ANNUAL REPORT &
FINANCIAL STATEMENTS
2021
TABLE OF CONTENTS
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Page
Chairman’s Statement
1
CEO’s Review
4
Board of Directors
8
Executive Management
12
Financial Statements and Other Information
Directors’ Report
16
Remuneration Report
35
Corporate Governance Report
42
Statements of Profit or Loss
58
Statements of Comprehensive Income
59
Statements of Financial Position
60
Statements of Changes in Equity
61
Statements of Cashflows
63
Notes to the Financial Statements
64
Five-Year Summaries
174
Our Presence
180
Independent Auditor’s Report
181
CHAIRMAN’S STATEMENT
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APS Bank plc 1
Dear Shareholders
It gives me immense pride to be addressing you for the first time following the handover from the
previous Chair Mr Frederick Mifsud Bonnici who served faithfully on the Board of Directors for 4 years.
I would like to thank the Bank’s Shareholders for placing their collective trust in me when appointing
me to the Chair role late in 2021. I recognise and acknowledge the Shareholders’ support provided
during this period and commit to discharging my duties to the very best of my abilities. I am delighted
to advise that the transition of the Board leadership was very smooth with the support and cooperation
of the members of the Board, the Chief Executive Officer (“CEO”) and the Regulatory Authorities.
Context and Background of current year
Following on from the global shocks that the Pandemic wreaked in 2020, with an unprecedented pull-
back in global growth of -3.2%, we were relieved that the introduction of new vaccines and an
improvement in preventive measures in 2021 enabled us to have a modicum of recovery. Though the
onset of new variants led to soaring infection rates, with some 10 million new cases globally in the last
week of the year, the impact on mortality rates and health systems was more subdued and prospects
increased of a gradual return to normality in economic and social life. Whilst we continue to be guided
by public health advice, the effects of the Pandemic on the financial ecosystem remains a top-of-mind
concern. Vaccination rates in Malta and in the main trading partners and tourism markets continue to
be positive determining factors in stabilising economic well-being in Malta.
As a service and people-focused industry, individual and public safety concerns are a primary
consideration for APS Bank and we have taken all and any steps to protect our employees and our
customers. Over the last few years, we have continued to see fundamental and long-term changes in
work patterns and, maybe more importantly, significant developments in how purchasing decisions are
made, including in financial services. The Bank is aware and sensitive to these far-reaching societal
changes.
A financial performance that adds value to all Stakeholders
With an APS Group Profit Before Tax figure of €24.1 million, the current year’s performance bears
testimony to the strength of the business strategy and the commitment to the transformation journey
that the Bank has embarked upon. Despite the unprecedented economic and societal challenges posed
by the pandemic, the Bank has continued to respond with agility and understanding to the needs of all
its customers. In the Commercial sector, the Bank has supported closely the categories that make up
the country’s economic framework. This was achieved through the intimate understanding of our
customers’ businesses with bespoke and tailor-made solutions, in addition to the National support
programmes made available by Government. In the Retail area, the investment in technology and digital
solutions, coupled with a significant effort to keep our branches open have continued to be the hallmark
of our commitment to serve customers uninterruptedly despite the significant challenges that we face.
The track record of the Bank’s credit losses is a positive one. The CEO’s report will address the Group’s
performance in more detail.
The Board of Directors focuses strongly on the adequacy of the Group’s capital position that underpins
our moderate to low risk profile. With Tier 1 capital at a level of 13.0% and a Total Capital of €235,597K,
the Board believes that the Group's return on average equity, of 7.1% for 2021, (Bank 7.7%) is a result
that evidences the strength and sustainability of a robust business model and that permits us to grow
our core business and support our cash dividend policy. For, whilst a strong capital position is important
from a Regulatory and from a financial stability point of view, dividends payable represent the reward
to the shareholders for opting to invest in a particular industry and company. Therefore, with recent
lifting of the Regulatory constraints on dividend distribution, the Board will work closely with the
Regulator to aim for an equitable distribution of profits that also respects financial stability. The Bank
will be recommending a dividend to shareholders of €4,615,385 equating to 1.85 cents per share.
CHAIRMAN’S STATEMENT
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APS Bank plc 2
The Board of Directors
I am delighted to welcome Prof Juanito Camilleri to the Board of APS Bank plc. Prof Camilleri brings a
wealth of entrepreneurial, academic, governance and scientific skills to the Board of Directors. He will
complement the collective skills and competences of the Board thus ensuring that the Bank and the
Shareholders continue to benefit from the combined strengths of the senior-most Governing body.
Throughout the year, the Board has continued to meet regularly with a strong delegated reliance on a
fit-for-purpose Board Committee structure. Board Committees are chaired by Directors that conduct
appropriate groundwork and make recommendations for Board approval. The Governance review in
these Financial Statements provides more detail in this respect. I am also very pleased to share the
appointment of Dr Laragh Cassar, a current Non-Executive Director as the Senior Independent Director.
This appointment will bring a new dimension to corporate governance in APS Bank. Whilst recognising
that the Bank displays a very strong Management Body, succession plans are in place to ensure that
the Bank can continue to meet challenges not only from a business point of view, but also in terms of
a robust Governance structure. I reiterate my sincere thanks to my fellow Directors for their
contributions.
Recognising leadership, talent, effort and competence
The Bank’s human resources, most ably led by the CEO Marcel Cassar, reflect a diverse and experienced
team of individual strengths and competences that is focused on attaining strong and sustainable
business results. The depth and range of skills and competences in the senior Management team
provide the robustness required by an organisation that is focused on growth in a highly competitive
market. This within the context of very high aspirational customer service excellence standards
underpinned by a strong culture and values set. It is my privilege to be part of the APS family and to
recognise the qualities, output and values of my fellow Directors, the Management and all employees
of the Bank. The culture of the institution and the values that drive behaviour contribute very strongly
to the ethical character of APS Bank, its actions, business plans and consequent contribution to the
development of economic well-being in Malta and Gozo. I sincerely thank each and every colleague for
their valued contributions.
Strategic Thinking and Sustainable Growth
The work of the Board is attuned to the specific objective of maximising long-term value, in a compliant
manner having due regard to all the different stakeholders involved. Additionally, the Board is
committed to continue to support business and economic growth mindful of the fact that existential
issues such as climate-change need to be prioritised if we are to make meaningful inroads into the
sustainability of our lives and that of our descendants. To this end, the Environmental, Social and
Governance (“ESG”) Board committee brings together Non-Executive Directors and senior Managers
to map a sustainable component for the Bank’s initiatives in the ESG space. The Bank also started
incorporating ESG considerations in the review of its lending activities and in its own operations. The
Board of Directors’ meeting agenda is driven by fundamental principles of Creating Long-Term Value,
Responsibility to Stakeholders, Instilling Values and Shaping Culture, Setting Strategy, Exercising
Accountability and Scrutinising Performance.
Relationship with Shareholders
A primary responsibility of any Chair is to ensure that the linkage between the organisation and its
Shareholders is current, transparent and value adding. During the year under review the Board and the
undersigned had several opportunities to exchange and agree with the Shareholders on matters of
mutual interest. Significant progress has been achieved in preparing the Bank for the next phase of the
capital development plan. This would not have been possible without the full support and cooperation
of all the Shareholders.
CHAIRMAN’S STATEMENT
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APS Bank plc 3
Outlook
The next and following years will continue to provide challenges in many ways and forms. From an
economic point of view, supply chain disruption, potential inflation and the monetary policy
developments in the Eurozone and indeed in the various economic blocs will shape the financial
landscape that we operate in. Legacy issues arising from the Pandemic and increasing geopolitical
tensions also need to be monitored. The evolving conflict in Ukraine – if protracted – might exacerbate
commodity and energy price pressures and weaken the landscape in terms of global trade relations,
adding to existing uncertainty. We cannot mention outlook considerations without referring to the
difficulties that we as a sovereign country are facing with the decision by the Financial Action Task
Force to categorise Malta as a Jurisdiction Under Increased Monitoring (i.e., Grey listed). This aspect
of country reputation requires continuous and long-term action by Government, Authorities,
Regulators, Banks, Warranted professionals and all other market operators. APS Bank is committed to
uphold all laws and regulations, local and international to ensure that the country regains its standing
as a reputable financial jurisdiction.
It is also evident that Cyber risks will continue to be a very real threat to the integrity of financial systems
globally. The proliferation of digital activity by vast numbers of consumers across the globe, and also
in Malta and Gozo, and our dependence on technology calls for the highest level of cyber security
standards and vigilance. Moreover, we all have a collective responsibility to address and commit to
Climate actions so that we can aim for a sustainable future for our planet.
The Board of Directors and the Management team of APS Bank are confident that business and other
plans are in place to address, mitigate and in some cases take advantage of market risks and
opportunities. An important capital development plan is in the final stages of implementation, allowing
the Bank to strengthen its capital base and place itself in a position that it can continue to grow
sustainably.
Our focus on people, be they employees, customers, Shareholders or society at large, will continue to
be the driving force of our competitive advantage and will be guided by the highest principles of ethical
behaviour and robust governance and transparency, and of sustainable growth.
Martin Scicluna
10 March 2022
CEO’S REVIEW
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APS Bank plc 4
If 2020 brought about unprecedented challenges to humankind because of a virus that took over our
lives and threatened our general well-being, 2021 dawned with new hope as the rollout of a vaccine
promised the return of some normality. As we continued to work relentlessly to support all our staff,
customers, their families and the community at large in every way possible, the year under review
enabled us to continue making progress in our services and product lines, in the transformation of the
Bank and the implementation of our strategic projects. Above all, it created the opportunity to show
agility and resilience in producing once again excellent results while capturing market share and taking
the lead at courageously facing the new normal.
But 2021 too offered us its perfect storm of challenges. A grounded interest rate environment, heavy
reputational issues hanging over Malta’s financial services industry and pandemic disruptions only
added to the pressures which regulatory demands, technology requirements and talent availability
make on margins and operating costs. Nevertheless, we delivered the best results in the circumstances
and the strongest ever Bank solo performance. Critical to this success is a curated business planning
process based on a 3-year horizon, rolled over annually to remain responsive to emerging trends and
changes in the business and market environment. While a comprehensive strategic cycle review is
carried out every third year, COVID-19 accelerated this exercise and drove us to revisit our key drivers
to ensure they remained relevant priorities.
Apart from looking at the financial and operating performance of 2021, this Review will touch briefly on
how we tackled our strategic objectives to deliver these successful results.
Excellent financial results driven by strong operating fundamentals
In 2021, Group Operating Income grew by 14.5% to €63.1 million (Bank: by 14.0% to €61.9 million)
reflecting a rebound from the main revenue sources despite continuing uncertainty in market
conditions. Net Interest Income is up by 13.3% to €55.4 million (Bank: by 12.9% to €53.9 million), mainly
deriving from the retail and commercial lending books, with a smaller contribution from the Bank’s
international syndicated loan and treasury portfolios. It is satisfying to note that in the tight interest rate
environment and uncertain economic conditions which characterized most of the year, commercial
lending remained subdued while in contrast home finance again reached record levels. As various fiscal
incentives, particularly those aimed at first-time buyers, sustained a buoyant property market, the Bank
continued to grow its share of the home loan sector despite consistent, stiff competition. Net Fee and
Commission income increased on 2020 by 34.3% (Group) and 18.8% (Bank), respectively, as income on
transactional banking, investment and insurance services bounced back on stronger activity.
Despite the challenges and uncertainties which the pandemic continued to bring about, the Bank’s
strategy of diversification again saw a healthy domestic loan book spread across varied economic
segments. For the retail portfolio, mainly comprising home loans and making up 65% of the entire loan
book, all moratoria originated in 2020 expired with no defaults, evincing not only the quality but also
the resilience of the typical, Maltese homeowner. Commercial lending is a different story as some
borrowers commenced repayments and servicing of their borrowings while others, especially those
exposed to tourism and related sectors such as hospitality, leisure, entertainment and accommodation,
remained challenged by the pandemic. These industries continued to benefit from moratoria
arrangements and the emergency financial support of the APS Jet Pack, introduced in 2020 in
collaboration with the Malta Development Bank to help local businesses experiencing cash flow
problems. However, the book remains well collateralised and we are confident that the Bank’s
forbearance measures, accompanied by the acumen and adaptability of our commercial borrowers, will
reap the desired results with no defaults in sight. Once again, we are gratified to see APS Bank
supporting the widest possible community spectrum, from young couples at the start of their life’s
travels to the more established corporate names as they journey across their business cycle.
Another source of diversification is our book of international loan participations, which exposes the
Bank to different geographies, industries and shorter maturities than our domestic corporate book.
After the more guarded approach taken in 2020 due to the risk and volatility which the virus outbreak
spread cross-border, we resumed growth of the book selectively in 2021 as appetite started to return
for a number of segments.
All this put together in the circumstances, we look at our loan book as diversified and robust. As we
continue to take a prudent view on credit quality, including a client-by-client approach insofar as
commercial overlay is concerned, we see performance migration out of Stage 2 leading to a release of
€1.5 million from our Expected Credit Loss (ECL) provision compared to 2020’s increase of €5.5 million.
We are also pleased to see the Bank persisting in recovering legacy loan loss provisions and to make
improvements in collateral positions, in spite of the challenging conditions.
CEO’S REVIEW
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APS Bank plc 5
Excellent financial results driven by strong operating fundamentals (continued)
In terms of cost-efficiency, 2021 saw both the Group and Bank Cost/Income ratios deteriorate slightly
on 2020, from 60.8% to 64.3% and from 61.2% to 64.1%, respectively. These ratios, which compare well
with the core domestic banking segment and are below the average EU ranges, are in line with
expectations and reflect the Group’s and Bank’s stage of their journey. There is continued growth in
our organisation and personnel, technology, risk and security infrastructure and network
transformation. During the year under review, significant resources were invested in compliance and
digitisation projects, improving considerably the quality and accessibility of the Bank’s data. 2021 also
brought its fair share of overheads associated with COVID-19, as the Bank spared no expense in
ensuring the continuity of business operations and the wellbeing of staff and customers alike
throughout the various phases of the outbreak. The changing realities brought about by the pandemic
also have their silver lining, as we continued to fine-tune our ‘ways of work’, implementing modern,
hybrid models of working which lead to greater staff engagement as well as more efficiency.
It is with great satisfaction that we are able to report an increase in pre-tax profit of 52.4% for the
Group, from €15.8 million to €24.1 million, and of 52.9% for the Bank, €15.5 million to €23.7 million,
making our bank once again a leading player in the domestic market and across a range of
performance indicators.
Behind these results is the well-curated strategy developed around a simple model built on the three
lines of Personal, Commercial and Investment business. Not only does this model produce
diversification but it also allows the Bank to generate sources of income in a way that makes the most
efficient use of funding, assets and capital. In the year under review, we saw healthy growth in domestic
deposits and lending activity both of which increased by 14%. Supported by robust increases in our
syndicated loan portfolio and liquidity stock, total assets grew by 15.4% year-on-year to approach €2.8
billion. Against this supply of financial resources, our return on average equity (ROAE) gains more
significance; in fact, Group ROAE increased to 7.1% in 2021 from 5.1% in 2020 (Bank: 7.7%, up from 5.3%
in 2020).
Against this profile of greater systemic relevance and contribution to the nation’s economic activity,
the Group Total Capital ratio, comprising Tier 1 and 2 elements, stood at 16.9% (2020: 18.8%) while for
the Bank this corresponds to 16.8% (2020: 18.6%). After the heavily oversubscribed issue of Unsecured
Subordinated Bonds 2025-2030 late in 2020 which brought in €55 million of Tier 2 capital and a first-
time listing of capital instruments on the Malta Stock Exchange, the second half of 2021 saw
preparations picking up in earnest for the last phase of our 2018-2022 Capital Development Plan. This
will see the Bank going to the market issuing equity securities and seeking admissibility to listing, paving
the way to a new era which should see a more diversified shareholder base providing more capacity
for future growth.
More numbers and statistics can be found in the ‘Financial Statements’ section of the Annual Report.
This Review does not delve into performance indicators in any detail however it presents the picture of
a Bank that showed resilience and rebounded strongly in a year of continued disruption, stiff
competition and challenges of all shapes and forms. Above all, these excellent results would not have
been possible were it not for the close collaboration within the Management body and the focus we
place on carefully formulated strategic objectives. These were the objectives we set for 2021 and how
we worked to achieve them.
Attention to all stakeholders, enriching their experience to build long term relationships
Being preoccupied with keeping the customer central to our business model, we embarked on various
initiatives aimed at enlarging and enriching the mutual relationship. In Q1 we launched the APS Check-
In, a friendly online tool to ensure that customer data is kept up-to-date and accurate while facilitating
the on-boarding process. We also maintained regular campaigns to keep our customers informed on
new offers, with the emphasis being placed on our Personal Pension Plans and the APS Funds SICAV,
complemented by the highly successful series of APS Investment Chats broadcast online to a wide
audience. And we also improved our customer intelligence and data surveys as these are at the basis
of our product proposition strategy. In 2021 we invested time and resources in sharpening our
understanding of how customers are responding to developing market conditions, including
competition, and how their behaviour should cause us to react effectively on our offerings, whether
core products like home loans or our investment and wealth management recommendations. This was
also a year when we saw our affiliated undertakings accelerate their rhythm of activity. On 1 February
2021, IVALIFE Insurance Limited received its authorisation to write long-term business in relation to
Class I (Life and Annuity) and Class III (Linked long-term) risks under the Insurance Business Act. With
our partners Atlas Insurance PCC Limited, GasanMamo Insurance Limited and MaltaPost plc, we are
CEO’S REVIEW
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APS Bank plc 6
Attention to all stakeholders, enriching their experience to build long term relationships (continued)
working to grow this venture into a strong player that will create value to the market and benefit the
community at large. The results from its first months of operations have been very positive and APS
Bank is now a Tied Insurance Intermediary of IVALIFE. 2021 was also a year of sustained growth for
ReAPS Asset Management Limited, our wholly-owned UCITS fund management subsidiary licensed for
investment management services by the MFSA. The company’s organisation was further strengthened
in line with the business plan and the scaling-up of its product and distribution range. During Q3 Ms
Elizabeth Carbonaro received MFSA approval to join the ReAPS Board as Non-Executive Director.
Another aspect of stakeholder engagement was the Bank’s decision to start publishing quarterly
financial information about its performance through official company announcements to the market.
Ensure employee engagement and having the right talent to reinforce brand value
We maintained our engagement with our ‘family’ during another year which again presented many
challenges. In an environment that can be best described as a ‘war for talent’, we succeeded in
attracting staff to strengthen various functions and positions, supporting growth and bringing in
specialist skills in various areas, not least technology and compliance. Our plans ultimately depend on
having the best talent possible, while offering a well-defined vision, common culture and excellent
employment conditions. We also continued to provide very generous programmes to promote the
wholesome development of all staff, including coaching, training and education opportunities, family-
friendly work arrangements and incentives that go beyond your normal reward structures. It is
satisfying to note that the year under review saw almost 5,400 applications being received for 126 job
offers that were published, which attests to our slogan of being an ‘employer of choice’! 2021 also saw
significant investment poured into the continuous development of our staff, with more than 20,000
training hours delivered. There was also the further strengthening of our management team which is
now practically at its full complement. Of particular note was the holding of three Staff Townhalls, a
residential Senior Management Offsite in Gozo on ‘The Future of Work’, further Peakon Staff Surveys,
which serve to give a 360
o
view of many aspects of staff engagement, as well as the introduction of
‘Training Tuesdays’, allowing branches to open late permitting staff to receive structured training on a
regular basis. Sadly, it was again a quiet year for the normally busy Social Activities Committee and
Sports Committee, although staff meetings and other in-person events were resumed to the extent
permitted by the regulations issued from the Malta Health Authorities.
Embrace the digital and technology evolution to further accelerate transformation
The year under review saw a never-ending pipeline of projects that are driving the Bank’s digital
transformation across many areas, from the backbone technology infrastructure to the more visible,
customer interfacing channels. The multi-million euro investment goes into new solutions as well as
upgrades to existing systems, creating pressure on human resources management. As anticipated last
year, ‘myAPS Business’ was rolled out successfully permitting business customers more convenience
and versatility to carry out transactions seamlessly over the internet and mobile banking. The Bank
remained at the forefront in the use of virtual technology that now drives the new ways of working and
communicating, responding to the needs of both staff and customers. 2021 also saw the introduction
of Robotic Process Automation (“RPA”) in various areas of operations, facilitating the automation of
routine tasks and improving efficiency. And particular attention was given to the implementation of
more stringent measures across the Bank’s channels in the face of increased risk of cyber-attacks and
threats to information security. In this connection, Q1 also saw the introduction of Strong Customer
Authentication (“SCA”), a process that makes online purchases safer and more secure.
Unleash and optimize Corporate Social Responsibility (“CSR”) power as part of a dynamic ESG
agenda
Whereas many corporations tend to look at CSR expenses, typically classified as discretionary, as the
first to get slashed in times of challenge, we see it as an opportunity to put ourselves at the service of
our community with even greater enthusiasm. The year under review was another example in this
regard, with increased focus on an ESG (green and social) agenda also reflecting the Bank’s purpose
and market trends. Although still relatively scaled down in comparison to pre-pandemic days, our CSR
programme for 2021 saw the Bank actively supporting various events in the arts, culture and community
spaces. Some activities are worthy of particular mention. The year started with the hosting of the 2
nd
edition of the Malta Sustainability Forum in a virtual, but not any less successful, version held over five
consecutive days. And the regular, monthly appointments with the APS Talks were kept, also in virtual
format. We supported various publications, exhibitions and other cultural activities, most prominently
the 2
nd
edition of the APS Summer Festival which was held in collaboration with the University of Malta
CEO’S REVIEW
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APS Bank plc 7
Unleash and optimize Corporate Social Responsibility (“CSR”) power as part of a dynamic ESG
agenda (continued)
at the Msida Campus. Other milestone announcements in 2021 included the national award received
from Arts Council Malta for the promotion of arts and culture, and the long-term partnership agreement
signed with Fondazzjoni Patrimonju Malti (FPM) in September. Under this agreement, the Bank is
passing use of its former main office premises in St Paul’s Street, Valletta to FPM for the historic palazzo
to be transformed into a state-of-the-art permanent gallery and exhibition space.
Create products, services and channels that simplify the customer experience
In 2021 we continued to improve our product and service offering and the channels through which we
interact with our customers. Q3 saw the launch of the APS Booost, a new loan designed to help
students between the ages of 18 and 40 further their studies to programmes recognised at MQF Level
5 or higher and on very attractive terms. The Bank’s sustainability agenda was at the heart of two
specific initiatives launched during the year under review. The Green Finance facility, in partnership with
the European Investment Fund (“EIF”) under the Energy Efficiency and Renewable Energy investment
scheme, permits retail and commercial customers to invest in technology or devices to reduce their
carbon footprint, while benefiting from longer repayment terms, subsidised interest rates and more.
The Green Home Loan offers significantly discounted interest rates and other beneficial terms to
customers buying a property that satisfies an EPC energy efficient rating of A or B. Q3 also saw the
launch of the New Hope Guarantee Scheme, in conjunction with the Ministry for Social Accommodation
and the Housing Authority. The Scheme aims to assist aspiring home-owners who wish to acquire their
primary residence but are unable to obtain life insurance cover because of a disability, medical condition
or history. Improvements to the terms and conditions of other products and services took place
regularly, not least to respond to customer requirements and expectations. Channels were also scaled
up, starting with increased service hours for the Contact Centre which, with the introduction of a video
service, comes closer to the description of a digital branch that is open 12 hours a day. And a new St
Paul’s Bay branch was opened early in the year while an enlarged and transformed Żejtun branch was
finished and soft-opened in December. We also took the opportunity to limit further the services offered
from our Floriana branch as the lease of the premises came to expire.
Concluding remarks
2022 is a landmark year for the Bank as it approaches the market to raise equity capital for the first
time in its 100+ year history. This long-awaited step is not a goal of prestige, but an integral part of the
plan agreed with the Shareholders in 2018 that sees the Bank on a path of growth also through the
diversification of its shareholder base. Our strategy of being a leading community bank is no longer just
about developing our product range, technology model and gaining market share but it is increasingly
about being a pillar of support for Maltese businesses and families, as the experience of recent years
has shown. That strategy is aptly captured by the simple slogan of being ‘the community Bank in Malta’
and is fortified by our values of excellence, authenticity, passion, inclusiveness and remaining
contemporary. We believe to have the vision and tenacity to deliver all of this in the right balance of
prudence and optimism for the future of APS Bank.
Marcel Cassar
10 March 2022
BOARD OF DIRECTORS
APS Bank plc 8
1. Martin Scicluna
Chairman of the Board
Appointed to the Board in November 2013 and as Chairman in September 2021.
Committee Memberships: Nominations and Remuneration Committee (Chair)
Bio: Martin is an Associate of the Chartered Institute of Bankers, holds a Diploma in Financial Studies
and was elected fellow of the Institute of Financial Services in 1999. Martin held a number of managerial
appointments in Mid-Med Bank between 1976 and 1996, following which he joined Midland Bank plc
which later became HSBC Bank Malta plc. From 2006 to 2012, he served on several boards for HSBC
Malta regulated subsidiaries and on its Audit Committee. Since 2012, he has held directorships in asset
management and insurance companies licensed in Malta. Martin has also been actively engaged in
various areas of voluntary work for the last 40 years, including Scouting, the preservation of the built
and natural environment and financial services education. He has served on the Boards of
Administration, in a voluntary capacity, of Non-Governmental Organisations such as Din l-Art Ħelwa
(Malta’s ‘National Trust’) and the HSBC Malta Foundation.
Significant External Appointments: Chairman – Accredited Insurance (Europe) Limited;
Chairman – Zarattini International Limited;
Non-Executive Director, Member of Investments Committee -
Merck Capital Asset Management Limited;
Non-Executive Director, Member of Investments Committee -
Thybo Malta Limited.
2. Victor E. Agius
Non-Executive Director
Appointed to the Board in October 2018.
Committee Memberships: Board Credit Committee (Chair)
Environment, Social and Governance Committee (Chair)
Risk Committee (Member)
Bio: Victor has an extensive career in financial services and investment banking, which includes 23
years at the World Bank Group in Washington DC, three years of which at the European Bank for
Reconstruction and Development in London and seventeen years with the Council of Europe
Development Bank in Paris. Past appointments consist of extensive field missions in leadership
responsibilities to over 60 countries in Africa, East Asia, Middle East & North Africa, Europe and in
Former Soviet Republics. Victor graduated with a BA(Hons) in Economics from the University of Malta,
holds an MBA from the Manchester Business School and completed Senior Finance and Banking
Executive programmes at the Wharton School of Finance and at the Stanford Graduate School of
Business.
Significant External Appointments: None
3. Joseph C. Attard
Non-Executive Director
Appointed to the Board in July 2018.
Committee Memberships: Technology and Innovation Committee (Chair)
Board Credit Committee (Member)
Risk Committee (Member)
BOARD OF DIRECTORS
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APS Bank plc 9
3. Joseph C. Attard (continued)
Bio: Joseph has over 25 years of local and international experience in the Information and
Communication Technology (ICT) sector. Between 2007 and 2015, he was the Chief Technology Officer
of Emirates International Telecommunications LLC and subsequently Chief Technical Officer of GO plc
up till 2020. He holds a Bachelor’s degree in Electrical Engineering (Hons) from the University of Malta,
a Master of Science (MSc) in Operational Telecommunications from the University of Coventry (UK)
and a Doctor of Philosophy (PhD) in Telecommunications Engineering from University College London
(UK). Since 2002, he has regularly lectured at University College London on ICT related topics.
Significant External Appointments: None
4. Franco Azzopardi
Non-Executive Director
Appointed to the Board in September 2008.
Committee Memberships: Audit Committee (Chair)
Risk Committee (Member)
Technology & Innovation Committee (Member)
Bio: Franco is a Certified Public Accountant with a UK post-graduate Master of Science degree in
Finance from University of Leicester. He spent twenty-seven years up until 2007 working in public
practice, ten years of which with Deloitte Haskins and Sells, and later in a firm he co-founded in 1990.
He is today a professional director and a registered fellow member of the UK Institute of Directors. He
serves on Boards of Directors, Audit, and Risk Committees of both regulated companies in various
sectors including banking, insurance, and payments. He is the CEO of a leading logistics company in
Malta. Franco also personally contributed towards the development of the Malta Institute of
Accountants. He is a fellow member of the said Institute, having served on the Council from 2007 until
2019. He was also elected President of the Institute for the term 2015-2017.
Significant External Appointments: Director and CEO - Express Trailers Limited;
Non-Executive Director, Audit Committee (C), Member of
Risk Committee, Member of Investments Committee - Atlas
Insurance PCC Limited;
Non-Executive Director, Audit Committee (C), Member of
Remuneration Committee - RS2 Software plc;
Non-Executive Director, Audit Committee (C) - Grand
Harbour Marina plc.
5. Juanito Camilleri
Non-Executive Director
Appointed to the Board in September 2021.
Committee Memberships: Risk Committee (Chair)
Audit Committee (Member)
Bio: Juanito holds a BSc (Hons) in Computer Science from the University of Kent at Canterbury and a
Doctor of Philosophy (PhD) in Theoretical Computer Science from the University of Cambridge. Over
the years, he served as a non-Executive Director and consultant on the boards of several public and
private entities. Juanito was successively CEO at GO mobile and at Melita Cable plc, then served as
Rector of the University of Malta from 2006 to 2016. Between September 2014 and January 2017, he
served as non-Executive Director of HSBC Bank Malta plc, and for a period was also Chairman of the
Risk Committee. Apart from the significant appointments listed below, he serves as a non-Executive
member of the Board of Governors of St. Edward's College. Juanito is the owner of Ta’ Betta Wine
Estates and St Anne’s Clinic.
BOARD OF DIRECTORS
__________________________________________________________________________________________
APS Bank plc 10
5. Juanito Camilleri (continued)
Significant Appointments: Non-Executive Chairman - EPIC Malta Limited;
Chairman, Resident Professor at the Centre for Entrepreneurship and
Business Incubation at the University of Malta;
Board Member – Malta University Innovation Portfolio Limited and
Non-Executive Chairman (of its two subsidiaries) - FLASC BV and
DeNovoCell Limited.
6. Laragh Cassar
Non-Executive Director
Appointed to the Board in April 2016 and as Senior Independent Non-Executive Director in October
2021.
Committee Membership: Conduct Committee (Chair)
Nominations & Remuneration Committee (Member)
Bio: Laragh obtained a degree in law from the University of Malta in 2002 and a Master of Law in
Banking and Finance from the University of London in 2003. Laragh held the role of partner at Camilleri
Preziosi between 2009 and 2015, after which she founded the firm ‘Camilleri Cassar Advocates’ where
she now heads the corporate and commercial practice group. Throughout her career, Laragh has
gained extensive experience in many areas of practice, with a particular focus on M&A, banking, asset
management, capital markets and corporate law restructuring. She has acted for a significant number
of publicly listed companies, structuring the offering/issuance of equity and non-equity securities as
well as subsequently advising on continuing obligations as listed entities and is often appointed by the
Faculty of Laws of the University of Malta as supervisor and examiner of MAdv dissertations.
Significant External Appointments: Partner - Camilleri Cassar Advocates;
Non-Executive Director – Hili Properties plc;
Non-Executive Director / Company Secretary – MedservRegis
plc
7. Alfred DeMarco
Non-Executive Director
Appointed to the Board in April 2016.
Committee Memberships: Audit Committee (Member)
Board Credit Committee (Member)
Conduct Committee (Member)
Bio: Alfred is an associate of the London Institute of Banking and Finance (ACIB) and holds a degree
in economics from the University of London. He is a central banker by profession with more than 40
years’ experience at the Central Bank of Malta (CBM). He progressed through senior executive positions
at the bank including that of Deputy General Manager and Director of the Economics and External
Relations Division. Alfred was a member of the European Central Bank (ECB)’s Monetary Policy
Committee, representing the CBM, from 2004 to 2015. He was appointed Deputy Governor in April
2010, a position he held until end-March 2015.
Significant External Appointments: Member - Kunsill Finanzjarju Djoceżan
BOARD OF DIRECTORS
__________________________________________________________________________________________
APS Bank plc 11
8. Victor Gusman
Non-Executive Director
Appointed to the Board in April 2012.
Committee Memberships: Conduct Committee (Member)
Nominations and Remuneration Committee (Member)
Technology and Innovation Committee (Member)
Bio: Victor has a 35-year longstanding career at the helm of the Lemco Group, an international entity,
which consisted of a workforce of over 650, with its manufacturing bases in Italy and Poland, with a
sales force operating in 34 countries. He gained vast experience in the servicing of international
companies with custom-made products to accommodate various brands and was central in dealing
with governments for their specialised requirements in the hardware and manufacturing sectors,
negotiating with unions in Italy and Poland. Until August 2021, Victor was the Administrative Secretary
of the Diocese of Gozo and Executive Director of GDH Company Limited and Kura Gozo Company
Limited.
Significant External Appointments: None
9. Michael Pace Ross
Non-Executive Director
Appointed to the Board in November 2015.
Committee Memberships: Conduct Committee (Member)
Environment, Social and Governance Committee (Member)
Risk Committee (Member)
Bio: Michael served as Director General of the National Statistics Office for six years, sitting on national
and European committees, including the European Statistical Advisory Committee, prior to his current
appointment as Administrative Secretary of the Archdiocese of Malta. He is a council member of the
Malta Employers Association (MEA). He also sits on the board of Discern, a Church research institute
on the signs of the times, and on the board of the Voluntary Solidarity Fund (Malta). Michael holds a
BA (Hons) in Economics and Management and an MBA from the University of Malta. In his capacity as
Administrative Secretary, he sits on the Diocesan Representative Council, the Diocesan Pastoral
Council, and the Diocesan Finance Committee. He is also an associate of the London College of Music.
He was vested as Knight in a papal equestrian order by Cardinal Edwin O’Brien in 2019.
Significant External Appointments: Administrative Secretary - Archdiocese of Malta;
Non-Executive Director - Amalgamated Investments SICAV
plc;
Non-Executive Director – Beacon Media Group Limited;
Company Secretary - AROM Holdings Limited.
10. Graziella Bray
Company Secretary
Appointed as Company Secretary in July 2018.
Bio: Graziella graduated with a Doctor of Laws from the University of Malta in 2004 and joined the
Bank in 2006. Over the years, she has performed duties in various areas of law, regulation, and
compliance, including providing support to the Board, its subsidiaries, and various committees. In 2021
she was elected fellow of the Chartered Governance Institute of UK & Ireland, as a Chartered Company
Secretary and Governance Professional. She also sits on the Board of directors of APS Funds SICAV
plc. Graziella lectures in Company Law, Regulation and Corporate Governance at the Malta Stock
Exchange Institute and as a freelance trainer.
EXECUTIVE MANAGEMENT
APS Bank plc 12
1. Chief Executive Officer - Marcel Cassar
Committee Memberships: Executive Committee (Chair)
Management Credit Committee (Chair)
Board Credit Committee
Conduct Committee
Environmental, Social and Governance Committee (Non-Voting)
Risk Committee (Non-Voting)
Bio: Marcel joined the Bank as CEO in January 2016. His career started in 1987 with Price Waterhouse
Malta, followed by MIBA/MFSC, now the MFSA (1991-1996). He was General Manager at Lombard Bank
Malta plc (1996-2004) and First EVP and CFO at FIMBank plc (2004-2015). He has been a board
member of the Malta Bankers’ Association, including Deputy Chairman (2017-2018) and Chairman
(2018-2020), leading to a seat on the board of the European Banking Federation. Marcel is a CPA, a
fellow member of the Malta Institute of Accountants, holds an MBA from the University of Wales and
Manchester Business School (1995) and has lectured at FEMA and in the MA Financial Services course,
University of Malta.
2. Chief Risk Officer – Giovanni Bartolotta
Committee Memberships: Compliance Committee (Chair)
Board Credit Committee (Non-Voting)
Conduct Committee
Environmental, Social and Governance Committee (Non-Voting)
Risk Committee (Non-Voting)
Assets & Liabilities Committee
Executive Committee
Management Credit Committee
Bio: Giovanni joined the Bank as Chief Risk Officer in September 2018. Prior to joining the Bank, he
spent ten years in London working for major global investment banks, including Kleinwort Benson, JP
Morgan Chase & Co and Bear Stearns International. He then moved to Malta where he spent fourteen
years at FIMBank plc, as Executive Vice President and Global Head of Risk. Giovanni holds a BA in
Economics from Bocconi SDA, University of Milan and is currently a member of the Council of Malta
Association of Credit Management.
3. Chief People Officer – Raymond Bonnici
Committee Memberships: Executive Committee
Bio: Raymond joined the Bank as Head of Human Capital in 2016 and was appointed to his present role
in June 2020. He started his career in aviation, working for KLM, Swissair and Sabena. Following this
period, he worked at Hilton Hotels International, as Director of Human Resources for Malta. Prior to
joining the Bank, he was Director of Human Resources at Premier Capital plc and was a key element in
setting up the group’s Human Resources function across the company’s six EU countries of business.
Raymond holds a BA in Youth and Community Studies from the University of Malta.
EXECUTIVE MANAGEMENT
APS Bank plc 13
4. Chief Banking Officer – Anthony Buttigieg
Committee Memberships: Board Credit Committee (Non-Voting)
Risk Committee (Non-Voting)
Compliance Committee
Executive Committee
Management Credit Committee
Bio: Anthony joined the Bank as Head of Banking in May 2016 and was appointed to his current position
in June 2019. His experience in the banking sector spans 45 years. He started his career with Mid-Med
Bank, which later became HSBC Bank (Malta) plc, where he held a number of Senior and Managerial
roles. Anthony is a qualified banker and an associate of the Chartered Institute of Bankers.
5. Chief Operations Officer - Edward Calleja
Committee Memberships: Board Credit Committee (Voting)
Compliance Committee
Executive Committee
Bio: Edward joined the Bank in 1992. He held senior managerial positions in lending, corporate strategy,
and risk management. He was responsible for the setting up of the Bank’s lending function and the
centralisation of the key operations through the implementation of a Loans Processing System in 2009.
He was appointed to his current position in August 2021. Edward started his career with Mid-Med Bank
in 1981. He holds a BA (Hons) Accountancy from the University of Malta (1990), a Diploma in
Management (2003) and an MBA from Henley Management College, UK (2005). Edward obtained his
warrant as CPA in 1991 and became a fellow member of the Malta Institute of Accountants in 2011.
Edward’s appointment as Chief Operations Officer of the Bank is subject to regulatory approval by the
MFSA.
6. Chief Technology Officer – Jonathan Caruana
Committee Memberships: Technology & Innovation Committee
Executive Committee
Bio: Jonathan joined the Bank in 1999 and served in various departments before being promoted to
Information Systems Manager in 2008 and Head of Information Technology in 2015. He was then
appointed Chief Technology Officer in November 2016. Jonathan holds a BSc (Hons) in Computing
from the University of Greenwich and an MSc in Software Engineering from the University of
Hertfordshire.
EXECUTIVE MANAGEMENT
APS Bank plc 14
7. Chief Strategy Officer – Liana DeBattista
Committee Memberships: Environmental, Social and Governance Committee
Executive Committee
Bio: Liana joined the Bank in 2003 and held positions across multiple areas, including strategy, internal
audit, and marketing. Her main areas of expertise are in business planning, corporate strategy
formulation, product development, research, performance management and ESG. She was promoted
to Head of Strategy & Propositions in 2020. She was then appointed Chief Strategy Officer in 2021.
Liana has a BSc in Business & Computing (2001) and a BCom (Hons) in Management (2002), both from
the University of Malta, and a First-Class MSc in Corporate Finance from the University of Liverpool
(2015).
Liana’s appointment as Chief Strategy Officer of the Bank is subject to regulatory approval by the MFSA.
8. Chief Investments Officer – Noel McCarthy
Committee Memberships: Risk Committee (Non-Voting)
Executive Committee
Management Credit Committee
Bio: Noel joined the Bank in 2000 and served in a number of successively senior positions over the
years. He was appointed as Chief Investments Officer in June 2020, after having held the role of Chief
Financial Officer since 2016. In his current role, Noel oversees the Investment Management and
Investment Distribution units, the activities of the subsidiary and affiliated companies and the Bank’s
property portfolio. He is a CPA and a fellow member of the Malta Institute of Accountants. He also holds
a MA in Financial Services from the University of Malta. He also serves as a Director of ReAPS Asset
Management Limited and as Alternate Director of IVALIFE Insurance Limited.
9. Chief Financial Officer – Ronald Mizzi
Committee Memberships: Risk Committee (Non-Voting)
Technology & Innovation Committee
Assets and Liabilities Committee
Executive Committee
Management Credit Committee
Bio: Ronald joined the Bank as Chief Financial Officer in September 2020. He was previously Group
Chief Financial Officer at FIMBank plc, having spent his earlier career with parallel engagements with
PricewaterhouseCoopers in Malta, the Channel Islands and New York. Ronald is a CPA and holds a
Practicing Certificate in Auditing, both issued by the Accountancy Board in Malta. Ronald is a fellow
member of the Malta Institute of Accountants and holds a BA (Hons) in Accountancy from the
University of Malta.
EXECUTIVE MANAGEMENT
APS Bank plc 15
HEADS OF DEPARTMENTS
Wilhelm Attard - Head of Support; Management Credit Committee
Kenneth Azzopardi - Head of Human Capital
Rachael Blackburn - Head of Culture
Cynthia Borg - Head of Financial Crime Compliance & MLRO; Conduct Committee;
Compliance Committee
Elaine Calleja - Head of Career Development
Alexander Camilleri - Head of Operations; Technology & Innovation Committee
Gilbert Caruana - Head of Finance; Assets and Liabilities Committee
Daniel Cassar - Head of Digital Transformation; Technology and Innovation Committee
Angele de Mesquita - Head of Transformation; Technology and Innovation Committee
Marvin Farrugia - Head of Asset Liability Management; Asset and Liabilities Committee (C);
Management Credit Committee (NV)
Mario Gauci - Head of Commercial; Board Credit Committee (NV); Management Credit
Committee (NV)
Kenneth Genovese - Head of Investment Distribution; Assets and Liabilities Committee
Gordon Gilford - Head of Electronic Channels; Technology and Innovation Committee
Dione Stephan Gravino - Head of IT Infrastructure & Operations
Nives Grixti - Head of Legal; Environmental; Social and Governance Committee (NV);
Conduct Committee, Board Credit Committee (NV); Compliance
Committee; Management Credit Committee (NV)
Zoltan Horvath - Head of Propositions; Assets and Liabilities Committee
Marco Micallef - Head of Risk; Risk Committee (NV); Board Credit Committee (NV);
Management Credit Committee (NV)
Simon Micallef - Head of Customer Profiling; Compliance Committee
Aaron Mifsud - Head of Retail; Assets and Liabilities Committee; Management Credit
Committee
Rodney Naudi - Head of Operational Risk and Security Governance; Technology and
Innovation Committee
Josef Portelli - Head of Investment Management; Assets and Liabilities Committee
Ronald Psaila - Head of Business Solutions
Richard Scerri - Head of Internal Audit
Dorianne Tabone - Head of Regulatory Compliance; Conduct Committee; Compliance
Committee
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 16
CONSTITUTION AND PRINCIPAL ACTIVITIES
SHARE CAPITAL STRUCTURE AND MAJOR SHAREHOLDERS
The Bank’s authorised and issued share capital are disclosed in Note 35 to the financial statements.
All of the ordinary shares in the Bank rank pari passu in all respects, including in terms of voting rights,
participation in dividends and other distributions of profits of the Bank or otherwise.
The Articles of Association specify that a shareholding of ten per cent (10%) of the Bank’s shares having
voting rights shall constitute a ‘qualifying shareholding’, and that a shareholder of the Bank that holds,
or shareholders who among them hold (in the aggregate), a qualifying shareholding, shall be entitled
to appoint one Director in respect of each qualifying shareholding held, in every case subject to
regulatory approval.
The Articles of Association also provide that the largest single shareholder of the Bank (holding at least
twenty-five per cent (25%) of the ordinary issued share capital of the Bank) shall be entitled to appoint
the Chairman of the Board from amongst the Directors appointed or elected to the Board.
Shareholders holding 5% or more of the share capital as at 31 December 2021 are as follows:
No of shares held
% holding
AROM Holdings Limited
(wholly owned by the
Archdiocese of Malta)
198,367,765
79.44%
Diocese of Gozo
45,449,032
18.00%
On the basis of the entitlement to appoint Directors attaching to a ‘qualifying shareholding’ as well as
the entitlement of the largest single shareholder of the Bank to appoint the Chairman of the Board (in
each case as set out in the Articles of Association and described above), AROM Holdings Limited is
currently able to appoint seven (7) Directors (of the maximum nine (9) Board members that can be
appointed), including the Chairman of the Board.
There are no arrangements currently known to the Bank the operation of which may at a subsequent
date result in a change of control in the Bank.
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 17
DIRECTORS
The Directors who served during the financial year and continue to serve at the date of approval of the
Directors’ Report were:
Martin Scicluna (Chairman – appointed Chairman on 1 September 2021)
Frederick Mifsud Bonnici (Chairman – retired from Chairman and Board of Directors on 31
August 2021)
Victor E. Agius
Joseph C. Attard
Franco Azzopardi
Juanito Camilleri (appointed on 20 September 2021)
Laragh Cassar
Alfred DeMarco
Victor Gusman
Michael Pace Ross
NON-FINANCIAL DISCLOSURES
Directive 2014/95/EU – also referred to as the Non-Financial Reporting Directive (“NFRD”) – lays down
the rules on disclosure of non-financial and diversity information by certain large companies. The
following are the disclosures hereby made pursuant to this Directive:
1. The Bank’s Business Model
APS Bank plc is an established Maltese credit institution that provides a comprehensive range of
banking and financial services to its personal and corporate customers. Ever since its foundation in 1910,
its aim has been to always fully connect with customers within local communities, where through the
Bank’s professional network, it has been able to assist customers in realising their financial and
economic ambitions, whether for purchasing their new family home, a new car or saving and investing
for their retirement or other goals.
The Bank provides a wide suite of products and services, ranging from basic deposit accounts, credit
and lending facilities and also investment and retirement services. All of this is delivered to customers
through the Banks’ branch network in Malta and Gozo, which the Bank is continuously investing in to
ensure presence and accessibility in various locations. All the Banks’ customers are also provided access
to banking services digitally through myAPS desktop and mobile app, making it easy to view and
perform transactions through their accounts.
Following the outbreak of the COVID-19 pandemic, the Bank introduced several measures to protect
employees, customers and also to comply with the various directives issued by the local authorities. A
shift to remote or hybrid working, a drive to increase usage of ATMs and digital channels to reduce
over the counter transactions and attending customer appointments through video conferencing, were
all initiatives that the Bank implemented and retained.
The Bank also participates in Syndicated Lending on an ongoing basis, where across the years, it has
managed to secure participations in facilities arranged by renowned international institutions.
Being there for the community and being able to provide banking services effectively to all strata of
society was always a strategic priority for the Bank. In fact, ongoing effort is dedicated to make sure
that families in need, or those who require dedicated assistance, can be provided with a banking
experience through specific products and services provided by the Bank itself or through collaboration
with local and international entities, such as the Malta Development Bank, the Malta Housing Authority,
and the European Investment Bank. The Bank’s commitment to the betterment of the communities it
serves also extends to its own core product offering. Late 2021 saw the launch of the APS Green Home
Loan, a first for Malta, where customers opting to seek and purchase a sustainable and energy efficient
property will be rewarded through significant interest savings over time when compared to the
standard home loan products on the market. This integration of the Bank’s core values into its suite of
retail lending products and services aligns to its mission of delivering on its social commitment through
financial innovation.
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 18
2. Communicating brand, purpose and corporate culture
The Bank adopted an innovative approach towards strategic communication with the setup of the
Culture Department in 2021, with the objective of developing effective internal and external
communication and brand management strategies, aligned with the Bank’s purpose and strategic
priorities. This department is responsible for the Bank’s branding and marketing, corporate social
responsibility (“CSR”), the voice of the customer (“VOC”) and corporate culture change programmes.
Branding and Marketing
The APS Bank brand is a vital medium to communicate the Bank’s vision, mission and values. In 2021,
the Marketing function focused on further elevating the brand in its communication strategy, whilst
complementing product specific messages. This was done through the launch of the Bank’s brand
campaign across integrated media channels, highlighting the Bank’s diverse customer cohorts and the
value of APS Bank in their lives. The brand campaign was sustained with the production of a series of
three Christmas adverts, each celebrating the true value and magic of Christmas, rather than the
commercial aspect.
Corporate Social Responsibility Programme
CSR is a critical driver in the successful delivery of the Bank’s strategy and a vehicle to communicate
its brand and corporate values: Excellence, Authenticity, Passion, Inclusiveness and being
Contemporary. The annual CSR Programme is made up of curated events and activities, in addition to
donations and sponsorships, which are selected in alignment with four CSR pillars to support arts and
culture, financial literacy development, education and sustainability.
The CSR Programme includes a wide range of activities with a broad appeal to reach different
audiences. APS talks and APS Business talks are lectures open to the public and delivered by experts
with the objective of knowledge-sharing, building awareness and encouraging cross-disciplinary
application of best practice. From the sponsorship of diverse book publications, artistic exhibitions and
performances, restoration projects to collaborations with educational institutions, each CSR activity
demonstrates the Bank’s commitment to sustain and celebrate the community, which it serves.
