Company Registration Number: C 70823
Annual Financial Report and
Consolidated Financial Statements
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
Pages
Directors’ report
1 - 7
Statement of Compliance with Corporate Governance Code
8 - 10
Statements of financial position
11 - 12
Income statements
13
Statements of comprehensive income
14
Statements of changes in equity
15 - 17
Statements of cash flows
18 - 19
Notes to the financial statements
20 - 109
Independent auditor’s report
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
1
Directors’ report
Holding p.l.c. (the “Company”) and Merkanti Holding p.l.c. Group (the “Group”), for the year ended 31
December 2024
. The subsidiaries include Merkanti Bank Limited (the “Bank”), Merkanti (A) International
Lt
d (“Merkanti A”), Merkanti (D) International L
t
d (“Merkanti D”), (“Merkanti A”, together with “Merkanti D”,
the “Property Companies”), Altmark Industrie Management GmbH (“A.I.M.”) the “Property Management
Subsidiaries
The following diagram illustrates the corporate structure (voting shares) of the Group as at 31 December
2024:
Principal activities
from the raising of capital and advancing the same to the Group. Accordingly, the Company is
economically dependent on the Group. The principal activities of the Group are comprised of the activities
of the Bank, the Property Companies and their management Company, explained further in the ‘Review of
On 12 August 2019, the Company issued €25,000,000 secured bonds carried at a tenor of 7 years with a
coupon of 4%. The proceeds of the issuance were utilised to support the expansion of the business of the
Bank and the Property Companies. The bond issuance was listed on the Malta Stock Exchange.
On 3 July 2024, the Company called a Bondholder Meeting to consider and approve proposed changes to
the terms and conditions of the Company’s secured bond due 2026 (ISIN: MT0002291202) (the “
Bonds
”).
Bondholders were being requested “To consider and approve the Proposed Amendments to the terms
and conditions of the Bonds as set out in detail in the Notice to the Bondholders Meeting, consisting
primarily of (1) an increase in the interest rate payable on the Bonds from 4.00% to 5.70% per annum and
(2) a 7-
year extension of the term (maturity date) of the Bonds to 12 August 2033” (the “
Resolution”
).”
At the meeting 86.8% of the aggregate nominal value of all outstanding Bonds were represented (in
person or by proxy) with an overwhelming majority (94.2%) voting in favour of the resolution.
As a result of this extension, as per the relevant guidance of International Financial Reporting Standards,
the Company expensed €4
34,600 of capitalized costs from the original issuance of the bonds in 2024.
Merkanti
Holding Plc
100%
100%
100%
94.9%
94.9%
Merkanti
Bank Ltd
Merkanti (A)
International
Ltd
Merkanti (D)
International
Ltd
Merkanti
Diesel Ltd
Altmark Industrie
Management
GmbH
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
2
Directors’ report
- continued
Review of the business
During the year, the Group managed to achieve its targets driven mainly by the increase occupancy and
rental income at our German real-estate, our merchant banking transactions were lower than budget with
an increase in expected credit loss (ECL) provisions.
Loss
after tax for the year for the Company amounted to €
1,041 (2023: profit after tax of
€471,825), whilst
the Group achieved a profit after tax of €
1,096,990
(2023: €1,879,972).
The main reason for the drop in
profit during the year has to do with the aforementioned
€
434,600 expense related to the extension of the
bonds to 2033.
The profits of the Group in 2024 mainly emanated from the German Real Estate companies due to year-
end revaluation, whilst fee and interest income at the Bank declined in the year. The profit contribution
from the German Real Estate companies for the year was approximately €
1,991,546
(2023: €386,610).
During the year, the Company made the fourth full annual coupon payment to its bond holders of
€1,000,000 and an additional €200,000 bonus payment (2023: €1,000,000).
Total assets for the Company and the Group stood at €
79,776,995
and €
106,135,618
(2023: €80,094,529
and €109,641,602)
, respectively.
The Bank is a credit institution licensed by the MFSA under the Banking Act (Chapter 371) of the laws of
Malta, in accordance with the credit institution licence granted by the Malta Financial Services Authority.
The Bank does not engage in general retail banking, but provides speciality banking services, focused on
merchant banking, to customers and group members located in both domestic and non-domestic markets.
The Property Companies are property holding companies that operate in the industrial real estate sector
in Germany, together holding assets recently valued at €
41.8 million
(€39.1 million)
, yielding a combined
rental income of approximately €1.7 million per annum (202
3 1.7 million), the Company held 94.9% of the
Ordinary shares of both Merkanti (A) International Ltd and Merkanti (D) International Ltd.
The real estate owned by the Property Companies is currently leased out to a number of tenants. Lease
agreements in place between the Property Companies and the respective tenants are either open-ended
indefinite term contracts or definite term contracts (with a number of definite term rental agreements
catering for the automatic renewal of the lease, and with renewal periods ranging from one to six years).
In most cases the lessee has the option to terminate the contract by giving written notice a number of
months prior the expiration of the contract, which notice period ranges between 3 to 18 months. For the
year ending 31 December 2024, 93.9% (2023: 95.1
%) of the combined rental income of €
1.7 million
(2023
: €1.
7 million) was generated from areas leased out to third party tenants, with the remaining 6.1%
(2023: 4.9%) generated from leases to related parties.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
3
Directors’ report
- continued
Principal risks and uncertainties
Continued volatile global financial and geopolitical conditions may negatively impact us or our
counterparties
Global financial conditions have been characterized by ongoing volatility. Global financial conditions could
suddenly and rapidly destabilize in response to future events, as government authorities may have limited
resources to respond to future crises. Global capital markets have continued to display increased volatility
in response to global events. Future crises may be precipitated by any number of causes, including
natural disasters, geopolitical instability, civil unrest, changes to energy prices or sovereign defaults.
Ongoing geopolitical challenges such as the Ukraine-Russia war, conflict in the Middle East, tensions
between the United States and China, imposition of new tariffs by the U.S. government and related
countermeasures and other proposed changes to international trade policies have contributed to volatility
in global financial conditions.
The United States of America has recently enacted and proposed to enact significant new tariffs on
Canada, China and other countries and certain of the countries have enacted countermeasures. These
and related developments, or the perception that any of them could occur, may have a material adverse
effect on global economic conditions, the stability of global financial markets and the price and demand for
iron ore. The economic impact of tariffs and countermeasures on the Canadian, American and global
economy could result in increased volatility in commodity prices and negatively impact capital markets
and the operations of the iron ore mine underlying our parent company’s royalty interest, which may
negatively impact our business, results of operations, cash flows and financial condition.
The Group’s business, by its nature, does not produce predictable earnings and it may be materially
affected by conditions in the global financial markets and economic conditions generally. As demand for
the Group’s products and merchant banking services has historically been determined by general global
macro-
economic activities, demand and prices for the Group’s products and services have historically
decreased substantially during economic slowdowns. A significant economic downturn may affect sales
and profitability and may adversely affect suppliers and customers. Depending on their severity and
duration, the effects and consequences of a global economic downturn could have a material adverse
effect on the Group’s liquidity and capital resources, including the Group’s ability to raise capital, if
needed, and otherwise negatively impact our business and financial results.
The Group is subject to strategic and business risk.
Improper strategic choices or the actual implementation of strategic decisions, as well as lack of
responsiveness to changes in the economic environment, can have a serious and significant impact on
prospective financial results.
As the Group is engaged in German property business, this risk category is intimately connected with the
overall performance of the global and German economy. In addition, the Group is engaged in the trade
finance and merchant banking business, which is intimately connected with the level of cross-border trade
between countries and in markets that are typically in the developing stages of their economic
development and political stability.
The Group may increase its debt in the future.
The Group may continue to fund its operations and future growth by incurring additional debt. A
substantial deterioration in operating cash flows and profitability could make it difficult for the Group to
service interest payments and principal repayments on its borrowings.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
4
Directors’ report
- continued
Principal risks and uncertainties
- continued
Group could be at risk of default on the occurrence of certain unexpected events. Any failure to satisfy
debt obligations could result in a default under the terms of current and future financing arrangements
The Group’s bank subsidiary is subject to regulatory risk.
In particular, the banking industry is subject to extensive regulation and oversight. The operations of our
Bank are subject to the regulations and directives issued by the European Union, as well as any additional
Maltese legislation. The Bank is subject to direct supervision by the Malta Financial Services Authority,
the Central Bank of Malta and the Financial Intelligence Analysis Unit and indirect supervision by the
European Central Bank. There are various regulations and guidelines that the Bank needs to adhere to
but the most noticeable ones relate to capital requirements, liquidity and the funding and the Anti-Money
Laundering and Anti-Terrorist Financing. As a Maltese credit institution, the Bank is subject to the Capital
Requirements Directive and Regulatory Frameworks, referred to as the “CRD and CRR Framework” (as
updated from time to time), through which the European Union implements the Basel Capital reforms. The
CRD and CRR Framework, among other things, impose minimum statutory capital requirements based on
risk adjusted credit exposures and requires extensive regulatory reporting on own funds, large exposures,
liquidity requirements and various other regulatory requirements. Large exposures consist of credit
exposures to a client or group of connected clients in excess of 10% of the Bank's statutory capital base
and such large exposures cannot exceed 25% of the Bank's statutory capital base, after taking into
account eligible credit risk mitigation. The main liquidity requirements imposed by the CRD and CRR
Framework are the liquidity coverage ratio, referred to as “LCR”, which refers to the proportion of highly
liquid assets held by the Bank to ensure its ongoing ability to meet short-term liquidity obligations. The
Bank must maintain a minimum statutory LCR of 100%. The CRD and CRR Framework also establish a
minimum Net Stable Funding Ratio (referred to “NSFR”)
of 100%. Unlike the LCR, the NSFR is a liquidity
standard requiring the Bank to hold enough stable funding to cover the duration of its long-term assets.
The Bank is currently working on the requirements of the revised CRD and CRR Framework, commonly
referred to as the CRD6/CRR3 package, which will be wide-ranging, but is expected to include core Basel
III components as well as market risk. However, the European Commission also introduces further
initiatives in the package, which include: the revision of certain credit risk-weights used to determine the
Bank’s statutory capital adequacy ratio; new capital calculation requirements relating to operational risk;
governance and reporting requirements relating to environmental, social and governance (ESG) risks; and
digital operational resilience (DORA).
Merchant banking as a business is competitive, volatile and subject to various risks.
The Bank’s merchant banking business could experience significant periodic variations in revenues and
results of operations in the future. The merchant banking business is also highly competitive and certain
competitors have substantially greater capital and resources, including access to supply, than the Bank. If
the Bank is unable to compete effectively, its business and results of operations will be adversely affected.
The Group is subject to systematic risk in the global financial system.
The Group is exposed to systemic risk caused by the o
ngoing geopolitical challenges such as the
Ukraine-Russia war, conflict in the Middle East, tensions between the United States and China, imposition
of new tariffs by the U.S. government and related countermeasures and other proposed changes to
international trade policies have contributed to volatility in global financial conditions.
Due to the high level
of interdependence between financial institutions, the Bank is and will continue to be subject to the risk of
deterioration of the (actual or perceived) commercial and financial soundness of other financial services
institutions, which is also often referred to as systemic risk.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
5
Directors’ report
- continued
Even the perceived lack of creditworthiness of about a single counterparty may lead to market wide
liquidity problems and losses or defaults by other institutions, including the Bank.
The Group is exposed to litigation risks in its business that are often difficult to assess or quantify.
The Group is exposed to various forms of legal risk arising from its trade finance, merchant banking and
other activities. Legal risks arise from the possibility that unenforceable contracts, lawsuits, or adverse
judgements can disrupt or otherwise negatively affect the operations or condition of the Group. The Group
carries on business in various parts of the world and under different legal systems.
The Group is particularly susceptible to legal risks when entering into structured transactions in emerging
markets, where its legal rights might be susceptible to non-enforcement because of uncertainties of the
local legal and judicial system.
The Group is exposed to the industrial real estate and property market in Germany
.
The industrial real estate market in Germany is, among other things, affected by shifts in demand and
supply, changes in general economic conditions, changing supply within a particular area of competing
space and attractiveness of real estate relative to other investment choices. Changes in regulatory
requirements and applicable laws (such as taxation and planning permits), political conditions, conditions
of the financial markets, inflation, interest rate fluctuations, the availability of financing, yields of alternative
investments and other factors may also have an adverse effect on the property market and, in turn, the
capital values and income streams of the Group.
Future business developments
The Company continues to execute its business plan whilst diligently adhering to its risk management
principles. In 2024, incremental business development contributed to revenues and profits, and the
Company is committed to continuing profitable growth into the future.
The Company continues to explore various business opportunities ~ both organic and inorganic ~ with the
goal of maximizing profits for its shareholders and prudently safeguarding the interests of its key
stakeholders.
Risk management
The Group is considering various additional strategic transactions to further expand its product profile and
geographical scope, while at the same time maintaining a strong liquidity profile to be able to capitalize on
any opportunities which may arise.
The Group faces a range of business, financial and operational risks. The Group adopts a robust
corporate governance framework with a risk management approach to understand what its risks are, how
much risk is acceptable, and to be able to manage it to create value for shareholders while meeting
regulatory requirements ensuring integrity, ethical and transparent behaviour.
At a strategic level, the Group’s financial risk management objectives are:
i.
to ensure appropriate identification of the Group’s significant risks;
ii.
to ensure that the Group’s plans are consistent with its risk appetite;
iii. to optimise risk/return decisions by taking them as closely as possible to the business, while
establishing strong and independent review and challenge structures; and
iv.
to help the Group’s Management improve the control and co
-ordination of risk taking across the
business.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
6
Directors’ report
- continued
A detailed review of the Group’s use of financial instruments, its exposure to liquidity risk, credit risk and
market risk, and the respective financial risk management objectives and policies is included in Note 2 to
the financial statements.
Results and dividends
The income statement is set out on page 13. No dividend is being recommended by the Board. The
accumulated profits of the Group amounting to
€
4,576,993 will be carried forward to the next financial year.
Directors
The directors of the Company who held the office during the year were:
Samuel Morrow (Chief Executive Officer)
Mario P Galea (Chairman)
Benjamin Muscat
Silke Stenger
Rene Randall (appointed 23
rd
January 2025)
Martin Ware
In accordance with the Company’s articles of association, directors are appointed during the Company’s
annual general meeting until the next following annual general meeting (unless elected for a longer or
shorter period or unless they resign or are removed), at the end of which term they may stand again for
re-election. No election may be made for a period exceeding three (3) years. The Articles of Association
of the Company clearly set out the procedures to be followed in the appointment of directors.
Responsibilities of Directors for the Financial Statements
The directors are required by the Maltese Companies Act (Cap.386) to prepare financial statements which
give a true and fair view of the state of affairs of the Group and the Company as at the end of each
reporting period and of the profit or loss for that period.
In preparing the financial statements, the directors are responsible for:
•
ensuring that the financial statements have been drawn up in accordance with International
Financial Reporting Standards as adopted by the EU;
•
selecting and applying appropriate accounting policies;
•
making accounting estimates that are reasonable in the circumstances;
•
ensuring that the financial statements are prepared on the going concern basis unless it is
inappropriate to presume that the Group and the Company will continue in business as a going
concern.
Material contracts
Other than the contracts specified for and within the Company’s prospectus dated July 18, 2019, for the
issuance of €25 million of 4% seven year secured bonds,
amended on 3
rd
July 2024 via a bondholder vote
to change the terms and conditions of the bond to €25 million of 5.7% secured bonds maturing on 12
th
August 2033 there are no material contracts outstanding.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
7
Directors’ report
- continued
Going concern
The directors, as required by Listing Rule 5.62, have considered the Company’s operational performance,
the statement of Financial Position as at 31 December 2024, as well as the business plans for the coming
year, and that they have a reasonable expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future. For this reason, they continue to adopt the going
concern basis in preparing the financial statements.
Auditors
PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their re-
appointment will be proposed at the Annual General Meeting.
Statement of Responsibility pursuant to the Listing rules issued by the Listing Authority
The Board declares that to the best of their knowledge, the financial statements included in the Annual
Report are prepared in accordance with the requirements of International Financial Reporting Standards
as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit of
the Company and the undertakings
included in the consolidation taken as a whole, and that this director’s
report includes a fair review of the development and performance of the business and position of the
Company, together with a description of the principal risks and uncertainties that it faces.
Signed on behalf of the Company’s Board of Directors on
30 April 2025 by Mario P Galea (Director) and
Martin Ware (Director)
as per the Directors’ Declaration
on ESEF Annual Financial Report submitted in
conjunction with the Annual Report and Consolidated Financial Statements 2024.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
8
Statement of Compliance with Corporate Governance Code
The Listing Rules issued by the Listing Authority of the Malta Financial Services Authority, require listed
companies to observe The Code of Principles of Good Corporate Governance (the “Code”). Although the
adoption of the Code is not obligatory, companies with securities that are listed on a ‘regulated market’
(and that are subject to the Listing Rules and the Code) are required to include, among other things, in
their annual report, a corporate governance statement and a statement by the directors on a company’s
compliance with the Code, accompanied by a report of the auditors thereon. Companies that do not have
any listed equity securities, including the Company, are exempt from certain requirements relating to the
contents of this corporate governance statement.
Compliance
The Company’s Board believes in the principles espoused by and the adoption of the Code and the
Company has endorsed them to the extent that they are considered complementary to the size, nature,
and operations of the Company. In particular, the Board believes that, due to the Company’s size,
operations and particular circumstances
–
including the fact that it is a holding and finance company and
does not have any employees or officers other than the directors and the company secretary
–
it is not
necessary for the Board to establish the remuneration, nomination and board performance evaluation
committees (and the related supporting principles and Code Provisions) that are suggested in the Code,
and that the function of these committees can efficiently be undertaken by the board itself as necessary. It
should also be noted that the Board’s performance is subject to ongoing evaluation and scrutiny of the
Board itself (the majority of which is composed by independent non-
executive directors), the Company’s
shareholder and the market. The shareholders approve the remuneration paid to the directors at the
annual general meeting.
The Board
The Board is responsible for devising a strategy, setting policies and the management of the Company. It
is also responsible for reviewing internal control procedures, financial performance and business risks
facing the Company. The Board is also responsible for ensuring that its operations are in conformity with
all relevant rules and regulations. Directors meet regularly, mainly to review the operational and financial
performance of the Company, any significant matters arising, and to review internal control processes.
Board members are notified of forthcoming meetings by the Company Secretary with the issue of an
agenda and supporting documents, which are circulated in advance of the meeting. All the directors have
access to independent professional advice at the Company’s expense should they so require and
frequently make use of this facility on various issues.
The Company has in place systems whereby the directors obtain timely information from the executive
management teams of its subsidiaries, not only at meetings of the Board but at regular intervals or when
the need arises.
The Board is currently composed of two executive and four independent non-executive directors, as listed
below.
Mario P Galea (Chairman and Independent Non-Executive Director)
Benjamin Muscat (Independent Non-Executive Director)
Silke Stenger (Independent Non-Executive Director)
Rene Randall (Independent Non-Executive Director) (appointed 23 January 2025)
Samuel Morrow (Executive Director)
Martin Ware (Executive Director)
The Company Secretary of the Company is Ganado Services Limited (C 10785)
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
9
Statement of Compliance with Corporate Governance Code
- continued
Internal Controls & Risk Management Systems in relation to Financial Reporting
The Board is responsible for designing, implementing and maintaining internal controls and risk
management systems that it deems necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and for reviewing their effectiveness. They
are also responsible for safeguarding the assets of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
In particular, systems and procedures are in place for the Company to control, report, monitor and assess
risks and their financial implications, and to take timely corrective actions where necessary, and for the
Board to be kept informed in a structured and systematic manner on the operational and financial
performance of the Company. Regular financial budgets and strategic plans are prepared, and
performance against these plans is actively monitored and reported to the directors on a regular basis. All
financial information and forecasts are reviewed by multiple parties as well as the Board to ensure
accuracy.
The monitoring of these controls and systems has been delegated to the Audit Committee (as described
below). The Board and Audit Committee are satisfied with the effectiveness of the Company’s system of
internal controls and risk management systems.
Audit Committee
The Board established an Audit Committee (the “Committee”) in 2019 to assist the Board in fulfilling its
supervisory and monitoring responsibilities. The Committee operates according to detailed terms of
reference established by the Board that reflect the requirements of the Listing Rules as well as current
good corporate governance best practices. These terms of reference establish its composition, role,
responsibilities and function, the parameters of its remit, as well as the basis for the processes that it is
required to comply with. The Committee, which is required to meet at least four times a year, is a sub-
committee of the Board and is directly responsible and accountable to the Board.
The primary purpose of the Committee is to assist the directors in conducting their role effectively so that
the Company’s decision
-making capability and the accuracy of its reporting and financial results are
maintained at a high level at all times. Among other responsibilities, the Committee is responsible for
monitoring the financial reporting process and monitoring of the effectiveness of the Company’s internal
controls and risk management systems in relation to the financial reporting of the Company.
The Audit Committee is composed entirely of independent non-executive directors (each of which satisfies
the independence criteria set out in the Listing Rules). All of the members of the Audit Committee are
designated as competent in auditing and/or accounting. Mario Galea has been appointed as the Chairman
of the Audit Committee.
The Members of the Audit Committee are:
Mario Galea (Chairman)
Benjamin Muscat (Member)
Silke Stenger (Member)
Rene Randall (Member) (appointed 23 January 2025)
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
10
Statement of Compliance with Corporate Governance Code
- continued
Remuneration Statement
In terms of the Company’s Memorandum and Articles of Association, it is the shareholders of the
Company in the General Meeting who determine the maximum annual aggregate remuneration of the
directors. The independent directors received €110,500 in aggregate for services rendered during 2024 in
their capacity as directors of the company. No part of the remuneration paid to the independent directors
is performance based. None of the independent directors, in their capacity as a director of the Company,
is entitled to profit sharing, share options or pension benefits.
