii) setting of the
Agenda for Board meetings; (iii) ensuring that the Directors receive precise, timely and objective information so
that they can make sound decisions and effectively monitor the performance of the Bank; (iv) ensuring that all
strategic and policy issues are appropriately discussed and formally approved; and (v) maintaining effective
communication with the Bank’s shareholders at all times. As stated below, the Chairman meets the independence
criteria set out in the Principles.
The Board of Directors appoints the Chief Executive Officer. The Chief Executive Officer is responsible for managing
the day-to-day business of the Bank in conformity with the agreed plans, policies and strategies approved by the
Board. With effect from 1 April 2023, the Board of Directors also appointed two Deputy Chief Executive Officers,
Anthony Bezzina and Eugenio Farrugia, to support the Chief Executive Officer in the exercise of his duties while
continuing to carry out their previously held duties leading the Credit and Operations functions.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
26
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 3: Composition of the Board
The following Directors served on the Board during the period under review:
Michael C. Bonello
Graham A. Fairclough
Kimon Palamidis
Peter Perotti
Joseph Said
All Board members are non-executive Directors who are not engaged in the daily management of the Bank,
with the exception of Joseph Said who is also Chief Executive Officer of the Bank. Furthermore, the Board
considers Michael C. Bonello, Kimon Palamidis and Peter Perotti as independent Directors.
Kimon Palamidis is
still considered to be independent despite the fact that he has served on the Board for more than twelve
consecutive years. In determining the independence of its members, the Board takes into consideration the
relevant criteria and Principles as well as what are generally considered sound, acceptable standards. All
non-executive Directors have declared in writing to the Board that they undertake:
to maintain in all circumstances their independence of analysis, decision and action;
not to seek or accept any unreasonable advantages that could be considered as compromising their
independence; and
to clearly express their opposition in the event that they find that a decision of the Board may harm the Bank.
It is considered that, in the current circumstances in which the Bank is operating, the size of the Board is
sufficient for the requirements of the business and that the balance of skills and experience therein is appropriate
to properly enable the Board to carry out its duties and responsibilities. This is considered so also taking into
account, inter alia, the Bank’s simple model and the principle of proportionality, based on the Bank’s size and the
nature, scale and complexity of its activities and products. Should the necessity arise to supplement the skills of
its members, the Board has at its disposal the facility to appoint any external consultants to provide assistance and
advice so as to further enhance the Board’s oversight functions.
The composition and election of the Board of Directors is determined by the Bank’s Articles of Association wherein
it is established that it is the shareholders who must appoint Directors to serve on the Board. Within these
parameters, options for further strengthening the Board are always considered. In addition, however, the Bank,
by virtue of the Board-appointed Suitabilities & Evaluations Committee, carries out suitability assessments of its
existing Directors and any new nominated Directors in order to ensure that the suitability, fit and proper criteria
are observed, pursuant to all applicable laws, rules, regulations, guidelines etc.
The overall composition of the Board and the collective knowledge, skills and experience required are evaluated
during individual suitability assessments and collective suitability assessments so as to ensure that the Board is
effectively discharging all its duties and obligations at all times.
The appointment of Directors to the Board is a matter that is reserved entirely to the Bank’s shareholders in terms
of the Memorandum and Articles of Association. Therefore diversity, to an extent, depends on the profiles of
nominees proposed and their suitability in terms of applicable laws, rules, regulations, guidelines etc. The benefits
of diversity, including that in educational and professional backgrounds, age, gender, experience and
geographical provenance would be considered by the Suitability and Evaluations Committee in its assessment of
suitability of any nominees.
The Board considers that as a policy and as reflected in its Board of Directors’ Charter, it endeavours to have a
varied board, particularly in terms of diverse educational and professional backgrounds and extensive and
specialised experience of its members. The Board is confident that for this reason, and in light of the current
circumstances in which it is operating, also taking into account proportionality and the Bank’s size and the nature,
scale and complexity of its activities and products, it benefits from a satisfactory diversity of skills, knowledge and
experience. This allows for a good understanding of current affairs, the Bank’s activities, business model, strategy
and associated risks and the environment in which the Bank operates and longer-term risks and opportunities
related to the Bank’s business. It also benefits from international expertise.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
27
Statement of Compliance with the Principles of Good Corporate Governance (continued)
The Board is cognisant of the fact that the appropriate mix of Board Members ensures diverse perspectives,
experience and knowledge. It continues to remain committed to achieving further diversity among its members
particularly in terms of number, age, geographical provenance, gender, experience, educational and professional
backgrounds.
Principle 4: The Responsibility of the Board
In pursuing the execution of the four basic roles of corporate governance, namely, accountability, monitoring,
strategy formulation and policy development, the Board of Directors, having the first level of responsibility for
such execution:
regularly reviews and evaluates corporate strategy, major operational and financial plans, risk policy,
performance objectives and monitors implementation and corporate performance within the parameters of
all relevant laws, regulations and codes of best business practice;
applies high ethical standards and takes into account the interests of stakeholders and acts responsibly and
with integrity and on a fully informed basis, in good faith, with due diligence and in the best interests of the
Bank and its shareholders;
recognises that the Bank’s success depends upon its relationship with all groups of its stakeholders, including
employees, suppliers, customers and the wider community in which the Bank operates;
monitors effectively the application and implementation by Management of its policies and strategy;
recognises and supports enterprise and innovation within Management and examines how best to motivate
the Bank’s Management;
seeks to establish an effective decision-making process in order to develop the Bank’s business efficiently;
and
ensures that a balance is struck between enterprise and control in the Bank.
Furthermore, the Board of Directors:
defines in clear and concise terms the Bank’s strategy, policies, management performance criteria and
business policies and effectively monitors the implementation of such by Management;
establishes a clear internal and external reporting system so that the Board has continuous access to
accurate, relevant and timely information;
has appointed Committees, including the Audit & Risk Committee, Credit Committee, Assets & Liabilities
Committee and Suitabilities & Evaluations Committee;
continuously assesses and monitors the present and future operations’ opportunities, threats and risks;
evaluates the Management’s implementation of corporate strategy and financial objectives;
ensures that the Bank has appropriate policies and procedures in place to assure that the Bank and its
employees maintain the highest standards of corporate conduct, including compliance with applicable laws,
regulations, business and ethical standards;
ensures that the financial statements of the Bank and the annual audit thereof are completed within the
stipulated time periods; and
requires Management to constantly monitor performance and report fully and accurately to the Board.
Furthermore, Directors keep themselves updated on an ongoing basis of their statutory and fiduciary duties, the
Bank’s operations and prospects, the general business environment and skills and competences of Senior
Management. The expectations of the Board are also discussed regularly.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
28
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 5: Board Meetings
The Board convened seventeen (17) times during the period under review with attendance of the Directors as
follows:
Michael
C.
Bonello
17
Graham A. Fairclough
17
Kimon Palamidis
17
Peter Perotti
14*
Joseph Said
17
* Peter Perotti was co-
opted and appointed as a Director of the Bank with effect from 14 April 2022
and was re-appointed during the Annual General Meeting held on 26 May 2022.
The dates when the Board meetings are scheduled to be held are determined prior to the beginning of the year in
question. When required, further meetings are scheduled.
Ahead of Board meetings an agenda and supporting documentation are made available to all Directors. Other than in
the case of meetings specially convened to discuss particular matters, generally the agendas of regular Board
meetings set out items of a long-term strategic nature, as well as performance-related issues together with credit
applications which fall within the discretionary limits of the Board and also include various compliance-related
matters. During meetings, Directors are encouraged to present their views pertinent to the subject matter and are
given every opportunity to contribute to the relevant issues on the agenda. Following each meeting, minutes which
record attendance as well as all decisions taken are circulated to all Board members.
Principle 6: Information and Professional Development
Each newly appointed Member of the Board is briefed by the Chief Executive Officer, Senior Management officials,
Heads of Internal Control Functions and any other staff members as necessary, on all aspects of the Bank’s
business and functions, while the Company Secretary provides each newly appointed Director with relevant
corporate governance information and references to relevant Legislation, Rules, Guidelines, the Bank Statute as
well as policy documents.
Board members are reminded that the Company Secretary is at their disposal to provide any advice or service
that may be required in the discharge of their duties and responsibilities.
The Company Secretary is responsible
for advising the Board, through the Chairman, on all governance matters. The Secretary is responsible for ensuring
that Board procedures are complied with as well as that effective information flows within the Board, its
committees and with Senior Management. The Secretary also facilitates induction and assists with professional
development, as required.
Directors are given the opportunity to update and develop their skills and knowledge, particularly through detailed
presentations, briefings and training by senior executives and other relevant Bank officials. They are invited to attend
training sessions organised specifically for the Board and are also informed of and encouraged to attend externally
run seminars throughout their directorship. In addition, all Board members may obtain independent professional
advice at the Bank’s expense.
Furthermore, Directors have access to the advice and services of the external auditors who are invited to attend
all Audit & Risk Committee meetings as well as Board meetings when required, including the meetings at which
the Bank’s financial statements are approved.
The Board continues to be mindful of the crucial importance of recruiting, retaining and motivating quality
management. The ongoing training and development of staff at all levels is considered of the utmost importance
and this also in the light of the need for orderly succession.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
29
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 7: Evaluation of the Board’s Performance
An assessment exercise of the Board’s performance was carried out through a ‘self-evaluation’ questionnaire in which
Board members participated. Furthermore, assessment exercises of performance of the committees were also
carried out by virtue of ‘self- evaluation’ questionnaires completed by the members and some regular attendees
of the Audit & Risk Committee, the Assets & Liabilities Committee and the Credit Committee. These exercises also
included an evaluation of the Chairman of each respective Committee. These ‘self-evaluation’ questionnaires were
then analysed by the Suitabilities & Evaluations Committee established by the Board to report to the Board
accordingly. This exercise did not reveal the need for any material changes in the Bank’s governance structures
and organisation.
Principle 8: Committees
The Board has appointed the following committees:
Audit & Risk Committee
The primary purpose of the Audit & Risk Committee is to protect the interests of the Bank’s shareholders and to
assist the Directors in conducting their role effectively so that the Bank’s decision- making capability and the
accuracy of its reporting and financial results are maintained at a high level at all times. The Committee assists
the Board in fulfilling its supervisory and monitoring responsibility for effective financial reporting, risk
management, control and governance and this by, inter alia, reviewing any financial information, statements and
disclosures to be issued, systems of governance, systems of internal control established by Management and the
Board, the risk management processes, the external and internal audit processes as well as the compliance
processes. The Audit & Risk Committee met eleven (11) times during the period under review.
With respect to Risk Management, the Committee, inter alia, reviews reports from the Risk Management
Function which enable the Committee (and the Board) to consider the process of risk identification and
management, to assess the risks involved in the Bank’s business and to understand how they are controlled and
monitored by Management. The Committee also advises the Board on the Bank’s overall current and future risk
appetite and strategy and assists the Board in overseeing the implementation of that strategy by Management.
During the year under review, the Audit & Risk Committee was composed of the following four (4) non-
executive Board members three (3) of whom being independent: Michael C. Bonello, Graham A. Fairclough,
Kimon Palamidis and Peter Perotti in accordance with the Audit & Risk Committee’s Terms of Reference.
Kimon Palamidis is the Chairman of this Committee and is considered by the Board to be independent as
explained earlier on in this statement. Together with the other members, he is also competent in accounting
and/or auditing in terms of the Capital Markets Rules. The Bank’s Head of Internal Audit and Head of Risk attend
meetings of the Audit & Risk Committee. The Bank’s External Auditors and members of Senior Management and
others, including, inter alia, the Chief Executive Officer, Chief Financial Officer, Chief Officer Credit and the
Compliance Officer, are also invited to attend meetings as is deemed necessary by the Committee. The Company
Secretary acts as Secretary to the Audit & Risk Committee.
Assets & Liabilities Committee (ALCO)
Membership of this Committee is made up of a number of Chief Officers and senior officers, including from the
Finance and Treasury departments and the Corporate Advisory & Research and Asset and Fund Management
functions. The Chief Executive Officer chairs the ALCO whose main objective is to manage risks within approved
limits at the same time as maximising returns by efficient and judicious management of the Bank’s assets and
liabilities. Risk Management officials are also invited to attend meetings. A Secretary is appointed by the
Committee.
Credit Committee
The Credit Committee is responsible for considering and approving credit applications within delegated limits of
authority. It is composed of a number of Chief Officers and senior officers. The Chief Executive Officer chairs this
Committee and a Secretary is appointed by the Committee.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
30
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Suitabilities & Evaluations Committee
This Committee is responsible for carrying out suitability assessments of nominated and existing Directors, Key
Function holders or any other persons as may be required and also assesses the Board’s annual performance and
that of its committees following the completion of the self-evaluations by the Board and committee members.
The chairman of the Committee is selected by the Board of Directors (currently the non-executive Director and
Committee member, Graham A. Fairclough) and the Company Secretary acts as Secretary.
Remuneration Committee
The functions of the Remuneration Committee are carried out by the Board of Directors in view of the fact that the
remuneration of Directors for the holding of their office on the Board is not performance-related.
A separate ‘Remuneration Report’ features on page 34 of this Annual Report in compliance with the Principles.
Principle 9 and 10: Relations with Shareholders and Markets and Institutional Shareholders
The Bank fully appreciates the importance of maintaining open lines of communication with shareholders, the
markets and institutional shareholders. The Board, in this regard, considers that throughout the period under
review the Bank has continued to communicate appropriately by means of regular company announcements.
The Bank communicates with its shareholders with respect to its General Meetings. The 2022 Annual General Meeting
was held remotely due to the COVID-19 Pandemic in terms of the Companies Act (Public Companies – Annual General
Meetings) Regulations, 2020 (L.N. 288 of 2020). The Extraordinary General Meeting held in November 2022 was
held in person as will be the forthcoming 2023 Annual General Meeting. The documentation relative to General
Meetings is sent to all shareholders at least twenty-one (21) days prior to the holding of the Meeting.
The Bank’s website (www.lombardmalta.com), contains information about the Bank and its business and is
updated regularly.
It is therefore the Bank’s policy:
to publish information that can have a significant effect on the Bank’s share price through the Malta Stock
Exchange and immediately after on the Bank’s website;
to make other published information available to the public on the Bank’s website;
to strive for open, transparent communications;
to ensure continuity and high quality in the information disclosed; and
to be accessible to all stakeholders.
Minority shareholders are entitled to call special meetings should a minimum threshold of share ownership be
established in accordance with the Bank’s Memorandum and Articles of Association. Furthermore, minority
shareholders may formally present an issue to the Board if they own the predefined minimum threshold of shares.
Principle 11: Conflicts of Interest
The Board of Directors recognises that its members have a primary responsibility to always act in the interest of
the Bank and its shareholders as a whole, irrespective of who appointed them to the Board.
Strict policies are in place, particularly in the Board of Directors’ Charter, to enable the management of conflict
of interest, both actual as well as potential, should the occasion arise.
In addition, the Bank’s ‘Policy on the Prevention of Market Abuse’ was adopted and implemented in conformity
with Market Abuse laws and regulations. Directors and staff members are also regularly reminded of their
obligations when dealing in securities of the Bank and other scheduled financial instruments.
Joseph Said, who is a Director of the Bank, holds a directorship in two companies that have a shareholding in the
Group, as disclosed in the Directors’ Report.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
31
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 12: Corporate Social Responsibility
The Bank is well aware of the need to adhere to accepted principles of corporate social responsibility and in this
regard remains fully committed to conducting its activities ethically at all times. It consistently seeks to
contribute to economic and social development while also improving the quality of life of its staff members and
their families. These principles also include matters concerning data privacy and protection, diversity and
inclusion, talent management, customer relations, innovation, community and staff engagement as well as
responsible lending.
The Bank implements these principles of corporate social responsibility through strong governance and risk
management practices.
It extends support to various initiatives and projects together with direct community involvement. The Bank is
also sensitive to the fact that success in these areas requires investment in the community, customers and staff
members while not overlooking the impact that its activities may have on the environment.
C. Non-Compliance with the Code
The above Code Provision states, ‘The Board should develop a succession policy for the future
composition of the Board of Directors and particularly of the executive component thereof, for which the
Chairman should hold key responsibility’.
The appointment of Directors to serve on the Board is a matter which is entirely reserved to the shareholders
of the Bank in terms of its Memorandum and Articles of Association (except where the need arises to fill a casual
vacancy). While the Board may consider formulating basic principles to be adopted to ensure the orderly
succession of its current directors should the conditions permit, in the meantime it remains guided by other
relevant policies, applicable laws, rules, regulations, guidelines etc. as well as its Memorandum and Articles of
Association. The concept of rotation of directors as set out by the Bank’s Memorandum and Articles of
Association also provides an element of continuity on the Board of Directors. Furthermore, within the above
parameters, options and opportunities for further strengthening the Board continue to be considered.
Principle 8A: (Remuneration Committee)
The Board did not establish a Remuneration Committee as specified in Code Provision 8.A.1. In terms of Code
Provision 8.A.2 of the Principles, given that the remuneration of Directors for the holding of their office on the
Board is not performance- related, the functions of the Remuneration Committee are carried out by the Board of
Directors.
Principle 8B: (Nomination Committee)
A Nomination Committee has not been set up since the appointment of Directors to the Board is a matter that is
reserved entirely to the Bank’s shareholders in terms of the Memorandum and Articles of Association.
In this connection every member of the Bank holding in the aggregate at least fifteen percent (15%) of the ordinary
issued share capital of the Bank shall be entitled to appoint one (1) Director for each and every fifteen percent
(15%) of the ordinary issued share capital owned by that member.
Any fractional shareholding in excess of fifteen percent (15%) not applied in appointing such a Director or Directors,
and only that fraction, shall be entitled to vote in the election of the remaining Directors together with the
remaining body of shareholders. These are entitled to appoint the remaining Board members in accordance with
the provisions of the Bank’s statute.
This notwithstanding, in light of regulatory requirements, the Suitabilities & Evaluations Committee referred to
above was set up specifically to carry out suitability assessments of nominated and existing Directors, key function
holders or any other persons as may be required and also to assess the Board’s annual performance and that of its
committees. This Committee remains guided by applicable laws, rules, regulations and guidelines.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
32
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 9: (Code Provision 9.3)
There are no procedures disclosed in the Bank’s Memorandum or Articles as recommended in Code Provision 9.3 to
resolve conflicts between minority shareholders and controlling shareholders.