Two of the Bank’s largest CSR initiatives in 2021 included the Malta Sustainability Forum and the APS
Summer Festival. These proved to be especially important since, at the time, there was subdued activity
due to the pandemic. The Bank - driven by its sense of purpose - stepped in when it mattered most, to
support these two key areas.
The Malta Sustainability Forum (“MSF”) was launched by APS Bank in 2019 with the objective of
providing a platform to raise awareness on the topic of sustainability and empower citizens in making
conscious decisions towards a more sustainable life. Building on the success of the first MSF event
delivered as an in-person, one-day conference in 2019, the second MSF event held in January 2021
embraced the mass transition to online events, with 16 hours of live-streamed webinars, delivered by
83 speakers, to an audience of over 1,200 online participants, over 5 consecutive days. MSF 2021 made
inroads by clarifying the challenges the world is facing on its journey to achieve the 17 UN Sustainable
Development Goals, to provide solutions and different perspectives that could be applied in Malta. As
MSF established an online presence across social media channels throughout 2021, it has transformed
beyond an annual calendar event, into a trusted reference on all aspects of sustainability, which will
continue to evolve.
The second edition of the APS Summer Festival (“APS SF”) was held during the last fortnight of July
2021, on the University of Malta campus. The Festival was designed in line with the Bank’s vision of
being the community bank in Malta. The multidisciplinary programme of performances promoted
diversity in the line-up of artists, the variety of artistic forms and in the delivery of a festival in the safest
way possible. Sustainability was promoted in both form and function, allowing the Bank to ignite a
renewed commitment to arts and culture, serving as entertainment for diverse audiences longing to
attend live performances and an opportunity for artists to showcase their talents following a long period
of inactivity.
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 19
2. Communicating brand, purpose and corporate culture (continued)
Voice of the Customer
The Bank’s vision, mission and values are engrained in the VOC function as it serves as a catalyst for its
‘Customer First’ strategy, ensuring that the voices of the Bank's customers are heard and channelled
throughout the organisation. Responsible for directly assisting customers who have feedback on any
point in the customer journey, VOC receives feedback and complaints and handles each individual case
through to resolution.
In the spirit of continuous improvement, VOC collates and shares customer feedback with senior
management and develops and delivers ongoing coaching and training on effective customer support,
across the Bank. Various research initiatives are coordinated annually by VOC to identify additional
ways to optimise the Bank’s customers' experience.
Corporate Culture Change Programme
The Corporate Culture Change Programme was developed and launched in 2019 with the objective of
delivering various initiatives to communicate and encourage employee engagement with the Bank’s
strategy, vision, mission and values. The programme includes various activities and strategic corporate
culture communications including: Executive Breakfasts, the APS Times newsletter for employees, the
development of the APS Bank Culture Deck and workshop for managers, and various talks and
presentations for senior and middle management as well as the creation of Teams channels and posts
on core aspects of the Bank’s corporate culture. The frequency, topics and channels used for internal
communication developed rapidly in response to fluid conditions brought about due to the pandemic
and changes in work arrangements.
3. Climate change and related risks
Transitioning to a low-carbon and more circular economy entails both risks and opportunities for the
economy and financial institutions, while physical damage caused by climate change and environmental
degradation can have a significant impact on the real economy and the financial system.
During 2021, the Group articulated its risk appetite for climate change and related risks within its Risk
Appetite Statement. A risk indicator which measures the Bank’s exposure to ESG risk within its loans
and securities portfolios was introduced. The Group plans to enhance the integration of climate change
risk into its risk management framework during 2022.
The regulatory framework on ESG, including climate change risk, is evolving. The Bank is following
closely regulatory guidelines, developments and supervisory expectations.
During 2021, the European Banking Authority (“EBA”) issued a ‘Report on Management and Supervision
of ESG Risks for Credit Institutions and Investment Firms’. This report assesses the potential inclusion
of ESG risks into the three pillars of the banking prudential framework. In this regard, the EBA has
recently issued standards on Pillar 3 disclosures on ESG risks, in accordance with Article 449a of the
CRR.
Stress testing is considered a useful tool for modelling climate risk impacts on the risk profile of a bank.
In the above-mentioned report, the EBA acknowledges that “the design of climate stress tests is very
complex and faces several issues”. Such challenges include assumptions made about the different
climate scenarios, uncertainties about climate developments themselves, environmental policies
adopted by national and international government bodies, among others. Nevertheless, understanding
the impacts of climate on a portfolio’s risk parameters is a crucial input for portfolio monitoring and
capital allocation.
In its 2022 Annual Work Programme, the EBA indicated that “An EU-wide stress test will be carried out
by the EBA in 2023, relying on methodologies, scenarios and key assumptions to be developed with
the ESRB, the Competent Authorities and the Commission in 2022.” The Bank is following closely these
developments through meetings of its ESG Committee, an “ESG Action Tracker” (the Bank’s internal
dashboard to track its progress on all ESG-related activities and ESG workshops involving the various
internal stakeholders).
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 20
4. Social Matters
a) Trade Unions
The Bank recognises the Malta Union of Bank Employees (“MUBE”) as the sole and exclusive bargaining
agency for the managerial, clerical and non-clerical categories of employees. The Bank’s relationship
with the MUBE has been productive throughout the years, with ongoing communication between both
parties on various topical matters. The current Collective Agreement is for a period of three years 2020
– 2022.
b) Community Relations
The Bank has over the years supported a number of community projects and initiatives and continues
to engage in more on an ongoing basis. These are generally selected for their significance to a specific
sector of society such as youth or people with special needs, or to support specific areas of Maltese
culture, such as music or visual arts. The Bank’s philosophy is to create partnerships that are just,
sustainable and of mutual value, and preference is given to umbrella organisations, federations, or
collective interest groups over individual endeavours. Through various direct initiatives, substantial
support is given to charitable, voluntary and community projects that meet the Bank’s social support
philosophy and our staff is encouraged to pursue various activities in voluntary work to take an active
role in matters that are so vital to society at large.
The Bank contributes to public education and debate by sponsoring seminars and their proceedings
which expound topical themes of general or specific interest. In this way, it provides opportunities for
the exchange of ideas in a structured and cohesive manner and makes them available to a wider
audience. Occasionally, the Bank also publishes studies which consider critically particular issues
concerning the demographic, economic, social and political networks in the Maltese Islands and in the
European Union.
The Bank has also continued these efforts during the ongoing COVID-19 pandemic. Online seminars
have become the Bank’s modus operandi of the day, and these have been delivered covering a number
of distinct thematic topics aimed at both educating and inspiring attendees in matters of particular
social or cultural interest, as well as those related to financial literacy.
c) Consumer Relationships
The COVID-19 pandemic has accelerated a number of trends in consumer behaviour. This presented
significant opportunities for the Bank to continue transforming, modernising and, at the same time,
improving its services. More recently, the Bank has launched a virtual meeting service, where customer
service officials are able to meet with customers through online communication tools and assist their
needs without the need for physical interaction.
The provision of the Bank’s products and services through both its physical and virtual channels, as well
as the ongoing refinement and modernisation of its internal processes lend towards the Bank’s ultimate
objective; that of providing excellent levels of customer experience and service.
The Bank continues to devote increasing attention and resource towards ensuring that its customers
feel comfortable and confident in engaging with the Bank through several physical and virtual
interactive spaces. Significant investment has gone into upgrading the Bank’s network of Retail
branches, making them more modern in design and experience for our customers and colleagues alike.
Branches are now being equipped with improved office spaces and furniture, modern waiting and
meeting areas, as well as interactive digital display monitors that are available for customers to use.
At the same time, the Bank continued to make a positive difference when it comes to sustainability,
through the choices that were made when the project of branch and offices transformation was
ongoing. This regeneration of the Bank’s premises has, as a matter of fact, been planned to contribute
towards lowering its carbon footprint. Energy efficient lighting and heating and cooling systems have
been installed in several of its locations. Many branches have already passed through this
transformation, with the few remaining renovations planned to follow in short order. The Bank’s flagship
branch and head office premises in Swatar also allows for the recycling of rain and wastewater, as well
as generating renewable energy through several photovoltaic panels. The Bank has also invested in
charging bays on every floor of its latest underground staff and customer parking area, aimed at
encouraging its staff to invest in hybrid and electric cars, which are less harmful to the environment.
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 21
5. Employee Matters
The Bank’s people strategy is aimed at being the ‘Employer of Choice’, maintaining high employee
engagement levels to attract and retain the best talent. The strategy focuses on ensuring all employees
achieve their full potential, through supporting the ongoing development of skills, knowledge and
competence required for today’s and future needs. The Bank is an inclusive and equal opportunity
employer. It aims to provide an inclusive environment that promotes diversity, maintains a healthy
working environment in which the rights and dignity of its staff members are respected.
The Bank’s Collective Agreement governs a wide range of family friendly measures, enhanced by a
policy framework that supports the wellbeing of all its employees. During 2021, the Bank reviewed its
remote working and flexi-time policies in line with its investment in collaborative and communication
systems. All its employees have the tools required to work remotely to ensure their wellbeing as well
as business continuation during the pandemic. In 2021, the Bank also introduced an occupational
pension plan for all its employees in support of various other wellbeing incentives.
In addition, various policies and programmes support the wellbeing of employees. These include a zero-
tolerance policy to cases of bullying, harassment and discrimination, a preventative medical care and
sports activity policy, an employee assistance programme, an employee screening policy, a succession
planning policy, and a performance development programme that provides a holistic approach to
developing employees to achieve their full potential.
Employee Assistance Programme – The Bank’s Employee Assistance Programme (“EAP”) is an
external confidential counselling service available to all employees. In 2021, the EAP was enhanced to
support the mental wellbeing of employees. The EAP offers employees the possibility of reaching out
for counselling, guidance and support to assist and resolve work, family and personal issues.
Zero-tolerance Policy – The Bank maintains zero-tolerance to cases of bullying, harassment and
unlawful discrimination and supports a workplace that promotes a dignified working environment and
harmonious relations among its employees based on respect, understanding and appreciation.
Preventative Medical Care and Sports Activity Policy – This policy complements other wellbeing
initiatives organised by the Bank to promote the physical, mental and social health and wellbeing of its
employees to achieve their full potential and live a healthy and active lifestyle.
Employee Screening – The highest standard of integrity and professionalism by employees of financial
institutions is critical to sustain public confidence in the financial sector. Employee screening presents
a critical opportunity for the Bank to ensure prospective and existing employees are aligned with its
desired corporate culture, embrace its values and are ‘fit and proper’ to discharge their duties and
responsibilities. The Bank uses various tools for screening employees as part of its due diligence
process. Employees are also expected to abide with other policies including its Code of Ethics and other
regulatory policies and guidelines that ensure the integrity of its employees.
Succession Planning – This policy details the Bank’s process for identifying and growing talent to fill
leadership and business-critical functions and positions in the future. Succession and talent planning
sits inside a much wider strategic framework encompassing areas such as business strategy and plans,
business continuity management, resource management, required skills and competencies and career
development. The scope of this policy is to complement these areas through a framework for ensuring
that the Bank has the right people in the right place at the right time, and that learning, and development
investment is maximised.
Performance Development – The Bank adopts a clear distinction between fixed and variable
remuneration. Its variable remuneration is based on the performance of staff members taking in
consideration both qualitative and quantitative criteria, the performance of the Bank, the achievement
of departmental, team and individual targets in line with Key Performance Indicators (“KPIs”), living the
Bank’s values and supporting the ongoing development of skills, knowledge and competency required
by each employee. Each employee has clear objectives and ongoing development discussions so that
they can achieve high levels of performance across the Bank.
DIRECTORS’ REPORT
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APS Bank plc 22
5. Employee Matters (continued)
Our continued focus on the future of work and customer service saw the completion of the Bank’s
Future Banker Programme focused on the digitisation of banking services as well as sharing of
knowledge on developing and emerging technologies and the launch of the Customer Service Academy
focused on our front-line employees and our service to our customers. These programmes ensure that
as a Bank will continue to remain relevant to our time and that we engage with our communities in a
meaningful way.
6. Anti-Corruption and Bribery Matters
The Bank is committed to conduct business in a legal, honest and ethical way, to this end, the Bank has
in fact adopted a zero tolerance towards financial crime, including, bribery and corruption.
The Anti-bribery and anti-corruption (“ABC”) policy has been designed to promote a culture of ethical
business practices and compliance with ABC legal and regulatory requirements within APS Bank plc,
its subsidiaries and affiliates.
The policy defines Bribery and Corruption as follows:
• Bribery - the act of giving, offering, promising, receiving, accepting, demanding or soliciting
directly or indirectly of monetary or non-monetary, tangible or intangible benefits in order to
obtain or retain an undue advantage in the course of business activities, either to motivate
active or passive deviation from a duty or to secure the performance of a service.
• Corruption - the state or situation resulting from providing, soliciting, authorising or offering a
bribe. A corruption offence includes not only committing Bribery and Corruption, but also
attempting, inciting, aiding and abetting. These may lead to: criminal prosecution of persons
involved in it as participants, regulatory or criminal prosecution against their supervisors if they
violated their supervisory duties, against Senior Management of a company or a company itself.
The policy aims to:
• clearly articulate the Group’s commitment to prohibiting bribery and corruption and to be
compliant with applicable anti-bribery laws,
• define principles for identifying and preventing potential bribery and corruption in order to
protect the integrity and reputation of the Group,
• clearly communicate anti-bribery and anti-corruption principles both to internal and external
stakeholders,
• provide a framework for a Group-wide Anti-Bribery and Anti-Corruption Programme which
forms part of the Financial Crime Compliance Framework.
In order to establish an efficient control system, the following complementary internal standards and
procedures applicable to APS Group should be considered, including but not limited to:
• Bank’s Code of Ethics;
• Gifts and Cards for Special Occasions Policy;
• Regulatory Breaches Register Policy;
• Whistle-blower Policy
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS
Responsibility for risk management lies at all levels within the Group through the adoption of three lines
of defence model. Business units, as the first line of defence, are responsible for identifying, assessing
and managing the risks to which the Group is exposed in the respective operating units. The
management of the various forms of risk is then co-ordinated and monitored by the second line of
defence, namely the Risk, Legal, Financial Crime Compliance and Regulatory Compliance Departments.
The Internal Audit Department, as the third line of defence, provides independent and objective
assurance and advice on the adequacy and effectiveness of governance and risk management to the
Board.
DIRECTORS’ REPORT
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APS Bank plc 23
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
The Risk, Legal, Financial Crime Compliance and Regulatory Compliance Departments are headed by
the Chief Risk Officer who reports directly to the Risk Committee. The Risk Committee establishes and
ensures the implementation of the Group’s risk management and compliance strategy, systems and
policies. The Risk Committee meets regularly to monitor the assessment and management of the risk
profile of the Group and ensures that policies are in place in line with the Group’s risk appetite, as set
by the Board.
The subsequent sections provide an overview of each material risk, including the management of each
risk and capital allocation techniques adopted.
Credit Risk
Credit Risk is the potential risk that a borrower or counterparty fails to meet the respective obligations
in accordance with, or performing according to, agreed terms. Alternatively, losses may result from
reduction in assets value arising from actual or perceived deterioration in credit quality.
Lending is considered to be APS Bank’s main activity and, as such, assessment of credit risk plays a
pivotal part in the execution of the Bank’s strategy. The Bank’s exposure to credit risk is diversified by
maximum single exposure, by sector, by geography, by tenor and by product, through its engagement
in Retail Lending, Commercial Lending, Trade Finance and selected participations in Syndicated
Lending. The appetite (and tolerance levels) for credit risk which is deemed acceptable by the Bank at
any point in time is defined and evaluated in the Risk Appetite Statement (“RAS”), which is approved
by the Board and reviewed on an annual basis.
Credit Risk is managed and controlled in various ways, including the regular four-eye approach/risk-
based review of the:
a) credit risk policy, including the policies relating to forbearance and non-performing loans;
b) lending procedures of the first line of defence;
c) new lending products and/or the review/revamp of existing lending products;
d) internal credit scoring systems;
e) internal credit risk grading system based on days past due and other non-financial/qualitative
factors, including cure/probation periods;
f) daily excesses/loan arrears exceeding the encroachment tolerance limits of the
branch/commercial managers and/or the 30 days past due (Significant Increase in Credit Risk
(“SICR”));
g) non-performing credit exposures graded ‘Doubtful’ and/or ‘Classified’, including monitoring of
the Bank’s NPL ratio;
h) fresh and/or renewal of business and retail credit limits exceeding €750,000 and/or fresh retail
credit facilities below the €750,000 threshold with parameters exceeding established
delegated criteria, e.g. DSCR/DSTI-O, LTV-Os, etc.;
i) six monthly sample of credit facilities below the €750,000 threshold sanctioned by the first line
of defense;
j) forward-looking expected loss model for quantifying provisions compliant with the IFRS 9
accounting regime;
k) stress testing relating to credit risk;
l) internal limits relating to single-name and sectoral concentration risk;
m) risk-based credit pricing model to determine the ROE of fresh credit limits and/or new lending
products / schemes.
DIRECTORS’ REPORT
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APS Bank plc 24
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
Operational Risk
The Bank defines Operational Risk as “the risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events” in line with the Basel Committee. This definition
includes legal risk but excludes strategic and reputational risk.
Operational risk is inherent in the Bank’s products, services and activities. The Bank’s operational risk
management framework and governance are fully integrated into the Bank’s overall risk management
framework.
The Bank aims to ensure sound operational risk governance practices with the involvement of the
following functions:
• Board of Directors
• Risk Committee
• Operational Risk and Security Governance Department
• Senior Management
• Business Risk and Control Management
• Internal Audit
The operational risk management process is intended to maintain an overall operational risk level that
meets the Bank’s operational risk appetite.
Risk identification considers internal and external factors and is paramount for the subsequent
development of a viable operational risk monitoring and control system. The Bank has increased its
efforts of risk identification by improving the culture and encouraging all employees from all levels to
report any identified operational risks and incidents in a timely manner.
Following the identification of operational risks, these are measured by quantifying, where possible, the
potential losses from each identified risk and allocation of an adequate amount of capital to cover the
Bank’s exposure to this risk.
The Group maintains a database to regularly quantify and record operational losses and near miss
events, reported electronically by the first line of defence and co-ordinated and analysed by the
Operational Risk and Security Governance department, in order to promote a culture of cooperation,
communication and continuous improvement where lessons are learnt from incidents and near misses.
Once operational risks have been identified, assessed and measured, controls and process
improvements are developed and implemented as necessary to further mitigate identified risks to levels
that are within the risk appetite. The Bank has strengthened this process by appointing Business Risk
and Control Managers in the first line of defence to liaise with the Operational Risk and Security
Governance Department. The Bank also ensures that procedures and processes are documented in the
Bank’s handbooks and reviewed from an Operational Risk perspective.
The Bank does regular monitoring of operational risks to quickly detect and correct deficiencies in the
Bank’s policies, processes and procedures. Finally, appropriate reporting mechanisms are in place to
support proactive management of operational risk at Board, Executive and business line levels.
Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due
to changes in market variables such as interest rates, foreign exchange rates, and prices of equities,
bonds and commodities.
The Group’s exposure to market risk is limited since its trading portfolio is minimal. This is consistent
with the Group’s Risk Appetite. In accordance with Article 94 of the CRR, the Group is exempted from
the trading book capital requirements.
DIRECTORS’ REPORT
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APS Bank plc 25
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
Market Risk (continued)
The Group’s exposure to market risk is mainly related to:
i. Interest rate risk – the risk that the Group’s financial position and cash flow are exposed to
unfavourable movements in interest rates;
ii. Foreign exchange risk – the risk that the Group’s financial position and cash flow are
exposed to unfavourable movements in foreign exchange rates.
Interest Rate Risk
The Group has an Interest Rate Risk Policy approved by the Board, which sets out a comprehensive
risk management process that identifies, measures, monitors and controls interest rate risk exposures,
whilst also ensuring appropriate oversight by Senior Management, Board-appointed committees and
ultimately the Board, to confirm that this risk is consistent with the Group’s risk appetite.
Interest rate risk is measured from two perspectives – the economic value of equity (“EVE”) and the
earnings-based approach.
The Group’s exposure to interest rate risk is monitored on a monthly basis by the Enterprise Risk
Management Unit (‘’ERMU’’) and verified by Asset Liability Management (“ALM”), and is reported to
Executive Committee, ALCO and Risk Committee on a quarterly basis.
Liquidity Risk
Liquidity risk is the risk that the Group cannot meet its financial obligations as they fall due in the short
term and medium term, either at all or without incurring unacceptable losses.
Funding risk is the risk that the Group cannot meet its financial obligations as they fall due in the medium
to long term, either at all or without increasing funding costs unacceptably. Funding risk can also be
seen as the risk that its assets are not stably funded in the medium and long term.
The Group manages this risk by seeking to match the maturities of assets and liabilities in its balance-
sheet. The management of liquidity and funding is governed by a detailed Liquidity and Funding Risk
Policy. This Policy establishes clear lines of responsibility, limits and guidance on the measurement and
monitoring of the Group’s net funding requirements. The ALM Unit is responsible for implementing the
Policy; whereas ALCO is responsible for monitoring and ensuring the implementation of and adherence
with the Policy, as well as ensuring consistency with the Bank’s Risk Appetite. It also ensures that
adequate liquidity is held to meet both expected and unexpected commitments. This Policy includes a
detailed Liquidity Contingency Plan, which addresses the strategy for handling liquidity crises and
includes procedures for covering cash flow shortfalls in emergency situations.
Through the Internal Liquidity Adequacy Assessment Process (“ILAAP”), the Group ensures that it
maintains, at all times, liquidity resources, which are adequate, both as to amount and quality, to ensure
that there is no significant risk that its liabilities cannot be met as they fall due. Thus, the ILAAP serves
as a key decision-making tool in liquidity and funding management.
Solvency Risk
The Group continuously aims at building and sustaining a strong capital base and at applying it
efficiently throughout its activities to attain its strategic objectives, optimise shareholder value whilst
ensuring the sustainability of the Bank’s business model and risk profile. A strong and prudent capital
base is one of the pillars of the Group’s business model and maintaining adequate capital ratios will
continue being key to enable the Group to steer through currently challenging economic conditions.
DIRECTORS’ REPORT
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APS Bank plc 26
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
Solvency Risk (continued)
The Bank performs an Internal Capital Adequacy Assessment Process (“ICAAP”) in compliance with the
Pillar II requirements of Banking Rule BR/12/2022 – The Supervisory Review Process of Credit
Institutions Authorised Under the Banking Act 1994 and the CRR. This key decision-making tool is of
utmost importance for keeping the Board of Directors informed about the Bank’s ongoing risk
assessment, the mitigation measures adopted and their impact on the capital requirements. The ICAAP
includes an assessment of both Pillar 1 and Pillar 2 risks. The latter includes concentration risk, IRRBB
risk, IT and cyber risk, reputation risk and other key risks.
The Bank’s stress testing framework forms an integral part of the ICAAP. A number of severe but
plausible scenarios are developed which test the resilience of the Bank’s business model and risk profile.
Regulatory Compliance Risk
Effective compliance risk management is a key control towards ensuring that the Bank continues to
operate within the remit of its operating licenses. Being compliant, is a core part of establishing and
maintaining the trust of clients and protecting the interests of all stakeholders.
Compliance starts at the top and is supported by a corporate culture that emphasises high standards
of honesty and integrity. Moreover, all members of management and staff are to take ownership of
Compliance and seek guidance and support from the Compliance Function as may be appropriate.
The Compliance Function is essentially made up of two units referred to as Regulatory Compliance and
Financial Crime Compliance.
Financial Crime Compliance
The Bank is fully committed to compliance with the salient legislative provisions aimed at the prevention
of Financial Crime Compliance. Financial Crime Risk covers:
• Money laundering and funding of terrorism,
• Breach of International & Local Sanctions,
• Bribery & Corruption,
• External Fraud.
In this regard, the Bank has a Financial Crime Compliance Function responsible for the design and
implementation of a Financial Crime Compliance (“FCC”) Framework within APS Group. The FCC
Framework is to ensure consistent management of financial crime related to the above-mentioned risks
across Group entities. The programme seeks to identify, assess, monitor and manage FCC risks in line
with the Bank’s risk appetite.
The FCC Function, headed by the Head of FCC and MLRO of the Bank reports to the Chief Risk Officer
of the Bank and the Board of Directors. The function is split into four distinct units:
• Financial Crime Compliance Anti-Money Laundering (“AML”)/Fraud Investigations and
Transaction Monitoring – Responsible for the analysis and investigation of unusual or suspicious
transactions/activity.
• Financial Crime Compliance AML Operations – Responsible for adherence with regulatory
reporting obligations emanating from the Prevention of Money Laundering and Funding of
Terrorism Regulation.
• Financial Crime Compliance Monitoring & Advisory (AML & Fraud) – Responsible for the
provision of advice related to AML and Fraud Risks and the monitoring of the same FCC risks.
• Financial Crime Compliance Monitoring & Advisory (Sanctions & ABC) – Responsible for the
provision of advice related to Sanctions and ABC Risks and the monitoring of the same FCC
risks.
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 27
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
Reputational Risk
Reputation is one of the Bank’s most important intangible assets, founded on trust from its internal and
external stakeholders. It has a direct impact on the Bank’s value, which falls under the scrutiny of the
Bank’s Board of Directors, employees, existing and prospective customers, business partners, investors,
regulators and legislators.
The Bank established an appropriate reputational risk environment by defining the governance
framework and pertinent responsibilities for managing reputational risk. The framework is established
to provide consistent standards for the identification, assessment, management and monitoring of
reputational risk issues, especially direct reputational risk. Reputational risks which may arise from a
failure with another risk type, control or process (indirect reputational risk) are addressed separately
via the associated risk type framework.
In addition to the above, other mitigating factors that the Bank adopts to manage reputational risk are
the following:
• Prompt and effective communication with all categories of stakeholders,
• Strong and consistent enforcement of controls on governance, business, legal and compliance,
• Establishment and continual updating of the Business Continuity Plan and Crisis Management
Plan, and the team required to support them,
• Continuous monitoring of threats to reputation,
• Clear core corporate values setting out expected standards of behavior,
• A strong corporate culture that is open, trusting and supportive,
• A robust and dynamic risk management framework which provides continuous monitoring of
threats to reputational and early warning of developing issues,
• Organisational learning leading to corrective action where necessary.
The Bank has zero appetite for any form of reputational risk, as articulated in the Bank’s Risk Appetite
Statement. Reputational risks and their implemented/planned controls are recorded in the Bank’s risk
register.
Regulatory Compliance
The Regulatory Compliance Department (“RC”) manages regulatory compliance risks across the Bank.
Regulatory compliance risks have been identified as:
• Legal and regulatory risk - This risk may arise from non-compliance with the applicable laws,
rules regulations and guidelines, including as a result of regulatory developments. There is also
a risk that activities may be carried out on the basis of regulatory interpretation or documents
that are subsequently found to be inaccurate, inadequate or outdated.
The key areas within scope of the RC function’s remit as a second line of defence are the following:
• Conduct of business and treating customers fairly
• Conflicts of interest
• Marketing and promotions
• New product launches (“Product Oversight Governance”)
• Outsourcing
• GDPR
The identification, monitoring and management of these risks will prevent:
• the financial or other consequences of disputes between the Bank and a client, counterparty
or third party (litigation risk);
• the risk of losses due to unsuitable internal processes, or failures due to human error or external
events;
• the financial consequences of a less effective controls in place;
DIRECTORS’ REPORT
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APS Bank plc 28
IDENTIFICATION AND MANAGEMENT OF PRINCIPAL RISKS (continued)
Regulatory Compliance (continued)
• sanctions being imposed on the Bank because of failure to comply with any current regulatory
provision or decision it is required to implement.
The identification, monitoring and management of Regulatory Compliance Risks are undertaken as
follows:
• Regulatory Development and Implementation
• Compliance Advice
• Compliance Risk Identification and Assessment
• Compliance Monitoring
• Compliance Training
• Regulatory Reporting Obligations
• Regulatory Compliance Policies
• Registers Maintained by the Compliance Function
The Bank’s Board of Directors retains ultimate responsibility for all the Bank’s identified risks. The Board
Risk Committee ensures implementation of the Bank’s risk management and compliance strategy,
systems and policies that ensure adherence to the Bank’s Risk Appetite Statement.
Key Performance Indicators (KPIs)
The Group has in place a set of key performance indicators (KPIs) that include:
CET1 13.0%
Solvency CAR 16.9%
LCR 142.9%
Profitability ROAE 7.1%
TAXONOMY REGULATION (REGULATION (EU) 2020/852)
Content of Taxonomy Regulation and related Delegated Acts
In order to meet the EU’s climate and energy targets for 2030 and reach the objectives of the European
green deal, the European Commission put forward a number of legislations to direct investments
towards sustainable projects and activities. To achieve this, a common language, and a clear definition
of what is ‘sustainable’ is being formulated at EU level, through the creation of a common classification
system for sustainable economic activities or an “EU taxonomy”. The EU Taxonomy is a classification
system, establishing a list of environmentally sustainable economic activities through the Taxonomy
Regulation which was published on 22 June 2020 and entered into force on 12 July 2020. It establishes
the basis for the EU taxonomy by setting out four conditions that an economic activity must meet to
qualify as environmentally sustainable. The Taxonomy Regulation establishes six environmental
objectives, two of which relate to Climate Change Mitigation and Adaption.
The European Commission published a delegated act on sustainable activities for Climate Change
Adaptation and Mitigation objectives defining technical screening criteria for these environmental
objectives. The Bank is monitoring developments in the Taxonomy Regulation through its ESG
Committee. The European Commission is to publish further legislative documentation on the topic for
the other environmental objectives.
Article 8 of the Taxonomy Regulation requires institutions that are in scope of the Non-Financial
Reporting Directive (“NFRD”) to publish information on how and to what extent the undertaking’s
activities are associated with economic activities that qualify as environmentally sustainable under that
Regulation. The European Commission also published a Delegated Act in this respect, which requires
the Bank to publish a number of indicators, subject to a phase in period. It specifies the content,
methodology and presentation of information to be disclosed by financial and non-financial
undertakings concerning the proportion of environmentally sustainable economic activities in their
DIRECTORS’ REPORT
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APS Bank plc 29
TAXONOMY REGULATION (REGULATION (EU) 2020/852) (continued)
Content of Taxonomy Regulation and related Delegated Acts (continued)
business, investments or lending activities. This Delegated Act applies from 1 January 2022 and requires
the publishing of such information in the Annual Report of 2021.
Article 10 paragraph 3 of that Delegated Act requires financial institutions to publish ratios related
economic activities that are Taxonomy Eligible and those which are not. The aim is to indicate the
percentage of assets that that would be eligible for the technical screening to determine their alignment
with the EU Taxonomy Classification.
Key Performance Ratios
The below information is consolidated in accordance with the Capital Requirements Regulation (EU)
575/2013.
The proportion in total assets of exposures to Taxonomy eligible economic activities stands at 53.3%.
The proportion in total assets of exposures to Taxonomy non-eligible economic activities stands at 1.3%.
These two ratios have been reported in a combined manner for the two Taxonomy objectives adopted
as of 1 January 2022, that is climate change mitigation and climate change adaptation.
The proportion in the total assets of the exposures to central governments, central banks and
supranational issuers stands at 16.5%.
The proportion in the total assets of the exposures to undertakings that are not obliged to publish non-
financial information pursuant to Article 19a or 29a of the NFRD stands at 23.5%.
Finally, the Bank’s exposure to on Demand inter-bank loans as a percentage of total assets stood at
0.7%. The Bank has no trading portfolio.
Taxonomy-Eligible and Non-Eligible economic activities
“Taxonomy-eligible economic activities” refers to the share of economic activities that are described in
the Commission’s delegated acts, but that do not yet meet the relevant technical screening criteria.
To identify the taxonomy-eligible economic activities within the Group’s portfolio, reference is made to
the Delegated Act on sustainable activities for climate change adaptation and mitigation objectives.
That Delegated Act provides the list of economic activities for which the European Commission has
provided a common classification vis-à-vis the climate change adaptation and mitigation objectives.
The assessment of Taxonomy eligibility for calculation of the mandated ratios is made using the
Nomenclature of Economic Activities (“NACE”) code for loans and advances to identify the exposures
that fall into scope. For investments in transferable securities the industry and sub-industry provided
by a Research Portal were reviewed vis-à-vis the list of economic activities provided in the delegated
act on sustainable activities for climate change adaptation and mitigation objectives.
The “Taxonomy Non-eligible economic activities” refers to the share of economic activities that are not
described in the Commission’s delegated acts, and thus are not subject to technical screening criteria.
These are all those economic activities which have not been identified as Taxonomy-eligible economic
activities as explained above.
Exposures to undertakings not in scope of NFRD
The NFRD applies to large public-interest companies with more than 500 employees. Those
Undertakings which are not subject to the NFRD reporting are not included in the Taxonomy-Eligible
and Non-Eligible economic activities but represented in a separate ratio.
DIRECTORS’ REPORT
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APS Bank plc 30
TAXONOMY REGULATION (REGULATION (EU) 2020/852) (continued)
Data Limitations
The Group used internal and external data to determine Taxonomy eligible and non-eligible exposures
and exposures not subject to NFRD. Availability of more guidance by the authorities, data and
improvements in data quality over time (as undertakings adopt the Taxonomy requirements for their
own disclosures) will further enhance the quality of disclosure.
The Group is working in developing its capabilities to assess the Taxonomy alignment of its exposures,
also considering the Taxonomy Alignment reporting requirements from 1 January 2024. This will
enhance the Group’s capabilities to adopt the Taxonomy classifications within its systems and
processes.
FINANCIAL OVERVIEW
Operating Performance
For the year under review, APS Group recorded €15.1 million profit after tax, a significant increase of
49.7% over 2020 and yielding a return on average equity of 7.1%. During the period, businesses
continued to be dominated by the pandemic disruptions brought about by the COVID-19 virus,
especially due to the detection of new virus variants which disrupted economic plans. Approved
vaccination and booster programmes aided in controlling the virus transmission, as these were
administered to the wider community and led to phased liftings of restrictions. Nevertheless, specific
sectors are still faced with notable challenges especially those most impacted by the pandemic as they
continue to face the volatile market. Against this backdrop, with Malta-bound tourists’ arrivals on the
increase over the summer and the economic momentum gradually improving leading to the December
festive period, the Group’s operating profit maintained its momentum. The financial results recorded
for the year affirm the Group’s resilience and strength of its business model during these unprecedented
times. Guided by its vision to be the Community Bank in Malta and its core values, APS Group continued
to support the local community, ensuring their business continuity, and lessening the impact of the
current economic climate.
Net interest income remains a key pillar for the Group’s revenue mix with a total of €55.4 million
generated in 2021, rising by €6.5 million or 13.3% over the comparative year. This has been largely driven
by the interest receivable on loans and advances which for the reporting period grew by 12.0% as a
direct result of the growth in the Group credit lending book. Interest expense remained consistent to
2020 levels albeit the significant growth in customer deposits. This demonstrates the Group’s efficient
asset-liability and cost of funding management, aiming to protect net interest margins.
Net fee and commission income totalled €7.0 million, an increase of 34.3% or €1.8 million higher than
the former year. Fee and commission income recorded during the financial year ended 31
December
2021 was €9.0 million (2020: €8.0 million), affected by the growth in customer base and increased
service provision, in particular the provision of credit, cards, and investment services. Moreover, the
Bank started earning additional fees and commissions from its pension plans which schemes were
launched in late 2020. Fee and commission expense increased by €0.4 million, totalling €2.0 million
during the year. This mainly consists of card charges, pension scheme fees and payment fees.
Other operating income for the year was €0.8 million, a reduction of €0.3 million from 2020. This was
largely attributable to dividend income and net gains on foreign exchange which in aggregate recorded
total revenue of €0.7 million. Counterbalancing this was the decrease in gains on financial instruments
due to changes in fair values and the impairment of €0.4 million realised on revalued property.
Impairment against expected credit losses amounted to a writeback of €1.5 million as opposed to the
charge of €5.5 million posted in the comparative year. This was largely due to the performance on
customer loans and advances which at close of last year had a significant increase in credit risk. During
the year, the Group continued assessing updated information and client performance especially in
relation to the impact of COVID on the credit portfolio, with a net write-back on the credit loss estimates
made in 2020. This evidently reflects the Group’s risk appetite, quality of the loan book and its vigilant
approach on credit lines aligned by its conservative lending policies.
DIRECTORS’ REPORT
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APS Bank plc 31
FINANCIAL OVERVIEW (continued)
Operating Performance (continued)
Operating expenses for 2021 amounted to €40.6 million increasing by €7.0 million when compared to
the €33.6 million during the previous period. Staff costs remains one of the key sources to the increase
as the Group continues investing in its human capital to sustain its operational growth and to continue
absorbing the ever increasing and more stringent regulatory and compliance requirements.
In addition to this, several projects are in motion, targeted to improve the overall customer experience
and the Group’s position within the industry. The Group’s cost-to-income ratio increased by 3.5% to
64.3%. This affirms the management’s approach to provide high quality service with optimised
operational cost levels.
ReAPS, as the Investment Manager of APS Funds SICAV plc, generated €0.5 million profit before tax,
thus more than doubling the profit registered for 2020. Notwithstanding the challenges faced and the
impact on financial markets by the pandemic, the total net assets managed by APS Funds SICAV plc
stood at €195.6 million, growing by 8.2% over the comparative period.
The share of profits from the associated investments in the APS Regular Income Ethical Fund and the
APS Income Fund amounted to €0.3 million over the reporting period (2020: €0.3 million loss). In turn,
the Group is recognising its share of loss of €0.2 million in IVALIFE, a life insurance company in which
it has a 25% investment. It is expected that the company will turn profitable in the foreseeable period
after absorbing the initial set up costs and generating further growth in business.
Financial Position
At Group level, total assets amounted to €2.8 billion expanding by a further €374.0 million or 15.4%
over the €2.4 billion at the end of last year. As of 31 December 2021, loans and advances stood at €2.1
billion, growing by €264.2 million or 14.7%. This increase was mainly attributable to loans and advances
to customers and the syndicated loan book which contributed to 65.0% of this growth in assets. The
demand for home loans steered this expansion by largely contributing to this increase, followed by
commercial lending. Syndicated loans portfolio also grew by 18.7% to €134.3 million, thus enabling the
Group to continue with its strategic objective to diversify the lending portfolio from both a sectorial
and geographical perspective. Additional balance sheet growth resulted from the treasury portfolios,
of which a further €99.4 million in liquidity balances were placed with the Central Bank of Malta. This is
the result of the strength of the APS brand in the local community in being able to continue attracting
liquidity from the market.
Total liabilities stood at €2.6 billion as at the end-of year under review. Key pillars to this growth were
customer deposits, followed by increased balances owed to banks. With additional liquidity being
available across the whole banking system, amounts owed to customers expanded by €308.3 million
over the year - with overnight deposits largely contributing to this growth in line with the Group’s
objective to further diversify its funding mix between overnight and term deposits. Overall liquidity also
remained well above the regulatory requirements and stands in an efficient zone in terms of risk versus
return with a year-end Liquidity Coverage Ratio of 142.9% (31 December 2020: 138.9%).
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 32
FINANCIAL OVERVIEW (continued)
Financial position (continued)
The Group’s equity at year end amounted to €220.8 million, rising by €14.6 million or 7.1% over the prior
year-end. Capital Adequacy ratios are being managed in line with the regulatory thresholds including
buffers, with CET1 ratio at 13.0% and the Capital Adequacy Ratio at 16.9% (31 December 2020: 14.4%
and 18.8% respectively).
DIVIDEND
The Directors are recommending that a gross dividend of 1.85 cents per ordinary share (net dividend
of 1.20 cents per ordinary share) is paid to ordinary shareholders. This dividend is subject to approval
by shareholders at the Annual General Meeting (“AGM”) and has not been included as a liability in these
financial statements. The total gross dividend to be paid is €4,615,385 (total net dividend of
€3,000,000).
OUTLOOK
As the Maltese economy adapts to the new contours of the post-COVID era, the return to normality
seems more likely when compared to last year. This can be noted as economies across both Europe
and in Malta are being gradually brought back to pre-pandemic levels in term of output.
At the same time, several downside risks to the outlook persist. The Group remains cautious in
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 33
OUTLOOK (continued)
managing its credit exposure, as public support measures are tapered off and key economic sectors
(like tourism and trade) emerge from the pandemic crisis and gradually rebuild their competitive
position as private demand rebounds and a new wave of public investment starts to support the
recovery – backed by significant EU funding. Moreover, APS also remains observant on the possible
economic risks and consequences of the Financial Action Task Force (“FATF”) decision to grey list
Malta, as this might substantially dampen foreign investment and limit global financial connectivity with
the country.
The Group’s business strategy will continue to be supported by a solid capital and liquidity position.
Plans to raise additional capital as part of Phase 3 of the Bank’s capital development plan are already
in motion and the Bank is targeting to approach the market in the second quarter of 2022.
Looking ahead, APS plans to continue its journey in enriching the customer experience through
customised product offering – through its digital and physical channels - whilst remaining true to its
core values as guided by its mission and vision.
Following recent developments, the Group is following closely the evolving conflict in Ukraine and the
geopolitical and economic repercussions that this is causing on a global scale. While the Group's
exposure in the region is immaterial, including to payment flows that might be impacted by economic
sanctions, it is nonetheless increasing its risk and compliance monitoring as necessary, including
enhanced sanctions screening.
GOING CONCERN
The financial statements are prepared on a going concern basis. The Group prepared financial plans
for the next three years addressing the Group’s operating performance, risks, capital and liquidity, which
have been also stressed in light of the ongoing COVID-19 pandemic.
As required by the Capital Markets Rule 5.62, the Directors having considered the financial performance
and position of the Company and its future outlook deem that the Bank is able to continue operating
as a going concern for the foreseeable future.
STATEMENT OF RESPONSIBILITY
This Statement of Responsibility is required in terms of Capital Markets Rule 5.55.2 and set out in the
form required by Capital Markets Rules 5.67 to 5.69.
The Companies’ Act requires the Directors to prepare financial statements for each financial year that
give a true and fair view of the state of affairs of the Group and the Bank at end of each financial year
and of its profit or loss for that financial year in accordance with the requirements of International
Financial Reporting Standards as adopted by the European Union (‘EU’).
The Directors are responsible for ensuring that proper accounting records are kept which disclose with
reasonable accuracy at any time, the financial position of the Bank and which enable them to ensure
that the financial statements comply with the Companies Act and the Banking Act. The Directors are
also responsible for ensuring that:
• Appropriate accounting policies have been consistently applied and supported by reasonable
and prudent judgments and estimates;
• The financial statements are prepared on a going concern basis;
• Account has been taken of income and charges relating to the accounting period, irrespective
of the date of receipt or payment.
The Directors are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors, through oversight of Management, are responsible to ensure that the Group establishes
and maintains internal controls to provide reasonable assurance with regard to reliability of financial
DIRECTORS’ REPORT
________________________________________________________________________
APS Bank plc 34
STATEMENT OF RESPONSIBILITY (continued)
reporting, effectiveness and efficiency of operations and compliance with applicable laws and
regulations.
Additionally, the Directors are responsible for:
• the preparation and publication of the Annual Financial Report, including the consolidated
financial statements and the relevant tagging requirements therein, as required by Capital
Markets Rule 5.56A, in accordance with the requirements of the European Single Electronic
Format Regulatory Technical Standard as specified in the Commission Delegated Regulation
(EU) 2019/815 (the “ESEF RTS”),
• designing, implementing, and maintaining internal controls relevant to the preparation of the
Annual Financial Report that is free from material non-compliance with the requirements of the
ESEF RTS, whether due to fraud or error,
• and consequently, for ensuring the accurate transfer of the information in the Annual Financial
Report into a single electronic reporting format.
DISCLOSURE IN TERMS OF THE SIXTH SCHEDULE TO THE COMPANIES’ ACT
During the financial year ended 31 December 2021, no shares in the Bank were:
• Purchased by the Bank itself or acquired by it by forfeiture or surrender or otherwise;
• Acquired by another person in circumstances where the acquisition was the Bank’s nominee,
or by another with the Bank’s financial assistance, the Bank itself having a beneficial interest; or
• Pledged or made subject to other privileges, to a hypothec or to any other charge in favour of
the Bank.
STANDARD LICENCE CONDITIONS
In accordance with Standard Licence Condition 7.28 of the Investment Services Guidelines issued by
the MFSA, licence holders are required to disclose any regulatory breaches of the Standard Licence
Conditions in their annual report. During the year under review, there were no such regulatory breaches
nor were any regulatory sanctions imposed on the Group by the MFSA.
In accordance with Standard Licence Condition R1-2.1.3 of the Investment Services Guidelines issued by
the MFSA, licence holders are required to disclose any regulatory breaches of the Investment Standard
Licence Conditions in their annual report. During the year under review, there were no such regulatory
breaches nor were any regulatory sanctions imposed on the Group by the MFSA.
AUDITORS
Deloitte Audit Limited have signified their willingness to continue in office as auditors of the Bank and
a resolution proposing their reappointment will be put to the AGM.
The Directors’ report was authorised for issue by the Board of Directors and was signed on its behalf
by:
Martin Scicluna Franco Azzopardi
Chairman Director
10
March 2022
REMUNERATION REPORT
APS Bank plc 35
REMUNERATION POLICY
The Remuneration Policy of APS Bank Group aims to exercise a competent and independent judgement
on its remuneration practices and its incentives created for managing risk, capital and liquidity, and
ensure that they are in line with applicable legislation, directives, regulations and guidelines. The
approval of the Group’s Remuneration Policy is the responsibility of the Board of Directors and covers
all categories of staff including Senior Management (CEO, Chief Officers and Heads of Department),
risk takers and staff engaged in control functions.
The application of the principles of Directive 2013/36/EU and the EBA Guidelines on sound
remuneration policies considers the nature and scale of the Group and the complexity of its activities.
A Collective Agreement with the MUBE for the years 2020 – 2022 covers all staff members, excluding
Senior Management. References in this Report to types and modes of remuneration apply to all staff,
but where these refer to staff covered by the Collective Agreement it shall be construed accordingly.
The Remuneration Policy is reviewed on a regular basis and was updated twice in 2021, on 29 April and
2 December after approval by the Nominations and Remuneration Committee and the Board of
Directors as the case may be. The updates are aimed to strengthen the overall remuneration
governance framework, the launch of an Occupational Pension Scheme to staff members in 2021 and
to take into account the revised EBA Guidelines on Sound Remuneration Practices published on 2 July
2021, which mainly addressed the area of gender-neutrality.
Fixed Remuneration
The base salary provides a predictable base level of income reflecting each staff member’s level of
responsibility, capabilities, skills and experience. Base salaries are reviewed annually, and salary
increases are granted in line with performance and when a staff member assumes increased
responsibilities or significantly deepens knowledge and expertise. Base salaries may also be reviewed
when there is a material change in the remuneration levels of comparable roles in the respective market.
Base salaries are set for a number of different levels within approved salary ranges. In 2021 the Bank
introduced an Occupational Pension Scheme for staff members with a fixed contribution in accordance
with established eligibility criteria.
Variable Remuneration
Staff members may have a variable component to their remuneration in addition to their fixed
remuneration. The relation between fixed and variable remuneration shall not exceed twenty-five (25)
per cent of the fixed component for each individual. The variable portion is clearly connected to the
work and performance of the staff member, the performance of his/her business unit and the overall
performance of the Bank and its subsidiaries. The goals are based on factors that support the Group’s
long-term strategy and business objectives. Staff in Control Functions are adequately compensated in
accordance with their own objectives and not directly tied to the results of any business unit. They are
judged on their success in developing appropriate policies, developing effective risk management
controls and procedures, monitoring risk and building control systems.
Bonuses related to individual performance are based on both quantitative and qualitative targets.
Qualitative criteria consider (i) adherence to the applicable regulatory framework, (ii) treating
customers fairly and (iii) the on-going provision of a high-quality service to customers. Performance
bonus promotes teamwork and encourages all staff members to perform to the best of their abilities,
for their mutual benefit and the long-term sustainable success of the Group.
The Group ensures that bonuses are fair, transparent, easy to understand and based on the Bank’s
Business Plan and Annual Budgets. Any variable remuneration, be it monetary or non-monetary, outside
the parameters of the Policy is referred to the Nominations and Remuneration Committee for approval.
Variable remuneration does not include “clawback’’ provisions. APS Group does not offer buy out
contracts or share options. Schemes relating to early termination are established within the Collective
Agreement. There is no remuneration that is subject to deferral.
REMUNERATION REPORT
APS Bank plc 36
REMUNERATION POLICY (continued)
Link between Pay and Performance
The variable portion of remuneration is linked to the level of profit earned by the Bank during the relative
financial period. The bonus pool allocated to the staff in the clerical, non-clerical and managerial grades
is calculated as determined in the Collective Agreement and based on the profit achieved by the Bank.
The bonus is distributed to employees according to the merit of performance achieved by the individual
and reflecting the respective grade and level of responsibility. Annual bonus entitlements are also
applicable to members of Senior Management in terms of their individual contracts and as highlighted
in the Remuneration Statement.
Notwithstanding that the challenges of COVID-19 impacted the financial performance of the Bank and
the Group for 2020 in relation to the original targets set for that year, during 2021 the Committee
recommended, and the Board approved, bonus awards discretionally and outside the formula
applicable when the targets are achieved.