Signed on behalf of the Company’s Board of Directors on 30 April 2025 by Mario P Galea (Director) and
Martin Ware (Director) as per the Directors’ Declaration on ESEF
Annual Financial Report submitted in
conjunction with the Annual Report and Consolidated Financial Statements 2024.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
11
Statements of financial position
Group
Company
As at 31 December
Notes
2024
2023
2024
2023
€
€
€
€
ASSETS
Balances with Central Bank of Malta
and cash
4
-
-
Loans and advances to banks and
other financial institutions
5
2,216,768
7,325,442
Loans and advances to customers
6
-
-
Financial assets mandatorily
measured at fair value
through profit or loss
7
-
267,181
Financial assets measured at fair
value through other
comprehensive income
8
-
-
Investments in subsidiaries
9
50,559,310
50,530,850
Investment property
10
-
-
Property, plant and equipment
11
4,068
28,506
Intangible assets
12
-
-
Right-of-use assets
13
-
138,747
Other receivables
14
23,305,793
19,169,845
Current tax assets
177,873
231,232
Deferred tax assets
15
-
-
Accrued income and other assets
16
3,513,183
2,402,726
Total assets
79,776,995
80,094,529
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
12
Statements of financial position
- continued
Group
Company
As at 31 December
Notes
2024
2023
2024
2023
€
€
€
€
EQUITY AND LIABILITIES
Capital and reserves attributable
to owners of the parent
Share capital
17
1,667,333
1,667,333
Contribution reserve
18
50,892,669
50,892,669
Fair value reserve
19
(90,201 )
(314,698 )
-
-
Retained earnings
2,076,588
2,077,629
54,636,590
54,637,631
Non-controlling interests
20
-
-
Total equity
54,636,590
54,637,631
Liabilities
Borrowings
21
24,481,152
24,686,800
Lease liabilities
13
-
168,809
Amounts owed to banks
22
-
-
Amounts owed to customers
23
-
-
Current tax liabilities
-
10,756
Deferred tax liabilities
15
-
-
Other liabilities
24
659,253
590,533
Total liabilities
25,140,405
25,456,898
Total equity and liabilities
79,776,995
80,094,529
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Directors on 30 April 2025. The financial statements
were signed on behalf on behalf of the Company’s
Board of Directors by Mario P Galea (Director) and Martin Ware (Director) as
per the Directors’
Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
13
Income statements
Group
Company
Year ended 31 December
Notes
2024
2023
2024
2023
€
€
€
€
Interest income
26
1,118,255
1,258,363
Interest expense
27
(2,012,523 )
(1,326,975 )
(1,663,012)
(1,115,762)
Net interest income
(544,757)
142,601
Net fee and commission income
28
92,940
137,794
Rental income from investment property
29
106,525
101,657
Changes in the fair value of
investment property
10
(40,080 )
-
-
Realised gains/(losses) on disposal of
investment property and property,
plant and equipment
(28,496 )
-
(545)
Net trading income
30
(179,957 )
17,146
(537,045)
Dividend income
31
284,700
1,233,700
Other operating income
32
1,215,768
918,910
Operating income
1,172,322
1,997,072
Changes in expected credit losses
33
(109,106 )
(91,061 )
-
38,607
Administrative expenses
34
(7,080,451 )
(6,657,680 )
(1,311,254)
(1,553,098)
Profit/(loss) before tax
(138,932)
482,581
Tax income/(expense)
35
(214,986 )
137,891
(10,756)
Profit for the year
(1,041)
471,825
Profit attributable to:
Owners of the parent
Non-controlling interests
20
(53,225 )
(514,941 )
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
14
Statements of comprehensive income
Group
Company
Year ended 31 December
Notes
2024
2023
2024
2023
€
€
€
€
Profit/(Loss) for the year
(1,041)
471,825
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Fair valuation of financial assets
measured at fair value through
other comprehensive income:
Net changes in fair value arising
during the year
8
-
-
Changes in expected credit losses
attributable to debt instruments
measured at fair value through
other comprehensive income
8
-
-
Other comprehensive income
for the year, net of tax
-
-
Total comprehensive income
for the year
(1,041)
471,825
Total comprehensive income
attributable to:
Owners of the parent
Non-controlling interests
20
(53,225 )
(514,941 )
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
15
Statements of changes in equity
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Group
Attributable to owners of the parent
Non-
Share
Contribution
Fair value
Retained
controlling
Total
Notes
capital
reserve
reserve
earnings
Total
interests
equity
€
€
€
€
€
€
€
Balance at 1 January 2023
(587,930 )
Comprehensive income
Profit for the year
(514,941 )
Other comprehensive income:
Fair valuation of financial assets measured at fair
value through other comprehensive income
Net changes in fair value arising during the year
8
Changes in expected credit losses attributable
to debt instruments measured at fair value
through other comprehensive income
8
Total comprehensive income
(514,941 )
Transactions with owners in their capacity as owners:
Dividends paid to non-controlling interests in subsidiaries
20
(66,300 )
(66,300 )
Transactions with owners in their capacity as owners
(66,300 )
(66,300 )
Balance at 31 December 2023
(314,698 )
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
16
Statements of changes in equity
- continued
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Group
Attributable to owners of the parent
Non-
Share
Contribution
Fair value
Retained
controlling
Total
Notes
capital
reserve
reserve
earnings
Total
interests
equity
€
€
€
€
€
€
€
Balance at 1 January 2024
(314,698 )
Comprehensive income
Profit for the year
(53,225 )
Other comprehensive income:
Fair valuation of financial assets measured at fair
value through other comprehensive income
Net changes in fair value arising during the year
8
Changes in expected credit losses attributable
to debt instruments measured at fair value
through other comprehensive income
8
Total comprehensive income
(53,225 )
Transactions with owners in their capacity as owners:
Dividends paid to non-controlling interests in subsidiaries
20
(15,300 )
(15,300 )
Transactions with owners in their capacity as owners
(15,300 )
(15,300 )
Balance at 31 December 2024
(90,201 )
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
17
Statements of changes in equity
- continued
Company
Note
Share
capital
Contribution
reserve
Retained
earnings
Total
€
€
€
€
Balance at 1 January 2023
1,667,333
50,892,669
1,605,804
54,165,806
Comprehensive income
Profit for the year
-
-
471,825
471,825
Balance at 31 December 2023
1,667,333
50,892,669
2,077,629
54,637,631
Balance at 1 January 2024
1,667,333
50,892,669
2,077,629
54,637,631
Comprehensive income
Loss for the year
-
-
(1,041)
(1,041)
Balance at 31 December 2024
1,667,333
50,892,669
2,076,588
54,636,590
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
18
Statements of cash flows
Group
As at 31 December
2024
2023
Notes
€
€
Interest, commission, rental and other income received
Interest and commission expense paid
(2,072,499 )
(1,210,928 )
Cash payments to employees and suppliers
(6,994,012 )
(6,034,379 )
Income taxes paid
(234,809 )
(261,336 )
Income taxes refund
Cash flows from operating activities before
changes in operating assets and liabilities
(9,942 )
Changes in operating assets and liabilities:
Net decrease/(increase) in Reserve Deposit with Central Bank
4
(19,011 )
Net increase in money market placement with Central Bank
4
(10,588,122 )
Net increase in loans and advances to banks
and other financial institutions
5
(5,415 )
(22,666 )
Net decrease/(increase) in loans and advances to customers
6
(458,830 )
Net decrease in dispute resolution funding assets
measured at fair value through profit or loss
7
Net (increase)/decrease in other receivables
14
(3,984,189 )
Net (increase)/decrease in other assets
16
(288,403 )
Net decrease in amounts owed to banks
22
(400 )
(400 )
Net decrease in amounts owed to customers
23
(6,254,747 )
(1,718,756 )
Net increase/(decrease) in other liabilities
24
(117,832 )
Net cash (used in)/generated from operating activities
(19,013,395 )
Cash flows from investing activities
Proceeds from maturity or redemption of financial assets
measured at fair value through other comprehensive
income
8
Purchase of investment properties
10
(547,552 )
Proceeds from disposal of investment properties
10
Proceeds from disposal of property, plant and equipment
Purchase of property, plant and equipment
11
(82,788 )
(66,450 )
Purchase of intangible assets
12
(14,929 )
(50,466 )
Net cash generated from investing activities
Cash flows from financing activities
Principal element of lease payments
13
(171,245 )
(170,940 )
Net cash used in financing activities
(171,245 )
(170,940 )
Net movement in cash and cash equivalents
(17,705,154 )
Effect of exchange rate changes on cash and cash equivalents
(117,282 )
Cash and cash equivalents at beginning of year
36
Cash and cash equivalents at end of year
36
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
19
Statements of cash flows
- continued
Company
As at 31 December
2024
2023
Notes
€
€
Interest, commission, rental and other income received
1,543,258
1,190,505
Interest and commission expense paid
(1,866,224)
(999,715)
Cash payments to suppliers
(1,147,779)
(1,383,406)
Income taxes paid
(10,756)
(1,626)
Income taxes refund
191,250
-
Cash flows used in operating activities
before changes in operating assets and liabilities
(1,290,251)
(1,194,242)
Changes in operating assets and liabilities:
Net decrease/(increase) in loans and advances to banks
and other financial institutions
5
900,000
(1,800,000)
Net (increase)/decrease in other receivables
14
(3,567,211)
4,421,289
Net (increase)/decrease in accrued income and other assets
16
(120,227)
404,576
Net increase in other liabilities
24
40,260
35,615
Net cash (used in)/generated from operating activities
(4,037,429)
1,867,238
Cash flows from investing activities
Purchase of property, plant and equipment
11
-
(3,104)
Dividends received
-
1,050,807
Net cash generated from investing activities
-
1,047,703
Cash flows from financing activities
Principal element of lease payments
13
(171,245)
(170,940)
Net cash used in financing activities
(171,245)
(170,940)
Net movement in cash and cash equivalents
(4,208,674)
2,744,001
Cash and cash equivalents at beginning of year
36
5,525,442
2,781,441
Cash and cash equivalents at end of year
36
1,316,768
5,525,442
The notes on pages 20 to 109 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
20
Notes to the consolidated financial statements
Summary of material accounting policies
The material accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
(“the
Company
”) and its subsidiary undertakings (together referred to as “the Group”). These
financial statements have been prepared in accordance with International Financial Reporting
Standards (
‘
IFRSs
’
) as adopted by the EU and with the requirements of the Companies Act (Cap.
386) and the Banking Act (Cap. 371) enacted in Malta. They have been prepared under the
historical cost convention, as modified by the fair valuation of financial assets and financial liabilities
measured at fair value through profit or loss including derivative financial instruments, financial
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the
use of certain accounting estimates. It also requires directors to exercise their judgement in the
process of applying the Group
’s
accounting policies (see Note 3
–
Critical accounting estimates and
judgements).
Having satisfied themselves on the financial position and performance of the Group, the directors
have a reasonable expectation that the Company and the Group will continue in operational
existence for the foreseeable future.
In determining the appropriateness of the going concern assumption in the preparation of the
financial statements, the directors have considered the effects of the global macroeconomic
uncertainties driven by the ongoing geo-political conflicts in eastern Europe and Middle East,
tensions between the United States and China, imposition of new tariffs by the United States
government and related countermeasures and other proposed changes to international trade
policies
to the Group’s operations.
The Group do not see any direct impact but is actively
monitoring the situation and has taken necessary measures to ensure that negative impacts on
overall business is mitigated to the extent possible.
Accordingly, the directors consider the
going concern assumption in the preparation of the Group’s
financial statements as appropriate as at the date of authorisation for issue of these financial
In 2024, the Group adopted amendments to existing standards that are mandatory for the Group
and Company’s accounting period beginning on 1 January 2024. The adoption of these revisions to
the requirements of IFRSs as adopted by the EU did not result in changes to the Group’s
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
21
1.
Summary of material accounting policies
- continued
1.1 Basis of preparation
- continued
Standards, interpretations and amendments to published standards that are not yet adopted
Certain new standards, amendments and interpretations to existing standards have been published
by the date of authorisation for issue of these financial statements but are mandatory for the
Group’s accounting periods beginning after 1 January 2024.
The Group has not early adopted these revisions to the requirements of IFRSs as adopted by the
EU and the Directors are of the opinion that there are no requirements which will have a possible
material impact on the Group’s and Company’s financial statements in the period of initial
application, other than what is described below.
IFRS 18 ‘Presentation and Disclosure in Financial Statements’ (effective for annual periods
beginning on or after 1 January 2027)
IFRS 18 (issued on 9 April 2024) is yet to be endorsed for use in the EU however it is set to replace
IAS 1 Presentation of financial statements, introducing new requirements that will help to achieve
comparability of the financial performance of similar entities and provide more relevant information
and transparency to users. Even though IFRS 18 will not impact the recognition or measurement of
items in the financial statements, its impacts on presentation and disclosure are expected to be
pervasive, in particular those related to the statement of financial performance. IFRS 18 will also
require the disclosure of management-defined performance measures within the financial
statements.
Management is currently assessing the detailed implications of applying the new standard on the
Group’s and Company’s financial statements.
The new standard will be applicable from its mandatory effective date of 1 January 2027, subject to
Subsidiaries are all entities (including structured entities) over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are de-consolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at the non-
controlling interest’s
proportionate share of the acquiree’s net assets.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
22
1.
Summary of material accounting policies
- continued
1.2 Consolidation
- continued
The excess of the consideration transferred, the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
fair value of identifiable net assets acquired is recorded as goodwill. If this is less than the fair value
of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between group
companies are eliminated. Unrealised losses are also eliminated. The accounting policies of the
subsidiaries are consistent with the policies adopted by the Group.
In the Company’s separate financial statements, investments in subsidiaries are accounted for by
the cost method of accounting, i.e. at cost less impairment. Provisions are recorded where, in the
opinion of the directors, there is an impairment in value. Where there has been an impairment in the
value of an investment, it is recognised as an expense in the period in which the diminution is
identified. The results of subsidiaries are reflected in the Company’s separate financial statements
only to the extent of dividends receivable. On disposal of an investment, the difference between the
The Group treats transactions with non-controlling interests, where the acquisition or disposal of
partial interests in a subsidiary has no impact on the Group’s ability to govern the subsidiary’s
financial and operating policies, as transactions with equity owners of the Group. For purchases
from non-controlling interests, the difference between any consideration paid and the relevant share
acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses
on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is
remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair
value is the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are accounted for as if the
Group had directly disposed of the related assets or liabilities. This may mean that amounts
1.3 Foreign currency translation
Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the
entity operates (‘the functional
currency’). The consolidated financial statements are presented in euro, which is the Company’s
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
23
1.
Summary of material accounting policies
- continued
1.3 Foreign currency translation
- continued
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
The Group recognises a financial asset in its consolidated statement of financial position when it
becomes a party to the contractual provisions of the instrument.
Regular way purchases and sales of financial assets are recognised on the trade date, which is the
date on which the Group commits to purchase or sell the asset. Accordingly, the Group uses trade
date accounting for regular way contracts when recording financial asset transactions.
At initial recognition, the Group measures a financial asset at its fair value plus or minus, in the
case of a financial asset not at fair value through profit or loss, transaction costs that are
incremental and directly attributable to the acquisition or issue of the financial asset, such as fees
and commissions. Transaction costs of financial assets carried at fair value through profit or loss
are expensed in profit or loss. Immediately after initial recognition, an expected credit loss
allowance (‘ECL’) is recognised for financial assets measured at amortised cost and investments in
debt instruments measured at FVOCI, which results in an accounting loss being recognised in profit
or loss when an asset is newly originated.
When the fair value of financial assets differs from the transaction price on initial recognition, the
Group recognises the difference as follows:
•
When the fair value is evidenced by a quoted price in an active market for an identical asset
(i.e. a Level 1 input) or based on a valuation technique that uses only data from observable
markets, the difference is recognised as a gain or loss.
•
In all other cases, the difference is deferred and the timing of recognition of deferred day one
profit or loss is determined individually. It is either amortised over the life of the instrument,
deferred until the instrument's fair value can be determined using market observable inputs, or
realised through settlement.
The Group has applied IFRS 9 and classifies its financial assets in the following measurement
categories:
•
Fair value through profit or loss (FVPL);
•
Fair value through other comprehensive income (FVOCI); or
•
Amortised cost.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
24
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
- continued
Debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the
issuer's perspective, such as loans, government and corporate bonds and trade receivables
purchased from clients in factoring arrangements without recourse.
Classification and subsequent measurement of debt instruments depend on:
•
the Group's business model for managing the asset; and
•
the cash flow characteristics of the asset.
Based on these factors the Group classifies its debt instruments into one of the following three
measurement categories:
Amortised cost:
Assets that are held for collection of contractual cash flows where those cash flows
represent solely payments of principal and interest ('SPPI'), and that are not designated at FVPL,
are measured at amortised cost. The carrying amount of these assets is adjusted by any expected
credit loss allowance recognised and measured as described in Note 1.5. Interest income from
these financial assets is included in 'Interest income' using the effective interest rate method. As at
31 December 2024 and 31 December 2023, t
he Group’s financial assets measured at amortised
cost include ‘Balances with Central Bank of Malta and cash’, ‘Loans and advances to banks and
other financial institutions’, ‘Loans and advances to customers’ and ‘Other receivables’
.
FVOCI
: Financial assets that are held for collection of contractual cash flows and for selling the
assets, where the assets' cash flows represent solely payments of principal and interest, and that
are not designated at FVPL, are measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign
exchange gains and losses on the instrument's amortised cost which are recognised in profit or
loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in
OCI is reclassified from equity to profit or loss and recognised in 'Net trading income'. Interest
income from these financial assets is included in 'Interest income' using the effective interest rate
method. As at 31 December 2024 and 31 December 2023, t
he Group’s financial
investments are
measured at FVOCI (Note 8).
FVPL
: Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value
through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair
value through profit or loss and is not part of a hedging relationship is recognised in profit or loss
and presented in the profit or loss statement within 'Net trading income' in the period in which it
arises, unless it arises from debt instruments that were designated at fair value or which are not
held for trading, in which case they are presented separately in 'Net trading income’. Debt
instruments that contain contractual terms that give rise on specified dates to cash flows that are
not consistent with a basic lending arrangement and thus fail the solely payments of principal and
interest test are ‘mandatorily’ measured at FVPL. Interest income from these financial assets,
including those that are mandatorily measured at FVPL, is included in ‘Interest income’ using the
effective interest rate method. As at 31 December 2024 and 2023, the Group mandatorily
measured financial assets on the basis that it failed the SPPI test. (Note 7).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
25
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
–
continued
Debt instruments
- continued
The amortised cost is the amount at which the financial asset or financial liability is measured at
initial recognition minus the principal repayments, plus or minus the cumulative amortisation (using
the effective interest method) of any difference between that initial amount and the maturity amount
and, for financial assets, adjusted for any loss allowance.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial liability to the gross carrying
amount of a financial asset (i.e., its amortised cost before any impairment allowance) or to the
amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums
or discounts and fees and points paid or received that are integral to the effective interest rate, such
as origination fees. For purchased or originated credit-impaired ('POCI') financial assets - assets
that are credit-impaired at initial recognition - the Group calculates the credit-adjusted effective
interest rate, which is calculated based on the amortised cost of the financial asset instead of its
gross carrying amount and incorporates the impact of expected credit losses in estimated future
cash flows.
When the Group revises the estimates of future cash flows, the carrying amount of the respective
financial assets or financial liability is adjusted to reflect the new estimate discounted using the
original effective interest rate. Any changes are recognised in profit or loss.
The Group reclassifies debt instruments when and only when its business model for managing
those assets changes. The reclassification takes place from the start of the first reporting period
following the change. Such changes are expected to be very infrequent and none occurred during
the period.
(a) Business model assessment
Key management personnel
determine the Group’s business model by considering the way
financial instruments are managed in order to generate cash flows. That is, whether the Group's
objective is solely to collect the contractual cash flows from the assets or is to collect both the
contractual cash flows and cash flows arising from the sale of assets. If neither of these is
applicable (e.g., financial assets are held for trading purposes), then the financial assets are
classified as part of 'other' business model and measured at FVPL. Such assessment is performed
at a ‘portfolio level' as it best reflects the way the business is managed and information is provided
to management.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
26
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
–
continued
Debt instruments
- continued
(a) Business model assessment
- continued
The information that will be considered in such assessment includes:
•
the objectives for the portfolio including whether
management’s strategy focuses on earning
contractual interest revenue, maintaining a particular interest rate profile, matching the
duration of the financial assets to the duration of the liabilities that are funding those assets or
realising cash flows through the sale of assets;
•
the method for the evaluation of the performance of the portfolio and how such performance is
reported to the Group’s management;
•
the risks that affect the performance of the business model (and the financial assets held
within that business model) and how those risks are managed; and
•
the frequency, volume and timing of sales in prior periods, the reasons for such sales and
expectations about future sales activity. However, information about sales activity is not
considered in isolation, but as part of an overall assessment of how the Group’s stated
objective for managing the financial assets is achieved and how cash flows are realised.
(b)
Cash flows that represent solely payment of principal and interest (SPPI)
In respect of assets where the intention of the business model is to hold the financial assets to
collect the contractual cash flows or to hold to collect and to sell, the Group assesses whether the
financial instruments’ cash flows represent SPPI. In making this assessment, the Group considers
whether the contractual cash flows are consistent with a basic lending agreement. ‘Principal’ is the
fair value of the financial asset at initial recognition. It is not the amount that is due under the
contractual terms of an instrument. ‘Interest’ is the compensation for time value of money and credit
risk of a basic lending-type return. A basic lending-type return could also include consideration for
other basic lending risks (for example, liquidity risk) and consideration for costs associated with
holding the financial asset for a particular period of time (for example, servicing or administrative
costs) and/or a profit margin. Where the contractual terms introduce exposure to risk or volatility
that are inconsistent with a basic lending arrangement, the related financial asset is classified and
measured at fair value through profit or loss.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
27
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
- continued
Debt instruments
- continued
(b) Cash flows that represent solely payment of principal and interest (SPPI)
- continued
Unlike the business model assessment, the SPPI assessment is performed for each individual
product or portfolio of products. The following considerations are made when assessing
consistency with SPPI:
•
contingent events that would change the amount and timing of cash flows such as contractual
term resetting interest to a higher amount in the event of a missed payment;
•
leverage features, being contractual cash flow characteristics that increase the variability of
the contractual cash flows with the result that they do not have economic characteristics of
interest;
•
contractual terms that allow the issuer to prepay (or the holder to put a debt instrument back to
the issuer) before maturity and whether the prepayment amount substantially represents
unpaid amounts of principal and interest, which may include reasonable compensation for
early termination of the contract;
•
contractual terms that allow the issuer or holder to extend the contractual term and the terms
of the extension option result in contractual cash flows during the extension period that are
solely payments of principal and interest, which may include reasonable compensation for the
extension of the contract; and
•
features that modify consideration for the time value of money (for example, periodic reset of
interest rates).
Equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer's perspective,
that is, instruments that do not contain a contractual obligation to pay and that evidence a residual
interest in the issuer's net assets. Examples of equity instruments include basic ordinary shares.
The Group subsequently measures all equity investments at fair value through profit or loss, except
where the Group's management has elected, at initial recognition, to irrevocably designate an
equity investment at fair value through other comprehensive income. The Group's policy is to
designate equity investments as FVOCI when those investments are held for purposes other than
to generate investment returns. When this election is used, fair value gains and losses are
recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. The
Group’s equity financial assets comprise of unlisted equity investments measured at FVPL (Note
7).
Impairment losses (and reversal of impairment losses) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, are recognised
in profit or loss as other income when the Group's right to receive payments is established.
Gains and losses on equity investments at FVPL are included in the 'Net trading income’ line in the
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
28
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.3 Derecognition of financial assets
Financial assets are derecognised when the contractual rights to receive cash flows from the
assets have expired or when the Group has transferred its contractual right to receive the cash
flows of the financial assets, and either:
•
substantially all the risks and rewards of ownership have been transferred; or
•
the Group has neither retained nor transferred substantially all the risks and rewards, but
The Group assesses on a forward-
looking basis the expected credit losses (‘ECLs’) associated
with its debt instruments carried at amortised cost and FVOCI and with the exposure arising from
loan commitments and financial guarantee contracts. The Group recognises a loss allowances for
such losses at each reporting date. The measurement of ECLs reflects:
i. an unbiased and probability-weighted amount that is determined by evaluating a range of
possible outcomes;
ii.
the time value of money; and
iii. reasonable and supportable information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts of future economic
conditions.
The Group
calculates ECL using three main components: a probability of default (‘PD’), a loss
given default (‘LGD’), and the
exposure at default (‘EAD’).
Note 2.2.3 provides more detail of how
the expected credit loss allowance is measured.
Expected credit loss allowances are presented in the statements of financial position as follows:
•
financial assets measured at amortised cost: as a deduction from the gross carrying amount of
the assets;
•
loan commitments and financial guarantee contracts: generally, as a provision;
•
financial instrument with both a drawn and undrawn component, whereby the Group cannot
identify the ECL on the loan commitment component separately from those on the drawn
component: the Group presents a combined loss allowance for both components, as a
deduction from the gross carrying amount of the drawn component; and
•
debt instruments measured at FVOCI: no loss allowance is recognised in the statements of
financial position against the carrying amount of the asset because the carrying amount of
these assets is their fair value. However, the loss allowance is disclosed and is recognised in
1.6 Write-off policy
The Group writes off financial assets when it determines that these are uncollectible, it has
exhausted all practical recovery efforts and has concluded there is no reasonable expectation of
recovery. This is generally the case when the Group determines that the counterparty does not
have assets or sources of income that could generate sufficient cash flows to repay the amounts
subject to the write-offs.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
29
1.
Summary of material accounting policies
- continued
Financial assets and liabilities are offset and the net amount is reported in the statements of
financial position when there is a legally enforceable right to set off the recognised amounts and
there is an intention to settle on a net basis, or realise the asset and settle the liability
Investment property, principally comprising freehold office and warehouse buildings and parcels of
land (both developed and undeveloped) held mainly for long-term rental yields and capital
appreciation and which is not occupied by the Group.
Investment property is measured initially at its historical cost, including related transaction costs
and borrowing costs. Historical cost includes expenditure that is directly attributable to the
acquisition of the items. Borrowing costs which are incurred for the purpose of acquiring or
constructing a qualifying investment property are capitalised as part of its cost. Borrowing costs are
capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs
is ceased once the asset is substantially complete and is suspended if the development of the
asset is suspended. After initial recognition, investment property is carried at fair value,
representing open market value determined annually. Fair value is based on active market prices,
adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If
the information is not available, the Group uses alternative valuation methods such as recent prices
on less active markets or discounted cash flow projections.