D. Internal Control (Capital Markets Rule 5.97.4)
The Board is ultimately responsible for the Bank’s internal controls as well as their effectiveness, while authority to
operate the Bank is delegated to the Chief Executive Officer. The Bank’s system of internal controls is designed to
manage all the risks in the most appropriate manner. Such controls, however, cannot completely eliminate the
possibility of material error or fraud. The Board, therefore, assumes responsibility for executing the four basic roles
of corporate governance, i.e. accountability, monitoring, strategy formulation and policy development.
In summary, the Board is therefore responsible for:
reviewing the Bank’s strategy on an ongoing basis as well as setting the appropriate business objectives in
order to enhance value for all stakeholders;
appointing and monitoring the Chief Executive Officer whose function it is to manage the operations of the
Bank; and
identifying and ensuring that significant risks are managed satisfactorily.
Given the fiduciary responsibility involved, the Board of Directors also sets high business and ethical standards for
adoption right across the organisation.
The Board upholds a policy of clear demarcation between its role and responsibilities and those of Management.
It has defined the level of authority that it retains over strategy formulation and policy determination together
with delegated authority and has vested accountability for the Bank’s day-to-day business in the Assets &
Liabilities Committee, Credit Committee and in the management team comprising of the:
Chief Executive Officer; and
Deputy Chief Executive Officers (effective from 1 April 2023);
Chief Officers and other officers.
The Board frequently participates in asset allocation decisions as well as credit proposals above a certain
threshold, after the appropriate recommendations have been made.
The Bank’s internal control framework covering all the Bank’s activities ensures:
effective and efficient operations and prudent conduct of business;
proper risk management;
reliable financial and non-financial information; and
compliance with all internal policies, processes and procedures, laws, rules and regulations.
To this effect, a three-lines-of-defence model has been adopted by the Bank as follows:
First line of defence – Business Units
/
Operations: This is provided by front line staff members and business
unit management. The internal controls and systems, the culture and control environment developed and
implemented by these business units play a vital role in anticipating and managing operational risks.
Second line of defence - Risk Management & Compliance: The Bank maintains permanent and effective
compliance and risk management functions which report directly to the Audit & Risk Committee and Board of
Directors. The Compliance Function identifies, assesses and manages compliance risk. The Risk Management
Function is responsible for overseeing the Bank’s activities and for identifying, monitoring, controlling and
reporting such risk. Through the Bank’s Risk Management Framework, an appropriate balance is struck
between sound practices and profitability, by applying strict internal controls and discretionary limits, and
optimising the returns thereof, in line with the Bank’s risk appetite.
Third line of defence – Internal Audit: This is an integral part of the Bank’s control environment and provides
Management and the Audit & Risk Committee and Board of Directors with an independent and objective
review of the Bank’s business activities and support functions.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
33
Statement of Compliance with the Principles of Good Corporate Governance (continued)
E. General meetings (Capital Markets Rule 5.97.6)
General meetings are called by giving at least twenty-one (21) days’ notice and conducted in accordance with the
provisions contained in the Bank’s Articles of Association.
The ‘Ordinary Business’ which is dealt with at the Annual General Meeting consists of the adoption of the annual
financial statements, declaration of a dividend, appointment of Board members, appointment of auditors and the
fixing of their remuneration together with the voting of remuneration to the Directors for the holding of their
office. All other business shall be deemed ‘Special Business’.
All shareholders registered in the shareholders’ register on record date as defined in the Capital Markets Rules
have the right to attend, participate and vote in the general meeting.
A shareholder or shareholders holding not less than five per cent (5%) of the voting issued share capital of the
Bank may: (i) request the Bank to include items on the agenda and; (ii) table draft resolutions for items included
in the agenda of a general meeting. Such requests shall be submitted to the Bank at least forty-six (46) days
before the date set for the general meeting.
Every shareholder shall be entitled to appoint only one (1) person to act as proxy holder to attend and vote at
a general meeting instead of him. The proxy holder shall enjoy the same rights to speak and ask questions in
the general meeting as those to which the member thus represented would be entitled.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) and Joseph
Said (Director and Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report
submitted in conjunction with the Annual Report and Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
34
Remuneration Report
As indicated in the ‘Statement of Compliance with the Code of Principles of Good Corporate Governance’, in terms
of the ‘Code of Principles of Good Corporate Governance’ within the Capital Markets Rules issued by the Malta
Financial Services Authority, the Board of Directors performs the functions of a Remuneration Committee on the
basis that the remuneration of the Bank’s Directors for the holding of their office on the Board, is not performance-
related and does not include share options, pension benefits, profit-sharing arrangements or any emolument related
to the performance of the Bank. Among the obligations established in the Capital Markets Rules, the Board, where
applicable, carries out the main duties established in the Supporting Principles enshrined in Principle 8A of the ‘Code
of Principles of Good Corporate Governance’. This Remuneration Report was approved by the Board of Directors at
the Board Meeting held on 27 April 2023.
Directors
The Bank’s Remuneration Policy for Directors drawn up in terms of the Capital Markets Rule 12.26A et seq. was
approved by the Annual General Meeting on 2 December 2020 and became effective from such date. (Refer
to https://www.lombardmalta.com/annual-general-meeting-2020). The result of the vote at the 2020 Annual
General Meeting when the Policy was last approved was 33,545,565 votes in favour, 34,325 votes against and
329,087 abstentions.
This document formalised the Bank’s policy in this regard and any remuneration paid following approval of the policy
was to be in accordance with the same. The remuneration of the Chief Executive Officer (‘CEO’), is also considered
in the above-mentioned Remuneration Policy for Directors.
This Policy is reviewed by the Board on an annual basis and shall be put to a vote by the General Meeting at every
material change and, in any case, at least every four years. Changes are being proposed for approval at the 2023
Annual General Meeting so as to include reference to Deputy Chief Executive Officers in view of recent
appointments.
There were no deviations from the procedure for the implementation of the Remuneration Policy for Directors.
In terms of the Bank’s Memorandum and Articles of Association, the Bank’s shareholders determine the maximum
annual aggregate remuneration of the Directors. The maximum amount is established by resolution at each Annual
General Meeting of the Bank. The aggregate amount fixed for this purpose during the 2022 Annual General Meeting
was one hundred and twenty thousand euro (€120,000).
As per policy, members of the Board, in their role as directors, only receive a fixed fee, the amount of which is
determined on the basis of market practice as well as the Bank’s size and internal organisation and the nature, scale
and complexity of its activities and business model.
The fees paid to Directors for the holding of their office during 2022 amounted to €85,673 (2021: €69,444). This
amount is within the limit of €120,000 approved by the Annual General Meeting of 26 May 2022.
It is confirmed that none of the directors in their role as directors of the Bank are entitled to profit-sharing, share
options, pension benefits, variable remuneration, any other remuneration or related payments. One director
(Graham A. Fairclough) provides specific services to the Group, though he is still considered a non-executive director.
Only one of the directors has a service contract with the Bank, which director is the only Executive Director and is
the CEO Joseph Said.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
35
Remuneration Report (continued)
In terms of Code Provision 8.A.5 of the Malta Financial Services Authority Capital Markets Rules, the total
emoluments received by Directors relative to their directorship for the financial year 2022, as compared to 2021
and 2020, are specified below:
* Peter Perotti was co-opted and appointed as a Director of the Bank with effect from 14 April 2022 and was re-appointed during the Annual
General Meeting held on 26 May 2022.
In determining the remuneration of the CEO, the Board of Directors considers factors which include among others,
professional qualifications, experience, initiative, acumen, number of years of service, the design and
implementation of the overall business strategy, objectives and risk appetite at Bank as well as Group level. The
remuneration of the CEO is fixed with no variable remuneration.
The CEO is also entitled to the use of a company car, health insurance and telecommunication allowance.
In a previous financial year, the Bank had decided to grant the CEO an ex-gratia gratuity upon his eventual
retirement, which amount was fully provided for and reflected in the financial statements of previous years.
In terms of Code Provision 8.A.5 of the Capital Markets Rules, during financial year 2022, the total emoluments
received by the executive Director from the Group amounted to €362,718, split as follows:
€ € €
2022 2021 2020
Gross annual, fixed salary & fixed role-based allowances 330,718 333,377 333,511
Director Fees - Lombard Bank Malta p.l.c. 15,000 10,991 6,985
Chairman / Director Fees MaltaPost p.l.c. 17,000 17,000 17,000
The total remuneration for 2022 of the non-executive Director who provided specific services to the Group,
amounted to €93,808, split as follows:
€ € €
2022 2021 2020
Payments for specific services 57,708 54,138 55,395
Director Fees – Lombard Bank Malta p.l.c. 15,000 10,991 6,985
Director Fees - MaltaPost p.l.c. 7,100 7,100 7,100
Company Secretary Fees - MaltaPost p.l.c. 4,000 4,000 4,000
Director Fees – Lombard Select SICAV p.l.c. 10,000 5,000 N/A
There is no formal provision for the reclamation of variable remuneration. In any case, the directors and the CEO
do not receive variable remuneration.
€
2022
€
2021
€
2020
Michael C. Bonello (Chairman) 30,000 25,480 20,960
Graham A. Fairclough 15,000 10,991 6,985
Joseph Said 15,000 10,991 6,985
Michael Zammit N/A 10,991 6,985
Peter Perotti* 10,673
N/A
N/A
Kimon Palamidis 15,000 10,991 6,985
Total 85,673 69,444 48,900
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
36
Remuneration Report (continued)
The above remuneration levels for 2022 comply with the provisions of the approved Remuneration Policy for
Directors and take into consideration the interests of all the Bank's stakeholders together with the external context.
Senior Management
Senior Management refers to the Chief Officers of the Bank, excluding the Chief Executive Officer.
The Board of Directors is satisfied that the packages offered to Senior Management continue to ensure that the
Bank attracts and retains management staff with the necessary qualities and skills. The Bank’s policy remains that
of engaging its senior management staff on the basis of indefinite contracts of employment, and this after a period
of probation. The terms and conditions of employment of senior management are established in the relative
employment contracts. The applicable notice period, after probation, is that provided for in the relevant legislation.
Share options, share incentive schemes and profit sharing do not feature in the Bank’s Remuneration Policy, and
the individual contracts of employment of senior management do not contain provisions for termination payments
and/or other payments linked to early termination other than as determined by the law.
From time to time the Board of Directors of the Bank approves the allocation of a financial contribution towards
retirement gratuities that it may decide to grant and/or contribute towards a staff pension fund that may be formally
established in the future. Gratuities that it may make, on an ex-gratia basis, to its employees are made accordingly.
Amounts contributed for this purpose in respect of 2022 amounted to €150,000 (2021: €100,000). Once contributed,
these amounts are held in a separate bank account which is not controlled by the Bank and is therefore not included
in the Bank’s financial statements. Amounts intended as a contribution to an eventual pension fund will be regulated
by rules yet to be determined in light of relevant legislation. No other pension benefits are currently payable by the
Bank.
Senior management staff are eligible for annual salary increases, which are not directly performance-related. The
remuneration of Senior Management staff members is determined also by the role, responsibilities covered, market
practice, seniority, experience and qualifications. Annual bonuses are paid to senior management staff members
according to individual overall performance during the previous financial year. Bonus payments do not exceed 100%
of the fixed component of the total remuneration for each individual.
Non-cash benefits include private health care insurance as well as death-in-service benefits and personal accident
insurance cover.
Total emoluments received by Senior Management, excluding the CEO, during the period under review are as
detailed below, in terms of Code Provision 8.A.5.
Fixed Remuneration Variable Remuneration Share Options Others
2022 2021 2020
2022
2021 2020
2022
2021 2020
2022
2021 2020
€ € €
€
€ €
€
€ €
€
€ €
769,000 568,000 550,723
88,000
98,000 114,000
-
- -
-
- -
For other employees, fixed pay is determined by a Collective Agreement and annual bonuses are differentiated by
individual performance and grade.
The changes effected in the Bank’s Remuneration Policy during the financial year under review were such as to
further align it with regulatory requirements. Furthermore, the Bank does not plan to effect changes in its
Remuneration Policy in the forthcoming financial year, unless required to do so in terms of any regulatory obligations
or otherwise.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
37
Remuneration Report (continued)
In terms of Chapter 12 of the Capital Markets Rules, this Remuneration Report is being put to an advisory vote at
the 2023 Annual General Meeting in accordance with the requirements of the Capital Markets Rule 12.26 L.
The Directors’ Remuneration Report for 2021 was approved at the Annual General Meeting held on 26 May 2022,
with 34,620,695 votes in favour, 51,854 votes against and 232,483 abstentions. There were no issues raised on the
Report during the said Annual General Meeting.
Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules
In terms of the requirements within Appendix 12.1 of the Capital Markets Rules, the following tables present the
annual change regarding each individual director’s remuneration, the performance of the Bank, and of average
remuneration on a full-time equivalent basis of employees of the Bank, other than Directors over the three most
recent financial years.
2022
€
2021
€
2020
€
% change
(2022-2021)
% change
(2021-2020)
Michael C. Bonello (Chairman) 30,000 25,480 20,960
18% 22%
Graham A. Fairclough 15,000 10,991 6,985
36% 57%
Joseph Said 15,000 10,991 6,985
36% 57%
Kimon Palamidis 15,000 10,991 6,985
36% 57%
Peter Perotti 10,637 N/A N/A
N/A N/A
Michael Zammit N/A 10,991 6,985
N/A 57%
Total 85,637 69,444 48,900
% annual change of the
Bank’s performance based
on profit before tax
(2022-2021)
% annual change of the
Bank’s performance based
on profit before tax
(2021-2020)
% annual change of the
average remuneration on
a full-
time equivalent
basis of employees of the
Bank other than Directors
(2022-2021)
% annual change of the
average remuneration on
a full-
time equivalent
basis of employees of the
Bank other than Directors
(2021-2020)
136% 32%
4% 2%
€'000
2022
2021
% change
Group Bank
Group Bank
Group Bank
Employee remuneration
(excluding CEO) 23,681 8,352
24,027
7,862
(1%) 6%
CEO remuneration 331 331
333
333
(1%) (1%)
Entity’s performance – Profit before
tax 27,676 28,767
12,638
12,193
119% 136%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
38
Remuneration Report (continued)
€'000
2021
2020
% change
Group Bank
Group Bank
Group Bank
Employee remuneration
(excluding CEO) 24,027 7,862 22,424 7,312 7% 8%
CEO remuneration 333 333 334 334 0% 0%
Entity’s performance – Profit before
tax 12,638 12,193 10,372 9,251 22% 32%
The Group’s/Bank’s performance is measured using Profit before tax.
The contents of the Remuneration Report have been reviewed by PricewaterhouseCoopers, the external auditors,
to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules have
been included.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
39
Company Information
Number of shareholders analysed by range:
31 December 2022 31 March 2023
Range Shareholders Shares Shareholders Shares
1 – 500 122 21,956 120 21,285
501 – 1000 51
37,470 51 37,470
1001 – 5000 367 1,098,156 370 1,109,802
5001 and over 885 89,570,152 879 89,559,177
Total 1,425 90,727,734 1,420 90,727,734
The Bank has one class of shares and each share is entitled to one vote.