Presently the Bank does not pay variable remuneration in equity, equity-linked or other eligible
instruments to any category of staff. The application of the proportionality principle, according to
circular published by the MFSA in 2015, prescribes that the provisions of CRR relating to variable pay
in instruments and deferral rule are to be fully applied if an individual staff member is remunerated with
a variable pay of more than €100,000, or for lower values where variable pay is more than 100% of the
fixed pay of the individual concerned. No staff member falls in this category.
Performance Management System
KPIs, by which employees’ performance is measured, provide corporate departmental, unit and
team/individual targets aligned with the strategic objectives and business plan of the Group.
Performance management also takes into consideration leadership competencies required by the
individual positions as well as the Group’s corporate values. Performance targets are reviewed
periodically to ensure that these are aligned to specific strategic and operational objectives set out by
the Board of Directors, covering not only business generation, but also other areas of importance such
as compliance with prevalent regulation and internal policies and procedures, on boarding and
customer due diligence, non-performing borrowing, quality of service and others.
Identified Staff
Additional disclosures on the governance process related to remuneration have been made in the
Remuneration Statement in this report. The target population defined as Identified Staff for the
purposes of this disclosure represents 10.3% of total number of employees in the Group. Identified staff
is determined in line with recommended EBA Regulatory Technical Standards
1
and includes:
− all members of the management body and senior management;
− staff members with managerial responsibility over the institution's control functions or material
business units; and
− Other employees who are members of Board and Management Committees with collective
authority to commit to risk exposures per transaction beyond 0.5% of CET1 Capital, and
employees who, individually or as part of a Committee take, approve or veto decisions on new
products, material processes or material systems.
For the purposes of remuneration, Identified Staff have been split into business areas according to EBA
guidelines
2
. The table overleaf shows total fixed and variable remuneration for Identified Staff during
the financial year 2021 broken down by business area, Senior Management and members of staff whose
actions have a material impact on the risk profile of the institution. All fixed and variable remuneration
were paid in cash. All Identified Staff are individually remunerated less than €1 million per annum.
1
EBA Final Draft Regulatory Technical Standards EBA/RTS/2020/05 dated 18 June 2020
2
EBA Guidelines on the remuneration benchmarking exercise EBA/GL/2014/08 dated 16 July 2014
REMUNERATION REPORT
APS Bank plc 37
REMUNERATION POLICY (continued)
Identified Staff (continued)
Standard contracts for all Identified staff would generally be indefinite following a period of definite
employment with notice periods and retirement from the Bank in line with local legislation.
Supervisory
Function
Executive
Management
Function
Portfolio
Management
and Wealth
Management
Retail
Banking
Asset
Liability
Management
Corporate
Function
Independent
Control
Functions
Supervisory &
Management
functions
14
9
Number of
identified staff
2
3
5
12
12
of which in
Senior
management
positions
2
3
4
12
11
Total Fixed
Remuneration
(€)*
429,567
1,174,387
198,982
235,036
244,918
747,705
767,851
Occupational
Pension (€)**
34,000
6,000
9,000
5,568
30,000
23,843
Total Variable
Remuneration
(€)
148,240
26,880
33,120
20,873
125,802
71,746
*Total fixed remuneration comprises benefits, specifically car allowances.
**Fixed occupational pension contribution subject to eligibility criteria.
Notes to the Table:
− This has been compiled as defined in EBA guidelines EBA/GL/2014/8 – Remuneration
Benchmarking Exercise. None of the employees individually earn over €500,000.
− There are no amounts of deferred remuneration and no deferred remuneration was awarded
during the financial year.
− The above figures are for the APS Group.
− Variable remuneration for identified staff includes performance related bonuses and other
discretionary benefits.
NOMINATIONS & REMUNERATION REPORT AS AT 31 DECEMBER 2021
1.
Terms of Reference and Membership of the Nominations & Remuneration Committee
The Nominations & Remuneration Committee (the “Committee”) has a two-pronged function: (i)
ensuring that the Directors and senior management of the Bank have the appropriate mix of skills,
qualifications and experience necessary to fulfil their supervisory and management responsibilities; (ii)
overseeing the development and implementation of the remuneration and related policies of the Group
and to exercise a competent and independent judgement on its remuneration practices.
The Committee is composed of three Non-Executive Directors, with the Chairman of the Board acting
as Chair of the Committee. The members of the Committee are Martin Scicluna as Chairman (he
replaced Frederick Mifsud Bonnici in September 2021), Victor Gusman and Laragh Cassar. None of the
members participate in the discussion regarding their own nomination, remuneration or performance.
A senior member within the Human Capital Department acts as Secretary to the Committee.
Further detail on the Terms of Reference of the Nominations and Remuneration Committee is found in
the “Statement of Compliance with the Code of Principles of Good Corporate Governance” under
Principle 4, on page 46.
REMUNERATION REPORT
APS Bank plc 38
NOMINATIONS & REMUNERATION REPORT AS AT 31 DECEMBER 2021 (continued)
2.
Meetings
The Committee held five (5) meetings during the period under review. All members were present at
these meetings. The CEO, Chief People Officer and Company Secretary were invited to all meetings.
3.
Nominations
In line with the requirement of the Capital Markets Rule 8.B.7, the fulcrum of the work carried out by
the Nominations and Remuneration Committee relating to Nominations throughout 2021 is being
presented under three main headings:
Appointment of Chair and of Non-Executive Director
Following the AGM held on 14 May 2021, Frederick Mifsud Bonnici announced his intention to step down
as Chairman and Director and the shareholders nominated Martin Scicluna to succeed him as Chairman.
In the meantime, the Committee proceeded to draw up a candidate profile for the appointment of a
new non-executive director who would also take up Board Committee roles after the change in
Chairman.
Local and international candidates, including those already included in the Bank’s Nominations Pool,
were considered with particular emphasis being placed on skills and experience in risk, technology and
business enterprise. These skills were viewed as complementing those currently held by the other
directors after the conclusion of a thorough collective suitability exercise. Two candidates were
eventually shortlisted and interviewed by Committee members, followed by further discussions all the
Board members and Qualifying Shareholders. The outcome was the nomination of Prof Juanito Camilleri
as announced on 25 June 2021. Information on Prof Camilleri may be found in his bio-note on pages 9
to 10. Regulatory approvals from the MFSA for the appointment of Chairman Scicluna and Prof Camilleri
were received on 30 August 2021 and 20 September 2021, respectively.
Maintaining Board Effectiveness through Board Succession Planning
The Nominations and Remuneration Committee is cognisant of the importance to maintain Board
effectiveness by ensuring that the Board is at all times composed of individuals with diverse
perspectives, that may embrace new ways of thinking whilst also mindful of replacing those directors
who intend to retire over the short and medium term.
Throughout 2021 this was done predominantly by:
a) Drawing up a Skills-Matrix. To ensure that the Bank’s Board of Directors is comprised of
individuals that collectively possess a healthy balance of skills, expertise and perspectives to
contribute to the governance of the Bank, the Committee has drawn up a Director Skills Matrix
comprising optimal characteristics Board members should have to reflect current and future
needs in consideration of the Bank’s strategy, risk profile, regulatory requirements, board
responsibilities, commitment to diversity in governance and board leadership succession.
b) Maintaining a ‘live’ Nominations Pool for the Boards of the Bank and ReAPS Asset Management
Limited. The Pool includes candidates taking into consideration skills, knowledge, and diversity,
whilst also considering areas of competence required over the medium to long-term to support
the Bank’s strategic objectives. The Pool seeks to tie in with the results expressed in the Skills
Matrix.
Securing the Bank’s Strategy through Management Succession Planning
The Nominations and Remuneration Committee also engaged with discussion on senior management
succession planning following contribution by the CEO and the Chief People Officer. This exercise
continued to expand on the one embarked on in 2019, with the Board’s commitment to identify, develop
and retain talent for key positions and areas in line with the business objectives. The focus remains on
developing the succession potential of promising individuals, forming a pool of qualified candidates
who are ready to compete for key positions and areas when they become vacant. Moreover, the
Committee follows recommended good governance practices and the requirements of the EBA and
ESMA Guidelines on the Suitability of the Management Body, amended and in force as at 31 December
REMUNERATION REPORT
APS Bank plc 39
NOMINATIONS & REMUNERATION REPORT AS AT 31 DECEMBER 2021 (continued)
Securing the Bank’s Strategy through Management Succession Planning (continued)
2021. Frameworks to ensure adherence are currently being finalised to further strengthen policies and
practices in place.
4.
Remuneration Statement
4
.
1 Remuneration Policy – Senior Management
The Board of Directors determines the framework of the overall remuneration policy for Executives
based on recommendations from the Nominations and Remuneration Committee. The Committee, on
the recommendations of the CEO, then establishes the individual remuneration arrangements of the
Group’s Senior Management, namely the Executives and Heads of Departments. The Remuneration
Policy applies consistently to all employees within the Group. Its objective is to align employees’
remuneration with the Group’s performance, business strategy and business models, risk appetite
framework, values and long-term goals. The overriding principle of the Remuneration Policy is that
individual performance is evaluated according to both quantitative/financial and
qualitative/behavioural measures.
The Committee considers that the current remuneration packages for Executives are based upon the
appropriate market equivalents and are adequate for the responsibilities involved to enable the Group
to attract, retain and motivate executives having the appropriate skills and qualities, in order to ensure
the proper management of the organisation.
For the purposes of this Remuneration Statement, references to “Executives” shall mean the CEO and
the eight members of the Executive Committee. Executives are in full employment with the Bank on
definite and indefinite contracts. They enjoy health insurance arrangements, death in service benefits
and an Occupational Pension Scheme as all Bank employees. Executives are also entitled to the use of
a company car or car allowance. Share options and profit sharing are not part of the Group’s
Remuneration Policy. Subject to the foregoing, the terms and conditions of the Executive Committee
members’ contracts are considered as commercially sensitive information.
The CEO’s remuneration is reviewed and approved by the Committee. The CEO is eligible for an annual
bonus entitlement by reference to the attainment of pre-established objectives and targets as approved
by the Committee. Executives are also eligible for an annual bonus entitlement and eligible for an annual
salary increase within a maximum salary range approved by the Committee.
Apart from the Occupational Pension Scheme no discretionary pensions or other supplementary
pension benefits were payable to the Executives in 2021. Insofar as early retirement schemes are
concerned, the Executives are subject to the schemes which are set out and defined in the Collective
Agreement (for Managerial and Clerical Grades) as may be applicable to employees from time to time.
Total emoluments received by Executives during the financial year ended 31 December 2021 are
reported below.
Variable Remuneration of Executives
The total Variable Remuneration of Executives is proposed by the CEO, reviewed by the Committee,
and confirmed by the Board of Directors. During 2021 the Executives were awarded a performance
bonus linked to the performance and achievement of their objectives. The objectives were based partly
on financial targets and partly on qualitative performance review.
4.2 Remuneration Policy – Directors
The Board of Directors is composed in its entirety of Non-Executive Directors. None of the Directors,
in their capacity as Directors of the Bank, are entitled to profit sharing, share options or pension benefits.
In terms of non-cash benefits, Directors are entitled to health insurance and to a refund of out-of-pocket
expenses.
REMUNERATION REPORT
APS Bank plc 40
NOMINATIONS & REMUNERATION REPORT AS AT 31 DECEMBER 2021 (continued)
4.
Remuneration Statement (continued)
4.2 Remuneration Policy – Directors (continued)
All Directors are non-employees and receive a fee for their services as Directors.
The remuneration of the Chairman and Directors of the Bank for 2021 was approved by the
Shareholders at the AGM. The remuneration consists of fixed fees for being appointed as Board of
Director as well as for membership in Board Committees. It is set at a level which broadly reflects:
▪ market practices and rates of compensation at comparable regulated firms;
▪ the competencies and contribution required; and
▪ the extent of responsibilities and the number of board meetings and committee membership/s.
The Directors are appointed at every AGM following their resignation and resubmitting themselves for
re-election. There is no severance payments upon termination of their respective directorship. Directors
are entitled to certain benefits after the termination of their directorship, including discounts on
products and services offered by the Group.
Directors are obliged to avoid conflicts of interest and shall take reasonable steps to keep the Bank’s
matters confidential. Directors’ emoluments are designed to reflect the time committed by Directors to
the Bank’s affairs, including the different Board Committees of which Directors are members, and their
responsibilities on such Committees and confirmed at the AGM.
4.3 Directors’ Fees and Executives’ Emoluments
The Directors’ fees as approved by the Board of Directors are as follows:
Board Fees €
Chairman 53,333
All other Directors
156,500
Board Committees Fees €
Chairman of the Board 7,667
All other Directors
153,416
Executives’ Emoluments
Fixed
Remuneration
Group Directors
Fees
Variable
Remuneration
Share Options
Others
1,174,387
* € nil
148,240
None
Non-cash
benefits: health
insurance and
refund of out-of-
pocket expenses
*This amount represents emoluments received by Executives in relation to their directorships on the
Bank’s subsidiary companies.
Directors’ Fees
Fixed Remuneration
Variable Remuneration
Share Options
Others
370,916
None
None
Non-cash benefits:
health insurance and
refund of out-of-
pocket expenses
REMUNERATION REPORT
APS Bank plc 41
NOMINATIONS & REMUNERATION REPORT AS AT 31 DECEMBER 2021 (continued)
4.
Remuneration Statement (continued)
4.3 Directors’ Fees and Executives’ Emoluments (continued)
The Bank’s Directors’ Fees for the year ended 31 December 2021 are as follows:
€
Frederick Mifsud Bonnici – retired from Chairman and Board of Directors
on 31 August 2021
33,333
Martin Scicluna – appointed Chairman on 1 September 2021
52,500
Franco Azzopardi
41,750
Victor E. Agius
45,750
Joseph Attard
43,750
Laragh Cassar
32,500
Alfred De Marco
37,750
Victor Gusman
29,750
Michael Pace Ross
36,750
Juanito Camilleri – appointed on 20 September 2021
17,083
TOTAL
370,916
CORPORATE GOVERNANCE REPORT
APS Bank plc 42
STATEMENT OF COMPLIANCE WITH THE CODE OF PRINCIPLES OF GOOD
CORPORATE GOVERNANCE
The Board of Directors (the “Board” or “Directors”) of APS Bank plc (the “Bank”) is presenting this
Statement of Compliance in conformity with the requirements of the Capital Markets Rules 5.94 et seq
of the MFSA and the principles outlined in the “Code of Principles for Good Corporate Governance”
(the “Code”), in Appendix 5.1 of the Capital Markets Rules. Reference to the Bank also covers the
subsidiary undertakings forming the APS Group as noted in the Directors’ Report on page 16.
The Board is committed to the well-being of the Bank by instilling robust corporate governance
principles, sound management and general supervision of its affairs. The Board acknowledges that the
Code recommends principles for the Board and the Bank’s management to pursue objectives that are
in the interest of the Bank and its shareholders and undertakes to comply fully with it to the extent that
this is considered consistent with the size, nature, and operations of the Bank. As at the date of this
Statement, the Board considers the Bank to be in compliance with the Code, save for the exceptions
delineated in Section Non-Compliance with the Code on page 55.
COMPLIANCE WITH THE CODE
Principle 1: The Board
The Board plays a salient role in setting the strategy of the Bank by providing leadership, integrity and
judgement, upholding the highest standards of corporate governance. In doing so, the Board
establishes the required focus on the value-added deliverables, promoting the Bank’s culture, values
and ethics, aiming to safeguard the interests of the institution, shareholders, employees and customers
alike. The Board is committed to continually improve its practices and capabilities so that it can
discharge its role and responsibilities effectively.
As at the date of this Statement, the Board is composed of nine Non-Executive Directors, including the
Chairman, as listed in the Directors’ Report on page 17. There is a range of relevant skills on the Board,
gained in diverse business environments and different sectors, making the Board suitable to articulate
perspectives, entertain debates on a wide range of issues, ensuring effective and efficient decision
making.
In October 2021, the Board established the role of a Senior Independent Director (“SID”), with
responsibility delegated to Laragh Cassar. The primary role of the SID is to act as a sounding board for
the Chair and serve as a trusted intermediary for the Directors, and shareholders when necessary. This
role reinforces the Board’s commitment to provide Directors with all the necessary tools to ensure
Board effectiveness towards a contemporary culture.
Furthermore, the Board delegates specific responsibilities to various Board and Management
Committees. Supplementary information on delegated authorities and responsibilities is provided in
Principle 4 on pages 44 to 49.
The Board is fully supported by a Company Secretary, whose role is separate and independent from
other management bodies. All Directors have unrestricted access to the Company Secretary. The
Company Secretary works closely with the Chairman to ensure effective functioning of the Board and
appropriate information flows between the Board and its Committees. The Company Secretary also
facilitates Board induction and Directors’ professional development. The responsibilities of the
Company Secretary also cover Corporate Governance and Investor Relations.
Principle 2: Chairman and CEO
The Bank’s Organisational Structure incorporates the positions of a Chairman and a CEO, which are
separate and distinct positions, occupied by different individuals, having clear division of
responsibilities.
The Chairman is appointed from amongst the Directors by the largest shareholder holding at least
twenty-five per cent of the ordinary issued share capital of the Bank. The Chairman is responsible for
leading the Board and setting its agenda for meetings, ensuring that the Directors receive precise,
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APS Bank plc 43
COMPLIANCE WITH THE CODE (continued)
Principle 2: Chairman and CEO (continued)
timely and objective information so that they can properly discharge their duties, whilst encouraging
their active engagement at meetings and on issues of a complex or contentious nature.
The CEO is responsible for the running of the Bank’s business and to lead the management team,
establishing the required fora to communicate, review and agree on issues and actions of Group-wide
significance, with the exception of those matters reserved for the Board or specifically delegated by
the Board to its Committees. The CEO is also responsible for the recruitment and appointment of senior
management, after consultation with the Nominations & Remuneration Committee.
Principle 3: Composition of the Board
The Bank’s Articles of Association, with their detailed provisions, govern the appointment in office, the
retirement and/or resignations of Board Members. Directors hold office from the close of the AGM at
which they are appointed until the end of the subsequent General Meeting, at which they become
eligible for re-election. The Nominations and Remuneration Committee has the delegated authority to
lead this process, ensuring at all times Board suitability.
Following the closure of the AGM held on 14 May 2021, Frederick Mifsud Bonnici announced his intention
to step down as Chairman and Director. The Shareholders nominated Martin Scicluna to succeed him
as Chairman, and Juanito Camilleri to be appointed as Director. The formal appointments of Scicluna
as Chairman and Juanito Camilleri as Director came into effect on the 1 September 2021 and the 20
September 2021 respectively, once regulatory approval was received.
All Directors hold office in a non-executive capacity and actively participate in Board Committees. All
Directors are committed to high standards of conduct, ethics and governance practices.
Each Director is expected to be an active participant to ensure that the Board functions effectively as
a whole. The Directors combine broad business and commercial experience, conveying independent
and objective judgement, providing constructive challenge to the executives, ensuring diligent
monitoring of internal control functions. All Directors have adequate knowledge on the key
performance indicators and have the required understanding of the business risks involved.
The Board contains a mix of longer-serving Directors and more-recently appointed ones, ensuring good
institutional memory with fresh insight, and bringing to the Board a broad range of skills, expertise and
experience. This is considered to be a good formula that enables the Board to deal with current and
emerging opportunities and issues and to effectively appreciate the business risk and key performance
indicators affecting the Bank’s ability to achieve its objectives. This is complemented with an ongoing
evaluation of the skills, competences, knowledge, and experience to fulfil boardroom responsibilities.
In accordance with the Code Provision 3.2, the independent Non-Executive Directors of the Bank as at
31 December 2021 were:
- Martin Scicluna (Chairman)
- Victor Agius
- Joseph C Attard
- Franco Azzopardi
- Laragh Cassar
- Juanito Camilleri
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APS Bank plc 44
COMPLIANCE WITH THE CODE (continued)
Principle 3: Composition of the Board (continued)
In determining the independence or otherwise of its Directors, the Board has considered the principles
emanating from the Code, the Joint EBA and ESMA “Guidelines on the Assessment of the Suitability of
Members of the Management Body” (2021), as well as general principles of good practice.
The Board has determined that Franco Azzopardi has demonstrated the ability to take objective
decisions independently, notwithstanding his tenure of over 12 years as Director.
Conversely, the Board considers Michael Pace Ross, who holds the role of Administrative Secretary of
the Archdiocese of Malta, and Victor Gusman who until the second quarter of 2021 held the same role
with the Diocese of Gozo, to be non-independent from the Bank. Additionally, Alfred DeMarco sits on
the Kunsill Finanzjarju Djocesan within the Archdiocese of Malta, and therefore he is regarded as being
non-independent. This notwithstanding, the Board does not consider that their roles with the
Shareholders hinder them from maintaining independence of free judgement and character; as they
demonstrably make their own objective, sound and independent decisions and judgements when
performing their Board duties.
Principle 4: The Responsibilities of the Board
In its primary responsibility, in setting the ‘tone at the top’, the Board is responsible for understanding
and for advising management on the processes through which governance occurs and is accountable
for the results of those processes, hence the Board ensures effective execution of its functions through
clear articulation of the Bank’s purpose and strategy, exercising stewardship and oversight of the
institution. In doing so, the Board works closely with the senior management team, led by the CEO,
and together establish a balance between oversight and strategy execution.
The Board actively oversees the affairs of the Bank by formulating policy in alignment with relevant
laws, regulations, and code of practice. The Board is responsible to approve major projects, budgets,
capital expenditures and financing, and oversees the adequacy of its corporate governance,
transformation, internal controls systems, and risk management, including people’s management.
Through the ongoing monitoring of the Bank’s risk tolerances, KPIs and other relevant Key Risk
Indicators (“KRIs”), the Board ensures full adherence to the Bank’s business plan and its risk appetite,
cascading to the tactical and operational levels through project action plans, regulatory and risk
policies, limits and established processes and controls.
In establishing, the Bank’s Risk Appetite, determining the Risk Appetite Statement and respective
Dashboard, the Board is further supplemented with the advice of the Risk Committee. The Risk Appetite
Dashboard captures and amplifies on the most significant financial and non-financial risks to which the
Bank is exposed and sets guidance on the types and maximum amount of risk that the Board considers
acceptable. Additionally, it sets out risk limits and triggers to benchmark the Bank’s risk profile with its
risk appetite.
In 2021 the Bank continued to invest more effort in establishing robustness in its top-level policy
framework and currently is undergoing the review of various policies in full alignment with the updated
EBA & ESMA Guidelines on internal governance and suitability, which came into effect in December
2021.
The Board ensures that the Bank has appropriate policies and procedures in place to lead its employees
to the highest standards of corporate conduct and to comply at all times with applicable laws,
regulations, business and ethical standards.
As detailed in Principle 1 on page 42, the Board delegates its authority to various Board and
Management Committees which operate under their respective Terms of Reference, setting out the
Committee’s mandate, scope and working procedure. In 2021 Committees continued to meet on a
regular basis. The holding of online meetings also permitted the flow of Committee meetings to
continue when it would have otherwise not been possible to meet physically.
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APS Bank plc 45
COMPLIANCE WITH THE CODE (continued)
Principle 4: The Responsibilities of the Board (continued)
In the second half of 2021, the Bank held its first Committee self-evaluation exercise whereby each
Committee was assessed against appropriate criteria in order to assess their respective effectiveness.
Furthermore, Committee memberships were revised to further ensure these are instrumental in driving
effectiveness to permit them to gear the business towards its long-term objectives. Induction sessions
were held for new Committee members.
The table hereunder provides details of the main responsibilities emanating from each Committee
Terms of Reference (TORs):
Board & Management Committees
Audit Committee - Main Responsibilities
• Monitors the financial reporting process, including the audit of the annual accounts and review
of any interim reporting.
•
Reviews proposed transactions by the Bank with related parties and oversees the
standards/performance of the Internal Audit Department, whilst approving and monitoring its
Audit Plan.
• Monitors the effectiveness of the internal control environment and accounting framework.
•
Considers the adequacy of contingency plans for processing and production of financial
information.
• Reviews the external auditor’s independence, in particular with respect to the provision of
additional services to the Bank, and liaises between external auditors, internal audit, the Board
and Management.
In terms of Capital Markets Rules 5.117, 5.118 and 5.118A, the Audit Committee is composed of three
Non-Executive Directors. The Committee is composed of three members, Franco Azzopardi (Chair),
Alfred DeMarco and Juanito Camilleri. Juanito Camilleri joined the Audit Committee in Martin
Scicluna’s stead when the latter was appointed Chair of the Board as from 1st September 2021. The
Committee members’ biography may be found on pages 8 to 11. Franco Azzopardi is the member
who the Board considers as competent in accounting. In view of the diverse skills and professional
experience of each of the Audit Committee Members, the Bank considers the Audit Committee as a
whole to have the adequate competence and meet the independence criteria as required by Capital
Markets Rule 5.118.
Membership
2021 Attendance out of 8 meetings
Franco Azzopardi
8/8
Martin Scicluna
7/8
Alfred DeMarco
7/8
Juanito Camilleri
2/8*
*As from 1 November 2021
Risk Committee - Main Responsibilities
• Recommends the Bank’s risk profile and proposes the risk appetite statement for approval by
the Board of Directors.
• Periodically reviews the Bank’s risk management framework.
• Reviews strategic decisions, including new products and markets, acquisitions, and disposals,
from a risk perspective while it keeps sight of regulatory and market developments and how
these can impact on the Bank’s risk appetite.
• Has
a wide mandate for risk oversight, including credit risk, market risk, reputational risk,
operational risk, technology / cyber risk, concentration risk, liquidity risk as well as compliance
matters.
• Considers impairment and provisioning recommendations as prepared by Management and
recommends them for adoption.
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APS Bank plc 46
Membership
2021 Attendance out of 7 Meetings
Martin Scicluna
7/7
Victor Agius
7/7
Joseph C Attard
7/7
Franco Azzopardi
5/7
Michael Pace Ross
6/7
Juanito Camilleri
2/7*
*As from 1 November 2021
Nominations and Remuneration Committee - Main Responsibilities
• Maintains nominations policies and pools, and generally oversees the adoption of best practices.
• Reviews the structure and composition, including skills, knowledge, leadership, experience, and
diversity, of the Board, also ensuring succession strategies are in place.
• Recommends the compensation framework of Board and senior executives.
• Performs oversight on the Bank’s Remuneration Policy, ensuring it is in line with best practices
and applicable regulatory requirements and monitors market conditions.
•
Considers and approves senior executive appointments and policies and assesses the
performance of the CEO.
• Reviews nomination and remuneration disclosures in the Annual Report and other reporting as
may be required.
Attendance and more information on the Nominations and Remuneration Committee is provided
under the Nominations and Remuneration Report on pages 35 to 41.
Other Board Committees
Conduct Committee - Main Responsibilities
• Acts as first point of reference on Board governance policies and procedures, codes of conduct
and conflicts of interest.
•
Oversees the Bank’s conduct framework and policies ensuring that it acts honestly,
professionally and in the clients’ best interest at all times.
• Oversees the Bank’s agenda promoting and supporting the fair, strong, efficient, and transparent
provision of products and services, keeping consumer (customers’) protection primary.
• Oversees the structure and performance of the Bank’s committees, besides steering the process
of Directors’ evaluation, both individually and collectively as a Board.
• Performs oversight on matters of ethics, brand, values, reputation, and culture.
Board Credit Committee (“BCC”) - Main Responsibilities
• Reviews credit applications and approves credit limits for customers and transactions, within
the parameters set by the Board in terms of the credit policy procedures.
• Receives and reviews updates/amendments to approved facilities and approves, or delegates
approval, for deviations as the case may be.
• Review emerging issues and concerns relating to the performance of the portfolio, including to
specific sectoral exposures.
• Considers and advises the Risk Committee on credit limits and/or any matter for approval (e.g.
country, geographic, segment limits) when this is required according to the Bank’s Credit Policy.
Technology & Innovation Committee (“TAIC”) - Main Responsibilities
• Oversees management with regard to IT-related risks, security and business continuity plans.
• Sponsors and supports the main IT strategic decisions & projects.
•
Provides strategic leadership through a steady flow of innovative ideas that will serve as a
catalyst for innovation at the Bank as well as monitoring IT project implementation.
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APS Bank plc 47
Environmental, Social and Governance Committee (“ESG”) - Main Responsibilities
• Considers the material environmental, social & governance issues and policies relevant to the
Bank’s business activities and promotes initiatives to raise ESG performance.
• Ensures that the Bank is keeping the UN Sustainable Development goals as an overarching
guide, monitors their applicability & considers emerging ESG issues.
•
Oversees the implementation of social sustainability initiatives and commitments, including
performance, challenges and opportunities, to ensure their effectiveness in delivering social
impact.
• Oversees the reputational impacts of the Bank’s business strategies and practices, monitors
policies and initiatives to ensure appropriate safeguards are
in place for dealing fairly and
ethically with third party stakeholders.
Management Committees
Assets-Liabilities Committee (“ALCO”) - Main Responsibilities
• Generally responsible for the ALM strategy, policy, surveying of market developments, including
the Bank’s Base Rate and funding strategy.
• Monitors interest rate, liquidity and currency risks and determines treasury strategy accordingly.
• Focuses on liquidity management and contingency planning, determines the liquidity strategy.
• Optimises capital allocation in terms of ALM strategy and regulatory requirements.
• Instigates the development of new treasury (funding and lending) products and approves and
monitors the Bank’s Funds Transfer Pricing (“FTP”) framework and its components, monitors
implementation and reviews results.
• Regularly appraises Bank performance in terms of ALM strategy.
Management Credit Committee (“MCC”) - Main Responsibilities
• Receives and reviews credit applications and approves credit limits for customers and
transactions, within the parameters set by the Board in terms of the credit policy and
procedures.
• Refers and recommends to the BCC limit applications where these exceed its MCC limits. The
Committee receives and reviews updates/amendments to approved facilities and approves, or
delegates approval, for deviations as the case may be, and considers and advises the BCC on
credit limits and/or any matter for approval that is within its BCC competence.
Compliance Committee – Main Responsibilities
• Ensures that prescribed regulations, rules, policies, guidelines and procedures are being followed
and also anticipated in advance.
• Acts as a decision point for business acceptance, on-boarding and dismissal of customers, in
line with the Bank’s on-boarding and exit policies.
•
It ensures that the Bank’s Compliance function takes a holistic as well as balanced view of
compliance risk.
• The Compliance Committee reports to the Risk Committee.
EXCO Management Meeting – Main Responsibilities
• Acts as consultative body and advisor to the CEO on matters such as strategy, operations, and
business.
• Reviews and debates relevant items before consideration by the Board/Board Committees and
escalates key issues.
• Focuses on the four Ps, namely Performance, Products, Projects and People, and these four
broad areas.
• Approves capital commitments and transactions within its delegated authority and recommends
for Board approval the annual capital and revenue budgets, monitors KPIs, KRIs and financial
performance on an ongoing basis.
• Has first line of oversight of the co
ntrol frameworks, receiving and considering reports of
operational reports, including serious service/product complaints and/or incidents.
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APS Bank plc 48
Weekly Management Meeting – Main Responsibilities
• Reports into the EXCO, with which it also works very closely.
• The Weekly Management Meeting brings together the senior levels of management – Chiefs and
Heads, in a weekly forum where all members share updates about their respective areas of
responsibility, work plans as well as matters or items of significant interest.
• Meetings of the Weekly Management Meeting are characterised by their regular frequency, tour-
de-
table style and informality, which serves to instill a high degree of communication and
collaboration between all the members.
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COMPLIANCE WITH THE CODE (continued)
Principle 5: Board Meetings
All Directors are required to attend all meetings of the Board, the meetings of those Committees on
which they serve, and the AGM. The Board meets regularly to discharge its duties effectively, typically
monthly. Stemming from the Bank’s COVID-19 safety protocol, 2021 Board meetings followed a hybrid
set up, that is, a mix of in person and virtual attendance. This enabled the required flexibility to
accommodate uninterrupted attendance.
During the year under review, the Board met 11 times, with another 5 additional meetings held on an ad
hoc basis. During 2021, the average rate of attendance was 97%. In terms of the Memorandum and
Articles of Association and the Board Charter, when a Director is unable to attend there is the option
to appoint another Director, including the Chairman, to act as his/her alternate and in any case to submit
comments to the Chairman ahead of the meeting.
All Directors are required to attend all meetings of the Board, the meetings of those Committees on
which they serve, and the AGM. All Directors are expected to devote sufficient time to the Bank’s affairs
to enable them to fulfil their duties as Directors, always exercising independent judgement.
The below table provides the attendance of Board members at Board meetings:
Board Attendance at Meetings as at 31 December 2021
Board Member
Attendance out of 16 meetings (including
ad hoc
meetings)
Martin Scicluna
16/16
Frederick Mifsud Bonnici*
12/16
Victor Agius
16/16
Joseph C Attard
15/16
Franco Azzopardi
16/16
Laragh Cassar
15/16
Alfred DeMarco
16/16
Victor Gusman
15/16
Michael Pace Ross
14/16
Juanito Camilleri**
3/16
*until 23 August 2021
** as from 30 September 2021
Board agendas and packs are circulated in advance to permit Board Directors to prepare themselves
for the discussions that take place during the meetings. Board agendas invariably include discussions
and decisions on regulatory, risk and strategic matters, detailed presentations by the CEO, and other
members of the senior management team, as appropriate. Structured reporting from the Committees,
subsidiaries and associates are a regular agenda item of each Board Meeting. The CEO is invited to
attend all Board meetings, and other senior management officials attend Board meetings as required,
according to the nature of the discussion and their specific area of responsibility. This provides the
Board with an opportunity to engage directly with senior management on key issues.
After each Board Meeting, minutes are drawn up by the Company Secretary and circulated to all
Directors within two weeks from the meeting as soon as practicable. Minutes faithfully record the
attendance of Directors at said Meetings, conflicts raised, matters discussed, considerations made,
decisions taken, and action points agreed upon. Minutes are kept of all the business transacted in the
course of Committee meetings. All Directors have ready access to Committee papers and Minutes.
Committee Chairs report on Committee business at the subsequent Board meetings, also through
written briefs.
In 2021, in addition to its scheduled meetings, the Board also met with the Management Team in: a) July
for the Annual Business Planning brainstorming days; b) October, for a strategy workshop led by the
new Chairman shortly after taking office, and c) November for the Business Planning Wrap-up
Workshop, looking into the Bank’s main priorities for the updated 2022-2024 Plan and strategic
initiatives for the same period.
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APS Bank plc 51
COMPLIANCE WITH THE CODE (continued)
Principle 5: Board Meetings (continued)
Directors also attended the Bank’s AGM held on 14 May 2021 wherein ordinary and special business,
extraordinary resolutions were presented and approved. Following the lifting of the European Central
Bank’s recommendation as a consequence of the COVID-19 pandemic, a scrip dividend was declared.
Principle 6: Information and Professional Development
The high standards of continuing professional development embedded in the Bank’s culture run across
the entire organisation and include the Board.
The Directors have access to a wide range of briefing and training sessions and other professional
development opportunities. Internal and online training relevant to the business of the Bank is also
provided. Directors undertake the training they consider necessary to assist them in carrying out their
duties and responsibilities as Directors. Directors may also request individual in-depth briefings from
time to time on areas of particular interest. Directors are also invited to visit key operational facilities
and branches of the Bank.
In 2021, the Directors attended two tailor-made programmes. The first programme was organised by a
reputable local law firm and delved into Directors’ responsibilities internal governance, ESG and
remuneration. A second programme was organised by an international firm specialising in financial
crime. The session related to anti-money laundering. The annual Business Plan & Budget Review Off-
Site Workshops held in July and November, also served as a professional development opportunity for
the Directors. Directors attended online seminars and conferences on an array of topics. Directors were
kept abreast of other webinars that were being organised by local and international entities. A training
and development log is maintained by the Human Capital Department.
Upon appointment, all Directors undertake a formal and tailored induction programme providing the
required familiarisation with the Bank. This programme is co-ordinated by the Company Secretary and
tailored to suit the requirements of the individual concerned. This includes a series of meetings with
senior executives in providing an overview of the Bank’s main functions, namely strategy, finance, risk,
people, technology, operations, and other internal control functions. The programme also provides
information related to Board Committee Memberships and includes guidance on directorship
responsibilities, duties, liabilities, and expectations.
Continuous training and development initiatives are organised for Directors to facilitate their
contribution in the Boardroom. Continuous training targets deliverables on core competencies, namely
strategic leadership, agility, power, responsibility and liability of the Board and the individual director,
Board development and practices, individual attributes and qualities and business ethics.
Access to the services and resources of the Bank, including, where necessary, independent professional
advice at the Bank’s expense, are also available.
Principle 7: Evaluation of the Board’s Performance
In terms of the ‘Evaluation Policy and Procedure’, at least once a year an evaluation is carried out to
assess the Board’s and Committee’s performance and that of its individual Directors in accordance with
best practice and guidelines issued by the European Banking Authority. The evaluation of a Director’s
performance is an integral part of the process for recommending or otherwise a Director’s continuation
in office.
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APS Bank plc 52
COMPLIANCE WITH THE CODE (continued)
Principle 7: Evaluation of the Board’s Performance (continued)
In terms of the ‘Evaluation Policy and Procedure’, at least once a year an evaluation is carried out to
assess the Board’s performance, which evaluation extends to assess its Individual Directors, the Chair,
and delegated Committees. It is the Bank’s practice that the Committee evaluation exercise is carried
out in the second half of the year.
The 2021 Board Evaluation was carried out in the form of self-assessments, following the process
detailed hereunder under the oversight of the Conduct Committee, supported by the Company
Secretariat.
The Internal Evaluation Process
It is positive to note that the final evaluation report earmarks a satisfactory outcome, where no changes
in the governance and the organisation are being envisaged as a result of the Board evaluation.
Principle 8: Committees
The function of the Nominations and Remuneration Committee is covered under Principle 4, when
reviewing all the other Bank Committees, and in the Nominations & Remuneration Report, which also
includes the Remuneration Statement in terms of Code Provision 8.A.4 and the Nominations Report in
terms of Code Provision 8.B.7.
Principles 9 and 10: Relations with Shareholders and with the Market and Institutional Investors
The Board is aware that its actions and decisions impact the Bank’s Shareholders, other stakeholders
and the wider community in which the Bank operates. Effective engagement with stakeholders is
important to the Board as it strengthens the business and helps to deliver a positive result for all
stakeholder groups.
The table overleaf identifies the Bank’s key stakeholders and how both the Bank and the Board engaged
with them throughout 2021. The Board seeks to understand the needs and the key areas of interest of
each stakeholder group and consider them during deliberations and as part of the decision-making
process.
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COMPLIANCE WITH THE CODE (continued)
Principles 9 and 10: Relations with Shareholders and with the Market and Institutional Investors
(continued)
Key stakeholders
Reason for engagement and key priorities for
2021
Shareholders
Meetings with Shareholders are conducted in a
structured manner, with meetings held
separately with the main Shareholders, namely
AROM Holdings Ltd (ultimately owned by the
Archdiocese of Malta), the Diocese of Gozo and
the Metropolitan Cathedral Chapter, as well as
with their financial advisers. Joint Shareholders’
meetings with the main Shareholders were also
held more frequently this year
due to the
implementation of Phase 3 of the Capital
Development Plan in line with the Bank’s
Strategic Plan.
Bondholders and Institutional Investors
Following the issuance of the Bank’s bonds in
late 2020, in November 2021 the Bank issued its
first coupon payment to bondholders who were
listed on its Register on 3 November 2021.
The Bank also issued its first n
ewsletter to
bondholders whereby it communicated the
Bank’s main achievements of 2021.
Business clients, potential new clients, financial
advisers
The Bank engages with business clients,
potential new clients and financial advisers
through various chann
els to ensure strong
relationships are maintained allowing its vision,
business model and modus operandi
to be
communicated, with emphasis on strategy and
delivery.
Furthermore, the Bank constantly monitors
emerging trends and is responsive to clients’
ne
eds in order to create new products and
identify future revenue drivers.
The Bank continued to issue the APS Digest to
assist commercial entities even beyond the most
challenging times of the pandemic.
Clients were kept up-to-
date on the Bank’s
services and responding in a timely manner to
clients as different circumstances arose, through
various digital channels.
Employees
Although COVID-19 measures were relaxed in a
number of areas throughout 2021,
it was still
impossible for the Bank to organise full-blown
Townhall Meetings for 500 employees, thereby
necessitating online meetings to be held instead.
Staff were likewise engaged into understanding
the Bank’s progression, strategy and financial
results.
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APS Bank plc 54
Employee engagement is measured through the
cloud-
based survey platform Peakon, first
introduced in 2019 and carried out again in 2021.
Excellent results were recorded across
practically all segments of staff engagement,
despite the challenging environment.
Relevant information provided to stakeholders
1. Financial reporting
This year’s annual financial reporting
presentation was delivered virtually due to
COVID-
19 measures that prevented a physical
presentation taking place. The Bank also
publishes interim half-
yearly results and
quarterly financial updates.
2. Company Announcements
As a listed entity, the Bank is required to issue
Company Announcements, in terms of the
Capital Markets Rules to bring useful, relevant
and material facts to the attention of the market.
3. Press releases
The Bank issues Press Releases on a regular basis
in order to inform its clients and other
stakeholders about developments and news. The
widespread use of social communication media
has helped the Bank to increase the reach and
speed of its communication.
4. Website
The Bank’s website (www.apsbank.com.mt
) is
the platform through which interested parties
may have access to Bank information. The
section ‘Investor Relations’ sect
ion is
consistently updated with biographies of the
members of the Board and of Executive
Management as well as Annual Reports,
Company Announcements and Press Releases.
Principle 11: Conflicts of Interest
Each Director is expected to act to the highest standards of ethical behaviour and fiduciary duties. The
Directors are aware of their obligation to avoid conflicts of interest and their responsibility to act in the
wider interest of the Bank and its Shareholders, irrespective of which Shareholder nominated him/her
to the Board.
The Board Charter contains specific sections dealing with conflicts of interest, starting with the general
precept that Directors should take all reasonable steps to avoid such situations. However, from time to
time, actual or potential conflicts of interest may arise in which case it needs to be ensured that these
are managed properly by the Board and the interested Director, as also provided in the amended
Conflicts of Interest Policy. Directors are required to inform the Board of any matter that may result or
has already resulted in a conflict of interest. A record of such declaration is entered into the Bank’s
minute book and the said Director is precluded from voting in any resolution concerning a matter in
respect of which they have declared a direct or indirect interest or asked to absent themselves when
the conflicting matter is discussed.
Directors are informed and reminded of their obligations vis-a-vis dealing in the Bank’s bonds in line
with prevailing legislation and in terms of the Capital Markets Rules. Clearance prior to dealing is
obtained from the Chairman in line with the Bank’s Personal Dealing Policy.
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COMPLIANCE WITH THE CODE (continued)
Principle 12: Corporate Social Responsibility
The Board of Directors ensures that sound principles of CSR are adhered to and integrated into the
core ethos of the Bank and embedded into its day-to-day culture and operations. For these reasons
also, the Bank is a prominent supporter of various CSR initiatives at both national and community level
aimed at contributing to economic, societal, environmental, and cultural development.
Further details on the Banks’ CSR outreach are disclosed separately in the Directors’ Report.
NON-COMPLIANCE WITH THE CODE
Principle 3 (Composition of the Board): The Board is currently composed of nine Non-Executive
Directors including the Chairman. While the Code of Principles for Good Corporate Governance
provides that the Board should be composed of Executive and Non-Executive Directors, there are no
Executive Directors presently appointed to the Board. The Board believes that with the required
diversity of knowledge, judgment, and experience, it can still adequately perform its functions (even
without the appointment of any Executive Directors) and collectively execute the four basic roles of
corporate governance namely, accountability, monitoring, strategy formulation and policy
development. In addition, the CEO is ordinarily invited to attend meetings of the Board of Directors to
ensure that the Board is adequately supported from an executive management perspective. The Bank’s
Memorandum & Articles of Association includes a clause specifying that executive members are also
eligible to be appointed Directors. Furthermore, with respect to the appointment of Non-Executive
Directors, the Nominations and Remuneration Committee and Board are guided by the relative
provisions of the Articles of Association, as amended in 2020, as well as the EBA and ESMA Guidelines
on the assessment of the suitability of members of the management body. The Nominations and
Remuneration Committee is currently updating its Nomination and Succession Policy and Procedure to
further promote the notion of diversity.
INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM
Board responsibility
The Board, supported by the Risk Committee and Audit Committee, oversees the system of internal
controls, corporate governance, and risk management frameworks, ensuring they are in line with
applicable rules, regulations and guidelines, and assumes responsibility for establishing the purpose of
the Bank, setting its strategy, establishing its culture and determining the values to be observed in
achieving that strategy. The Directors and senior management are committed to maintaining a robust
control framework as the foundation for the delivery of effective risk management. The Directors
acknowledge their responsibilities in relation to the Bank’s risk management and internal control
systems and for reviewing their effectiveness.
In establishing and reviewing the risk management and internal control systems on an ongoing basis,
the Directors carry out a robust assessment of the most significant and emerging risks facing the Bank,
including those that would threaten its business model, future performance, solvency or liquidity and
reputation, the likelihood of a risk event occurring and the costs of control. The process for
identification, evaluation and management of the risk events faced by the Bank is integrated into the
Bank’s overall framework for risk governance. The risk identification, evaluation and management
process also cover an assessment of whether the control in place result in an acceptable level of residual
risk. As mentioned above, the Risk Appetite Statement and Risk Appetite Dashboards are presented to
and reviewed and debated regularly by the Risk Committee and the Board, in the presence of the Chief
Risk Officer, to ensure that the Board is satisfied with the overall risk profile, risk accountabilities and
mitigating actions. Monthly and quarterly Dashboards provide a view of the Bank’s overall risk profile,
key risks and management actions, together with performance against risk appetite and an assessment
of emerging risks which could affect the Bank’s performance over the life of the operating profile and
assists in the strategy that is set-up.
CORPORATE GOVERNANCE REPORT
APS Bank plc 56
INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM (continued)
Board responsibility (continued)
Control effectiveness review
The Bank’s control effectiveness is carried out following the “three lines of defence” model with an aim
to evaluate the effectiveness of the Bank’s control framework in its widest sense, with regard to its
material risks, and to ensure management actions are in place to address key gaps or weaknesses in
the control framework. The recently instituted Business Risk and Control Management Unit further
strengthens the Bank’s first line of defence in the areas of retail, commercial and e-channel banking to
ensure that business decisions are consistent with the Bank’s strategic and risk management objectives.
The second line of defence, manifesting itself in reporting to the Risk Committee, is responsible for the
design and implementation of the risk management framework and for risk reporting to senior
management and the Board. As a third line of defence the Internal Audit function provides independent
assurance to senior management and the Board that the Group’s control framework and the risk
management process are operating effectively. The Audit Committee receives reports from the Bank’s
statutory auditors, Deloitte (which include details of significant internal control matters that they have
identified), and it has discussions with the statutory auditors at least twice a year, to ensure that there
are no unresolved issues of concern.
The Bank’s risk management and internal control systems are regularly reviewed by the Board and are
consistent with applicable guidance issued by the competent authorities and compliant with the
requirements of CRD V. More detail on the review of internal controls is found in the ‘Pillar 3 Disclosures’
Report as published on the Bank’s website.
The below infographic summarises the Bank’s internal control framework:
Board of Directors
1
st
line of Defence
2
nd
Line of Defence
3
rd
Line of Defence
Who is responsible:
Who is responsible:
Who is responsible:
Operational management/
Employees
Spearheaded by Internal
Control Unit
Compliance/Risk oversight
Functions
Audit Committee
Internal Audit
Activity/controls:
Activity/controls:
Activity/controls:
Policies and procedures
Internal controls
Planning, budgeting,
forecasting processes
Delegated authorities
Business workflows/
IT system controls
Personal objectives
and incentives
Operational/governance/regulatory
compliance
Compliance Committee/Risk
Committee
Controls compliance
monitoring
Management/Board
reporting and review of KPIs
and financial performance
Corporate policies
Approved Internal Audit
plan
Internal Audit reporting
line to Audit Committee
Regular Internal Audit
updates to Audit
Committee
Capital Markets Rule 5.97.5
The information relating to the Shareholder register required by Capital Markets Rule is found in the
Directors’ Report.
CORPORATE GOVERNANCE REPORT
APS Bank plc 57
INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM (continued)
General Meetings
General Meetings are the Bank’s highest decision-making body, at which the Shareholders exercise their
voting rights. The proceedings are conducted in terms of the Bank’s Articles of Association. A general
meeting of the Bank is duly convened by providing twenty-one days prior notice to the Shareholders.
Ordinary business is transacted at the Bank’s AGM, that considers the accounts, balance sheets and the
reports of the Directors and the auditors, the appointment or election of Directors, the appointment of
auditors and the fixing of the remuneration of Directors and the auditors. All other business is deemed
to be ‘special’, whether transacted at the AGM or at an Extraordinary General Meeting.
The Articles relating to ‘General Meetings’ stipulate that Shareholders registered in the Shareholders’
Register on the Record Date, have the right to attend, participate and vote at the General Meeting, and
those owning not less than five percent (5%) of the voting issued share capital of the Bank may request
the Bank to include items on the agenda of a General Meeting, and table draft resolutions for items
included in the agenda of a General Meeting, insofar as they are received at least forty-six days before
the date set for the relative General Meeting.