These valuations are reviewed annually by professional valuers. Investment property that is being
redeveloped for continuing use as investment property or for which the market has become less
active continues to be measured at fair value. Fair value measurement on property under
construction is only applied if the fair value is considered to be reliably measurable. The fair value
of investment property reflects, among other things, rental income from current leases and
assumptions about rental income from future leases in the light of current market conditions.
The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect
of the property.
future economic benefits associated with the expenditure will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss
during the financial period in which they are incurred. When part of an investment property is
The fair value of investment property does not reflect future capital expenditure that will improve or
enhance the property and does not reflect the related future benefits from this future expenditure
other than those a rational market participant would take into account when determining the value
of the property.
Changes in fair values are recognised in profit or loss. Investment properties are derecognised
either when they have been disposed of or when the investment property is permanently withdrawn
from use and no future economic benefit is expected from its disposal.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
30
1.
Summary of material accounting policies
- continued
1.8 Investment property
- continued
If an investment property becomes owner-occupied, it is reclassified as property, plant and
equipment. Its fair value at the date of the reclassification becomes its cost for subsequent
accounting purposes. When the Group decides to dispose of an investment property without
development, the Group continues to treat the property as an investment property. Similarly, if the
Group begins to redevelop an existing investment property for continued future use as investment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Group and the cost of the item can be measured reliably. The carrying amount
of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss
during the financial period in which they are incurred.
residual values over their estimated useful lives, as follows:
% | |
Computer equipment | 25 |
Office improvements and equipment | 10-25 |
Others | 25 |
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire
and bring to use the specific software. These costs are amortised over their estimated useful lives
of ten years. Costs associated with maintaining computer software programmes are recognised as
an expense as incurred.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
31
1.
Summary of material accounting policies
- continued
1.10 Intangible assets
- continued
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Group are recognised as intangible assets when the following
criteria are met:
•
it is technically feasible to complete the software product so that it will be available for use;
•
management intends to complete the software product and use it;
•
there is an ability to use the software product;
•
it can be demonstrated how the software product will generate probable future economic
benefits;
•
adequate technical, financial and other resources to complete the development and to use the
software product are available; and
•
the expenditure attributable to the software product during its development can be reliably
measured.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost
less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset
begins when development is complete, and the asset is available for use. It is amortised over the
period of expected future benefit. Amortisation is recorded in cost of sales. During the period of
development, the asset is tested for impairment annually.
At the end of each reporting period, intangible assets are reviewed for indications of impairment or
changes in estimated future economic benefits. If such indications exist, the intangible assets are
analysed to assess whether their carrying amount is fully recoverable (Note 1.12).
The amortisation period and the amortisation method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are considered
to modify the amortisation period or method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on intangible assets with finite lives is recognised
The Group is the lessee
The Group has lease agreements in place related to the leases of property used as office space. At
the inception of a contract, the Group assesses if the contract is or contains a lease and hence
conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. For leases of property, the Group has elected not to separate lease and non-lease
components and instead accounts for these as a single lease component.
Lease liabilities arising from such contracts are measured at the present value of the remaining
lease payments, discounted using the incremental borrowing rate, which is the rate that the Group
would have to pay to borrow the funds necessary to obtain an asset of a similar value in a similar
economic environment with similar terms and conditions. Lease payments to be made under
reasonably certain extension options are also included in the measurement of the liability.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on
the lease liability (using the effective interest method) and by reducing the carrying amount to
reflect the lease payments made.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
32
1.
Summary of material accounting policies
- continued
1.11 Leases
- continued
The Group measures the associated right-of-use assets at an amount equal to the lease liability at
the date at which the leased asset is made available for use. The right-of-use assets are
subsequently depreciated using the straight-line method from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The Group elects not to recognise right-of-use assets and lease liabilities for low value leases or
leases with a term shorter than 12 months. Lease payments relating to these leases are expensed
Assets that are subject to depreciation and amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating units). The impairment
test can also be performed on a single asset when the fair value less cost to sell or the value in use
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or
loss, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in other comprehensive income or directly
in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the end of the reporting period.
Deferred tax is recognised, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill;
deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the end of the reporting period and are expected to
apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred tax assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
33
1.
Summary of material accounting policies
- continued
1.13 Current and deferred tax
- continued
During 2024, the Company formed part of a Fiscal Unit for Maltese income tax purposes as a
principal taxpayer with its subsidiary bank
(the “Bank”)
as the transparent subsidiary effective from
1 January 2023, which allows the Fiscal Unit group members to be treated as a single taxpayer.
Under the Fiscal Unit the principal taxpayer assumes the tax responsibilities in its entirety towards
the tax authorities, while both entities within the Unit being jointly liable for such tax obligations.
According to the Tax Sharing Agreement entered into between the Company and the Bank, the
Fiscal Unit’s tax liability is calculated based on the respective entities’ notional tax obligation based
on standalone taxable profits and/or losses incurred during the year. The Company remits tax
payments on behalf of the Bank within the Fiscal Unit, where any such remittances are due. Under
the terms of the agreement current tax assets and liabilities are recognised as receivables from or
payables to the Bank.
In addition, under the terms of the Tax Sharing Agreement, the Company shall compensate the
Bank whenever and to the extent, the unutilised and unrecognised tax losses assumed by the
Company
are “utilised” in the reduction of the taxable profit of the Fiscal Unit or utilised against the
current tax liability of the Fiscal Unit. Such utilisation is deemed to occur and a compensatory
obligation created, if in any year, any one of the members in the Fiscal Unit reports taxable
At the level of Fiscal Unit members’ standalone financial statements, entitlement to compensation
to be received by the Bank with respect to unutilised tax losses utilised by the Company against its
own notional tax liability are treated as an investment in subsidiary by the Company (Note 9) and as
a capital contribution within the equity reserves by the Bank in the year in which the Fiscal Unit files
its consolidated tax return, which may be in year(s) subsequent to the financial year in which the
Company
’s taxable profit arises. For any unutilised tax losses brought forward that are
utilised by
the Company
against the Bank’s notional tax expense and liability in a given year, the payment
payable by the Company, under the Tax Sharing Agreement, for the utilisation of such tax losses is
credited to the tax charge in the Bank’s Income Statement in the year in which the relevant taxable
profits arise. The payment payable by the Company will be equivalent to the receivable balance
against the Bank
’s
tax liability transferred to the Company, hence set off in the intercompany
accounts.
The Group recognises a financial liability on its consolidated statement of financial position when it
becomes a party to the contractual provisions of the instrument. Financial liabilities not at fair value
through profit or loss are recognised initially at fair value, being the fair value of consideration
received, net of transaction costs that are directly attributable to the acquisition or the issue of the
financial liability.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
34
1.
Summary of material accounting policies
- continued
1.14.1 Initial recognition and measurement
- continued
Financial liabilities are classified as subsequently measured at amortised cost, except for:
•
financial liabilities at fair value through profit or loss: this classification is applied to derivatives,
financial liabilities held for trading (e.g. short positions in the trading booking) and other
financial liabilities designated as such at initial recognition. Gains or losses on financial
liabilities designated at fair value through profit or loss are presented partially in other
comprehensive income (the amount of change in the fair value of the financial liability that is
attributable to changes in the credit risk of that liability, which is determined as the amount that
is not attributable to changes in market conditions that give rise to market risk) and partially
profit or loss (the remaining amount of change in the fair value of the liability). This is unless
such a presentation would create, or enlarge, an accounting mismatch, in which case the
gains and losses attributable to changes in the credit risk of the liability are also presented in
profit or loss;
•
financial liabilities arising from the transfer of financial assets which did not qualify for
derecognition, whereby a financial liability is recognised for the consideration received for the
transfer. In subsequent periods, the Group recognises any expense incurred on the financial
liability; and
•
1.14.2 Classification and subsequent measurement
Financial liabilities measured at amortised cost comprise principally borrowings, derivative
liabilities, amounts owed to banks, amounts owed to customers, and other liabilities.
The Group derecognises a financial liability from its consolidated statement of financial position
when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.
The exchange between the Group and its original lenders of debt instruments with substantially
different terms, as well as substantial modifications of the terms of existing financial liabilities, are
accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. The terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received and discounted using
the original effective interest rate, is at least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
In addition, other qualitative factors, such as the currency that the instrument is denominated in,
changes in the type of interest rate, new conversion features attached to the instrument and change
in covenants are also taken into consideration. If an exchange of debt instruments or modification of
terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of
the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
35
1.
Summary of material accounting policies
- continued
A contingent liability is:
(a) a possible obligation that arises from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the control of the entity; or
(b) a present obligation that arises from past events but is not recognised because: (i) it is not
probable that an outflow of resources embodying economic benefits will be required to settle
the obligation; or is not probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with
sufficient reliability.
Contingent liabilities are not recognised but are disclosed unless the possibility of an outflow of
Interest income and expense for all interest-bearing financial instruments are recognised within
‘Interest income’ and ‘Interest expense’ in the profit or loss using the effective interest method. The
effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial liability to the gross carrying
amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the
amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums
or discounts and fees and points paid or received that are integral to the effective interest rate,
such as origination fees. For purchased or originated credit-impaired ('POCI') financial assets -
assets that are credit-impaired at initial recognition - the Group calculates the credit-adjusted
effective interest rate, which is calculated based on the amortised cost of the financial asset instead
of its gross carrying amount and incorporates the impact of expected credit losses in estimated
future cash flows.
The Group
’s income streams includes loan facility origination fees, rescheduling fees
(charged
when a customer applies to extend the repayment date), loan facility amendment fees and other
fees and interest charged on revolving and longer term credit products. All these fees are
considered to be an integral part of the effective interest rate of the loans and advances taking
cognisance of the nature of these fees, the purposes for which these fees are assessed and the
substance of the services provided. Accordingly, these fees are amortised to profit or loss using the
effective interest method over the expected term of the instruments and presented within ‘Interest
and similar income’.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of
financial assets, except for:
•
POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the
amortised cost of the financial asset;
•
financial assets that are not 'POCI' but have subsequently become credit-impaired (or 'Stage 3'),
for which interest revenue is calculated by applying the effective interest rate to their amortised cost
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
36
1.
Summary of material accounting policies
- continued
The Group earns fee and commission income from a diverse range of financial services it provides
to its customers. Fee and commission income is recognised at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for providing the services. The
performance obligations, as well as the timing of their satisfaction, are identified, and determined, at
the inception of the contract.
Fees and commission income and expenses that are integral to the effective interest rate on a
financial asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, corporate servicing fees and
property management fees are recognised in the accounting period in which the services are
rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to
the end of the reporting period as a proportion of the total services to be provided because the
customer receives and uses the benefits simultaneously.
Where the contracts include multiple performance obligations, the transaction price will be allocated
to each performance obligation based on the stand-alone selling prices. Where these are not
directly observable, they are estimated based on expected cost-plus margin.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances
change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit
or loss in the period in which the circumstances that give rise to the revision become known by
management.
In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule.
If the services rendered exceed the payment, a contract asset is recognised. If the payments
Rental income from investment property
Rental income from investment property is recognised in profit or loss on a straight-line basis over
1.20 Other operating income
Other operating income is recognised on an accrual basis unless collectability is in doubt.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
37
1.
Summary of material accounting policies
- continued
Cash and cash equivalents are carried in the statements of financial position at face value less
expected credit loss allowances. In the statements of cash flows, cash and cash equivalents
include cash in hand, deposits held at call with banks and other financial institutions and other
The Group determines and presents operating segments based on the information that internally is
provided to the Board of D
irectors of the parent company, which is the Group’s chief operating
decision-maker in accordance with the requirements of IFRS 8, Operating Segments.
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions
Financial risk management
2.1 Introduction
The Group’s activities expose it to a variety of financial risks and these activities involve the
analysis, evaluation, acceptance and management of some degree of risk or combination of risks.
The Group’s aim is to achieve an appropriate balance between risk and return and minimise
potential adverse effects on the entity’s financial performance.
The Board of Directors oversees credit, market, funding and liquidity, operational and strategic
business risks. The Group has developed an integrated risk management framework to identify,
assess, manage and report risks and risk adjusted returns.
The Group
’s risk management policies are designed to identify and analyse risks, to set appropriate
risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and
up-to-date information systems. The Board is responsible for the overall effectiveness of the risk
management function, which function is however carried out by all the members of the Group
’s
management.
2.2.1 Introduction
The Group takes on exposure to credit risk, which is the risk that a counterparty will cause a
financial loss for the Group by failing to discharge an obligation. Credit risk is the most important
risk for the Group’s business
, accordingly, management carefully manages its exposure to this risk.
Credit exposures arise principally through the Group’s participation in credit loan
and receivables
transactions, mainly with Scully Royalty Group and also with third parties
, through the Group’s
transactions with correspondent banks, and through its investments in debt securities and other
exposures arising from its investing activities.
In order to minimise the credit risk undertaken in examining a counterparty’s creditworthiness,
country risk, quantitative and qualitative characteristics, as well as the industry sector in which the
counterparty operates, are considered.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
38
2.
Financial risk management
- continued
2.2 Credit Risk
- continued
2.2.1 Introduction
- continued
In addition, the Group continues to integrate climate risk into its credit risk management activities,
with physical and transition risks considered to be the key climate risks impacting credit risk. As at
31 December 2024, the Group determined that the impact of climate risk on credit risk is immaterial
on the basis that majority of the Group’s exposures have a short
-term maturity.
The Group has also set limits of authority and has segregation of duties in place so as to maintain
impartiality and independence during the approval process and to control new and existing credit
facilities. Credit review procedures are designed to identify at an early stage exposures which
require more detailed monitoring and review.
2.2.2 Credit risk measurement
The measurement of credit exposure for risk management purposes considers that an exposure
varies with changes in market conditions, expected cash flows and the passage of time. The
assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of
defaults occurring, of the associated loss ratios and of default correlations between counterparties.
The Group measures credit risk using Probability of Default (‘PD’), Exposure at Default (‘EAD’) and
Loss Given Default (‘LGD’).
The Group’s financial assets primarily comprise
the following three portfolios upon which credit risk
is assessed: investments in debt securities, loans and advances to banks and other financial
institutions, loans and advances to customers and receivables from related parties. Where
published ratings are issued by external rating agencies, such as Standard & Poor’s, Fitch and
Moody’s,
the Group refers to such ratings to determine the probability of default of individual
counterparties. These published grades are continuously monitored and updated. Where published
ratings are not available, a credit risk modelling solution developed by an external vendor, is used
to determine implied credit ratings. Implied credit ratings are determined on the basis of exposure-
specific characteristics, including financial performance and qualitative characteristics captured
through a scorecard. The implied ratings are calibrated with the rating scales as defined by the
recognised external rating agencies, which in turn allow for the determination of the probability of
default attributable to each individual unrated counterparty.
In determining the probability of default of individual counterparties, the Group distinguishes
between exposures considered ‘investment
-
grade’ defined by recognised external rating agencies
as a rating between AAA to BBB-
(Standard & Poor’s, Fitch) and Aaa to Baa3 (Moody’s), and ‘non
-
investment grade’ exposures.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
2.
Financial risk management
- continued
2.2 Credit Risk
- continued
IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial
recognition as summarised below:
i.
A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage
1' and has its credit risk continuously monitored by the Group.
ii.
If a significant increase in credit risk ('SICR') since initial recognition is identified, the
financial instrument is moved to 'Stage 2' but is not yet deemed to be credit - impaired.
Please refer to Note 2.2.3.1 for a description of how the Group determines when a
significant increase in credit risk has occurred.
iii.
If the financial instrument is credit-impaired, the financial instrument is then moved to
'Stage 3'. Please refer to Note 2.2.3.2 for a description of how the Group defines credit-
impaired and default.
iv.
Financial
instruments in ‘Stage 1’ have their ECL measured at an amount equal to the
portion of lifetime expected credit losses that result from default events possible within the
next 12 months. Instruments in ‘Stage 2’ or ‘Stage 3’ have their ECL measured based on
expected credit losses on a lifetime basis. Please refer to Note 2.2.3.3 for a description of
inputs, assumptions and estimation techniques used in measuring the ECL.
v.
A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider
forward looking information. Note 2.2.3.4 includes an explanation of how the Group has
incorporated this in its ECL models.
Purchased or originated credit-impaired financial assets are those financial assets that are credit-
impaired on initial recognition. Their ECL is always measured on a lifetime basis (‘Stage 3’).
The expected credit loss requirements apply to financial assets measured at amortised cost and
FVOCI, and certain loan commitments and financial guarantee contracts. At initial recognition, an
impairment allowance (or provision in the case of commitments and guarantees) is required for ECL
resulting from default events that are possible within the next 12 months (“12
-
month ECL”). In the
event of a significant increase in credit risk, an allowance (or provision) is required for ECL resulting
from all possible default events over the expected life of the financial instrument (“lifetime ECL”).
Financial assets where 12-
month ECL is recognised are considered ‘Stage 1’. Financial assets
which are considered to have experienced a significant increase in credit risk would be classified as
‘Stage 2’ and financial assets for which there is objective evidence of impairment, thus considered
to be in default or otherwise credit-
impaired, would be classified as ‘Stage 3’.
The Group recognises loss allowances at an amount equal to 12-month ECL for debt securities
measured at amortised cost and FVOCI and counterparty banks that are determined to have low
credit risk at the reporting date. The Group considers a debt security to have low credit risk when it
is considered ‘investment
-
grade’, defined by recognised external rating agencies as a rating
between AAA to BBB-
(Standard & Poor’s and Fitch) and Aaa
to
Baa3 (Moody’s).
2.2.3.1 Significant increase in credit risk
The Group
’s assessment to determine the extent of increase in credit risk of a financial instrument
since initial recognition is performed by considering the change in the risk of default occurring over
the remaining life of the financial instrument.
39
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
40
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.3 Expected credit loss measurement
- continued
2.2.3.1 Significant increase in credit risk
- continued
To determine whether the credit risk (i.e. risk of default) on a financial instrument has increased
significantly since initial recognition, the Group considers reasonable and supportable information
that is relevant and available without undue cost or effort, including both quantitative and qualitative
information. Such analysis is based on the Group
’s historical experience, credit assessment and
forward-looking information.
A backstop is applied and the financial instrument considered to have experienced a significant
increase in credit risk if the counterparty is more than 30 days past due on its contractual
repayments.
2.2.3.2 Definition of default and credit-impaired assets
The Group applies the definition of default in a consistent manner with internal credit risk
management practices for the relevant instruments and the definition considers qualitative and
quantitative factors where appropriate.
The Group defines a financial instrument as in default, which is fully aligned with the definition of
credit-impaired, when it meets one or more of the criteria below.
The Group determines that a financial instrument is credit-impaired (in default and in Stage 3 for
IFRS 9 purposes) by considering relevant objective evidence, when it meets one or more of the
below criteria:
•
contractual payments of either principal or interest are past due for more than 90 days for any
material credit obligations to the Group;
•
there are other indications that the borrower is unlikely to pay such as that a concession has
been granted to the borrower for economic or legal reasons of an enduring nature relating to
the borrower’s financial condition, which indicates the borrower is in significant financial
difficulty (unlikeliness to pay criteria); and
•
the loan is otherwise considered to be in default. If unlikeliness to pay is not identified at an
earlier stage, it is deemed to occur when an exposure is more than 90 days past due.
Therefore, the definitions of credit-impaired and default are aligned so that Stage 3 represents all
loans which are considered defaulted or credit-impaired.
The default definition has been applied consistently to model the PD, EAD and LGD throughout the
Group's expected loss calculations.
The Group considers certain financial assets, mainly loans and advances to banks and other
financial institutions and investments in debt securities respectively, to be in default when a
payment due (including a coupon payment) is not effected.
In the case of certain portfolio of financial assets (specially loans and advances to banks and other
financial institutions and investment in debt securities), the Group applies the low credit risk
simplification to all its exposures considered ‘investment grade’, thus they are not subject to the
SICR assessment. Moving from investment grade does not automatically mean that there is SICR.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
41
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.3 Expected credit loss measurement
- continued
2.2.3.3 Measuring ECL
–
Explanation of inputs, assumptions and estimation techniques
The ECL is measured on either a 12-month (12M) or on a lifetime basis depending on whether a
significant increase in credit risk has occurred since initial recognition or whether an asset is
considered to be credit-impaired. Expected credit losses are the discounted product of the PD,
EAD, and LGD. These three components are multiplied together effectively calculating the forward-
looking ECL, which is then discounted back to the reporting date. The discount rate used in the
ECL calculation is the original effective interest rate or an approximation thereof.
The 12-month ECL is calculated by multiplying the 12-month PD, LGD, and EAD. Lifetime ECL is
calculated on a similar basis for the residual life of the exposure.
The PD, EAD and LGD parameters are estimated through the use of internally developed statistical
models on the basis of market available data, adjusted to reflect forward-looking information as
described below.
The PD represents the likelihood of a borrower defaulting on its financial obligation (as per
"definition of default and credit-impaired" above), either over the next 12 months (
‘
12M PD
’
), or over
the remaining lifetime (
‘
Lifetime PD
’
) of the obligation. Accordingly, the 12-month and lifetime PDs
represent the probability of default occurring over the next 12 months and the remaining maturity of
the instrument, respectively.
Market data is used in order to develop the PDs in respect of the Group
’s
portfolios of financial
assets, including loans and advances to banks and other financial institutions, loans and advances
to customers and investment securities. If a counterparty or exposure migrates between internal
rating grades or external credit ratings, then this will lead to a change in the associated PD. During
the year, the Group has updated its ECL model to use more recent available market data to
develop the PDs in respect of the Group
’s portfolio of financial assets.
The conditional PD is adjusted to consider forward-looking information through macroeconomic
modelling. In this respect, and as described in further detail in section 2.2.3.4., during the year, PDs
used in the calculation of expected credit loss adjustments were re-aligned to reflect the change in
macro-economic variables.
EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12
months (
‘
12M EAD
’
) or over the remaining lifetime (
‘
Lifetime EAD
’
).
EAD represents the expected exposure in the event of a default (including any expected
drawdowns of committed facilities). The Group derives the EAD from the current exposure to the
counterparty and potential changes to the current amount allowed under the contract. The EAD of a
financial asset is the gross carrying amount at default.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
42
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.3 Expected credit loss measurement
- continued
2.2.3.3 Measuring ECL - Explanation of inputs, assumptions and estimation techniques
-
continued
The 12-month and lifetime EADs are determined based on the expected payment profile, which
varies by product type:
•
for amortising products and bullet repayment loans, this is based on the contractual
repayments owed by the borrower over a 12 month or lifetime basis;
•
for revolving products, the exposure at default is predicted by taking current drawn balance
and adding a “credit conversion factor” which allows for the expected drawdown of the
remaining limit by the time of default. These assumptions vary by product type and current limit
utilisation band, based on analysis of the Group ‘s recent default data.
The LGD represents the Group’s expectation of the extent of loss on a defaulted exposure. Hence,
the LGD represents expected credit losses on the EAD given the event of default, taking into
account, among other attributes, the mitigating effect of collateral values (if any) at the time it is
expected to be realised and the time value of money. The LGD is determined based on the factors
which impact the recoveries made post default.
Given that its portfolio of loans and advances to banks and other financial institutions and
investments in debt securities is generally unsecured, and in respect of loans and advances to
customers, the Group has no history of defaults, the LGD for the Group’s exposures is set at levels
based on market available data for similar exposure classes.
The ECL is measured from the initial recognition of the financial asset. The maximum period
considered when measuring ECL (be it 12-month or lifetime ECL) is the maximum contractual period
over which the Group is exposed to credit risk. In the case of revolving credit facilities, provided that
such facilities do not have a fixed term or repayment structure, the Group defines the lifetime of such
exposures as 12 months, in case the next substantive credit review is within the next 12 months.
Forward-looking economic information is also included in determining the 12-month and lifetime PD
and LGD. Refer to Note 2.2.3.4 for an explanation of forward-looking information and its inclusion in
ECL calculations.
The calculation of ECL incorporates forward-looking information. During 31 December 2024, the
Group changed its methodology for identifying the key macro-economic variables. The Group
selected the macro-economic variables deemed to be effective indicators of global default rates by
authoritative sources.