BOARD OF DIRECTORS Michael C. Bonello Chairman
Graham A. Fairclough
Kimon Palamidis
Joseph Said
Peter Perotti
COMPANY SECRETARY Helena Said
SENIOR MANAGEMENT Joseph Said Chief Executive Officer
Anthony Bezzina Deputy Chief Executive Officer
Eugenio Farrugia Deputy Chief Executive Officer
David Attard Chief Officer - Group Corporate Services
Paul Debono Chief Officer - Legal
Aurelio Theuma Chief Financial Officer
Anthony Zahra Chief Information Officer
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
40
Company Information (continued)
REGISTERED OFFICE
Tel: 25581 117
BRANCHES
67 Republic Street, Valletta VLT 1117 Bertu Fenech Square, Balzan BZN 1409
Tel: 25581 100 Tel: 25581 500
82 St. Sebastian Street, Qormi QRM 2335 225A Tower Road, Sliema SLM 1601
Tel: 25581 360 Tel: 25581 260
Ninu Cremona Street, Victoria VCT 2561 126 Tigne’ Street, Sliema SLM 3174
Tel: 25581 600 Tel: 25581 251
43 Pitkali Road, Attard ATD 2219 4 Fleur-de-Lys Junction, Santa Venera SVR 1587
Tel: 25581 560 Tel: 25581 300
24/7 OUTLET
Paceville Avenue, St. Julian’s STJ 3103
CREDIT
9A St. Fredrick Street, Valletta VLT 1470
Tel: 25581 115
HOME LOANS
4 Main Street, Qormi QRM 1100
Tel: 25581 370
INTERNATIONAL BUSINESS BANKING
Graham Street, Sliema SLM 1711
Tel: 25581 226
LEGAL OFFICE
59 Republic Street, Valletta VLT 1117
Tel: 25581 116
TRADE SERVICES
4 Main Street, Qormi QRM 1100
Tel: 25581 366
WEALTH MANAGEMENT
Financial Advice & Stockbroking Services: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 167
Portfolio Management: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 288
Research & Corporate Advisory: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 287
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
41
Financial Statements
Statements of Financial Position
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash 5 139,234 126,279 138,393 125,552
Cheques in course of collection 1,053 530 1,053 530
Financial investments 6 220,815 227,135 218,286 224,234
Loans and advances to banks 7 27,615 78,279 20,936 68,424
Loans and advances to customers 8 711 ,612 642,893 711,613 642,895
Trade and other receivables 16 13,243 10,787 3,445 1,606
Accrued income and other assets 17 5,302 4,536 4,581 3,912
Assets classified as held for sale 8 703 661 703 661
Current tax assets 575 2,691 296 2,682
Inventories 15 1,271 1,324 602 625
Investments in subsidiaries 9 - - 16,058 15,858
Investments in associates 10 2,607 3,006 1,645 1,645
Intangible assets 11 2,121 2,145 57 122
Property, plant and equipment 12 66,375 65,346 42,400 41,585
Deferred tax assets 14 10,889 7,034 10,552 6,538
Total assets 1,203,415 1,172,646 1,170,620 1,136,869
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
42
Statements of Financial Position (continued)
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Equity and Liabilities
Equity
Share capital 18 11, 341 11,192 11,341 11,192
Share premium 19 18, 530 18,530 18,530 18,530
Revaluation and other reserves 19 4,639 23,668 1,918 20,828
Retained earnings 101,700 83,910 100,204 81,452
Equity attributable to equity holders of the
Bank
Non-controlling interests 8,090 8,470 - -
Total equity 144,300 145,770 131,993 132,002
Liabilities
Amounts owed to banks 20 535 1,224 535 1,224
Amounts owed to customers 21 1,008,431 977,143 1,010,100 978,365
Current tax liabilities -
-
Accruals and deferred income 24 11,015 10,839 7,589 7,271
Other liabilities 23 33,347 30,649 17,220 14,772
Provisions for liabilities and other charges 22 1,688 2,113 383 435
Deferred tax liabilities 14 4,099 4, 099 2,800 2,800
Total liabilities 1,059,115 1,026,876 1,038,627 1,004,867
Total equity and liabilities 1,203,415 1,172,646 1,170,620 1,136,869
Memorandum items
Contingent liabilities 25 13,611 13,195 13,610 13,360
Commitments 25 202,396 195,848 203,285 196,413
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
43
Income Statements
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Interest receivable and similar income
- on loans and advances, balances with Central
Bank of Malta and treasury bills 26 26,497
26,455
23,414
- on debt and other fixed income instruments 26
2,450
2,174
Interest expense 26 (6,744 )
(6,169 )
(6,702)
(6,120)
Net interest income 22,276 19,556 22,203 19,468
Fee and commission income 27 5,669 5,424 4,569 4,341
Fee and commission expense 27
(253 )
(213 ) (253) (213)
Net fee and commission income 5,416 5,211 4,316 4,128
Postal sales and other revenues 28
518
Dividend income 29 141 80 1,798
1,738
Net trading income 30
590
Other operating income 309 231 117
286
Operating income
29,673 26,728
Employee compensation and benefits 31 (24,012 )
(24,360 )
(8,683)
(8,195)
Other operating costs 33
(20,867 )
(24,544 )
(7,239)
(7,129)
Depreciation and amortisation 11,12 (2,915 )
(2,719 )
(1,121)
(927)
Provisions for liabilities and other charges 22
(2 )
Net movement in expected credit losses 32 16,243 1,464 16,111
1,466
Operating profit 28,075 13,040 28,767 12,193
Share of loss of investment accounted for using the
equity method, net of tax 10
(399 ) (402 )
- -
Profit before taxation 27,676 12,638
28,767 12,193
Income tax expense 34
(10,050 )
(4,759 )
(10,279)
(4,389)
Profit for the year 17,626 7,879 18,488 7,804
Attributable to:
Equity holders of the Bank 17,530 7,481 18,488 7,804
Non-controlling interests
Profit for the year 17,626 7,879 18,488 7,804
Earnings per share 35 €0.19 €0.08
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
44
Statements of Comprehensive Income
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Profit for the year
Other comprehensive income
Items that may be
subsequently reclassified to profit
or loss
Debt investments measured at FVOCI
Net losses from changes in fair value, before tax
6 (25,825 )
(2,711 )
(25,483)
(2,653)
Net gains on financial investments reclassified to
profit or loss on disposal, before tax
Net movements in credit losses released to profit
and loss, before tax
Income taxes relating to these items
34 8, 897 1,108 8,897 1,108
Items that will not be subsequently reclassified to
profit or loss
Net
(losses)/gains from changes in fair value of
investments in equity instruments designated at
FVOCI, before tax 6
(1,717 )
149
Surplus arising on revaluation of land and buildings,
before tax
12
Remeasurements of defined benefit obligations,
before tax
Income taxes relating to these items
34
617 (1,221)
Other
comprehensive income for the year, net of
income tax
(17,794 )
3,718
Total comprehensive income for the year, net of
income tax
(168 ) 12,908 864 11,522
Attributable to:
Equity holders of the Bank
(217 ) 12,137
Non-controlling interests
Total comprehensive income for the year, net of
income tax
(168 ) 12,908
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
45
Statements of Changes in Equity
Group
Attributable to equity holders of the Bank
Revaluation Non-
Share Share and other Retained
controlling Total
capital premium reserves earnings
Total interests Equity
Notes € 000 € 000 € 000 € 000
€ 000 € 000 € 000
At 1 January 2021 11,044 18, 530 18,978 77,469
Comprehensive income
Profit for the year 7,481
Other comprehensive income
Surplus on revaluation of land and buildings, net of tax 12 6,658 6,658 390 7,048
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year 1,669 )
Reclassification adjustments:
-
net amounts reclassified to profit or loss on disposal
(110 )
-
net movement attributable to changes in credit risk
(223 )
Total other comprehensive income for the year 4, 656 - 4,656 373 5,029
Total comprehensive income for the year 4, 656 7,481
Transfers and other movements 34 (34 ) - - -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 858 ) (858 ) (429 ) (1,287 )
Bonus issue 18 148 148 )
Non-controlling interests arising on acquisition of subsidiary 9 - - - -
Total transactions with owners 148 1,006 )
(858 ) (42 ) (900 )
At 31 December 2021 11,192 18, 530 23,668 83,910
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
46
Statements of Changes in Equity (continued)
Group
Attributable to equity holders of the Bank
Revaluation Non-
Share Share and other Retained
controlling Total
capital premium reserves earnings
Total interests Equity
Notes € 000 € 000 € 000 € 000
€ 000 € 000 € 000
At 1 January 2022 11,192 18,530 23,668 83,910
Comprehensive income
Profit for the year 17,530
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year 17,909 )
Reclassification adjustments:
-
net movement attributable to changes in credit risk
Remeasurements of defined benefit obligations 122 - 122 49 171
Total other comprehensive income for the year 17,747 )
Total comprehensive income for the year 17,747 )
(217 ) 49 (168 )
Transfers and other movements 19 1,282 )
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 873 ) (873 ) (429 ) (1,302 )
Bonus issue 18 149 149 )
Total transactions with owners 149 1,022 )
(873 ) (429 ) (1,302 )
At 31 December 2022 11,341 18,530 4,639 101,700
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
47
Statements of Changes in Equity (continued)
Bank
Revaluation
Share Share and other Retained Total
capital premium reserves earnings Equity
Note € 000 € 000 € 000 € 000 € 000
At 1 January 2021 11,044 18,530 17,076 74,692 121,342
Comprehensive income
Profit for the year - - - 7,804 7,804
Other comprehensive income
Surplus on revaluation of land and buildings, net of tax 12 - - 5,678 - 5,678
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (1,628) - (1,628)
Reclassification adjustments:
-
net amounts reclassified to profit or loss on disposal - - (109) - (109)
-
net movement attributable to changes in credit risk - - (223) - (223)
Total other comprehensive income for the year - - 3,718 - 3,718
Total comprehensive income for the year - - 3,718 7,804 11,522
Transfers and other movements - - 34 (34) -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (862) (862)
Bonus issue 18 148 - - (148) -
Total transactions with owners 148 - - (1,010) (862)
At 31 December 2021 11,192 18,530 20,828 81,452 132,002
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
48
Statements of Changes in Equity (continued)
Bank
Revaluation
Share Share and other Retained Total
capital premium reserves earnings Equity
Note € 000 € 000 € 000 € 000 € 000
At 1 January 2022 11,192 18,530 20,828 81,452 132,002
Comprehensive income
Profit for the year - - - 18,488 18,488
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (17,664) - (17,664)
Reclassification adjustments:
-
net movement attributable to changes in credit risk - - 40 - 40
Total other comprehensive income for the year - - (17,624) - (17,624)
Total comprehensive income for the year - - (17,624) 18,488 864
Transfers and other movements 19 - - (1,286) 1,286 -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (873) (873)
Bonus issue 18 149 - - (149) -
Total transactions with owners 149 - - (1,022) (873)
At 31 December 2022 11,341 18,530 1,918 100,204 131,993
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
49
Statements of Cash Flows
Group
Bank
2022
2021
2022
2021
N
otes
€ 000
€ 000
€ 000
€ 000
Cash flows from operating activities
Interest
, fees
and commission receipts
30,918
28,599
Receipts from customers relating to
postal sales and other revenue
605
518
Interest
, fees
and commission payments
(6,651 )
(5,712 )
(6,651)
(5,714)
Payments to employees and suppliers
(48,175 )
(45,664 )
(15,302)
(15,582)
Cash flows attributable to funds collected on
behalf of third parties
-
-
Cash flows from operating profit before changes
in operating assets and liabilities
9,570
7,821
Movements
in operating assets:
Treasury bills
(34,069 )
(34,069)
18,027
Balances
with Central Bank of Malta
7,245
341
Loans and advances to banks and customers
(49,399 )
(26,052 )
(52,799)
(21,552)
Other receivables
(2,227 )
(2,236)
(279)
Movements
in operating liabilities:
Amounts owed to banks and to customers
31,735
29,887
Other payables
2,229
(4,859)
Net cash (used in) / generated from operating
activities, before tax
(33,105 )
(38,325)
29,386
Income tax paid
(3,176 )
(5,870 )
(2,392)
(5,516)
Net cash flows (used in) / generated from
operating activities
(36,281 )
(40,717)
23,870
Cash flows from investing activities
Dividends received
1,798
1,738
Interest received from
debt securities
3,359
2,863
Purchase of
financial
investments
6
(27,519 )
(75,270 )
(27,519)
(75,270)
Proceeds from maturity/disposal of investments
5,194
6,151
Purchase of property, plant and equipment and
intangible assets
11,12
(3,709 )
(7,601 )
(1,660)
(3,728)
Investments in associate
s
10
(1,500 )
-
-
Investment
s
in subsidiaries
9
-
-
(200)
(126)
Investment
s
in subsidiaries, net of cash acquired
9
-
-
Net cash flows used in investing activities
(22,381 )
(73,685 )
(19,028)
(68,372)
Cash flows from financing activities
Dividends paid to equity holders of the Bank
36
(873)
(862)
Dividends paid to non
-
controlling interests
-
-
Principal element of lease payments
13
(873 ) (862 )
(429 ) (429 )
(478 ) (523 )
(162)
(203)
Net cash flows used in financing activities
(1,780 ) (1,814 )
(1,035)
(1,065)
Net decrease
in cash and cash equivalents
(60,442 )
(43,867 )
(60,780)
(45,567)
Cash and cash equivalents at beginning of year
161,678
207,245
Cash and cash equivalents at end of year
37
100,898
161,678
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
50
Notes to the Financial Statements
1. Summary of significant accounting policies .............................................................................................. 51
2. Financial risk management........................................................................................................................ 67
3. Accounting estimates and judgements ................................................................................................... 127
4. Segmental information ............................................................................................................................ 130
5. Balances with Central Bank of Malta, treasury bills and cash ................................................................. 131
6. Financial investments .............................................................................................................................. 131
7. Loans and advances to banks .................................................................................................................. 133
8. Loans and advances to customers ........................................................................................................... 133
9. Investment in subsidiaries ....................................................................................................................... 133
10. Investment in associates ......................................................................................................................... 135
11. Intangible assets ...................................................................................................................................... 137
12. Property, plant and equipment ............................................................................................................... 139
13. Leases ...................................................................................................................................................... 143
14. Deferred tax assets and liabilities ............................................................................................................ 146
15. Inventories ............................................................................................................................................... 148
16. Trade and other receivables .................................................................................................................... 148
17. Accrued income and other assets ............................................................................................................ 148
18. Share capital ............................................................................................................................................ 149
19. Reserves ................................................................................................................................................... 149
20. Amounts owed to banks .......................................................................................................................... 150
21. Amounts owed to customers ................................................................................................................... 151
22. Provisions for liabilities and other charges .............................................................................................. 151
23. Other liabilities ........................................................................................................................................ 153
24. Accruals and deferred income ................................................................................................................. 153
25. Commitments and contingent liabilities .................................................................................................. 153
26. Net interest income ................................................................................................................................. 154
27. Net fee and commission income .............................................................................................................. 155
28. Postal sales and other revenues .............................................................................................................. 155
29. Dividend income ...................................................................................................................................... 155
30. Net trading income .................................................................................................................................. 156
31. Employee compensation and benefits ..................................................................................................... 156
32. Net movement in expected credit losses ................................................................................................ 156
33. Profit before taxation .............................................................................................................................. 158
34. Income tax expense ................................................................................................................................. 160
35. Earnings per share ................................................................................................................................... 161
36. Dividends ................................................................................................................................................. 162
37. Cash and cash equivalents....................................................................................................................... 162
38. Related parties ........................................................................................................................................ 163
39. Investor compensation scheme ............................................................................................................... 166
40. Events subsequent to the reporting period ............................................................................................. 166
41. Statutory information .............................................................................................................................. 166
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
51
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
52
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
53
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
54
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
55
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
56
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
57
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
58
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
59
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
60
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
61
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
62
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
63
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
64
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
65
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
66
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
67
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
68
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
69
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
70
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
71
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
72
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
73
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
74
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
75
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
76
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
77
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
78
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
79
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
80
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
81
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
82
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
83
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
84
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
85
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
86
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
87
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
88
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
89
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
90
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
91
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
92
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
93
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
94
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
95
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
96
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
97
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
98
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
99
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
100
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
101
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
102
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
103
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
104
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
105
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
106
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
107
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
108
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
109
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
110
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
111
2. Financial risk management (continued)
Bank
Average
e
ffective
Between
Between
Carrying
interest
Less than
3 months
1 year
More
than
Non
-
interest
a
mount
rate
3 months
and 1 year
and 5 years
5
years
bearing
As at 31 December
202
2
€ 000
%
€ 000
€ 000
€ 000
€
000
€ 000
Financial assets
Balances with Central Bank of
Malta and treasury bills
132,119
2.15
110,881
21,238
-
-
-
Debt and other fixed income instruments measured at FVOCI
210,862
1.11
1,682
4,747
120,384
84,049
-
Loans and advances to banks
20,936
-
20,936
-
-
-
-
Loans and advances to customers
711,613
3.73
576,811
40,546
80,374
10,047
3,835
Total financial assets
1,075,530
710,31
0
66,531
200,758
94,096
3,835
Financial liabilities
Amounts owed to banks
535
0.16
535
-
-
-
-
Amounts owed to customers
1,010,100
0.87
480,02
4
85,609
192,235
78,368
173,864
Total financial liabilities
1,010,635
480,5
59
85,609
192,235
78,368
173,864
Interest repricing gap
229,75
1
(19,078)
8,523
15,728
Cumulative gap
229,75
1
210,67
3
219,19
6
234,924
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
112
2. Financial risk management (continued)
Bank
Average
e
ffective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non
-
interest
a
mount
rate
3 months
and 1
year
and 5 years
5 years
bearing
As at 31 December 2021
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta
and treasury bills
119,395
(0.10)
105,362
14,033
-
-
-
Debt and other fixed income instruments measured at FVOCI
215,179
1.09
531
4,066
87,371
123,211
-
Loans and advances to banks
68,424
0.09
68,424
-
-
-
-
Loans and advances to customers
642,895
3.72
549,360
12,607
53,233
15,990
11,705
Total financial assets
1,045,893
723,677
30,706
140,604
139,201
11,705
Financial liabilities
Amounts owed to banks
1,224
0.14
1,224
-
-
-
-
Amounts owed to customers
978,365
0.77
514,358
66,410
183,384
59,676
154,537
Total financial liabilities
979,589
515,582
66,410
183,384
59,676
154,537
Interest repricing gap
208,095
(35,704)
(42,780)
79,525
Cumulative gap
208,095
172,391
129,611
209,136
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
113
At the end of the reporting periods the interest rate profile of the Bank’s interest-bearing financial
instruments was:
Bank Fixed rate Variable rate
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Interest-bearing assets
Balances with Central Bank of Malta and treasury bills 123,872 67,151 8,247 52,244
Debt and other fixed income instruments measured at
FVOCI
210,862
215,179
-
-
Loans and advances to banks -
42,254 20,936
26,170
Loans and advances to customers 132,948
86,062 574,830
545,128
467,682 410,646
604,013 623,542
Interest-bearing liabilities
Amounts owed to banks 23
23 512
1,201
Amounts owed to customers 392,296
358,294 443,940
465,532
392,319 358,317
444,452 466,733
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
114
Bank
2022
2021
€ 000
€ 000
(+)
250 bp (2021: 100 bp)
3,989
1,568
(
-
)
250 bp (2021: 100 bp)
(3,989)
(1,568)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
115
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
116
2. Financial risk management (continued)
The following tables summarise the Bank’s exposures to foreign currency risk. Included in the tables are
the entity’s financial instruments which are subject to foreign exchange risk at carrying amounts,
categorised by currency.