A Shareholder who is unable to participate in the General Meeting can appoint a proxy by written or
electronic notification to the Bank. Every Shareholder represented in person or by proxy is entitled to
ask questions which are pertinent and related to items on the agenda of the General Meeting and to
have such questions answered by the Directors or such persons as the Directors may delegate for that
purpose. The Memorandum and Articles of Association permit General Meetings to be held by
electronic means, a method that has proven to be necessary to safeguard the health and safety of
Shareholders and stakeholders when public health guidelines dictate such, also introducing a new way
of Shareholder engagement.
This Statement was authorised for issue by the Board of Directors on 10 March 2022 and signed on its
behalf by:
Martin Scicluna Franco Azzopardi
Chairman Director
APS BANK PLC
APS Bank plc 58
STATEMENTS OF PROFIT OR LOSS
for the year ended 31 December 2021
The Group
The Bank
2021
2020
2021
2020
Note
€000
€000
€000
€000
Interest receivable and similar income:
On loans and advances, balances with
the Central Bank of Malta and treasury bills
(3)
63,246
56,455
On debt and other fixed income instruments
(3)
4,394
4,685
Total interest receivable and similar income
(3)
67,640
61,140
Interest payable
(4)
(13,773 )
(13,434 )
(13,773)
(13,434)
Net interest income
53,867
47,706
Fee and commission income
7,909
6,592
Fee and commission expense
(1,981 )
(1,600 )
(1,981)
(1,600)
Net fee and commission income
(5)
5,928
4,992
Dividend income
(6)
1,273
1,236
Net gains on foreign exchange
(7)
428
328
Net gains from derecognition of financial assets at
amortised cost
(8)
572
-
Net (losses)/gains on financial instruments
(8)
(152 )
215
(262)
Other operating (loss)/income
(35 6 )
(356)
306
Operating income before net impairments
61,927
54,306
Net impairment gains/(losses) on financial assets
(11)
(5,538 )
1,488
(5,538)
Net operating income
63,415
48,768
Personnel expenses
(9)
(20,425 )
(17,172 )
(20,002)
(17,123)
Other administrative expenses
(10)
(16,089 )
(12,351 )
(15,606)
(12,097)
Depreciation of property and equipment
(25)
(1,603 )
(1,896 )
(1,603)
(1,896)
Amortisation of intangible assets
(26)
(1,905 )
(1,651 )
(1,905)
(1,649)
Depreciation of right-of-use assets
(27)
(562 )
(481 )
(562)
(481)
Operating expenses
(40,584 )
(33,551 )
(39,678)
(33,246)
Net operating profit before associates’ results
23,737
15,522
Share of results of associates, net of tax
(23)
(258 )
-
-
Profit before tax
23,737
15,522
Income tax expense
(12)
(8,967 )
(5,707 )
(8,696)
(5,589)
Profit for the year
15,041
9,933
Profit for the year attributable to:
Equity holders of the parent
15,041
9,933
Non-controlling interest
-
-
15,041
9,933
APS BANK PLC
APS Bank plc 59
STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 December 2021
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Profit for the year
15,041
9,933
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Change in fair value on debt instruments measured at fair
value through other comprehensive income (FVTOCI)
(7,908 )
(7,908)
1,717
Release of fair value on disposal of debt instruments
measured at FVTOCI
(271 )
1,236
(271)
Deferred income tax relating to the components of other
comprehensive income
560
349
Deferred income tax relating to components reclassified from
other comprehensive income to profit and loss on
derecognition of FVTOCI debt instruments
-
5
Items that may not be reclassified subsequently to profit or
loss:
Revaluation of land and buildings
(863 )
(291 )
(863)
(291)
Deferred income tax relating to the revaluation on land and
buildings
49
45
Other comprehensive income for the year, net of tax
(6,926 )
(6,926)
1,554
Total comprehensive income for the year, net of tax
8,115
11,487
Total comprehensive income attributable to:
Equity holders of the parent
8,115
11,487
Non-controlling interest
-
-
8,115
11,487
APS BANK PLC
APS Bank plc 60
STATEMENTS OF FINANCIAL POSITION
as at 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
ASSETS
Cash and balances with Central Bank of Malta
(14)
207,723
108,330
Cheques in course of collection
2,881
103
Loans and advances to banks
(15)
30,831
46,281
Loans and advances to customers
(16)
1,932,044
1,689,003
Syndicated loans
(17)
134,262
113,152
Derivative financial instruments
(18)
552
499
Financial assets at fair value through profit or loss
(19)
-
251
Other debt and fixed income instruments
(20)
328,041
315,983
Equity and other non-fixed income instruments
(21)
307
303
Investment in subsidiaries
(22)
-
-
45,251
45,251
Investment in associates
(23)
16,761
15,261
Investment properties
(24)
6,053
1,830
Property and equipment
(25)
40,998
46,180
Intangible assets
(26)
11,746
8,848
Right-of-use assets
(27)
5,051
5,235
Deferred tax assets
(28)
2,249
2,553
Other receivables
(29)
8,303
7,974
TOTAL ASSETS
2,773,053
2,407,037
LIABILITIES
Derivative financial instruments
(18)
552
499
Amounts owed to banks
(30)
57,208
9,304
Amounts owed to customers
(31)
2,433,073
2,124,149
Debt securities in issue
(32)
54,597
54,558
Current tax
758
1,354
Lease liabilities
(27)
5,348
5,365
Other liabilities
(33)
10,404
10,090
Accruals
(34)
13,224
10,031
TOTAL LIABILITIES
2,575,164
2,215,350
EQUITY
Share capital
(35)
62,429
62,255
Share premium
(36)
10,453
10,140
Revaluation reserve
(37)
25,334
32,260
Retained earnings
(38)
99,673
87,032
Attributable to equity holders of the parent
197,889
191,687
Non-controlling interest
(39)
-
-
TOTAL EQUITY
197,889
191,687
TOTAL LIABILITIES AND EQUITY
2,773,053
2,407,037
The financial statements on pages 58 to 173 were authorised for issue by the Board of Directors on 10
March 2022 and were signed by:
Martin Scicluna Franco Azzopardi Marcel Cassar Ronald Mizzi
Chairman Director Chief Executive Officer Chief Financial Officer
APS BANK PLC
APS Bank plc 61
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2021
Attributable to the equity holders of the parent
Non-
Share
Share
Revaluation
Retained
controlling
Total
capital
premium
reserve
earnings
Total
interest
equity
The Group
€000
€000
€000
€000
€000
€000
€000
FINANCIAL YEAR ENDED
31 December 2021
Balance at 1 January 2021
Profit for the year 14,638 14,638 463 15,10 1
Other comprehensive income 6,926 ) 6,926 ) 6,926 )
Total comprehensive income
(6,9 26 )
Dividends paid (Note 13) 174 313 2,400 ) (1,91 3 ) (218 ) (2,131 )
Net share capital issued by
subsidiary company
Balance at 31 December 2021
FINANCIAL YEAR ENDED
31 December 2020
Balance at 1 January 2020
Profit for the year 9,853 9,853 237 10,090
Other comprehensive income 1,554 1,554 1,554
Total comprehensive income
Dividends paid (Note 13) 96 ) (96 )
Retained earnings adjustment due
to tax
(902 )
(902 )
(902 )
Net share capital issued by
subsidiary company
Balance at 31 December 2020
APS BANK PLC
APS Bank plc 62
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2021
Share
Share
Revaluation
Retained
Total
capital
premium
reserve
earnings
equity
The Bank
€000
€000
€000
€000
€000
FINANCIAL YEAR ENDED
31 DECEMBER 2021
Balance at 1 January 2021
62,255
10,140
32,260
87,032
191,687
Profit for the year
-
-
-
15,041
15,041
Other comprehensive income
-
-
(6,926)
-
(6,926)
Total comprehensive income
-
-
(6,926)
15,041
8,115
Dividends paid
174
313
-
(2,400)
(1,913)
Balance at 31 December 2021
62,429
10,453
25,334
99,673
197,889
FINANCIAL YEAR ENDED
31 DECEMBER 2020
Balance at 1 January 2020
62,255
10,140
30,706
78,001
181,102
Profit for the year
-
-
-
9,933
9,933
Other comprehensive income
-
-
1,554
-
1,554
Total comprehensive income
-
-
1,554
9,933
11,487
Retained earnings adjustment due to tax
-
-
-
(902)
(902)
Balance at 31 December 2020
62,255
10,140
32,260
87,032
191,687
APS BANK PLC
APS Bank plc 63
STATEMENTS OF CASH FLOWS
for the year ended 31 December 2021
The Group
The Bank
Note
2021
2020
2021
2020
€000
€000
€000
€000
OPERATING ACTIVITIES
Interest and commission receipts
71,077
63,051
Interest and commission payments
(11,672 )
(13,326 )
(11,672)
(13,326)
Cash paid to employees and suppliers
(37,367 )
(31,6 22 )
(36,517)
(31,378)
Operating profit before changes in operating
assets and liabilities
22,888
18,347
(Increase)/decrease in operating assets
Loans and advances to customers/syndicated loans
(266,941 )
(223 ,412 )
(266,941)
(223,412)
Reserve deposit with Central Bank of Malta
(2, 878 )
(2,219 )
(2,878)
(2,219)
Cheques in course of collection
(2, 778 )
(2,778)
25
Other assets
(36 )
(15 )
-
-
Increase/(decrease) in operating liabilities
Amounts owed to customers
308,924
194,645
Amounts owed to banks
(1,549 )
(1,549)
9,294
Other liabilities
(1,095 )
(2,59 0 )
(1,120)
(2,540)
Cash from/(used in) operating activities before tax
(4,987 )
56,546
(5,860)
Income tax paid
(8, 512 )
(7,360 )
(8,388)
(7,276)
Net cash flows from/(used in) operating activities
(12,3 47 )
48,158
(13,136)
INVESTING ACTIVITIES
Dividends received
1,273
1,236
Interest income from debt securities
7,054
6,684
Purchase of financial assets measured at amortised
cost
(27,443 )
-
(27,443)
Proceeds on maturity of financial assets measured at
amortised cost
3,107
2,000
Purchase of debt instruments measured at FVTOCI
(44, 38 9 )
(10 7,3 35 )
(44,389)
(107,335)
Proceeds on disposal of debt instruments measured
at FVTOCI
20,731
53,957
Purchase of financial assets at FVTPL
(46,241 )
(39,165 )
-
-
Proceeds on disposal of financial assets at FVTPL
249
221
Purchase of equity and other non-fixed income
instruments
(950 )
-
(950)
Proceeds on disposal of equity and other non-fixed
income instruments
-
1,000
Investment in subsidiary
-
-
-
(5,000)
Additional investment in associate
(1, 500 )
(1,500)
-
Purchase of property, equipment and intangible
assets
(653 )
(6,03 4 )
(653)
(6,034)
Net cash flows used in investing activities
(26,689 )
(85,24 6 )
(14,128)
(81,664)
FINANCING ACTIVITIES
Dividends paid
(2,144 )
(91 )
(1,913)
-
Amounts received on creation of shares in
subsidiaries
-
-
Amounts paid on redemption of units in subsidiaries
(794 )
(535 )
-
-
Proceeds from issue of debt securities in issue
-
55,000
Cash payment for the principal portion of lease
liability
(515 )
(496 )
(515)
(496)
Net cash flows from/(used in) financing activities
(2,428)
54,504
Net increase/(decrease) in cash and cash
equivalents
(39,50 8 )
31,602
(40,296)
Cash and cash equivalents at 1 January
138,034
178,330
Cash and cash equivalents at 31 December
(42)
169,636
138,034
APS BANK PLC
APS Bank plc 64
NOTES TO THE FINANCIAL STATEMENTS
1. REPORTING ENTITY
APS Group comprises APS Bank plc, ReAPS Asset Management Limited, APS Diversified Bond Fund
and APS Global Equity Fund (sub-funds of APS Funds SICAV plc, in which the Bank holds 99.99% of
the founder shares). The Group also has a significant investment in its associates IVALIFE Insurance
Limited and in the following sub-funds of APS Funds SICAV plc - APS Income Fund and APS Regular
Income Ethical Fund.
APS Bank plc is incorporated and domiciled in Malta public limited company under the Companies
Act (Cap. 386 of the Laws of Malta). It is licensed by the Malta Financial Services Authority (the “MFSA”)
to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of
the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta). The Bank is also
enrolled in the Tied Insurance Intermediaries List in terms of the Insurance Intermediaries Act (Cap.
487 of the Laws of Malta).
The registered office of APS Bank plc is APS Centre, Tower Street, Birkirkara, BKR 4012 with corporate
registration number C2192.
The principal activities of the Group are described in the Directors’ report on page 16.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The consolidated and separate financial statements have been prepared on a historical cost basis, except
for derivative financial instruments, certain financial assets and investment property, which have been
measured at fair value and land and buildings classified in the statements of financial position as property
and equipment, which have been measured at their revalued amounts. The consolidated and separate
financial statements are presented in Euro (€), and all values are rounded to the nearest thousand (€000)
except when otherwise indicated.
The Group and the Bank present their statements of financial position in order of liquidity.
Statement of compliance
The consolidated and separate financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the EU and comply with the provisions of the
Banking Act, Cap. 371 and the Companies Act, Cap. 386 of the Laws of Malta.
Basis of consolidation
The consolidated financial statements comprise the financial statements of APS Bank plc and its
subsidiaries, which together are referred to as the ‘Group’. Subsidiaries are fully consolidated from the
date on which the Group achieves control and continue to be consolidated until the date that such control
ceases. Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only if, the Group has:
• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant
activities of the investee).
• Exposure, or rights, to variable returns from its involvement with the investee.
• The ability to use its power over the investee to affect its returns.
Generally, a majority of voting rights results in control to the extent that such substantive rights provide
the investor with the current ability to direct the relevant activities of the investee. When the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee.
• Rights arising from other contractual arrangements.
• The Group’s voting rights and potential voting rights.
APS BANK PLC
APS Bank plc 65
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Basis of consolidation (continued)
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins
when the Group obtains control over the subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the
year are included in the consolidated financial statements from the date the Group gains control until
the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity
holders of the parent of the Group and to the non-controlling interests, even if this results in the non-
controlling interests having a deficit balance.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent
company. When necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies in line with the Group’s accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill),
liabilities, non-controlling interest and other components of equity while any resultant gain or loss is
recognised in profit or loss. Any investment retained is recognised at fair value.
Effects of COVID-19 on the financial statements
During the year under review, the COVID-19 pandemic continued to impact the global economies. The
following are the effects that the pandemic had on the Group’s and the Bank’s financial statements
during the year under review:
Moratoria on loan repayments
During the prior year, credit and financial institutions licensed by the MFSA were directed to offer a
moratorium on repayments on capital and interest for borrowers who were negatively affected by
COVID-19. The Central Bank of Malta (“CBM”) issued Directive 18 for Moratoria on Credit Facilities in
Exceptional Circumstances to which the Group has abided.
During the year under review, the CBM has deemed it appropriate to extend the applicability of
Directive 18 by reactivating the application period for moratoria until the 31 March 2021. Directive 18
has been extended to include targeted conditions that an applicant can benefit from by either an
extension of an existing moratorium or else through an application of a new moratorium.
As at end of the financial reporting year, there were no loans which still benefitted from a moratorium
on capital and/or interest payments in line with CBM Directive 18.
Clients who have been granted a moratorium on their loans and advances in line with Directive 18 since
the beginning of COVID-19, amounted to a gross carrying amount of €277 million (Dec-20: €272
million).
Following the expiry of CBM Directive 18 on 31 March 2021, the Bank decided to continue supporting
its clients by granting the moratorium on a case-by-case basis. The Bank’s total lending now under
moratoria represents repayment deferments granted by the Bank itself. The gross carrying amount of
these loans as at end of December 2021 amounted to €98.0 million.
APS BANK PLC
APS Bank plc 66
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Moratoria on loan repayments (continued)
The following table presents the remaining loan balances which had been granted a moratorium under
CBM Directive 18 as at the end of December 2020 and loan balances under moratorium as granted by
the Bank as at December 2021.
As part of the assessment of the potential impact of the pandemic on the Group’s loans and advances
portfolio, the said portfolio was grouped by perceived macro-economic risk of the underlying
economic sectors, with those sectors least impacted by the pandemic categorised as ‘Low risk sectors’
and those deemed to be mostly impacted by the pandemic categorised as ‘High risk sectors’. Further
information is included within the ‘Pillar 3 Disclosures’ Report as published on the Bank’s website.
Dec-21
Dec-21
Dec-20
Dec-20
Balance on
which COVID-
19 measures
were granted
CBM moratoria
Total
Balance
Balance on
which COVID-
19 measures
were granted
CBM moratoria
Total
Balance
€000
€000
€000
€000
High risk sectors
-
-
113,549
260,046
Medium risk sectors
-
-
15,498
215,073
Low risk sectors
-
-
10,523
111,430
Household and individuals
-
-
19,059
1,123,329
-
-
158,628
1,709,878
The following tables provide information on moratoria and forbearance measures in relation to COVID-
19 as at the end of December 2021 and 2020. The balances as at 2021 represent the moratorium which
were granted by the Bank, whereas the 2020 balances represent the moratorium as granted under the
CBM Directive.
Dec-21
Dec-20
€000
€000
Commercial facilities
97,673
139,570
Retail facilities
299
19,058
97,972
158,628
APS BANK PLC
APS Bank plc 67
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Moratoria on loan repayments (continued)
Gross
Carrying
Amount
Dec-21
Dec-20
€000
€000
Loans and advances
98,726
159,969
of which: Households, Non-Profit Institutions Serving Households & Sole Traders
1,897
32,398
of which: Households
693
19,168
of which: Non-Profit Institutions Serving Households & Sole
Traders
1,204
13,230
of which:
Households
of which: Collateralised by residential immovable property
1,835
22,590
of which: Non-financial corporations
96,291
123,426
of which:
Non-financial
corporations
of which: Small and medium-sized enterprises
88,735
112,756
of which: Collateralised by commercial immovable property
94,481
104,843
of which: Other financial corporations
538
4,145
The above table includes the interest accrued on loans and advances subject to a moratorium
amounting to €0.8 million (2020: €1.3 million).
Information on loans and advances subject to moratoria
Accumulated
impairment,
accumulated
negative changes
in fair value due
to credit risk
Dec-21
Dec-20
€000
€000
Loans and advances
(155)
(781)
of which: Households, Non-Profit Institutions Serving Households & Sole Traders
(88)
(271)
of which: Households
(83)
(249)
of which: Non-Profit Institutions Serving Households & Sole
Traders
(5)
(22)
of which:
Households
of which: Collateralised by residential immovable property
(83)
(172)
of which: Non-financial corporations
(67)
(507)
of which: Non-
financial
corporations
of which: Small and medium-sized enterprises
(59)
(507)
of which: Collateralised by commercial immovable property
(59)
(63)
of which: Other financial corporations
-
(3)
APS BANK PLC
APS Bank plc 68
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Moratoria on loan repayments (continued)
Dec-21
Number of
obligors
Gross carrying
amount
Of which:
active
Of which:
expired
€000
€000
€000
of which granted
747
316,827
98,726
218,101
of which: Households, Non-Profit Institutions Serving Households & Sole
Traders
106,767
1,897
104,870
of which: Households
87,795
693
87,102
of which: Non-Profit Institutions Serving Households &
Sole Traders
18,972
1,204
17,768
of which:
Households
of which: Collateralised by residential immovable
property
92,200
1,835
90,365
of which: Non-financial corporations
197,665
96,291
101,374
of which: Non-
financial
corporations
of which: Small and medium-sized enterprises
182,550
88,735
93,815
of which: Collateralised by commercial immovable
property
183,610
94,481
89,129
of which: Other financial corporations
12,395
538
11,857
Dec-20
Number of
obligors
Gross carrying
amount
Of which:
active
Of which:
expired
€000
€000
€000
of which granted
779
272,606
159,969
112,637
of which: Households, Non-Profit Institutions Serving Households & Sole
Traders
113,012
32,398
80,614
of which: Households
93,117
19,168
73,949
of which: Non-Profit Institutions Serving Households &
Sole Traders
19,895
13,230
6,665
of which:
Households
of which: Collateralised by residential immovable
property
97,280
22,590
74,690
of which: Non-financial corporations
149,345
123,426
25,919
of which: Non-
financial
corporations
of which: Small and medium-sized enterprises
138,675
112,756
25,919
of which: Collateralised by commercial immovable
property
127,368
104,843
22,525
of which: Other financial corporations
10,249
4,145
6,104
As at end of December 2021, clients who have applied for a moratorium on their loans and advances
amounted to a gross carrying amount of €341 million (2020: €302 million) out of which €316 million (2020:
€272 million) were granted.
Moratoria granted under CBM Directive 18 which was rolled over under the Bank’s discretion amounted to
€244 million. During the year under review total moratoria granted amounted to €176 million out of which
€151 million were granted under the Bank’s discretion. Total expired moratoria amounted to €78 million with
€98 million still active as at year end.
Malta Development Bank (“MDB”) COVID-19 Guarantee Scheme
The MDB Guarantee Scheme (“Guarantee’’) was launched to support businesses who were negatively
impacted by COVID-19. Following the introduction of the scheme, the Group launched the “Jet Pack” product
APS BANK PLC
APS Bank plc 69
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Moratoria on loan repayments (continued)
which allowed eligible local businesses to apply for a working capital loan which amount depended on the
size, wage bill and turnover of the business amongst other things.
Facilities sanctioned under the Guarantee as at 31 December 2021 amounted to €35,086K (Dec-20: €32,269K)
of which €32,469 (Dec-20: €30,813K) was drawn down. The Guarantee covers 90% of each loan individual
facility, capped at 50% of the actual portfolio volume.
MDB loan exposure are covered by government guarantee amounting to €15,789 (Dec-20: €13,828K) and by
hypothecs amounting to €2,968 (Dec-20: €2,384K).
Expected Credit Loss (“ECL”) Measurement
In the current context of the on-going COVID-19 pandemic, the Group took several decisions to address
the repercussions brought along by the pandemic and thus having a more realistic ECL calculation.
During the prior year, the Group introduced a post-model adjustment, by triggering a forward transition
on specific performing exposures, operating in sectors impacted by the pandemic. The aim behind
such decision is to mitigate the risk of not capturing SICR due to the suspension of capital and interest
payments during the moratorium period.
As expected, during the year under review, the pandemic outlook continued to evolve, and a significant
degree of uncertainty still exists. Consequently, the Group continued monitoring the effects of the
pandemic on the economy and with the availability of more loan performance data and economic
updates, it continued fine-tuning its judgement and assumptions when applying the post-model
adjustment. Whilst the initial post-model adjustment was based on portfolio level, during the year
under review, the Group adopted a more granular approach by looking at customer-specific factors
and circumstances. This entails assessing the customer’s ability to generate sufficient cash flows to be
able to maintain their respective repayment obligations and determine whether the client requires a
forward transition. Furthermore, a significant number of retail clients who had encountered some
difficulties to continue repaying their loans during the prior year, have resumed with their regular
repayments during the year under review. However, the Group still monitors and considers these
performing exposures, whilst analysing the post-model adjustment.
Facilities impacted by the Group’s recent decisions and judgements relate only to loans and advances
to customers as follows;
1. Retail loan facilities
Forward transition depends on whether customer has benefitted or is still benefitting from a
moratoria initiative, and on the sector from which customer’s income is generated.
a. Customers whose ability to repay their commitments depend on income driving from the following
sectors listed below, are forward transitioned to Stage 2, only if they resumed with their
repayments over the previous three months prior to ECL reporting date. If customers are still
benefitting from a moratoria initiative or resumed with their repayments during the previous three
months prior to ECL reporting date, facilities are still forward transitioned to Stage 3, to allow a
probation period of three months, as required by Group’s IFRS 9 policy.
i. Accommodation & food services;
ii. Real estate activities;
iii. Transportation & storage;
iv. Art, entertainment & recreation activities.
b. Customers whose income depends on other sectors other than the sectors mentioned above, are
forward transitioned to Stage 2, only if customers are still benefitting from a moratoria initiative or
resumed with their repayments during the previous three months prior to ECL reporting date.
Otherwise, facilities are not captured within the post-model adjustment.
APS BANK PLC
APS Bank plc 70
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Expected Credit Loss (“ECL”) Measurement (continued)
2. For commercial facilities, all lending facilities, irrespective from the sector, which have
benefitted from a moratorium, have been assessed individually on their ability to generate
enough cash flow to repay their commitments and therefore to identify whether a forward
transition to Stage 2 or Stage 3, is required or otherwise. The assessment also considered the
duration of the moratorium, whether the moratorium is for capital only or also including
interest.
Post-Model Adjustment Impact
The impact of the post-model adjustment on the ECL charge on the loans and advances to customers
portfolio is illustrated in the table below:
The Group/The Bank
a) Loss Allowance Movement
As with any other economic forecast, the projections and likelihoods of occurrence are subject to
a degree of uncertainty due to the unpredictable outcome of this outbreak, and therefore, the
actual outcomes may be significantly different to those projected. The Group considers the post-
model adjustments to represent the best estimate of the possible outcomes.
A further analysis of the loans and advances to customers portfolio can be found in Notes 11, 16
and 46.
Additional costs incurred
During the year under review, the Group has continued to take the necessary steps to safeguard the
health of its clients as well as its employees, by continuing to adhere to the measures that as a minimum
met the recommendations of the Health Authorities. The Group incurred additional operational
expenses such as the following:
• More frequent office cleaning;
• Purchase of personal protective equipment;
• Increase in internet bandwidth to support remote working; and
• Additional subscriptions to support online meetings.
The above additional costs are not considered to be material for the year end financial reporting.
In addition, the Group continued to support the measures introduced in 2020 whereby staff are allowed
maximum flexibility in their working arrangements in order to manage their specific personal and family
circumstances during the pandemic. No new additional capital expenditure was incurred by the Group
in this regard (Dec-20: €419K).
Fair value movement
The volatility caused by the COVID-19 pandemic started to stabilise during the second quarter of 2020
with certain unrealised losses starting to reverse during the first half of 2021. However, the volatility in
prices was once again felt during the second half of the year under review, with the Group recording a
net loss on financial instruments amounting to €152K (Dec-20: gain of €490K).
Additional ECL
Dec-21
Dec-20
€000
€000
Commercial clients
436
919
Retail clients
215
2,860
Total
651
3,779
APS BANK PLC
APS Bank plc 71
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.1 BASIS OF PREPARATION (continued)
Effects of COVID-19 on the financial statements (continued)
Fair value movement (continued)
Net losses recorded in the statements of comprehensive income brought about by a change in fair
value on debt instruments measured at FVTOCI amounted to €7,908K (2020: gain of €1,717K).
2.2 INTERNATIONAL FINANCIAL REPORTING STANDARDS EFFECTIVE IN THE CURRENT YEAR
AND THOSE IN ISSUE BUT NOT YET EFFECTIVE
Standards, interpretations and amendments to published standards, which are effective in the
current year
The following amendments are effective in the current year:
• Amendment to IFRS 16 – COVID-19 – Related Rent Concessions beyond 30 June 2021 (effective
for financial years on or after 1 April 2021, earlier application permitted). The Group and the Bank
did not receive any Covid-related rent concessions and accordingly this is not applicable.
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform –
Phase 2 (effective for financial years beginning on or after 1 January 2021).
In the current year, the Group adopted the Phase 2 amendments Interest Rate Benchmark
Reform—Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments
enables the Group to reflect the effects of transitioning from interbank offered rates (“IBOR”) to
alternative benchmark interest rates (also referred to as risk free rates or “RFRs”) without giving
rise to accounting impacts that would not provide useful information to users of financial
statements. The Group has not restated the prior period. Instead, where applicable, the
amendments have been applied retrospectively; however, there was no need for an adjustment
in equity as at 1 January 2021.
As a result of the Phase 2 amendments:
• When the contractual terms of financial instruments measured using amortised cost
(that is, financial instruments classified at amortised cost and debt financial assets
classified as FVTOCI) are amended as a direct consequence of the interest rate
benchmark reform and the new basis for determining the contractual cash flows is
economically equivalent to the basis immediately preceding the change, the Group
changes the basis for determining the contractual cash flows prospectively by revising
the effective interest rate. If additional changes are made, which are not directly related
to the reform, the applicable requirements of IFRS 9 are applied to the other changes.
• When a lease is modified as a direct consequence of the interest rate benchmark reform
and the new basis for determining the lease payments is economically equivalent to the
previous basis, the Group remeasures the lease liability to reflect the revised lease
payments discounted using a revised discount rate that reflects the change in the basis
for determining the contractual cash flows.
The Group does not have significant exposure to IBOR on its financial instruments, as
further detailed below, and none of its leases in which it is a lessee are linked to IBOR.
The Group has closely monitored the market and the output from the various industry
working groups managing the transition to new benchmark interest rates. The transition
to RFRs included assessing all the existing assets and liabilities that are based on IBOR
cashflows. The process involved a review of contracts, drafting of new legal clauses,
changes to the Bank’s IT system, and subsequently communication of the IBOR reform
to customers and counterparties.
APS BANK PLC
APS Bank plc 72
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.2 INTERNATIONAL FINANCIAL REPORTING STANDARDS EFFECTIVE IN THE CURRENT YEAR
AND THOSE IN ISSUE BUT NOT YET EFFECTIVE (continued)
Standards, interpretations and amendments to published standards, which are effective in the
current year (continued)
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform –
Phase 2 (effective for financial years beginning on or after 1 January 2021). (continued)
The absolute majority of the Bank's loan portfolio is priced over the Bank’s internal base
rate and only some loans are linked to either USD LIBOR (in the case of foreign currency
denominated loans) or EURIBOR (in the case of Euro denominated loans). As at end of
December 2021, the carrying amount of loans linked to USD LIBOR and EURIBOR were
$0.7 million and €227 million, respectively.
All syndicated loans with a carrying amount of €99 million and trade finance transactions
with a carrying amount of €35.8 million are also priced over LIBOR or EURIBOR, with
37% of these being linked to LIBOR and the remaining 63% being linked to EURIBOR.
Bonds linked to EURIBOR amount to €0.3 million, whilst those linked to GBP SONIA
(overnight rate) amount to £1.2 million.
The Bank has two floating-rate financial liabilities held with the European Investment
Bank and the European Investment Fund (both 6-month EURIBOR), with a carrying
amount of €7.7 million.
All maturing and non-maturing deposits are linked to fixed rates of interest and so not
dependent on IBOR.
With respect to derivative instruments, the Bank holds no such positions which are linked
to IBOR.
Following ALCO approval, fall back and replacement rates have been identified and
subsequently implemented. As from 1 January 2022 new GBP loans will be linked to the
GBP SONIA issued by the Bank of England as recommended by the ‘UK Working Group
on Sterling Risk-Free Rates’; whilst in the case of new USD loans these will be linked to
the USD SOFR issued by the Federal Reserve Bank as recommended by the ‘US
Alternative Reference Rates Committee’. The EURIBOR is EU Benchmark Regulation
compliant, and it is expected that it will not be replaced by an alternative risk-free rate.
Given that the absolute majority of our IBOR linked instruments are linked to EURIBOR,
this reform had only an insignificant impact on the Bank’s financial statements.
No significant risks were identified during the consultations and review phases since in
the case of EURO denominated instruments, which represent the majority, there will be
no change, and in the case of the new USD and GBP rates, any interest rate difference is
expected to be negligible.
The above standards, interpretations and amendments did not have a material effect on the financial
statements of the Group or the Bank.
Standards, interpretations and amendments to published standards that are in issue but not yet
effective
Up to the date of approval of these financial statements, certain new standards, amendments and
interpretations to existing standards have been published but are not yet effective for the current
reporting period and which have not been adopted early.
The following standards, interpretations and amendments have been issued by the IASB but not all
were endorsed by the EU:
• IFRS 17 Insurance Contracts (effective for financial years on or after 1 January 2023).
APS BANK PLC
APS Bank plc 73
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.2 INTERNATIONAL FINANCIAL REPORTING STANDARDS EFFECTIVE IN THE CURRENT YEAR
AND THOSE IN ISSUE BUT NOT YET EFFECTIVE (continued)
Standards, interpretations and amendments to published standards that are in issue but not yet
effective (continued)
• Amendments to IFRS 4 – Extension of the Temporary Exemption from applying IFRS 9 (in
which the fixed expiry date of the amendment was deferred to annual periods beginning on or
after 1 January 2023).
• Amendments to IAS 37 – Onerous contracts – cost of fulfilling a contract (effective for financial
years on or after 1 January 2022).
• Amendments to IFRS 3 – Reference to the conceptual framework (effective for financial years
on or after 1 January 2022).
• Amendments to IAS 16 – Property, plant and equipment – proceeds before intended use
(effective for financial years on or after 1 January 2022).
• Amendments to IFRS 9 (as part of the 2018 – 2020 Annual Improvement cycle) – Financial
instruments (effective for financial years on or after 1 January 2022).
• Amendments to IAS 41 (as part of the 2018 – 2020 Annual Improvements Cycle) (effective for
financial years on or after 1 January 2022).
The changes resulting from the above standards, interpretations and amendments are not expected
to have a material effect on the financial statements of the Group or the Bank.
The changes resulting from the following standards, interpretations and amendments are in the process
of being assessed by management to determine their applicability and potential effect on the financial
statements of the Group and the Bank:
• Amendments to IAS 1 – Classification of Liabilities as Current or Non-Current (effective for
financial years on or after 1 January 2023 by virtue of the July 2020 Amendments). The
amendments affect only the presentation of liabilities in the statements of financial position
and not the amount or timing of recognition of any asset, liability income or expenses, or the
information that entities disclose about those items. The amendments:
a) clarify that the classification of liabilities as current or non-current should be based on
rights that are in existence at the end of the reporting period and align the wording in
all affected paragraphs to refer to the "right" to defer settlement by at least twelve
months and make explicit that only rights in place "at the end of the reporting period"
should affect the classification of a liability;
b) clarify that classification is unaffected by expectations about whether an entity will
exercise its right to defer settlement of a liability; and
c) make clear that settlement refers to the transfer to the counterparty of cash, equity
instruments, other assets or services.
• Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies
(effective for financial years on or after 1 January 2023). The amendments are intended to help
preparers in deciding which accounting policies to disclose in their financial statements.
Material accounting policy information is now required to be disclosed instead of significant
accounting policies. The amendments explain how an entity can identify material accounting
policy information and give examples of when accounting policy information is likely to be
material. Accounting policy information may be material due to its nature and is material if
users of an entity’s financial statements would need it to understand other material information
in financial statements.
In addition, IFRS Practice Statement 2 has been amended by adding guidance and examples
to explain and demonstrate the application of the ‘four-step materiality process’ to accounting
policy information in order to support the amendments to IAS 1.
• Amendments to IAS 8 – Definition of Accounting Estimates (effective for financial years on or
after 1 January 2023). The changes to IAS 8 focus entirely on accounting estimates and clarify
that the definition of a change in accounting estimates is replaced with a definition of
accounting estimates. Entities develop accounting estimates if accounting policies require
items in financial statements to be measured in a way that involves measurement uncertainty.
A change in accounting estimate that results from new information or new developments is
APS BANK PLC
APS Bank plc 74
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.2 INTERNATIONAL FINANCIAL REPORTING STANDARDS EFFECTIVE IN THE CURRENT YEAR
AND THOSE IN ISSUE BUT NOT YET EFFECTIVE (continued)
Standards, interpretations and amendments to published standards that are in issue but not yet
effective (continued)
not the correction of an error and a change in an accounting estimate may affect only the
current period’s profit or loss, or the profit or loss of both the current period and future periods.
• Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (effective for financial years on or after 1 January 2023). The aim of the
amendments is to reduce diversity in the reporting of deferred tax on leases and
decommissioning obligations.
An entity applies the amendments to transactions that occur on or after the beginning of the
earliest comparative period presented. It also, at the beginning of the earliest comparative
period presented, recognises deferred tax for all temporary differences related to leases and
decommissioning obligations and recognises the cumulative effect of initially applying the
amendments as an adjustment to the opening balance of retained earnings (or other
component of equity, as appropriate) at that date.
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of income and expenses
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group
and the revenue can be reliably measured. The following specific recognition criteria must also be met
before revenue is recognised:
Interest and similar income and expense
Interest income and expense are recognised in profit or loss using the effective interest method. The
'effective interest rate' (“EIR”) is the rate that exactly discounts estimated future cash payments or
receipts, excluding expected credit losses (“ECLs”), through the expected life of the financial
instrument, or where appropriate, a shorter period, to that instrument’s gross carrying amount on initial
recognition.
The calculation of the EIR includes transaction costs and fees and points paid or received that are an
integral part of the EIR.
Fee and commission income
The Group earns fee and commission income from a diverse range of services it provides to its
customers. Fees and commissions that are earned from services provided to customers are accrued
for over that period. These fees include commission income, custody and other management and
advisory fees. Other fee and commission income is recognised on completion of underlying
transactions in the relevant period.
Dividend income
Dividend income from investments is recognised when the right to receive income is established, which
is generally when shareholders approve the dividend.
Net gains on financial instruments
Net gains on financial instruments include realised gains and losses on disposal of financial instruments
and unrealised gains and losses on financial assets at fair value through profit or loss (“FVTPL”).
Realised gains and losses on disposal of financial assets at FVTPL represent the difference between an
instrument’s carrying amount and disposal amount and are recognised on the trade date of transaction.
Unrealised gains and losses on financial assets at FVTPL represent changes in fair value of financial
APS BANK PLC
APS Bank plc 75
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net gains on financial instruments (continued)
instruments during the year and up to the reporting date. Net gains on financial instruments also
include the reclassification of cumulative fair value movements from OCI to profit or loss on the
derecognition of debt instruments at FVTOCI.
Foreign currency translation
The consolidated financial statements are presented in Euro, which is the functional currency of the
Bank and its subsidiaries. Transactions in foreign currencies are initially recorded by the Group entities
at their respective functional currency spot rates at the date the transaction first qualifies for
recognition. Transactions in foreign currencies are translated at the rate of exchange prevailing on the
date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at
the functional currency spot rates of exchange at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in profit or loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates as at
the dates of recognition.
Net gains or losses resulting from foreign exchange on financial assets and financial liabilities are
recognised in Note 8.
Financial assets and liabilities
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the entity becomes a party to the
contractual provisions of the instrument. Regular way purchases and sales of financial assets are
recognised on trade-date, the date on which the Group commits to purchase or sell the asset.
At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or
minus in the case of a financial asset or financial liability not at FVTPL, transaction costs that are
incremental and directly attributable to the acquisition or issue of the financial asset or financial liability,
such as fees and commissions. Transaction costs of financial assets and financial liabilities carried at
FVTPL are expensed immediately in profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset, or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through’ arrangement; and
• either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of the asset but has transferred
control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all of the risks and
rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the
Group’s continuing involvement in the asset.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expired.
Offsetting financial instruments
Financial assets and financial liabilities could be offset and the net amount is presented in the
statements of financial position only if there is a currently legally enforceable right to offset the
APS BANK PLC
APS Bank plc 76
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
recognised amounts and there is an intention either to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
Financial assets
Classification and subsequent measurement
The Group classifies its financial assets in the following principal categories:
• Fair value through profit or loss (‘‘FVTPL’’);
• Fair value through other comprehensive income (‘‘FVTOCI’’); or
• Amortised cost.
Consequently, all recognised financial assets are subsequently measured in their entirety at either
amortised cost or fair value. Derivatives embedded in hybrid contracts that contain financial asset hosts
within the scope of IFRS 9 are not separated; instead, the hybrid contract is classified and subsequently
measured in its entirety at either amortised cost or fair value.
Classification and subsequent measurement of financial assets depend on:
i. the Group's business model for managing the asset; and
ii. the cash flow characteristics of the asset.
Business model assessment
The business model reflects how the Group manages its financial assets in order to achieve a particular
business objective. That is, whether the Group's objective is solely to hold assets to collect the
contractual cash flows from assets or both to collect the contractual cash flows and to sell the assets.
If neither of these is applicable i.e. financial assets are held for trading purposes or financial assets are
managed and their performance is evaluated on a fair value basis, then the financial assets that meet
the solely payment of principal and interest (“SPPI”) criterion are classified as part of 'other' business
model and measured at FVTPL.
The Bank’s business model does not depend on management’s intentions for an individual instrument
therefore, the business model assessment is performed at a higher level of aggregation rather than on
an instrument-by-instrument basis. Factors considered by the Group in determining the business
model for a group of assets include;
• the stated policies and objectives for the portfolio and the operation of those policies in
practice, 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;
• how the performance of the portfolio is evaluated and reported to the Group’s management;
• the risks that affect the performance of the business model (and the financial assets held within
that business model) and how those risks are managed; and
• past experience i.e. 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.
Solely payment of principal and interest (SPPI)
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial
recognition. ‘Interest’ is defined as consideration for the time value of money, for the credit risk
associated with the principal amount outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
APS BANK PLC
APS Bank plc 77
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
Financial assets (continued)
Solely payment of principal and interest (SPPI) (continued)
Where the business model is to hold assets to collect contractual cash flows or to collect contractual
cash flows and to sell, the Group assesses whether the financial instruments' cash flows represent SPPI
(the SPPI test). In assessing whether the contractual cash flows are SPPI, the Group considers the
contractual terms of the instrument. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash flows such that it would
not meet this condition. In making the assessment, the Group will consider:
• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms; and
• features that modify consideration for the time value of money - e.g. periodic reset of interest
rates.
Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic
lending arrangement, the related financial asset fails the SPPI test.
Financial assets with embedded derivatives are considered in their entirety, when determining whether
their cash flows are SPPI. If the hybrid contract contains a host that is a financial asset, then the Group
assesses the entire contract as described in the financial assets section above for classification and
measurement purposes.
All of the Group’s retail loans and certain fixed-rate corporate loans contain prepayment features. A
prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially
represents unpaid amounts of principal and interest on the principal amount outstanding, which may
include reasonable compensation for early termination of the contract.
In addition, a prepayment feature is treated as consistent with this criterion if:
• a financial asset is acquired or originated at a premium or discount to its contractual par
amount,
• the prepayment amount substantially represents the contractual par amount plus accrued (but
unpaid)
contractual interest (which may also include reasonable compensation for early termination);
and
• the fair value of the prepayment feature is insignificant on initial recognition.
The Group reclassifies financial assets when and only when the 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.
Debt instruments
Amortised cost
Debt financial assets which are held within a business model whose objective is to hold assets for
collection of contractual cash flows where those cash flows give rise on specified dates to cash flows
that are SPPI, and that are not designated at FVTPL, are measured at amortised cost.
Appropriate allowances for ECLs are recognised in profit or loss in accordance with the Bank’s
accounting policy on ECLs. The amortised cost of a financial asset is the amount at which the financial
asset is measured at initial recognition minus the principal repayments, plus the cumulative
amortisation using the effective interest method of any difference between that initial amount and the
maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the
amortised cost of a financial asset before adjusting for any loss allowance. Interest income from these
financial assets is included in 'Interest receivable and similar income' using the EIR method.
APS BANK PLC
APS Bank plc 78
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
Financial assets (continued)
Debt instruments (continued)
Financial assets classified in this category are principally as follows – Cash and bank balances, loans
and advances to banks and customers, certain debt and fixed income instruments and syndicated
loans.
Fair value through other comprehensive income (FVTOCI)
Debt financial assets that are held within a business model whose objective is achieved by both
collection of contractual cash flows and sale of the assets, where those cash flows give rise on specified
dates to cash flows that are SPPI, and that are not designated at FVTPL, are measured at FVTOCI.
Appropriate allowances for ECLs are recognised in profit or loss in accordance with the Bank’s
accounting policy on ECLs. 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 (losses)/gains on financial instruments’. Interest income from these
financial assets is included in 'Interest receivable and similar income' using the EIR method. Certain
debt and other fixed income instruments are being classified in this category.
Fair value through profit or loss (FVTPL)
Debt financial assets that are not classified as measured at amortised cost or FVTOCI are measured at
FVTPL. Certain debt and other fixed income instruments are being classified in this category.
In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised cost or at FVTOCI as FVTPL if in doing so
eliminates or significantly reduces an accounting mismatch that would otherwise arise. The Group did
not designate any of its debt financial assets in terms of this requirement.
A gain or loss on a debt investment that is subsequently measured at FVTPL is recognised in profit or
loss and presented in the profit or loss statement within 'Net (losses)/gains on financial instruments’ in
the period in which it arises. Interest income from these financial assets is included in 'Interest
receivable and similar income' using the EIR method. Foreign exchange movements are recognised in
Net gains on foreign exchange under Note 8.
Equity instruments
The Group subsequently measures all equity investments at FVTPL, except where the Group's
management has elected, at initial recognition, to irrevocably designate an equity investment at
FVTOCI unless the instrument is held for trading. The Group's policy is to designate equity investments
as FVTOCI when those investments are held for purposes other than to generate investment returns.
When the FVTOCI election is used, fair value gains and losses are recognised in OCI and are not
subsequently reclassified to profit or loss, including on disposal. Dividends, when representing a return
on such investments, continue to be recognised in profit or loss as ‘Dividend income’ when the Group's
right to receive payments is established.
Gains and losses on equity investments at FVTPL are included in the 'Net (losses)/gains on financial
instruments' line in the statements of profit or loss.
APS BANK PLC
APS Bank plc 79
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
Financial assets (continued)
Equity instruments (continued)
Impairment of financial assets
IFRS 9 is based on a forward-looking ‘ECL’ model. This requires considerable judgement over how
changes in economic factors affect ECLs, which are determined on a probability-weighted basis.
The Group assesses on a forward-looking basis the ECL associated with;
• debt financial assets carried at amortised cost and FVTOCI, comprising mainly debt and other
fixed income securities, loans and advances to customers and banks, syndicated loans and
balances with CBM
• irrevocable loan commitments and financial guarantee contracts issued.
The Group recognises a loss allowance for such losses at each reporting date. The measurement of
ECL reflects:
• an unbiased and probability-weighted amount that is determined by evaluating a range of
possible outcomes;
• the time value of money; and
• reasonable and supportable information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts of future economic
conditions.
IFRS 9 requires a loss allowance to be recognised at an amount equal to either 12-month ECLs or
lifetime ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected
life of a financial instrument, whereas 12-month ECLs are the portion of ECLs that result from default
events that are possible within the 12 months after the reporting date. The Group recognises loss
allowances at an amount equal to lifetime ECLs, except in the following cases, for which the amount
recognised will be 12-month ECLs:
• financial assets, including debt investment securities that are determined to have low credit risk at
the reporting date. The Group considers a debt security to have low credit risk when its credit risk
rating is equivalent to the definition of ‘investment-grade’;
• and other financial instruments for which credit risk has not increased significantly since initial
recognition.
The credit risk note provides more detail of how the ECL allowance is measured. Loss allowances for
ECL are presented 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;
• where a financial instrument includes both a drawn and an undrawn component, and the Group
cannot identify the ECL on the loan commitment component separately from those on the
drawn component, the Group presents a combined loss allowance for both components. The
combined amount is presented as a deduction from the gross carrying amount of the drawn
component; and
• debt instruments measured at FVTOCI: no loss allowance is recognised against the asset
because the carrying amount of these assets is their fair value. However, the loss allowance is
recognised in other comprehensive income and accumulated in the fair value reserve.
Under IFRS 9, no impairment loss is recognised on equity investments and other financial instruments
measured at FVTPL.
APS BANK PLC
APS Bank plc 80
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
Financial assets (continued)
Equity instruments (continued)
Modification of loans
The Group sometimes renegotiates or otherwise modifies the contractual cash flows of loans to
customers. When this happens, the Group assesses whether this modification results in derecognition.
A modification results in derecognition when the new terms are substantially different to the original
terms. The Group does this by considering, among others, the following factors:
• If the borrower is in financial difficulty, whether the modification merely reduces the
contractual cash flows to amounts the borrower is expected to be able to pay;
• Whether any substantial new terms are introduced;
• Significant extension of the loan term when the borrower is not in financial difficulty;
• Significant change in the interest rate;
• Insertion of collateral, other security or credit enhancements that significantly affect the
credit risk associated with the loan
.
If the terms are substantially different, the Group derecognises the original financial asset and
recognises a 'new' asset at amortised cost and recalculates a new EIR for the asset. The date of
renegotiation is consequently considered to be the date of initial recognition for impairment calculation
purposes, including for the purpose of determining whether a significant increase in credit risk has
occurred. However, the Group also assesses whether the new financial asset recognised is deemed to
be credit-impaired at initial recognition, especially in circumstances where the renegotiation was driven
by the debtor being unable to make the originally agreed payments. Differences in the carrying amount
are also recognised in profit or loss as a gain or loss on derecognition.
If the terms are not substantially different, the renegotiation or modification does not result in
derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows
of the financial asset and recognises a modification gain or loss in profit or loss. The new gross carrying
amount is recalculated by discounting the modified cash flows at the original EIR.
Collateral valuation
The Bank uses collateral to mitigate its risks on financial assets. The collateral comes in various forms
such as cash, securities, guarantees and real estate. The fair value is generally assessed at a minimum
at inception date. However, some collateral, for example cash or securities, is valued monthly. To the
extent possible, the Group uses active market data for valuing collateral. Non-financial collateral, such
as real estate, is valued based on data provided by external valuers to the extent that the underlying
loans continue to be recognised.
Financial liabilities
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Amounts owed to banks and to customers and debt securities in issue
Financial liabilities are classified according to the substance of the contractual arrangements entered
into. Amounts owed to banks, Amounts owed to customers and Debt securities in issue are
subsequently measured at amortised cost using the EIR method.