In addition to the updates made by the Group to its model in relation to the market data used in
developing PDs, the Group has also updated its model to factor in updates to macro-economic
variables that consider the current economic environment and forecasts that are based on such
macro-economic variables, including the respective ECL weights to each scenario applied. The key
drivers, for 2024 are predominantly the unemployment rate in the US and high-yield spreads in the
US, while for 2023, are predominantly real GDP growth rate in the Euro Area and real GDP growth
rate in the US.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
43
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.3 Expected credit loss measurement
- continued
2.2.3.4 Forward-looking information incorporated in the ECL model
As at 31 December 2024 and 31 December 2023, two possible scenarios are considered to capture
non-
linearity across credit portfolios. The ‘Base’ scenario represents the most
-likely outcome. It is
based on authoritative sources forecasting these economic variables referred to above and
providing the best estimate view of the economy. Apart from the base scenario, the Group
considers one other macro-economic scenario
–
‘Downside’ scenario –
which represents a more
pessimistic outcome. The downside scenario is economically plausible and will not necessarily be
as severe as scenarios used in stress testing.
Each scenario is weighted by a probability of occurrence, determined by a combination of
macroeconomic research and expert credit judgment, taking account the range of possible
outcomes each chosen scenario represents. The Bank measures ECL as either a probability
weighted 12-month ECL (Stage 1), or a probability weighted lifetime ECL (Stages 2 and 3). These
probability-weighted ECLs are determined by running each scenario through the relevant ECL
model and multiplying it by the appropriate scenario weighting (as opposed to weighting the inputs).
Base scenario
The base scenario reflects the current economic conditions. As at 31 December 2024, the base
scenario is based on the assumption that the ongoing fiscal policy changes pursued by the new US
administration will result in higher tariffs, lower spending and lower taxes. Interest rates are
expected to decline further in 2025. The slower recent progress in reducing inflation and additional
inflationary pressures as a result of the foreseeable higher tariffs, suggest a slower road to
normalisation than previously expected. In this respect, the US high-yield spreads are still expected
to increase from 3.1% in 2024 to 4.1% in 2025. The outlook for the labour market has shifted
modestly as a result of the changes in fiscal and immigration policy. A reduction in net international
migration will lower labour supply growth and cause a modest reduction in job gains. This is
expected to be off-set by a weakening in labour demand as a return to pre-pandemic levels of
layoffs would likely result in job losses, undermining consumer spending and growth. As a result,
US unemployment rate is expected to remain relatively stable with a minor increase from 4.1% in
2024 to 4.2% in 2025.
As at 31 December 2023, the baseline scenario was based on an increase in economic growth in
the US, which was partially set-off by an economic slowdown in the Euro area. As a result, real
GDP growth rate in the US was projected to increase from 0.66% in 2023 to 1.23% in 2024. In
contrast, the Real GDP growth rate in the Euro area was forecasted to decline from 2.01% in 2023
to 1.48%.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
44
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.3 Expected credit loss measurement
- continued
2.2.3.4 Forward-looking information incorporated in the ECL model
- continued
Downside scenario
As at 31 December 2024, the downside scenario is based on subdued economic activity as a result
of the US administration's evolving policies on tariffs, taxes, spending and immigration. Higher
tariffs, in particular, would raise prices for consumers and undermine economic growth in the US
and globally. In addition, ongoing geopolitical risks could disrupt supply chains, boost energy
market volatility, further eroding economic conditions and weighing on market sentiment. All of
these will negatively affect corporate earnings and cash flow and increase default risk. Other risks
may arise from stress in commercial real estate spilling over into the economy more broadly and
shocks that trigger a collapse of risk appetite, leading to asset prices to fall, credit spreads to widen
and credit conditions to tighten significantly. In this respect, under this scenario US unemployment
is forecasted to increase from 4.1% in 2024 to 7.5% in 2025 and US high-yield spreads to increase
from 3.1% in 2024 to 6.47% in 2025.
Similarly, as at 31 December 2023, the downside scenario was based on a decline in economic
activity, with GDP in both the US and the Euro area forecasted to experience a negative growth of
1.42% and 0.43% respectively.
As at 31 December 2024, the weightings assigned to each economic scenario were 61% (2023:
60%) for the base scenario and 39% (2023: 40%) for the downside scenario. The number of
scenarios and their attributes are reassessed at each reporting date to ensure that non-linearities
are captured.
The Board considers that the above probability weightings assigned to the respective scenarios
reflect an unbiased evaluation of a range of possible outcomes.
As with any macro-economic forecasts, the projections and the likelihood of their occurrence are
subject to a high degree of uncertainty and therefore, the actual outcomes may be significantly
different to those projected. The Group considers these forecasts to represent its best estimate of
the possible outcomes.
As at 31 December 2024, the sensitivity of the ECL outcome to the economic forecasts was
assessed by recalculating the ECL under the base and downside scenarios described above for the
loan portfolio, applying a 100% weighting to each scenario.
In this respect, if the ECL outcome was estimated solely on the basis of the base and downside
scenarios respectively, the credit loss allowances in respect of the loan portfolios would amount to
€260,009 (2023: €202,876) and €525,166 (2023: €305,998) respectively, compared to a weighted
average credit loss allowances estimated at year end amounting to €363,420 (2023: €244,125). In
view of this, as at 31 December 2024, the sensitivity impact was not considered to be significant.
Other forward-looking considerations not otherwise incorporated within the above scenarios, such
as the impact of any regulatory, legislative or political changes, have also been considered, but are
not deemed to have a material impact and therefore no adjustment has been made to the ECL for
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
45
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.4 Maximum exposure to credit risk
An ‘exposure’ is defined as the amount at risk arising from the Group’s assets and off
-balance
sheet items. The Group’s maximum credit risk with respect to on
- and off-balance sheet items can
be classified into the following categories:
•
Financial assets recognised on-balance sheet comprising principally investments in debt
securities, loans and advances to banks and other financial institutions and customers and
other receivables. The maximum exposure to credit risk of these financial assets equals their
gross carrying amounts.
•
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. However, the likely amount of loss is less than the total unused
commitments as most commitments to extend credit are contingent upon customers
maintaining specific credit standards. These exposures are monitored in the same manner in
respect of loans and advances.
The following tables set out the Group
’s and Company’s credit risk
exposures, reflecting the
maximum exposure to credit risk before collateral held or other credit enhancements, as well as an
analysis by staging classification:
| Group | ||||||
| 2024 | 2023 | |||||
Stage | Gross | ECL | Stage | Gross | ECL | |
classification | exposure | Allowance | classification | exposure | allowance | |
€ | € | € | € | |||
Credit risk exposures relating | ||||||
to on-balance sheet assets: | ||||||
Financial assets measured as | ||||||
FVPL: | ||||||
Non-fixed income securities | - | - | 1 | - | ||
Dispute resolution funding | ||||||
assets | 1 | - | 1 | - | ||
Loans and advances to | ||||||
customers | 792,600 | - | 792,600 | - | ||
Subject to IFRS 9 impairment | ||||||
allowances | ||||||
Financial assets measured at | ||||||
FVOCI: | ||||||
Debt securities | Stage 1 | 5,145,690 | (3,134) | Stage 1 | 6,946,560 | (1,987) |
Financial assets measured at | ||||||
amortised cost: | ||||||
Balances with Central Bank of | ||||||
Malta | Stage 1 | 20,313,638 | - | Stage 1 | 27,978,416 | - |
Loans and advances to banks | ||||||
and other financial institutions | Stage 1 | 8,149,109 | (28,332) | Stage 1 | 7,736,740 | (23,086) |
Loans and advances to | ||||||
customers | Stage 1 | 8,787,500 | (18,153) | Stage 1 | 8,675,000 | (20,459) |
Loans and advances to | ||||||
customers | Stage 2 | 4,552,543 | (303,316) | Stage 2 | 4,918,751 | (198,593) |
Other receivables | Stage 1 | 20,810,037 | (28,293) | Stage 1 | 16,542,108 | (28,293) |
Accrued income and other | ||||||
assets | Stage 1 | 3,639,034 | - | Stage 1 | 4,055,503 | - |
Credit risk exposure | 72,190,152 | (381,228) | 77,645,680 | (272,418) | ||
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
46
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.4 Maximum exposure to credit risk
- continued
| Company | ||||||
| 2024 | 2023 | |||||
Stage | Gross | ECL | Stage | Gross | ECL | |
classification | exposure | allowance | classification | exposure | allowance | |
€ | € | € | € | |||
Credit risk exposures relating | ||||||
to on-balance sheet assets: | ||||||
Financial assets measured as | ||||||
FVPL: | ||||||
Non-fixed income securities | - | - | 1 | - | ||
Subject to IFRS 9 impairment | ||||||
allowances | ||||||
Financial assets measured at | ||||||
amortised cost: | ||||||
Loans and advances to banks | ||||||
and other financial institutions | Stage 1 | 2,216,768 | - | Stage 1 | 7,325,442 | - |
Other receivables | Stage 1 | 23,351,983 | (46,190) | Stage 1 | 19,216,035 | (46,190) |
Accrued income and other | ||||||
assets | Stage 1 | 3,321,085 | - | Stage 1 | 2,330,854 | - |
Credit risk exposure | 28,889,836 | (46,190) | 28,872,332 | (46,190) | ||
As part of its dispute resolution funding activities, the Group could be a creditor of, and subject to
direct or indirect credit risk from, a claimant, a defendant, both or other parties. Accordingly, dispute
resolution funding assets are considered by the Group to be subject to credit risk.
As at 31 December 2024 and 2023, the Group did not have any loan commitments or financial
guarantee contracts.
As at 31 December 2024 and 31 December 2023, there were no purchased or originated credit-
impaired assets which are subject to the IFRS 9 impairment requirements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
47
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.5 Credit risk mitigation techniques
The Group’s approach when granting credit facilities is based on the customer’s capacity to repay
rather than placing primary reliance on credit risk mitigants. Notwithstanding, in certain cases, as
part of the Group’s credit risk mitigation techniques, the Group holds collateral against loans and
advances to customers and other receivables, the nature and level of which generally depends on
the amount of the exposure, the type of facility provided, the term of the facility and the level of
credit risk involved. Collateral utilised to secure other receivables includes pledged financial
instrument in the form of unlisted shares. As at 31 December 2024 and 2023, the amounts due
from the ultimate parent company are secured by a pledge of the common shares of another
related party.
2.2.6 Credit concentration risk
Within the Group, concentration risk of losses results from inadequate diversification of the credit
exposures. This risk is managed by actively measuring, reporting and monitoring on a regular and
ongoing basis risk concentration levels against reasonable thresholds for counterparties, products,
and territories.
In order to manage its principal risk exposures arising from its financial assets, primarily its loans
and advances to customers, the Group compiles and updates credit review reports in respect of
these financial assets. Where available, reference is also made to external reviews of primary
borrowers.
Credit concentration risk by geographical region
The geographical concentration of the Group
’s
and Company’s
financial assets as at the end of the
reporting period is analysed below. For the purposes of the table below, the Group has allocated
exposures to regions based on the country of domicile of the respective counterparties or
customers.
48
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.6 Credit concentration risk
- continued
| Group | Company | ||||||
Other EU | Rest of | Rest of | |||||
Malta | countries | world | Total | Malta | world | Total | |
€ | € | € | € | € | € | € | |
As at 31 December 2024 | |||||||
Financial assets mandatorily measured at FVPL | - | 792,601 | - | 792,601 | - | - | - |
Financial assets measured at FVOCI | 5,145,690 | - | - | 5,145,690 | - | - | - |
Balances with Central Bank of Malta | 20,315,175 | - | - | 20,315,175 | - | - | - |
Loans and advances to banks and | |||||||
other financial institutions | 6,925,249 | 1,195,528 | - | 8,120,777 | 2,216,768 | - | 2,216,768 |
Loans and advances to customers | 4,249,225 | - | 8,769,349 | 13,018,574 | - | - | - |
Other receivables | 2,600 | 812,202 | 19,966,942 | 20,781,744 | 10,020,189 | 13,285,604 | 23,305,793 |
Accrued income and other assets | 131,430 | - | 3,507,604 | 3,639,034 | 516,811 | 2,804,274 | 3,321,085 |
36,769,369 | 2,800,331 | 32,243,895 | 71,813,595 | 12,753,768 | 16,089,878 | 28,843,646 | |
As at 31 December 2023 | |||||||
Financial assets mandatorily measured at FVPL | - | 792,601 | 1 | 792,602 | - | 1 | 1 |
Financial assets measured at FVOCI | 6,946,560 | - | - | 6,946,560 | - | - | - |
Balances with Central Bank of Malta | 27,978,416 | - | - | 27,978,416 | - | - | - |
Loans and advances to banks and | |||||||
other financial institutions | 6,617,620 | 1,096,034 | - | 7,713,654 | 7,325,442 | - | 7,325,442 |
Loans and advances to customers | 4,720,158 | - | 8,654,541 | 13,374,699 | - | - | - |
Other receivables | 2,600 | 344,266 | 16,166,949 | 16,513,815 | 10,482,685 | 8,687,160 | 19,169,845 |
Accrued income and other assets | 212,633 | 1,035,341 | 2,807,529 | 4,055,503 | 14,063 | 2,316,791 | 2,330,854 |
46,477,987 | 3,268,242 | 27,629,020 | 77,375,249 | 17,822,190 | 11,003,952 | 28,826,142 | |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
49
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.6 Credit concentration risk
- continued
As at 31 December 2024 and 2023, the rest of the world exposures mainly consist of exposures in
the Cayman Islands and Canada.
Credit concentration risk by industry sector
Loans and advances to customers, gross of allowances, are analysed by industry concentration as
follows:
Group | ||
2024 | 2023 | |
€ | € | |
Real estate activities | 4,552,543 | 4,918,751 |
Activities related to mining | 8,787,500 | 8,675,000 |
13,340,043 | 13,593,751 | |
Other receivables, gross of allowances, are analysed by industry concentration as follows:
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Financial service activities | 19,992,939 | 16,192,945 | 23,349,383 | 19,213,435 |
Management consultancy | 592,250 | 224,848 | - | - |
Industrial, commercial and service | ||||
companies | 224,848 | 124,315 | 2,600 | 2,600 |
20,810,037 | 16,542,108 | 23,351,983 | 19,216,035 | |
Credit concentration risk by name
The majority of Group’s and Company’s lending exposures comprised of
exposures to entities within
the Scully Royalty Group. As at 31 December 2024, 85.02% (2023: 83.27
%) of the Group’s loans
and advances to customers and other receivables is attributable to Scully Royalty Ltd or entities
within the Scully Royalty Group, while 14.98% (2023: 16.73%) is attributable to third parties. Despite,
the high level of exposure towards the Scully Royalty Group, the Group has determined that as at 31
December 2024 and 2023, its exposures are fully performing and do not show any signs of increased
credit risk. As at 31 December 2024, 42.99% (2023: 54.65
%) of the Company’s other receivables
relate to receivables from subsidiaries while 57.01% (2023: 45.34%) is attributable to Scully Royalty
Ltd or entities within the Scully Royalty Group.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
50
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.7 Information on credit quality of other financial assets
As part of its treasury management activities, the Group invests in listed sovereign bonds issued by
local governments, in listed debt securities issued by local credit institutions and in other debt
securities. These transactions are monitored through the practical use of exposure limits.
External ratings such as Moody’s ratings or their equivalents are used for monitoring these credit
risk exposures.
At the end of the reporting period, none of the Group’s financial assets which are subject to the
IFRS 9 impairment requirements were past due or impaired.
The following table shows the gross carrying amount of
the Group’s financial assets
held by the
Group analysed by credit rating based on Moody’s equivalent ratings:
Financial | ||||
assets | ||||
Loans and | mandatorily | Financial assets | ||
Balances | advances | measured | measured | |
With | to banks | at fair value | at fair value | |
Central | and other | through | through other | |
Bank | financial | profit or | comprehensive | |
of Malta | institutions | loss | income | |
€ | € | € | € | |
31 December 2024 | ||||
A1 to A3 | 20,313,638 | 1,195,529 | - | 4,928,880 |
Baa1 - Baa3 | - | 1,686,618 | - | - |
Unrated | - | 5,266,962 | 792,601 | 216,810 |
Total | 20,313,638 | 8,149,109 | 792,601 | 5,145,690 |
Financial | ||||
assets | ||||
Loans and | mandatorily | Financial assets | ||
Balances | advances | measured | measured | |
With | to banks | at fair value | at fair value | |
Central | and other | through | through other | |
Bank | financial | profit or | comprehensive | |
of Malta | institutions | loss | income | |
€ | € | € | € | |
31 December 2023 | ||||
A1 to A3 | 27,978,416 | 1,096,034 | - | 6,836,670 |
Baa1 - Baa3 | - | 1,355,746 | - | - |
Unrated | - | 5,284,960 | 1,059,782 | 109,890 |
Total | 27,978,416 | 7,736,740 | 1,059,782 | 6,946,560 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
51
2.
Financial risk management
- continued
2.2 Credit risk
- continued
Reconciliation of 12-month and lifetime ECL provision
The following disclosure provides a reconciliation by stage of the Group’s gross carrying/nominal
amount, including accrued interest receivable and allowances for loans and advances to customers
and other receivables.
Transfers across stages represent the impact of stage transfers upon the gross carrying/nominal
amount and associated allowance for ECL of the financial instruments that are outstanding at the
beginning of the year.
The ‘Net remeasurement of ECL arising from stage transfers’ represents the increase or decrease
in ECL due to moving, for example, from a 12-month (Stage 1) to a lifetime (Stage 2) ECL
measurement basis or vice versa. Net remeasurement excludes the movements resulting from
changes in risk parameters such as changes in PDs and LGDs when compared to those used for
the previous reporting period. This is captured, along with other credit quality movements in the
‘Changes in risk parameters’ line item which shows the impact of changes in risk parameters in
respect of the allowances specifically for loans and advances to customers outstanding at the
beginning of the year.
The ‘Net new and further lending/repayments’ represent the gross carrying/nominal amount and
associated ECL impact from volume movements within the Group’s lending portfolio, i.e.
originations and repayments during the financial reporting period. Accordingly, loans originated
during the year are classified in the table below using the respective stage classification as at the
end of the reporting period, without the effect of stage transfers from origination. The allowance in
respect of these is included using the current year’s risk parameters, and therefore no such impact
is included within the ‘Changes in risk parameters’ line item. Similarly, stage transfers in respect of
loans and advances originated or repaid during the year are also included within the ‘Net new and
further lending/repayments’ line item.
The movement in ECL is illustrated in the following tables:
52
2. Financial risk management
- continued
2.2 Credit risk
- continued
2.2.8 Loss allowances
- continued
Group | ||||||
Stage 1 | Stage 2 | Total | ||||
Gross | Allowance | Gross | Allowance | Gross | Allowance | |
carrying | for ECL | carrying | for ECL | carrying | for ECL | |
amount | amount | amount | ||||
€ | € | € | € | € | € | |
At 31 December 2023 | 27,568,754 | 48,752 | 4,918,751 | 198,593 | 32,487,505 | 247,345 |
Net new and further lending/(repayments) | 4,886,415 | - | (366,208) | (15,623) | 4,520,207 | (15,623) |
Changes in risk parameters | - | (2,306) | - | 120,346 | - | 118,040 |
At 31 December 2024 | 32,455,169 | 46,446 | 4,552,543 | 303,316 | 37,007,712 | 349,762 |
Change in expected credit losses on loans and advances to | ||||||
customers and other receivables | 102,417 | |||||
Change in expected credit losses attributable to: | ||||||
Loans and advances to banks and other financial institutions | 5,246 | |||||
Financial assets measured at fair value through other | ||||||
comprehensive income | 1,147 | |||||
Write-off | 296 | |||||
Total expected credit loss charge for the year | 109,106 | |||||
53
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.8 Loss allowances
- continued
Group | ||||||
Stage 1 | Stage 2 | Total | ||||
Gross | Allowance | Gross | Allowance | Gross | Allowance | |
carrying | for ECL | carrying | for ECL | carrying | for ECL | |
amount | amount | amount | ||||
€ | € | € | € | € | € | |
At 31 December 2022 | 17,614,171 | 63,797 | 10,269,164 | 70,106 | 27,883,335 | 133,903 |
Net new and further lending/(repayments) | 9,954,583 | 39,220 | (5,350,413) | (15,623) | 4,604,170 | 23,597 |
Changes in risk parameters | - | (30,388) | - | 144,110 | - | 89,845 |
At 31 December 2023 | 27,568,754 | 48,752 | 4,918,751 | 198,593 | 32,487,505 | 247,345 |
Change in expected credit losses on loans and advances to | ||||||
customers and other receivables | 113,442 | |||||
Change in expected credit losses attributable to: | ||||||
Loans and advances to banks and other financial institutions | (22,525) | |||||
Financial assets measured at fair value through other | ||||||
comprehensive income | 144 | |||||
Total expected credit loss charge for the year | 91,061 | |||||
54
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.8 Loss allowances
- continued
Company | ||
Stage 1 | ||
Gross | Allowance | |
carrying | for ECL | |
amount | ||
€ | € | |
At 31 December 2023 | 21,546,889 | 46,190 |
Net new and further lending/(repayments) | 5,126,179 | - |
Changes in risk parameters | - | - |
At 31 December 2024 | 26,673,068 | 46,190 |
Change in expected credit losses on other receivables | - | |
Total expected credit loss charge for the year | - | |
At 31 December 2022 | 24,559,990 | 84,797 |
Net new and further lending/(repayments) | (3,013,101) | (11,343) |
Changes in risk parameters | - | (27,264) |
At 31 December 2023 | 21,546,889 | 46,190 |
Change in expected credit losses on other receivables | (38,607) | |
Total expected credit loss charge for the year | (38,607) | |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
55
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.9
Modification of loans and advances to customers and other receivables
The contractual terms of a loan may be revised for a number of reasons, including changes in
market conditions, customer retention and other factors that are not related to the credit quality of a
customer. Forbearance measures comprise concessions made on the contractual terms of a loan in
response to a customer’s financial difficulties. As at 31 December 2024 and 2023, the Group had
The Group 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 and currency 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.
The Group 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
respective group entity
’s functional currency.
The Group manages its currency risk on an ongoing basis by ensuring that 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. To the extent that such matching is not
possible, the Group hedges its open foreign exchange exposures by entering into foreign exchange
forward contracts with terms matching those of the hedged items.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
56
2.
Financial risk management
- continued
2.3 Market risk
- continued
(a) Foreign exchange risk
- continued
The following tables summarise the Group
’s exposure to foreign currency risk at 31 December.
Included in the tables are the Group
’s financial instruments at carrying amounts, categorised by
currency.
| Group | |||||
EUR | USD | CAD | GBP | Total | |
€ | € | € | € | € | |
As at 31 December 2024 | |||||
Financial assets | |||||
Financial assets measured at FVPL | 792,601 | - | - | - | 792,601 |
Financial assets measured at FVOCI | 5,145,690 | - | - | - | 5,145,690 |
Balances with Central Bank of Malta | 7,034,779 | 10,588,122 | 2,690,737 | - | 20,313,638 |
Loans and advances to banks and | |||||
other financial institutions | 7,227,119 | 268,842 | 623,109 | 1,707 | 8,120,777 |
Loans and advances to customers | 13,018,574 | - | - | - | 13,018,574 |
Other receivables | 18,479,225 | 2,302,519 | - | - | 20,781,744 |
Accrued income and other assets | 3,501,284 | 137,591 | 159 | - | 3,639,034 |
Total financial assets | 55,199,272 | 13,297,074 | 3,314,005 | 1,707 | 71,812,058 |
Financial liabilities | |||||
Borrowings | 24,481,152 | - | - | - | 24,481,152 |
Amounts owed to banks | 4,965,200 | - | - | - | 4,965,200 |
Amounts owed to customers | 86,629 | 10,872,887 | 2,216,498 | - | 13,176,014 |
Other liabilities | 1,915,088 | - | - | - | 1,915,088 |
Total financial liabilities | 31,448,069 | 10,872,887 | 2,216,498 | - | 44,537,454 |
Net on-balance sheet position | 23,751,203 | 2,424,187 | 1,097,507 | 1,707 | |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
57
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Foreign exchange risk
- continued
| Group | |||||
EUR | USD | CAD | GBP | Total | |
€ | € | € | € | € | |
As at 31 December 2023 | |||||
Financial assets | |||||
Financial assets measured at FVPL | 792,601 | 267,180 | - | 1 | 1,059,782 |
Financial assets measured at FVOCI | 6,946,560 | - | - | - | 6,946,560 |
Balances with Central Bank of Malta | 17,878,869 | 9,405,845 | 693,702 | - | 27,978,416 |
Loans and advances to banks and | |||||
other financial institutions | 7,245,436 | 422,884 | 44,629 | 705 | 7,713,654 |
Loans and advances to customers | 13,374,699 | - | - | - | 13,374,699 |
Other receivables | 13,703,522 | 2,810,293 | - | - | 16,513,815 |
Accrued income and other assets | 4,035,750 | 18,490 | 1,263 | - | 4,055,503 |
Total financial assets | 63,977,437 | 12,924,692 | 739,594 | 706 | 77,642,429 |
Financial liabilities | |||||
Borrowings | 24,686,800 | - | - | - | 24,686,800 |
Lease liabilities | 168,809 | - | - | - | 168,809 |
Amounts owed to banks | 4,965,600 | - | - | - | 4,965,600 |
Amounts owed to customers | 8,997,267 | 9,630,493 | 711,357 | 91,644 | 19,430,761 |
Other liabilities | 1,170,300 | - | - | - | 1,170,300 |
Total financial liabilities | 39,988,776 | 9,630,493 | 711,357 | 91,644 | 50,422,270 |
Net on-balance sheet position | 23,988,661 | 3,294,199 | 28,237 | (90,938) | |
The net exposure to foreign exchange rates as at 31 December 2024 includes exposures
denominated in USD which arises principally due to money market placements with CBM, other
receivables and deposits from customers which are denominated in USD which are not hedged.