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2022
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 138,393 92,746
21,624
24,017
6
Financial investments measured at FVOCI 218,286 199,294
6,338
12,654 -
Loans and advances to banks 20,936
3,191
5,300
8,104
4,341
Loans and advances to customers 711,613
706,057
4,594
962
-
Other assets 7,396 6,839
86
471
-
Total financial assets 1,096,624
1,008,127
37,942
46,208
4,347
Financial liabilities
Amounts owed to banks 535
535
-
-
-
Amounts owed to customers 1,010,100
921,440
38,334
45,962
4,364
Other liabilities 24,809
24,226
108
463
12
Total financial liabilities 1,035,444
946,201
38,442
46,425
4,376
Net currency position 61,926 (500)
(217) (29)
Commitments and contingent liabilities 216,717
215,286 432
999 -
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
117
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2021
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 125,552 105,379 11,080
9,081 12
Financial investments measured at FVOCI 224,234
206,753
6,668
10,813
-
Loans and advances to banks 68,424
12,237
20,354
32,482
3,351
Loans and advances to customers 642,895
639,445
3,118
302
30
Other assets 4,414
3,913
59
442
-
Total financial assets 1,065,519
967,727
41,279
53,120
3,393
Financial liabilities
Amounts owed to banks 1,224
1,224 -
- -
Amounts owed to customers 978,365
882,951
40,232
51,809
3,373
Other liabilities 22,043
19,742
995
1,244
62
Total financial liabilities 1,001,632
903,917
41,227
53,053 3,435
Net currency position 63,810 52
67 (42)
Commitments and contingent liabilities 209,663
207,790 1,195
678 -
Under the scenario that the euro appreciates by 20% against all currencies the effect would result in a
decrease of €149,000 (2021: €15,000) in the carrying amount of financial instruments with the adverse
impact recognised in profit or loss. Should the euro depreciate against all currencies by 20%, the effect
would result in a gain of €149,000 (2021: €15,000) in the carrying amount of financial instruments and the
favourable impact would be recognised in profit or loss.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
118
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
119
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
120
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
121
2. Financial risk management (continued)
Between
Between
Less than
3 months
1 year and
More than
No maturity
Bank
3 months
and 1 year
5 years
5 years
date
Total
As at 31 December
202
2
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Financial
assets
Balances with Central Bank of Malta, treasury bills and cash
109,629
21,238
-
-
7,526
138,393
Financial i
nvestments measured at FVOCI
1,682
4,747
120,384
84,049
7,424
218,
286
Loans and advances to banks
20,936
-
-
-
-
20,936
Loans and advances to customers
146,69
8
29,675
157,474
377,766
-
711,613
Other assets
4,62
8
2,379
-
-
389
7,
396
Total financial assets
28
3,573
58,039
277,85
8
461,815
15,339
1,096,62
4
Financial liabilities
Amounts owed to banks
535
-
-
-
-
535
Amounts owed to customers
653,88
8
85,609
192,235
78,368
-
1,010,100
Other liabilities
12,049
28
1,453
7,160
4,119
24,809
Total financial liabilities
666,47
2
85,637
193,688
85,528
4,119
1,035,444
Maturity gap
(38
2,899
)
(27,598)
84,170
376,287
Cumulative gap
(382,899)
(4
10,497
)
(32
6,327
)
49,960
As at 31 December 2021
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
104,123
14,033
-
-
7,396
125,552
Financial investments measured at FVOCI
531
4,066
87,371
123,211
9,
055
224,
234
Loans and advances to banks
68,424
-
-
-
-
68,424
Loans and advances to
customers
166,540
38,216
117,555
320,584
-
642,895
Other assets
3,589
459
-
-
366
4,
414
Total financial assets
343,207
56,774
204,926
443,795
16,817
1,065,519
Financial liabilities
Amounts owed to banks
1,224
-
-
-
-
1,224
Amounts owed to customers
668,896
66,409
183,384
59,676
-
978,365
Other liabilities
9,275
203
1,467
6,546
4,552
22,043
Total financial liabilities
679,395
66,612
184,851
66,222
4,552
1,001,632
Maturity gap
(33
6,188
)
(9,838)
20,075
377,573
Cumulative gap
(33
6,188
)
(34
6,026
)
(32
5,951
)
5
1,622
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
122
Bank
Between
Between
Less than
3 months
1
year
More than
3 months
and 1 year
and 5 years
5 years
Total
As at 31 December
202
2
€
000
€
000
€
000
€
000
€
000
Financial liabilities
Amounts owed to banks
535
-
-
-
535
Amounts owed to customers
654,111
87,922
206,229
87,297
1,035,55
9
Other liabilities
12,049
208
2,7
34
6,212
21,203
Total financial liabilities
66
6,695
88,
130
208,9
63
93
,509
1,05
7
,
297
As at 31 December 202
1
Financial
liabilities
Amounts owed to banks
1,224
-
-
-
1,224
Amounts owed to customers
668,907
67,133
196,949
70,328
1,003,317
Other liabilities
9,275
360
2,658
5,782
18,075
Total financial liabilities
679,406
67,493
199,607
76,110
1,022,616
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
123
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
124
2. Financial risk management (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
125
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
126
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
127
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
128
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
129
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
130
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
131
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
132
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
133
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
134
9. Investments in subsidiaries (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
135
9. Investments in subsidiaries (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
136
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
137
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
138
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
139
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
140
12. Property, plant and equipment (continued)
Bank Land and Computer
buildings equipment Other Total
€ 000 € 000 € 000 € 000
At 1 January 2021
Cost 30,767 2,431 2,756 35,954
Accumulated depreciation (1,288)
(1,910)
(2,310)
(5,508)
Net book amount 29,479 521 446 30,446
Year ended 31 December 2021
At 1 January 2021 29,479
521
446
30,446
Revaluation surplus arising during the year:
Effect on cost or valuation 6,513 - - 6,513
Effect on accumulated depreciation 330 - - 330
Additions 4,635
289
171
5,095
Disposals - (11)
(8)
(19)
Depreciation charge for the year (441)
(232)
(126)
(799)
Depreciation released on disposals - 11 8 19
At 31 December 2021 40,516 578 491 41,585
At 31 December 2021
Cost or valuation 41,910
2,709
2,919 47,538
Accumulated depreciation (1,394)
(2,131)
(2,428)
(5,953)
Net book amount 40,516 578 491 41,585
Year ended 31 December 2022
At 1 January 2022 40,516 578 491 41,585
Additions
797
560
275
1,632
Disposals
- (40)
(14)
(54)
Depreciation charge for the year
(608)
(279)
(141)
(1,028)
Depreciation released on disposals
- 40
13
53
Adjustments to right-of-use assets
212
-
-
212
At 31 December 2022
40,917
859
624
42,400
At 31 December 2022
Cost or valuation
42,919
3,229
3,180
49,328
Accumulated depreciation
(2,002)
(2,370)
(2,556)
(6,928)
Net book amount
40,917
859
624
42,400
The adjustments to right-of-use assets referred in the table above, consist of the impacts of reassessment
of lease payments, determined on the basis of an index. These comprise adjustments of the future lease
payments based on the NSO Index of Inflation for the Housing (Decontrol) Ordinance in accordance with
the respective lease agreement which resulted in an increase in right-of-use assets of €212,000.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
141
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
142
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
143
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
144
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
145
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
146
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
147
Bank
Differences between depreciation and capital
allowances (106)
(11)
-
- (117)
(17)
- (134)
Provisions for liabilities and charges 316 (188)
- - 128 (9) - 119
Credit loss allowances 9,353 (198)
119 - 9,274
(5,474) (22) 3,778
Revaluation of property (1,633)
- (1,167)
- (2,800)
- - (2,800)
Fair value movements on investments (3,682)
- 935 - (2,747)
- 9,536 6,789
-
2
2
4,248 (397)
(113)
- 3,738 (5,500) 9,514 7,752
The recognised deferred tax assets and liabilities are expected to be recovered or settled principally after more than twelve months from the end of the reporting period. The deferred
tax liabilities reflected in other comprehensive income relate principally to the revaluation of property, plant and equipment and the fair valuation of investments measured at FVOCI
(note 34).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
148
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
149
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
150
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
151
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
152
22. Provisions for liabilities and other charges (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
153
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
154
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
155
29. Dividend income
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Subsidiary undertaking
-
- 1,657
1,657
Equity shares measured at FVOCI
141
80 141
81
141 80 1,798 1,738
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
156
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
157
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
158
32. Net movement in expected credit losses (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
159
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
160
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
161
2022 2021
Before tax
Tax credit/
(charge)
Net of tax
Before tax
Tax credit/
(charge)
Net of tax
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Bank
Fair valuation of land and
buildings
-
-
-
6,844
(1,166)
5,678
Fair valuation of financial
assets measured at FVOCI:
-
Net changes in fair value
(27,200)
9,536
(17,664)
(2,504)
876
(1,628)
- Reclassification
adjustments to profit or
loss upon disposal
-
-
-
(168)
59
(109)
-
Net movement attributable
to change in credit risk
62
(22)
40
(343)
120
(223)
(27,138)
9,514
(17,624)
3,829
(111)
3,718
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
162
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
163
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
164
38. Related parties (continued)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
165
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
166
39. Investor compensation scheme
In accordance with the requirements of the Investor Compensation Scheme Regulations, 2003 issued
under the Investment Services Act, 1994 (Chapter 370 of the Laws of Malta) licence holders are required
to transfer a variable contribution to an Investor Compensation Scheme Reserve and place the equivalent
amount with a bank, pledged in favour of the Scheme. Alternatively licence holders can elect to pay the
amount of variable contribution directly to the Scheme. Lombard Bank Malta p.l.c. has elected to pay the
amount of the variable contribution directly to the Scheme.
41. Statutory information
Lombard Bank Malta p.l.c. is a public limited liability company domiciled and incorporated in Malta
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
167
Additional Regulatory Disclosures
1. Risk management
1.1 Overview of risk disclosures
The Additional Regulatory Disclosures seek to increase public disclosure with respect to a bank’s capital
structure and adequacy as well as its risk management policies and practices. These disclosures have been
prepared by the Bank in accordance with the Pillar III quantitative and qualitative disclosure requirements
as governed by Banking Rule BR/07: Publication of Annual Report and Audited Financial Statements of
Credit Institutions authorised under the Banking Act, 1994, issued by the Malta Financial Services Authority.
These disclosures are published by the Bank on an annual basis as part of the Annual Report. The rule
follows the disclosure requirements of Directive 2013/36/EU (Capital Requirements Directive) and EU
Regulation No. 575/2013 (Capital Requirements Regulation) of the European Parliament and of the Council
of 26 June 2013.
Consistent with the requirements of banking regulations, these disclosures are not subject to an external
audit, except to the extent that any disclosures are equivalent to those made in the Financial Statements
which have been prepared in accordance with the requirements of International Financial Reporting
Standards (‘IFRS’) as adopted by the EU. The Bank is satisfied that internal verification procedures ensure
that these Additional Regulatory Disclosures are presented fairly.
1.2 Risk Management Framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk
management framework.
To enhance its risk oversight efforts, the Board of Directors established an Audit & Risk Committee with a
mandate to supervise and monitor inter alia, the Bank’s compliance with its risk management policies and
procedures, review any financial information, statements and disclosures to be issued and the adequacy of
the Bank’s risk management framework, including its risk appetite statement and strategy.
The Bank has also established the Assets & Liabilities Committee (‘ALCO’) and the Credit Committee that
are responsible for developing the Bank’s risk management policies in their specific areas.
The Bank also has an independent Risk Management function as the Bank's second line of defence and
independent of operations which also reports directly to the ARC and is represented during meetings of the
above-mentioned committees. It is responsible for ensuring that the Bank's Risk Management Policy, Risk
Appetite Statement and any other guidelines support the Bank’s objectives. It is also responsible for further
identifying any unmitigated risks and for formulating suitable action plans for their treatment. The function
monitors the high-level principles that guide staff in its day-to-day management of risk through oversight
of policies, limits, procedures, processes and systems as well as by using methods and tools for risk
measuring, monitoring, controlling and reporting.
The Bank considers risk management a core competency that helps produce consistently high returns for
its various stakeholders. The Bank’s business involves taking on risks in a targeted manner and managing
them professionally. The Bank aims to manage all major types of risk by applying methods that meet best
practice. The Bank considers it important to have a clear distribution of responsibilities within risk
management. One of the main tasks of the Bank’s executive management is to set the framework for this
area. The core functions of the Bank’s risk management are to identify all key risks for the Bank, measure
these risks, manage the risk positions and determine capital allocations. The Bank regularly reviews its risk
management policies and systems to reflect changes in markets, products and best market practice.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
168
1. Risk management (continued)
An understanding of risk-taking and transparency in risk-taking are key elements in the Bank’s business
strategy and thus in its ambition to be a strong financial institution. The Bank’s internal risk management
processes support this objective.
Risk management within the Bank is mainly carried out on a unified basis, using an integrated and global
framework. This framework is based on local and international guidelines, such as the Basel III Accord and
corresponding Directives and Regulations of the European Union, including technical standards, as well as
on contemporary international banking practices guided by the Basel Committee on Banking Supervision.
The Bank has adopted the Standardised Approach and the Basic Method with respect to the calculation of
capital requirements and management of credit and foreign exchange risk respectively, as well as the Basic
Indicator Approach with respect to operational risk.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to
set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management
policies and systems are reviewed regularly to reflect changes in market conditions, products and services
offered. The Bank, through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment, in which all employees understand their roles and
obligations.
The Board deems the risk management framework adopted by the Bank to be adequate and gives assurance
to the Bank’s stakeholders that the risk management systems are appropriate in relation to the Bank’s risk
profile and strategy.
The Bank’s different operational functions, on an entity-wide basis, are primarily responsible for risk
management procedures and activities in their respective areas. All the operational functions have a
primary role in risk management at Bank-wide level. The Risk Management Function provides oversight,
independently from operations. The Bank’s risk management is implemented and handled properly by the
operational functions. The Bank’s Internal Audit Function, through verification, ensures that effective risk
management procedures and activities are adequately designed and operating as prescribed.
1.3 Board and Senior Management Committees
The Bank’s Board of Directors is responsible for ensuring that adequate processes and procedures exist to
ensure effective internal control systems for the Bank. These internal control systems ensure that decision-
making capability and the accuracy of the reporting and financial results are maintained at a high level at
all times. The Board assumes responsibility for:
- setting business objectives, goals and the general strategic direction for Management with a view to
maximise value;
- selecting and appointing the Chief Executive Officer who is entrusted with the day-to-day operations of
the Bank;
- management of the Bank’s operations, as well as appointment of members of Management;
- ensuring that significant business risks are identified and appropriately managed; and
- setting the highest business standards and code for ethical behaviour, and monitoring performance in
this respect.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
169
1. Risk management (continued)
In deciding how best to discharge its responsibilities, the Board upholds a policy of clear demarcation
between its role and responsibilities and those of Management. It has defined the level of authority that it
retains over strategy formulation and policy determination, and delegated authority and vested
accountability for the Bank’s day-to-day business in the Assets & Liabilities Committee and Credit
Committee and, for the Bank’s day-to-day operations, in an Executive Team comprising the Chief Executive
Officer and Chief Officers. The Audit & Risk Committee reviews the processes and procedures to ensure the
effectiveness of the Bank’s system of internal control, as well as the implementation of the Board’s risk
strategy by Management. The Audit & Risk Committee is supported by the Internal Audit, Risk Management
and Compliance functions.
The ALCO monitors the Bank’s financial performance, considers investment policy and overseas
counterparty limits. Membership of this Committee is made up of a number of Chief Officers and Senior
Managers including managers from Finance and Treasury Departments. The Chief Executive Officer is
Chairman of ALCO and retains primary responsibility for asset and liability management. The ALCO oversees
risk management practices in relation to asset and liability management.
The Credit Committee considers the development of general lending principles and oversees risk
management practices in lending operations. The Credit Committee is chaired by the Chief Executive Officer
and is composed of other Chief Officers as well as other Senior Officers.
The Audit & Risk Committee assists the Board in fulfilling its supervisory and monitoring responsibility by
reviewing the financial statements and disclosures, the system of internal control established by
management as well as the external and internal audit processes. The Audit & Risk Committee is also
responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for
reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank.
The Bank’s independent Internal Audit Department reviews the adequacy and proper operation of internal
controls in individual areas of operation and reports its findings to the Audit & Risk Committee. The Internal
Audit Function carries out both regular and ad-hoc reviews of risk management controls and procedures,
in both cases reporting its findings.
The Bank has an appropriate organisational structure for planning, executing, controlling and monitoring
business operations in order to achieve the Bank’s objectives.
Authority to operate the Bank and its subsidiaries is delegated to the Chief Executive Officer within the
limits set by the Board. The Board is ultimately responsible for the Bank’s system of internal control and for
reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to
achieve business objectives, and can provide only reasonable, and not absolute, assurance against material
misstatement or loss.
The Bank is committed to the highest standards of business conduct and seeks to maintain these standards
across all of its operations. Bank policies and procedures are in place for the reporting and resolution of
fraudulent activities.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
170
1. Risk management (continued)
1.4 Key risk components
The Bank’s Board of Directors is empowered to set out the overall risk policies and limits for all material risk
types. The Board also decides on the general principles for managing and monitoring risks.
To ensure coherence between the Bank’s strategic considerations regarding risk-taking and day-to-day
decisions, from time to time, the Bank establishes its risk appetite as a strategic tool. Risk appetite is the
maximum risk that the Bank is willing to assume to meet business targets. The Bank’s risk appetite is set in
a process based on a thorough analysis of its current risk profile. The Bank identifies a number of key risk
components and for each determines a target that represents the Bank’s views on the component in
question.
In terms of the CRR, an ‘exposure’ is the amount at risk arising from the reporting credit institution's assets
and off-balance sheet instruments. Consistent with this, an exposure would include the amount at risk
arising from the Bank’s:
- claims on a customer including actual and potential claims which would arise from the drawing down in
full of undrawn advised facilities, which the Bank has committed itself to provide;
- contingent liabilities arising in the normal course of business, and those contingent liabilities which
would arise from the drawing down in full of undrawn advised facilities which the Bank has committed
itself to provide; and
- other on and off-balance sheet financial assets and commitments.
The Bank is exposed to a number of risks, which it manages at different organisational levels.
The main categories of risk are:
- Credit risk: Credit risk stems from the possible non-prompt repayment or non-payment of existing and
contingent obligations by the Bank’s counterparties, resulting in the loss of equity and profit. It
comprises the risk that deterioration in the financial condition of a borrower will cause the asset value
to decrease or be extinguished. Country risk and Settlement risk are included in this category. Country
risk refers to the risk of losses arising from economic or political changes that affect the country from
which the asset originates. Settlement risk refers to the risk of losses through failure of the counterparty
to settle outstanding dues on the settlement date owing to bankruptcy or other causes.
- Market risk: Risk of losses arising from unfavourable changes in the level and volatility of interest rates,
foreign exchange rates or investment prices.
- Liquidity risk: Liquidity risk may be divided into two sub-categories:
o Market (product) liquidity risk: Risk of losses arising from difficulty in accessing a product or market
at the required time, price and volume.
o Funding liquidity risk: Risk of losses arising from a timing mismatch between investing, placements
and fund raising activities resulting in obligations missing the settlement date or satisfied at higher
than normal rates.
- Operational risk: Risk of loss resulting from the lack of skilful management or good governance within
the Bank and the inadequacy of internal control, which might involve internal operations, staff, systems
or external occurrences that in turn affect the income and capital funds of financial institutions. The
Bank has adopted an operational risk management framework and procedures, which provide for the
identification, assessment, management, monitoring and reporting of the Bank’s operational risks.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
171
1. Risk management (continued)
1.5 Risk statement by the Board of Directors
The Bank’s business model throughout the years has been that of retaining a stable deposit base and
granting credit principally to the commercial real estate sector, particularly because the Board strongly
believes that despite the increased capital requirements introduced by the CRR, an active commercial real
estate market is a fundamental source of employment and economic growth in Malta. Nonetheless, the
Bank is conscious of the risks involved in commercial real estate lending, and thus ensures it prices loans by
reference to underlying risks. In this respect, the Bank’s return on assets, expressed as a percentage of profit
after tax to average total assets, for the reporting period ended 31 December 2022 amounts to 1.6%.
In this respect, the loan loss coverage ratio, calculated as provisions for impairment on non-performing
exposures to total non-performing exposures, which as at 31 December 2022, amounted to 21.6% differs
from that experienced within the sector, which generally tends to fluctuate between 50% to 55%. This
clearly illustrates the robustness of the Bank’s risk management practices particularly in respect of credit
risk.
2. Credit risk
2.1 Introduction to Credit risk
Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market
counterparties fail to fulfil their contractual obligations to the Bank. Credit risk arises mainly from
commercial and consumer loans and advances and loan commitments arising from such lending activities,
but can also arise from credit enhancement provided, such as financial guarantees, letters of credit,
endorsements and acceptances.
Credit risk constitutes the Bank’s largest risk in view of its significant lending and securities portfolios, which
are monitored in several ways. The Bank is fully aware of such risk and places great importance on its
effective management.