APS BANK PLC
APS Bank plc 81
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and liabilities (continued)
Financial liabilities (continued)
Modification of financial liabilities
When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original liability and the recognition of a new liability
at fair value. The difference in the respective carrying amounts is recognised in the statement of profit
or loss.
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 EIR, is at least
10% different from the discounted present value of the 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 amortised
over the remaining term of the modified liability.
Derivative financial instruments
Derivatives are subsequently re-measured at fair value. All derivatives are classified as assets when
their fair value is positive or as liabilities when their fair value is negative.
Derivatives embedded in hybrid contracts that contain financial asset hosts are not separated; instead,
the hybrid contract is classified and subsequently measured in its entirety at either amortised cost or
fair value. Derivatives embedded in hybrid contracts that contain financial liability hosts are treated as
separate derivatives and measured at fair value if their economic characteristics and risks are not
closely related to those of the host contract and the host contract is not itself measured at FVTPL.
Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due,
in accordance with the terms of a debt instrument. Such financial guarantees are given to banks,
financial institutions and others on behalf of customers to secure loans, overdrafts and other banking
facilities.
In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit,
guarantees and acceptances. Financial guarantees are initially recognised in the financial statements
at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under
each guarantee is measured at the higher of:
(i) the amortised premium and;
(ii) the amount of the loss allowance determined in accordance with IFRS 9 arising as a result of
the financial guarantee.
Any increase in the liability relating to financial guarantees is taken to the statements of profit or loss.
Loan commitments are firm commitments to provide credit under pre-specified terms and conditions.
Loan commitments provided by the Group are considered for loss allowance determined in accordance
with IFRS 9. The Group has not provided any commitment to provide loans at a below-market interest
rate, or that can be settled net in cash or by delivering or issuing another financial instrument.
APS BANK PLC
APS Bank plc 82
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial guarantee contracts and loan commitments (continued)
For loan commitments and financial guarantee contracts, the loss allowance would be recognised as a
provision. However, for contracts that include both a loan and an undrawn commitment and the Group
cannot separately identify the ECLs on the undrawn commitment component from those on the loan
component, the ECLs on the undrawn commitment are recognised together with the loss allowance
for the loan. To the extent that the combined ECLs exceed the gross carrying amount of the loan, the
ECLs are recognised as a provision.
Equity
An equity instrument is any contract that evidences a residual interest in the assets of the company
after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of
direct issue costs. Redemptions or refinancing of equity instruments are recognised as changes in
equity.
Ordinary shares issued by the company are classified as equity instruments.
Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date are not derecognised from
the statement of financial position as the Group retains substantially all of the risks and rewards of
ownership. The corresponding cash received is recognised in the consolidated statement of financial
position as an asset with a corresponding obligation to return it, including accrued interest as a liability
within cash collateral on securities lent and repurchase agreements, reflecting the transaction’s
economic substance as a loan to the Group. The difference between the sale and repurchase prices is
treated as interest expense and is accrued over the life of agreement using the EIR.
Conversely, securities purchased under agreements to resell at a specified future date are not
recognised in the statement of financial position. The consideration paid, including accrued interest, is
recorded in the statement of financial position, within cash collateral on securities borrowed and
reverse repurchase agreements, reflecting the transaction’s economic substance as a loan by the
Group. The difference between the purchase and resale prices is recorded in Net interest income and
is accrued over the life of the agreement using the EIR.
If securities purchased under agreement to resell are subsequently sold to third parties, the obligation
to return the securities is recorded as a short sale within Financial liabilities held for-trading and
measured at fair value with any gains or losses included in net gains on financial instruments.
Property and equipment
Property and equipment are initially recorded at cost.
During 2019 the Group and the Bank changed their accounting policy for the subsequent measurement
of land and buildings from the cost model to the revaluation model. Accordingly, subsequent to initial
recognition, land and buildings are stated at fair value at the date of the revaluation less any subsequent
accumulated depreciation and subsequent accumulated impairment losses. Revaluations are made for
the entire class of land and buildings and with sufficient regularity such that the carrying amount does
not differ materially from that which would be determined using fair values at the end of the reporting
period. Any accumulated depreciation at the date of the revaluation is eliminated against the gross
carrying amount of the asset and the net amount is restated to the revalued amount of the asset.
Any revaluation increase arising on the revaluation is recognised in OCI and accumulated in equity
under the heading of revaluation reserve unless it reverses a revaluation decrease for the same asset
previously recognised in profit or loss, in which case the increase is credited to profit and loss to the
extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation is
recognised in profit and loss to the extent that it exceeds the balance, if any, held in the revaluation
reserve relating to a previous revaluation of the asset.
APS BANK PLC
APS Bank plc 83
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment (continued)
Other tangible assets are stated at cost less accumulated depreciation and accumulated impairment
in value, if any. Depreciation is calculated using the straight-line method to write off the cost or
revalued amount of each asset to its residual value over its estimated useful economic life. Changes in
the expected useful life are accounted for by changing the amortisation period or method, as
appropriate, and treated as changes in accounting estimates. The annual rates used for this purpose
are:
%
Building
1.0
Computer equipment
25.0
Intangible assets
12.5 – 25.0
Other
5.0 – 20.0
Works of art and land are not depreciated by the Group.
Property and equipment is derecognised upon disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in the
statements of profit or loss in the year the asset is derecognised. The asset’s residual value, useful life
and method is reviewed, and adjusted if appropriate, at each financial year end.
Right of use assets, that would be presented within property and equipment if they were owned, are
presented separately in the statements of financial position and their accounting policy is included
below.
Intangible assets
Intangible assets comprise computer software. An intangible asset is recognised only when its cost can
be measured reliably, and it is probable that the expected future economic benefits that are
attributable to it will flow to the Group. Intangible assets are initially measured at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.
Intangible assets are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the
amortisation method for an intangible asset is reviewed at least at each financial year end. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits embodied
in the asset is accounted for by changing the amortisation period or method, as appropriate, and
treated as changes in accounting estimates. The amortisation expense on intangible assets is
recognised in the statements of profit or loss in the expense category consistent with the function of
the intangible asset.
Amortisation is calculated using the straight-line method to write down the cost of computer software
to its residual value over its estimated useful life of 4 – 8 years.
Development costs
Development costs on an individual project are recognized as an intangible asset when the Group can
demonstrate:
• The technical feasibility of completing the intangible asset so that the asset will be available
for use or sale.
• Its intention to complete and its ability to use or sell the asset.
• How the asset will generate future economic benefits.
• The availability of resources to complete the asset.
• The ability to measure reliably the expenditure during development.
APS BANK PLC
APS Bank plc 84
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets (continued)
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. During the period of development, the asset is tested for impairment
annually.
Investment properties
Investment properties are stated initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are stated at fair value, which reflects market conditions at the
reporting date. Gains or losses arising from changes in the fair values of investment properties are
included in the statements of profit or loss in the period in which they arise, including the corresponding
tax effect. Fair values are determined based on an annual evaluation performed by an accredited
external independent valuer.
Investment properties are derecognised when either they have been disposed of or when they are
permanently withdrawn from use and no future economic benefit is expected from their disposal. The
difference between the net disposal proceeds and the carrying amount of the asset is recognised in
the statements of profit or loss in the period of derecognition.
Impairment of non-financial assets and investments in subsidiaries and associates
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required, the
Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or Cash Generating Unit’s fair value less costs to sell and its value in use. Where the
carrying amount of an asset or Cash Generating Unit exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. Impairment losses are recognised
in the statements of profit or loss in those expense categories consistent with the function of the
impaired asset, unless the asset is carried at a revalued amount, in which case, the impairment loss is
recognised in OCI to the extent that the impairment loss does not exceed the amount in the revaluation
surplus for that asset.
In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.
An assessment is made at each reporting date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists, the
recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the asset’s recoverable amount since the last
impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. The reversal is limited so that the carrying amount of the asset does not exceed
the recoverable amount that would have been determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years. Such reversal is recognised in the statements of profit or
loss, unless the asset is carried at a revalued amount, in which case, the impairment loss is recognised
in OCI to the extent that the impairment loss does not exceed the amount in the revaluation surplus
for that asset.
After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost less any accumulated impairment losses in the
separate financial statements of the Bank.
APS BANK PLC
APS Bank plc 85
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment in associates
The Group
The Group’s investment in its associates is accounted for using the ‘’equity method’’. An associate is an
entity over which the Group has significant influence.
Under the equity method, the investment in an associate is initially recognised at cost in the statements
of financial position. The carrying amount of the investment is adjusted to recognise changes in the
Group’s share of net assets of the associate since acquisition date. Goodwill relating to the associates
is included in the carrying amount of the investment and is neither amortised nor individually tested
for impairment.
The statements of profit or loss reflects the Group’s share of the results of operations of the associates.
When there has been a change recognised directly in the equity of the associates, the Group recognises
its share of any changes and discloses this, when applicable, in the statements of changes in equity.
Unrealised gains and losses resulting from transactions between the Group and the associates are
eliminated to the extent of the interest in the associates.
The financial statements of the associate are prepared for the same reporting period as the Group.
When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an
additional impairment loss on its investment in its associate. The Group determines at each reporting
date whether there is any objective evidence that the investment in the associate is impaired. If there
is such evidence, the Group calculates the amount of impairment as the difference between the
recoverable amount of the associate and its carrying value and recognises the loss in the share of
results of associate in the statements of profit or loss.
Upon loss of significant influence over the associate, the Group measures and recognises any retaining
investment at its fair value. Any difference between the carrying amount of the associate upon loss of
significant influence and the fair value of the retained investment and proceeds from disposal is
recognised in the statements of profit or loss.
The Bank
The investment in associates is stated in the separate financial statements of the Bank at cost less any
accumulated impairment losses.
Income from the investments is recognised only to the extent of the distributions received by the Bank.
Dividends payable on ordinary shares
Dividends payable on ordinary shares are recognised in the period in which they are declared.
Taxation
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted by the reporting date.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the
statements of profit or loss.
Deferred income tax
Deferred income tax is provided using the balance sheet liability method on temporary differences at
the reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
APS BANK PLC
APS Bank plc 86
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation (continued)
Deferred income tax (continued)
Deferred income tax is provided using the balance sheet liability method on temporary differences at
the reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary
differences, except:
• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of
unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilised except:
• where the deferred income tax asset relating to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
and
• in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred income tax assets are recognised only to the
extent that it is probable that the temporary differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part
of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed
at each reporting date and are recognised to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date.
Deferred income tax relating to items recognised directly in equity is recognised in equity and not in
the statements of profit or loss. Deferred income tax assets and deferred income tax liabilities are
offset, if a legally enforceable right exists to set off current tax assets against current income tax
liabilities and the deferred income taxes relate to the same taxable entity and the same taxation
authority.
Retirement benefit costs
The Group contributes towards the government pension defined contribution plan in accordance with
local legislation and to which it has no commitment beyond the payment of fixed contributions. These
obligations are recognised as an expense in the statements of profit or loss as they accrue. The Group
does not contribute towards any retirement benefit plans.
Other liabilities
Liabilities for other amounts payable are carried at cost which is the fair value of the consideration to
be paid in the future for goods and services received, whether or not billed to the Group.
APS BANK PLC
APS Bank plc 87
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and cash equivalents
For the purpose of the statements of cash flows, cash and cash equivalents comprise:
• Cash in hand and deposits repayable on call or short notice or with a contractual period
to maturity of less than three months, with any bank or financial institution
• Short-term highly liquid investments which are readily convertible into known amounts
of cash without notice, subject to an insignificant risk of changes in value and with a
contractual period of maturity of less than three months; and
• Advances to/from banks repayable within three months from the date of the advance.
Provisions, contingent liabilities and contingent assets
Provisions are recognised when the Group has a present legal or constructive obligation as a result of
a past event, and it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the Group’s best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate, the risks specific to
the liability. Provisions are not recognised for future operating losses.
A contingent liability is (a) a possible obligation that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the entity; or (b) a present obligation that arises from past events but is
not recognised because: (i) it is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured
with sufficient reliability. Contingent liabilities are not recognised. Contingent liabilities are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote.
A contingent asset is a possible asset 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. Contingent assets are not recognised. Contingent assets are disclosed
where an inflow of economic benefits is probable.
Non-current assets held-for-sale
A non-current asset is classified as held-for-sale if it is available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets and its sale must
be highly probable, that is:
• Management is committed to a plan to sell the asset and an active programme to locate a
buyer and complete the plan have been initiated;
• The asset is being actively marketed for sale at a sales price reasonable in relation to its current
fair value; and
• Actions required to complete the plan indicate that it is unlikely that the plan will be
significantly changed or withdrawn.
Immediately before the initial classification of the asset as held-for-sale, the carrying amount of the
asset will be measured in accordance with the applicable IFRSs. After classification, non-current assets
held-for-sale are measured at the lower of the carrying amount and fair value less cost to sell. Non-
current assets that are classified as held-for-sale are not depreciated.
Leases
The Group acts both as a lessor and as a lessee. The accounting policies herein address the accounting
treatment of the Group in both instances.
APS BANK PLC
APS Bank plc 88
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
The Group assesses whether a contract is or contains a lease at inception of the contract. A contract
is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for a consideration.
The Group as a lessor
On commencement of the lease, the Group evaluates its classification in accordance with the
covenants in the contract and to the extent to which the lease transfers the risks and rewards from
ownership of the underlying asset. If substantially all the risks and rewards incidental to ownership of
the asset are transferred to the lessee, the contract would classify as a finance lease, whereas all other
leases are classified as an operating lease.
For the year under review, the Group does not hold any finance leases and thus all lease agreements
whereby the Group acts as a lessor are being reported as operating leases. Leased assets are presented
in the statements of financial position according to their nature and are tested for impairment in
accordance with the company’s accounting policy on impairment. Depreciable leased assets are
depreciated in accordance with the Group’s accounting policy on depreciation. Rental income from
operating leases is recognised on a straight-line basis over the term of the relevant lease unless another
systematic basis is more representative of the pattern in which benefit from the use of the underlying
asset is diminished. Initial direct costs incurred in obtaining an operating lease are added to the carrying
amount of the leased asset.
The Group as a lessee
The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term
of 12 months or less) and leases of low value assets. For these leases, the Group has elected to apply
the recognition exemptions and to recognise the lease payments as an expense on a straight-line basis
over the lease term unless another systematic basis is more representative of the pattern of the lessee’s
benefit.
The Group assesses the value of an underlying asset based on the value of the asset when it is new,
regardless of the age of the asset being leased. The assessment of whether an underlying asset is of
low value is performed on an absolute basis. Leases of low-value assets qualify for the exemption
regardless of whether those leases are material to the lessee. The assessment is not affected by the
size, nature or circumstances of the lessee.
Accordingly, different lessees are expected to reach the same conclusion about whether a particular
underlying asset is of low-value.
The Group determines that the following leases qualify as leases of low-value assets on the basis of the
Group’s accounting policy for such items:
(a) Leases of IT equipment; and
(b) Leases of water dispensers.
The lease term is the non-cancellable period of a lease, together with both (a) periods covered by an
option to extend the lease if the lessee is reasonably certain to extend that option; and (b) periods
covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that
option. In assessing the length of the non-cancellable period of a lease, the Group applies the definition
of a contract to determine the period for which the contract is enforceable. A lease is no longer
enforceable when the lessee and the lessor each has the right to terminate the lease without permission
from the other party with no more than an insignificant penalty.
The lessee revises the lease term if there is a change in the non-cancellable period of a lease, for
example if it exercises or does not exercise an option or if an event occurs that contractually obliges
or prohibits the lessee from exercising an option. A lessee reassesses whether it is reasonably certain
to exercise or not to exercise an option upon the occurrence of either a significant event or a significant
APS BANK PLC
APS Bank plc 89
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
The Group as a lessee (continued)
change in circumstances that: (a) is within its control and (b) affects whether the lessee is reasonably
certain to exercise or not to exercise an option.
The lease liability is initially measured at the present value of the lease payments that are not paid at
the commencement date, discounted using the interest rate implicit in the lease. If that rate cannot be
readily determined, the lessee uses its incremental borrowing rate. Lease payments included in the
measurement of the lease liability comprise:
• Fixed lease payments, less any lease incentives receivable;
• Variable lease payments that depend on an index or a rate, initially measured using the index
or rate at the commencement date;
• Amounts expected to be payable by the lessee under residual value guarantees;
• The exercise price of a purchase option if the lessee is reasonably certain to exercise that
option; and
• Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising
an option to terminate the lease.
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
lease payments made.
The right-of-use assets at the commencement date comprise the initial measurement of the
corresponding lease liability, any lease payments made at or before the commencement date, less any
lease incentives received and any initial direct costs. They are subsequently measured at cost less any
accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the
site on which it is located or restore the underlying asset to the condition required by the terms and
conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the
costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those
costs are incurred to produce inventories.
Right-of-use assets are depreciated 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. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a
purchase option, the related right-of-use asset is depreciated over the useful life of the underlying
asset.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any
identified impairment loss as described in the Section entitled ‘Impairment of non-financial assets and
investments in subsidiaries and associates’.
Some property leases contain variable payment terms that depend on an index/rate such as the
Property/retail/consumer price index. The lessee measures the index of the lease payments using the
rate at the commencement date. After the commencement date, lessees are required to re-measure
the lease liability to reflect changes to the lease payments arising from changes in the index or rate.
The subsequent remeasurement of the lease liability is adjusted against the right-of-use asset. Variable
lease payments that do not depend on an index or rate are not included in the measurement of the
lease liability and the right-of-use asset. The related payments are recognised as an expense in the
period in which the event or condition that triggers those payments occurs and are included in the line
item in other administrative expenses in profit or loss.
If the lessee is reasonably certain to exercise a purchase option, the exercise price is included as a lease
payment. That is, entities consider the exercise price of asset purchase options included in lease
contracts consistently with the evaluation of lease renewal and termination options.
As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease
components from lease components, and instead account for each lease component and any
APS BANK PLC
APS Bank plc 90
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
The Group as a lessee (continued)
associated non-lease components as a single arrangement. The Group does not apply this practical
expedient. Accordingly, the Group is required to account for each lease component within the contract
as a lease separately from non-lease components of the contract.
The lease liability is remeasured to reflect any reassessment or lease modifications, or to reflect revised
in-substance fixed lease payments. The amount of the remeasurement of the lease liability is
recognised as an adjustment to the right-of-use asset until this is reduced to zero after which the
corresponding adjustment is recognised in profit or loss. A lessee remeasures the lease liability by
discounting the revised lease payments using a revised discount rate if (a) there is a change in the
lease term or (b) there is a change in the assessment of a purchase option. A lessee remeasures the
lease liability by discounting the revised lease payments if (a) there is a change in the amounts
expected to be payable under a residual value guarantee or (b) there is a change in future lease
payments resulting from a change in an index or a rate used to determine those payments.
For a lease modification (that is, a change in the scope of a lease, or the consideration for a lease, that
was not part of the original terms and conditions of the lease) that is not accounted for as a separate
lease, the lessee remeasures the lease liability by discounting the revised lease payments using a
revised discount rate.
The Group presents lease liabilities and right-of-use assets that are not investment property separately
from other assets and liabilities in the statements of financial position. The Group presents interest
expense on the lease liability separately from the depreciation charge for the right-of-use asset. In the
statements of cash flows, cash payments for the principal portion of the lease liability are presented
within financing activities and cash payments for the interest portion of the lease liability are presented
within operating activities. Short-term lease payments, payments for leases of low value assets and
variable lease payments not included in the measurement of the lease liability are presented within
operating activities.
Fair value measurement
The Group measures certain financial instruments and certain non-financial assets at fair value at each
reporting date as disclosed in the Basis of Preparation.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or transfer the liability takes place either
in the principal market for the asset or liability or, in the absence of a principal market, in the most
advantageous market for the asset or liability. The fair value of an asset or a liability is measured using
the assumptions that market participants would use when pricing the asset or liability, assuming that
market participants act in their economic best interest.
The fair value for financial instruments traded in active markets at the reporting date is based on their
quoted price or binding dealer price quotations without any deduction for transaction costs. Securities
defined in these financial statements as ‘quoted’ are traded in an active market.
A fair value measurement of a non-financial asset takes into account a market participant's ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
APS BANK PLC
APS Bank plc 91
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement (continued)
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable;
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
External valuers are involved for valuation of non-financial assets. Selection criteria of valuer include
market knowledge, reputation, independence and whether professional standards are maintained.
Significant accounting judgements, estimates and assumptions
In the process of applying its accounting policies, the Group is required to make judgements, estimates
and assumptions that affect the amounts recognised or disclosed in the financial statements. Uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to
the carrying amount of assets or liabilities affected in future periods.
Management has made the following judgements and estimates which have the most significant effect
on amounts recognised in the consolidated financial statements:
Accounting for investments in which the Group controls less than 20%
As of 31 December 2021, the Bank directly held 15.26% (2020: 15.45%) interest in APS Income Fund and
15.29% (2020: 17.56%) interest in APS Regular Income Ethical Fund.
The Group assessed whether it has significant influence over the investees and concluded that
significant influence can be clearly established upon considering the following factors:
• Representation in the board of directors.
• Participation in policy-making processes.
• Material transaction between the investee and the Bank.
• Provision of technical information and management services.
Therefore, the Group and the Bank continue to account for the investment in APS Income Fund and
APS Regular Income Ethical Fund as associates.
Fair value of investment properties
The Group and the Bank carry their investment properties at fair value, with changes in fair value being
recognised in the statements of profit or loss. The Group engaged an independent valuation specialist
to assess fair value as at 31 December 2021 and 31 December 2020. For investment properties, the
valuation specialist determines the most appropriate methodology (market or / and income approach)
depending on the nature of the property.
Fair value of land and buildings included within property and equipment
Land and buildings owned by the Group are carried at fair value, with changes in fair value being
recognised in the other comprehensive income. The Group engaged an independent valuation
specialist to assess the fair value as at 31 December 2021 and 31 December 2020. The valuation
specialist determines the most appropriate methodology (market/income approach) depending on
the nature of the property.
Deferred tax assets
Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that taxable
profit will be available against which the losses can be utilised. Judgement is required to determine the
amount of deferred tax assets that can be recognised, based upon the likely timing and level of future
taxable profits, together with future tax planning strategies (Note 28).
APS BANK PLC
APS Bank plc 92
NOTES TO THE FINANCIAL STATEMENTS (continued)
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant accounting judgements, estimates and assumptions (continued)
Impairment losses on loans and advances
The Group and the Bank review their loans and advances at each reporting date to assess whether an
impairment loss should be recorded in the statements of profit or loss. In particular, management’s
judgment is required in the estimation of the amount and timing of future cash flows when determining
the impairment loss. These estimates are based on assumptions about a number of factors and actual
results may differ, resulting in future changes to the allowance.
The critical judgements and estimates are explained in Note 2.1 Expected Credit Loss Measurement
and in Note 46.2 Credit Risk.
Impairment of debt and other fixed income securities.
The Group reviews its debt investments measured at FVTOCI and its debt investments measured at
amortised cost at each reporting date to assess whether they are impaired. This requires similar
judgment as applied to the individual assessment of loans and advances.
3. INTEREST RECEIVABLE AND SIMILAR INCOME
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
On loans and advances to banks
7
128
7
122
On loans and advances to customers
63,239
56,333
63,239
56,333
63,246
56,461
63,246
56,455
On debt securities:
Measured at amortised cost
1,758
1,745
1,758
1,745
Amortisation on premiums and discounts on debt
securities measured at amortised cost
(772)
(753)
(772)
(753)
Measured at FVTPL
1,495
1,145
-
11
Other debt securities
5,169
4,886
5,169
4,886
Amortisation on premiums and discounts on other
debt securities
(1,761)
(1,204)
(1,761)
(1,204)
5,889
5,819
4,394
4,685
69,135
62,280
67,640
61,140
4. INTEREST PAYABLE
The Group / The Bank
2021
2020
€000
€000
On amounts owed to banks
331
204
On amounts owed to customers
11,534
12,908
On lease liabilities
120
107
On debt securities in issue
1,788
215
13,773
13,434
APS BANK PLC
APS Bank plc 93
NOTES TO THE FINANCIAL STATEMENTS (continued)
5. NET FEE AND COMMISSION INCOME
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
On loans and advances and other general banking
activities
4,561
3,777
4,561
3,777
On insurance, investments and similar activities
3,794
2,163
2,721
1,942
Other activities
627
874
627
873
8,982
6,814
7,909
6,592
Fee and commission expense
(1,981)
(1,600)
(1,981)
(1,600)
7,001
5,214
5,928
4,992
6. DIVIDEND INCOME
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
From equity shares held in local and foreign entities
and collective investment schemes
312
189
1,273
1,236
During 2021 the Group did not recognise any dividend income on equity instruments designated at
FVTOCI, which were held at year-end (2020: €2K). During 2021 and 2020 the Group did not recognise
any dividend income on equity instruments designated at FVTOCI upon initial recognition, which were
derecognised during the year.
7. NET GAINS ON FOREIGN EXCHANGE
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Net unrealised/realised gain on foreign exchange
404
99
428
328
8. NET (LOSSES)/GAINS ON FINANCIAL INSTRUMENTS
During the year under review the Group disposed of an insignificant amount of financial assets held at
amortised cost, realising previously unrecognised gains. The sale of these assets is very infrequent and
the Bank’s business model for managing financial assets at amortised cost has not changed.
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Realised gains on disposal of financial assets at
amortised cost
572
-
572
-
Realised (losses)/gains on disposal of financial assets
at FVTOCI
216
(283)
216
(283)
Unrealised net fair value movements on financial assets
at FVTPL
(338)
235
46
10
Realised (losses)/gains on disposal of financial assets
at FVTPL
(30)
538
(47)
11
(152)
490
215
(262)
420
490
787
(262)
APS BANK PLC
APS Bank plc 94
NOTES TO THE FINANCIAL STATEMENTS (continued)
9. PERSONNEL EXPENSES
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Wages and salaries (short-term):
- key management personnel other than Directors
4,922
3,223
4,922
3,223
- other staff
14,334
12,911
14,334
12,911
- wages recharged to subsidiary at cost
-
-
(423)
(49)
Social security contributions
1,169
1,038
1,169
1,038
20,425
17,172
20,002
17,123
The average number of persons employed during the year was as follows:
The Group
The Bank
2021
2020
2021
2020
Senior Management
34
24
34
24
Managerial
125
111
125
111
Senior officers and officers
340
328
340
328
Others
9
9
9
9
508
472
508
472
10. OTHER ADMINISTRATIVE EXPENSES
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Remuneration payable to the statutory auditors for:
- the audit of financial statements
158
159
130
130
- tax advisory services
6
6
4
4
- other non-audit services
34
13
30
13
Directors’ emoluments
451
351
383
321
Insurance
332
305
331
153
Professional fees
1,613
1,012
1,489
762
Regulatory fees
2,853
2,806
2,848
2,806
Repairs and maintenance
4,133
3,022
4,102
3,016
Telecommunications
748
623
738
623
Office operating expenses
2,869
2,636
2,838
2,632
Other administrative expenses
2,892
1,418
2,713
1,637
16,089
12,351
15,606
12,097
Additional disclosures on Directors’ emoluments is made in the Remuneration Report (pages 40 to 41).
APS BANK PLC
APS Bank plc 95
NOTES TO THE FINANCIAL STATEMENTS (continued)
11. NET IMPAIRMENT GAINS/(LOSSES) ON FINANCIAL ASSETS
The Group / The Bank
2021
2020
€000
€000
Charge for the year:
- collective impairment
(987)
(4,616)
- individual impairment
(2,142)
(4,251)
- bad debts written off
(521)
(215)
(3,650)
(9,082)
Reversal of write-downs:
- collective impairment
4,555
561
- individual impairment
583
2,983
5,138
3,544
Net impairment gains/(losses)
1,488
(5,538)
The Group / The Bank
2021
2020
€000
€000
Cash and balances with Central Bank of Malta
- Stage 1
(7)
(5)
Loans and advances to banks
- Stage 1
18
(49)
Loans and advances to customers:
- Stage 1
(88)
109
- Stage 2
3,195
(3,845)
- Stage 3
(2,080)
(1,483)
1,027
(5,219)
Syndicated loans:
- Stage 1
(184)
49
- Stage 2
590
(184)
406
(135)
Debt securities at amortised cost:
- Stage 1
13
(27)
Debt securities at FVTOCI:
- Stage 1
22
(94)
- Stage 2
9
(9)
31
(103)
Net impairment (gains)/losses
1,488
(5,538)
The majority of the reversal of write-downs are in relation to loans and advances to customers.
Accordingly, the impairment losses gross of reversals for loans and advances to customers amounted
to €4,779K (2020: €8,763K).
APS BANK PLC
APS Bank plc 96
NOTES TO THE FINANCIAL STATEMENTS (continued)
12. INCOME TAX EXPENSE
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Current income tax
8,063
7,396
7,792
7,278
Deferred income tax
904
(1,689)
904
(1,689)
Income tax expense
8,967
5,707
8,696
5,589
A reconciliation between tax expense and the product of accounting profit multiplied by the applicable
tax rate in Malta of 35% (2020: 35%) for the years ended 31 December 2021 and 2020 is as follows:
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Profit before tax
24,068
15,797
23,737
15,522
Theoretical tax expense at 35%
8,424
5,529
8,308
5,433
Tax effect of:
- Non-taxable sale of investments
(202)
11
(202)
11
- Income taxed at lower rates of tax
(439)
(430)
(439)
(430)
- Depreciation not recovered by way
of capital allowance
149
275
149
275
- Income from financial instruments
included in untaxed account
155
22
-
-
- Disallowed expenses
1,065
462
1,065
462
- Other differences
(185)
(162)
(185)
(162)
Income tax expense
8,967
5,707
8,696
5,589
13. DIVIDENDS PAID AND PROPOSED
The Bank
2021
2020
€000
€000
Dividends paid on ordinary shares:
Final gross of income tax for 2020:
1.48 cents per share (2019: - cents per share)
3,692
-
Final net of income tax for 2020:
0.96 cents per share (2019: - cents per share)
2,400
-
During the year the Group`s subsidiaries paid dividends amounting to €1,133,000 (2020: €966,119) to
their shareholders, including the Bank.
During the year under review the Bank distributed a gross dividend of €3,692,308 (net dividend of
€2,400,000). A total of 696,462 ordinary shares (Note 35) were distributed as scrip dividend whereas
€1,912,477 were distributed in cash.
Details of the recommended final dividend for 2021 can be found on page 32 in the Directors’ report.
APS BANK PLC
APS Bank plc 97
NOTES TO THE FINANCIAL STATEMENTS (continued)
14. CASH AND BALANCES WITH CENTRAL BANK OF MALTA
The Group / The Bank
2021
2020
€000
€000
Cash in hand (Note 42)
15,165
15,064
Balances with Central Bank of Malta (excluding reserve deposit)
(Note 42)
173,072
76,650
Reserve deposit with Central Bank of Malta
19,498
16,621
Gross cash and bank balances
207,735
108,335
Less: allowance for impairment losses
(12)
(5)
Net cash and bank balances
207,723
108,330
Deposits with the Central Bank of Malta represent mandatory reserve deposits and are not available
for use in the Group’s day-to-day operations. Included in this balance is an amount of €2,281,000
(2020: €1,400,000) pledged in favour of the MFSA’s Depositors’ Compensation Scheme. During the
current and the prior year, the Bank has been compliant with the reserve deposit requirement.
15. LOANS AND ADVANCES TO BANKS
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Repayable on call and at short notice (Note 42)
32,327
51,117
30,862
46,330
Gross loans and advances to banks (i)
32,327
51,117
30,862
46,330
Less: allowance for impairment losses (ii)
(31)
(49)
(31)
(49)
Net loans and advances to banks
32,296
51,068
30,831
46,281
(i) Gross loans and advances to customers analysed by currency
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
- Euro
16,780
22,851
15,315
18,064
- Foreign
15,547
28,266
15,547
28,266
32,327
51,117
30,862
46,330
(ii) Impairment allowance for loans and advances to banks
The Group / The Bank
2021
2020
€000
€000
At 1 January
49
-
(Reversal)/charge for the year:
(18)
49
At 31 December
31
49
The impairment allowance on loans and advances to banks are recognised on a collective basis.
APS BANK PLC
APS Bank plc 98
NOTES TO THE FINANCIAL STATEMENTS (continued)
16. LOANS AND ADVANCES TO CUSTOMERS
(i) Gross loans and advances to customers analysed by currency
The Group / The Bank
2021
2020
€000
€000
- Euro
1,950,259
1,708,775
- Foreign
1,112
1,103
1,951,371
1,709,878
(ii) Impairment allowance for loans and advances to customers
The Group / The Bank
2021
2020
€000
€000
At 1 January
20,875
15,871
(Reversal)/charge for the year:
- Collective
(3,107)
3,814
- Individual
1,559
1,190
At 31 December
19,327
20,875
The Group / The Bank
2021
2020
€000
€000
Repayable on call and at short notice
73,155
82,074
Term loans and advances
1,878,216
1,627,804
Gross loans and advances to customers (i)
1,951,371
1,709,878
Less: allowance for impairment losses (ii)
(19,327)
(20,875)
Net loans and advances to customers
1,932,044
1,689,003
- Collective impairment losses
1,529
4,636
- Individual impairment losses
17,798
16,239
19,327
20,875
APS BANK PLC
APS Bank plc 99
NOTES TO THE FINANCIAL STATEMENTS (continued)
16. LOANS AND ADVANCES TO CUSTOMERS (continued)
Concentration of loans and advances to customers
The following table shows the risk concentration by industry for loans and advances to customers,
gross of provisions:
The Group / The Bank
2021
2020
€000
€000
Agriculture
4,595
6,524
Fishing
16,089
10,678
Manufacturing
29,342
23,846
Electricity, gas and water supply
4,519
6,756
Construction
79,943
93,948
Wholesale and retail trade
41,130
39,503
Hotels and restaurants, excluding related construction activities
131,845
127,219
Transport, storage and communication
28,741
38,745
Financial intermediation
80,590
67,890
Real estate, renting and business
120,083
110,841
Professional, Scientific and technical
11,184
16,110
Administrative and Support services
11,588
7,232
Public administration
6,099
11,449
Education
7,590
7,731
Health and social work
10,450
13,352
Community, recreational and personal service activities
4,556
4,755
Households and individuals
1,363,027
1,123,299
1,951,371
1,709,878
17. SYNDICATED LOANS
(i) Gross syndicated loans analysed by currency
The Group / The Bank
2021
2020
€000
€000
- Euro
85,816
92,961
- Foreign
49,436
21,587
135,252
114,548
The Group / The Bank
2021
2020
€000
€000
Less than one year but not repayable on demand
61,904
63,683
Over one year
73,348
50,865
Gross syndicated loans (i)
135,252
114,548
Less: allowance for impairment losses (ii)
(990)
(1,396)
Net syndicated loans
134,262
113,152
APS BANK PLC
APS Bank plc 100
NOTES TO THE FINANCIAL STATEMENTS (continued)
17. SYNDICATED LOANS (continued)
(ii) Impairment allowance for syndicated loans
The Group / The Bank
2021
2020
€000
€000
At 1 January
1,396
1,261
Collective (reversal)/charge for the year:
(406)
135
At 31 December
990
1,396
The balance on impairment allowance for syndicated loans as at end of December 2021 and 2020 is all in
respect of collective impairment losses.
Concentration of syndicated loans
The following table shows the risk concentration by industry for syndicated loans, gross of provisions:
The Group / The Bank
2021
2020
€000
€000
Agriculture
5,931
1,380
Community, recreational and personal service activities
-
4,871
Manufacturing
62,106
48,461
Wholesale and retail trade
-
9,998
Transport, storage and communication
-
4,544
Financial intermediation
52,047
32,722
Public administration
2,652
2,441
Health and social work
12,516
10,131
Gross syndicated loans
135,252
114,548
18. DERIVATIVE FINANCIAL INSTRUMENTS
The Group / The Bank
2021
2020
€000
€000
Derivative assets, designated as at fair value
through profit or loss, not designated as hedges
552
499
Derivative liabilities, designated as at fair value
through profit or loss, not designated as hedges
552
499
APS BANK PLC
APS Bank plc 101
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The table below shows the fair values of derivative financial instruments recorded as assets and liabilities
together with their notional amount. The notional amount represents the basis upon which changes in the
value of derivatives are measured. Notional amount indicates the volume of outstanding transactions as at
the year end.
The Group / The Bank
Notional
Assets
Liabilities
Notional
Assets
Liabilities
2021
2021
2021
2020
2020
2020
€000
€000
€000
€000
€000
€000
Over the counter derivatives:
Equity/commodity-index warrants
purchased
25,100
552
-
38,975
499
-
Equity/commodity-index warrants
written
(25,100)
-
552
(38,975)
-
499
-
552
552
-
499
499
The Group’s exposure under the derivative contracts is closely monitored as part of the overall management
of market risk.
19. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Fixed income instruments and collective
investment schemes
61,846
50,636
-
251
Analysed by currency:
- Euro
35,866
43,036
-
251
- Foreign
25,980
7,600
-
-
61,846
50,636
-
251
Listing Status:
- Listed on Malta Stock Exchange
2,311
2,548
-
-
- Listed elsewhere
59,535
48,088
-
251
61,846
50,636
-
251
Carrying amount
At 1 January
50,636
41,478
251
464
Disposals
(34,640)
(30,184)
(250)
(200)
Acquisitions
46,243
39,165
-
-
(Decrease)/increase in fair value
(393)
177
(1)
(13)
At 31 December
61,846
50,636
-
251
26.9% (2020: 1.3%) of the financial assets at FVTPL were issued by public bodies whereas 73.1% (2020:
98.7%) are issued by other issuers. The above financial assets are mandatorily measured at FVTPL in terms
of IFRS 9.
APS BANK PLC
APS Bank plc 102
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. OTHER DEBT AND FIXED INCOME INSTRUMENTS
The Group / The Bank
2021
2020
€000
€000
At amortised cost
101,000
104,307
Fair value through other comprehensive income
227,103
211,751
Gross other debt and fixed income instruments
328,103
316,058
Less: allowance for impairment losses
(62)
(75)
Net other debt and fixed income instruments
328,041
315,983
The Group / The Bank
2021
2020
At amortised cost
€000
€000
Issued by public bodies:
- Local government
15,941
17,529
Issued by other issuers:
- Foreign government
84,759
86,478
- Foreign other
300
300
85,059
86,778
Total
101,000
104,307
The Group / The Bank
2021
2020
Fair value through other comprehensive income
€000
€000
Issued by public bodies:
- Local government
89,492
93,966
- Foreign government
62,993
38,864
152,485
132,830
Issued by other issuers:
- Foreign banks
22,548
22,524
- Foreign other
52,024
56,351
- Local other
46
46
74,618
78,921
Total
227,103
211,751
Total gross other debt and fixed income instruments
328,103
316,058
Analysed by currency:
- Euro
286,843
276,895
- Foreign
41,260
39,163
328,103
316,058
Unamortised premiums included within the gross other debt and
fixed income instrument
10,255
11,097
APS BANK PLC
APS Bank plc 103
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. OTHER DEBT AND FIXED INCOME INSTRUMENTS (continued)
The Group / The Bank
2021
2020
€000
€000
Listing status:
- Listed on Malta Stock Exchange
105,478
111,542
- Listed elsewhere
222,325
204,216
- Unlisted
300
300
328,103
316,058
Carrying amount– Gross of impairment allowances
The Group / The Bank
2021
2020
€000
€000
At amortised cost
At 1 January
104,307
79,617
Redemptions and disposals
(2,535)
(2,000)
Acquisitions
-
27,443
Amortisation
(772)
(753)
At 31 December
101,000
104,307
Impairment allowance for debt and other fixed income instruments
The Group / The Bank
2021
2020
€000
€000
At 1 January
75
46
Collective (reversal) / charge for the year:
(13)
29
At 31 December
62
75
The balance on impairment allowance for other debt and fixed income instruments as at end of December
2021 and 2020 is all in respect of collective impairment losses.
Eligible debt instruments with a nominal value of €132,000,000 (2020: €155,922,231) have been pledged
against the provision of credit lines by the Central Bank of Malta, under the usual terms and conditions
applying to such agreements. Debt instruments with a nominal value of €3,850,000 (2020: €3,850,000) have
been pledged in favour of the MFSA’s Depositors’ Compensation Scheme.
Carrying amount – Gross of impairment allowances
The Group / The Bank
2021
2020
€000
€000
Fair value through other comprehensive income
At 1 January
211,751
158,595
Redemptions and disposals
(19,756)
(54,296)
Acquisitions
33,525
108,662
Amortisation
(1,887)
(1,246)
(Decrease)/increase in fair value
(6,692)
1,363
Exchange adjustments
10,162
(1,327)
At 31 December
227,103
211,751
Total
328,103
316,058
APS BANK PLC
APS Bank plc 104
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. EQUITY AND OTHER NON-FIXED INCOME INSTRUMENTS
The Group / The Bank
2021
2020
€000
€000
Equity and other non-fixed income instruments at FVTOCI
307
303
Analysed by currency:
- Euro
228
228
- Foreign
79
75
307
303
Listing status:
- Unlisted
307
303
Carrying amount
At 1 January
303
308
- Acquisitions
-
959
- Disposals
-
(999)
- Exchange adjustment
4
-
- Increase in fair value
-
35
307
303
These equity investments are not held for trading.
As part of the Group’s business model, investments recognised at FVTOCI do not form part of its core
business. No equity instruments measured at FVTOCI were derocognised during 2021 (2020:
€999,982). The cumulative gains on the disposal of the instruments recognised in 2020 was of €41,000.
22. INVESTMENT IN SUBSIDIARIES
The Bank
2021
2020
€000
€000
Cost
At 1 January
45,251
40,251
Additions
-
5,000
At 31 December
45,251
45,251
APS BANK PLC
APS Bank plc 105
NOTES TO THE FINANCIAL STATEMENTS (continued)
22. INVESTMENT IN SUBSIDIARIES (continued)
The investment in subsidiaries are made up as follows:
Country of
Incorporation
Equity interest
Cost
Name
2021
2020
2021
2020
%
%
€000
€000
APS Funds SICAV plc
Malta
99.99*
99.99*
1
1
1,199 founder shares at €1.00
(2020: 1,199 founder shares at €1.00)
APS Diversified Bond Fund
Malta
76.67
82.26
40,000
40,000
40,000,000 investor shares at €1.00
(2020: 40,000,000 investor shares at
€1.00)
APS Global Equity Fund
Malta
51.79
91.91
5,000
5,000
5,000,000 investor shares at €1.00
(2020: 5,000,000 investor shares
at €1.00)
ReAPS Asset Management Limited
Malta
100.00
100.00
250
250
250,000 ordinary shares at €1.00
(2020: 250,000 ordinary shares at €1.00)
45,251
45,251
*The 99.99% equity interest pertains solely to the Bank’s share in the total founder shares of APS Funds
SICAV plc.
APS
Diversified
Bond Fund
APS
Diversified
Bond Fund
APS
Global
Equity
Fund
APS
Global
Equity Fund
ReAPS
Asset
Management
Limited
ReAPS Asset
Management
Limited
2021
2020
2021
2020
2021
2020
€000
€000
€000
€000
€000
€000
Current assets
52,513
49,954
11,698
5,745
1,888
1,122
Non-current
assets
-
-
-
-
-
1
Current liabilities
(261)
(99)
(108)
(19)
(590)
(294)
Net assets value
52,252
49,855
11,590
5,726
1,298
829
Income
181
1,545
1,234
298
2,078
1,332
Expenses
(422)
(387)
(149)
(24)
(1,344)
(1,009)
(Loss)/profit
before tax
(241)
1,158
1,085
274
734
323
Tax
(13)
(3)
(1)
(2)
(257)
(113)
(Loss)/profit
after tax
(254)
1,155
1,084
272
477
210
APS BANK PLC
APS Bank plc 106
NOTES TO THE FINANCIAL STATEMENTS (continued)
23. INVESTMENT IN ASSOCIATES
The Bank’s investment in associates is as follows:
Equity interest
Cost
Country of
2021
2020
2021
2020
Name
Incorporation
%
%
€000
€000
APS Income Fund
Malta
15.26
15.45
9,886
9,886
98,853.14 investor shares at €100.01
(2020: 98,853.14 investor shares at
€100.01)
APS Regular Income Ethical Fund
Malta
15.29
17.56
5,000
5,000
5,000,000 investor shares at €1.00
(2020: 5,000,000 investor shares at
€1.00)
IVALIFE Insurance Limited
Malta
25.00
25.00
1,875
375
1,875,000 ordinary shares at €1.00
(2020: 375,000 ordinary shares at
€1.00)
16,761
15,261
The following table illustrates summarised financial information of the Group’s investment in associates:
APS Income Fund
APS Regular Income
Ethical Fund
IVALIFE Insurance
Limited
2021
2020
2021
2020
2021*
2020
€000
€000
€000
€000
€000
€000
Current assets
88,682
89,148
43,475
36,396
2,311
427
Non-current assets
-
-
-
-
9,243
639
Current liabilities
(273)
(196)
(169)
(143)
(741)
(145)
Non-current liabilities
-
-
-
-
(4,856)
-
Net assets value (NAV)
88,409
88,952
43,306
36,253
5,957
921
Split into:
Accumulator shares
21,569
21,591
16,339
12,938
-
-
Distributor shares
66,840
67,361
26,967
23,315
-
-
88,409
88,952
43,306
36,253
-
-
Group’s percentage of:
- Distributor shares’ NAV
12,373
12,657
6,075
5,898
-
-
- NAV
-
-
-
-
1,490
230
Income
996
(660)
2,389
972
162
-
Expenses
(843)
(840)
(490)
(446)
(1,597)
(579)
Profit/(loss) before tax
153
(1,500)
1,899
526
(1,435)
(579)
Tax
(211)
(278)
(4)
(58)
503
-
(Loss)/profit after tax
(58)
(1,778)
1,895
468
(932)
(579)
Group’s share of
(loss)/profit for the year
(17)
(205)
271
127
(233)
(180)
APS BANK PLC
APS Bank plc 107
NOTES TO THE FINANCIAL STATEMENTS (continued)
23. INVESTMENT IN ASSOCIATES (continued)
The following table illustrates the movements in the carrying amount of the Group’s investment in
associates:
2021
2020
€000
€000
Carrying amount of the investment at 1 January
18,641
19,257
Share of associate’s results, net of tax
21
(258)
Investment in associate
1,500
-
Dividend distribution
(359)
(358)
Carrying amount of the investment at 31 December
19,803
18,641
The associates had no contingent liabilities or capital commitments as at 31 December 2021 (2020: the
same).
*The financial statements of IVALIFE Insurance Limited are still in the process being audited.
APS Income Fund and APS Regular Income Ethical Fund
The APS Income Fund and APS Regular Income Ethical Fund are both sub-funds of APS Funds SICAV
plc. The Company is recognised under the laws of Malta as a multi-fund public limited liability company
with variable share capital pursuant to the Companies Act. The Company and its sub-funds are
authorised in terms of the Investment Services Act (Cap. 370, Laws of Malta) as an open-ended
collective investment scheme qualifying as a Maltese UCITS, and licensed and regulated by the MFSA.
The fair value of the investments in APS Income Fund (Class D) and APS Regular Income Ethical Fund
(Class B) as at 31 December 2021 amounted to €18,447,285 (2020: €18,554,033). The fair value of the
investment in IVALIFE Insurance Limited as at 31 December 2021 amounted to €1,489,538 (2020:
€230,152).
The following are the quoted market prices of the APS Income Fund as at end of December 2021 and
December 2020 and represent Level 1 investments in the fair value hierarchy:
APS Income Fund
2021
2020
€
€
Accumulator
189.7413
190.2051
Distributor
125.1633
128.0337
The APS Regular Income Ethical Fund is not listed on a Stock Exchange and its fair value represents a
Level 2 investment in the fair value hierarchy:
APS Regular Income Ethical
Fund
2021
2020
€
€
Accumulator Class A
1.5665
1.4945
Distributor Class B
1.2149
1.1795
Accumulator Class C
1.5589
1.4883
Distributor Class D
1.2112
1.1766
IVALIFE Insurance Limited
During the financial year ended 31 December 2021, the Group made a further investment of €1,500,000
in IVALIFE Insurance Limited (“IVALIFE”).
The Group is deemed to have a significant influence in the company since it holds 25% shareholding
and is measuring its investment as an ‘associate’.
APS BANK PLC
APS Bank plc 108
NOTES TO THE FINANCIAL STATEMENTS (continued)
24. INVESTMENT PROPERTIES
The Group’s investment properties consist of commercial and residential properties in Malta. As at 31
December 2021 and 2020 the fair values of investment properties held by the Group were as follows:
The Group / The Bank
2021
2020
€000
€000
As at 1 January
1,830
1,830
Reclassification from property and equipment to investment
property, net of depreciation
3,998
-
Improvements to property
24
-
Fair value movement
201
-
As at 31 December
6,053
1,830
During the year under review the Group did not repossess or sell any investment properties.
In 2021, the Group entered into an agreement whereby, one of its properties which was previously
classified under property and equipment was leased out to third parties. Consequently, the Group
reclassified property with a carrying amount of € 3,998K from property and equipment to investment
property.
The agreement, which was signed in 2021, is for a period of 15 years expiring in 2036. The initial term may
be extended by the mutual written agreement of both parties by an additional 5 years.