Under the scenario that the euro appreciates against the USD from 1.0374 to 1.2374 (2023: from
1.1057 to 1.3057)
the impact recognised in profit or loss would amount to a loss of €
391,972 (2023:
loss of €771,351)
. If on the other hand, the euro depreciates against the USD to 1.0000 the impact
recognised in profit or loss would amount to a profit of €
89,493
(2023: profit of €
348,349).
The net unhedged on-balance sheet exposure to other currencies such as the CAD, as at 31
December 2024 and 2023, is not considered significant taking into account the amounts reported in
the statement of financial position. Accordingly, a sensitivity analysis for foreign exchange risk
disclosing how profit or loss and equity would have been affected by changes in foreign exchange
rates that were reasonably possible at the end of the reporting period is not deemed necessary
since the directors are of the opinion that the net impact would be insignificant.
Typically, the Company does not take on any exposure to foreign currency transactions. As at 31
December 2024, the Company’s exposure to foreign currencies mainly comprises receivable
s from
ultimate parent company
denominated in USD amounting to €2
88,780 (Note 14). As at 31
December 2023
, the Company’s exposure to foreign currencies
mainly comprises investment in
securities of a related party denominated in USD amounting to €267,180
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
58
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will
fluctuate because of changes in market interest rates either through the re-pricing of floating rate
instruments or through the maturity and replacement of fixed rate instruments. Fair value interest
rate risk is the risk that the value of a fixed rate financial instrument will fluctuate because of
changes in market interest rates.
The Group’s exposures analysed by their fixed or floating nature
as at 31 December at carrying amounts are shown below:
| Group | |||
Floating | Fixed | ||
rates | rates | Total | |
€ | € | € | |
At 31 December 2024 | |||
Interest-bearing assets | |||
Financial assets measured at FVPL: | |||
Loans and advances to customers | - | 792,600 | 792,600 |
Financial assets measured at FVOCI: | |||
Debt securities | - | 5,145,690 | 5,145,690 |
Financial assets measured at amortised cost: | |||
Balances with Central Bank of Malta | - | 20,313,638 | 20,313,638 |
Loans and advances to banks and other financial | |||
institutions | 6,175,155 | - | 6,175,155 |
Loans and advances to customers | 13,018,574 | - | 13,018,574 |
Other receivables | - | 12,540,468 | 12,540,468 |
19,193,729 | 38,792,396 | 57,986,125 | |
Interest-bearing liabilities | |||
Borrowings | - | 24,481,152 | 24,481,152 |
- | 24,481,152 | 24,481,152 | |
Net exposure | 19,193,729 | 14,311,244 | 33,504,973 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
59
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
| Group | |||
Floating | Fixed | ||
Rates | rates | Total | |
€ | € | € | |
At 31 December 2023 | |||
Interest-bearing assets | |||
Financial assets measured at FVPL: | |||
Loans and advances to customers | - | 792,600 | 792,600 |
Financial assets measured at FVOCI: | |||
Debt securities | - | 6,946,560 | 6,946,560 |
Financial assets measured at amortised cost: | |||
Balances with Central Bank of Malta | - | 27,978,416 | 27,978,416 |
Loans and advances to banks and other financial | |||
institutions | 4,976,860 | - | 4,976,860 |
Loans and advances to customers | 13,374,699 | - | 13,374,699 |
Other receivables | - | 13,337,023 | 13,337,023 |
18,351,559 | 49,054,599 | 67,406,158 | |
Interest-bearing liabilities | |||
Borrowings | - | 24,686,800 | 24,686,800 |
Lease liabilities | - | 168,809 | 168,809 |
- | 24,855,609 | 24,855,609 | |
Net exposure | 18,351,559 | 24,198,990 | 42,550,549 |
As at 31 December 2024 and 2023, the remaining balance in respect of financial asset measured at
FVPL, loans and advances to banks and other financial institutions, other receivables, amounts
owed to customers and other liabilities are non-interest bearing and accordingly are not included in
the above tables. Amounts owed to banks as at 31 December 2024 and 2023 are non-interest
bearing and are not included in the above.
Financial instruments issued at fixed rates potentially expose the Group to fair value interest rate
risk. Balances with Central Bank of Malta, loans and advances to banks and customers, other
receivables, and borrowings are measured at amortised cost and are therefore not subject to fair
value interest rate risk, even though a substantial part of these instruments are subject to fixed
interest rates.
The Group’s instruments which are subject to fixed interest rates
and that are fair valued comprise
the
Group’s
investments in debt securities
amounting to €
5,145,690 (2023
: €
6,946,560). This
exposes the Group to the risk of losses arising from fair value interest rate risk.
Using sensitivity analyses, by performing a full revaluation of the portfolio using an instantaneous
shock which measures the potential loss in market value arising from a 200 basis-point upward
parallel shift in yields, the estimated impact as at 31 December 2024 on the fair valuation of its debt
securities measured at FVOCI amounts to a loss of
€
111,869 (2023
: €
229,495).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
60
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
Financial assets and liabilities issued at variable rates expose the Group to cash flow interest rate
risk. The Group is exposed to cash flow interest rate risk principally in respect of financial assets
that were subject to floating interest rates as well as those fixed rate financial instruments that
mature in the short-term.
In this respect, at the end of the reporting period, if interest rates had increased/decreased by 1%
(assuming a parallel shift of 100 basis points in yields) with all other variables held constant, in
particular foreign currency rates, the pre-tax result for the following one year, excluding changes in
fair values, would decrease/increase by
€
519,315
(2023: €
575,744).
The Company’s
gross exposures analysed by their fixed or floating nature as at 31 December at
carrying amounts are shown below:
| Company | |||
Floating | Fixed | ||
Rates | rates | Total | |
€ | € | € | |
At 31 December 2024 | |||
Interest-bearing assets | |||
Loans and advances to banks and other financial | |||
institutions | - | 900,000 | 900,000 |
Amounts due from the ultimate parent company | - | 5,866,730 | 5,866,730 |
Amounts due from subsidiaries | - | 9,479,807 | 9,479,807 |
- | 16,246,537 | 16,246,537 | |
Interest-bearing liabilities | |||
Borrowings | - | 24,481,152 | 24,481,152 |
- | 24,481,152 | 24,481,152 | |
Net exposure | - | (8,234,615) | (8,234,615) |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
61
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
| Company | |||
Floating | Fixed | ||
Rates | rates | Total | |
€ | € | € | |
At 31 December 2023 | |||
Interest-bearing assets | |||
Loans and advances to banks and other financial | |||
institutions | - | 1,800,000 | 1,800,000 |
Amounts due from the ultimate parent company | - | 5,866,730 | 5,866,730 |
Amounts due from subsidiaries | - | 9,479,807 | 9,479,807 |
- | 17,146,537 | 17,146,537 | |
Interest-bearing liabilities | |||
Borrowings | - | 24,686,800 | 24,686,800 |
Lease liabilities | - | 168,809 | 168,809 |
- | 24,855,609 | 24,855,609 | |
Net exposure | - | (7,709,072) | (7,709,072) |
As at 31 December 2024 and 2023
, ‘Loans and advances to banks and other financial institutions’
of the Company consist of term deposits held with its subsidiary which are subject to a 0.10% fixed
interest rate.
As at 31 December 2024
, ‘Amounts due from subsidiaries’ consist of subordinated loans
with a
gross amount of
€
9,500,000 (2023
: €
9,500,000) bearing interest at fixed rates. As at 31 December
2024 and 2023,
‘Amounts due from the ultimate parent company’ include a revolving credit facility
granted by the Company amounting to €5,892,727 which is subject to a fixed interest rate.
As at 31
December 2024
, the Company’s ‘Borrowings’ include €24,481,152 (2023: €24,686,800)
Secured
Bonds which are subject to 5.70% (2023: 4.00%) fixed interest rate. These instruments are carried
at amortised cost.
In the context of the above, the Company’s exposure to interest rate risk as at 31 December 202
4
and 2023 is not considered significant. Accordingly, a sensitivity analysis disclosing how profit or
loss and equity would have been affected by changes in interest rates that were reasonably
possible at the end of the reporting period is not deemed necessary.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
62
2.
Financial risk management
–
continued
2.3 Market risk
–
continued
(b) Interest rate risk
- continued
The following tables
includes the Group’s principal financial instruments at carrying amounts,
categorised by re-
pricing dates, taking cognisance of the instruments’ interest rate terms.
The re-
pricing period in respect of the Group’s interest
-bearing assets and liabilities subject to fixed interest
rates is equivalent to the remaining period to maturity.
| Group | |||||
Within | |||||
three | Within one | ||||
Within | months but | year but | |||
one | over one | over three | More than | ||
month | month | Months | one year | Total | |
€ | € | € | € | € | |
As at 31 December 2024 | |||||
Financial assets | |||||
Financial assets measured at | |||||
FVPL | - | - | 792,600 | - | 792,600 |
Financial assets measured at | |||||
FVOCI | - | - | 3,965,100 | 1,180,590 | 5,145,690 |
Balances with Central Bank of Malta | 9,595,380 | 130,136 | 10,588,122 | - | 20,313,638 |
Loans and advances to banks | |||||
and other financial institutions | 1,195,529 | 4,979,626 | - | - | 6,175,155 |
Loans and advances to customers | - | 3,746,403 | 9,272,171 | - | 13,018,574 |
Other receivables | 10,526,730 | - | - | 2,013,738 | 12,540,468 |
21,317,639 | 8,856,165 | 24,617,993 | 3,194,328 | 57,986,125 | |
Financial liabilities | |||||
Borrowings | - | - | - | 24,481,152 | 24,481,152 |
- | - | - | 24,481,152 | 24,481,152 | |
Interest rate gap | 21,317,639 | 8,856,165 | 24,617,993 | (21,286,824) | |
Cumulative gap | 21,317,639 | 30,173,804 | 54,791,797 | 33,504,973 | |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
63
2.
Financial risk management
–
continued
2.3 Market risk
–
continued
(b) Interest rate risk
- continued
| Group | |||||
Within | |||||
three | Within one | ||||
Within | months but | year but | |||
one | over one | over three | More than | ||
month | month | Months | one year | Total | |
€ | € | € | € | € | |
As at 31 December 2023 | |||||
Financial assets | |||||
Financial assets measured at | |||||
FVPL | - | - | 792,600 | - | 792,600 |
Financial assets measured at | |||||
FVOCI | - | - | 1,964,600 | 4,981,960 | 6,946,560 |
Balances with Central Bank of Malta | 27,978,416 | - | - | - | 27,978,416 |
Loans and advances to banks | |||||
and other financial institutions | - | 4,976,860 | - | - | 4,976,860 |
Loans and advances to customers | 3,851,581 | 868,577 | 8,654,541 | - | 13,374,699 |
Other receivables | 10,526,730 | - | - | 2,810,293 | 13,337,023 |
42,356,727 | 5,845,437 | 11,411,741 | 7,792,253 | 67,406,158 | |
Financial liabilities | |||||
Borrowings | - | - | - | 24,686,800 | 24,686,800 |
Lease liabilities | 43,745 | - | 125,064 | - | 168,809 |
43,745 | - | 125,064 | 24,686,800 | 24,855,609 | |
Interest rate gap | 42,312,982 | 5,845,437 | 11,286,677 | (16,894,547) | |
Cumulative gap | 42,312,982 | 48,158,419 | 59,445,096 | 42,550,549 | |
(c) Price risk
The Group’s and the Company’s
exposure to equity securities price risk arises from investments
held by the Group measured at FVPL, which as at 31 December 2023 included equity securities
issued by a related party valued at
€
267,180. In view of the carrying amount of these investments in
the context
of the Group’s and Company’s
total assets, the directors have determined that the
exposure to price risk from these investments was not considered significant. Accordingly, a
sensitivity analysis for equity price risk disclosing how profit or loss and equity would have been
affected by changes in variables that would impact the value of these instruments at the end of the
reporting period was not deemed necessary, as the directors are of the opinion that the net impact
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
64
2.
Financial risk management
–
continued
2.4 Other risk attributable to financial assets that are mandatorily measured at FVPL
As at 31 December 2024 and 2023, the
Group’s
financial instruments that are mandatorily
measured at fair value through profit or loss comprise of:
•
A loan that has a profit participation feature enabling the Group to participate in any profit
earned as a result of the activity being financed; and
•
Direct dispute resolution funding assets.
As at 31 December 2023, the Group’s financial instruments that
were mandatorily measured at fair
value through profit or loss also comprised of:
•
The Group’s equity investment in the ordinary shares issued by a related party;
and
•
Debt-like instruments issued by special purpose vehicles set up specifically to finance certain
dispute resolution claims.
The Group’s equity investment is exposed to equity price risk, as referred to within part
(c) of
section 2.3 Market risk.
The loan with a profit participation feature is exposed to both credit risk as well as interest rate risk,
by virtue of a fixed interest rate element within the contractual agreement. These risks are
assessed as part of the
Group’s
credit risk and interest rate risk management frameworks and
considered within the respective disclosures in sections 2.2 and 2.3 respectively. In addition, the
Group is also exposed to model risk, which is the potential for adverse consequences from
business decisions informed by models.
Funding of legal claims is undertaken by the Group both directly, in which the Group, through its
subsidiary Merkanti Diesel Limited, provides financing to a portfolio of clients to fund costs
associated with opening legal claims against defendants, and indirectly, in which the Group
subscribes to securities issued by special purpose vehicles set up specifically to finance certain
dispute resolution claims. In order to manage this risk, the Group typically seeks to provide
financing for groups of homogenous cases thereby ensuring that its risk is adequately diversified,
leading to a lower risk of loss generally associated with multi-case portfolios. In addition, the Group
seeks to finance cases that have relatively short tenors, which are typically are settled within one or
two years. As at 31 December 2024
, the Group’s direct and indirect investments in dispute
resolution funding assets have a fair value of €
1 (2023
: €
2).
In this respect, the directors have determined that in view of the immateriality of these assets
relative to the Group’s asset base, the risks described above are not significant. Accordingly, a
sensitivity analysis disclosing the effect of changes to key unobservable inputs is not deemed
necessary by the directors.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
65
2.
Financial risk management
- continued
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The
consequence may be the failure to meet obligations to repay depositors and fulfil commitments.
The Group
manages this risk by maintaining a strong base of shareholders’ capital considering the
stage of its operations. The Group manages its asset base with liquidity in mind and monitors future
cash flows and changes in available liquidity on a regular basis.
The Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support
payment obligations and contingent funding in a stressed market environment. The Group
’s assets
held for managing liquidity risk comprise:
•
short term placements with the Central Bank of Malta; and
•
unencumbered Malta Government stocks amounting to
€
4,928,88
0 (2023: €6,
836,670) that
are readily acceptable as collateral for open market operations with the European Central
Bank.
Liquidity is managed by the management of each subsidiary respectively. In the case of Merkanti
Bank, it is managed
by the Bank’s
treasury function through processes which include:
•
day to day funding, managed by monitoring future cash flows to ensure that requirements can
be met including plans for replenishment of funds as they mature;
•
maintaining a portfolio of highly marketable assets that can easily be liquidated as protection
against any unforeseen interruption to cash flow;
•
monitoring the liquidity ratios underlying the statements of financial position against internal
and regulatory requirements as applicable; and
•
managing the concentration and profile of debt maturities.
Moreover, sources of liquidity are regularly reviewed by the treasury function to maintain a
diversification by provider, product and term. Monitoring takes the form of cash flow projections for
the next day, week and month respectively, as these are key periods for short-term liquidity
management.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
66
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
The following tables disclose financial assets and liabilities at the end of the reporting period by
remaining period to maturity.
| Group | ||||||
Within | ||||||
Three | Within one | |||||
Within | months but | year but | ||||
one | over one | over three | More than | No | ||
month | month | months | one year | maturity | Total | |
€ | € | € | € | € | € | |
As at 31 December 2024 | ||||||
Financial assets | ||||||
Financial assets measured | ||||||
at FVPL | - | - | 792,600 | 1 | - | 792,601 |
Financial assets measured | ||||||
at FVOCI | - | - | 3,965,100 | 1,180,590 | - | 5,145,690 |
Balances with Central | ||||||
Bank of Malta | 9,595,380 | - | 10,588,122 | - | 130,136 | 20,313,638 |
Loans and advances to | ||||||
banks and other financial | ||||||
Institutions | 3,141,151 | - | - | 4,979,626 | - | 8,120,777 |
Loans and advances to | ||||||
customers | - | 3,746,403 | 9,272,171 | - | - | 13,018,574 |
Other receivables | 18,768,006 | - | - | 2,013,738 | - | 20,781,744 |
Accrued interest income | ||||||
and other assets | 2,805,624 | 827,958 | 5,452 | - | - | 3,639,034 |
34,310,161 | 4,574,361 | 24,623,445 | 8,173,955 | 130,136 | 71,812,058 | |
Financial liabilities | ||||||
Borrowings | - | - | - | 24,481,152 | - | 24,481,152 |
Amounts owed to | ||||||
customers | 13,176,014 | - | - | - | - | 13,176,014 |
Amounts owed to banks | - | 4,965,200 | - | - | - | 4,965,200 |
Other liabilities | 811,074 | 486,777 | 586,720 | 310,517 | - | 2,195,088 |
13,987,088 | 5,451,977 | 586,720 | 24,791,669 | - | 44,817,454 | |
Maturity gap | 20,323,073 | (877,616) | 24,036,725 | (16,617,714) | ||
Cumulative gap | 20,323,073 | 19,445,457 | 43,482,182 | 26,864,468 | ||
| Group | ||||||
Within | ||||||
Three | Within one | |||||
Within | months but | year but | ||||
One | over one | over three | More than | No | ||
Month | Month | months | one year | Maturity | Total | |
€ | € | € | € | € | € | |
As at 31 December 2023 | ||||||
Financial assets | ||||||
Financial assets measured | ||||||
at FVPL | - | - | 792,600 | 2 | - | 792,602 |
Financial assets measured | ||||||
at FVOCI | - | - | 1,964,600 | 4,981,960 | - | 6,946,560 |
Balances with Central | ||||||
Bank of Malta | 27,706,970 | - | - | - | 271,446 | 27,978,416 |
Loans and advances to | ||||||
banks and other financial | ||||||
institutions | 2,736,794 | - | - | 4,976,860 | - | 7,713,654 |
Loans and advances to | ||||||
customers | 3,851,581 | - | - | 9,523,118 | - | 13,374,699 |
Other receivables | 13,703,522 | - | - | 2,810,293 | - | 16,513,815 |
Accrued interest income | ||||||
and other assets | 3,413,070 | 95,091 | 547,342 | - | - | 4,055,503 |
51,411,937 | 95,091 | 3,304,542 | 22,292,233 | 271,446 | 77,375,249 | |
Financial liabilities | ||||||
Borrowings | - | - | - | 24,686,800 | - | 24,686,800 |
Lease liabilities | 43,745 | - | 125,064 | - | - | 168,809 |
Amounts owed to | ||||||
customers | 19,215,541 | - | 215,220 | - | - | 19,430,761 |
Amounts owed to banks | - | 4,965,600 | - | - | - | 4,965,600 |
Other liabilities | 615,256 | 137,088 | 417,956 | - | - | 1,170,300 |
19,874,542 | 5,102,688 | 758,240 | 24,686,800 | - | 50,422,270 | |
Maturity gap | 31,537,395 | (5,007,597) | 2,546,302 | (2,394,567) | ||
Cumulative gap | 31,537,395 | 26,529,798 | 29,076,100 | 26,681,533 | ||
As at 31 December 2024 and 2023, the remaining balance of financial assets measured at FVPL
relate to equity instruments that are unlisted and have no fixed date of repayment and are
accordingly not included in the tables above.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
67
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
Company | |||||
Within three | Within one | ||||
Within | months but | year but | |||
one | over one | over three | More than | ||
month | month | months | one year | Total | |
As at 31 December 2024 | € | € | € | € | € |
Financial assets | |||||
Loans and advances to banks | |||||
and other financial institutions | 1,316,768 | 900,000 | - | - | 2,216,768 |
Other receivables | 13,825,986 | - | - | 9,479,807 | 23,305,793 |
Accrued interest income and other | |||||
assets | 3,321,085 | - | - | - | 3,321,085 |
18,463,839 | 900,000 | - | 9,479,807 | 28,843,646 | |
Financial liabilities | |||||
Borrowings | - | - | - | 24,481,152 | 24,481,152 |
Other liabilities | 44,810 | 129,101 | 485,342 | - | 659,253 |
44,810 | 129,101 | 485,342 | 24,481,152 | 25,140,405 | |
Maturity gap | 18,419,029 | 770,899 | (485,342) | (15,001,345) | |
Cumulative gap | 18,419,029 | 19,189,928 | 18,704,586 | 3,703,241 |
Company | |||||
Within three | Within one | ||||
Within | months but | year but | |||
one | over one | over three | More than | ||
month | month | months | one year | Total | |
As at 31 December 2023 | € | € | € | € | € |
Financial assets | |||||
Financial assets measured at FVPL | - | - | - | 1 | 1 |
Loans and advances to banks | |||||
and other financial institutions | 7,325,442 | - | - | - | 7,325,442 |
Other receivables | 9,690,038 | - | - | 9,479,807 | 19,169,845 |
Accrued interest income and other | |||||
assets | 2,316,791 | 14,063 | - | - | 2,330,854 |
19,332,271 | 14,063 | - | 9,479,808 | 28,826,142 | |
Financial liabilities | |||||
Borrowings | - | - | - | 24,686,800 | 24,686,800 |
Lease liabilities | 43,745 | - | 125,064 | - | 168,809 |
Other liabilities | 248,427 | - | 342,106 | - | 590,532 |
292,172 | - | 467,170 | 24,686,800 | 25,446,142 | |
Maturity gap | 19,040,099 | 14,063 | (467,170) | (15,206,992) | |
Cumulative gap | 19,040,099 | 19,054,162 | 18,586,992 | 3,380,000 |
As at 31 December 2023, the
Company’s
financial assets measured at FVPL include equity
instruments that are unlisted and have no fixed date of repayment and are accordingly not included
in the tables above.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
68
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
69
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
The following table analyses the Group
’s principal undiscounted cash flows payable under non
-
derivative financial liabilities into relevant maturity groupings based on the remaining period at the
end of the reporting period to the contractual maturity date.
| Group | ||||||
Within | Within | |||||
three | one | |||||
Within | months but | year but | ||||
One | over one | over three | More than | Carrying | ||
Month | month | Months | one year | Total | amount | |
€ | € | € | € | € | € | |
As at 31 December 2024 | ||||||
Borrowings | - | - | 1,425,000 | 36,400,000 | 37,825,000 | 25,418,512 |
Amounts owed to | ||||||
customers | 13,176,014 | - | - | - | 13,176,014 | 13,176,014 |
Amounts owed to banks | 4,965,200 | - | - | - | 4,965,200 | 4,965,200 |
Other liabilities | 811,074 | 486,777 | 586,720 | 310,517 | 2,195,088 | 2,195,088 |
18,952,288 | 486,777 | 2,011,720 | 36,710,517 | 58,161,302 | 45,754,814 | |
As at 31 December 2023 | ||||||
Borrowings | - | - | 657,894 | 27,000,000 | 27,657,894 | 24,686,800 |
Lease liabilities | 44,161 | - | 127,085 | - | 171,246 | 168,809 |
Amounts owed to | ||||||
customers | 19,215,541 | - | 215,220 | - | 19,430,761 | 19,430,761 |
Amounts owed to banks | - | 4,965,600 | - | - | 4,965,600 | 4,965,600 |
Other liabilities | 828,194 | - | 342,106 | - | 1,170,301 | 1,170,300 |
20,087,896 | 4,965,600 | 1,342,305 | 27,000,000 | 53,395,802 | 50,422,270 | |
, all of the Group’s assets
, other than investment property amounting to
€
31,927,000 (2023:
€30,081
,000) and cash and cash equivalents amounting to
€
1,264,583 (2023:
€1,170,801)
which is pledged in favour of bondholders (Note 21),
all of the Group’s assets
are
available to support potential future funding and collateral needs. As at 31 December 2024, the
Company’s assets, other than the
the shares of the property companies which are pledged in
favour of bondholders (Note 21) and loans and advances to banks
amounting to €900,000
(2023:
€1,800,000)
pledged in favor of the Bank subsidiary
, all of the Company’s assets are available to
The
Company’s
principal liabilities comprise borrowings as reflected within the tables above. The
differences between the Company’s
other liabilities with respect to those of the Group are deemed
immaterial. Accordingly,
the Company’s
undiscounted cash flows payable under non-derivative
financial liabilities analysed into relevant maturity groupings based on the remaining period at the
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
70
2.