The Bank allocates considerable resources in ensuring the ongoing compliance with approved credit limits
and to monitor its credit portfolio. In particular, the Bank has a fixed reporting cycle to ensure that the
relevant management bodies, including the Board of Directors and the Executive Team, are kept informed
on an ongoing basis of developments in the credit portfolio, non-performing loans and other relevant
information.
2.2 Credit risk management
The Board of Directors has delegated the responsibility for the monitoring of management of credit risk to
the Credit Committee. The granting of a credit facility is based on the Bank’s insight into the customer’s
financial position, which is reviewed regularly to assess whether the basis for the granting of credit has
changed. Furthermore, the customer must be able to demonstrate a reasonable ability to repay the debt.
Approval limits are graded starting from authorised staff members and leading up to the Credit Committee
and the Board of Directors depending on the size and the particular risk attached to the loan. Facilities are
generally adequately secured either by property and/or guarantees and are reviewed periodically by
Management both in terms of the exposure to the Bank and to ensure that security is still valid.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
172
2. Credit risk (continued)
The Bank’s Credit Department is responsible for undertaking and managing credit risk in relation to the
entity’s lending activities; covering all the stages in the lending cycle comprising credit proposal, loan
approval, effecting advances, credit and collateral monitoring, processing repayments and credit recovery
procedures. The Bank manages, limits and controls concentrations of credit risk arising from loans and
advances wherever they are identified − in parcular, to individual customers and groups, and to industry
sectors. Such risks are monitored on a revolving basis and subject to frequent review, as considered
necessary. The exposure to any one borrower is further restricted by sub-limits covering on and off-balance
sheet exposures. Actual exposures against limits are monitored at end of day on a daily basis and on a real-
time basis too. As highlighted previously, the Bank’s reporting framework with respect to lending credit
risk is comprehensive with regular reporting by the Credit Department to the Board, Credit Committee and
Executive Team on adherence to limits, activity levels, performance measures and specific credit risk
events.
In order to minimise the credit risk undertaken, counterparty credit limits may be defined, which consider
a counterparty’s creditworthiness, the value of collateral and guarantees which can reduce the overall
credit risk exposure, as well as the type and the duration of the credit facility. In order to examine a
counterparty’s creditworthiness, the following are considered: country risk, quantitative and qualitative
characteristics, as well as the industry sector in which the counterparty operates. The Bank has set limits of
authority and has segregated duties so as to maintain impartiality and independence during the approval
process and control for new and existing credit facilities.
The Bank’s maximum exposure amount to credit risk before taking account of any collateral held or other
credit enhancements can be classified in the following categories:
- Financial assets recognised on-balance sheet comprising principally balances with Central Bank of Malta,
Malta Government treasury bills, cheques in course of collection, financial assets measured at FVOCI as
well as loans and advances to banks and customers. The maximum exposure of these financial assets to
credit risk equals their carrying amount.
- Guarantee obligations incurred on behalf of third parties. The maximum exposure to credit risk is the
full amount that the Bank would have to pay if the guarantees are called upon.
- Loan commitments and other credit related commitments that are irrevocable over the life of the
respective facilities. The maximum exposure to credit risk is the full amount of the committed facilities.
The Bank’s credit risk exposure amounts reflect the maximum exposure to credit risk before collateral held
or other credit enhancements in accordance with the regulatory information submitted to the MFSA and
are as follows:
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
173
2. Credit risk (continued)
2022 2022
Average value
Year end
Exposure value
€ 000 € 000
Central governments or central banks
331,509
307,189
Public sector industries
553
537
Multilateral development banks
6,860
7,791
International organisations
719
-
Institutions
53,616
51,148
Corporates
83,720
91,378
Retail
18,531
17,302
Secured by
mortgages on immovable property 459,551
484,937
Exposures in default
28,270
15,376
Exposures associated with particularly high risk
120,546
129,915
Equity
22,236
22,866
Other items
56,720
59,056
1,182,831
1,187,495
The exposures set out in the table above are based on the sum of on-balance sheet exposures and off-
balance sheet exposures adjusted for the credit conversion factors stipulated in Article 166(10) of the CRR.
The following is an analysis of the Bank’s exposure to credit risk split by on-balance sheet assets and off-
balance sheet instruments:
2022
€ 000
On
-balance sheet assets 1,170,620
Other adjustments
(2,910)
Off
-balance sheet instruments 19,785
1,187,495
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
174
2. Credit risk (continued)
As set out in the Financial Statements under ‘Accounting estimates and judgements’, the measurement of
the Expected Credit Loss allowance for financial assets measured at amortised cost and Fair Value through
Other Comprehensive Income (‘FVOCI’) is an area that requires the use of complex models and significant
assumptions about future economic conditions and credit behaviour. As previously explained, the level of
estimation uncertainty and judgement has remained elevated as a result of the economic effects of the
global geopolitical and macro-economic events occurring in the aftermath of the COVID-19 pandemic.
Specifically, despite a general recovery in economic conditions during 2021 and 2022, the level of estimation
uncertainty and judgement has remained high as a result of the escalation of the military conflict between
Russia and Ukraine as well as the ongoing economic effects of the COVID-19 pandemic, including supply
chain disruptions, which have resulted in significant inflationary pressures being experienced globally.
The situation is still highly fluid. Stressed probabilities of default (PDs) used in the sectorial macro-economic
variables were adjusted to reflect the forecasted severe Central Bank of Malta forecasts. However, at the
reporting date the asset quality of the Bank’s financial assets remains sound and there is no evidence of an
increase in credit risk. The Bank will continue to closely monitor its exposures in the light of developments
so as to align the Expected Credit Loss accordingly.
On 13 April 2021 the Central Bank of Malta issued Directive 18 (in terms of Legal Notice 142) specifying
parameters for granting of COVID-19 measures and other Government guaranteed assistance.
As at 31 December 2022, there were no outstanding gross loans and advances subject to general payment
moratoria as established within Directive No. 18 and the EBA guidelines.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
175
2. Credit risk (continued)
The gross carrying amount of the loans and advances to customers for which moratorium was offered or granted is analysed below:
Number of obligors Total
Of which:
legislative
moratoria
Of which:
expired
€ 000 € 000 € 000
At 31 December 2022
Loans and advances for which moratorium was offered 98 60,934
- -
Loans and advances subject to moratorium (granted) 96 60,657
60,657
60,657
of which: Households 11,563
11,563
11,563
of which: Collateralised by residential immovable property 10,969
10,969
10,969
of which: Non-financial corporations 27,474
27,474
27,474
of which: Small and Medium-sized Enterprises 11,149
11,149
11,149
of which: Collateralised by commercial immovable property 23,212
23,212
23,212
The gross carrying amount of newly originated loans and advances subject to public guarantee schemes are analysed below:
Total
of which:
forborne
Public
guarantees
received
Inflows to
non-performing
exposures
€ 000 € 000 € 000
€ 000
At 31 December 2022
Newly originated loans and advances subject to public guarantee schemes 8,957 3,020
4,030
-
of which: Households -
- -
-
of which: Collateralised by residential immovable property -
- -
-
of which: Non-financial corporations 8,583 3,020
3,862
-
of which: Small and Medium-sized Enterprises 1,627 - -
-
of which: Collateralised by commercial immovable property 167 - -
-
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
176
2. Credit risk (continued)
2.3 Concentration risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether
the category relates to geographical location, industry sector or counterparty type.
As at 31 December 2022, no loans and advances to customers were deemed to be prohibited large
exposures, prior to any eligible exemptions, in accordance with the requirements of Part Four of the CRR,
Large Exposures. A limited number of customers account for a certain percentage of the Bank’s loans and
advances.
Credit risk attributable to concentration of investments is not considered by the Directors to be significant
in view of the credit standing of the issuers.
The following tables analyse the concentration of credit risk by geographical region, industry sector and
residual maturity at the end of the reporting period.
2.3.1 Credit risk exposures analysed by geographical region
The Bank monitors concentration of credit risk by geographical region. The following table summarises the
country of risk by exposure class:
At 31 December 2022 Total Malta Eurozone
Other European
countries Other
€ 000 € 000 € 000 € 000 € 000
Central governments or central banks
307,189
299,306
2,530
1,856
3,497
Public Sector entities
537
1
536
-
-
Multilateral Development Banks
7,791
-
5,134
-
2,657
International Organisations
-
-
-
-
-
Institutions 51,148
11,915
23,731
8,276
7,226
Corporates 91,378
90,119
749
510
-
Retail
17,302
17,302
-
-
-
Secured by mortgages on immovable property
484,937
484,937
-
-
-
Exposures in default
15,376
15,376
-
-
-
Items associated with particularly high risk
129,915
129,915
-
-
-
Equity
22,866
22,122
-
-
744
Other items
59,056
58,667
-
-
389
1,187,495
1,129,660
32,680
10,642
14,513
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
177
2. Credit risk (continued)
2.3.2 Credit risk exposures analysed by industry sector
The following are the exposure amounts split by exposure class according to the respective industry concentration:
At 31 December 2022
Property and
Personal,
professional and
Financial Other
Total Manufacturing Tourism Trade construction home loans Institutions sectors
€ 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Central governments or central banks
307,189 - - - - - 307,189
-
Public Sector entities
537 - - - - - 537
-
Multilateral Development Banks
7,791 - - - - - 7,791
-
International Organisations
-
- - - - - -
-
Institutions 51,148 - - - - - 51,148
-
Corporates 91,378 4,852
6,385
27,700 8,427 714 38,208
5,092
of which: SME 79,301 3,932
5,899
24,389 5,630 594 38,139
718
Retail
17,302 3,890
1,466
120 161 10,175 12
1,478
of which: SME
4,938 60
1,427
87 14 3,217 10
123
Secured by mortgages on immovable property
484,937 1,255
48,170
17,642 131,844 180,357 83,302
22,367
of which: SME
303,663 1,255
48,170
17,642 129,911 13,800 83,302
9,583
Exposures in default
15,376 335
975
1,502 9,310 1,684 520
1,050
of which: SME
13,959 335
975
1,502 9,310 267 520
1,050
Items associated with particularly high risk
129,915 -
65
850 116,517 3,098 9,385
-
of which: SME
125,528 -
65
848 113,373 1,857 9,385
-
Equity
22,866 221
1,645
- - - 2,820
18,180
Other items
59,056 - 2,379
- 41,620 - 8,395
6,662
1,187,495 10,553
61,085
47,814 307,879 196,028 509,307
54,829
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
178
2. Credit risk (continued)
2.3.3 Credit risk exposures analysed by residual maturity
The residual maturity breakdown by exposure class at the end of the reporting period was as follows:
Over 1 but
Carrying Less than less than Over
Amount 1 year 5 years 5 years
At 31 December 2022 € 000 € 000 € 000 € 000
Central Government or central banks
307,189
141,485
102,503
63,201
Public sector entities
537
1
536
-
Multilateral Development Banks
7,791
551
7,240
-
International Organisations
-
- - -
Institutions
51,148
25,476
7,492
18,180
Corporates
91,378
27,464
29,225
34,689
Retail exposures
17,302
6,501
3,543
7,258
Secured by mortgages on immovable property
484,937
108,195
55,044
321,698
Exposures in default
15,376
9,633
106
5,637
Exposures associated with particularly high risk
129,915
46,603
72,168
11,144
Equity exposures
22,866
22,866
- -
Other items
59,056
59,056
- -
1,187,495
447,831
277,857
461,807
2.3.4 Counterparty banks’ risk
The Bank runs the risk of loss of funds due to the possible delay in the repayment of existing and future
obligations by counterparty banks.
Within its daily operations, the Bank transacts with banks and other financial institutions. By conducting
these transactions, the Bank is running the risk of losing funds due to the possible delays in the repayment
to the Bank of the existing and future obligations of the counterparty banks. The Bank primarily places
short-term funds with pre-approved banks subject to the limits in place and subject to the respective
institutions’ credit rating being within controlled parameters. The positions are checked against the limits
in real time and at end of day on a daily basis.
2.3.5 Country risk
The Bank runs the risk of loss of funds due to the possible political, economic and other events in a particular
country where funds have been placed or invested with several counterparties. Countries are assessed
according to their size, economic data and prospects and their credit ratings from international rating
agencies. Existing country credit risk exposures are monitored and reviewed periodically. The Bank’s assets
are predominantly in Malta. The Bank’s exposures to other countries are mainly limited to bank balances
and money market placements with a total carrying amount of €39,233,000 (2021: €68,420,000) at the end
of the reporting period.
2.4 Use of External Credit Assessment Institutions
In calculating its risk-weighted exposure amounts, the Bank uses an External Credit Assessment Institution
(‘ECAI’) for Central governments, Institutions, Corporates and Items associated with particularly high risk
for which a credit assessment is available. The credit quality of such exposures is determined by reference
to external credit ratings applicable to issuers or counterparties. The Bank maps the external ratings to the
credit quality steps prescribed in the CRR as required by CEBS publication ‘Standardised Approach: Mapping
of ECAIs’ credit assessments to credit quality steps’.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
179
2. Credit risk (continued)
The following are the exposure values for which an ECAI is used:
Credit
quality
step
Central
governments
or central
banks
Public
Sector
entities
Multilateral
Development
Banks
International
organisations
Institutions
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
At 31 December
202
2
AAA to AA
-
1 4,922
537
7,791
-
10,241
23,491
A+ to A
-
2 302,267
-
-
-
7,542
309,809
BBB+ to BBB
-
3 - -
-
-
28,701
28,701
BB+ to BB
-
4 -
-
-
-
-
-
B+
to B
-
5 -
-
-
-
-
-
CCC+ and below
6 -
-
-
-
4,664
4,664
307,189
537
7,791
-
51,148
366,665
2.5 Credit quality of the Bank’s lending portfolio
The Bank manages the credit quality of its loans and advances to customers by using internal risk grades,
which provide a progressively increasing risk profile ranging from ‘P1’ (best quality, less risky) to ‘NP’. These
risk grades are an essential tool for the Bank to identify both non-performing exposures and better-
performing customers. The internal risk grades used by the Bank are as follows:
- Performing: Internal grade ‘P1’;
- Under performing: Internal grades ‘P2’ and ‘P3’; and
- Non-performing: Internal grade ‘NP’.
P1
The Bank’s loans and advances to customers which are categorised as ‘P1’ are principally debts in respect
of which the payment of interest and/or capital is not overdue by 30 days and with no recent history of
customer default. Management does not expect any losses from non-performance by these customers.
P2
Loans and advances which attract a ‘P2’ grading are those which are receiving the close attention of the
Bank’s Management and are being reviewed periodically in order to determine whether such advances
should be reclassified to either ‘P1’ or ‘P3’ classification. Credit facilities that attract this category include
those where the payment of interest and/or capital becomes overdue by 30 days and over but not
exceeding 60 days.
P3
Loans and advances which attract a ‘P3’ grading are those having the weaknesses inherent in those loans
and advances classified as ‘P2’ with the added characteristics that repayment is inadequately protected by
the current sound worth and paying capacity of the borrower. Loans and advances so graded have a well-
defined weakness or weaknesses that could jeopardise the repayment of the debt. They are characterised
by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Credit
facilities that attract this category include those where the payment of interest and/or capital becomes
overdue by 60 days and over but not exceeding 90 days.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
180
2. Credit risk (continued)
NP
Loans and advances which attract a ‘NP’ grading are those facilities where the Bank deems the
recoverability of principal to be remote as a result of worsening conditions of loans and advances classified
as ‘P3’. Credit facilities that attract this category include those where the payment of interest and/or capital
becomes overdue by more than 90 days. These loans and advances are generally past due by more than 90
days and comprise those exposures which are deemed by the Bank as credit-impaired (see definition in note
2.3.10).
The following table provides a detailed analysis of the credit quality of the Bank’s lending portfolio.
2022
€ 000
Gross loans and advances to customers
Performing (‘Stage 1’ assets) 526,199
Under-performing (‘Stage 2’ assets) 167,551
Non-performing (‘Stage 3’ assets) 27,812
721,562
2.5.1 Credit-impaired loans and advances to customers
Credit-impaired loans and advances are advances which are either more than 90 days past due, or for which
the Bank determines as probable that it will be unable to collect all principal and interest due according to
the contractual terms of the loans and advances agreement(s). The Bank’s credit-impaired loans and
advances mainly relate to a number of independent customers which are not meeting repayment
obligations or deemed by the Bank as unlikely to pay their obligations to the Bank without recourse by the
Bank to realising the collateral.
2.5.2 Past due but not credit-impaired loans
Past due but not credit-impaired loans include loans and advances where contractual interest or principal
payments are past due. Credit losses that may arise are covered through the Bank’s assessment of Expected
Credit Loss allowances.
Loans and advances to customers are analysed into credit-impaired, past due and other exposures as
follows:
202
2
€ 000
Gross loans and advances to customers
Credit-impaired 27,812
Past due but not credit-impaired 5,259
Neither past due nor credit-impaired 688,491
721,562
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
181
2. Credit risk (continued)
The table below analyses the impaired and the past due but not impaired gross loans and advances to
customers by industry sector.
Past due but
At 31 December
202
2
Impaired
not impaired
€ 000
€ 000
Manufacturing
472
1
Tourism
2,483
-
Trade
1,645
-
Property and construction
19,488
2,953
Personal, professional and home loans
2,094
1,946
Financial institutions
534
-
Other sectors
1,09
6
3
59
27,812
5,259
The majority of the impaired and past due but not impaired loans and advances to customers were
concentrated within Malta.
2.5.3 Collateral
The Bank holds collateral against exposures in the form of hypothecs over property, other registered
securities over assets and guarantees. The nature and level of collateral required depends on a number of
factors, including, but not limited to, the amount of the exposure, the type of facility provided, the term of
the facility, the amount of the counterparty’s contribution and an evaluation of the level of the credit risk
or Probability of Default involved. Collateral is an important mitigant of credit risk. Nevertheless, it is the
Bank’s policy to establish that facilities are within the customer’s capacity to repay rather than to over rely
on security. In certain cases, depending on the customer’s standing and the type of product, facilities may
be unsecured. The Bank applies various measures to reduce the risk on individual transactions, including
collateral in the form of physical assets and guarantees.
The principal collateral types used as credit risk mitigants are mortgages on residential properties and
commercial real estate. For regulatory purposes, none of the Bank’s collateral in the form of commercial
real estate qualifies as eligible collateral, as these properties fail to meet the conditions of Article 126(2) of
the CRR.
Out of the €711.6 million exposures arising from the Bank’s lending, €472.2 million are secured by
mortgages on immovable property, while €26.8 million are secured by mortgages on immovable property
but are classified within the high risk exposures since these are associated with speculative immovable
property financing. From the €472.2 million exposures secured by mortgages on immovable property,
€196.1 million qualify as fully and completely secured by mortgages on residential immovable property,
and accordingly attract a risk-weight of 35%.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
182
2. Credit risk (continued)
2.5.4 Loss allowances
The Bank assesses on a forward-looking basis the Expected Credit Losses associated with its loans and advances portfolio. The Bank recognises a loss allowances for such losses
at each reporting date.