The unguaranteed residual value of the property does not represent a significant risk for the Group, as it
relates to property which is situated in a location with a constant increase in value over the past years.
The Group did not identify any indications that the situation will change.
In this respect the Group recorded the amount of €44K as rental income on this said property. Direct
operating expenses incurred during the year were mainly professional fees and insurance cover which
costs are deemed to be minimal. No other rental income was received from the other properties.
At the end of the reporting period, the respective lessees had outstanding undiscounted lease payments
for operating leases, which fall due as follows:
The Group / The Bank
2021
€000
Within one year
177
Within two years
177
Within three years
177
Within four years
177
Within five years
177
Over five years
1,726
2,611
During the year the Group started to renovate one of its investment properties with the refurbishment
costs amounting to €24K. The Group does not earn any rental income from this property.
Fair value movements are recognised as “Other operating income” in the statements of profit or loss.
APS BANK PLC
APS Bank plc 109
NOTES TO THE FINANCIAL STATEMENTS (continued)
25. PROPERTY AND EQUIPMENT
The Group/The Bank
Land and
Computer
Buildings
Equipment
Other
Total
€000
€000
€000
€000
Cost or valuation
At 1 January 2020
35,326
8,711
18,280
62,317
Additions
234
1,444
2,547
4,225
At 31 December 2020
35,560
10,155
20,827
66,542
Additions
586
433
1,358
2,377
Disposals
(281)
-
-
(281)
Reclassification to investment
property
(4,000)
-
-
(4,000)
Revaluation decrease of property
(1,784)
-
-
(1,784)
Accumulation of depreciation on
revalued property
(250)
-
-
(250)
At 31 December 2021
29,831
10,588
22,185
62,604
Depreciation
At 1 January 2020
853
5,754
11,859
18,466
Charge for the year
313
903
680
1,896
At 31 December 2020
1,166
6,657
12,539
20,362
(Reversal)/charge for the year
(135)
987
751
1,603
Reclassification to investment
property
(2)
-
-
(2)
Disposals
(99)
-
-
(99)
Accumulation of depreciation on
revalued property
(258)
-
-
(258)
At 31 December 2021
672
7,644
13,290
21,606
Net Book Value
At 31 December 2021
29,159
2,944
8,895
40,998
At 31 December 2020
34,394
3,498
8,288
46,180
At 1 January 2020
34,473
2,957
6,421
43,851
2021
2020
€000
€000
Future capital expenditure:
- Authorised by the Directors and contracted
89
13
- Authorised by the Directors but not yet contracted
2,974
4,712
3,063
4,725
The gross carrying amount of fully depreciated property and equipment that is still in use as at 31
December 2021 is of €16,276K (2020: €16,120K).
The revaluation decrease recognised during the year under review in respect of land and buildings
included as part of the other (loss)/income within the statements of profit or loss amounts to €914K.
The carrying amount of land and buildings at 31 December 2021 that would have been recognised had
these been carried under the cost model is €12,169K (2020: €15,878K) for both the Group and the Bank.
APS BANK PLC
APS Bank plc 110
NOTES TO THE FINANCIAL STATEMENTS (continued)
26. INTANGIBLE ASSETS
The Group
The Bank
Computer
Computer
software
software
€000
€000
Cost
At 1 January 2020
19,080
19,076
Additions
3,179
3,179
At 31 December 2020
22,259
22,255
Additions
4,803
4,803
At 31 December 2021
27,062
27,058
Amortisation
At 1 January 2020
11,760
11,758
Charge for the year
1,651
1,649
At 31 December 2020
13,411
13,407
Charge for the year
1,905
1,905
At 31 December 2021
15,316
15,312
Net book value
At 31 December 2021
11,746
11,746
At 31 December 2020
8,848
8,848
At 1 January 2020
7,320
7,318
The Group/The Bank
2021
2020
€000
€000
Future capital expenditure:
- Authorised by the Directors and contracted
3,327
744
- Authorised by the Directors but not yet contracted
2,089
8,017
5,416
8,761
The gross carrying amount of fully amortised intangible assets that is still in use as at 31 December 2021
is of €9,527K (2020: €9,426K).
APS BANK PLC
APS Bank plc 111
NOTES TO THE FINANCIAL STATEMENTS (continued)
27. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Group leases properties, warehouses, office spaces, vehicles, spaces for the utilisation of parking and
utilisation of space to provide banking related services.
Rental contracts are typically made for fixed periods with the lease term varying from 4 years to 20 years,
with some of the lease agreements containing an extension option. Lease terms are negotiated on an
individual basis and contain a wide range of different terms and conditions.
Extension and Termination Options
Extension and termination options are included in a number of property leases across the Group. These
are used to maximise operational flexibility in terms of managing the assets used in the Group`s
operations. The majority of extension and termination options held are exercisable only after an express
written consent by both parties after expiration of the contract. Given that consent should be provided
by both parties in determining the lease term, the latter includes only the non-cancellable lease term.
Extension options have not been included in the lease liability, where the Group could replace the assets
without significant cost or business disruption.
Purchase options
The majority of vehicles leased with terms of 5 to 7 years had their lease term ended during the year under
review. The Group had the option to purchase these vehicles, however this option was not exercised.
Furthermore, new vehicle lease agreements have been entered into late year 2021 with each having a 5-
year lease term. A purchase option has been granted at the expiration of the agreement, whereby the
lessee has the option to purchase the vehicle. However, the Group has no intention to exercise this option.
The statements of financial position shows the following amounts relating to leases:
The Group/The Bank
2021
2020
€000
€000
Right-of-use-assets
Property
4,782
5,147
Equipment
19
-
Vehicles
250
88
5,051
5,235
Lease liabilities
Current
469
548
Non-Current
4,879
4,817
5,348
5,365
Additions to the right-of-use assets during the year ended 31 December 2021 were €768K (2020: €3,751K),
whilst derecognised leases for which term has expired in 2021 amounted to €389K (2020: €628K). Total
cash outflows in relation to leases during the year amounted to €635K (2020: €603K).
APS BANK PLC
APS Bank plc 112
NOTES TO THE FINANCIAL STATEMENTS (continued)
27. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (continued)
The statements of profit or loss shows the following amounts relating to leases:
The Group/The Bank
2021
2020
€000
€000
Depreciation charge on right-of-use assets
Property
497
415
Equipment
-
4
Vehicles
65
62
562
481
Interest expense
Interest expense (included in interest payable)
120
107
Expenses relating to leases of low-value assets
(included in other administrative expenses)
75
70
195
177
Variable Lease payments
During the year under review, the Group recognised a new lease subject to variable lease payments
measured at the rate as specified in the lease agreement whereby the rent is increased on an annual basis
or as otherwise indicated in the contract. The Group recognised €29,367 (2020: €71,908) and €155,731
(2020: €260,818) as an interest expense on the lease liability and amortisation on the right-of-use asset
respectively in the income statement for the leases which are subject to variable lease payments.
Leases not yet commenced to which the lessee is committed
As at end of December 2021, there were no leases not yet commenced, to which the Group is committed
(2020: same).
Residual Guarantees
During the current financial year, there were no leases with residual value guarantees.
Restrictions or covenants
The Group is restricted from assigning, letting or subletting of the premises to third parties. However, there
are cases where the lessee may be able to do so with prior written consent of the lessor and which approval
shall remain in the absolute discretion of the lessor.
Restrictions are also imposed in cases of motor vehicles where the lessee is expressly prohibited from
lending, leasing, hiring or in any other manner transferring control or use of the vehicle to third parties
whether gratuitously or against payment or in any other manner, whether directly or indirectly, using the
vehicle for hire and reward purposes.
The Group is expressly precluded from permitting the utilisation of the properties or any part thereof for
any other purpose than that stipulated in the contract.
APS BANK PLC
APS Bank plc 113
NOTES TO THE FINANCIAL STATEMENTS (continued)
28. DEFERRED TAX ASSETS
Deferred income tax at 31 December relates to the following:
The Group / The Bank
2021
2020
€000
€000
Fair value movements on investment securities
(496)
(1,034)
Fair value movements on investment properties
(164)
(146)
Impairment allowance for loans and advances
to banks and customers
7,126
7,809
Impairment allowance for investment securities
21
38
Excess of capital allowances over depreciation
(1,756)
(1,524)
Movement on right-of-use assets
104
45
Revaluation of land and buildings
(2,586)
(2,635)
2,249
2,553
Deferred tax arising on the fair value movements on land and buildings classified in the statements
of financial position within property and equipment and on investment securities, amounting to
€599,688 was credited (2020: €404,241 credited) directly in OCI. For details on other movements
refer to Note 12.
29. OTHER RECEIVABLES
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Accrued income
6,491
6,312
6,491
6,312
Prepayments and other receivables
2,661
2,307
1,489
1,429
Amounts due from subsidiaries
-
-
323
233
9,152
8,619
8,303
7,974
30. AMOUNTS OWED TO BANKS
The Group / The Bank
2021
2020
€000
€000
With agreed maturity dates or periods
of notice, by remaining maturity:
- 3 months or less but not repayable
on demand (Note 42)
49,463
10
- over 3 months but less than 1 year
but not repayable on demand
-
9,294
- over 1 year
7,745
-
57,208
9,304
Analysed by currency:
- Euro
22,228
9,304
- Foreign
34,980
-
57,208
9,304
APS BANK PLC
APS Bank plc 114
NOTES TO THE FINANCIAL STATEMENTS (continued)
31. AMOUNTS OWED TO CUSTOMERS
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Term deposits
812,181
776,641
812,181
776,641
Repayable on demand
1,619,576
1,346,805
1,620,892
1,347,508
2,431,757
2,123,446
2,433,073
2,124,149
Analysed by currency:
- Euro
2,358,371
2,051,742
2,359,687
2,052,445
- Foreign
73,386
71,704
73,386
71,704
2,431,757
2,123,446
2,433,073
2,124,149
32. DEBT SECURITIES IN ISSUE
The Group / The Bank
2021
2020
€000
€000
At 1 January
54,558
-
Debt securities issued
-
55,000
Net unamortised expenses
39
(442)
At 31 December
54,597
54,558
During 2020 the Bank issued 3.25% Unsecured Subordinated Bonds which are due to mature in
2030. The bonds may be early redeemed by the Bank on specific dates, subject to MFSA
approval and subject to the Bank providing at least 30 days’ written notice. The bonds are being
classified as a financial liability at amortised cost and are denominated in Euro.
33. OTHER LIABILITIES
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Other liabilities
10,450
10,090
10,404
10,090
34. ACCRUALS
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Accrued interest payable
4,244
4,370
4,244
4,370
Other accruals
9,081
5,733
8,980
5,661
13,325
10,103
13,224
10,031
APS BANK PLC
APS Bank plc 115
NOTES TO THE FINANCIAL STATEMENTS (continued)
35. SHARE CAPITAL
The Group / The Bank
2021
2020
€000
€000
Authorised
400,000,000 ordinary shares at €0.25 each
(2020: 400,000,000 ordinary shares of €0.25 each)
100,000
100,000
Issued and fully paid
249,715,662 ordinary shares of €0.25 each
(2020: 249,019,200 ordinary shares of €0.25 each)
62,429
62,255
The Group / The Bank
2021
2020
Number of
Number of
shares
shares
‘000
‘000
At 1 January
249,019
49,804
Cancellation of ordinary shares at €1.25 per share
-
(49,804)
Re-designation of ordinary shares at €0.25 per share
-
249,019
Scrip dividend (Note 13)
697
-
At 31 December
249,716
249,019
During an Extraordinary General Meeting held on 19 October 2020 the Shareholders approved a
resolution whereby the authorised share capital was re-designated from 80,000,000 ordinary shares at
€1.25 each to 400,000,000 ordinary shares at €0.25 each. The resolution also included a re-designation
of the issued share capital from 49,803,840 ordinary shares at €1.25 each to 249,019,200 ordinary shares
at €0.25 each, fully paid up.
During 2021 the Bank increased its share capital by 696,462 shares through a scrip dividend paid to its
Shareholders (Note 13).
Further information on the Bank’s Shareholders is disclosed in the Directors’ Report and in Note 47.
36. SHARE PREMIUM
The Group / The Bank
2021
2020
€000
€000
At 1 January
10,140
10,140
Scrip dividend (Note 13)
313
-
At 31 December
10,453
10,140
The share premium reserve is not available for distribution.
APS BANK PLC
APS Bank plc 116
NOTES TO THE FINANCIAL STATEMENTS (continued)
37. REVALUATION RESERVE
The Group and the Bank apply the revaluation model for the subsequent measurement of land and
buildings classified in the statements of financial position within property and equipment.
The Group / The Bank
2021
2020
€000
€000
Revaluation reserve on:
Financial instruments at FVTOCI
10,268
16,380
Land and buildings
15,066
15,880
25,334
32,260
The following table shows the movement in the revaluation reserve attributable to the land and buildings
and financial instruments measured at FVTOCI:
The Group / The Bank
Land and buildings
Financial instruments
at FVTOCI
2021
2020
2021
2020
€000
€000
€000
€000
At 1 January
15,880
16,126
16,380
14,580
Revaluation adjustment, gross of tax
(863)
(291)
(6,672)
1,446
Deferred tax thereon
49
45
560
354
At 31 December
15,066
15,880
10,268
16,380
The revaluation reserve is not available for distribution.
38. RETAINED EARNINGS
The retained earnings represent retained profits which are available for distribution to Shareholders
subject to qualification as realised profits in accordance with the requirements of the Companies Act,
Cap. 386 of the Laws of Malta.
Retained earnings is inclusive of Eur 1,700K for General Banking Risk under BR/09/2013.
39. NON-CONTROLLING INTEREST
The following is a reconciliation of the Non-controlling interest:
APS Diversified
Bond Fund
APS Global
Equity Fund
Total
2021
2020
2021
2020
2021
2020
€000
€000
€000
€000
€000
€000
At 1 January
9,351
6,029
477
-
9,828
6,029
Creation of shares
4,453
3,738
4,900
455
9,353
4,193
Redemption of shares
(743)
(535)
(51)
-
(794)
(535)
Dividends paid
(164)
(96)
(54)
-
(218)
(96)
Profit after tax
(60)
215
523
22
463
237
At 31 December
12,837
9,351
5,795
477
18,632
9,828
APS BANK PLC
APS Bank plc 117
NOTES TO THE FINANCIAL STATEMENTS (continued)
40. CONTINGENT LIABILITIES
The Group / The Bank
2021
2020
€000
€000
Guarantees
21,278
20,923
Other contingent liabilities
4,078
2,205
25,356
23,128
In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit
and guarantees. The measurement of these instruments is disclosed in the accounting policies.
41. COMMITMENTS
The Group / The Bank
2021
2020
€000
€000
Undrawn formal standby facilities, credit
facilities and other commitments to lend
802,552
786,427
Capital commitments, if any, are disclosed in Notes 24 – 27.
42. CASH AND CASH EQUIVALENTS
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Cash in hand (Note 14)
15,165
15,064
15,165
15,064
Balances with Central Bank of
Malta (excluding reserve deposit)
(Note 14)
173,072
76,650
173,072
76,650
Loans and advances to banks
(repayable within 3 months)
(Note 15)
32,327
51,117
30,862
46,330
Amounts owed to banks (3 months or less)
(Note 30)
(49,463)
(10)
(49,463)
(10)
Cash and cash equivalents included
in the statements of cash flows
171,101
142,821
169,636
138,034
43. 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. Operating results of all operating segments are regularly reviewed by
the chief operating decision maker to make decisions about resources to be allocated to the segment
and assess its performance, and for which discrete financial information is available.
The Group has four reportable segments, as reported below. Based on internal reporting submitted to
the Board of Directors, during the current reporting year, the Investments Segment was further split into
two (as shown below). In identifying segments, Management follows the Group’s service lines which make
up its main products and services.
• Retail: offers a broad range of products and services to meet the personal banking of individual
customers. This includes home loans, personal loans, overdraft facilities and deposits products.
APS BANK PLC
APS Bank plc 118
NOTES TO THE FINANCIAL STATEMENTS (continued)
43. OPERATING SEGMENTS (continued)
• Commercial: offers banking products to meet the needs of commercial customers. This includes
all lending facilities falling under the suite of the commercial products as well as deposit products.
• Investment services: provides a range of products and services to meet the investment need of
clients including a broad range of investment and insurance products, as well as the pension plan
product and discretionary investment services.
•
Liquidity management and structured loans: includes the management of the financial
investments portfolio, correspondent bank relationships and the trade finance and syndicated
loan portfolios.
Each of these operating segments is managed separately as each requires a different client approach
and expertise. As for intersegment transactions, Retail is being compensated for unutilised deposits
which are being used by other segments as follows; Investment services amounting to €495K,
Commercial amounting to €3,906K and Liquidity Management and Structured Loans amounting to
€5,828K. The compensation rate is based on the price charged to unrelated customers in a stand-alone
sale of identical services. The total amount of the intersegment transactions amount to €10,229K.
In addition, several costs, assets, and liabilities which are not directly attributable to the business activities
of any operating segment are not allocated to a segment but rather included within the below table under
the unallocated items. This primarily applies to the following items which are not included in the tables
hereunder:
• Salaries pertaining to staff contributing to other cost centres;
• Recurrent costs of maintenance agreements for software and hardware support, attributed to
other cost centres;
• Depreciation charge of fixed assets attributed to other cost centres;
• Property and Equipment; and
• Other assets and liabilities which include tax liability, accruals and accrued income.
All revenues, investment properties, property and equipment, intangible assets and right-of-use assets
are attributed to Malta. The information in this note is based on internal management reports that are
reviewed by the Group’s Executive Committee.
APS BANK PLC
APS Bank plc 119
NOTES TO THE FINANCIAL STATEMENTS (continued)
43. OPERATING SEGMENTS (continued)
Retail
Commercial
Investment
Services
Liquidity Management
and Structured Loans
Total Reportable
Segments
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
Interest receivable
and similar income
from external
customers
34,536
29,563
25,444
23,531
-
-
9,161
9,189
69,141
62,283
Interest payable
(1,814)
(1,701)
(4,601)
(4,628)
(496)
(566)
(6,770)
(6,442)
(13,681)
(13,337)
Net fee and
commission income
and other income
83
346
2,710
2,256
3,737
2,880
1,162
612
7,692
6,094
Operating income
before net
impairments
32,805
28,208
23,553
21,159
3,241
2,314
3,553
3,359
63,152
55,040
Impairment gains /
(losses)
2,902
(3,590)
(1,712)
(1,628)
-
-
298
(319)
1,488
(5,537)
Net operating
income
35,707
24,618
21,841
19,531
3,241
2,314
3,851
3,040
64,640
49,503
Personnel expenses
(3,782)
(3,767)
(1,400)
(1,309)
(1,716)
(1,489)
(414)
(392)
(7,312)
(6,957)
Other administrative
and operating
expenses
(1,221)
(976)
(31)
(20)
(422)
(200)
(250)
(274)
(1,924)
(1,470)
Operating expenses
(5,003)
(4,743)
(1,431)
(1,329)
(2,138)
(1,689)
(664)
(666)
(9,236)
(8,427)
Net operating profit
before associates’
results
30,704
19,875
20,410
18,202
1,103
625
3,187
2,374
55,404
41,076
Share of results from
associates
-
-
-
-
-
-
21
(258)
21
(258)
Profit before tax as
per segments
30,704
19,875
20,410
18,202
1,103
625
3,208
2,116
55,425
40,818
Less:
Unallocated items
-
-
-
-
-
-
-
-
(31,357)
(25,021)
Profit before tax as
per statements of
profit or loss
30,704
19,875
20,410
18,202
1,103
625
3,208
2,116
24,068
15,797
Retail
Commercial
Investment
Services
Liquidity
Management and
Structured Loans
Total Reportable
Segments
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
Dec-21
Dec-20
€000
€000
€000
€000
€000
€000
€000
€000
€000
€000
Total assets as
per segments
1,302,478
1,064,431
629,567
624,572
-
-
787,710
658,715
2,719,755
2,347,718
Add: Unallocated
items
75,249
73,265
Total assets as
per statements of
financial position
2,795,004
2,420,983
Investment in
associates
-
-
-
-
-
-
19,803
18,641
19,803
18,641
Total liabilities as
per segments
2,243,360
1,979,814
188,397
143,632
-
-
112,357
64,361
2,544,114
2,187,807
Add: Unallocated
items
30,068
26,957
Total liabilities as
per statements of
financial position
2,574,182
2,214,764
APS BANK PLC
APS Bank plc 120
NOTES TO THE FINANCIAL STATEMENTS (continued)
43. OPERATING SEGMENTS (continued)
Dec-21
Dec-20
€000
€000
Profit before tax
As per reportable segments
55,425
40,818
Unallocated items:
Interest payable
(92)
(98)
Net fee and commission income and other income
88
203
Personnel expenses
(14,919)
(11,317)
Professional fees
(1,313)
(642)
Repairs and maintenance
(4,102)
(3,016)
Telecommunications
(721)
(601)
Other administrative expenses
(6,228)
(5,521)
Depreciation and amortisation
(4,070)
(4,029)
As per statements of profit or loss
24,068
15,797
Dec-21
Dec-20
€000
€000
Total assets
As per reportable segments
2,719,755
2,347,718
Unallocated items:
Investment properties
6,053
1,830
Property and equipment
40,998
46,180
Intangible assets
11,746
8,848
Right-of use assets
5,051
5,235
Deferred tax assets
2,249
2,553
Other receivables
9,152
8,619
As per statements of financial position
2,795,004
2,420,983
Dec-21
Dec-20
€000
€000
Total liabilities
As per reportable segments
2,544,114
2,187,807
Unallocated items:
Current tax
945
1,399
Lease liabilities
5,348
5,365
Other liabilities
10,450
10,090
Accruals
13,325
10,103
As per statements of financial position
2,574,182
2,214,764
44. RELATED PARTY DISCLOSURES
The Group’s structure
These consolidated financial statements of the Group include the financial statements of APS Bank plc
and its subsidiaries and associates, as disclosed in Notes 22 and 23 respectively.
During the course of its normal banking business, the Bank conducts business on commercial terms with
its subsidiaries, associates, shareholders, key management personnel and other related parties.
The registered office of APS Funds SICAV plc, APS Regular Income Ethical Fund, APS Income Fund, APS
Diversified Bond Fund, APS Global Equity Fund and ReAPS Asset Management Limited is APS Centre,
Tower Street, Birkirkara, BKR 4012. The registered office of IVALIFE Insurance Limited is Gaba Building,
Level 2, Naxxar Road, Iklin, IKL 9026.
Information on the Bank’s Shareholders is disclosed in the Directors’ Report and in Note 47.
APS BANK PLC
APS Bank plc 121
NOTES TO THE FINANCIAL STATEMENTS (continued)
44. RELATED PARTY DISCLOSURES (continued)
Related party transactions
The following tables provide the total amount of transactions, which have been entered into by the Group
and the Bank with related parties for the year under review:
The Group
The Bank
Dec-21
Dec-20
Dec-21
Dec-20
€000
€000
€000
€000
Interest receivable on loans and
advances:
Shareholders
3
18
3
18
Key management personnel
16
23
16
23
Other related parties
60
96
60
96
Fee and commission income:
ReAPS Asset Management Limited
-
-
1,230
938
APS Income Fund
663
654
-
-
APS Regular Income Ethical Fund
382
335
-
-
IVALIFE Insurance Limited
15
-
-
-
Shareholders
497
168
52
110
Other related parties
183
187
-
150
Interest payable:
APS Income Fund
18
23
18
23
Shareholders
179
186
179
186
Key management personnel
7
9
7
9
Other related parties
38
60
38
60
Personnel expenses:
Key management personnel
3,712
3,291
3,712
3,291
General administrative expenses:
Shareholders
278
269
278
269
The Group
The Bank
Dec-21
Dec-20
Dec-21
Dec-20
€000
€000
€000
€000
Amounts due from related parties
ReAPS Asset Management Limited
-
-
314
233
APS Income Fund
166
164
-
-
APS Regular Income Ethical Fund
106
88
-
-
IVALIFE Insurance Limited
18
-
-
-
Other related parties
65
37
-
-
Amounts due to related parties
ReAPS Asset Management Limited
-
-
1,316
703
APS Income Fund
3,263
3,078
3,263
3,078
APS Regular Income Ethical Fund
1
-
1
-
APS BANK PLC
APS Bank plc 122
NOTES TO THE FINANCIAL STATEMENTS (continued)
44. RELATED PARTY DISCLOSURES (continued)
Related party transactions (continued)
Related party transactions in respect of Shareholders and key management personnel are included in the
below tables.
a) Compensation of key management personnel of the Group/Bank
The amounts disclosed in Note 9 and 10 are recognised as an expense during the reporting year and are
paid to key management personnel of the Group. These only include short-term employee benefits.
(2020: the same).
b) Transactions with Directors
2021
2020
€000
€000
Loans and advances
690
894
Commitments
197
432
Facilities granted to Directors are made in the ordinary course of business on substantially the same
terms as for comparable transactions with individuals of a similar standing, or where applicable, other
employees.
c) Transactions with Executives
2021
2020
€000
€000
Loans and advances
7,572
4,734
Commitments
699
624
Facilities granted to Executives are made in the ordinary course of business on substantially the same
terms as for comparable transactions with individuals of a similar standing, or where applicable, other
employees.
d) Balances with other related parties
Balances
Interest
Balances
Interest
as at
receivable
as at
receivable
31.12.2021
2021
31.12.2020
2020
€000
€000
€000
€000
Amounts due from other related parties:
Shareholders and entities with common
directorship
7,978
246
7,362
203
Balances
Interest
Balances
Interest
as at
payable
as at
payable
31.12.2021
2021
31.12.2020
2020
€000
€000
€000
€000
Amounts due to other related parties:
-Shareholders
16,353
179
23,509
186
-Directors
1,267
-
831
3
-Other key management personnel
2,005
7
1,394
6
-Other related parties
3,417
8
2,223
11
APS BANK PLC
APS Bank plc 123
NOTES TO THE FINANCIAL STATEMENTS (continued)
44. RELATED PARTY DISCLOSURES (continued)
Related party transactions (continued)
There are no deposits held as collateral for loan commitments and overdraft facilities granted to related
parties (2020: same). Also, included in Amounts owed to customers are term deposits of €4,067,231
(2020: €9,137,120), which bear interest at the prevailing Bank rates. Furthermore, the amounts due from
other related parties include secured facilities of €7,975,996 (2020: €6,971,010) and €2,141 (2020:
€391,328) unsecured facilities.
For the year ended 31 December 2021, the Bank recognised impairments on receivables from related
parties amounting to €2,285 (2020: €5,122).
No guarantees were received by related parties as at end of December 2021 (2020: nil). Special
guarantees given to related parties amount to €103,414 (2020: €101,162).
45. FAIR VALUES
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The level within which the fair value measurement is categorised is determined based on the lowest level
of input that is significant to fair value measurement.
The reporting of fair values is intended to guide users as to the amount, timing and certainty of cash
flows.
Fair value measurement hierarchy of the Group’s and Bank’s assets and liabilities is as follows:
Fair value measurement hierarchy
The Group
Level 1
Level 2
Level 3
Total
€000
€000
€000
€000
Assets as at 31 December 2021
Property and Equipment (Note 25)
- Land and buildings
-
-
29,159
29,159
Investment properties (Note 24)
- Residential property
-
-
495
495
- Commercial property
-
-
5,558
5,558
Derivative assets not designated as hedges (Note 18) - 552 - 552
Financial assets at FVTPL (Note 19)
- Fixed income instruments and collective investment
schemes
61,846
-
-
61,846
Financial assets at FVTOCI
- Other debt and fixed income instruments (Note 20)
227,103
-
-
227,103
- Equity and other non-fixed income instruments
(Note 21)
- - 307 307
Total
288,949
552
35,519
325,020
Liabilities as at 31 December 2021
Derivative liabilities not designated as hedges (Note 18) - 552 - 552
Total
-
552
-
552
APS BANK PLC
APS Bank plc 124
NOTES TO THE FINANCIAL STATEMENTS (continued)
45. FAIR VALUES (continued)
Fair value measurement hierarchy
The Group
Level 1
Level 2
Level 3
Total
€000
€000
€000
€000
Assets as at 31 December 2020
Property and Equipment (Note 25)
- Land and buildings
-
-
34,394
34,394
Investment properties (Note 24)
- Residential property
-
-
400
400
- Commercial property
-
-
1,430
1,430
Derivative assets not designated as hedges (Note 18)
-
499
-
499
Financial assets at FVTPL (Note 19)
- Fixed income instruments and collective investment
schemes
50,636 - - 50,636
Financial assets at FVTOCI
- Other debt and fixed income instruments (Note 20)
211,751
-
-
211,751
- Equity and other non-fixed income instruments
(Note 21)
- - 303 303
Total
262,387
499
36,527
299,413
Liabilities as at 31 December 2020
Derivative liabilities not designated as hedges (Note 18)
-
499
-
499
Total
-
499
-
499
Fair value measurement hierarchy
The Bank
Level 1
Level 2
Level 3
Total
€000
€000
€000
€000
Assets as at 31 December 2021
Property and equipment (Note 25)
- Land and buildings
-
-
29,159
29,159
Investment properties (Note 24)
- Residential property - - 495 495
- Commercial property - - 5,558 5,558
Derivative assets not designated as hedges (Note 18)
-
552
-
552
Financial assets at FVTOCI
- Other debt and fixed income instruments (Note 20) 227,103 - - 227,103
- Equity and other non-fixed income instruments
(Note 21)
- - 307 307
Total
227,103
552
35,519
263,174
Liabilities as at 31 December 2021
Derivative liabilities not designated as hedges
(Note 18)
- 552 - 552
Total
-
552
-
552
APS BANK PLC
APS Bank plc 125
NOTES TO THE FINANCIAL STATEMENTS (continued)
45. FAIR VALUES (continued)
Fair value measurement hierarchy
The Bank
Level 1
Level 2
Level 3
Total
€000
€000
€000
€000
Assets as at 31 December 2020
Property and equipment (Note 25)
- Land and buildings
-
-
34,394
34,394
Investment properties (Note 24)
- Residential property - - 400 400
- Commercial property - - 1,430 1,430
Derivative assets not designated as hedges (Note 18)
-
499
-
499
Financial assets at FVTPL (Note 19)
- Fixed income instruments and collective investment
schemes
251
-
-
251
Financial assets at FVTOCI
- Other debt and fixed income instruments (Note 20)
211,751
-
-
211,751
- Equity and other non-fixed income instruments (Note 21) - - 303 303
Total
212,002
499
36,527
249,028
Liabilities as at 31 December 2020
Derivative liabilities not designated as hedges (Note 18) - 499 - 499
Total
-
499
-
499
There were no reclassifications made within the fair value hierarchy and there were no changes in valuation
techniques used by the Group during the year, except as disclosed below.
Investment properties
For the year ended 31 December 2021, the independent architect based the valuations on the investment
method and the comparative valuation methodology for both commercial and residential properties. The
investment valuation methodology can be applied to determine the market value of a freehold or leasehold
interest in property from its potential to generate future income. It is typically used for the main forms of
properties where a tenant is providing the landlord with an investment return on his capital cost. Using this
method, the comparable property transactions of sales and lettings are analysed to find the revenue. Under
the comparative valuation methodology, the current value of the property is compared to another property
with similar characteristics. This method involves comparing the subject property with similar properties
that have been recently sold and those that are currently being offered for sale in the vicinity of other
comparable localities. The characteristics, merits and demerits of these properties are noted, and
appropriate adjustments thereof are then made to arrive at the value of the subject property. Market value
in relation to the commercial property was based on the price of €4,115 per square metre whereas the price
of residential property was of €2,346 per square metre.
For the year ended 31 December 2020, the independent architect confirmed that the valuation
methodology and inputs used as at end of 31 December 2019 have not changed for both commercial and
residential properties. Both commercial and residential properties were valued using the market value basis,
as defined in the European Valuation Standards manual, namely, the price at which land and buildings could
be sold under private contract between a willing seller and an arm’s length buyer on the date of valuation,
it being assumed that the property is publicly exposed to the market, that market conditions permit orderly
disposal and that a normal period, having regard to the nature of the property, is available for the
negotiation of sale. Market value in relation to the commercial property was based on the price of €2,471
per square metre whereas the price of residential property was of €1,896 per square metre.
APS BANK PLC
APS Bank plc 126
NOTES TO THE FINANCIAL STATEMENTS (continued)
45. FAIR VALUES (continued)
Investment properties (continued)
The fair value movement on investment properties amounted to €201,000 (Note 24) during the year.
66% of the investment properties are being used in their highest and best use whereas 34% are either
being refurbished or kept to be sold in future years.
Significant increases/(decreases) in estimated market rates per square meter in isolation would result in
a significantly higher/(lower) fair value of the properties. Significant increases/(decreases) in the
discount rate in isolation would result in a significantly higher/(lower) fair value of the properties.
As at the end of 31 December 2021 (2020: nil) the Group has no restrictions on the realisation of
investment properties in Note 24.
The fair value movement in relation to 2021 is all attributable to assets held at year end and no fair value
movement was recognised in respect of assets disposed during the year.
Residential properties
Commercial properties
2021
2020
2021
2020
€000
€000
€000
€000
At 1 January
400
400
1,430
1,430
Improvements
-
-
24
-
Reclassification from
property and equipment,
net of depreciation
-
-
3,998
-
Fair value movement
95
-
106
-
At 31 December
495
400
5,558
1,430
Property and equipment – Land and buildings
For the year ended 31 December 2021, the independent architect based the valuations on the investment
method and the comparative valuation methodology. The investment valuation methodology takes into
consideration the rental value of the property by comparison and capitalizes it at an appropriate yield in
order to render the current market value of the property. Under the comparative valuation methodology,
the current value of the property is compared to another property with similar characteristics. This
method involves comparing the subject property with similar properties that have been recently sold and
those that are currently being offered for sale in the vicinity of other comparable localities. The
characteristics, merits and demerits of these properties are noted, and appropriate adjustments thereof
are then made to arrive at the value of the subject property. Market value was based on prices in the
range of €1,444 and €11,240 per square metre.
For the year ended 31 December 2020, the independent architect confirmed that the valuation
methodology and inputs used as at end of 31 December 2019 have not changed except for one property
which valuation decreased by €291,000 (Note 37). As at end of 2019, the independent architect based
his valuations on a market value basis, namely, the price at which land and buildings could be sold under
private contract between a willing seller and an arm’s length buyer on the date of the valuation, it being
assumed that the property is publicly exposed to the market, that market conditions permit orderly
disposal and that a normal period, having regard to the nature of the property, is available for the
negotiation of sale. Market value was based on prices in the range of €1,172 and €10,909 per square metre.
The fair value of the land and buildings decreased by €1,784,000 (Note 25) during the year. Significant
increases/(decreases) in estimated market rates per square metre in isolation would result in a
significantly higher/(lower) fair value of the properties. The properties are being used at their highest and
best use and valuation was done as at 31
December 2021.
APS BANK PLC
APS Bank plc 127
NOTES TO THE FINANCIAL STATEMENTS (continued)
45. FAIR VALUES (continued)
Derivative liabilities not designated as hedges
The valuation for derivative instruments was made on 31 December 2021 and 31 December 2020 on the
basis of observable inputs using a discounted cash flow model by applying appropriate yield curves at
the balance sheet date.
Financial assets at fair value through profit or loss – fixed income instruments and collective investments
schemes
All of the Group’s financial assets at FVTPL are carried at market value using available quoted market
prices.
Fair value through other comprehensive income
Fair values of debt and equity instruments classified in this category are generally based on quoted
market prices, if available.
Other financial instruments
Cash balances, balances with the CBM and loans and advances to banks which are repayable on call and
at short notice are highly liquid assets. The Directors regard the amounts shown in the statements of
financial position for these items as reflecting their fair value as these assets will be realised for cash in
the immediate future. The fair value of the placements with other banks not repayable at short notice is
not materially different from their carrying amount since these carry an arm’s length rate of interest which
is reflective of conditions at year end. The fair value was determined using a Level 2 discounted cash flow
valuation technique using relevant interest rates as the major inputs.
At the reporting date, debt securities classified at amortised cost amounted to €101.0 million (2020:
€104.3 million). Their market value amounted to €107.7 million (2020: €115.6 million) (Level 1), whilst their
nominal value amounted to €98.3 million (2020: €100.8 million). For other details refer to Note 20.
Loans and advances to customers are stated at the amounts contractually due less provision to reflect
the expected recoverable amounts. Their carrying amount is not deemed to differ materially from their
fair value as these are re-priced to take into consideration changes in both the Bank’s base rate and credit
margins. Their fair value measurement is a Level 2 input.
At the reporting date, syndicated loans and trade finance classified at amortised cost amounted to €134.3
million (2020: €113.2 million). Their market value amounted to €134.6 million (2020: €113.3 million) (Level
2), whilst their nominal value amounted to €124.6 million (2020: €114.5 million). For other details refer to
Note 17.
Amounts owed to banks and customers include deposit liabilities. Of this category of liability, 84% (2020:
82%) have contractual re-pricing within one year, whilst 16% (2020: 18%) re-prices between one year and
over. For demand deposits and term deposits within one-year, fair value is taken to be the amount
payable on demand at the reporting date (Level 2). For term deposits after one-year with a carrying
amount of €401.2 million (2020: €392.1 million), fair value is €401.2 million (2020: €392.1 million). All term
deposits at different maturities were revalued to reflect the current interest rates. Their fair value
measurement is a Level 2 input.
Debt securities in issue have a carrying amount of €54.6 million (2020: €54.6 million) at 31 December
2021. The market value, based on quoted prices in an active market (Level 1), amounted to €56.4 at 31
December 2021 (2020: €56.1).
The reconciliation of Level 3 fair value measurements of financial instruments is disclosed below.
2021
2020
€000
€000
At 1 January
303
308
Fair value movements
-
(5)
Exchange rate movement
4
-
At 31 December
307
303
APS BANK PLC
APS Bank plc 128
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT
46.1 Risk management framework
The Board of Directors (hereafter referred to as “the Board”) has overall responsibility for the
establishment and oversight of the Group’s risk management framework. The Board has established the
Risk Committee. The Risk Committee proposes the risk appetite statement for approval by the Board
and ensures implementation of the Group’s risk management and compliance strategy, systems and
policies. The Group’s Risk Appetite Statement articulates the types and level of risk that the Group is
willing to take in the pursuit of the strategic objectives. The risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Group’s activities.
The Group’s risk governance framework ensures oversight of, and accountability for, the effective
management of risk. Responsibility for risk lies at all levels within the Group through a three lines of
defence model. Business units, as the first line of defence, are responsible for identifying, assessing and
mitigating the risks to which the Group is exposed in the respective operational function. The
management of the various forms of risk is then coordinated and monitored by the Risk and Compliance
functions. The Internal Audit Department, as the third line of defence, provides independent assurance
to the Board on the adequacy of the risk management framework.
46.2 Credit risk
Credit Risk is the possibility that a borrower or counterparty fails to meet its obligations in accordance
with (or performing according to) agreed terms, causing a financial loss, including losses resulting from
a reduction in portfolio value arising from actual or perceived deterioration in credit quality.
Credit risk arises mainly from interbank, commercial and consumer loans and advances, and loan
commitments arising from such lending activities, but can also arise from credit enhancement provided,
such as financial guarantees, letters of credit, endorsements and acceptances.
To meet the financial needs of customers, the Group and the Bank enter into various commitments and
contingent liabilities, as disclosed below. Even though these obligations are not recognised on the
statements of financial position (being, off-balance sheet items), they are subject to credit risk and are,
therefore, part of the overall risk of the Group and the Bank.
The Group / The Bank
Not later than one year
2021
2020
€000
€000
Loan commitments
802,552
786,427
Guarantees, acceptance and other financial facilities
25,356
23,128
827,908
809,555
The Group is also exposed to credit risk arising from investments in debt securities and other financial
instruments through its trading and investment activities including non-equity portfolio assets and
derivatives as well as settlement balances with market counterparties, reverse repurchase agreements
and balances with CBM.
The Group has a detailed Credit Risk Policy, which lays down the principles for the management of credit
risk. The Group manages and controls its exposure to credit risk by setting limits on the amount of risk it
is willing to accept for individual counterparties and connected entities, as well as by geographical and
industry concentrations.
The Group has established a credit quality review process to provide early identification of possible
changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty
limits are established by the use of a credit risk classification system, which assigns each counterparty a
risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the
Group to assess the potential loss as a result of the risks to which it is exposed and take corrective action.
The Group applies an automated proprietary credit rating system to differentiate the degree of credit
risk inherent in advances extended to its customers. Internal ratings are used to grade loans and advances
APS BANK PLC
APS Bank plc 129
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
with a view to assess the repayment ability of the borrower and to assist in the monitoring and control
of credit risk. The credit rating process also provides a basis for the recognition of any under- performing
or non-performing credit facilities and for the assessment of expected credit losses in line with IFRS9
regulations. Further information on the credit risk grading system is included in Note 46.2.1.1 (‘Credit Risk
Grading’).
46.2.1 Credit Risk Measurement
The estimation of credit exposure for risk management purposes is complex and requires the use of
models, as the 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.
46.2.1.1 Credit Risk Grading
The Group allocates each exposure to a credit risk grade based on a variety of data that is determined
to be predictive of the risk of default and applying experienced credit judgement. The Group uses these
grades in identifying significant increases in credit risk under IFRS 9. Credit risk grades are a primary
input into the determination of the term structure of Probability of Default (“PD”) for exposures.
The Group use internal rating models tailored to the various categories of counterparty. Borrower and
loan specific information collected at the time of application (such as the level of collateral for retail
exposures and turnover and industry type for wholesale exposures) is fed into this rating model. This
is supplemented with external data such as information from the credit risk register. In addition, the
models enable management overlay by the responsible person, to be fed into the final internal credit
rating for each exposure. This allows for considerations which may not be captured as part of the other
data inputs into the model.
Besides what is discussed in Note 2.1 in the context of COVID-19, the following are additional
considerations for each type of portfolio held by the Group:
Retail
After the date of initial recognition, for retail business, the payment behaviour of the borrower is
monitored on a periodic basis to develop a behavioural score. Any other known information about the
borrower which impacts their creditworthiness, such as unemployment and previous delinquency
history, is also incorporated into the internal credit rating system.
Commercial
For commercial business, the rating is determined at the borrower level. A relationship manager will
incorporate any updated or new information/credit assessments into the credit system on an ongoing
basis. In addition, the relationship manager will also update information about the creditworthiness of
the borrower every year from sources such as public financial statements. This will determine the
updated internal credit rating.
Debt securities
For debt securities in the treasury portfolio, external rating agency credit grades are used. These
published grades are continuously monitored and updated. The Probability of Defaults (“PDs”)
associated with each grade are determined based on historical realised default rates, as published by
an external credit rating agency.
Syndicated loans
Similar to debt securities, syndicated loans are rated using an external rating agency credit grades.
Again, these credit grades are frequently reviewed and monitored for immediate update where
necessary.
APS BANK PLC
APS Bank plc 130
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.1 Credit Risk Measurement (continued)
46.2.1.1 Credit Risk Grading (continued)
The Group's internal gradings for loans and advances comprise of nine (9) rating levels including three
(3) default classes, whilst the remaining rating levels represent exposures not in default. Each rating
category is assigned a stage under IFRS 9, where the PDs differ according to which stage, the rating
category falls under.
For debt securities and syndicated loans, PDs are obtained from market data provided by a third party.
PDs are assigned to the instruments, according to their external credit rating, region and sector. The
risk of default increase exponentially at each higher credit risk rating. This means that the difference in
the PD between an A and A- rating grade is lower than the difference in the PD between a B and B-
rating grade.
46.2.2 ECL Measurement
IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial
recognition as summarised below:
• A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage
1' and has its credit risk continuously monitored by the Group.
• If a SICR since initial recognition is identified, the financial instrument is moved to 'Stage 2'
but is not yet deemed to be credit-impaired. Note 46.2.2.1 describes how the Group
determines when a SICR has occurred.
• If the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage
3'. Note 46.2.2.2 describes how the Group defines credit-impairment and default.
• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion
of lifetime ECLs that result from default events possible within the next 12 months.
Instruments in Stages 2 or 3 have their ECL measured based on ECLs on a lifetime basis.
Please refer to Note 46.2.2.3 for a description of inputs, assumptions and estimation
techniques used in measuring the ECL.
• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider
forward looking information. Note 46.2.2.4 includes an explanation of how the Group has
incorporated this in its ECL models.
Further disclosure is also provided in Note 46.2.2.5 on how the Group determines appropriate
groupings when ECL is measured on a collective basis and in Note 2.1 in the context of COVID-19.
The following diagram summarises the impairment requirements under IFRS 9:
Change in credit quality since initial recognition
The key judgements and assumptions adopted by the Group in addressing the requirements of the
standard are discussed in the following notes and in Note 2.1.
Stage 1
Stage 2
Stage 3
Initial Recognition
Significant increase in
credit risk since initial
recognition
Credit-impaired
assets
12-month ECL Lifetime ECL Lifetime ECL
APS BANK PLC
APS Bank plc 131
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.1 Significant increase in Credit Risk (SICR)
Under IFRS 9, when determining whether the credit risk (i.e. risk of default) on a financial instrument
has increased significantly since initial recognition, the Group will consider reasonable and supportable
information that is relevant and available without undue cost or effort, including both quantitative and
qualitative information and analysis based on the Group’s historical experience, expert credit
assessment and forward-looking information.
The main judgements that will be made by the Group in identifying whether a significant increase in
credit risk has occurred for an exposure are as follows:
• For loans and advances to customers, the Group’s internal credit risk grades will be used to
assess whether there has been a significant increase in credit risk, performed by comparing
the internal credit risk grades as at reporting date with the internal credit risk grades on initial
recognition.
• For the loans and advances to banks and balances with CBM, the Group will apply the low
credit risk simplification to all its exposures, thus to the extent that these investments are
considered to be low credit risk, they are not subject to the significant increase in credit risk
assessment.
• The investment and syndicated loans’ portfolios are divided into two separate sub portfolios;
Investment grade and Sub-Investment grade. The low credit risk simplification is applied for
investment grade exposures, thus not subject to significant increase in credit risk assessment.
For the sub-investment grade exposures, a one-notch downgrade in their respective external
credit rating will be considered as a significant increase in credit risk.
• In assessing whether there has been a SICR since initial recognition of a loan commitment, the
Group considers changes in the risk of a default occurring on the loan to which a loan
commitment relates; for financial guarantee contracts, the Group considers the changes in the
risk that the specified debtor will default on the contract.
Assessing whether credit risk has increased significantly since initial recognition of a financial
instrument requires identifying the date of initial recognition of the instrument, together with its internal
grading/credit rating on initial recognition. For certain revolving facilities (e.g. overdrafts), the date
when the facility was first entered into, could be a long time ago. Modifying the contractual terms of a
financial instrument may also affect this assessment, as discussed in Note 2.3 Modification of loans.
Determining whether credit risk has increased significantly
The Group has established a framework that incorporates both quantitative and qualitative information
to determine whether the credit risk on a particular financial instrument has increased significantly
since initial recognition. The framework aligns with the Group’s internal credit risk management
process.
The criteria for determining whether credit risk has increased significantly will vary by portfolio and will
include a backstop based on delinquency.
Quantitative Criteria:
For financial instruments other than the Group’s investment portfolio, the Group will presumptively
consider that a SICR occurs when the borrower is more than 30 days past due on its contractual
payments. The Group will determine days past due by counting the number of days since the earliest
elapsed due date in respect of which full payment has not been received. In assessing whether a
financial instrument has experienced a SICR, the Group also considers non-payments on connected
accounts of the same issuer to the Group, which exceed 30 days.
APS BANK PLC
APS Bank plc 132
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.1 Significant increase in Credit Risk (SICR) (continued)
Qualitative Criteria:
Using its expert credit judgement and, where possible, relevant historical experience, the Group may
determine that an exposure has undergone a SICR based on particular qualitative indicators that it
considers indicative of such and whose effect may not otherwise be fully reflected in its quantitative
analysis on a timely basis.
If the borrower meets one or more of the following criteria, the internal grading of the credit facility
falls due to a SICR i.e. transition to Stage 2:
• Excesses over an overdraft limit become fairly frequent and/or exceed the 30 days past due
(latter automated in the core banking system);
• A pattern of cheques returned unpaid;
• Review of borrowing accounts overdue;
• Trading losses that indicate a negative financial trend leading to an unsound financial
position;
• A significant downgrade from a superior credit rating;
• Significant decrease in collateral value which is expected to increase risk of default (for bullet
repayment loans only, such as commercial property-for-resale and/or residential Bridge
Loans repayable from sale of the same collateral); and
• Early signs of cash flow/liquidity problems such as delay in servicing of trade creditors/loans
and/or non-collection of debtors/amounts due.
The assessment of SICR incorporates forward-looking information and is performed on a regular basis.
The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk
by regular reviews to confirm that:
• The criteria are capable of identifying significant increases in credit risk before an exposure
is in default;
• The average time between the identification of a significant increase in credit risk and default
appears reasonable; and
• Exposures are not generally transferred directly from 12-month ECL measurement (Stage 1)
to credit-impaired (Stage 3).
The Group has used the low credit risk exemption for the investments’ portfolio in the current and prior
year, meaning that such financial instruments were not subject to the SICR test.