Financial risk management
- continued
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders, and
to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust
the capital structure, the Company may issue new shares or adjust the amounts of dividends paid
to shareholders.
The Group monitors the level of capital on the basis of the ratio of borrowings to total capital. Total
borrowings, as shown in the consolidated statement of financial position, consist of the listed bonds
issued to the general public (refer to Note 21). Total capital is the aggregate of total equity, as
reflected in the consolidated statement of financial position, and borrowings. As at 31 December
2024
, the Group’s total borrowings amounted to €
24 million (2023
: €2
5 million) and its total capital
amounted to
€
82 million (2023
: €
81 million), consisting of total equity and borrowings. Hence the
Group’s borrowings/capital ratio at 31 December
2024 to 29% (2023: 30%).
The Group manages the relationship between equity injections and borrowings, being the
constituent elements of capital as reflected above, with a view to managing the cost of capital. The
level of capital, computed by reference to amounts reported in the consolidated statement of
financial position, is maintained taking cognisance of the Group’s respective financial obligations
and commitments arising from operational requirements. In view of the nature of the Group’s
activities and the extent of borrowings or debt, the capital level at the end of the reporting period
determined by reference to the consolidated financial statements is deemed adequate by the
directors.
One of the Company’s principal subsidiaries is a credit institution, which is regulated by the Malta
Financial Services Authority. The bank is required to maintain a ratio of total regulatory capital to
risk-
weighted assets (“Capital requirements ratio”) above the prescribed minimum level at all times.
During the year ended 31 December 2024, the bank has complied with all such externally imposed
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
71
2.
Financial risk management
- continued
The following table analyses financial instruments that are measured in the consolidated statement
of financial position at fair value, by level of the following fair value measurement hierarchy. The
different levels have been defined as follows:
•
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
•
Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
•
Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs) (level 3). If one or more of the significant inputs is not based on
observable market data, the instrument is included in level 3.
The following table presents the Group
’s financial instruments that are measured at fair value.
Level 1 | Level 2 | Level 3 | Total | |
€ | € | € | € | |
As at 31 December 2024 | ||||
Assets | ||||
Financial assets measured at FVPL: | ||||
Dispute resolution funding assets | - | - | 1 | 1 |
Loans and advances to customers | - | - | 792,600 | 792,600 |
Financial assets measured at FVOCI: | ||||
Debt securities | 5,145,690 | - | - | 5,145,690 |
Total financial assets at fair value | 5,145,690 | - | 792,601 | 5,938,291 |
As at 31 December 2023 | ||||
Assets | ||||
Financial assets measured at FVPL: | ||||
Non-fixed income instruments | - | - | 1 | 1 |
Dispute resolution funding assets | - | - | 1 | 1 |
Equity instruments | - | - | 267,180 | 267,180 |
Loans and advances to customers | - | - | 792,600 | 792,600 |
Financial assets measured at FVOCI: | ||||
Debt securities | 6,946,560 | - | - | 6,946,560 |
Total financial assets at fair value | 6,946,560 | - | 1,059,782 | 8,006,342 |
At 31 December 2023
, the Company’s financial assets measured at fair value comprise of non
-fixed
income instruments amounting €
1
and equity instruments amounting to €267,180 which are
categorised as Level 3 instruments in the fair value hierarchy.
As at 31 December 2024 and 2023, the Group and the Company does not have financial liabilities
measured at fair value.
There were no transfers between levels 1, 2 and 3 during the year.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
72
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
(a) Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at
the end of the reporting period. A market is regarded as active if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory
agency, and those prices represent actual and regularly occurring market transactions on an arm’s
length basis. The quoted market price used for financial assets held by the Group is the current bid
price.
As at 31 December 2024 and 2023, instruments included in level 1 comprise of debt instruments
issued by the Government of Malta and debt instruments issued by local credit institutions which
are listed on the Malta Stock Exchange.
(b) Financial instruments in level 2
Fair values of instruments included in level 2 are based on quoted prices but in markets that are not
active. As at 31 December 2024 and 31 December 2023, there were no instruments included under
this hierarchy.
(c) Financial instruments in level 3
Fair values of instruments included in level 3 consist of instruments for which a valuation technique
includes inputs not based on observable data and the unobservable inputs have a significant effect
on the instrument’s valuation. This category includes unlisted
equity and loans to customers that
have failed the solely payments of principal and interest test and is therefore mandatorily measured
at fair value. They also include dispute resolution funding assets, which represent financing by the
Group to fund a portfolio of homogenous legal cases.
In view of the absence of quoted market prices or observable inputs for modelling value, the fair
value of the instruments held is derived using internal models. Unobservable inputs and
assumptions in respect of the loan and debt securities that have failed the SPPI test include cash
inflows under different scenarios, the timing of such cashflows, the probability outcomes under the
different scenarios and the discount rate.
The fair value of the equity securities held by the Group is derived using the residual income
method. The principal unobservable inputs and assumptions in this regard include the revenue
growth rate over the explicit period, the in-perpetuity growth rate and the discount rate.
The key unobservable inputs with respect to the dispute resolution funding assets and non-fixed
income securities relate to the assumptions in respect of the likelihood of a positive outcome and
the potential settlement value, while the unobservable inputs relating to loans and advances to
customers that are measured at fair value include the timing of cashflows, the probability outcomes
under different scenarios and the discount rate.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
73
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
The following table presents the changes in level 3 items:
Dispute | |||||
Non-fixed | resolution | Loans and | |||
income | funding | Equity | advances to | ||
securities | assets | instruments | customers | Total | |
€ | € | € | |||
At 1 January 2023 | 535,215 | 1,327,792 | 3,017,180 | 792,600 | 5,672,787 |
Additions | - | 556,777 | - | - | 556,777 |
Disposals | - | - | (2,937,470) | - | (2,937,470) |
Repayments | - | (575,080) | - | - | (575,080) |
Net movement in fair value | (535,214) | (1,309,488) | 187,470 | - | (1,657,232) |
At 31 December 2023 | 1 | 1 | 267,180 | 792,600 | 1,059,782 |
At 1 January 2024 | 1 | 1 | 267,180 | 792,600 | 1,059,782 |
Additions | - | - | - | - | - |
Disposals | - | - | (284,037) | - | (284,037) |
Repayments | - | - | - | - | - |
Net movement in fair value | (1) | - | 16,857 | - | 16,856 |
At 31 December 2024 | - | 1 | - | - | 792,601 |
There were no transfers between different levels of the fair value hierarchy during the years ended
31 December 2024 and 2023.
In view of the immateriality of the Level 3 assets in the context of the Group
’s
and Company’s
balance sheet, the disclosures required in respect of key unobservable inputs to Level 3 financial
instruments and the sensitivity of Level 3 fair values to reasonably possible alternatives in respect
Financial instruments not measured at fair value
Balances with Central Bank of Malta, loans and advances to banks and financial institutions and
loans and advances to customers as well as other receivables are carried at amortised cost in the
statements of financial position. The directors consider the carrying amounts of such financial
assets to be a reasonable estimate of their fair value principally in view of the relatively short
periods to repricing or maturity from the end of the reporting periods.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
74
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
The fair value of the amounts owed to customers and amounts owed to banks at 31 December
2024 and 2023 is also approximately equivalent to their carrying values in view of their short period
to maturity.
With regards to the €25 million
5.7% (2023: 4%) Secured Bonds as disclosed under Note 21, the
fair value of these liabilities as at 31 December 2024
was €
25,875,000 (2023
: €
24,725,000). These
estimates are considered level 1 fair value estimates.
Non-financial instruments measured at fair value
The Group’s land and buildings within investment property, were revalued on 31 December
2024
and 2023 by an external valuation expert having appropriate recognised professional qualifications
and experience in the location and category of the property being valued.
The directors have reviewed the carrying amounts of the properties as at 31 December 2024 on the
basis of the valuations carried out by the independent property valuers.
Valuations were made on the basis of open market value taking cognisance of the specific location
of the properties, the size of the sites together with their development potential, the availability of
similar properties in the area, and whenever possible, having regard to recent market transactions
for similar properties in the same location.
At 31 December 2024 and 2023
the carrying amounts of the Group’s investment property was
adjusted to reflect the properties’ estimated open market value on an individual asset level.
The Group is required to analyse non-financial assets carried at fair value by level of the fair value
hierarchy within which the recurring fair value measurements are categorised in their entirety (Level
1, 2 or 3). The different levels of the fair value hierarchy have been defined above as fair value
measurements using:
•
Quoted prices (unadjusted) in active markets for identical assets (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset, either
directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
•
Inputs for the asset that are not based on observable market data (that is, unobservable inputs)
(Level 3).
Investment property comprises commercial property including offices and industrial premises
leased out to third parties, as well as other parcels of land (both developed and undeveloped). All
the recurring property fair value measurements at 31 December 2024 and 2023 use significant
unobservable inputs and are accordingly categorised within Level 3 of the fair valuation hierarchy.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels on the date
the event or change in circumstances that causes the transfer occurs. There were no transfers
between different levels of the fair value hierarchy during the years ended 31 December 2024 and
2023.
A reconciliation from the opening balance to the closing balance of investment property for
recurring fair value measurements is reflected in the table in Note 10.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
75
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
Valuation processes
The valuations of the properties are performed annually on the basis of valuation reports prepared
by an independent and qualified valuer. These reports are based on both:
•
information provided by the Group which is derived from the Group’s financial systems and is
subject to the Group’s overall control environment; and
•
assumptions and valuation models used by the valuers - the assumptions are typically market-
related. These are based on professional judgement and market observation.
The information provided to the valuer, together with the assumptions and the valuation models
used by the valuer, are reviewed by the Chief Executive Officer (CEO) of the Company. This
includes a review of fair value movements over the period.
Valuation techniques
The external valuations of the Level 3 investment property have been performed using the
comparative value approach for the purpose of valuing land and using the traditional investment
method of valuation based on the capitalised maintainable income approach for the purpose of
valuing the buildings. The land component of the building is valued using the comparative value
approach. The valuations have been performed using the unobservable inputs described below:
(i)
Comparative value approach for developed and undeveloped land
Comparable land values
per sqm
derived
from
the
Regional
Authorities
for
Survey
and
Geoinformation covering Saxony-Anhalt as at 1 January 2024
(2023: 1 January 2022).
Land specific adjustments
object-specific costs and income affecting the ultimate value of the
real estate at hand, including decreases in market value of land
area affected by any form of contamination less the value of the
land component of the building, as applicable.
(ii)
Capitalised maintainable income approach for buildings
Maintainable income
the maintainable income is equivalent to the expected income
which the valuer expects the property to generate in the
foreseeable future, being the gross yield which the property is able
to generate through contractual agreements less an appropriate
level of management costs, including: administrative costs,
maintenance expenses and rental failure costs, deemed necessary
for the operation of the buildings and adjusted for the profitable
value of the land. The expected income which the valuer expects
the property to generate in the foreseeable future is based on the
market averages attributable within the region of respective
properties.
Discount rate
the discount rate is based on the property-specific adjusted
property interest rate.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
76
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
Expected service (useful) | based on the valuer ’ s best estimate of the remaining useful life of | ||
life | the buildings, after taking into consideration the location, the state | ||
of construction and possible economic utilisation of the buildings. | |||
Land component of the | the land component of the building is valued separately from the | ||
building | building and follows the same valuation approach with the | ||
developed and undeveloped land. | |||
Building specific | object-specific costs and income affecting the ultimate value of the | ||
adjustments | real estate at hand, including repairs and maintenance costs and | ||
vacancy costs. |
| At 31 December 2024 | ||||
Significant | Range of | |||
Fair value | Valuation | unobservable | unobservable | |
€’000 | technique | input | Inputs | |
Description by class | ||||
Developed and | 16,020 | Comparative | Comparable land | €1 2- €2 3 per |
undeveloped land | value | values per sqm | sqm | |
(excluding land | approach | |||
component of the building, | ||||
if any) | ||||
Land specific adjustments | (317) | |||
15,703 | ||||
Buildings - current use as | 12,939 | Capitalised | Maintainable | €282,000 - |
third party offices, | maintainable | income | €757,000 p.a. | |
production and storage | income | Discount rate | Approximately | |
facilities | approach | 6.75%-7% | ||
| Expected service | 10-20 years | |||
(useful) life | ||||
Land component of the | 4,569 | Comparative | Comparable land | €1 2- €2 3 per |
building | value | values per sqm | sqm | |
approach | ||||
Building specific | (1,284) | |||
adjustments | ||||
16,224 | ||||
Total fair value | 31,927 | |||
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
77
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
| At 31 December 2023 | ||||
Significant | Range of | |||
Fair value | Valuation | unobservable | unobservable | |
€’000 | technique | Input | Inputs | |
Description by class | ||||
Developed and undeveloped | 14,777 | Comparative | Comparable | €10 - €20 per |
land (excluding land | value | land values per | sqm | |
component of the building, if | approach | sqm | ||
any) | ||||
Land specific adjustments | (953) | |||
13,824 | ||||
Buildings - current use as | 13,616 | Capitalised | Maintainable | € 290,000 - |
third party offices, production | maintainable | income | € 797,000 p.a. | |
and storage facilities | income | Discount rate | Approximately | |
approach | 6.75%-7% | |||
| Expected service | 10-20 years | |||
(useful) life | ||||
Land component of the | 4,098 | Comparative | Comparable land | €10 - €20 per |
building | value approach | values per sqm | sqm | |
Building specific adjustments | (1,457) | |||
16,257 | ||||
Total fair value | 30,081 | |||
The higher the maintainable income per annum and the comparable land value per square metre,
the higher the resultant fair valuation. Conversely, the lower the capitalisation rate the higher the
fair value. The highest and best use of the properties reflected in the tables above is equivalent to
their current use.
In this respect, if the comparable land values per sqm increased/decreased by 5%, with all other
variables held constant, the fair value of the investment property would increase/decrease by
approximately €1,007,000
(2023: approximately
€
903,000). If maintainable income per annum
increased/decreased by 5%, with all other variables held constant, the fair value of the investment
property would increase/decrease by approximately
€
551,000 (2023: approximately
€577,000
Critical accounting estimates, and judgments in applying accounting policies
Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
78
3.
Critical accounting estimates, and judgments in applying accounting policies
- continued
In the opinion of the directors, other than for estimates relating to the fair value of investment
properties and expected credit losses of the Group’s loans and advances to customers and other
receivables, the accounting estimates and judgments made in the course of preparing these
financial statements are not difficult, subjective or complex to a degree which would warrant their
description as critical in terms of the requirements of IAS 1.
Accordingly, the directors believe there are no areas involving a higher degree of judgment that
would have a significant effect on the amounts recognised in the financial statements, and there are
no key assumptions and other key sources of estimation uncertainty relating to estimates that
require subjective or complex judgments, other than for estimates relating to the fair value of
investment properties
and expected credit losses of the Group’s loans and advances to customers
and other receivables.
The
Group’s investment properties are fair valued on the basis of a valuation carried out
by an
independent property valuer. The Level 3 valuations of investment property have been performed
using the comparative value approach for the purpose of valuing land and using the traditional
investment method of valuation based on the capitalised maintainable income approach for the
purpose of valuation of the buildings. The land component of the building is valued using the
comparative value approach. The valuation approach takes into account key judgments and
assumptions, including the sensitivity of such, as outlined in Note 2.7.
The measurement of the expected credit loss allowance for loans and advances to customers and
receivables is an area that requires the use of complex models and significant assumptions about
future economic conditions and credit behaviour. In this respect, a number of significant judgements
are made by management. Most notably, these include defining SICR and UTP criteria and
determining whether a SICR or UTP event has occurred. Judgement is also required in choosing
appropriate assumptions for the measurement of ECLs.
In the case of modelled ECLs, judgements are also made in respect of determining the forward-
looking macroeconomic variables under different scenarios and the associated weightings for each
scenario.
In view of this uncertainty, management considered the sensitivity of the ECL outcome to the
macro-economic forecasts by recalculating the ECL under the different scenarios, applying a 100%
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
79
Balances with Central Bank of Malta and cash
| Group |
||
2024 |
2023 |
|
€ |
€ |
|
Cash in hand |
1,537 |
2,055 |
Balances held with Central Bank of Malta |
20,313,638 |
27,978,416 |
20,315,175 |
27,980,471 |
|
Requirement in terms of Regulation (EC) No 1745/2003 of the ECB. The average reserve deposit
held for the relevant maintenance period amounted to €130,136 (2023: €271,446). Deposits with
the Central Bank amounting to €6,904,642 (2023: €17,607,423) are withdrawable on demand and
were subject to an interest rate of 3% (2023: of 4%) per annum. The remaining deposits of
€13,278,859 (2023: €10,099,547) consisted of money market placements in USD with a contractual
maturity of six months (2023: contractual maturity of one month) and CAD with a contractual
maturity of seven days (2023: contractual maturity of one month) and with interest rates of up to
Loans and advances to banks and other financial institutions
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Repayable on call and at short notice |
3,149,109 |
2,742,155 |
1,316,768 |
5,525,442 |
Term loans and advances |
5,000,000 |
4,994,585 |
900,000 |
1,800,000 |
Allowances for expected credit losses |
(28,332) |
(23,086) |
- |
- |
8,120,777 |
7,713,654 |
2,216,768 |
7,325,442 |
|
Term loans and advances of the Group are unsecured, have been granted for an initial period of 18
months and subsequently rolled over for a further 12 months until 26 March 2026, and are subject
to floating interest rates. The loans are designated as lower ranking liabilities as referred to in
regulation 108(4) of the Recovery and Resolution Regulations (Subsidiary Legislation 330.09).
As at 31 December 2024
, the Group’s amounts repayable on call and at short notice
are due from
banks and other financial institutions. Placements with other financial institution amount to
€
1,536,638 (2023:
€
1,159,218). As at 31 December 2024 and 2023, a
ll the Company’s amounts
repayable on call and at short notice are due solely from banks, of which
€
1,292,089 (2023:
€
5,458,184) is held with the subsidiary bank. As at 31 December 2024 and 2023
, the Company’s
term loans and advances is placed with the subsidiary bank with a contractual maturity of 7 months
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
80
Loans and advances to customers
Group | ||
2024 | 2023 | |
€ | € | |
Gross loans and advances | 13,340,043 | 13,593,751 |
Allowance for credit losses | (321,469) | (219,052) |
Carrying amount as at 31 December | 13,018,574 | 13,374,699 |
Gross loans and advances to customers as at 31 December 2024 include credit exposures with
related parties amounting to €
8,900,000 (2023
: €
8,900,000).
Movements in expected credit loss allowances during 2024 and 2023 were as follows:
Group | ||
2024 | 2023 | |
€ | € | |
At beginning of year | 219,052 | 94,569 |
Change in expected credit losses (Note 33) | 102,417 | 124,483 |
At end of year | 321,469 | 219,052 |
Financial assets mandatorily measured at fair value through profit or loss
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Non-fixed income securities | - | 1 | - | 1 |
Dispute resolution funding assets | 1 | 1 | - | - |
Equity instruments | - | 267,180 | - | 267,180 |
Loans and advances to customers | 792,600 | 792,600 | - | - |
792,601 | 1,059,782 | - | 267,181 | |
As at 31 December 2024 and 2023,
the Group’s financial instruments that are mandatorily
measured at fair value through profit or loss comprise a fixed interest loan that also has a profit
participation feature that enables the Group to participate in any profit earned as a result of the
activity being financed, and loans advanced to fund dispute resolution claims. As at 31 December
2023
, the Group’s financial instruments mandatorily measured at fair value through profit or loss
also included unlisted non-fixed income securities issued by a special purpose vehicle set up
specifically to finance certain dispute resolution claims. They are mandatorily measured at fair value
as they have failed the SPPI test. As at 31 December 2023, financial instruments that are
mandatorily measured at fair value through profit or loss also comprise unlisted equity securities
issued by a related party.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
81
7.
Financial assets mandatorily measured at fair value through profit or loss
- continued
The movement in financial assets measured at fair value through profit or loss is summarised as
follows:
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
At 1 January | 1,059,781 | 5,672,787 | 267,181 | 802,395 |
Additions | 312,981 | 556,777 | - | - |
Disposal of equity instruments | (284,037) | (2,937,470) | (284,037) | - |
Repayments of dispute resolution | ||||
funding assets | (139,652) | (575,080) | - | - |
Net movement in fair value | (156,473) | (1,657,232) | 16,856 | (535,214) |
At 31 December | 792,601 | 1,059,782 | - | 267,181 |
During 2023 the Group sold unlisted equity securities with a carrying value of €2,750,000 for
$3,107,832 (or €2,937,470), resulting in a gain of €187,470 on the date of sale (Note 30).
During
2024, the Group sold the remaining unlisted equity securities to the ultimate parent company which
were valued at €267,180 for $300,000 (or €284,037), resulting
in
a gain of €16,857
. As at 31
December 2024, a portion of the consideration for the sale of unlisted equity securities amounting to
€
2,302,158
(2023: €2,810,293)
was still receivable and
is included under ‘Amounts due from ultimate
parent company,
of which €
288,781 is repayable on demand and not subject to interest and
€
2,013,377 are repayable in six years and subject to a fixed interest rates (Note 14).
The Group has also recognised fair value losses on its investments in non-fixed income securities and
dispute resolution funding assets amounting to €
156,473 (2023
: €
1,657,232)
During 2023, the fair value losses arising from dispute resolution funding assets were indemnified by
the ultimate parent company as explained further in Note 30. As at 31 December 2023, the
indemnified amount is included within ‘Other receivables’ as part of the
amounts due from ultimate
parent company in Note 14.