Total Manufacturing Tourism Trade
Property and
construction
Personal,
professional and
home loans
Financial
institutions Other sectors
€ 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Expected Credit Losses
At 1 January 2022 25,622
534
1,886
1,282
17,493
846
3,466
115
Additions 3,881
233
72
377
1,968
475
705
51
Reversals (19,554) (417)
(307)
(832)
(14,626)
(412)
(2,897)
(63)
At 31 December 2022
9,949 350
1,651
827
4,835
909
1,274
103
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
183
2. Credit risk (continued)
2.5.5 Write-off policy
The Bank writes off loan or advance balances (and any related allowances for impairment losses) when it
determines that these are uncollectible. This decision is reached after considering information such as the
occurrence of significant changes in the borrower’s financial position, such that the borrower can no longer
pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.
3. Market risk
The Bank takes on exposure to market risk, which is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices. Market risks arise from open
positions in interest rate, currency and equity products, all of which are exposed to general and specific
market movements and changes in the level of volatility of market rates or prices such as interest rates,
credit spreads, foreign exchange rates and equity prices.
Accordingly, 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; and
- Equity price risk, which is the risk of losses because of changes in investment prices.
3.1 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 reprice 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 on repricing dates on
assets and liabilities as much as it is practicable. The Bank monitors on a continuous basis the level of
mismatch of interest rate repricing taking cognisance of the terms of the Bank’s principal assets, comprising
loans and advances to customers, that are repriceable at the Bank’s discretion. Accordingly, the Bank is in
a position to manage the interest rate terms of its financial assets and simultaneously modify the interest
terms of its liabilities. The Bank seeks to manage its net interest spread, taking cognisance of the cost of
capital, by investing funds in a portfolio of loans and advances and securities with a longer tenure than the
funding liabilities (therefore normally giving rise to a negative maturity gap position) through the effective
management of shorter term deposit liabilities with a view to securing steady base deposits with differing
terms over the medium to longer term.
Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved
limits for repricing bands which are set by ALCO. ALCO is the monitoring body for compliance with these
limits and is assisted by Treasury through its day-to-day operational activities. The management of interest
rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial
assets and liabilities to interest rate movements.
Accordingly, the Bank’s ALCO is primarily responsible for the interest rate risk management process and for
monitoring actively the interest rate risk measures utilised by the Bank. Reporting of interest rate risk
measures exposures vis-à-vis limits flows to the ALCO and Board on a regular systematic basis. The Bank’s
independent Risk Management Function provides oversight in respect of the interest rate risk management
process ensuring that it is designed in an appropriate manner and is functioning properly.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
184
3. Market risk (continued)
The Bank’s repricing gaps at 31 December 2022 are disclosed in the tables within note 2.4.1 to the financial
statements. The measures applied for the monitoring of the fair value sensitivity of the fixed rate
instruments and the cash flow sensitivity for variable rate instruments are disclosed within notes 2.4.3 and
2.4.4 to the financial statements.
3.2 Currency risk
The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates
on its financial position and cash flows. Foreign exchange risk is the risk to earnings and value caused by a
change in foreign exchange rates. Foreign exchange risk arises when financial assets or liabilities are
denominated in currencies which are different from the Bank’s functional currency.
The Bank manages this risk principally by ensuring that its foreign currency denominated liabilities are
matched with corresponding assets in the same currency.
Accordingly, foreign currency liabilities are utilised to fund assets denominated in the same foreign currency
thereby matching asset and liability positions as much as is practicable. This mechanism is reflected in the
figures reported in the table below which presents this matching process.
The Bank’s foreign exchange risks are managed actively and monitored by the Treasury Function, which
process ensures that the Bank maintains its exposure to foreign currencies within prescribed limits set by
the Bank’s ALCO. ALCO sets limits on the level of exposure by currency and in aggregate for both overnight
and intra-day positions which are monitored on a real-time basis. Reporting of exposures vis-à-vis limits
flows to the ALCO and Board on a regular systematic basis. The Bank’s independent Risk Management
Function is responsible for assuring that the foreign exchange risk management process is designed in an
appropriate manner and is functioning effectively.
The Bank enters into forward foreign currency exchange contracts with customers in the normal course of
its business. Generally, it is the Bank’s policy to cover these contracts by other forward positions. As a result,
the Bank is not open to any significant exchange risk in respect of derivative contracts. The Bank also takes
a deposit margin of the nominal value from the customer thereby reducing its credit risk should the client
default. The Bank had no open forward foreign currency contracts at the end of the reporting period.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
185
3. Market risk (continued)
The following table summarises the Bank’s net exchange position by currency taking into account the Bank’s
financial assets and liabilities as well as off-balance sheet instruments exposing the Bank to foreign
exchange risk.
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2022
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash
138,393
92,746
21,624
24,017
6
Financial investments measured at FVOCI 218,286
199,294
6,338
12,654
-
Loans and advances to banks
20,936
3,191
5,300
8,104
4,341
Loans and advances to customers
711,613
706,057
4,594
962
-
Other assets
7,396
6,839
86
471
-
Total financial assets
1,096,624
1,008,127
37,942
46,208 4,347
Financial liabilities
Amounts owed to banks
535
535
-
-
-
Amounts owed to customers
1,010,100
921,440
38,334
45,962
4,364
Other liabilities
24,809
24,226
108
463
12
Total financial liabilities
1,035,444
946,201
38,442
46,425
4,376
Net currency exposure in financial
assets/liabilities
61,926
(500)
(217)
(29)
Commitments and contingent liabilities
216,717
215,286 432 999 -
3.3 Equity price risk
The exposure of the Bank to this risk is not significant given the low holdings of equity instruments by the
Bank, which are not deemed material in the context of the Bank’s statement of financial position. Such
holdings are limited to locally quoted equity instruments issued by local well-known corporate issuers.
Frequent management reviews are carried out to obtain comfort on the high quality of the portfolio.
4. Liquidity risk
4.1 Management of liquidity risk
Liquidity risk is defined as the risk of losses due to:
- the Bank’s funding costs increasing disproportionately;
- lack of funding preventing the Bank from establishing new business; and
- lack of funding ultimately preventing the Bank from meeting its obligations.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
186
4. Liquidity risk (continued)
Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Bank
is exposed to daily calls on its available cash resources from overnight deposits, current and call deposits,
maturing term deposits, loan drawdowns and guarantees.
The objective of the Bank’s liquidity and funding management is to ensure that all foreseeable funding
commitments and deposit withdrawals can be met when due. It is the Bank’s objective to maintain a
diversified and stable funding base with the objective of enabling the Bank to respond quickly and smoothly
to unforeseen liquidity requirements.
The Bank manages this risk by ensuring that its assets and liabilities are matched in terms of maturities as
much as is practicable. However, the Bank ought to manage its net interest spread by investing funds in a
portfolio of assets with a longer term than the liabilities funding them. To mitigate exposures arising in this
respect, the Bank holds significant liquid assets in the form of Malta Government treasury bills, money
market placements and other short-term instruments for managing liquidity risk to support payment
obligations and contingent funding in a stressed market environment.
The Bank maintains internal liquidity buffers established by ALCO made up of cash and financial assets
which are also eligible for collateral against borrowing from the European Central Bank. In order to ensure
that maturing funds are always available to meet unexpected demand for cash, the Board sets parameters
within which maturities of assets and liabilities may be mismatched in line with the stance referred to
previously. Unmatched positions potentially enhance profitability, but also increase risks. The Bank’s ALCO
focuses on the entity’s management process with respect to market and funding liquidity risks. ALCO
maintains ongoing oversight of forecast and actual cash flows, by monitoring the availability of funds to
meet commitments associated with financial instruments. ALCO is supported by the Bank’s Executive Team
and Treasury Function in this respect, at operational level. ALCO monitors the Bank’s Liquidity Gap analysis
on a monthly basis. The Bank’s liquidity management process comprises management of day-to-day
funding, by monitoring future cash flows to ensure that requirements can be met and that funds are
replenished as they mature or are borrowed by customers. This implies a structured ongoing analysis of the
contractual maturity of the financial liabilities and the expected collection date of the financial assets. The
Bank’s liquidity management focuses on maintaining a portfolio of highly marketable assets, subject to pre-
established limits, that can easily be liquidated in case of any unforeseen interruption to cash flow; and
monitoring the liquidity ratios of the Bank against internal and regulatory requirements. In this respect, the
Bank’s advances-to-deposit ratio of 70.4% at the end of the reporting period reflects management’s
prudent stance in the context of liquidity management. Also, the Liquidity Coverage ratio at 31 December
2022 is 210.7%, which is significantly higher than the prudential parameters set by Regulation.
Reporting of measures of liquidity risk and liquidity ratios vis-à-vis internal limits flows to the ALCO and
Board on a regular basis. The Bank’s Risk Management Function provides oversight in respect of the
liquidity risk management process ensuring that it is functioning effectively.
The Bank also monitors the level and type of undrawn lending commitments and the impact of contingent
liabilities such as guarantees as part of the liquidity management process previously referred to.
As at 31 December 2022, the Bank had outstanding guarantees on behalf of third parties amounting to
€10,886,000 (2021: €9,320,000), which are cancellable upon the request of the third parties. The Bank’s
liquidity exposures arising from these commitments and contingencies are expected to expire principally
within a period of twelve months from the end of the reporting period.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
187
4. Liquidity risk (continued)
4.2 Asset Encumbrance
The disclosure on asset encumbrance is a requirement introduced in Banking Rule BR/07 transposing the
provisions of the EBA Guidelines on Disclosure of Encumbered and Unencumbered Assets
(EBA/GL/2014/03).
The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that
could be used to support potential future funding and collateral needs. An asset is defined as encumbered
if it has been pledged as collateral against an existing liability, and as a result is no longer available to the
Bank to secure funding, satisfy collateral needs or be sold to reduce the funding requirement.
The disclosure is not designed to identify assets which would be available to meet the claims of creditors
or to predict assets that would be available to creditors in the event of a resolution or bankruptcy.
In accordance with the EBA ‘Guidelines on Disclosure of Encumbered and Unencumbered Assets’, the
amounts disclosed in the table below represent median values, being the rolling quarterly amounts over
the previous 12 months.
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying amount
of unencumbered
assets
Fair value of
unencumbered
assets
€ 000 € 000 € 000 € 000
At 31 December 2022
Assets of the reporting institution
11,498
11,498
1,181,265
1,181,265
Loans on demand
2,139
2,139
102,870
102,870
Equity instruments
-
-
8,356
8,356
Debt securities
8,539
8,539
283,397
283,397
Loans and advances
-
-
707,052
707,052
Other assets
820
820
79,590
79,590
The Bank does not encumber any of the collateral received. Moreover, as at 31 December 2022, the Bank
did not have any outstanding liabilities associated with encumbered assets and collateral received.
The Bank undertakes encumbrance by pledging debt securities against the provision of credit lines by the
Central Bank of Malta and in favour of the Depositor Compensation Scheme.
5. Operational risk
Operational risk is the risk of loss resulting from the lack of skilful management or good governance within
the Bank and the inadequacy of internal control, which might involve internal operations, staff, systems or
external occurrences that in turn affect the income and capital funds of financial institutions. The Bank has
adopted an operational risk management framework and procedures, which provide for the identification,
assessment, management, monitoring and reporting of the Bank’s operational risks. Operational risk is also
addressed through proper insurance cover.
Operational risk management relies on a framework of policies and procedures implemented by the
different operational functions within the Bank through transaction processing and business execution.
Regular reporting of operational risk events to the Board of Directors is carried out as required. The
implementation of such policies and procedures by the Bank’s operational functions is overseen by the Risk
Management Function.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
188
5. Operational risk (continued)
The Bank currently uses the Basic Indicator Approach to assess the operational risk capital requirements
and accordingly allocates 15% of average gross income for a three year period in accordance with regulatory
requirements. The operational risk capital regulatory requirement as at 31 December 2022 amounted to
€4,214,000.
6. Capital risk management
The Bank is a licensed credit institution and must therefore comply with the capital requirements under the
relevant capital requirements within laws and regulations. Maltese law and regulations on capital adequacy
are naturally based on EU capital requirements.
The prudent and efficient management of capital remains one of the Bank’s top priorities. The Bank must
have sufficient capital to comply with regulatory capital requirements. The purpose of the Bank’s capital
management is to ensure an efficient use of capital in relation to risk appetite as well as business
development. Capital management is managed primarily through the capital planning process that
determines the optimal amount and mix of capital that should be held by the Bank, subject to regulatory
limits.
Capital adequacy and the use of regulatory capital are monitored regularly by the Bank’s management,
employing techniques based on the guidelines developed by the Basel Committee, European Union
Regulations and Directives, as implemented by the MFSA for supervisory purposes. The Bank’s capital
management is based on the regulatory requirements established within the CRR and by local regulations
which are modelled on the requisites of the CRD rules.
The Bank’s Executive Team and ALCO are predominately responsible for the Bank’s capital risk management
process. Capital adequacy ratios together with the level and quality of Own funds are reported on a regular
basis to the Board and the ALCO by the Finance Function.
6.1 Own funds
Own funds represent the Bank’s available capital and reserves for the purposes of capital adequacy. Capital
adequacy is a measure of the financial strength of a bank, expressed as a ratio of its capital to its assets.
The Bank adopts processes to ensure that the minimum regulatory requirements are met at all times,
through the assessment of its capital resources and requirements given current financial projections.
During the year ended 31 December 2022, the Bank complied with all of the externally imposed capital
requirements to which it was subject.
In July 2013, the European Banking Authority (EBA) issued its final draft Implementing Technical Standards
(ITS) on Own funds disclosures. The disclosure requirements of these technical standards have been
integrated within the Bank’s disclosures set out below.
The Bank’s capital base comprises Common Equity Tier 1 (CET1) capital, which includes the following items:
ordinary share capital;
share premium;
retained earnings;
revaluation and other reserves; and
other regulatory adjustments relating to items that are included in equity but are treated differently
for capital adequacy purposes including deductions relating to amounts pledged in favour of the
Depositor Compensation Scheme.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
189
6. Capital risk management (continued)
(a) Share capital
The Bank’s share capital as at 31 December 2022 is analysed as follows:
2022
No. of
shares
000s € 000
Authorised
Ordinary shares of 12.5 cent each 300,000 37,500
Issued
Ordinary shares of 12.5 cent each 90,728 11,341
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 meetings of the Bank. All shares rank equally with regard to the Bank's
residual assets.
The following table describes the terms and conditions of the ordinary share capital issued by the Bank.
Capital Instruments
Ordinary share capital and
share premium
Unique Identifier
MT0000040106
Governing law(s) of the instrument
Maltese Law
Regulatory treatment
Transitional CRR rules
Common Equity Tier 1
Post
-
transitional CRR rules
Common Equity Tier 1
Eligible at solo/(sub)
-
consolidated/ solo&(sub
-
) consolidated
Solo
Amount recognised in regulatory capital
€
11,340,967
Nominal
amount of instrument
€
11,340,967
Nominal amount of each share
€
0.
1
25
Accounting classification
Share capital
Issuer call subject to prior supervisory approval
No
Position in subordination hierarchy in liquidation
Subordinated to creditors
and depositors
Non
-
compliant transitioned features
No
(b) Share premium
The share premium represents the amounts at which ordinary shares were issued in excess of their nominal
value, normally arising as a result of rights issues approved by the shareholders during the Annual General
Meetings. The amount is not distributable by way of dividend to shareholders.
(c) Retained earnings
The retained earnings represent earnings not paid out as dividends.
Retained earnings form part of Own funds only if those profits have been verified by the Bank’s
independent external auditor. The Bank has demonstrated to the satisfaction of the competent authority
that any foreseeable charge or dividend has been deducted from the amount of those profits.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
190
6. Capital risk management (continued)
(d) Reserve for General Banking Risks
Banking Rule BR/09 ‘Measures addressing credit risks arising from the assessment of the quality of asset
portfolios of credit institutions authorised under the Banking Act 1994’, issued by the MFSA, requires banks
in Malta to hold additional reserves for general banking risks in respect of non-performing loans. This
reserve is required to be funded from planned dividends. As at the reporting date, this reserve amounted
to €2,903,000 (representing 100% of the total estimated amount). The amount has not changed during the
year under review.
(e) Property revaluation reserve
This represents the surplus arising on the revaluation of the Bank's freehold property net of related
deferred tax effects. The revaluation reserve is not available for distribution.
(f) Investment revaluation reserve
This represents the cumulative net change in fair values of assets measured at FVOCI held by the Bank, net
of related deferred tax effects.
The Bank’s Own funds and capital ratio calculations are set out below:
At 31 December 2022 € 000
Common Equity Tier 1 (CET1) capital
Common Equity Tier 1 (CET1) capital: instruments and reserves
Capital instruments and the related share premium accounts 29,871
Retained earnings 100,204
Accumulated other comprehensive income (and other reserves) (2,657)
Reserve for General Banking Risks 2,903
CET1 capital before regulatory adjustments 130,321
Common Equity Tier 1 (CET1) capital: regulatory adjustments
Intangible assets (57)
Other regulatory adjustments 6,710
Total regulatory adjustments to CET1 6,653
CET1 capital 136,974
Total risk-weighted assets 834,918
Capital ratios
CET1 capital 16.41%
Tier 1 capital 16.41%
Total capital 16.41%
Institution specific buffer requirement 7.00%
of which: capital conservation buffer requirement 2.50%
CET1 available to meet buffers in excess of the CRR 4.5% minimum requirement 11.91%
CET1 available to meet buffers 9.41%
€000
Items not deducted from own funds in accordance with Article 48 of CRR 6,933
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
191
6. Capital risk management (continued)
6.2 Capital requirements
The allocation of capital between specific operations and activities is, to a large extent, driven by
optimisation of the return achieved on the capital allocated. The amount of capital allocated to each
operation or activity is based primarily upon the regulatory capital, though in some cases the regulatory
requirements do not reflect differing risk profiles, subject to the overall level of capital to support a
particular operation or activity not falling below the minimum required for regulatory purposes. The
process of allocating capital to specific operations and activities is undertaken independently of those
responsible for the operation.
Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how
capital is allocated within the Bank to particular operations or activities, it is not the sole basis used for
decision-making. Account is also taken of synergies with other operations and activities, the availability of
management and other resources, and the fit of the activity with the Bank’s long-term strategic objectives.
The Bank’s policies in respect of capital management and allocation are reviewed regularly by the Board of
Directors.