The Group reviewed its assessment of SICR during 2021 and 2020 in order to take into account the
effect of COVID-19, as explained in detail in Note 2.1, pages 65 to 71.
46.2.2.2 Definition of Default and credit impaired
Under IFRS 9, the Group will consider a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse
by the Group to actions such as realising security (if any is held);
• with respect to loans and advances to customers, the borrower is more than 90 days past
due on any material credit obligation to the Group. Overdrafts are considered past due once
the customer has either exceeded a sanctioned limit or has been advised of a limit that is
smaller than the current balance outstanding; or
• with regards to investments’ portfolio and syndicated loans’ portfolio, a payment by the
counterparty or issuer is more than 30 days past due.
APS BANK PLC
APS Bank plc 133
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.2 Definition of Default and credit impaired (continued)
In assessing whether a borrower is in default, the Group will consider indicators that are:
• qualitative: e.g. breaches of covenant;
• quantitative: e.g. overdue status and non-payment of another obligation of the same issuer to
the Group; and
• based on data developed internally and obtained from external sources.
Inputs into the assessment of whether a financial instrument is in default and their significance may
vary over time to reflect changes in circumstances.
At each reporting date, the Group assesses whether financial assets carried at amortised cost, debt
financial assets carried at FVTOCI, loan commitments and financial guarantees are credit-impaired. A
financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or past due event;
• the restructuring of a loan or advance by the Group on terms that the Group would not
consider otherwise;
• it is becoming probable that the borrower will enter bankruptcy or other financial
reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.
A loan that has been renegotiated due to a deterioration in the borrower's condition is usually
considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash
flows has reduced significantly and there are no other indicators of impairment.
An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any
of the default criteria for a consecutive period of three months. This period of three months has been
determined based on an analysis which considers the likelihood of a financial instrument returning to
default status after cure using different possible cure definitions.
46.2.2.3 Measuring ECL – Explanation of inputs, assumptions and estimation techniques
The ECL is measured on either a 12-month (12M) or Lifetime basis depending on whether a SICR has
occurred since initial recognition or whether an asset is considered to be credit impaired.
ECLs are the discounted product of the PD, Exposure at Default (EAD), and Loss Given Default (LGD),
defined as follows:
• PD estimates are estimates at a certain date, which, for loans and advances to customers, loan
commitments and financial guarantees, are calculated based on statistical rating models and
assessed using rating tools tailored to the various categories of counterparties and exposures.
These statistical models are based on internally compiled data comprising both quantitative
and qualitative factors. PDs are estimated considering the contractual maturities of exposures
and estimated prepayment rates. They are adjusted to reflect forward-looking information as
described below. Market data, obtained from a third party service provider, is used for the PD
of investment portfolio, balances with CBM and loans and advances to banks.
• EAD represents the expected exposure in the event of a default. The Group derives the EAD
from the current exposure to the counterparty and potential changes to the current amount
allowed under the contract, including amortisation, and prepayments. The EAD of a financial
asset is the gross carrying amount at default. For lending commitments and financial
guarantees, the EAD considers the amount drawn, as well as potential future amounts that
may be drawn or repaid under the contract, which will be estimated based on historical
APS BANK PLC
APS Bank plc 134
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.3 Measuring ECL – Explanation of inputs, assumptions and estimation techniques
(continued)
observations and forward-looking forecasts. For some financial assets, the Group determines
EAD by modelling the range of possible exposure outcomes at various points in time using
scenario and statistical techniques.
• LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD
parameters based on the history of recovery rates of claims, adjusted by the cure rates, against
defaulted counterparties. The LGD models consider the structure, collateral, seniority of the
claim, counterparty industry and recovery costs of any collateral that is integral to the financial
asset. LGD estimates are calibrated for different economic scenarios and, for real estate
lending, to reflect possible changes in property prices. They are calculated on a discounted
cash flow basis using the EIR as the discounting factor.
ECLs are a probability-weighted estimate of credit losses and are measured as follows:
• financial assets that are not credit-impaired at the reporting date: the present value of all cash
shortfalls i.e. the difference between the cash flows due to the entity in accordance with the
contract and the cash flows that the Group expects to receive;
• financial assets that are credit-impaired at the reporting date: the difference between the gross
carrying amount and the present value of estimated future cash flows;
• undrawn irrevocable loan commitments: the present value of the difference between the
contractual cash flows that are due to the Group if the commitment is drawn down and the
cash flows that the Group expects to receive; and
• financial guarantee contracts: the present value of the expected payments to reimburse the
holder less any amounts that the Group expects to recover.
Subject to using a maximum of a 12-month PD for financial assets for which credit risk has not
significantly increased, the Group measures ECLs considering the risk of default over the maximum
contractual period (including any borrower’s extension options) over which it is exposed to credit risk,
even if, for risk management purposes, the Group considers a longer period. The maximum contractual
period extends to the date at which the Group has the right to require repayment of an advance or
terminate a loan commitment or guarantee.
For retail overdrafts and certain corporate revolving facilities that include both a loan and an undrawn
commitment component, the Group measures ECLs over a period longer than the maximum
contractual period if the Group’s contractual ability to demand repayment and cancel the undrawn
commitment does not limit the Group’s exposure to credit losses to the contractual notice period.
These facilities do not have a fixed term or repayment structure and are risk managed on an individual
basis; these facilities are however collectively assessed for IFRS 9 purposes. Although the Group can
cancel these facilities with immediate effect, this contractual right is not enforced in the normal day-
to-day management, but rather only when the Group becomes aware of an increase in credit risk at
the facility level. This longer period will be estimated taking into account the credit risk management
actions that the Group expects to take and that serve to mitigate ECLs. These include a reduction in
limits and cancellation of the facility.
46.2.2.4 Forward Looking Information
Under IFRS 9, the Group incorporates forward-looking information into both its assessment of whether
the credit risk of an instrument has increased significantly since initial recognition and its measurement
of ECLs. The assessment of SICR and the calculation of ECL, both incorporate forward-looking
information. The Group performs a historical analysis and identifies the key economic variables
affecting credit risk and ECLs for each portfolio. These economic variables and their associated impact
on the PD, EAD and LGD may vary by financial instrument. The Group performs expert judgement in
this process.
APS BANK PLC
APS Bank plc 135
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.4 Forward Looking Information (continued)
A third party provider has been engaged to provide, on a regular basis, the forecasted macro-economic
scenarios covering a ten-year time horizon. The ‘base line’ scenario represents the most-likely outcome
and is the same scenario considered by the Group for the purposes of strategic planning and
budgeting. Apart from the ‘base line’ scenario, the Group considers two other macro-economic
scenarios, which represent more optimistic and more pessimistic outcomes.
As with any macro-economic forecasts, the projections and likelihoods of 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.
The Group has identified key drivers of credit risk and credit losses for each portfolio of financial
instruments and, using an analysis of historical data, has analysed relationships between macro-
economic variables and credit risk and credit losses. These key drivers include inflation rates,
unemployment rates and GDP forecasts.
The following table illustrates the macro-economic indicators incorporated in the IFRS 9 model, for
each macro-economic scenario, as at 31 December 2021;
Scenarios
Macro-Economic Variables
2021
2020
Baseline
Upside
Downside
Baseline
Upside
Downside
Indicators
GDP (%)
7.32
8.02
6.4
5.54
5.60
5.42
Inflation rates (%)
3.06
3.11
2.95
4.42
5.08
3.67
Unemployment rates (%)
4.64
4.63
4.73
5.48
5.35
5.75
This above data is reviewed and updated on a quarterly basis, nevertheless, for the ECL calculation as
at the reporting date, the latest macro-economic data available was incorporated within the IFRS 9
model.
46.2.2.5 Grouping shared risk characteristics
For ECL provisions modelled on a collective basis, a grouping of exposures is performed on the basis
of shared risk characteristics, such that risk exposures within a group are homogeneous. In performing
this grouping, there must be sufficient information for the group to be statistically credible. The
characteristics and any supplementary data used to determine groupings are outlined below;
• Product type (e.g. residential/buy to let mortgage, credit cards);
• Credit risk grades;
• Industry – taking into consideration external information;
• Loan to value (“LTV”) ratio band;
• Repayment type (e.g. bullet cash flow type);
• Collateral type; and
• Geographic region of exposure.
The groupings selected by the Group are subject to regular review to ensure that exposures within a
particular group remain appropriately homogenous. During the period, the Group has performed a
modification within the segmentation of the loans and advances to customers’ portfolio, as there were
no sufficient historical data for particular segments to produce accurate results and at present, the
groups are classified as follows;
APS BANK PLC
APS Bank plc 136
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.2 ECL Measurement (continued)
46.2.2.5 Grouping shared risk characteristics (continued)
• Loans and advances to customers;
a) Mortgages;
b) Personal;
c) Commercial;
• Loans and advances to banks;
• Debt instruments; and
• Syndicated loans.
The groupings are subject to regular review to ensure that exposures within a particular group remain
appropriately homogeneous.
46.2.3 Credit Risk Exposure
46.2.3.1 Maximum exposure to credit risk without taking account of any collateral and other credit
enhancements
With respect to financial instruments which expose the Group to credit risk, the maximum exposure
equals the carrying amount of these instruments, except for loan commitments and financial
guarantees.
Credit risks exposures relating to the statements of financial position assets and off-balance sheet
items are as follows:
The Group
The Bank
Maximum exposure
Maximum exposure
2021
2020
2021
2020
€000
€000
€000
€000
Cash and balances with Central Bank of Malta
(excluding cash in hand)
192,558
93,266
192,558
93,266
Cheques in course of collection
2,881
103
2,881
103
Loans and advances to banks
32,296
51,068
30,831
46,281
Loans and advances to customers (net)
1,413,857
1,173,021
1,413,857
1,173,021
Loans and advances to corporate entities (net)
518,187
515,982
518,187
515,982
Syndicated loans (net)
134,262
113,152
134,262
113,152
Derivative financial instruments
552
499
552
499
Other debt and fixed income instruments (net)
328,041
315,983
328,041
315,983
Financial assets at FVTPL
61,846
50,636
-
251
Other receivables
9,152
8,619
8,303
7,974
As at 31 December
2,693,632
2,322,329
2,629,472
2,266,512
Credit risk exposures relating to off-balance sheet items are
as follows:
Financial guarantees and other contingent liabilities
25,356
23,128
25,356
23,128
Commitments
802,552
786,427
802,552
786,427
As at 31 December
827,908
809,555
827,908
809,555
APS BANK PLC
APS Bank plc 137
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.2 Concentration of risk
The Group
Concentrations of risk
Financial
Institutio
ns
Manufac
-turing
Real
Estate
Wholesale
and
Retail
Trade
Public
Sector
Other
Industries
Individuals
Total
€000
€000
€000
€000
€000
€000
€000
€000
Cash and balances with
Central Bank of Malta
(excluding cash in hand) (gross)
192,570
-
-
-
-
-
-
192,570
Cheques in course of collection
2,881
-
-
-
-
-
-
2,881
Loans and advances to banks
(gross)
32,327
-
-
-
-
-
-
32,327
Loans and advances to customers
(gross)
3,726
22,747
200,116
41,121
6,099
314,624
1,362,938
1,951,371
Syndicated loans (gross)
27,494
68,701
-
-
2,652
36,405
-
135,252
Derivative financial instruments
552
-
-
-
-
-
-
552
Other debt and fixed income
instruments (gross)
38,982
10,298
1,544
10,300
254,131
12,848
-
328,103
Financial assets at FVTPL
10,233
4,320
-
-
17,108
30,185
-
61,846
Other receivables
-
-
-
-
-
9,152
-
9,152
As at 31 December 2021
308,765
106,066
201,660
51,421
279,990
403,214
1,362,938
2,714,054
Financial guarantees and other
contingent liabilities
743
514
7,946
1,155
-
11,903
3,095
25,356
Commitments
14,121
7,984
164,644
16,692
5,288
90,327
503,496
802,552
As at 31 December 2021
14,864
8,498
172,590
17,847
5,288
102,230
506,591
827,908
The Group
Concentrations of risk
Financial
Institutio
ns
Manufac
-turing
Real
Estate
Wholesale
and
Retail
Trade
Public
Sector
Other
Industries
Individuals
Total
€000
€000
€000
€000
€000
€000
€000
€000
Cash and balances with
Central Bank of Malta
(excluding cash in hand)
93,271
-
-
-
-
-
-
93,271
Cheques in course of collection
103
-
-
-
-
-
-
103
Loans and advances to banks
51,117
-
-
-
-
-
-
51,117
Loans and advances to customers
(gross)
5,506
23,846
204,547
39,503
11,525
301,610
1,123,341
1,709,878
Syndicated loans (gross)
32,721
48,461
-
9,998
2,441
20,927
-
114,548
Derivative financial instruments
499
-
-
-
-
-
-
499
Other debt and fixed income
instruments (gross)
36,226
10,087
2,878
11,951
240,281
14,635
-
316,058
Financial assets at FVTPL
13,468
1,535
-
-
12,862
22,771
-
50,636
Other receivables
-
-
-
-
-
8,619
-
8,619
As at 31 December 2020
232,911
83,929
207,425
61,452
267,109
368,562
1,123,341
2,344,729
Financial guarantees and other
contingent liabilities
687
358
8,275
1,359
-
9,719
2,730
23,128
Commitments
30,649
10,959
170,419
18,472
918
75,477
479,533
786,427
As at 31 December 2020
31,336
11,317
178,694
19,831
918
85,196
482,263
809,555
APS BANK PLC
APS Bank plc 138
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.2 Concentration of risk (continued)
The Bank
Concentrations of risk
Financial
Institutions
Manufac
-turing
Real
Estate
Wholesale
and
Retail
Trade
Public
Sector
Other
Industries
Individuals
Total
€000
€000
€000
€000
€000
€000
€000
€000
Cash and balances with
Central Bank of Malta
(excluding cash in hand) (gross)
192,570
-
-
-
-
-
-
192,570
Cheques in course of collection
2,881
-
-
-
-
-
-
2,881
Loans and advances to banks
(gross)
30,862
-
-
-
-
-
-
30,862
Loans and advances to
customers (gross) 3,726 22,747 200,116 41,121 6,099 314,624 1,362,938 1,951,371
Syndicated loans (gross)
27,494
68,701
-
-
2,652
36,405
-
135,252
Derivative financial instruments
552
-
-
-
-
-
-
552
Other debt and fixed income
instruments (gross)
38,982
10,298
1,544
10,300
254,131
12,848
-
328,103
Other receivables
-
-
-
-
-
8,303
-
8,303
As at 31 December 2021
297,067
101,746
201,660
51,421
262,882
372,180
1,362,938
2,649,894
Financial guarantees and other
contingent liabilities
743
514
7,946
1,155
-
11,903
3,095
25,356
Commitments
14,121
7,984
164,644
16,692
5,288
90,327
503,496
802,552
As at 31 December 2021
14,864
8,498
172,590
17,847
5,288
102,230
506,591
827,908
The Bank
Concentrations of risk
Financial
Institutions
Manufac
-turing
Real
Estate
Wholesale
and
Retail
Trade
Public
Sector
Other
Industries
Individuals
Total
€000
€000
€000
€000
€000
€000
€000
€000
Cash and balances with
Central Bank of Malta
(excluding cash in hand) (gross)
93,271
-
-
-
-
-
-
93,271
Cheques in course of collection
103
-
-
-
-
-
-
103
Loans and advances to banks
(gross)
46,330
-
-
-
-
-
-
46,330
Loans and advances to
customers (gross) 5,506 23,846 204,547 39,503 11,525 301,610 1,123,341 1,709,878
Syndicated loans (gross)
32,721
48,461
-
9,998
2,441
20,927
-
114,548
Derivative financial instruments
499
-
-
-
-
-
-
499
Other debt and fixed income
instruments (gross)
36,226
10,087
2,878
11,951
240,281
14,635
-
316,058
Financial assets at FVTPL
-
-
-
-
251
-
-
251
Other receivables
-
-
-
-
-
7,974
-
7,974
As at 31 December 2020
214,656
82,394
207,425
61,452
254,498
345,146
1,123,341
2,288,912
Financial guarantees and other
contingent liabilities 687 358 8,275 1,359 - 9,719 2,730 23,128
Commitments
30,649
10,959
170,419
18,472
918
75,477
479,533
786,427
As at 31 December 2020
31,336
11,317
178,694
19,831
918
85,196
482,263
809,555
APS BANK PLC
APS Bank plc 139
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.3 Collateral and other credit enhancements
The Group employs a range of policies and practices to mitigate credit risk. The most common of these
is accepting collateral for funds advanced. The Group has internal policies on the acceptability of
specific classes of collateral or credit risk mitigation. Of the total loans and advances to customers,
87.38% (2020: 88.04%) were collateralised.
The Group prepares a valuation of the collateral obtained as part of the loan origination process. This
assessment is reviewed periodically. The principal collateral types for loans and advances are:
• Cash and securities;
• Government guarantees;
• Mortgages over residential properties, with the substantial majority being situated in Malta;
• Charges over business assets such as premises, inventory and accounts receivable; and
• Charges over financial instruments such as debt securities, equities and insurance policies.
Longer-term finance and lending to corporate entities are generally secured, however, revolving
personal credit facilities are, generally, unsecured.
Collateral held as security for financial assets other than loans and advances depends on the nature of
the instrument. Debt securities are generally unsecured, with the exception of covered bonds, which
are mainly secured by residential mortgages.
The Group's policies regarding obtaining collateral have not significantly changed during the reporting
period and there has been no significant change in the overall quality of the collateral held by the Group
since the prior period.
It is the Group’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are
used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed
properties for business use. During 2021, no new properties have been repossessed (same in 2020).
The Group also makes use of master netting agreements with counter parties. As at 31 December 2021
and 31 December 2020 there were no financial assets or liabilities arising from these agreements.
A portion of the Group's financial assets originated by the mortgage business has sufficiently low LTV
ratios, which results in no loss allowance being recognised in accordance with the Group's ECL model.
The carrying amount of such financial assets is €1,214 million as at 31 December 2021 (2020 - €981
million).
APS BANK PLC
APS Bank plc 140
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.3 Collateral and other credit enhancements (continued)
The Group closely monitors collateral held for financial assets considered to be credit-impaired, as it
becomes more likely that the Group will take possession of collateral to mitigate potential credit losses.
Financial assets that are credit-impaired and related collateral held in order to mitigate potential losses
are shown below.
The Group / The Bank
31 December 2021
Gross
Exposure
Impairment
allowance
Carrying
amount
Fair value of
collateral held
Credit-impaired assets
€000
€000
€000
€000
Loans to individuals:
- Overdraft
1,814
1,521
293
198
- Term Loans
2,699
792
1,908
1,941
- Home Loans
7,808
2,280
5,528
5,490
Loans to corporate
entities:
- Small and
medium-sized
enterprises
(SMEs)
65,789
13,204
52,583
53,242
Total credit-impaired
assets
78,110
17,797
60,312
60,871
The Group / The Bank
31 December 2020
Gross
Exposure
Impairment
allowance
Carrying
amount
Fair value of
collateral held
Credit-impaired assets
€000
€000
€000
€000
Loans to individuals:
- Overdraft
1,961
1,536
425
399
- Term Loans
1,822
697
1,125
1,119
- Home Loans
10,022
2,475
7,547
7,600
Loans to corporate
entities:
- Small and
medium-sized
enterprises
(SMEs)
31,682
11,531
20,151
20,759
Total credit-impaired
assets
45,487
16,239
29,248
29,877
APS BANK PLC
APS Bank plc 141
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.3 Collateral and other credit enhancements (continued)
The Group / The Bank
The following table shows the distribution of LTV ratios for the Group’s home loans and term loans
credit-impaired portfolio:
Credit-impaired
(Gross carrying amount)
Home loans portfolio- LTV distribution
2021
2020
€000
€000
Lower than 50%
2,736
3,901
50 to 60%
298
1,018
60 to 70%
576
582
70 to 80%
1,384
787
80 to 90%
1,372
1,870
90 to 100%
933
1,339
Higher than 100%
509
525
Total
7,808
10,022
APS BANK PLC
APS Bank plc 142
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.4 Credit quality
The following table sets out information about the credit quality of financial assets measured at
amortised cost and FVTOCI. Unless specifically indicated, for financial assets, the amount in the table
represents gross carrying amounts.
Explanation of the terms: 12-month ECL, lifetime ECL and credit-impaired are included in previous
notes.
The Bank
12-month
ECL
Lifetime ECL
not credit-
impaired
Lifetime ECL
credit-
impaired
Total
31 December 2021
€000
€000
€000
€000
Loans and advances to customers
at amortised cost
Grade 1-4: Low risk
1,741,052
-
-
1,741,052
Grades 5-6: Watch & substandard
-
132,210
-
132,210
Grade 7: Doubtful
-
-
54,274
54,274
Grade 8: Classified
-
-
23,835
23,835
Loss allowance
(678)
(852)
(17,797)
(19,327)
Carrying amount
1,740,374
131,358
60,312
1,932,044
Debt securities – At amortised cost
Investment grade
100,700
-
-
100,700
Sub-investment grade
300
-
-
300
Loss allowance (62) - - (62)
Carrying amount
100,938
-
-
100,938
Debt securities - FVTOCI
Investment grade
227,058
-
-
227,058
Sub-investment grade
45
-
-
45
Carrying amount
227,103
-
-
227,103
Syndicated loans
Grade 1-4: Low risk
35,845
-
-
35,845
Investment grade
7,514
-
-
7,514
Sub-investment grade
74,206
17,687
-
91,893
Loss allowance
(849)
(141)
-
(990)
Carrying amount
116,716
17,546
-
134,262
Cash and balances with Central
Bank of Malta
Investment grade
207,735
-
-
207,735
Sub-investment grade
-
-
-
-
Loss allowance
(12)
-
-
(12)
Carrying amount
207,723
-
-
207,723
Loans and advances to banks
Investment grade
30,842
-
-
30,842
Sub-investment grade
20
-
-
20
Loss allowance
(31)
-
-
(31)
Carrying amount
30,831
-
-
30,831
APS BANK PLC
APS Bank plc 143
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.4 Credit quality (continued)
The Bank
12-month
ECL
Lifetime ECL
not credit-
impaired
Lifetime ECL
credit-
impaired
Total
31 December 2020
€000
€000
€000
€000
Loans and advances to customers
at amortised cost
Grade 1-4: Low risk
1,308,717
-
-
1,308,717
Grades 5-6: Watch & substandard
-
355,675
-
355,675
Grade 7: Doubtful
-
-
21,150
21,150
Grade 8: Classified
-
-
24,336
24,336
Loss allowance
(589)
(4,047)
(16,239)
(20,875)
Carrying amount
1,308,128
351,628
29,247
1,689,003
Debt securities – At amortised cost
Investment grade
104,007
-
-
104,007
Sub-investment grade
300
-
-
300
Loss allowance
(75)
-
-
(75)
Carrying amount
104,232
-
-
104,232
Debt securities - FVTOCI
Investment grade
209,342
-
-
209,342
Sub-investment grade
1,683
726
-
2,409
Carrying amount
211,025
726
-
211,751
Syndicated loans
Grade 1-4: Low risk
23,997
-
-
23,997
Investment grade
24,000
-
-
24,000
Sub-investment grade
30,918
35,633
-
66,551
Loss allowance
(646)
(750)
-
(1,396)
Carrying amount
78,269
34,883
-
113,152
Cash and balances with Central
Bank of Malta
Investment grade
108,335
-
-
108,335
Sub-investment grade
-
-
-
-
Loss allowance
(5)
-
-
(5)
Carrying amount
108,330
-
-
108,330
Loans and advances to banks
Investment grade
46,302
-
-
46,302
Sub-investment grade
28
-
-
28
Loss allowance
(49)
-
-
(49)
Carrying amount
46,281
-
-
46,281
APS BANK PLC
APS Bank plc 144
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.3 Credit Risk Exposure (continued)
46.2.3.4 Credit quality (continued)
The following table provides an analysis of the performing and non-performing exposures of the Group’s
and Bank’s lending portfolio:
The Group/The Bank
Total
Of which
forborne
Total
Of which
forborne
2021
2021
2020
2020
€000
€000
€000
€000
Performing
Stage 1
1,741,052
24,688
1,308,717
596
Stage 2
132,209
81,628
355,675
1,596
Non-Performing
Stage 3
78,110
48,963
45,486
15,142
Total gross/forborne exposures
1,951,371
155,279
1,709,878
17,334
46.2.4 Loss Allowance
The loss allowance recognised during the period is impacted by a variety of factors, as described below
and in Note 2.1:
• Transfers between Stage 1 and Stage 2 or 3 due to financial instruments experiencing
significant increases (or decreases) of credit risk or becoming credit-impaired in the period
and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL.
• Additional allowance for new financial instruments recognised during the period, as well as
releases for financial instruments derecognised in the period.
• Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period,
arising from regular refreshing of inputs to models.
• Impacts on the measurements of ECL due to changes made to models and assumptions.
• Discount unwind within ECL due to passage of time, as ECL is measured on a present value
basis.
• Foreign exchange retranslations for assets denominated in foreign currencies and other
movements.
• Financial assets derecognised during the period and write-offs of allowances related to
assets that were written off during the period.
APS BANK PLC
APS Bank plc 145
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to customers
at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
589
4,047
16,239
20,875
Movements in loss allowance
Transfers:
Transfer to/(from) stage 1
53
-
-
53
Transfer to/(from) stage 2
-
(3,195)
-
(3,195)
Transfer to/(from) stage 3
-
-
(25)
(25)
Write-offs
-
-
(521)
(521)
New financial assets originated or purchased
205
49
454
708
Financial assets derecognised during the period
(166)
(296)
(37)
(499)
(Decreases)/increases due to change in credit risk
(4)
247
1,688
1,931
Loss allowance as at 31 December 2021
677
852
17,798
19,327
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to customers
at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2020
699
123
15,049
15,871
Movements in loss allowance
Transfers:
Transfer to/(from) stage 1
(119)
-
-
(119)
Transfer to/(from) stage 2
-
3,073
-
3,073
Transfer to/(from) stage 3
-
-
(49)
(49)
Write-offs
-
-
(215)
(215)
New financial assets originated or purchased
207
890
515
1,612
Financial assets derecognised during the period
(86)
(16)
(410)
(512)
(Decreases)/increases due to change in credit risk
(112)
(23)
1,349
1,214
Loss allowance as at 31 December 2020
589
4,047
16,239
20,875
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
75
-
-
75
Financial assets derecognised during the period
(2)
-
-
(2)
Decreases due to change in credit risk
(11)
-
-
(11)
Loss allowance as at 31 December 2021
62
-
-
62
APS BANK PLC
APS Bank plc 146
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2020
46
-
-
46
New financial assets originated or purchased
16
-
-
16
Increases due to change in credit risk
13
-
-
13
Loss allowance as at 31 December 2020
75
-
-
75
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at FVTOCI
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
237
9
-
246
Movements in loss allowance
Transfers:
Transfer from stage 2
-
(9)
-
(9)
New financial assets originated or purchased
34
-
-
34
Financial assets derecognised during the period
(17)
-
-
(17)
Decreases due to change in credit risk
(39)
-
-
(39)
Loss allowance as at 31 December 2021
215
-
-
215
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at FVTOCI
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2020
143
-
-
143
Movements in loss allowance
Transfers:
Transfer to stage 1
(9)
-
-
(9)
Transfer from stage 2
9
-
9
New financial assets originated or purchased
79
-
-
79
Financial assets derecognised during the period
(18)
-
-
(18)
Increases due to change in credit risk
42
-
-
42
Loss allowance as at 31 December 2020
237
9
-
246
APS BANK PLC
APS Bank plc 147
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Syndicated loans
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
665
731
-
1,396
New financial assets originated or purchased
354
4
-
358
Financial assets derecognised during the period
(152)
(627)
-
(779)
(Decreases)/i
ncreases due to change in credit risk
(18)
33
-
15
Loss allowance as at 31 December 2021
849
141
-
990
The Group/The Bank
Stage 1
Stage 2
Stage 3
Syndicated loans
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2020
714
547
-
1,261
Movements in loss allowance
Transfers:
Transfer from stage 1
(115)
-
-
(115)
Transfer to stage 2
-
105
-
105
New financial assets originated or purchased
336
18
-
354
Financial assets derecognised during the period
(289)
(1)
-
(290)
Increases due to change in credit risk
19
62
-
81
Loss allowance as at 31 December 2020
665
731
-
1,396
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to banks
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
49
-
-
49
New financial assets originated or purchased
1
-
-
1
Financial assets derecognised during the period
(2)
-
-
(2)
Decreases due to change in credit risk
(17)
-
-
(17)
Loss allowance as at 31 December 2021
31
-
-
31
APS BANK PLC
APS Bank plc 148
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to banks
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
New financial assets originated or purchased
49
-
-
49
Loss allowance as at 31 December 2020
49
-
-
49
The Group/The Bank
Stage 1
Stage 2
Stage 3
Cash and balances with the Central Bank of
Malta
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Loss allowance as at 1 January 2021
5
-
-
5
Increases due to change in credit risk
7
-
-
7
Loss allowance as at 31 December 2021
12
-
-
12
The Group/The Bank
Stage 1
Stage 2
Stage 3
Cash and balances with the Central Bank of
Malta
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
New financial assets originated or purchased
5
-
-
5
Loss allowance as at 31 December 2020
5
-
-
5
APS BANK PLC
APS Bank plc 149
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The following tables further explain changes in the gross carrying amount of each portfolio to help explain
their significance to the changes in the loss allowance for the same portfolio as discussed above:
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to customers
at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2021
1,308,717
355,675
45,486
1,709,878
Movements in loss allowance
Transfers:
Transfer to stage 1
170,022
-
-
170,022
Transfer from stage 2
-
(213,113)
-
(213,113)
Transfer to stage 3
-
-
32,164
32,164
Write-offs
-
-
(521)
(521)
New financial assets originated or purchased
420,899
17,533
1,662
440,094
Financial assets derecognised during the period
(154,694)
(27,264)
(2,675)
(184,633)
(Decreases)/increases due to changes in credit risk
(3,891)
(623)
1,994
(2,520)
Gross carrying amount as at 31 December 2021
1,741,053
132,208
78,110
1,951,371
The Group/The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to customers
at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2020
1,418,679
13,767
41,569
1,474,015
Movements in loss allowance
Transfers:
Transfer from stage 1
(262,260)
-
-
(262,260)
Transfer to stage 2
-
253,416
-
253,416
Transfer to stage 3
-
-
5,046
5,046
Write-offs
-
-
(215)
(215)
New financial assets originated or purchased
278,772
89,284
1,357
369,413
Financial assets derecognised during the period
(135,241)
(672)
(2,495)
(138,408)
Increases/(decreases) due to changes in credit risk
8,767
(120)
224
8,871
Gross carrying amount as at 31 December 2020
1,308,717
355,675
45,486
1,709,878
APS BANK PLC
APS Bank plc 150
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2021
104,307
-
-
104,307
Financial assets derecognised during the period
(1,011)
-
-
(1,011)
Changes to modifications that did not result in
derecognition
(2,296)
-
-
(2,296)
Gross carrying amount as at 31 December 2021
101,000
-
-
101,000
The Group/The Bank
Stage 1
Stage 2
Stage 3
Debt securities at amortised cost
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2020
79,617
79,617
New financial assets originated or purchased
27,359
-
-
27,359
Financial assets derecognised during the period
(2,000)
-
-
(2,000)
Changes to modifications that did not result in
derecognition
(669)
-
-
(669)
Gross carrying amount as at 31 December 2020
104,307
-
-
104,307
The Group/The Bank
Stage 1
Stage 2
Stage 3
Syndicated loans
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2021
80,335
34,213
-
114,548
New financial assets originated or purchased
83,907
2,142
-
86,049
Financial assets derecognised during the period
(50,159)
(19,110)
-
(69,269)
Increases/(decreases) due to change in credit risk
4,902
(978)
-
3,924
Gross carrying amount as at 31 December 2021
118,985
16,267
-
135,252
APS BANK PLC
APS Bank plc 151
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Group/The Bank
Stage 1
Stage 2
Stage 3
Syndicated loans
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2020
112,172
15,042
-
127,214
Movements in loss allowance
Transfers:
Transfer from stage 1
(16,524)
-
-
(16,524)
Transfer to stage 2
-
16,524
-
16,524
New financial assets originated or purchased
44,179
4,111
-
48,290
Financial assets derecognised during the period
(59,406)
(44)
-
(59,450)
Changes in model/risk parameters
(100)
(1,420)
-
(1,520)
Foreign exchange and other movements
14
-
-
14
Gross carrying amount as at 31 December 2020
80,335
34,213
-
114,548
The Group/The Bank
Stage 1
Stage 2
Stage 3
Cash and Balances with Central Bank of Malta
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2021
108,331
-
-
108,331
New financial assets originated or purchased
99,404
-
-
99,404
Gross carrying amount as at 31 December 2021
207,735
-
-
207,735
The Group/The Bank
Stage 1
Stage 2
Stage 3
Cash and Balances with Central Bank of Malta
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2020
162,403
-
-
162,403
Financial assets derecognised during the period
(54,072)
-
-
(54,072)
Gross carrying amount as at 31 December 2020
108,331
-
-
108,331
APS BANK PLC
APS Bank plc 152
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.4 Loss Allowance (continued)
The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to Banks
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2021
46,330
-
-
46,330
New financial assets originated or purchased
933
-
-
933
Financial assets derecognised during the period
(12,623)
-
-
(12,623)
Changes in model/risk parameters
(3,778)
-
-
(3,778)
Gross carrying amount as at 31 December 2021
30,862
-
-
30,862
The Bank
Stage 1
Stage 2
Stage 3
Loans and advances to Banks
12-month
ECL
Lifetime ECL
Lifetime ECL
(but not
POCI)
Total
€000
€000
€000
€000
Gross carrying amount as at 1 January 2020
54,841
-
-
54,841
Financial assets derecognised during the period
(8,511)
-
-
(8,511)
Gross carrying amount as at 31 December 2020
46,330
46,330
46.2.5 Write-off Policy
The Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery
efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include:
• ceasing enforcement activity; and
• situations where the Group's recovery method is foreclosing on collateral and the value of
the collateral is such that there is no reasonable expectation of recovering in full.
The Group does not have any enforcement activities on written-off activities, meaning that the Group
does not seek to recover amounts which it is legally owed in full, once these are written off.
46.2.6 Modification of Financial Assets
The Group sometimes modifies the terms of loans provided to customers. The contractual terms of a
loan may be modified for a number of reasons, including changing market conditions, customer
retention and other factors not related to a current or potential credit deterioration of the customer.
An existing loan whose terms have been modified may be derecognised and the renegotiated loan
recognised as a new loan at fair value.
Under IFRS 9, when the terms of a financial asset are modified but the modification does not result in
derecognition, the determination of whether the asset’s credit risk has increased significantly reflects
comparison of:
- internal grading/credit rating at the reporting date based on the modified terms; with
- internal grading/credit rating on initial recognition at the original contractual terms.
APS BANK PLC
APS Bank plc 153
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.2 Credit risk (continued)
46.2.6 Modification of Financial Assets (continued)
The Group renegotiates loans and advances to customers in financial difficulties (referred to as
‘forbearance activities’) to maximise collection opportunities and minimise the risk of default. Under
the Group’s forbearance policy, loan forbearance is granted on a selective basis if:
- the debtor is currently in default on its debt or if there is a high risk of default;
- there is evidence that the debtor made all reasonable efforts to pay under the original
contractual terms; and
- the debtor is expected to be able to meet the revised terms.
The revised terms usually include extending the maturity, revision of interest rate, or changing the
timing of interest payments. Both retail and corporate loans are subject to the forbearance policy. The
appropriate committee, depending on the facility amount and type of facility, reviews reports on
forborne facilities on a regular basis.
For financial assets modified as part of the Group’s forbearance policy, the credit grading will reflect
whether the modification has improved or restored the Group’s ability to collect interest and principal
and the Group’s previous experience of similar forbearance action. As part of this process, the Group
will evaluate the borrower’s payment performance against the modified contractual terms and consider
various behavioural indicators.
Generally, forbearance is a qualitative indicator of default and credit impairment and expectations of
forbearance are relevant to assessing whether there is a significant increase in credit risk. Following
forbearance, a customer needs to demonstrate consistently good payment behaviour over a period of
one year before the exposure is no longer considered to be in default/credit-impaired.
46.3 Liquidity risk
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or other financial assets. It arises because of the possibility
that the Group might be unable to meet its payment obligations when they fall due. To limit this risk, the
Group has arranged for diversified funding sources. The Group also manages this risk by matching the
maturities of assets and liabilities.
The Group maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in
the event of an unforeseen interruption of cash flow. The disclosures made in the financial statements
showing maturities are intended to show the timing of cash flows arising from assets and liabilities.
In November 2020, the Group issued €55,000,000 3.25% Unsecured Subordinated Bonds 2025-2030.
Further disclosure on these subordinated bonds is included in Note 46.6 (‘Capital Management’).
The Group’s Liquidity Coverage Ratio (“LCR”) remained relatively stable and within the Bank’s risk
appetite and applicable regulatory limit. Further information on the LCR is included in the ‘Pillar 3
Disclosures’ Report as published on the Bank’s website. The proceeds from the subordinated bonds were
applied in two areas: (i) Investment Grade Assets within the Group’s investments portfolio and (ii) the
lending portfolio.
The table overleaf analyses the carrying amounts of assets and liabilities into relevant maturity groupings,
based on the remaining period to the contractual maturity date. Repayments which are subject to notice
are treated as if notice were to be given immediately. However, the Bank expects that many customers
will not request repayment on the earliest date it could be required to pay and the table below does not
reflect the expected cash flows indicated by its deposit retention history.
APS BANK PLC
APS Bank plc 154
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
The Group
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2021
Assets
Cash and balances with
Central Bank of Malta
207,723
-
-
-
-
207,723
Cheques in course of
collection
2,881
-
-
-
-
2,881
Loans and advances to banks
32,296
-
-
-
-
32,296
Loans and advances to
customers (net) 16,007 99,065 111,479 1,705,493 - 1,932,044
Syndicated loans (net) 25,582 36,102 50,468 22,110 - 134,262
Derivative financial
instruments
-
-
552
-
-
552
Other debt and fixed income
instruments (net)
10,949
29,979
153,555
133,558
-
328,041
Financial assets at FVTPL
(194)
-
8,767
30,388
22,885
61,846
Equity and other non-fixed
income instruments
-
-
-
-
307
307
Investment in associates
-
-
-
-
19,803
19,803
Other assets
8,110
1,040
-
-
66,099
75,249
303,354
166,186
324,821
1,891,549
109,094
2,795,004
Liabilities and equity
Amounts owed to banks
49,463
7,745
-
-
-
57,208
Derivative financial
instruments
-
-
552
-
-
552
Amounts owed to customers
1,758,809
272,826
399,097
1,025
-
2,431,757
Debt securities in issue
-
-
-
54,597
-
54,597
Lease liabilities
-
596
2,068
2,684
-
5,348
Other liabilities
1,481
794
2,694
220
19,531
24,720
Equity
-
-
-
-
220,822
220,822
1,809,753
281,961
404,411
58,526
240,353
2,795,004
Gap
(1,506,399)
(115,775)
(79,590)
1,833,023
(131,259)
-
APS BANK PLC
APS Bank plc 155
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
The Group
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2020
Assets
Cash and balances with
Central Bank of Malta
108,330
-
-
-
-
108,330
Cheques in course of
collection
103
-
-
-
-
103
Loans and advances to banks
51,068
-
-
-
-
51,068
Loans and advances to
customers (net) 16,670 104,519 120,788 1,447,026 - 1,689,003
Syndicated loans (net)
3,501
38,607
59,053
11,991
-
113,152
Derivative financial
instruments
-
122
377
-
-
499
Other debt and fixed income
instruments (net) 1,663 12,454 145,480 156,386 - 315,983
Financial assets at FVTPL
446 432 11,504 22,383 15,871 50,636
Equity and other non-fixed
income instruments
-
-
-
-
303
303
Investment in associates
-
-
-
-
18,641
18,641
Other assets
7,556
1,061
-
-
64,648
73,265
189,337
157,195
337,202
1,637,786
99,463
2,420,983
Liabilities and equity
Amounts owed to banks
10
9,294
-
-
-
9,304
Derivative financial
instruments - 122 377 - - 499
Amounts owed to customers
1,444,788
286,996
379,201
12,461
-
2,123,446
Debt securities in issue
-
-
-
54,558
-
54,558
Lease liabilities
-
548
1,743
3,074
-
5,365
Other liabilities
1,790
1,110
2,488
382
15,822
21,592
Equity
-
-
-
-
206,219
206,219
1,446,588
298,070
383,809
70,475
222,041
2,420,983
Gap
(1,257,251)
(140,875)
(46,607)
1,567,311
(122,578)
-
APS BANK PLC
APS Bank plc 156
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
The Bank
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2021
Assets
Cash and balances with
Central Bank of Malta
207,723
-
-
-
-
207,723
Cheques in course of
collection
2,881 - - - - 2,881
Loans and advances to banks
30,831 - - - - 30,831
Loans and advances to
customers (net)
16,007
99,065
111,479
1,705,493
-
1,932,044
Syndicated loans (net)
25,582
36,102
50,468
22,110
-
134,262
Derivative financial
instruments
-
-
552
-
-
552
Other debt and fixed income
instruments (net)
10,949
29,979
153,555
133,558
-
328,041
Equity and other non-fixed
income instruments
-
-
-
-
307
307
Investment in subsidiaries
-
-
-
-
45,251
45,251
Investment in associates
-
-
-
-
16,761
16,761
Other assets
6,940
1,040
-
-
66,420
74,400
300,913
166,186
316,054
1,861,161
128,739
2,773,053
Liabilities and equity
Amounts owed to banks
49,463
7,745
-
-
-
57,208
Derivative financial
instruments
-
-
552
-
-
552
Amounts owed to customers
1,760,125
272,826
399,097
1,025
-
2,433,073
Debt securities in issue
-
-
-
54,597
-
54,597
Lease liabilities
-
596
2,068
2,684
-
5,348
Other liabilities
1,295
794
2,694
220
19,383
24,386
Equity
-
-
-
-
197,889
197,889
1,810,883
281,961
404,411
58,526
217,272
2,773,053
Gap
(1,509,970)
(115,775)
(88,357)
1,802,635
(88,533)
-
APS BANK PLC
APS Bank plc 157
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
The Bank
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2020
Assets
Cash and balances with
Central Bank of Malta
108,330
-
-
-
-
108,330
Cheques in course of
collection
103 - - - - 103
Loans and advances to banks
46,281 - - - - 46,281
Loans and advances to
customers (net)
16,670
104,519
120,788
1,447,026
-
1,689,003
Syndicated loans (net)
3,501
38,607
59,053
11,991
-
113,152
Derivative financial
instruments
-
122
377
-
-
499
Other debt and fixed income
instruments (net)
1,663
12,454
145,480
156,386
-
315,983
Financial assets at FVTPL
251
-
-
-
-
251
Equity and other non-fixed
income instruments
-
-
-
-
303
303
Investment in subsidiaries
-
-
-
-
45,251
45,251
Investment in associates
-
-
-
-
15,261
15,261
Other assets
6,681
1,061
-
-
64,878
72,620
183,480
156,763
325,698
1,615,403
125,693
2,407,037
Liabilities and equity
Amounts owed to banks
10
9,294
-
-
-
9,304
Derivative financial
instruments
-
122
377
-
-
499
Amounts owed to customers
1,445,491
286,996
379,201
12,461
-
2,124,149
Debt securities in issue
-
-
-
54,558
-
54,558
Lease liabilities
-
548
1,743
3,074
-
5,365
Other liabilities
1,743
1,110
2,488
382
15,752
21,475
Equity
-
-
-
-
191,687
191,687
1,447,244
298,070
383,809
70,475
207,439
2,407,037
Gap
(1,263,764)
(141,307)
(58,111)
1,544,928
(81,746)
-
APS BANK PLC
APS Bank plc 158
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2021
and 31 December 2020 based on contractual undiscounted repayment obligations. Repayments which
are subject to notice are treated as if notice were to be given immediately. However, the Bank expects
that many customers will not request repayment on the earliest date it could be required to pay and the
table below does not reflect the expected cash flows:
The Group
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More than
five years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2021
Liabilities
Amounts owed to
banks
49,463
7,745
-
-
-
57,208
Derivative financial
instruments
-
-
552
-
-
552
Amounts owed to
customers
1,759,437
273,623
401,795
1,034
-
2,435,889
Debt securities in issue
-
1,788
7,150
61,747
-
70,685
Lease liabilities
-
701
2,387
2,897
-
5,985
Other liabilities
1,481
794
2,694
220
19,531
24,720
1,810,381
284,651
414,578
65,898
19,531
2,595,039
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More than
five years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2020
Liabilities
Amounts owed to
banks
10
9,294
-
-
-
9,304
Derivative financial
instruments
-
122
377
-
-
499
Amounts owed to
customers
1,449,431
292,734
381,837
13,024
-
2,137,026
Debt securities in issue
-
1,788
7,150
63,495
-
72,433
Lease liabilities
-
656
2,084
3,368
-
6,108
Other liabilities
1,790
1,110
2,488
382
15,822
21,592
1,451,231
305,704
393,936
80,269
15,822
2,246,962
APS BANK PLC
APS Bank plc 159
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Bank’s financial liabilities as at 31 December
2021 and 31 December 2020 based on contractual undiscounted repayment obligations:
The Bank
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2021
Liabilities
Amounts owed to banks
49,463
7,745
-
-
-
57,208
Derivative financial
instruments
-
-
552
-
-
552
Amounts owed to
customers
1,760,753
273,623
401,795
1,034
-
2,437,205
Debt securities in issue
-
1,788
7,150
61,747
-
70,685
Lease liabilities
-
701
2,387
2,897
-
5,985
Other liabilities
1,295
794
2,694
220
19,383
24,386
1,811,511
284,651
414,578
65,898
19,383
2,596,021
Less than
three
months
Between
three
months
and one
year
Between
one year
and five
years
More
than five
years
Others
Total
€000
€000
€000
€000
€000
€000
At 31 December 2020
Liabilities
Amounts owed to banks
10
9,294
-
-
-
9,304
Derivative financial
instruments
-
122
377
-
-
499
Amounts owed to
customers
1,450,134
292,734
381,837
13,024
-
2,137,729
Debt securities in issue
-
1,788
7,150
63,495
-
72,433
Lease liabilities
-
656
2,084
3,368
-
6,108
Other liabilities
1,743
1,110
2,488
382
15,752
21,475
1,451,887
305,704
393,936
80,269
15,752
2,247,548
APS BANK PLC
APS Bank plc 160
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
Asset encumbrance
In accordance with Appendix 3 of BR07/2014 - Publication of Annual Report and Audited Financial
Statements of Credit Institutions Authorised under the Banking Act 1994 and the CRR, credit
institutions shall ensure compliance with the provisions of the EBA Guidelines on Disclosure of
Encumbered and Unencumbered Assets.
The Group’s encumbered assets relate to debt securities which are pledged in favour of the European
Central Bank for the purposes of existing and potential long term re-financing operations and also cash
in favour of the Depositor Compensation Scheme.
The Group
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
assets
Assets as at 31
December 2021
€000
€000
€000
€000
Equity instruments
-
-
20,110
558
Debt securities
152,565
159,235
237,321
180,213
Other assets
2,281
-
2,382,727
-
Assets of the reporting
institutions
154,846
159,235
2,640,158
180,771
The Group
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
assets
Assets as at 31
December 2020
€000
€000
€000
€000
Equity instruments
-
-
18,944
554
Debt securities
159,873
171,054
206,745
164,790
Other assets
1,400
-
2,034,021
-
Assets of the reporting
institutions
161,273
171,054
2,259,710
165,344
APS BANK PLC
APS Bank plc 161
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.3 Liquidity risk (continued)
The Bank
Assets as at 31 December 2021
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
assets
€000
€000
€000
€000
Equity instruments
-
-
62,319
558
Debt securities
147,883
154,553
180,158
180,213
Other assets
2,281
-
2,380,412
-
Assets of the reporting institutions
150,164
154,553
2,622,889
180,771
The Bank
Assets as at 31 December 2020
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
assets
€000
€000
€000
€000
Equity instruments
-
-
60,815
554
Debt securities
151,537
162,718
164,696
164,790
Other assets
1,400
-
2,028,589
-
Assets of the reporting institutions
152,937
162,718
2,254,100
165,344
In the above table, the unencumbered assets disclosed under Other Assets include loans and advances,
cash and short- term funds, property, plant and equipment, tax assets and other assets.
The table below discloses the liabilities associated with the Bank’s encumbered assets.
The Group
The Bank
Matching
liabilities
Encumbered
Assets
Matching
liabilities
Encumbered
Assets
Encumbered assets/collateral received and
associated liabilities as at 31 December 2021
€000
€000
€000
€000
Carrying amount of selected financial liabilities
1,250,571
154,846
1,250,571
150,164
The Group
The Bank
Matching
liabilities
Encumbered
Assets
Matching
liabilities
Encumbered
Assets
Encumbered assets/collateral received and
associated liabilities as at 31 December 2020
€000
€000
€000
€000
Carrying amount of selected financial liabilities
1,108,909
161,273
1,108,909
152,937
APS BANK PLC
APS Bank plc 162
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to
changes in market variables such as interest rates, foreign exchange rates, and the prices of equities,
bonds and commodities.
The Group’s exposure to market risk is mainly in the form of interest rate risk and foreign exchange risk.