At the level of the Company, during 2024 the movement in fair value was coming from the sale of
unlisted equity securities to the ultimate parent company highlighted above, and from the fair value
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
82
Financial assets measured at fair value through other comprehensive income
Group |
||
2024 |
2023 |
|
€ |
€ |
|
Debt and other fixed income instruments |
5,145,690 |
6,946,560 |
5,145,690 |
6,946,560 |
|
Analysed by issuer: |
||
- local general government |
4,928,880 |
6,836,670 |
- local credit institutions |
216,810 |
109,890 |
5,145,690 |
6,946,560 |
|
Listing status: |
||
- listed on Malta Stock Exchange |
5,145,690 |
6,946,560 |
5,145,690 |
6,946,560 |
|
Group |
||
2024 |
2023 |
|
€ |
€ |
|
At 1 January |
6,946,560 |
18,153,403 |
Disposals/redemptions |
(2,000,000) |
(11,500,000) |
Amortisation |
(24,220) |
20,069 |
Net fair value movements |
223,350 |
273,088 |
At 31 December |
5,145,690 |
6,946,560 |
, an expected credit loss allowance amounting to €
3,134 was accounted
for in terms of IFRS 9 (2023
: €
Investments in subsidiaries
Company |
||
2024 |
2023 |
|
€ |
€ |
|
At 1 January |
50,530,850 |
50,530,850 |
Contribution |
28,460 |
- |
At 31 December |
50,559,310 |
50,530,850 |
Upon forming the Fiscal Unit and under the terms of the Tax Sharing Agreement, unabsorbed tax
losses carried forward by the Bank amounting to €60.9 million as at 31 December 2022 were
transferred to the Company for utilisation against the Fiscal Unit’s current and future taxable profits.
The Company compensates the Bank whenever and to the extent, the unutilised and unrecognised
tax losses assumed by the Company, as principal taxpayer, are “utilised” in the reduction of the
taxable profit of the Fiscal Unit or utilised against the current tax liability of the Fiscal Unit.
As at 31 December 2024, the contribution amounting to €28,460 represents the compensation
payable by the Company in respect of the “utilised” tax losses against the notional current tax
liability of the Company.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
83
9.
Investments in subsidiaries
- continued
The subsidiaries at 31 December 2024, whose results and financial position affected the figures of
the Group, are shown below:
Name of company
Registered office
Merkanti Bank
Aragon House Business Centre, Dragonara Road
Limited
St Julian’s, STJ 3140, Malta
Merkanti (A)
Aragon House Business Centre, Dragonara Road
International Ltd
St Julian’s, STJ 3140, Malta
Merkanti (D)
Aragon House Business Centre, Dragonara Road
International Ltd
St Julian’s, STJ 3140, Malta
Merkanti Diesel
Aragon House Business Centre, Dragonara Road
Limited
St Julian’s, STJ 3140, Malta
Altmark Industrie
Sanner Strasse 2
Management GmbH
39596 Arneburg, Germany
As at 31 December 2024 and 2023, the Company held 63.75% of the ordinary shares of Merkanti
Diesel. The remaining shares held by a third party do not have any voting rights. Accordingly, the
Company retained 100% of the voting rights in Merkanti Diesel Limited.
As at 31 December 2024 and 2023, the Company held 100% of the Ordinary shares of both Merkanti
Bank Limited and Altmark Industrie Management GmbH, and 94.9% of the Ordinary shares of both
Merkanti (A) International Ltd and Merkanti (D) International Ltd.
Disclosure of financial information related to non
-
controlling interests in the Group’s activities and
cash flows as required by IFRS 12 is not being made on the basis that
non-controlling interests are
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
84
Investment property
| Group |
||
2024 |
2023 |
|
€ |
€ |
|
At 1 January |
30,081,000 |
30,965,000 |
Additions |
547,552 |
- |
Disposals |
(54,608) |
(843,920) |
Changes in fair value |
1,353,056 |
(40,080) |
At 31 December |
31,927,000 |
30,081,000 |
The Group also disposed a part of its investment property, in respect of which a
gain of €32,390
(2023: loss of
€
27,949) was realised.
The Group’s investment property is measured at fair value. The fair value as at 31 December
2024
and 2023 was estimated by an external valuation expert reflecting the actual market state,
conditions and circumstances as at the reporting date. Disclosures relating to the valuation
techniques, judgments and assumptions in arriving at the fair value of investment property are
explained in detail in Note 2.7.
The Group’s investment property
served as security for
the Group’s
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
85
Property, plant and equipment
Office |
|||
Computer |
improvements |
||
equipment |
and equipment |
Total |
|
€ |
€ |
€ |
|
At 1 January 2023 |
|||
Cost |
140,955 |
294,395 |
435,350 |
Accumulated depreciation |
(107,559) |
(190,532) |
(298,091) |
Net book amount |
33,396 |
103,863 |
137,259 |
Year ended 31 December 2023 |
|||
Opening net book amount |
33,396 |
103,863 |
137,259 |
Additions |
14,508 |
51,942 |
66,450 |
Disposals |
(8,033) |
(2,311) |
(10,344) |
Depreciation charge |
(23,640) |
(52,527) |
(76,167) |
Depreciation released on disposals |
7,502 |
1,764 |
9,266 |
Closing net book amount |
23,733 |
102,731 |
126,464 |
At 31 December 2023 |
|||
Cost |
147,430 |
344,026 |
491,456 |
Accumulated depreciation |
(123,697) |
(241,295) |
(364,992) |
Net book amount |
23,733 |
102,731 |
126,464 |
Year ended 31 December 2024 |
|||
Opening net book amount |
23,733 |
102,731 |
126,464 |
Additions |
14,557 |
68,231 |
82,788 |
Disposals |
(18,961) |
(41,216) |
(60,177) |
Depreciation charge |
(14,874) |
(61,785) |
(76,659) |
Depreciation released on disposals |
18,961 |
6,137 |
25,098 |
Closing net book amount |
23,416 |
74,098 |
97,514 |
At 31 December 2024 |
|||
Cost |
143,026 |
371,041 |
514,067 |
Accumulated depreciation |
(119,610) |
(296,943) |
(416,553) |
Net book amount |
23,416 |
74,098 |
97,514 |
During 2024, the Group disposed of a part of its property, plant and equipment, in respect of which
a gain of
€2,678 was realised (2023:
loss of
€
547).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
86
11.
Property, plant and equipment
- continued
Company
Office |
|
improvements |
|
and |
|
equipment |
|
€ |
|
At 1 January 2023 |
|
Cost |
129,162 |
Accumulated depreciation |
(77,394) |
Net book amount |
51,768 |
Year ended 31 December 2023 |
|
Opening net book amount |
51,768 |
Additions |
3,104 |
Disposals |
(1,189) |
Depreciation charge |
(25,821) |
Depreciation released on disposals |
644 |
Closing net book amount |
28,506 |
At 31 December 2023 |
|
Cost |
131,077 |
Accumulated depreciation |
(102,571) |
Net book amount |
28,506 |
Year ended 31 December 2024 |
|
Opening net book amount |
28,506 |
Depreciation charge |
(24,438) |
Closing net book amount |
4,068 |
At 31 December 2024 |
|
Cost |
131,077 |
Accumulated depreciation |
(127,009) |
Net book amount |
4,068 |
During 2023, the Company disposed of a part of its property, plant and equipment, in respect of
which a loss of
€
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
87
Intangible assets
Computer |
|
software |
|
€ |
|
At 1 January 2023 |
|
Cost |
1,438,933 |
Accumulated amortisation |
(469,940) |
Net book amount |
968,993 |
Year ended 31 December 2023 |
|
Opening net book amount |
968,993 |
Additions |
50,466 |
Amortisation charge |
(86,715) |
Closing net book amount |
932,744 |
At 31 December 2023 |
|
Cost |
1,489,399 |
Accumulated amortisation |
(556,655) |
Net book amount |
932,744 |
Year ended 31 December 2024 |
|
Opening net book amount |
932,744 |
Additions |
14,929 |
Disposals |
(4,158) |
Amortisation charge |
(44,361) |
Amortisation released on disposals |
4,158 |
Closing net book amount |
903,312 |
At 31 December 2024 |
|
Cost |
1,500,170 |
Accumulated amortisation |
(596,858) |
Net book amount |
903,312 |
As at 31 December 2024
, computer software amounting to €
699,580 (2023:
€
699,580) relate to the
implementation of a new core banking system by Merkanti Bank Limited which was still in the
course of development. As at 31 December 2024, the fully amortised computer software with an
original cost of €
263,238 is still in use (2023:
€245,538
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
88
Right-of-use assets and lease liabilities
The Group and the Company lease office space. The lease contracts are for fixed periods with no
extension periods but can be preterminated subject to six months advance notice.
Leases are recognised as a right-of-use
(‘ROU’)
asset and a corresponding liability at the date at
which the leased asset is available for use by the Group. The right-of-use asset is recognised at an
amount equal to the lease liability at the date at which the leased asset is made available for use,
and subsequently depreciated till the earlier of the end of the useful life of the ROU asset or the end
of the lease term.
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
At 1 January |
138,747 |
283,526 |
138,747 |
283,526 |
Depreciation |
(138,747) |
(144,779) |
(138,747) |
(144,779) |
At 31 December |
- |
138,747 |
- |
138,747 |
The lease liabilities were initially measured at the present value of the remaining lease payments,
discounted using the
Group’s incremental borrowing rate, which represents the rate that the
Company or its subsidiaries would have to pay to borrow the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment with similar terms, security
and conditions. The movement in lease liabilities is analysed below:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
At 1 January |
168,809 |
330,589 |
168,809 |
330,589 |
Interest expense on lease liabilities |
2,436 |
9,160 |
2,436 |
9,160 |
Repayment of lease liabilities |
(171,245) |
(170,940) |
(171,245) |
(170,940) |
At 31 December |
- |
168,809 |
- |
168,809 |
Lease liabilities are split into maturity groupings as follows:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Current |
- |
168,809 |
- |
168,809 |
Non-current |
- |
- |
- |
- |
At 31 December |
- |
168,809 |
- |
168,809 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
89
13.
Right-of-use assets and lease liabilities
- continued
On 16 December 2019, the Group entered into a lease agreement for office space for a fixed period
until 16 December 2024. The right-of-use asset in respect of this lease has been included within the
above table. On 4 December 2024, the Group entered into a short-term lease agreement until 16
June 2025 to continue to use the office space, for which the Group has elected not to recognise
right-of-use assets.
As at 31 December 2023, the Group does not have leases with contract terms shorter than one
year and leases of low-value items for which the Group has elected not to recognise right-of-use
assets.
The income statement reflects the following amounts relating to leases:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Depreciation charge of right-of-use-assets |
138,747 |
144,779 |
138,747 |
144,779 |
Interest expense |
2,436 |
9,160 |
2,436 |
9,160 |
Total cash payments for leases of the Group in 2024 was
€
171,245 (2023
: €
Other receivables
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Trade and other receivables |
817,098 |
349,163 |
2,600 |
2,600 |
Amounts due from ultimate |
||||
parent company |
19,992,939 |
16,192,945 |
13,311,600 |
8,713,157 |
Amounts due from subsidiaries |
- |
- |
10,037,783 |
10,500,278 |
20,810,037 |
16,542,108 |
23,351,983 |
19,216,035 |
|
Allowance for credit losses |
(28,293) |
(28,293) |
(46,190) |
(46,190) |
20,781,744 |
16,513,815 |
23,305,793 |
19,169,845 |
|
As at 31 December 2024, the
Group and the Company’s
amounts due from the ultimate parent
company consist of a revolving credit facility having a gross amount of
€
10,892,727 (2023:
€5,892,727)
subject to a fixed interest rate, receivables amounting to
€2,
130,093 (2023:
€2,820,430)
due on demand and not subject to interest and receivables amounting to $300,000 (or
€288,78
0) (2023: nil) relating to the sale of unlisted equity securities due on demand and not
subject to interest. As at 31 December 2023, the receivables due on demand and not subject to
interest
include €1,890,649
which relate to the agreement entered by the Company with the
ultimate parent company in October 2023 (Note 30).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
90
14.
Other receivables
- continued
As at 31 December 2024, the Group’s
amounts due from the ultimate parent company also include
a gross
loan amounting to €
4,660,000 (2023:
€
4,660,000) granted by a subsidiary which is
repayable on demand and subject to a fixed interest rate, receivables of subsidiaries amounting to
$2,089,115 (or €2,013,738) (2023:
$3,107,832
(or €2,810,293))
relating to the sale of unlisted
equity securities which are repayable in six years and subject to a fixed interest rates and
receivables of subsidiaries amounting to €7,600
(2023:
€9,495)
due on demand and not subject to
interest.
Amounts due by the Company from subsidiaries include the provision of subordinated loans with
gross amount of
€
9,500,000 (2023
: €
9,500,000) bearing interest at fixed rates maturing on 9
September 2026, dividend receivables amounting to
€
284,700 (2023:
€
942,093) and receivables
amounting to
€253,08
3
(2023: €
Deferred taxes
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes relate to the
same fiscal authority.
The following amounts determined after appropriate offsetting are shown in the statements of
financial position:
| Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Deferred tax assets | 150,174 | 150,174 | - | - |
Deferred tax liabilities | (2,386,691) | (2,153,622) | - | - |
(2,236,517) | (2,003,448) | - | - | |
Deferred taxes are calculated on all temporary differences under the liability method and are
measured at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled based on tax rates (and tax laws) that have been substantively enacted by the end
of the reporting period. The principal tax rates used are 35% (2023: 35%) in relation to the Maltese
jurisdiction, being the effective tax rate at Company level, and 15.825% (2023: 15.825%) in respect
of the German fiscal authority.
Under Maltese corporate income tax rules, refunds are available to shareholders of Maltese
companies following the distribution of profits to the shareholders. The ‘standard’ refund amounts to
six-sevenths of the tax paid in Malta, resulting in a net post-refund effective tax rate in Malta
typically amounting to 5% to 11.67%.
Deferred tax assets and liabilities are attributable to the following:
| Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Unremitted earnings | 150,174 | 150,174 | - | - |
Fair valuation of properties | (2,386,691) | (2,153,622) | - | - |
(2,236,517) | (2,003,448) | - | - | |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
91
15.
Deferred taxes
- continued
The deferred tax liabilities arise
on the investment properties of the Group’s subsidiaries Merkanti
(A) International Ltd and Merkanti (D) International Ltd.
The deferred tax liabilities are calculated on the difference between the balance sheet value of the
investment property, being the fair value as per the external valuation report, less the tax cost as
stipulated by the local German GAAP, which would be the capital gain recognised upon the sale of
these assets. This difference is multiplied by the German tax rate of 15.825%.
These two companies were redomiciled to Malta with effect from 8 July 2019, and as a result
became subject to Maltese income tax.
For Maltese income tax purposes, any unrealised fair value gains derived from the revaluation of
the investment properties of the Group’s subsidiaries Merkanti (A) International
Ltd and Merkanti
(D) International Ltd should also result in a deferred tax liability. Such deferred tax liability should be
calculated by multiplying the fair value gains, being the difference between the value of the
immovable properties as at year end less their cost of acquisition, with the standard corporate rate
of tax in Malta of 35%.
However, for Maltese income tax purposes, in terms of Article 4A of the Maltese Income Tax Act
(Chapter 123, Laws of Malta), there is an election for immovable properties to be deemed to be
assets acquired by the companies on the date of their redomiciliation to Malta at a cost which is
deemed to be their market value as at that date.
Furthermore, when calculating the capital gain for Maltese income tax purposes derived upon the
future transfer of any of the immovable properties, the companies are able to claim relief from tax
suffered in Germany by way of a tax credit against the Maltese income tax liability, if any. As a
result, as at 31 December 2024 and 2023, no tax liability is expected to arise in Malta over the
foreseeable future and accordingly the German tax rate remains suitable for determining the
Group’s deferred tax liability in this respect.
Until 31 December 2023, the deferred tax asset in respect of unremitted earnings arose as a result
of undistributed profits earned by Merkanti (A) International Ltd and Merkanti (D) International Ltd
(the
“property companies”)
. It was calculated as the difference between the Maltese corporate
income tax rate of 35% to which the profits earned by the property companies are subject to in
Malta, and the effective tax rate (between 5% and 11.67%) at consolidated level, which difference
represents the amount of the Malta tax refund available to Merkanti Holding p.l.c. following a
dividend distribution by the property companies.
During 2024, the Company and the Bank, resolved to form a Fiscal Unit for Maltese income tax
purposes, in terms of the Maltese Consolidated Group (Income Tax) Rules (L.N. 110 of 2019).
These Rules allow a group of companies to elect to be treated as one single taxpayer and to
compute their chargeable income or loss on a consolidated basis. Upon formation of the Fiscal
Unit, all unabsorbed tax losses carried forward by the Bank amounting to
€60.9 million
were
transferred to the Company for utilisation against profits earned by the Fiscal Unit in Malta and as a
result against profits of the Company itself, including profits arising from dividend distributions by
the property companies, allowing for a full refund of any Malta income taxes paid by the property
companies.
This tax asset has not been offset against current tax liabilities arising in respect of profits earned
by the property companies as the balances are not expected to be settled on a net basis.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
92
15.
Deferred tax
- continued
The movements in deferred tax assets and liabilities, which are all recognised in profit or loss, are
analysed below:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
As at 1 January |
(2,003,448) |
(2,057,497) |
- |
- |
Deferred tax asset arising in respect of |
||||
unremitted earnings |
- |
(18,456) |
- |
- |
Deferred tax liabilities arising on the fair |
||||
valuation of properties |
(233,069) |
72,505 |
- |
- |
As at 31 December |
(2,236,517) |
(2,003,448) |
- |
- |
The recognised deferred tax asset and liabilities are expected to be recovered or settled after more
than 12 months from the end of the reporting period.
At 31 December 2024, the Group and, as a result of the formation of the Fiscal unit, the Company,
had unutilised tax losses
amounting to €
57 million (2023
: €
58 million) on which no deferred tax
asset was recognised in the consolidated statement of financial position in view of the uncertainty of
Accrued income and other assets
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Accrued interest receivable |
3,430,234 |
2,997,925 |
3,321,085 |
2,330,854 |
Other fees receivable |
208,800 |
1,057,578 |
- |
- |
Other assets |
32,866 |
95,094 |
23,915 |
27,343 |
Prepayments |
785,664 |
229,153 |
168,183 |
44,529 |
4,457,564 |
4,379,750 |
3,513,183 |
2,402,726 |
|
As at
31 December 2024, part of
the Group’s
accrued interest and other fees receivable amounting
to €
3,297,125 (2023:
€
2,351,646) and nil (2023:
€
177,500) respectively, are attributable to the
ultimate parent company, while accrued interest and other fees receivable amounting to
€1,678
(2023: €534,560)
and €208,800
(2023: €278,133)
respectively, are attributable to other related
parties.
At Company level, accrued interest receivable amounting to €
2,804,274 (2023
: €
2,316,792)
is attributable to the ultimate parent company and
€
516,811 (2023:
€
14,063) is attributable to
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
93
Share capital
2024 |
2023 |
|
€ |
€ |
|
Authorised |
||
1,000,000,020 Ordinary “A” shares of €0.10 each |
100,000,002 |
100,000,002 |
1,000,000,020 Ordinary “B” shares of €0.10 each |
100,000,002 |
100,000,002 |
200,000,004 |
200,000,004 |
|
Issued |
||
16,673,333 Ordinary “A” shares of €0.10 each |
1,667,333 |
1,667,333 |
1 Ordinary “B” shares of €0.10 each |
- |
- |
1,667,333 |
1,667,333 |
The holders of ordinary “A” shares and ordinary “B”
shares are entitled to one vote per share at
general meetings of the Group for each share held. The ordinary “A” shares and ordinary “B”
Contribution reserve
2024 |
2023 |
|
€ |
€ |
|
At beginning and end of year |
50,892,669 |
50,892,669 |
The contributed reserve is free from all claims, charges, liens, equities and encumbrances and it is
made as a contribution into the distributable reserves of the Company. The contribution is
irrevocable and unconditional.
Fair value reserve
The fair value reserve reflects the effects of the fair value measurement of financial investments
measured at fair value through other comprehensive income, net of any deferred taxes. This
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
94
Non-controlling interests
Group |
||
2024 |
2023 |
|
€ |
€ |
|
At beginning of year |
1,085,334 |
1,666,575 |
Share of losses attributable to non-controlling interests |
(53,225) |
(514,941) |
Dividends distributed during the year |
(15,300) |
(66,300) |
At end of year |
1,016,809 |
1,085,334 |
During 2024, Merkanti (A) International Ltd and Merkanti (D) International Ltd declared net
dividends amounting to €
200,000 (2023
: €
950,000)
and €
100,000 (2023
: €
350,000) respectively, to
the ordinary shareholders in accordance with their proportionate shares held in these property
Borrowings
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Non-current |
||||
€25 million 4% Bonds 2026 |
- |
24,686,800 |
- |
24,686,800 |
€25 million 5.7% Bonds 2033 |
24,481,152 |
- |
24,481,152 |
- |
Total borrowings |
24,481,152 |
24,686,800 |
24,481,152 |
24,686,800 |
By virtue of an offering memorandum dated 18 July 2019, the Company issued €25,000,000
secured
bonds with a face value of €100 each.
The bonds have a coupon interest of 4% which is
payable annually in arrears on 12 August of each year. The bonds are redeemable at par and are
due for redemption on 12 August 2026. On 3 July 2024, the Bondholders approved the proposed
amendments to the terms and conditions of the Bonds, consisting primarily of (1) an increase in the
interest rate payable on the Bonds from 4.00% to 5.70% per annum and (2) a 7-year extension of
the term of the Bonds to 12 August 2033. The modification of the terms qualified as substantial
modification by which the original bond was extinguished and the new bond was recognised at fair
value, which resulted in a loss on extinguishment
€434,600 (Note 27
).
The bonds are secured by real estate owned by the property companies within the Group by means
of the German Law Mortgages, the Pledges of shares and the Pledges of Deposited Monies. The
bonds were admitted on the Official List of the Malta Stock Exchange on 16 August 2019. The
quoted market price as at 31 December 2024 for the bonds was
€
103.50 (2022:
€98.
90), which in
the opinion of the directors fairly represents the fair value of these financial liabilities. At the end of
the reporting period, none of the bonds were held by the Company
’s
directors.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
95
21.
Borrowings
- continued
The bonds are measured at the amount of the net proceeds adjusted for the amortisation of the
difference between the net proceeds and the redemption value of such bonds, using the effective
yield method as follows:
Group and Company |
||
2024 |
2023 |
|
€ |
€ |
|
Original face value of bonds issued |
25,000,000 |
25,000,000 |
Bond issue costs |
524,555 |
738,196 |
Accumulated amortisation |
(5,707) |
(424,996) |
Unamortised bond issue costs |
518,848 |
313,200 |
Amortised cost and closing carrying amount of the bonds |
24,481,152 |
24,686,800 |
Amounts owed to banks
| Group |
||
2024 |
2023 |
|
€ |
€ |
|
Repayable at short notice |
4,965,200 |
4,965,600 |
Amounts owed to banks are repayable subject to a 35-day prior notice period and are not subject to
Amounts owed to customers
| Group |
||
2024 |
2023 |
|
€ |
€ |
|
Repayable at call and short notice |
13,176,014 |
19,215,541 |
Term deposits |
- |
215,220 |
13,176,014 |
19,430,761 |
|
Amounts owed to customers include amounts of
€
13,157,125 (2023
: €
19,114,147) due to related
parties. As at 31 December 2024 and 2023, all amounts owed to customers were not subject to
interest.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
96
Other liabilities
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Trade payables |
502,224 |
141,792 |
- |
- |
Accrued interest payable |
485,342 |
342,106 |
485,342 |
342,106 |
Deferred revenue |
856,553 |
- |
- |
- |
Provision for other liabilities |
280,000 |
- |
- |
- |
Accrued expenses and other payables |
927,522 |
686,402 |
173,911 |
248,427 |
3,051,641 |
1,170,300 |
659,253 |
590,533 |
|
As at 31 December 2024,
the Group’s
accrued expenses and other payables include dividends
payable to non-controlling interests amounting to
€
234,813 (2023
: €
219,513). As at 31 December
2023,
the Group’s accrued expenses and other payables also include
amounts due to ultimate
parent company
amounting to €
Contingent liabilities and commitments
The Scully Royalty Limited (‘SRL’) group is subject to routine litigation incidental to its business and
is named from time to time as a defendant in a number of legal actions arising in connection with its
activities, certain of which may include large claims for punitive damages. Due to the size,
complexity and nature of SRL group's operations, a number of legal and tax matters are
outstanding. SRL, the Company's ultimate parent company and certain of its subsidiaries, including
the Company, have been named as a defendant in a legal action in a foreign jurisdiction relating to
an alleged guarantee of the former parent of the SRL group in the amount of approximately €43
.8
million. In the second half of 2021, Scully Royalty Group were informed of a proposed amendment
to the claim which, if allowed, would increase the amount to approximately €80.7
3 million, plus
interest and costs, as at 31 December 2024. On the basis of legal advice, the directors of the
Company believe that such a claim in respect of the Company is without merit.