The Pillar I minimum capital requirements are calculated for credit, market and operational risks. During
the year, the Bank continued to use the Standardised Approach for credit risk, the Basic Method for foreign
exchange risk and the Basic Indicator Approach for operational risk in order to calculate the Pillar I minimum
capital requirements. For credit risk, under the Standardised Approach, risk weights are determined
according to the asset class, credit risk mitigation and external credit ratings - or by using the applicable
regulatory risk weights for unrated exposures. Capital charge for foreign exchange risk using the Basic
Method is calculated at 8% of the higher of the sum of all the net short positions and the sum of all the net
long positions in each foreign currency. The Basic Indicator Approach requires that the Bank allocates
capital for operational risk by taking 15% of the average gross income of the preceding three years.
The Total Capital Ratio is calculated using the definition of regulatory capital and risk-weighted assets. As
required by the CRR, the minimum level of the Capital Requirements Ratio stands at 8%. The Capital
Requirements Ratio expresses Own funds as a proportion of risk-weighted assets and off-balance sheet
instruments for credit risk purposes, together with notional risk-weighted assets in respect of operational
risk and market risk. Total risk-weighted assets are determined by multiplying the capital requirements for
market risk and operational risk by 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) and adding
the resulting figures to the sum of risk-weighted assets for credit risk.
The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital on
shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between
the higher returns that might be possible with greater gearing and the advantages and security afforded by
a sound capital position.
The Bank fully implemented the CRD IV capital requirements with effect from January 2020. Although it is
not yet certain whether the Bank will be required to maintain an additional countercyclical capital buffer
as required by the CRR, given that the Bank’s exposures are mainly contained within Malta, this buffer is
expected to be marginal, since the deviation of Malta’s credit-to-GDP ratio is not expected to be significant
taking cognisance of its long-term trend.
Additionally, the Bank is required to maintain a capital conservation buffer of 2.5%, made up of CET1 capital,
on the risk-weighted exposures of the Bank as at 31 December 2022.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
192
6. Capital risk management (continued)
The Bank’s capital requirements and Total Capital Ratio computation are as follows:
At 31 December 2022
Exposure
value
€ 000
Risk weighted
assets
€ 000
Capital required
€ 000
Central governments or central banks 307,189 18,814 1,505
Regional Government or Local Authorities - - -
Public Sector Entities 537
108
9
Multilateral Development Banks 7,791
141
11
International Organisations -
-
-
Institutions 51,148
17,109
1,369
Corporates 91,378
90,989
7,279
Retail 17,302
12,976
1,038
Secured by mortgage on immovable property 484,937
349,162
27,933
Exposures in default 15,376
23,064
1,845
Items associated with particularly high risk 129,915
194,872
15,590
Covered Bonds - - -
Claim on Institutions and Corporate with a short
-
term credit assessment
-
-
-
Claims in the form of CIU - - -
Equity 22,866
24,032
1,923
Other items 59,056
50,927
4,074
Credit risk 1,187,495 782,194 62,576
Foreign exchange risk
53
4
Operational risk
52,671
4,214
Total capital required
8
34
,9
18
66,
794
Own funds
Common Equity Tier 1 capital
136,97
4
Total own funds
136,97
4
Total capital ratio
-
Transitional
16.
41
%
Total Risk weighted assets - Fully Phased In
(without A468 concession)
843,967
Total Capital Ratio
-
Fully Phased In
15.
43
%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
193
6. Capital risk management (continued)
The following is an analysis of the Bank’s Capital Base in accordance with the CRD’s requirements:
2022
2021
€ 000
€ 000
Common Equity Tier 1 (CET1) capital
Share capital
11,341
11,192
Share premium
18,530
18,530
Revaluation and other reserves
1,918
20,828
Retained earnings
100,204
81,452
131,993
132,002
Adjustments:
Final dividend (note 36)
-
(873)
Depositor Compensation Scheme
(1,67
2
)
(2,95
8
)
Intangible assets
(57)
(122)
Other regulatory adjustments
6,710
2,097
Total CET1 capital
136,97
4
130,145
Total own funds – Transitional
136,97
4
130,145
Other regulatory adjustments
(6,720)
(2,189)
Total own funds - Fully Phased In
130,25
4
127,956
6.3 Other disclosures on own funds
The Bank has opted for the transitional arrangements laid down in Regulation (EU) 575/2013 Article 473a
to mitigate the impact of IFRS9 on own funds. Under Regulation (EU) 2017/2395, during the transitional
period ending 31 December 2023, the Bank would have had the option to add back a proportion of:
the Day 1 impact as a result of the introduction of IFRS 9, being the difference between IFRS 9 Expected
Credit Losses (‘ECLs’) on 1 January 2018 and IAS 39 provisions determined at 31 December 2017; and
on difference in the IFRS 9 ECLs determined at reporting date and the ECLs determined on ‘day 1’ of
the introduction of IFRS 9 (being 1 January 2018 for the Bank) for ‘Stage 1’ (12-months ECLs) and ‘Stage
2’ (lifetime ECLs) assets.
The factors used to adjust the above ECLs declines across the transitional period starting at 100% during
the financial year ended 31 December 2020 to 25% in the final transitional financial year ended 21
December 2024. The above treatment is in accordance with the requirements laid down in paragraph 2 and
paragraph 4 of Regulation (EU) 2017/2395.
In line with Section 2 of the EBA ‘Guidelines on uniform disclosures under Article 473a of Regulation (EU)
No 575/2013 as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9
on own funds’, the Bank is required to disclose a comparison of the institutions’ own funds, Common Equity
Tier 1 capital, Tier 1 capital, risk-weighted assets, Common Equity Tier 1 capital ratio, Tier 1 capital ratio,
total capital ratio and leverage ratio with and without the application of transitional arrangements for IFRS
9 or analogous ECLs.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
194
6. Capital risk management (continued)
The comparison of Bank’s own funds and capital and leverage ratios with and without the application of
transitional arrangements for IFRS 9 or analogous ECLs, and with and without the application of the
temporary treatment in accordance with Article 473a of the CRR is presented below:
At 31 December 2022
€ 000
Available capital
CET1 capital 136,974
CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Tier1 capital 136,974
Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Total capital 136,974
Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Risk-weighted assets
Total risk-weighted assets 834,918
Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not
been applied
834,918
Capital Ratios
CET1 (as a percentage of risk exposure amount) 16.41%
CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
16.41%
Tier 1 (as a percentage of risk exposure amount) 16.41%
Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
16.41%
Total capital (as a percentage of risk exposure amount) 16.41%
Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs
transitional arrangements had not been applied
16.41%
Leverage ratio
Leverage ratio total exposure measure 1,205,082
Leverage ratio 11.37%
Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 11.37%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
195
6. Capital risk management (continued)
6.4 Internal Capital Adequacy Assessment Process (ICAAP)
The Bank considers the Internal Capital Adequacy Assessment Process (ICAAP) embedded in Pillar II as a
tool that ensures the proper measurement of material risks and capital and allows for better capital
management and improvements in risk management. Therefore, it facilitates a better alignment between
material risks and regulatory capital in order to have better capital deployment and improvements in the
risk management and mitigation techniques adopted by the Bank. The ICAAP as required by the MFSA
Banking Rule BR/12: The Supervisory Review Process of Credit Institutions authorised under the Banking
Act, 1994, is performed on an annual basis.
Therefore, ICAAP is a process that the Bank utilises to ensure that:
- there is adequate identification, measurement, aggregation and monitoring of the Bank’s risks;
- adequate internal capital is held by the institution in relation to its risk profile; and
- the Bank uses sound risk management systems and there is the intention to develop them further.
The Board and the Bank’s Executive Team take overall responsibility for the conceptual design and technical
details of the ICAAP document. Apart from the responsibility for the conceptual design, the Board
discussed, approved, endorsed and delivered the yearly ICAAP submission. The Bank’s independent Risk
Management Function is involved in the ICAAP with a view to ensuring that the process reflects and takes
cognisance of the Bank’s risk management activities and processes.
The ICAAP is an ongoing process which starts with defining risk strategy followed by identifying, quantifying
and aggregating risks, determining risk-bearing ability, allocating capital, establishing limits and ongoing
risk monitoring. The individual elements of the process are performed with varying regularity. All the
activities described are examined at least once a year to ensure that they are up to date, adequate and also
adjusted to current underlying conditions when necessary.
The process involves a quantitative assessment of individual types of risk and an assessment of the existing
methods and systems for monitoring and managing risk (qualitative assessment). The risk assessment
concept is based on a scoring procedure, thus providing a comprehensive overview of the risk situation of
the Bank.
The basis for the quantitative implementation of the ICAAP is the risk-bearing capacity calculation which
demonstrates that adequate capital is in place at all times to provide sufficient cover for risks that have
been entered into and which also ensures such cover is available for the future. The Bank’s ICAAP is based
upon a ‘Pillar I Plus’ approach whereby the Pillar I capital requirement for credit, market and operational
requirements are supplemented by the capital allocation for other material risks not fully addressed within
Pillar I. The risks considered for ICAAP include concentration, liquidity, reputational and strategic risks,
interest rate risk in the banking book, and risks arising from the macro-economic environment.
The Bank’s ICAAP contains three year projections as well as the capital plan, and the Board monitors that
there are adequate capital resources to support the corporate goals contained within the Bank’s plan and
the associated risks.
The Bank also covers Pillar II capital requirements through stress testing processes to forecast the Bank’s
projected capital requirements and resources in a range of stress scenarios. This enables the Bank to
guarantee that it can meet its minimum regulatory capital requirements in a stressed environment. The
results of the ICAAP once again show that the Bank maintains a comfortable level of excess capital and
substantial liquidity that ensured the flexibility and resources needed to achieve the long-term strategic
objectives of the Bank, even in situations of market stress.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
196
7. Leverage
The leverage ratio is a regulatory and supervisory tool intended to provide a transparent and non-risk based
measurement of an institution to supplement the risk-based capital requirements.
The leverage ratio is calculated on the end of year capital position as a proportion of total exposures. Capital
is defined as Tier 1 capital in line with Article 25 of the CRR, while total exposure relates to the total on-
and off-balance sheet exposures less the deductions applied to Tier 1 capital.
During 2016, the European Commission published a Proposal to amend Regulation 575/2013 (CRR), which
included the introduction of a 3% leverage ratio as a binding Pillar I requirement by 2018. The Bank complies
with a 3% leverage ratio based on fully-transitioned Basel III standards.
The following table represents the Bank’s estimated leverage ratio determined in accordance with the
requirements stipulated by Implementing Regulation EU 2016/200.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Tier 1 capital 136,974 130,254
Leverage ratio total exposure measure 1,205,082 1,208,702
Leverage ratio 11.37%
10.78%
The table shown hereunder represents the amounts making up the leverage ratio exposures.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
On-balance sheet exposures (excluding derivatives and SFTs)
On-balance sheet items (excluding derivatives and SFTs, but
including collateral)
1,167,778 1,117,398
Asset amounts deducted in determining Tier 1 capital (68)
(68)
On-balance sheet exposures (excluding derivatives and SFTs) 1,167,710 1,117,330
Off-balance sheet exposures
Off-balance sheet exposures at gross notional amount 216,760 216,760
Adjustments for conversion to credit equivalent amounts (179,388)
(179,388)
Off-balance sheet exposures 37,372 37,372
The following table provides a reconciliation of accounting assets and leverage ratio exposures.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Total assets as per published financial statements 1,170,620 1,170,620
Adjustment for off-balance sheet items 37,372 37,372
Other adjustments (2,910)
710
Leverage ratio total exposure measure 1,205,082 1,208,702
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
197
7. Leverage (continued)
The table below shows the different on-balance sheet exposures in relation to the calculation of the
leverage ratio.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Total on-balance sheet exposures (excluding derivatives and SFTs),
of which:
Exposures treated as sovereigns 307,189 310,809
Multilateral Development Banks 7,791 7,791
Institutions 50,799 50,799
Secured by mortgages on immovable property 472,153 472,153
Retail 15,234 15,234
Corporate 86,880 86,880
Exposures in default 15,376 15,376
Other exposures 212,288 212,288
1,167,710 1,171,330
The leverage ratio is a regulatory and supervisory instrument used by the Regulator to limit the build-up
of excessive leverage. The leverage ratio at 31 December 2022 stood at 11.37%.
The Bank is currently not at risk in curtailing excessive leverage since the growth in CET1 capital of 8.5%
was greater than the 3.3% increase in the Bank’s total exposure measure. As a result, the Leverage ratio
is expected to remain well above the mandatory requirement. Board limits to the leverage ratio are set
and reviewed annually and the ratio is monitored at every Audit & Risk Committee to ensure that it
remains above the tolerance limit set by the Board of Directors. This limit supports the Bank’s attitude
towards finding a suitable balance between risk and returns provided to shareholders.
8. Remuneration policy
Information on the Bank’s remuneration policy and practices is disclosed in the Remuneration Report
within the Annual Report located on page 34.
9. Other Directorships
In terms of Article 91 of Directive 2013/36/EU (CRD IV), directors of an institution that is significant in
terms of its size, internal organisation and the nature, scope and complexity of its activities shall not hold
more than one of the following combinations of directorships at the same time:
(a) one executive directorship with two non-executive directorships;
(b) four non-executive directorships.
According to the ‘Guide to banking supervision’ issued by the European Central Bank in November 2014,
a credit institution will be considered significant if any one of the following conditions is met:
- the total value of its assets exceeds €30 billion or – unless the total value of its assets is below €5
billion – exceeds 20% of national GDP;
- it is one of the three most significant credit institutions established in a Member State;
- it is a recipient of direct assistance from the European Stability Mechanism; or
- the total value of its assets exceeds €5 billion and the ratio of its cross-border assets/liabilities in
more than one other participating Member State to its total assets/liabilities is above 20%.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
198
9. Other Directorships (continued)
Lombard Bank Malta p.l.c. does not meet any of the above criteria, and therefore is currently not
considered significant by banking supervisors. Accordingly, the Bank is exempt from the requirements of
Article 91 of CRD IV.
The Bank is not disclosing the number of directorships held by the members of the Bank’s Board of
Directors on the basis of materiality in terms of Article 432 of the CRR.
10. Recruitment and Diversity policy
The Bank is aware that a vigorous and professional approach to recruitment and selection of prospective
staff members within the Bank helps it to attract and appoint those individuals having the necessary skills
and attributes compatible with achieving the Bank’s overall objectives. Thus, the Bank ensures that
appointments at all levels are based on each individual’s knowledge, skills, expertise and merit, as
required by laws, rules, regulations, etc. and in line with policy.
The Bank undertakes a rigorous selection process for all prospective staff members bearing in mind the
key activities, tasks and skills required. As part of the selection process, multiple interviews are conducted,
during which the individual’s knowledge, experience, skills and competence are evaluated against those
of other individual.
The Bank continues to promote diversity with no discrimination as to gender, race, family, disability,
sexual orientation, identity or preference, etc.
Bearing its objectives in mind, the Bank, particularly by virtue of the Board appointed Suitabilities &
Evaluations Committee, endeavours to have a Board of Directors composed of members possessing
diverse skills and expertise that allow the Board to create value for shareholders by ensuring that the
specific risks pursued by the Bank as well as risks that are intrinsic to banking business are appropriately
managed and mitigated within the Bank’s risk appetite.
199
Five Year Summary
Statements of Financial Position
Group
202
2
202
1
20
20
201
9
201
8
€ 000
€ 000
€ 000
€ 000
€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash
139,234 126,279 169,687 182,348 128,726
Cheques in course of collection
1,053
530 666 1,214 1,422
Financial i
nvestments
22
0,815
227,135 161,424 111,731 100,070
Loans and advances to banks
27,615
78,279 96,985 121,060 140,581
Loans and advances to customers
711,612
642,893 621,129 552,043 511,124
Investment
s
in associate
s
2,607
3,006 1,932 1,684 1,684
Intangible assets
2,121
2,145 2,050 2,000 1,701
Property, plant and equipment
66,375
65,346 50,928 43,348 38,554
Assets classified as held for
sale
703
661 134 134 778
Current tax assets
575
2,691 1,156 193 865
Deferred tax assets
10,889
7,034 10,117 9,801 9,221
Inventories
1,271
1,324 1,274 1,468 1,360
Trade and other receivables
13,243
10,787 9,136 5,625 5,010
Accrued
income and other assets
5,302
4,536 4,337 9,648 8,973
Total assets
1,203,415 1,172,646 1,130,955 1,042,297 950,069
Equity and liabilities
Equity
Share capital
11,341
11,192
11,044
11,044
11
11,044
Share premium
18,530
18,530 18,530 18,530 18,530
Property revaluation reserve
13,087
13,040
6,383
6,384
6,384
Investment revaluation reserve
(12,733) 5,180 7,181 7,978 4,975
Reserve for General Banking Risks
2,903 2,903 2,903 2,903 2,903
Other
reserves
1,382 2,545 2,510 2,567 3,094
Retained earnings
101,700 83,910 77,470 69,722 61,380
Equity attributable to equity holders
of the Bank
136,210
137,300
126,021
119,128
108,310
Non
-
controlling interests
8,090 8,470 7,741 7,674 7,525
Total equity
144,300 145,770 133,762 126,802 115,835
Liabilities
Amounts owed to banks
535
1,224 5,602 5,871 854
Amounts owed to customers
1,008,431
977,143 941,110 864,993 788,044
Provision for liabilities and other charges
1,688
2,113 2,632 3,236 3,135
Current tax liabilities
-
809 844 1,128 -
Deferred tax liabilities
4,099
4,099 6,448 6,832 5,264
Other liabilities
33,347
30,649 29,665 21,949 27,138
Accruals and
deferred income
11,015
10,839 10,892 11,486 9,799
Total liabilities
1,059,115 1,026,876 997,193 915,495 834,234
Total equity and liabilities
1,203,415 1,172,646 1,130,955 1,042,297 950,069
Memorandum items
Contingent liabilities
13,611 13,195 10,851 11,671 14,148
Commitments
202,396
195,848
200,870
225,826
202,384
200
Five Year Summary
Income Statements
Group
2022 2021 2020 2019 2018
€ 000 € 000 € 000 € 000 € 000
Interest receivable and similar income
29,020
25,725 24,898 25,285 23,188
Interest expense
(6,744)
(6,169)
(6,026)
(5,605) (5,677)
Net interest income
22,276
19,556 18,872 19,680 17,511
Other operating income
37,605
43,856 41,731 40,474 45,609
Other operating charges
(48,049)
(51,836)
(46,107)
(44,311) (49,225)
Net movement in expected credit losses
16,243
1,464 (3,973)
(549) (234)
Share of (loss)/profit of investment
accounted for using equity method
(399)
(402)
(151)
- 109
Profit before taxation
27,676
12,638 10,372 15,294 13,770
Income tax expense
(10,050)
(4,759)
(3,230)
(5,424) (4,831)
Profit for the year
17,626
7,879 7,142 9,870 8,939
Attributable to:
Equity holders of the Bank
17,530
7,481 6,640 9,320 8,447
Non-controlling interests
96
398 502 550 492
Profit for the year
17,626
7,879 7,142 9,870 8,939
201
Five Year Summary
Statements of Cash Flows
Group
2022 2021
2020 2019 2018
€ 000 € 000
€ 000 € 000 € 000
Net cash flows (used in) / generated
from operating activities (36,281)
31,632 14,475 53,125 (30,882)
Cash flows from investing activities
Dividends received 141 81 105 211 369
Interest received from investments 3,485 3,012 2,198 2,325 2,011
Proceeds on maturity/disposal -
of investments 5,220 6,760 16,468 8,163 4,406
Purchase of investments (27,518)
(75,270) (67,862)
(15,905)
(27,850)
Purchase of property, plant
and equipment (3,709)
(7,601) (8,942)
(3,345)
(2,921)
Proceeds from disposal of property,
plant and equipment - - 18 - -
Purchase of investment in associate - (1,500) (399)
- -
Net cash inflow arising from acquisition
of subsidiary - 833 - - -
Net cash flows used in investing
activities (22,381)
(73,685)
(58,414)
(8,551)
(23,985)
Cash flows from financing activities
Dividends paid to equity holders
of the Bank (873)
(862)
- (1,436)
(1,149)
Dividends paid to non-controlling
interests (429)
(429) (427)
(429)
(427)
Principal element of lease payments (478)
(523) (409)
- -
Net cash flows used in financing
activities (1,780)
(1,814) (836)
(1,865)
(1,576)
Independent auditor’s report
To the Shareholders of Lombard Bank Malta p.l.c.