The risk associated with the Group’s exposure in equities is not considered to be material. Also, as
disclosed in Note 18, the Bank enters into derivative contracts to economically hedge against movement
in certain cash flows on financial liabilities having embedded derivatives which are separately accounted
for.
46.4.1 Interest rate risk
Interest rate risk is the risk of the exposure of the Group’s financial condition to unfavourable
movements in interest rates.
The Group manages its exposure to interest rate risk using interest rates repricing gaps and both
economic value and earnings based measures. The Group’s interest rate risk management framework
is in line with the relevant guidelines issued by the EBA. Further information is provided in the Pillar 3
Disclosures Report as published on the website.
The following tables show the impact on the Group’s economic value and net interest income under
different interest rate scenarios, as mandated by the relevant EBA Guidelines.
Parallel
shock up
Parallel
shock down
Short rates
up
Short rates
down
Steepener
Flattener
€000
€000
€000
€000
€000
€000
Sensitivity of reported equity
to interest rates movements
At 31 December 2021
Average for the period
7,502
58
21,488 (4,980) (18,356) 20,738
Maximum for the period
12,755
2,265
22,973 (2,696) (16,053) 22,187
Minimum for the period
3,182
(1,846) 20,386 (8,218) (20,292) 18,997
Parallel
shock up
Parallel
shock down
Short rates
up
Short rates
down
Steepener
Flattener
€000
€000
€000
€000
€000
€000
Sensitivity of reported equity
to interest rates movements
At 31 December 2020
Average for the period
(2,107)
1,960
(16,903)
3,668
14,663
(16,215)
Maximum for the period
9,148
3,510
(14,178)
4,899
18,414
(12,555)
Minimum for the period
(11,423)
(1,592)
(21,698)
1,406
9,892
(18,701)
APS BANK PLC
APS Bank plc 163
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk (continued)
46.4.1 Interest rate risk (continued)
Parallel
shock up
Parallel shock
down
€000
€000
Sensitivity of projected net
interest rate income to
interest rates movements
At 31 December 2021
Average for the period
1,554 (360)
Maximum for the period
1,662 (166)
Minimum for the period
1,473 (471)
Parallel
shock up
Parallel shock
down
€000
€000
Sensitivity of projected net
interest rate income to
interest rates movements
At 31 December 2020
Average for the period
619
(188)
Maximum for the period
1,693
(56)
Minimum for the period
80
(415)
The below tables set out interest sensitive assets and liabilities categorised by repricing dates.
The Group
At 31 December 2021
Up to 1
year
1 – 5 years
5 – 10
years
More than
10 years
Others
€000
€000
€000
€000
€000
Assets
Cash and balances with Central Bank of Malta
173,060
-
-
-
-
Loans and advances to banks
32,296
-
-
-
-
Loans and advances to customers
1,519,670
239,872
168,461
4,041
-
Syndicated loans
134,262
-
-
-
-
Financial assets at FVTPL
2,215
20,239
20,971
6,090
12,331
Debt securities
40,928
153,555
125,220
8,338
-
1,902,431
413,666
314,652
18,469
12,331
Liabilities
Amounts owed to banks 57,208 - - - -
Amounts owed to customers
1,287,398 1,142,815 944 600 -
Debt securities in issue - 54,597 - - -
1,344,606
1,197,412
944
600
-
Net interest rate risk GAP
at 31 December 2021
557,825
(783,746)
313,708
17,869
12,331
APS BANK PLC
APS Bank plc 164
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk (continued)
46.4.1 Interest rate risk (continued)
The Group
At 31 December 2020
Up to 1
year
1 – 5 years
5 – 10
years
More
than 10
years
Others
€000
€000
€000
€000
€000
Assets
Cash and balances with Central Bank of
Malta
76,650
-
-
-
-
Loans and advances to banks
51,068
-
-
-
-
Loans and advances to customers
1,472,719
210,951
1,276
4,057
-
Syndicated loans
113,152
-
-
-
-
Financial assets at FVTPL
2,746
19,752
18,200
403
9,535
Debt securities
14,118
145,480
131,150
25,235
-
1,730,453
376,183
150,626
29,695
9,535
Liabilities
Amounts owed to banks
9,304
-
-
-
-
Amounts owed to customers
1,116,045
994,548
12,253
600
-
Debt securities in issue
-
54,558
-
-
-
1,125,349
1,049,106
12,253
600
-
Net interest rate risk GAP
at 31 December 2020
605,104
(672,923)
138,373
29,095
9,535
APS BANK PLC
APS Bank plc 165
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk (continued)
46.4.1 Interest rate risk (continued)
The Bank
At 31 December 2021
Up to 1
year
1 – 5
years
5 – 10
years
More
than 10
years
Others
€000
€000
€000
€000
€000
Assets
Cash and balances with Central Bank of
Malta
173,060
-
-
-
-
Loans and advances to banks
30,831
-
-
-
-
Loans and advances to customers
1,519,670
239,872
168,461
4,041
-
Syndicated loans
134,262
-
-
-
-
Financial assets at FVTPL
-
-
-
-
-
Debt securities
40,928
153,555
125,220
8,338
-
1,898,751
393,427
293,681
12,379
-
Liabilities
Amounts owed to banks
57,208
-
-
-
-
Amounts owed to customers
1,288,714
1,142,815
944
600
-
Debt securities in issue
-
54,597
-
-
-
1,345,922
1,197,412
944
600
-
Net interest rate risk GAP
at 31 December 2021
552,829
(803,985)
292,737
11,779
-
APS BANK PLC
APS Bank plc 166
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk (continued)
46.4.1 Interest rate risk (continued)
The Bank
At 31 December 2020
Up to 1
year
1 – 5
years
5 – 10
years
More
than 10
years
Others
€000
€000
€000
€000
€000
Assets
Cash and balances with Central Bank of
Malta
76,650
-
-
-
-
Loans and advances to banks
46,281
-
-
-
-
Loans and advances to customers
1,472,719
210,951
1,276
4,057
-
Syndicated loans
113,152
-
-
-
-
Financial assets at FVTPL
251
-
-
-
-
Debt securities
14,118
145,480
131,150
25,235
-
1,723,171
356,431
132,426
29,292
-
Liabilities
Amounts owed to banks
9,304
-
-
-
-
Amounts owed to customers
1,116,748
994,548
12,253
600
-
Debt securities in issue
-
54,558
-
-
-
1,126,052
1,049,106
12,253
600
-
Net interest rate risk GAP
at 31 December 2020
597,119
(692,675)
120,173
28,692
-
The carrying amount of assets and liabilities that carry a variable interest rate is €1.8 billion and €1.6
billion, respectively (2020: €1.5 billion and €1.3 billion).
APS BANK PLC
APS Bank plc 167
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.4 Market risk (continued)
46.4.2 Currency risk
Currency risk is the risk of the exposure of the Group’s financial position, financial performance and
cash flow to unfavourable movements in foreign exchange rates.
The Group’s financial assets and liabilities are substantially held in Euro. Limits are set on the level of
exposure, both by individual currency and in total. The exposure is also monitored through regular
sensitivity analysis.
The aggregate amount of assets and liabilities denominated in foreign currencies translated into Euro
are as follows:
2021
USD GBP Other Total
€
000
€
000
€
000
€
000
Assets
19,230 39,398 15,644 74,272
Liabilities
19,227 39,388 15,531 74,146
2020
USD GBP Other Total
€
000
€
000
€
000
€
000
Assets
32,447 39,661 18,470 90,578
Liabilities
32,445 39,656 18,291 90,392
The minimal currency exposure is not expected to leave any significant impact on the Group’s income.
Additional disclosures on currency composition of year-end balances are disclosed in Notes 15, 16, 17, 19,
20, 21, 30 and 31.
46.5 Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events.
When controls fail to perform, operational risks can cause damage to reputation, have legal or
regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational
risks, but through its control framework and by monitoring and responding to potential risks, the Group
is able to manage the risks. Controls include effective segregation of duties, access controls,
authorisation and reconciliation procedures, staff education and assessment processes, including
internal audit verifications. Further information on the Group’s exposure to operational risk, and the
management thereof, is included in the ‘Pillar 3 Disclosures’ Report as published on the Bank’s website.
APS BANK PLC
APS Bank plc 168
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management
The Group continuously aims at building and sustaining a strong capital base and at applying it
efficiently throughout its activities to attain its strategic objectives, optimise shareholder value whilst
ensuring the sustainability of the Bank’s business model and risk profile. A strong and prudent capital
base is one of the pillars of the Group’s business model and maintaining adequate capital ratios will
continue being key to enable the Group to steer through currently challenging economic conditions.
In response to the COVID-19 pandemic, European and national authorities took swift measures to
address the impact on the financial sector. In March 2020, the ECB Banking Supervision Unit
announced a number of temporary capital and operational relief measures to ensure that banks could
continue to fulfil their role in funding the real economy amidst the impact of the COVID-19. Banks were
allowed, amongst other measures, to fully use capital and liquidity buffers, including Pillar 2 Guidance
(“P2G”). Banks also benefited from relief in the composition of capital for Pillar 2 requirements.
Notwithstanding the above measures, during 2021 the Group operated at all times above the level of
capital including the capital buffers. Further information on the capital buffers is included in the ‘Pillar
3 Disclosures’ Report as published on the Bank’s website.
Further to the above, the ECB recommended that banks exercise extreme prudence on dividends and
share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends
or conducting share buy-backs, or to limit such distributions to the recommended prudent amounts,
until 30 September 2021.
During the current financial year, the Group continued to perform the Internal Capital Adequacy
Assessment Process (“ICAAP”), in compliance with Banking Rule BR/12/2022 - The Supervisory Review
Process of Credit Institutions Authorised Under the Banking Act 1994, as mandated by the Capital
Requirements Directive. The objective of the ICAAP is to inform the Board of Directors of the ongoing
assessment of the Group’s risks, how the Group mitigates those risks and how much capital is necessary
having considered other mitigating factors. This process takes into consideration Pillar I risks, as well
as other material risks (Pillar II risks) including concentration risk, interest rate risk, IT and Cyber risks,
reputation risk and other key risks. Thus, the ICAAP serves as a key decision-making tool. The ICAAP
demonstrated that the Group is well capitalised. The document was approved by the Board of Directors
and submitted to the MFSA.
Further information on the Group’s capital position may be found in the ‘Pillar 3 Disclosures’ Report as
published on the Bank’s website which is prepared in line with the Pillar III requirements of Banking
Rule BR/07/2014 – Publication of Annual Report and Audited Financial Statements of Credit
Institutions Authorised Under the Banking Act 1994 and governed by the Capital Requirements
Regulation (“CRR”).
The capital adequacy ratio measures the Group's own funds as a percentage of the total risk-weighted
assets and off-balance sheet items. The ratio for the year under review has been prepared in
compliance with the Capital Requirements Regulation and Capital Requirements Directive IV. During
the year under review and the prior year, the Group has complied with the externally imposed capital
requirements. The table overleaf summarises the composition of regulatory capital and the ratios of
the Group as at the reporting date.
APS BANK PLC
APS Bank plc 169
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management (continued)
The Group
The Bank
2021
2020
2021
2020
€000
€000
€000
€000
Total exposure (on and off-balance sheet)
2,893,229
2,505,549
2,871,279
2,491,603
Risk weighted amounts
:
Credit risk calculation - standardised approach
1,289,850
1,149,649
1,273,347
1,140,147
Operational risk - basic indicator approach
107,039
94,564
106,307
94,277
Foreign exchange risk
129
187
129
187
Total credit, operational and foreign exchange
risk
1,397,018
1,244,400
1,379,783
1,234,611
CET 1/Tier 1 Capital
181,000
179,609
176,722
174,915
Tier 2 Capital
54,597
54,558
54,597
54,558
Total Own Funds
235,597
234,167
231,319
229,473
Capital Adequacy Ratio
Tier 1 Ratio
12.96%
14.43%
12.81%
14.17%
Total Capital Ratio
16.86%
18.82%
16.76%
18.59%
The Group’s capital is composed of Common Equity Tier 1 (“CET 1”) and Tier 2 capital instruments, as defined
by the CRR. CET 1 capital is the highest quality capital and, therefore, the most effective in absorbing losses.
The Group’s capital is mainly composed of CET 1 capital, which primarily consists of ordinary share capital
and retained earnings.
In November 2020, the Bank issued €55,000,000 3.25% APS Bank plc Unsecured Subordinated Bonds 2025-
2030. The subordinated bonds qualify as Tier 2 Capital, which rank after the claims of all depositors (including
financial institutions) and all other creditors.
Further information on the composition and features of the Bank’s capital instruments is provided in the
following two tables.
No changes were made in the objectives, policies and processes governing the Group’s capital management
from the previous years.
The original own funds calculation comprises retained earnings which are adjusted to exclude the amount
specified in favour of the Depositor’s Compensation Scheme Reserve in line with the legislation (Note 20).
During 2020, the Bank revised the Credit Conversion Factor (“CCF”) of undrawn credit facilities for particular
products from 0% to 50%.
APS BANK PLC
APS Bank plc 170
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management (continued)
The Group
2021
2020
€000
€000
CET1 capital: instruments and reserves
Capital instruments and the related share premium accounts
72,882
72,395
Retained earnings
93,141
82,386
Accumulated other comprehensive income
25,334
32,260
Funds for general banking risk
1,700
1,700
193,057
188,741
CET1 capital: regulatory adjustments
Intangible assets
(11,746)
(8,849)
Regulatory adjustments due to the requirements for prudent valuation
pursuant to Article 4 of Delegated Regulation (EU) 2016/101
(311)
(283)
(12,057)
(9,132)
CET 1/Tier 1 Capital
181,000
179,609
Tier 2 capital
Debt securities in issue
54,597
54,558
Total Capital
235,597
234,167
Total Risk Weighted Assets
1,397,018
1,244,400
Capital Ratios
CET1/Tier 1 Capital Ratio
12.96%
14.43%
Total Capital Ratio
16.86%
18.82%
Amounts below the thresholds for deduction:
Direct
and indirect holdings of the capital of financial sector entities
where the institution does not have significant investments in those
entities (not included in CET 1 capital)
8,331
6,693
APS BANK PLC
APS Bank plc 171
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management (continued)
The Bank
2021
2020
€000
€000
CET1 capital: instruments and reserves
Capital instruments and the related share premium accounts
72,882
72,395
Retained earnings
88,843
77,683
Accumulated other comprehensive income
25,334
32,260
Funds for general banking risk
1,700
1,700
188,759
184,038
CET1 capital: regulatory adjustments
Intangible assets
(11,746)
(8,848)
Regulatory adjustments due to the requirements for prudent valuation
pursuant to Article 4 of Delegated Regulation (EU) 2016/101
(291)
(275)
(12,037)
(9,123)
CET 1/Tier 1 Capital
176,722
174,915
Tier 2 capital
Debt securities in issue
54,597
54,558
Total Capital
231,319
229,473
Total Risk Weighted Assets
1,379,783
1,234,611
Capital Ratios
CET1/Tier 1Capital Ratio
12.81%
14.17%
Total Capital Ratio
16.76%
18.59%
Amounts below the thresholds for deduction:
Direct and indirect holdings of the capital of
financial sector entities
where the institution does not have significant investments in those
entities (not included in CET 1 capital)
8,331
6,693
APS BANK PLC
APS Bank plc 172
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management (continued)
In line with the CRR, the following table discloses the main features and the terms and conditions of
Bank’s Tier 1 and Tier 2 instruments.
Capital Instruments Main Features
Issuer APS Bank plc APS Bank plc
Unique identifier
213800A1O379I6DMCU10
213800A1O379I6DMCU10
Governing law(s) of the instrument
Maltese law
Maltese law
Regulatory treatment
Transitional CRR rules CET 1 Tier 2
Post-transitional CRR rules
CET 1
Tier 2
Eligible at solo/(sub-)consolidated/solo&
(sub-)consolidated
Solo & consolidated
Solo & consolidated
Instrument type Ordinary shares Debt securities in issue
Amount recognised in regulatory capital
62,429
55,000
Nominal amount of instrument
62,429
55,000
Issue price
N/A
55,000
Redemption price N/A 100
Accounting classification
Shareholder’s equity
Amortised cost
Original date of issuance
1 June 1970*
19 November 2020
Perpetual or dated
Perpetual
Dated
Original maturity date No 19 November 2030
Issuer call subject to prior supervisory approval
No
Yes
Optional call date, contingent call dates and redemption
amount
No
19 November 2025 at 100
Subsequent call dates, if applicable
No
19 November 2026,
19 November 2027,
19 November 2028,
19 November 2029
Coupons / dividends
Fixed or floating dividend/coupon Floating Fixed
Coupon rate and any related index
N/A
3.25%, no index
Existence of a dividend stopper
No
No
Fully discretionary, partially discretionary or mandatory
(in terms of timing)
Fully discretionary
Mandatory
Fully discretionary, partially discretionary or mandatory
(in terms of amount)
Fully discretionary
Mandatory
Existence of step up or other incentive to redeem
No
No
Noncumulative or cumulative
Non-cumulative
Non-cumulative
Convertible or non-convertible Non-convertible Non-convertible
Write-down features
No
No
Position in subordination hierarchy in liquidation
(specify instrument type immediately senior to instrument)
Subordinated to creditors
and depositors
Subordinated to creditors,
senior secured and
depositors
Non-compliant transitioned features
No
N/A
*Various, latest date of capital injection was 28 May 2019. Furthermore, during 2021 a scrip dividend
was distributed to shareholders.
APS BANK PLC
APS Bank plc 173
NOTES TO THE FINANCIAL STATEMENTS (continued)
46. RISK MANAGEMENT (continued)
46.6 Capital management (continued)
Full Reconciliation of Own Funds Items to Audited Financial Statements of the Group as at 31 December
2021 is presented below:
Balance in
accordance with
IFRS
€000
Reconciling
items
€000
Balance in
accordance
with regulatory
scope
€000
Share capital (Note 35)
62,429
-
62,429
Debt securities in issue (Note 32)
54,597
-
54,597
Share premium (Note 36)
10,453
-
10,453
Revaluation reserve (Note 37)
25,334
-
25,334
Retained earnings (Note 38)
103,974
(6,131)
97,843
of which general banking reserves (Note 38)
1,700
-
1,700
of which general reserve
1
-
1
Intangible assets (Note 26)
11,746
-
11,746
Prudent valuation adjustment
-
(311)
(311)
47. ULTIMATE CONTROLLING PARTY
The financial statements of APS Bank plc are included in the consolidated financial statements of AROM
Holdings Limited, a company registered in Malta, a copy of which can be obtained from the Malta
Business Registry. The Bank’s immediate parent is AROM Holdings Limited. The ultimate controlling party
of APS Bank plc is the Archdiocese of Malta.
The registered address of both AROM Holdings Limited and the Archdiocese of Malta is Archbishop’s
Curia, St. Calcedonius Square, Floriana.
48. COMPARATIVE INFORMATION
Certain items of the comparative period have been reclassified to conform to the presentation of the
current year’s financial statements. These include reclassifications in the Other Comprehensive Income
and under Notes 10,22,23 and 46.
Furthermore, certain line items in the Income Statements were reordered and certain additional subtotals
are being presented since the revised presentation is relevant and more appropriate.
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 174
FIVE YEAR SUMMARIES - STATEMENTS OF PROFIT OR LOSS
The Group
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Interest receivable and similar income
69,135
62,280
58,021
49,963
42,396
Interest payable
(13,773)
(13,434)
(13,379)
(12,149)
(9,592)
Net interest income
55,362
48,846
44,642
37,814
32,804
Other operating income
7,781
6,298
12,039
6,905
9,946
Total operating income
63,143
55,144
56,681
44,719
42,750
Other operating charges
(40,584)
(33,551)
(30,354)
(24,575)
(22,363)
Share of results of associate, net of tax
21
(258)
1,585
38
441
Net impairment gains/(losses)
1,488
(5,538)
(1,074)
(1,555)
(2,470)
Profit before tax
24,068
15,797
26,838
18,627
18,358
Income tax expense
(8,967)
(5,707)
(7,268)
(6,043)
(5,250)
Profit for the year
15,101
10,090
19,570
12,584
13,108
The Bank
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
Interest receivable and similar income
67,640
61,140
56,674
48,958
42,284
Interest payable
(13,773)
(13,434)
(13,379)
(12,182)
(9,592)
Net interest income
53,867
47,706
43,295
36,776
32,692
Other operating income
8,060
6,600
9,586
8,888
10,256
Total operating income
61,927
54,306
52,881
45,664
42,948
Other operating charges
(39,678)
(33,246)
(30,163)
(24,427)
(22,200)
Net impairment gains/(losses)
1,488
(5,538)
(1,074)
(1,555)
(2,470)
Profit before tax
23,737
15,522
21,644
19,682
18,278
Income tax expense
(8,696)
(5,589)
(7,182)
(5,974)
(5,190)
Profit for the year
15,041
9,933
14,462
13,708
13,088
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 175
THE GROUP’S STATEMENTS OF FINANCIAL POSITION
2021
2020 2019 2018 2017
€000
€000 €000 €000 €000
ASSETS
Cash, treasury bills and balances
with Central Bank of Malta
15,165
15,064 11,225 10,387 13,089
Balances with Central Bank of Malta
192,558
93,266 151,178 165,021 76,450
Cheques in course of collection
2,881
103 128 69 39
Loans and advances to banks
32,296
51,068 59,840 50,384 33,246
Loans and advances to customers
1,932,044
1,689,003
1,458,144
1,253,883
998,377
Syndicated loans
134,262
113,152
125,953
61,610
26,213
Derivative financial instruments
552
499
721
822
3,008
Financial assets at fair value through profit or loss
61,846
50,636 41,478 36,241 37,045
Other debt and fixed income instruments
328,041
315,983 238,166 251,040 252,324
Equity and other non-fixed income instruments
307
303 308 1,272 1,793
Investment in associate
19,803
18,641 19,257 17,748 18,224
Intangible assets
11,746
8,848
7,320
5,861
5,093
Investment properties
6,053
1,830
1,830
1,860
4,203
Non-current assets held for sale
-
-
-
2,600
-
Property and equipment
40,998
46,180 43,851 22,286 17,706
Right-of-use assets
5,051
5,235 2,592 - -
Deferred tax assets
2,249
2,553 460 3,853 2,985
Other receivables
9,152
8,619 6,478 6,293 6,650
TOTAL ASSETS
2,795,004
2,420,983 2,168,929 1,891,230 1,496,445
LIABILITIES
Derivative financial instruments
552
499
721
822
3,008
Amounts owed to banks
57,208
9,304
24,512
74,473
111,132
Amounts owed to customers
2,431,757
2,123,446
1,928,971
1,650,308
1,225,576
Debt securities in issue
54,597
54,558 - - -
Current tax
945
1,399 463 1,389 198
Lease liabilities
5,348
5,365 2,629 - -
Other liabilities
10,450
10,090 10,966 11,892 9,530
Accruals
13,325
10,103
8,752
10,102
10,598
TOTAL LIABILITIES
2,574,182
2,214,764 1,977,014 1,748,986 1,360,042
EQUITY
Share capital
62,429
62,255
62,255
57,605
57,605
Share premium
10,453
10,140
10,140
1,770
1,770
Revaluation reserve
25,334
32,260
30,706
12,398
15,896
Retained earnings
103,974
91,736 82,785 68,478 60,032
Non-controlling interest
18,632
9,828 6,029 1,993 1,100
TOTAL EQUITY
220,822
206,219 191,915 142,244 136,403
TOTAL LIABILITIES AND EQUITY
2,795,004
2,420,983 2,168,929 1,891,230 1,496,445
MEMORANDUM ITEMS
Contingent liabilities
25,356
23,128 22,855 23,269 10,834
Commitments
802,552
786,427 755,638 711,160 552,000
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 176
THE BANK’S STATEMENTS OF FINANCIAL POSITION
2021
2020
2019
2018
2017
€000
€000
€000
€000
€000
ASSETS
Cash, treasury bills and balances
with Central Bank of Malta
15,165
15,064
11,225
9,490
9,999
Balances with Central Bank of Malta
192,558
93,266
151,178
165,021
76,450
Cheques in course of collection
2,881
103
128
69
39
Loans and advances to banks
30,831
46,281
54,841
49,384
32,246
Loans and advances to customers
1,932,044
1,689,003
1,458,144
1,253,883
998,377
Syndicated loans
134,262
113,152
125,953
61,610
26,213
Derivative financial instruments
552
499
721
822
3,008
Financial assets at fair value through profit or loss
-
251
464
879
942
Other debt and fixed income instruments
328,041
315,983
238,166
251,040
252,324
Equity and other non-fixed income instruments
307
303
308
1,272
1,793
Investment in subsidiaries
45,251
45,251
40,251
40,251
40,251
Investment in associate
16,761
15,261
15,261
14,886
14,886
Intangible assets
11,746
8,848
7,318
5,858
5,089
Investment properties
6,053
1,830
1,830
1,860
4,203
Non-current assets held for sale
-
-
-
2,600
-
Property and equipment
40,998
46,180
43,851
22,286
17,706
Right-of-use assets
5,051
5,235
2,592
-
-
Deferred tax assets
2,249
2,553
460
3,853
2,985
Other receivables
8,303
7,974
5,907
5,845
6,122
TOTAL ASSETS
2,773,053
2,407,037
2,158,598
1,890,909
1,492,633
LIABILITIES
Derivative financial instruments
552
499
721
822
3,008
Amounts owed to banks
57,208
9,304
24,512
74,473
111,132
Amounts owed to customers
2,433,073
2,124,149
1,929,504
1,653,309
1,226,382
Debt securities in issue
54,597
54,558
-
-
-
Current Tax
758
1,354
452
1,321
138
Lease liabilities
5,348
5,365
2,629
-
-
Other liabilities
10,404
10,090
10,966
11,892
9,530
Accruals
13,224
10,031
8,712
10,077
10,533
TOTAL LIABILITIES
2,575,164
2,215,350
1,977,496
1,751,894
1,360,723
EQUITY
Share capital
62,429
62,255
62,255
57,605
57,605
Share premium
10,453
10,140
10,140
1,770
1,770
Revaluation reserve
25,334
32,260
30,706
12,398
15,896
Retained earnings
99,673
87,032
78,001
67,242
56,639
TOTAL EQUITY
197,889
191,687
181,102
139,015
131,910
TOTAL LIABILITIES AND EQUITY
2,773,053
2,407,037
2,158,598
1,890,909
1,492,633
MEMORANDUM ITEMS
Contingent liabilities
25,356
23,128
22,855
23,269
10,834
Commitments
802,552
786,427
755,638
711,160
552,000
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 177
THE GROUP’S FIVE-YEAR SUMMARY - STATEMENTS OF CASH FLOWS
2021
2020 2019 2018 2017
€000
€000 €000 €000 €000
Net cash flows from/(used in) operating activities
49,036
(12,347) (57,230) 141,844
(6,037)
Investing activities
Dividends received
597
544 195 596 126
Interest income from debt securities
7,054
6,684 7,811 9,546 12,074
Purchase of debt and other fixed income instruments
(44,389)
(134,778) (26,435) (45,614) (12,739)
Proceeds on maturity and disposal of debt and other
fixed income instruments
23,838
55,957
40,490
41,197
79,412
Purchase of financial assets at FVTPL
(46,241)
(39,165) (34,520) (30,124) (38,595)
Proceeds on disposal of financial assets at FVTPL
34,605
31,496
34,224
26,741
2,766
Purchase of equity and other fixed income instruments
-
(950)
-
-
-
Proceeds on disposal of equity and other non-fixed
income instruments
-
1,000 880 397 2,055
Investment in associate
(1,500)
- (375) - -
Purchase of property and equipment
(653)
(6,034) (6,781) (7,543) (4,064)
Proceeds on disposal of property and equipment
-
- - 7 31
Net cash flows (used in)/from investing activities
(26,689)
(85,246) 15,489 (4,797) 41,066
Financing activities
Dividends paid
(2,144)
(91) (3,171) (2,135) (1,478)
Amounts received on creation of units in subsidiary
9,386
4,207 3,865 - -
Amounts paid on redemption of units in subsidiary
(794)
(535) (228) (64) (50)
Net proceeds from issue from debt securities in issue
-
55,000 - - -
Net proceeds from issue of units in subsidiary
-
- - 1,017 1,152
Proceeds from issue of share capital
-
- 13,020 - -
Cash payment for the principal portion of lease liability
(515)
(496) (394) - -
Net cash flows from/(used in) financing activities
5,933
58,085 13,092 (1,182) (376)
Net increase/(decrease) in cash and cash equivalents
28,280
(39,508) (28,649) 135,865 34,653
Cash and cash equivalents at 1 January
142,821
182,329 210,978 75,113 40,460
Cash and cash equivalents at 31 December
171,101
142,821 182,329 210,978 75,113
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 178
THE BANK’S FIVE-YEAR SUMMARY – STATEMENTS OF CASH FLOWS
2021
2020 2019 2018 2017
€000
€000 €000 €000 €000
Net cash flows from/(used in) operating activities
48,158
(13,136)
(58,177)
141,044
(5,697)
Investing activities
Dividends received
1,273
1,236
1,572
1,604
588
Interest income from debt securities
7,054
6,684
7,811
9,546
12,074
Purchase of debt and other fixed income instruments
(44,389)
(134,778)
(26,435)
(45,614)
(12,739)
Proceeds on maturity and disposal of debt and other fixed
income instruments
23,838
55,957
40,490
41,197
79,412
Purchase of equity and other non-fixed income instruments
-
(950) - - -
Proceeds on disposal of equity and other non-fixed income
instruments
-
1,000
880
397
2,055
Purchase of financial assets at FVTPL
-
-
-
(184)
(502)
Proceeds on disposal of financial assets at FVTPL
249
221
213
221
2,350
Purchase of property and equipment
(653)
(6,034) (6,781) (7,543) (4,059)
Proceeds on disposal of property and equipment
-
-
-
7
31
Investment in associates
(1,500)
-
(375)
-
-
Investment in subsidiaries
-
(5,000)
-
-
(40,000)
Net cash flows (used in)/from investing activities
(14,128)
(81,664)
17,375
(369)
39,210
Financing activities
Dividends paid
(1,913)
-
(3,575)
(2,617)
(1,950)
Proceeds from issue of debt securities in issue
-
55,000
-
-
-
Proceeds from issue of share capital
-
- 13,020 - -
Cash payment for the principal portion of lease liability
(515)
(496)
(394)
-
-
Net cash flows (used in)/from financing activities
(2,428)
54,504
9,051
(2,617)
(1,950)
Net increase/(decrease) in cash and cash equivalents
31,602
(40,296) (31,751) 138,058 31,563
Cash and cash equivalents at 1 January
138,034
178,330
210,081
72,023
40,460
Cash and cash equivalents at 31 December
169,636
138,034
178,330
210,081
72,023
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 179
THE GROUP’S FIVE-YEAR SUMMARY - ACCOUNTING RATIOS
2021
2020
2019
2018
2017
%
%
%
%
%
Net interest income and other operating
income to total assets
2.3
2.3 2.6 2.4 2.9
Operating expenses to total assets
1.5
1.4 1.4 1.3 1.5
Cost to income ratio
64.3
60.8
53.6
55.0
52.3
Profit before tax to total assets
0.9
0.7
1.2
1.0
1.2
Return on average equity after tax
7.1
5.1 11.7 9.0 9.9
2021
2020
2019
2018
2017
Shares in issue (thousands)*
249,716
249,019
249,019
249,019
249,019
Net assets per share
81c
79c
75c
56c
54c
THE BANK’S FIVE-YEAR SUMMARY - ACCOUNTING RATIOS
2021
2020
2019
2018 2017
%
%
%
%
%
Net interest income and other operating
income to total assets
2.2
2.3 2.5 2.4 2.9
Operating expenses to total assets
1.4
1.4 1.4 1.3 1.5
Cost to income ratio
64.1
61.2
57.0
53.5
51.7
Profit before tax to total assets
0.9
0.6
1.0
1.0
1.2
Return on average equity after tax
7.7
5.3
9.0
10.1
10.1
2021
2020
2019
2018
2017
Shares in issue (thousands)*
249,716
249,019 249,019 249,019 249,019
Net assets per share
79c
77c
73c
56c
53c
* Number of shares in issue and the net assets per share for 2017 to 2019 have been restated to reflect the number of shares
in issue as a result of the 2020 re-designation of the ordinary shares.
Return on average equity before tax of the Bank is calculated as the return as a percentage of the 12 months ending equity
balances. The average capital employed of the Group is calculated as the average of the opening and closing equity balances.
APS BANK PLC
_________________________________________________________________________________________
APS Bank plc 180
OUR PRESENCE
HEAD OFFICE
APS Centre
Tower Street, Birkirkara, BKR 4012
COMMERCIAL BUSINESS
APS Centre
Tower Street, Birkirkara, BKR 4012
RETAIL BRANCHES
1. ATTARD
St. Catherine’s Street, Attard, ATD 2609
2. BIRKIRKARA (SWATAR)
APS Centre
Tower Street, Birkirkara, BKR 4012
3. MOSTA
9, Rotunda Square, Mosta, MST 9042
4. PAOLA
146/147, Antoine De Paule Square, Paola, PLA 1260
5. QORMI
70-72, St. Sebastian Street, Qormi, QRM 2335
6. RABAT
25, Saqqajja Street, Rabat, RBT 1192
7. SLIEMA
226, Tower Road, Sliema, SLM 1600
8. ST. PAUL’S BAY
Mosta Road, St. Paul’s Bay, SPB 3115
9. VALLETTA
17/18, Republic Street, Valletta, VLT 1111
10. VICTORIA (GOZO)
10, Main Gate Street, Victoria, VCT 1341
11. ZEJTUN
12, Republic Square, Zejtun, ZTN 1011
REGISTERED OFFICE
APS Centre
Tower Street, Birkirkara, BKR 4012
E - info@apsbank.com.mt
B - APSBMTMT
Registration number: C2192
APS Bank plc 181
Independent auditor’s report
to the members of
APS Bank p.l.c.
Report on the Audit of the Financial Statements
Opinion
We have audited the individual financial statements of APS Bank p.l.c. (‘the Bank’) and the consolidated
financial statements of the Bank and its subsidiaries (together, the Group), set out on pages 58 to 173,
which comprise the statements of financial position as at 31 December 2021, and the statements of
profit or loss, statements of comprehensive income, statements of changes in equity and statements
of cash flows for the year then ended, and notes to the financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying financial statements give a true and fair view of the financial position
of the Bank and the Group as at 31 December 2021, and of the Bank’s and the Group’s financial
performance and cash flows for the year then ended in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the EU and have been properly prepared in accordance
with the requirements of the Companies Act (Cap.386) and the Banking Act (Cap.371).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the Bank and the Group
in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code) together with the Accountancy Profession (Code of Ethics for
Warrant Holders) Directive (Maltese Code) that are relevant to our audit of the financial statements in
Malta, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and
the Maltese Code. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion. In conducting our audit, we have remained independent of the Bank
and the Group and have not provided any of the non-audit services prohibited by article 18A (1) of the
Accountancy Profession Act (Cap. 281).
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. The key audit matter
described below pertains to the audit of both the Bank and the Group financial statements. This matter
was addressed in the context of our audit of the Bank and the Group’s financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
APS Bank plc 182
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
Impairment of loans and advances to customers
At 31 December 2021 the Bank and Group reported total gross loans and advances to customers of
EUR1,951,371,000 (2020: EUR1,709,878,000) and EUR19,327,000 (2020: EUR20,875,000) of expected
credit loss provisions.
Management’s judgements and estimates are especially subjective due to significant uncertainty
associated with the assumptions used. The continued uncertainty associated with COVID-19 and its
consequent implications including curtailment of economic activity and recovery assumptions as well
as government intervention, increased the level of judgement in the expected credit loss (ECL)
calculation. Assumptions with increased complexity in respect of the timing and measurement and
disclosure of ECL include:
• Staging - Allocation of assets to stage 1, 2, or 3 on a timely basis using criteria in accordance
with IFRS 9 considering the impact of COVID-19 and related government support measures on
customer behaviours and further support measures that were granted following the
identification of underlying significant deterioration in credit risk;
•
Model estimations - Accounting interpretations, modelling assumptions and data used to build
and run the models that calculate the ECL;
• Economic scenarios – Inputs, assumptions and weightings used to estimate the impact of
multiple economic scenarios;
•
Post model adjustments - Assumptions used to estimate the possible impact of COVID-19 on
certain customers and/or sectors and any resulting model adjustments;
• Individual provisions - Measurement of individual provisions including the assessment of
multiple scenarios considering the impact of COVID-19 on exit strategies, collateral valuations
and time to collect; and
• Disclosure - The completeness and preparation of disclosures considering the key judgments,
sources of data and the design of the disclosures.
Our audit response to address the risk of material misstatement arising from the ECL calculation
comprised the following:
Controls testing:
We tested the design, implementation and operating effectiveness of the Bank’s and Group’s key
controls across the processes relevant to the ECL calculation. We reviewed the automated controls
embedded in the ECL system and used data analytics in order to analyse the loan data and the
movements in the various credit risk grading categories and stages in order to identify any anomalies
and possible risk areas. We reviewed the collateral valuation reports including management’s
assessment of the reliability of the valuations being used.
Staging:
We performed an overall assessment of the ECL provision levels by stage to determine if they were
reasonable considering the Bank’s and Group’s portfolio, risk profile, credit risk management policies
and the macroeconomic environment. We challenged the criteria used to allocate an asset to stage 1,
2 or 3 in accordance with IFRS 9 and tested assets classified in each of stages 1, 2 and 3 to verify that
they were allocated to the appropriate stage.
Model estimations:
We tested the data used in the ECL calculation by reconciling to source systems in order to gain
reasonable assurance over the data quality. We recalculated the risk ratings (credit grading) for a
sample of performing loans in order to test credit grading. Assumptions, inputs and formulas used in
ECL models were tested substantively on a sample basis. This included assessing the appropriateness
of model design and formulas used by recalculating the ECL on a sample basis.
APS Bank plc 183
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
Economic scenarios:
We reviewed the inputs, assumptions and weightings used to estimate the impact of multiple economic
scenarios.
Post model adjustments:
In addition to assessing the continuing appropriateness of management’s assumptions, we evaluated
and tested updates to key parameters and new assumptions including changes to the significant
increase in credit risk (SICR) assessment, largely driven by the continued impact of the COVID-19
pandemic. We assessed the completeness and appropriateness of the post model adjustments
intended to address early identification of SICR events in respect of those customers who had
experienced increased credit risk by reference to the request for legislative moratoria as well as further
support measures granted following the expiration of the legislative moratoria. Our assessment
included a review of the methodology applied in order to determine whether this appeared to be
reasonable in the circumstances and also whether this was aligned to the requirements of IFRS9. We
also tested the application of this approved methodology in order to gain reasonable assurance that it
was applied accurately.
Individual provisions:
For a sample of individually impaired loans we evaluated the specific circumstances of the customer,
including latest available information, the basis for measuring the impairment provision, and whether
key judgements were appropriate. We re-performed management’s impairment calculations, which
were largely based on the expected recovery from collateral held. We tested the valuation of collateral
challenging subjective estimates by referring to actual historical recovery data and market information
available.
Disclosure:
We assessed the adequacy and appropriateness of disclosures for compliance with the accounting
standards and regulatory considerations and expectations of the COVID-19 specific disclosures.
The Bank and Group’s disclosures about impairment are included in Notes 2.3, 11 and 46, which include
the directors’ assessment of the adequacy of the impairment provisions.
Other information
The directors are responsible for the other information. The other information comprises the
Chairman’s Statement, the CEO’s Review, the Board of Directors page, the Executive Management
page, the Directors’ Report which includes the statement of directors’ responsibilities, the
Remuneration Report, the Corporate Governance Statement of Compliance and the Five-Year
Summaries, which we obtained prior to the date of this auditor’s report. However, the other information
does not include the individual and consolidated financial statements, our auditor’s report and the
relevant tagging applied in accordance with the requirements of the European Single Electronic
Format, as defined in our Report on Other Legal and Regulatory Requirements.
Except for our opinions on the Directors’ Report in accordance with the Companies Act (Cap. 386),
and on the Corporate Governance Statement of Compliance in accordance with the Capital Markets
Rules issued by the Malta Financial Services Authority, our opinion on the financial statements does
not cover the other information and we do not and will not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated. If, based on the work we have performed on the other information that we
obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report in this regard.
APS Bank plc 184
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
With respect to the Directors’ Report, we also considered whether the Directors’ Report includes the
disclosure requirements of article 177 of the Companies Act (Cap. 386), and the statement required by
Rule 5.62 of the Capital Markets Rules on the Bank’s and the Group’s ability to continue as a going
concern.
In accordance with the requirements of sub-article 179(3) of the Companies Act (Cap. 386) in relation
to the Directors’ Report on pages 16 to 34, in our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Directors’ Report for the financial year for which the Bank’s and the
Group’s financial statements are prepared is consistent with those financial statements; and
• the Directors’ Report has been prepared in accordance with the applicable legal requirements.
In the light of the knowledge and understanding of the Bank, the Group and their environment obtained
in the course of the audit, we have not identified any material misstatements in the Directors’ Report.
Responsibilities of the Directors and the Audit Committee for the Financial Statements
As explained more fully in the Statement of directors’ responsibilities on pages 33 to 34, the directors
are responsible for the preparation of financial statements that give a true and fair view in accordance
with IFRSs as adopted by the EU and the requirements of the Companies Act (Cap.386) and the
Banking Act (Cap.371), and for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the Bank’s and the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the Bank or the Group or to cease operations, or have no realistic alternative but to do so.
The directors have delegated the responsibility for overseeing the Bank’s and the Group’s financial
reporting process to the Audit Committee.
Auditor’s Responsibilities for the Audit of the Financial Statements
This report, including the opinions set out herein, has been prepared for the Bank’s members as a body
in accordance with articles 179, 179A and 179B of the Companies Act (Cap. 386).
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinions in accordance with articles 179, 179A and 179B of the Companies Act (Cap.
386). Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
In terms of article 179A(4) of the Companies Act (Cap. 386), the scope of our audit does not include
assurance on the future viability of the Bank or of the Group, or on the efficiency or effectiveness with
which the directors have conducted or will conduct the affairs of the Bank and the Group. The financial
position of the Bank or the Group may improve, deteriorate, or otherwise be subject to change as a
consequence of decisions taken, or to be taken, by the management thereof, or may be impacted by
events occurring after the date of this opinion, including, but not limited to, events of force majeure.
APS Bank plc 185
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
As such, our audit report on the Bank’s and the Group’s historical financial statements is not intended
to facilitate or enable, nor is it suitable for, reliance by any person, in the creation of any projections or
predictions, with respect to the future financial health and viability of the Bank or the Group, and cannot
therefore be utilised or relied upon for the purpose of decisions regarding investment in, or otherwise
dealing with (including but not limited to the extension of credit), the Bank or the Group. Any decision-
making in this respect should be formulated on the basis of a separate analysis, specifically intended
to evaluate the prospects of the Bank or the Group and to identify any facts or circumstances that may
be materially relevant thereto.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Bank’s or the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Bank’s or the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Bank or the Group to cease to continue as a going concern.
Accordingly, in terms of generally accepted auditing standards, the absence of any reference
to a material uncertainty about the Bank’s or the Group’s ability to continue as a going concern
in our auditor’s report should not be viewed as a guarantee as to the Bank’s or the Group’s
ability to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or the business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
For the avoidance of doubt, any conclusions concerning the adequacy of the capital structure of the
Bank, including the formulation of a view as to the manner in which financial risk is distributed between
shareholders and/or creditors cannot be reached on the basis of these financial statements alone and
must necessarily be based on a broader analysis supported by additional information.
APS Bank plc 186
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
We communicate with the Audit Committee regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the
key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
Report on compliance of the Annual Financial Report with the requirements of the European Single
Electronic Format Regulatory Technical Standard as specified in the Commission Delegated
Regulation (EU) 2019/815 (the "ESEF RTS”)
Pursuant to Capital Markets Rule 5.55.6 issued by the Malta Financial Services Authority, we have
undertaken a reasonable assurance engagement in accordance with the requirements of the
Accountancy Profession (European Single Electronic Format) Assurance Directive issued by the
Accountancy Board in terms of the Accountancy Profession Act (Cap. 281), hereinafter referred to as
the “ESEF Directive 6”, on the annual financial report of the Bank and the Group for the year ended 31
December 2021, prepared in a single electronic reporting format.
Solely for the purposes of our reasonable assurance report on the compliance of the annual financial
report with the requirements of the ESEF RTS, the “Annual Financial Report” comprises the Directors’
Report, the Statement of Directors’ responsibilities, the Corporate Governance Statement of
Compliance, the annual financial statements, the prescribed disclosures of material contracts, General
Company Information, and the Independent auditor’s report, as set out in Capital Markets Rules 5.55.
Responsibilities of the Directors for the Annual Financial Report
The directors are responsible for:
• the preparation and publication of the Annual Financial Report, including the consolidated financial
statements and the relevant tagging requirements therein, as required by Capital Markets Rule
5.56A, in accordance with the requirements of the ESEF RTS,
• designing, implementing, and maintaining internal controls relevant to the preparation of the
Annual Financial Report that is free from material non-compliance with the requirements of the
ESEF RTS, whether due to fraud or error,
and consequently, for ensuring the accurate transfer of the information in the Annual Financial Report
into a single electronic reporting format.
APS Bank plc 187
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
Auditor’s responsibilities for the Reasonable Assurance Engagement
Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report,
including the consolidated financial statements and the relevant electronic tags therein comply, in all
material respects, with the ESEF RTS, based on the evidence we have obtained. We conducted our
reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
The nature, timing and extent of procedures we performed, including the assessment of the risks of
material non-compliance with the requirements of the ESEF RTS, whether due to fraud or error, were
based on our professional judgement and included:
• Obtaining an understanding of the Bank’s and the Group’s internal controls relevant to the financial
reporting process, including the preparation of the Annual Financial Report, in accordance with the
requirements of the ESEF RTS, but not for the purpose of expressing an assurance opinion on the
effectiveness of these controls.
• Obtaining the Annual Financial Report and performing validations to determine whether the
Annual Financial Report has been prepared in accordance with the requirements of the technical
specifications of the ESEF RTS.
• Examining the information in the Annual Financial Report to determine whether all the required
tags therein have been applied and evaluating the appropriateness, in all material respects, of the
use of such tags in accordance with the requirements of the ESEF RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our
reasonable assurance opinion.
Reasonable Assurance Opinion
In our opinion, the Annual Financial Report for the year ended 31 December 2021 has been prepared,
in all material respects, in accordance with the requirements of the ESEF RTS.
This reasonable assurance opinion only covers the transfer of the information in the Annual Financial
Report into a single electronic reporting format as required by the ESEF RTS, and therefore does not
cover the information contained in the Annual Financial Report.
Report on Corporate Governance Statement of Compliance
Pursuant to Rule 5.94 of the Capital Market Rules issued by the Malta Financial Services Authority, the
directors are required to include in the Bank’s Annual Financial Report a Corporate Governance
Statement of Compliance explaining the extent to which they have adopted the Code of Principles of
Good Corporate Governance set out in Appendix 5.1 to Chapter 5 of the Capital Markets Rules, and the
effective measures that they have taken to ensure compliance with those principles. The Corporate
Governance Statement of Compliance is to contain at least the information set out in Rule 5.97 of the
Capital Markets Rules.
Our responsibility is laid down by Rule 5.98 of the Capital Markets Rules, which requires us to include
a report to shareholders on the Corporate Governance Statement of Compliance in the Company’s
Annual Financial Report.
We read the Corporate Governance Statement of Compliance and consider the implications for our
report if we become aware of any information therein that is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or that otherwise appears to be materially
misstated. We also review whether the Corporate Governance Statement of Compliance contains at
least the information set out in Rule 5.97 of the Capital Markets Rules.
APS Bank plc 188
Independent auditor’s report (continued)
to the members of
APS Bank p.l.c.
We are not required to, and we do not, consider whether the directors’ statements on internal control
cover all risks and controls, or form an opinion on the effectiveness of the Company’s corporate
governance procedures or its risk and control procedures.
In our opinion, the Corporate Governance Statement of Compliance set out on pages 42 to 57 has been
properly prepared in accordance with the requirements of Rules 5.94 and 5.97 of the Capital Markets
Rules.
Additional matters on which we are required to report pursuant to the Banking Act (Cap. 371)
In our opinion:
• Proper accounting records have been kept so far as it appears from our examination thereof;
• The financial statements are in agreement with the accounting records; and
• We have obtained all the information and explanations which, to the best of our knowledge and
belief, are necessary for the purpose of our audit.
Matters on which we are required to report by exception pursuant to the Companies Act (Cap. 386)
in addition to those reported above
We have responsibilities to report to you if in our opinion:
• proper returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.
We have nothing to report to you in respect of these responsibilities.
Auditor tenure
We were first appointed to act as statutory auditor to audit the Bank’s and the Group’s financial
statements by the members of the Bank on 27 July 2017 for the financial year ended 31 December 2017,
and were subsequently reappointed as statutory auditor by the members of the Bank on an annual
basis. The period of total uninterrupted engagement as statutory auditor is 5 financial years.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee in accordance with
the provisions of Article 11 of the EU Audit Regulation No. 537/2014.
Sarah Curmi as Director
in the name and on behalf of
Deloitte Audit Limited
Registered auditor
Central Business District, Birkirkara, Malta.
10 March 2022