The directors intend to vigorously defend such claims. Moreover, the Company has initiated
litigation locally in Malta seeking a declaratory judgment against the plaintiff in regard to this claim.
The Company recently obtained a favourable judgment at the Appeals Court confirming jurisdiction.
In addition, the Company has obtained additional risk mitigation securities for this litigation to
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
97
25.
Contingent liabilities and commitments
- continued
The operating lease agreements entered into by the Group with the tenants of its properties
typically either have a maturity of between one to three years and are non-cancellable, or
alternatively are entered into on an indefinite basis but are cancellable by the tenant at notice of up
to six-months.
During 2024, the Company has also entered into an arrangement with one of its subsidiaries to
sub-lease part of the premises which it leases. The lease between the Company and the landlord of
the offices and the sub-lease agreement are both for a term of 6 months.
The future minimum lease payments receivable under non-cancellable operating leases are as
follows:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
- Not later than one year |
2,522,334 |
1,287,919 |
39,318 |
102,745 |
- Later than one year and not later than |
||||
three years |
1,394,317 |
2,339,026 |
- |
- |
- Later than three years and not later than |
||||
five years |
480,948 |
181,405 |
- |
- |
4,397,599 |
3,808,350 |
39,318 |
102,745 |
|
Interest income
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
On financial assets measured at fair value |
||||
through other comprehensive income: |
||||
- coupon interest |
38,119 |
39,450 |
- |
- |
- net amortisation of premiums and discounts |
(24,221) |
20,069 |
- |
- |
On financial assets measured at amortised cost: |
||||
On loans and advances to banks and |
||||
other financial institutions |
1,242,689 |
1,312,694 |
- |
- |
On loans and advances to customers |
1,736,878 |
1,899,374 |
- |
- |
On receivables from ultimate parent company |
940,653 |
867,764 |
487,482 |
486,150 |
On receivables from subsidiaries |
- |
- |
630,773 |
772,213 |
3,934,118 |
4,139,351 |
1,118,255 |
1,258,363 |
|
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
98
Interest expense
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
On amounts owed to customers | 349,507 | 210,867 | - | - |
On borrowings | 1,225,980 | 1,106,948 | 1,225,976 | 1,106,602 |
Loss on extinguishment of bond | 434,600 | - | 434,600 | - |
On lease liabilities | 2,436 | 9,160 | 2,436 | 9,160 |
2,012,523 | 1,326,975 | 1,663,012 | 1,115,762 | |
Net fee and commission income
The Group and the Company derive revenue from the provision of services over time, as follows:
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Fee and commission income: | ||||
Corporate services | 519,781 | 708,658 | - | - |
Property management fees | 220,312 | 195,256 | - | - |
Account maintenance, payment services | ||||
and other related fees | 79,847 | 37,695 | - | - |
Other fee income | - | - | 92,940 | 137,794 |
819,940 | 941,609 | 92,940 | 137,794 | |
Rental income from investment property
Rental income is generated through lease agreements entered into by Merkanti A and Merkanti D
in respect of their investment property. The Company also generates rental income through a sub-
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
99
Net trading income
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Fair value movements on financial |
||||
instruments mandatorily |
||||
measured at FVPL |
(156,473) |
(1,657,232) |
16,856 |
(535,214) |
Interest (written down)/ income on financial |
||||
assets mandatorily measured at |
||||
fair value through profit or loss |
(210,589) |
144,650 |
- |
- |
Foreign exchange revaluation gains |
151,140 |
(129,009) |
290 |
(1,831) |
Income from foreign exchange activities |
35,965 |
401,776 |
- |
- |
Other income/(losses) |
- |
1,890,649 |
- |
- |
(179,957) |
650,834 |
17,146 |
(537,045) |
|
During 2024, the Group sold the remaining of its unlisted equity securities issued by a related party to
the ultimate parent company which were valued at €267,180 for $300,000 (or €284,037)
(2023:
€2,750,000 for $3,107,832 (or €
2,937,470)
, resulting in a fair value gain of €
16,856 (2023:
€187,470
)
on the date of sale.
During 2024, the Group has also recognised fair value losses on its investments in non-fixed income
securities and dispute resolution funding assets amounting to
€
173,330 (2023
: €
1,657,232).
At the level of the Company, the fair value movement comes from the sale of the remaining unlisted
equity securities and the fair value loss on its investment in non-fixed income securities.
During 2023, the Company entered into an agreement with the ultimate parent company wherein
the latter indemnified the Group for any losses, liabilities, claims, damages and expenses in relation
to its investments in dispute resolution funding assets. The indemnification has been recognised as
a fixed receivable up to the amount of losses recognised and is included in the table above under
‘Other income/(losses)’.
As at 31 December 2024 and 2023, foreign exchange revaluation gains and income from foreign
Dividend income
As at 31 December 2024 and 2023, dividend income represents dividends declared by the
Company
’s
subsidiaries, namely Merkanti A, Merkanti D.
During 2024, the ‘Dividend income’ received by the Company from its subsidiaries amounting to
€
284,700 were
included under ‘Amounts due from subsidiaries’ as at 31 December 2024 (Note 14).
Further, during 2024, t
he ‘Dividend income’ received by the Company from its subsidiaries
in 2023
amounting to €1,233,700
was settled partly through the assignment of receivables from the ultimate
parent company amounting to €968,463 and
partly through
cash amounting to €82,344. The
remaining amount of dividends are still receivable and are included under 'Amounts due from
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
100
Other operating income
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Recharges to ultimate parent company |
1,476,560 |
1,214,000 |
1,194,560 |
899,000 |
Recharges to other related parties |
643,800 |
420,000 |
- |
- |
Recharges to third parties |
473,678 |
824,126 |
- |
- |
Recharges to a subsidiary |
- |
- |
21,208 |
19,910 |
Refunds from insurance companies |
- |
2,500 |
- |
- |
Tax refunds on dividends from subsidiaries |
- |
- |
- |
- |
Other income |
13,171 |
500,782 |
- |
- |
2,607,209 |
2,961,408 |
1,215,768 |
918,910 |
|
Recharges made to the ultimate parent company relate to expenses paid by the Company to
certain officers and other professional service firms on behalf of Scully Royalty Limited, recharges
to other related parties relate to expenses paid by the subsidiary Bank to certain officers, while
recharges to third parties relate to expenses paid in relation to the common and other ancillary
costs
incurred by the Group’s property companies.
As at 31 December 2023, the Group’s ‘Other income’
Changes in expected credit losses
Group |
||
2024 |
2023 |
|
€ |
€ |
|
Change in expected credit losses on: |
||
- loans and advances to banks and financial institutions |
5,246 |
(22,525) |
- loans and advances to customers |
102,417 |
124,483 |
- financial assets measured at FVOCI |
1,147 |
144 |
- other receivables |
- |
(11,041) |
Write-off |
296 |
- |
109,106 |
91,061 |
|
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
101
Expenses by nature
Other administrative expenses mainly comprise other services or expense items which are incurred
in the course of the Group
’s operations.
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Staff costs |
||||
- Staff salaries |
2,396,219 |
2,140,385 |
- |
- |
- Social security costs |
32,624 |
27,352 |
- |
- |
- Other staff costs |
198,369 |
159,463 |
- |
- |
Directors’ fees and emoluments |
434,509 |
407,308 |
110,500 |
110,500 |
Repairs and maintenance |
256,631 |
525,391 |
15,728 |
17,451 |
Professional fees |
1,520,154 |
1,509,222 |
762,900 |
1,061,643 |
Property selling and ancillary expenses |
304,536 |
350,509 |
- |
- |
Marketing costs |
359,417 |
226,546 |
- |
- |
Utilities and janitorial expenses |
176,313 |
219,247 |
7,468 |
7,752 |
Information technology |
363,741 |
321,439 |
13,107 |
1,407 |
Depreciation of property, plant and |
||||
equipment (Note 11) |
76,659 |
76,167 |
24,437 |
25,821 |
Amortisation of intangible assets |
||||
(Note 12) |
44,361 |
86,715 |
- |
- |
Depreciation of right-of-use |
||||
assets (Note 13) |
138,747 |
144,779 |
138,747 |
144,779 |
Insurance costs |
10,399 |
9,539 |
- |
- |
Taxes and licenses |
24,996 |
24,998 |
- |
- |
Other administrative expenses |
742,776 |
428,620 |
238,367 |
183,745 |
Total administrative expenses |
7,080,451 |
6,657,680 |
1,311,254 |
1,553,098 |
Group |
||
2024 |
2023 |
|
- Managerial |
13 |
9 |
- Clerical |
11 |
11 |
24 |
20 |
|
Fees charged by the auditor and affiliated entities for services rendered during the financial year
relate to the following:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Annual statutory audit |
167,500 |
160,000 |
55,000 |
47,000 |
Tax and VAT compliance services |
36,475 |
49,335 |
13,315 |
20,965 |
Non-audit assurance services |
40,500 |
2,250 |
- |
- |
Other non-audit services |
4,415 |
31,750 |
- |
31,750 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
102
Tax expense
The Group’s and Company’s tax expense
recognised in profit or loss is analysed below:
| Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
€ |
€ |
€ |
€ |
|
Current tax (income)/expense |
||||
- Current year tax (income)/expense |
(145,799) |
258,279 |
(137,891) |
- |
- (Over)/under-provision of tax |
||||
in prior years |
(298,735) |
10,756 |
- |
10,756 |
Deferred tax expense/(income) |
233,069 |
(54,049) |
- |
- |
(211,465) |
214,986 |
(137,891) |
10,756 |
|
During 2024 the Company and the Bank formed part of a Fiscal Unit for Maltese income tax
purposes effective from 1 January 2023 being the Company as the principal taxpayer and the Bank
as the transparent subsidiary, which allows the group to be treated as a single taxpayer. By virtue
of the Tax Sharing Agreement, unabsorbed tax losses carried forward by the Bank amounting to
€60.9 million as at 31 December 2022 were transferred to the principal taxpayer for utilisation
against the Fiscal Unit’s current and future taxable profits from the formation of the Fiscal Unit (Note
15).
As a result of the formation of the Fiscal Unit, the Company is able to set-off its own taxable profits
against the unutilised tax losses transferred by the Bank. Under the Tax Sharing Agreement and at
the level of Fiscal Unit members’ standalone financial statements, entitlement to compensation to
be received by the Bank with respect to unutilised tax losses utilised by the Company against its
own notional tax liability are treated as an investment in subsidiary by the Company (Note 9) and as
a capital contribution within the equity reserves by the Bank in the year in which the Fiscal Unit files
its consolidated tax return, which may be in year(s) subsequent to the financial year in which the
Company
’s taxable profit arises.
As a consequence of the formation of the Fiscal Unit, the Company remits tax payments on behalf
of the Bank. Under the terms of the Tax Sharing Agreement
, the Bank’s notional
tax expense and
liability transferred to the Company are recognised as receivables from the Bank. For any unutilised
tax losses brought forward that are utilised by the Company
against the Bank’s notional tax
expense and liability in a given year, the amount payable by the Company, for the utilisation of such
tax losses is credited to the tax charge in the Bank’s Income Statement in the year in which the
relevant taxable profits arise. The amount payable by the Company will be equivalent to the
receivable balance against the Bank’s tax liability transferred to the Company, hence set off in the
intercompany accounts.
The company is currently in the process of registering its shareholder with the Commissioner for
Tax and Customs for tax refund purposes in accordance with applicable Maltese tax legislation.
Following successful registration, owing to the fact that the Company forms part of a fiscal unit as
its shareholder, is expected for the profits of the Company to be subject to a rate of 5% (being a
rate that takes account of the tax refund that the shareholder would be entitled to receive in terms
of Maltese tax legislation).
As a result, for the purposes of the consolidated financial statements,
the effective tax rate of 35% is still being applied.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
103
35.
Tax expense
- continued
The tax on the Group
’s and Company’s
profit before tax, differs from the theoretical amount that
would arise using the effective tax rate applicable to the Group as follows:
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Profit before tax | 885,525 | 2,094,958 | (138,932) | 482,581 |
Tax on profit at 35% | 309,934 | 733,235 | (48,626) | 168,903 |
Tax effect of: | ||||
Expenses not deductible for tax | ||||
purposes | 817,055 | 1,363,524 | 387,739 | 276,523 |
Income not subject to tax | (295,955) | (691,978) | (5,900) | (445,426) |
Utilisation of unabsorbed tax losses | ||||
upon formation of the Fiscal Unit | (471,104) | - | (471,104) | - |
Utilisation of unabsorbed tax losses | ||||
carried forward from previous years | (246,411) | (908,627) | - | - |
(Over)/under-provision of tax in | ||||
prior years | (298,735) | 10,756 | - | 10,756 |
Movement in deferred tax assets | ||||
attributable to unremitted earnings | - | 18,456 | - | - |
Application of flat rate foreign tax credit | - | (310,389) | - | - |
Other | (26,249) | 9 | - | - |
(211,465) | 214,986 | (137,891) | 10,756 | |
Cash and cash equivalents
For the purposes of the statements of cash flows, cash and cash equivalents comprise the following
balances with contractual maturities of not more than three months:
Group | Company | |||
2024 | 2023 | 2024 | 2023 | |
€ | € | € | € | |
Balances with Central Bank of Malta | ||||
(Note 4) | 9,725,515 | 27,706,970 | - | - |
Cash in hand (Note 4) | 1,537 | 2,055 | - | - |
Loans and advances to banks and other | ||||
financial institutions (Note 5) | 3,149,110 | 2,742,155 | 1,316,768 | 5,525,442 |
12,876,162 | 30,451,180 | 1,316,768 | 5,525,442 | |
Non-cash transactions
As at 31 December 2024
, the ‘Dividend income’ amounting to €
284,700 (2023
: €
942,093) were
included under ‘Amounts due from subsidiaries’
(Note 14).
During 2024 and 2023, the
consideration for the disposal of the Group’s unlisted equity securities is
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
104
Related party transactions
Related parties of the Group include the ultimate parent company, Scully Royalty Limited, all
entities controlled by the ultimate parent, key management personnel, close family members of key
management personnel and entities which are controlled or jointly controlled by key management
personnel or their close family members. Key management personnel are defined as those
persons having authority and responsibility for planning, directing and controlling the activities of
the Group, being the
Company’s
directors.
During the year, the Group carried out the following transactions in the ordinary course of business
with the ultimate parent company, its controlled entities
(referred to as ‘other related parties’), and
the Company’s subsidiaries
and at year end had the following balances with these entities:
Group |
Company |
||||
2024 |
2023 |
2024 |
2023 |
||
Notes |
€ |
€ |
€ |
€ |
|
Assets |
|||||
Loans and advances to banks and other |
|||||
financial institutions: |
|||||
- Balances with a subsidiary bank |
- |
- |
2,192,089 |
7,258,184 |
|
Loans and advances to customers: |
6 |
||||
- Loans to other related parties |
8,900,000 |
8,900,000 |
- |
- |
|
Equity instruments measured at FVPL |
|||||
issued by other related parties |
7 |
- |
267,180 |
- |
267,180 |
Other receivables: |
14 |
||||
- Amounts due from ultimate parent |
|||||
company |
19,992,939 |
16,192,945 |
13,311,600 |
8,713,157 |
|
- Amounts due from subsidiaries |
- |
- |
10,037,783 |
10,500,278 |
|
Accrued income and other assets: |
16 |
||||
- Accrued interest receivable from ultimate |
|||||
parent company |
3,297,125 |
2,351,646 |
2,804,274 |
2,316,792 |
|
- Accrued interest receivable from other |
|||||
related parties |
1,678 |
534,560 |
- |
- |
|
- Accrued interest receivable from |
|||||
subsidiaries |
- |
- |
516,811 |
14,063 |
|
- Other fee receivable from ultimate |
|||||
parent company |
- |
177,500 |
- |
- |
|
- Other fee receivable from other related |
|||||
parties |
208,800 |
278,133 |
- |
- |
|
Liabilities |
|||||
Amounts owed to customers: |
23 |
||||
- Amounts owed to ultimate parent company |
304.734 |
332,131 |
- |
- |
|
- Amounts owed to other related parties |
12,852,391 |
18,782,016 |
- |
- |
|
Other liabilities: |
|||||
- Amounts due to ultimate parent company |
6,053 |
6,053 |
- |
- |
|
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
105
37.
Related party transactions
- continued
Group |
Company |
||||
2024 |
2023 |
2024 |
2023 |
||
Notes |
€ |
€ |
€ |
€ |
|
Income statement |
|||||
Interest income: |
26 |
||||
- On loans to and receivables from |
|||||
ultimate parent company |
940,653 |
867,764 |
487,482 |
486,150 |
|
- On loans to and receivables from |
|||||
other related parties |
1,179,799 |
1,153,828 |
- |
- |
|
- On loans to and receivables from |
|||||
subsidiaries |
- |
- |
630,773 |
772,213 |
|
Interest expense: |
27 |
||||
- On amounts owed to other related |
|||||
parties |
349,507 |
210,867 |
- |
- |
|
Fee and commission income: |
28 |
||||
- From ultimate parent company |
1,322 |
2,637 |
- |
- |
|
- From other related parties |
578,022 |
789,347 |
- |
- |
|
- From subsidiaries |
- |
- |
12,948 |
137,794 |
|
Rental income: |
29 |
||||
- From subsidiaries |
- |
- |
106,525 |
101,657 |
|
Net trading income |
30 |
16,856 |
1,890,649 |
16,856 |
- |
Dividend income from subsidiaries |
31 |
- |
- |
284,700 |
1,233,700 |
Other operating income: |
32 |
||||
- From ultimate parent company |
1,476,560 |
1,214,000 |
1,194,560 |
899,000 |
|
- From other related parties |
643,800 |
420,000 |
- |
- |
|
- From subsidiaries |
- |
- |
21,208 |
19,910 |
|
Administrative expenses |
34 |
||||
- Expenses paid to other related parties |
149,518 |
143,952 |
149,518 |
143,952 |
|
- Compensation of key management |
|||||
personnel |
340,470 |
305,209 |
340,470 |
305,209 |
|
- Long term employee benefits of key |
|||||
management personnel |
108,000 |
114,720 |
108,000 |
114,720 |
|
- Expenses paid to subsidiaries |
- |
- |
12,592 |
12,819 |
|
The administrative expenses paid to other related parties relate to services granted by a
consultancy company owned by one of the Company’s key management personnel
. Administrative
expenses amounting to
€
598,988 (2023
: €
563,881) included in the table above have been
recharged to the ultimate parent company
and are accordingly included above within ‘Other
operating income’.
Key management personnel compensation, consisting of directors’ remuneration, has been
disclosed in Note 34 to these financial statements.
Directors’ emoluments comprise solely of short
-
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
106
Segmental information
The Group provides a comprehensive range of services to its customers, which are organised into
the following reportable segments in terms of IFRS 8, ‘Operating Segments‘
:
i)
banking and financial services, through which the Group provides niche merchant banking
services; and
ii)
property rental & management activities, which involves the leasing and management of
industrial space for storage and production facilities as well as for office space.
The Board considers the reportable segments referred to above to represent the most appropriate
information for the users of the financial statements to best evaluate the nature and financial effects
of the business activities in which the Group engages, and the economic environments in which it
operates.
The financial information for the reportable segments in relation to the year ended 31 December
2024 and 2023 is presented in the tables below.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
107
38.
Segmental information
- continued
| Group | |||
| As at 31 December 2024 | |||
Property | |||
Banking and | rental and | ||
financial | management | ||
services | activities | Total | |
€ | € | € | |
Segment total assets | 64,328,300 | 41,807,318 | 106,135,618 |
Segment equity | 19,709,285 | 38,354,318 | 58,063,603 |
| Group | |||
| As at 31 December 2024 | |||
Property | |||
Banking and | rental and | ||
financial | management | Total | |
services | activities | ||
€ | € | € | |
Interest income | 3,480,916 | 453,202 | 3,934,118 |
Interest expense | (1,381,501) | (631,022) | (2,012,523) |
Net interest income | 2,099,415 | (177,820) | 1,921,595 |
Net fee and commission income | 599,628 | 220,312 | 819,940 |
Rental income from investment property | - | 1,518,171 | 1,518,171 |
Changes in the fair value of | |||
investment property | - | 1,353,056 | 1,353,056 |
Net trading income | (330,807) | 150,850 | (179,957) |
Realised gains on disposal of investment properties | |||
and PPE | - | 35,068 | 35,068 |
Other operating income | 2,120,360 | 486,849 | 2,607,209 |
Total operating income | 4,488,596 | 3,586,486 | 8,075,082 |
Changes in expected credit losses | (108,811) | (295) | (109,106) |
Net operating income | 4,379,785 | 3,586,191 | 7,965,976 |
Administrative expenses | (4,781,211) | (2,299,240) | (7,080,451) |
Reportable profit before tax | (401,426) | 1,286,951 | 885,525 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
108
38.
Segmental information
–
continued
| Group |
|||
| As at 31 December 2023 |
|||
Property |
|||
Banking and |
rental and |
||
financial |
management |
||
services |
activities |
Total |
|
€ |
€ |
€ |
|
Segment total assets |
70,511,350 |
39,130,252 |
109,641,602 |
Segment equity |
20,027,052 |
36,748,820 |
56,775,872 |
| Group |
|||
| As at 31 December 2023 |
|||
Property |
|||
Banking and |
rental and |
||
financial |
management |
Total |
|
services |
activities |
||
€ |
€ |
€ |
|
Interest income |
3,901,166 |
382,835 |
4,284,001 |
Interest expense |
(906,120) |
(420,855) |
(1,326,975) |
Net interest income |
2,995,046 |
(38,020) |
2,957,026 |
Net fee and commission income |
1,481,353 |
195,256 |
1,676,609 |
Rental income from investment property |
- |
1,546,048 |
1,546,048 |
Changes in the fair value of |
|||
investment property |
- |
(40,080) |
(40,080) |
Net trading income |
445,890 |
60,294 |
506,184 |
Realised gains on disposal of financial |
|||
assets measured at fair value through other |
|||
comprehensive income |
- |
- |
- |
Realised gains on disposal of investment properties |
|||
and PPE |
(545) |
(27,951) |
(28,496) |
Other operating income |
1,433,685 |
792,723 |
2,226,408 |
Total operating income |
6,355,429 |
2,488,270 |
8,843,699 |
Changes in expected credit losses |
(90,073) |
(988) |
(91,061) |
Net operating income |
6,265,356 |
2,487,282 |
8,752,638 |
Gain on disposal of investment in subsidiaries |
|||
Administrative expenses |
(4,322,273) |
(2,335,407) |
(6,657,680) |
Reportable profit/(loss) before tax |
1,943,083 |
151,875 |
2,094,958 |
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2024
109
Reclassification
The Group previously presented current tax asset as
part of the ‘Accrued income and other assets’
in the Statement of financial position. However, management consideres it to be more relevant that
such are presented separately
as ‘Current tax assets’ in the Statement of financial position. Prior
year comparative as at 31 December 2023 have been restated by reclassifying €243,742
from
‘Accrued income and other assets’ to ‘Current tax assets’
. At the Company level, prior year
comparative as at 31 December 2023 have been restated by reclassifying
€231,232
from ‘Accrued
income and other assets’ to ‘Current tax assets’
The Group previously presented certain recharges to related parties as part of
‘N
et fee and
commission income
’
in the Income Statement. However, management considers it to be more
relevant that such are presented as part of
‘
Other operating income
’
. Prior year comparative for the
period ended
31 December 2023 have been restated by reclassifying €735,000
from
‘N
et fee and
commission income
’
to
‘O
ther operating income
’
Events after reporting date
There are no events after the reporting date that require disclosure in these financial statements.
41.
Statutory information
Merkanti Holding p.l.c. is a limited liability company and was incorporated in Malta
having its registered address at
The immediate and ultimate parent company of Merkanti Holding p.l.c. is Scully Royalty Limited , a
company registered in the Cayman Islands under the registration number HS-323455 and having
its registered office at Vistra (Cayman) Limited, P.O. Box 31119, Grand Pavilion, Hibiscus Way, 802
West Bay Road, Grand Cayman, KYI
–
1205, Cayman Islands. Scully Royalty Limited is listed on
