Bank of Valletta p.l.c.
Annual Report 2022
1
ANNUAL
REPORT
2022
Bank of Valletta p.l.c.
Annual Report 2022
i
CONTENTS
Chairman’s Statement
CEO’s Commentary
Board of Directors and Group Company
Secretary
Executive Committee & Group Chief
Internal Auditor
Corporate Social Responsibility
FINANCIAL STATEMENTS
Directors’ Report
Corporate governance statement of
compliance
Remuneration report
Independent Assurance Report
ESG Risk Management and Disclosures
Statements of profit or loss
Statements of profit or loss and other
comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cashflows
Notes to the financial statements
Independent auditors’ report to the
shareholders of Bank of Valletta p.l.c.
The Group’s five year summary
Group financial highlights in US dollars
GENERAL INFORMATION
BOARD OF DIRECTORS
Gordon Cordina (Chairman)
Kevin J Borg
Miguel Borg
Diane Bugeja
Elizabeth Camilleri
Kenneth Farrugia
James Grech
Alfred Lupi
Anita Mangion
Alfred Mifsud
Antonio Piras
Deborah Schembri
Godfrey Swain
Stephen Agius (resigned 2 June 2022)
Rick Hunkin (resigned 12 October 2022)
COMPANY SECRETARY
Ruth Spiteri Longhurst
EXECUTIVE COMMITTEE (ExCo) as at 31 December 2022
Kenneth Farrugia (Chief Executive Officer)
Ernest John Agius (Chief Operations Officer)
Joseph Agius (Chief Technology Officer)
Simon Azzopardi (Chief Wealth Management Officer)
Izabela Banas (Chief Financial Officer)
Miguel Borg (Chief Risk Officer)
Ray Debattista (Acting Chief People & Change Officer) (Observer on ExCo)
Albert Frendo (Chief Business Banking Officer)
Anatoli Grech (Group Chief Compliance Officer)
Theodoros Papadopoulos (Chief Digital, Strategy & Transformation
Officer)
Roderick Meilaq (Secretary)
AUDITORS
KPMG
LEGAL ADVISORS
Camilleri Preziosi
NOTICE OF MEETING
The Annual General Meeting of the Bank will be held at the
Grand Master Suite, Hilton Malta, St Julian’s, on Thursday 25
May 2023 at 10.00 a.m.
ADDRESS
BOV Centre,
Triq il-Kanun, Central Business District,
Santa Venera CBD 4060 - Malta
Registered Office:
58, Triq San Zakkarija,
Il-Belt Valletta VLT 1130 - Malta
Registration Number: C 2833
Bank of Valletta p.l.c. is a public limited company licensed to
carry out the business of banking and conduct investment
services by the Malta Financial Services Authority. Bank of
Valletta p.l.c. is an enrolled tied insurance intermediary of
MAPFRE MSV Life p.l.c. (MMSV). MMSV is authorised and
regulated by the Malta Financial Services Authority to carry
on long term business under the Insurance Business Act
1998.
Since last publication there were no changes to the name of
the reporting entity.
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Page no.
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Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
ii
Dr Gordon Cordina is a leading economist in the Maltese Islands, with a
professional experience spanning 25 years covering banking, policy-making,
academia and private sector consultancy. He serves as Chairman of the Board of
Directors and ESG Committee and is also co-chairman of the Nominations and
Remuneration Committee. Dr Cordina is a graduate of the University of Cambridge
and the University of Malta. His main area of academic interest is the growth and
macroeconomic dynamics facing economies that are prone to heightened risks.
Dr Cordina has several years of Board and Risk Committee experience in major
financial institutions in Malta, amongst which at Bank of Valletta p.l.c. Dr Cordina
served as Manager of the Research Department of the Central Bank of Malta,
Director General of the National Statistics Office of Malta, Head of the Economics
Department of the University of Malta and Economic Advisor to the Malta
Gordon Cordina
Chairman
ESG CAFC NRC NED *
Council for Economic and Social Development. Through the private consultancy
firm he co-founded in 2006, he is involved in a number of local and international
research projects and consultancy assignments with institutions including the
EU Commission, NGOs and private sector entities. Dr Cordina is a visiting senior
lecturer at the University of Malta.
Dr Cordina was appointed Chairman of Bank of Valletta p.l.c. in October 2020, of
MAPFRE MSV Life p.l.c in September 2021 and director of MAPFRE Middlesea p.l.c.
in September 2022.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
iii
In 2022 the international economic landscape was shaped by
three interrelated developments. As anticipated, the global
economic recovery from the COVID-19 pandemic progressed
further, and positively, growth generally turned out higher than
expected. However, this rapid pick-up in international demand
strained again supply chains, causing prices to rise. This effect
was amplified by the outbreak of the war in Ukraine, whose
consequences produced a second major shock within a short
period of time. The economic effect of this conflict was a surge in
worldwide inflation, thus unleashing a problem which countries
had not experienced for many years. In response, central banks
across the globe have raised official interest rates significantly
in 2022 and have done so in bigger and quicker steps than
normal. Further interest rate tightening is planned for 2023. A
decade-long period of exceptionally accommodative monetary
policy ended, and such conditions are unlikely to be repeated
in the foreseeable future.