Report on the audit of the financial statements
Our opinion
In our opinion:
· The Group financial statements and the Parent Company financial statements (the “financial statements”) of Lombard Bank Malta p.l.c. (“the Bank”) give a true and fair view of the Group and the Bank’s financial position as at 31 December 2022, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and
· The financial statements have been prepared in accordance with the requirements of the Maltese Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386).
Our opinion is consistent with our additional report to the Audit andRisk Committee.
What we have audited
Lombard Bank Malta p.l.c.’s financial statements comprise:
· the Consolidated and Parent Company statements of financial position as at 31 December 2022;
· the Consolidated and Parent Company income statements and statements of comprehensive income for the year then ended;
· the Consolidated and Parent Company statements of changes in equity for the year then ended;
· the Consolidated and Parent Company statements of cash flows for the year then ended; and
· the notes to the financial statements, which include significant accounting policies and other explanatory information.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and the Bank in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.
To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Bank and its subsidiaries are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).
The non-audit services that we have provided to the Bank and its subsidiaries, in the period from 1 January 2022 to 31 December 2022, are disclosed in note 33 to the financial statements.
Our audit approach
Overview
|
|
· Overall group materiality: €640,000, which represents approximately 5% of the past 3-years average consolidated profit before tax adjusted for non-recurring items. |
|
· The audit procedures carried out covered all the components within the Group namely Lombard Bank Malta p.l.c. (the Parent Company) and its subsidiaries Redbox Limited, Lombard Capital Asset Management Limited and Lombard Select SICAV p.l.c.. The Group also includes Maltapost p.l.c. which is a subsidiary of Redbox Limited (which is fully owned by Lombard Bank Malta p.l.c.) and Tanseana Limited, Ciantar Brothers Limited and PostaInsure Agency Limited, by virtue of Maltapost p.l.c.’s controlling shareholding in these three entities.
The Parent Company and its subsidiaries are based in Malta.
|
|
|
· Credit loss allowances in respect of loans and advances to customers of Lombard Bank Malta p.l.c.
|
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
|
Overall group materiality |
€640,000 |
|
How we determined it |
Approximately 5% of the last 3-years average consolidated profit before tax adjusted for non-recurring items
|
|
Rationale for the materiality benchmark applied |
We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. We chose an average of the past 3 years, adjusted for non-recurring items, as it was determined more appropriate in view of the fluctuations in results. We chose 5% which is within the range of quantitative materiality thresholds that we consider acceptable. |
We agreed with the Audit andRisk Committee that we would report to them misstatements identified during our audit above €64,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current 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.
|
Key audit matter |
How our audit addressed the Key audit matter |
|
Credit loss allowances in respect of loans and advances to customers of Lombard Bank Malta p.l.c. Credit loss allowances in respect of loans and advances to customers represent management’s best estimate of Expected Credit Losses (‘ECLs’) within the loan portfolios at the balance sheet date. The development of the models designed to estimate ECLs on loans measured at amortised cost in accordance with the requirements of IFRS 9 requires a considerable level of judgement since the determination of ECLs is subject to a high degree of estimation uncertainty. The outbreak of the COVID-19 pandemic, followed by the ensuing global macro-economic uncertainties driven by the Russia-Ukraine conflict, have resulted in supply chain disruptions and significant inflationary pressures. These realities have exacerbated the level of uncertainty around the calculation of ECLs, giving rise to heightened subjectivity in the determination of model assumptions used to estimate key model risk parameters and hence necessitating a higher level of expert judgement. Credit loss allowances relating to all loans and advances in the Bank’s portfolios are determined at an instrument level. In general, the Bank calculates ECLs by multiplying three main components: probability of default (PD), loss given default (LGD) and exposure at default (EAD): i. Probability of default (“PD”): the likelihood of a borrower defaulting on its financial obligation either over the next 12 months or over the remaining lifetime of the obligation. ii. Loss given default (“LGD”): the expected losses taking into account, among other attributes, the mitigating effect of collateral value (if any) at the time it is expected to be realised and the time value of money. The LGD modelling methodology utilises historical experience, which might result in limitations in its reliability to appropriately estimate ECLs especially during periods characterised by unprecedented economic conditions such as those currently experienced as a result of the aftermath of the COVID-19 pandemic and the ensuing supply chain disruptions and global inflationary pressures. iii. Exposure at default (“EAD”): the expected exposure in the event of a default (including any expected drawdowns of committed facilities). When applicable, the Bank also applies overlays based on expert judgement where management’s view is that the calculated ECLs based on these key inputs do not fully capture the risks within the Bank’s loan portfolios. For non-defaulted (Stage 1 and 2) loans and a number of defaulted (Stage 3) loans which are not individually significant, the Bank uses internally developed statistical models. For non-defaulted (Stages 1 and 2) exposures, PDs are estimated using historical model development data based on the Bank’s own experience as available at the reporting date. For exposures secured by immovable properties, LGDs are driven by the adjusted loan-to-value ratio of the individual facilities and takes into account other assumptions, including market value haircut (which includes costs to sell), time to sell and the impact of discounting the collateral from the date of realisation back to the date of default. The maximum period considered when measuring ECLs is the maximum contractual period over which the Bank is exposed to credit risk. For individually significant defaulted (Stage 3) exposures, discounted cash flow models are utilised in order to estimate ECLs. Internal credit risk management practices are used to determine when a default has occurred, considering quantitative and qualitative factors where appropriate. Judgement is required to determine when a default has occurred and then to estimate the expected future cash flows related to the loan, which are dependent on parameters or assumptions such as the valuation of collateral (including forced sale discounts and assumed realisation period) or forecasted operating cash flows. The Bank is required to assess multiple scenarios in this respect, which scenarios will have probabilities attached. The impact of supply chain disruptions and inflationary pressures experienced in the local economy has increased the level of uncertainty around judgements made in determining the timing of defaults and in respect of staging. In this respect, these economic conditions might be reasonably expected to impact the affordability of repayments due to the higher cost of living experienced locally together with the potential impact of changes in market interest rates. Such inflationary pressures appear to be partially mitigated by Government support measures. Under IFRS 9, the Bank is required to formulate and incorporate multiple forward-looking economic conditions, reflecting management’s view of potential future economic variables and environments, into the ECL estimates. A number of macro-economic scenarios based on the selected macro-economic variables are considered to capture non-linearity across credit portfolios. The complexity attributable to this factor requires management to develop multiple macro-economic scenarios involving the use of significant judgements. The outbreak of COVID-19 and the ensuing macro-economic uncertainty induced by the Russia-Ukraine conflict and related supply chain disruptions have significantly impacted macro-economic factors, increasing the uncertainty around judgements made in determining the severity and likelihood of macro-economic forecasts across the different economic scenarios used in ECL models. Overly sensitive ECL modelled outcomes can be observed when conditions fall outside the range of historical experience. Data used in the impairment calculation is sourced from a number of systems, including systems that are not necessarily used for the preparation of accounting records. The ECL models are based on a general-purpose application which requires extensive manual handling of data. This increases risk around the accuracy and completeness of data used to determine assumptions and to operate the ECL models. In some cases, data is unavailable and reasonable alternatives have been applied to allow calculations to be performed. Since the estimation of ECLs is subjective in nature and inherently judgmental, the Bank’s application of the IFRS 9 impairment requirements is deemed to be an area of focus, especially in the context of the unprecedented macro-economic conditions currently experienced, which have significantly increased the level of estimation uncertainty in respect of the calculation of credit loss allowances. We focused on credit loss allowances due to the subjective nature of specific data inputs into the calculation and the subjective judgements involved in both timing of recognition of impairment and the estimation of the size of any such impairment.
Accordingly, summarising the key areas relevant to the Bank’s measurement of ECLs would include:
· Allocation of assets to stage 1, 2, or 3 using criteria in accordance with IFRS 9;
· Accounting interpretations and modelling assumptions used to build the models that calculate the ECL;
· Completeness and accuracy of data used to calculate the ECL;
· Inputs and assumptions used to estimate the impact of multiple macro-economic scenarios; and
· Measurement of individually assessed provisions including the assessment of multiple scenarios.
Relevant references in the Annual Report and Financial Statements:
• Accounting policy: note 1.7
• Credit risk management: note 2.3;
• Accounting estimates and judgements: note 3.2;
• Note on Credit impairment losses: note 32; and
• Note on Loans and advances to customers: note 8.
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During our audit of the financial statements for the year ended 31 December 2022, we continued to focus on the key drivers of the estimation of ECL. Apart from assessing the continuing appropriateness of management assumptions, updates to key parameters and model enhancements, were evaluated and tested. Discussions with the Audit andRisk Committee and management were held on: · inputs, assumptions and adjustments to ECL, in particular changes to risk factors and other inputs within the Bank’s models, in respect of which we provided updates on the results of our testing procedures; · the application of forward economic scenarios, including the severity and magnitude of modelled downside scenarios, particularly in the context of the impact of macro-economic developments characterising the aftermath of the COVID-19 pandemic and the escalation of the military conflict between Russia and Ukraine; · considerations in respect of post model adjustments; and · individually significant loan impairments. With respect to the ECL models utilised by the Bank, the continued appropriateness of the modelling policies and methodologies used was independently assessed by reference to the requirements of IFRS 9.
ECL calculation for non-defaulted loan exposures and a number of defaulted loans which are not individually significant We understood and critically assessed the models used for ECL estimation for the Bank’s loan portfolio. Since modelling assumptions and parameters are based on historic data, we assessed whether historic experience was representative of current circumstances and of the recent losses incurred within the portfolios. The appropriateness of management’s judgements was also independently considered in respect of calculation methodologies, calibration of PDs and LGDs, segmentation and selection of macro-economic variables. Model calculations were also tested independently. Substantive procedures were performed as follows: · Performed an overall assessment of the ECL provision levels by stage to determine if they were reasonable considering the Bank’s portfolio, risk profile, credit risk management practices and the macro-economic environment.
· Tested a sample of loans to independently review the borrower’s financial performance and ability to meet loan repayments and assess the appropriateness of the credit rating assigned by management, taking into consideration the estimated impacts of the prevailing macro-economic environment on repayment capabilities of the sampled borrowers.
· Challenged the criteria used to allocate an asset to stage 1, 2 or 3 in accordance with IFRS 9 and tested a sample of assets in stage 1, 2 and 3 to verify that they were allocated to the appropriate stage.
· Tested the completeness and accuracy of the critical data extracted from the underlying systems, that is utilised within the models for the purposes of the year end ECL calculation.
· Risk based testing of models, including a review of the continuing appropriateness of model assumptions. We tested the assumptions, inputs and formulas used in ECL models on a sample basis. This included assessing the appropriateness of model design and formulas used, and recalculating PDs, LGDs and EADs on a sample basis, through the involvement of subject matter experts.
· We assessed the reasonableness of modelled PDs through a comparison of historically predicted and observed default rates, taking into consideration the potential postponement in timing of defaults due to government support programmes and measures, and the reasonableness of modelled LGDs taking cognisance the potential impacts of the current macro-economic environment.
· We also assessed the reasonableness of market value haircuts and time to sell assumptions used as inputs in the light of the current economic climate.
· Tested the multiple macro-economic scenarios and variables using our experts to assess their reasonableness. We assessed the reasonableness of changes effected to factor the impact of current economic conditions, including the recalibration of probability weights. We assessed whether the severity of the forecasted macro-economic variables was appropriate. We challenged the correlation and impact of the macro-economic factors on the ECL. Our testing of models and model assumptions did not highlight material differences.
Based on the evidence obtained, we found the model assumptions, data used within the models and overlays to be reasonable.
ECL calculation for defaulted individually significant loan exposures For defaulted exposures within the loan portfolio, the appropriateness of the methodology and policy used to calculate ECLs was independently assessed. We understood and evaluated the processes for identifying default events within loan portfolios, as well as the impairment assessment process. Substantive procedures were performed in respect of identification of defaults as follows: · Assessed critically the criteria used by management for identifying borrowers whose financial performance is expected to be particularly susceptible to the potential impact of the inflationary pressures being experienced and for determining whether a UTP/default event had occurred by testing a sample of loans with characteristics that might imply a default event had occurred (for example a customer experiencing financial difficulty or material sector disruption) to challenge whether default events had actually occurred and to assess whether default events had been identified by management in a timely manner. · Selected a sample of performing loans, including from those sectors that we consider to be particularly affected by the current macro-economic environment, which had not been identified by management as potentially defaulted, to form our own judgement as to whether that was appropriate and to further challenge whether all relevant events had been identified by management. Substantive procedures were performed on defaulted exposures in respect of the estimation of the amounts of the respective ECL provisions, as follows: · Reviewed the credit files of a selected sample of loans to understand the latest developments at the level of the borrower and the basis of measuring the ECL provisions and considered whether key judgements were appropriate. · Challenged the severity of scenarios being applied for these exposures, together with their respective probability weights by forming an independent view of the recoverability of the selected loan exposures under different scenarios, assigning probabilities independently and comparing the outcomes to that of the Bank. · Tested key inputs to and reperformed the impairment calculation used to derive expected cash flows under different scenarios. · Assessed the appropriateness of a sample of property valuations securing impaired loans through the use of experts.
In the case of some impairment provisions, we formed a different view from that of management, but in our view the differences were within a reasonable range of outcomes. |
How we tailored our group audit scope
The Group is composed of eight components: Lombard Bank Malta p.l.c. (the parent company), and its subsidiaries Redbox Limited, Lombard Select SICAV p.l.c. and Lombard Capital Asset Management Limited. The Group also includes Maltapost p.l.c. which is a subsidiary of Redbox Limited (which is fully owned by Lombard Bank Malta p.l.c.) and Tanseana Limited, Ciantar Brothers Limited and PostaInsure Agency Limited, by virtue of Maltapost p.l.c.’s controlling shareholding in these three entities.
MaltaPost p.l.c. has been determined to be a financially significant entity.
We tailored the scope of our audit in order to perform sufficient work on all components to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates, and local statutory requirements.
The Group audit team performed all of this work by applying the Group overall materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.
Other information
The directors are responsible for the other information. The other information comprises all of the information in the Annual Report and Financial Statements 2022 (but does not include the financial 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 except as explicitly stated within the Report on other legal and regulatory requirements.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors and those charged with governance for the financial statements
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Banking Act (Cap. 371) and 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 Group’s and 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 Group or the Bank or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the 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 material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. 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 Group’s and the Bank’s internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
· Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Bank’s ability to continue as a going concern. If we conclude that a 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 Group or 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.
· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide 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.
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 Financial Report of Lombard Bank Malta p.l.c. for the year ended 31 December 2022, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the Annual Financial Report, including the consolidated 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 Annual Financial Report, including the consolidated financial statements and the relevant electronic tagging therein, 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 Annual Financial Report, in accordance with the requirements of the ESEF RTS.
· Obtaining the Annual Financial Report and performing validations to determine whether the Annual Financial Report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.
· Examining the information in the Annual Financial Report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the Annual Financial Report for the year ended 31 December 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.
Other reporting requirements
The Annual Report and Financial Statements 2022 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.
The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.
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Area of the Annual Report and Financial Statements 2022 and the related Directors’ responsibilities |
Our responsibilities |
Our reporting |
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Directors’ report The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act. |
We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.
We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements.
In addition, we are required to state whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements.
With respect to the information required by paragraphs 8 and 11 of the Sixth Schedule to the Act, our responsibility is limited to ensuring that such information has been provided.
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In our opinion: · the information given in the Directors’ report for the financial year 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).
We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
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Statement of Compliance with the Principles of Good Corporate Governance The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance 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. The Statement provides explanations as to how the Company has complied with the provisions of the Code, presenting the extent to which the Company has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles.
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We are required to report on the Statement of Compliance by expressing an opinion as to whether, in light of the knowledge and understanding of the Company 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 are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s corporate governance procedures or its risk and control procedures. |
In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.
We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section. |
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Remuneration report The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare a Remuneration report, including the contents listed in Appendix 12.1 to Chapter 12 of the Capital Markets Rules. |
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 Remuneration report has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. |
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Other matters prescribed by the Maltese Banking Act (Cap. 371) In terms of the requirements of the Maltese Banking Act (Cap. 371), we are also required to report whether: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the Bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; · in our opinion, and to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law which may from time to time be in force in the manner so required.
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In our opinion: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; and · to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law in force in the manner so required.
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Other matters on which we are required to report by exception We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion, adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us.
We also have responsibilities under the 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.
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We have nothing to report to you in respect of these responsibilities. |
Other matter – use of this report
Our report, including the opinions, 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 these opinions, 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.
Appointment
We were first appointed as auditors of the Bank on 10 April 2010. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 13 years.
PricewaterhouseCoopers
78, Mill Street
Zone 5, Central Business District
Qormi
Malta
Fabio Axisa
Partner
27 April 2023