Chairman's statement
Notwithstanding such economic headwinds from abroad,
Malta’s economy continued to exhibit strong dynamism in
2022. The restructuring undergone by the economy over the
years, which resulted in sectors gaining in importance and
allowing for more even distribution of activity, has paid off in
terms of sustaining the country’s resiliency. In 2022, real GDP
grew by 6.9%, and as a result, the economy’s size was 9.2%
larger than in 2019. At a macro level, the rebound from the
pandemic shock was thus complete, even though in the case
of the hardest-hit tourism sector there is still some further
progress required. On a positive note, recovery in tourism in
2022 was generally stronger than originally anticipated and this
augurs well for the achievement of the target of full recovery
by 2024.
Gordon Cordina
Chairman
The suite of published forecasts for the Maltese economy
indicate that the country is expected to continue growing
despite the challenges posed by inflation and the higher interest
rate scenario. The future annual growth is however likely to be
closer to the long-term average of around 4%, rather than the
exceptionally high rates which were recorded in some years
before the pandemic.
In 2022, household consumption has continued to expand,
boosted by the release of pent-up demand, and supported by
the growth in jobs and the confidence offered by a historically
low unemployment rate. Malta’s labour market proved resilient
despite the end of the government’s wage supplement scheme,
which had been in place to protect jobs since the beginning of
the pandemic. In turn, so far, there have been no signs that
the spike in Malta’s annual inflation, which in certain months
exceeded 7%, has created any significant downside impact on
consumption patterns.
3 Positive outcomes
for 2022
• Resolution of Deiulemar case
• Removal of Malta from the FATF’s
increased monitoring process
• Issuing of Callable Senior Non-Preferred
Notes on the International Market
THE ENVIRONMENT WE OPERATE IN
GDP
+6.9%
Size of
economy
+9.2%
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
iv
The high inflation rate, which had not been anticipated at the
beginning of the year, was in sharp contrast with the low rates
recorded in Malta over the past decade. Still, the price shock
which faced resident households and businesses was lower
than that experienced across the euro area, because of the
government’s decision to freeze energy prices. The additional
fiscal cost in the form of subsidies to the energy supplier
meant that in 2022 the fiscal deficit remained high, despite the
phasing out of pandemic-related support.
The exceptionally strong fiscal support which has been in place
since 2020 has pushed Malta’s public debt close to the 60%
of GDP benchmark, reversing most of the decline which had
taken place over the previous decade. In a very small open
economy, it makes sense for the government to assume a key
role in stabilising the economy and protecting households and
businesses against temporary external shocks. However, in the
eventuality that part of the energy price shock turns out to be
permanent, it is important that an appropriate exit strategy is
established and communicated in a timely manner to enable
economic agents to absorb the shock smoothly.
Apart from the partial protection against inflation, most bank
borrowers in Malta have to date also been shielded from
the 250 basis points interest rate increases implemented by
the European Central Bank in 2022. The latter aided BOV’s
profitability as the new interest rate environment enabled
the bank to save costs which were previously incurred when
depositing excess liquidity with the central bank. Moreover, the
rise in international interest rates generated higher revenue
from the subset of borrowers whose interest rate is directly
linked to foreign rates. At the same time, BOV’s strong funding,
underpinned by resident deposits, offered leeway for the
bank to postpone the normalisation of its lending rates for
households and small businesses. When setting its base rate
for loans and deciding on the types of deposit products to
offer, BOV will remain guided by its objective to strike the right
balance among all its stakeholders, while ensuring that changes
are gradual and well communicated. As Malta’s largest bank,
BOV is conscious that its actions have a material impact on
the economy and is a key enabler of the country’s economic
prospects.
In 2022 there were three positive highlights for BOV which
augur well for the Bank’s future. Firstly, the resolution of the
Deiulemar case, through an out-of-court settlement, although
producing a one-off significant impact on the yearly financial
performance, has eliminated a serious litigation risk which
could have acted as a serious drag on BOV’s operations.
Secondly, the announcement that Malta was no longer subject
to the FATF’s increased monitoring process, eliminated the risk
of a prolonged grey listing status, which could eventually have
impacted BOV’s performance and its ability to service clients
effectively. Thirdly, the successful issue of Callable Senior Non-
Preferred Notes on the international market will allow BOV
to meet its statutory requirements and be able to expand its
activities when these fit within its risk appetite.
Both the resolution of the Deiulemar case and the issue of
the international notes have placed the Bank on a significantly
more secure footing to plan its business.
Recent years have been challenging for the Bank and resulted
in a period where no dividends were distributed. The Board
considers it prudent to maintain this stance for the time being,
to support the capital and liquidity of the Bank, and to meet the
regulatory expectations. Once conditions improve, and subject
to the guidance provided by the competent authorities,
the Board intends to re-establish the pattern of stable and
predictable distribution of dividends.
Keeping our
CUSTOMER
in focus
Streamline
Internal
OPERATIONS
Invest in
the Bank’s
HUMAN CAPITAL
Migate
RISK Element
Our Strategic
Aims
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
v
In 2023, the Board will be approving a new strategy for the
bank to cover the period 2024 to 2026. The updated strategy
will place more emphasis on the customer, while aiming to
have in place the right digital means and meet the regulatory
expectations which have increased over time.
Renewal is essential for BOV to continue occupying a leading
role in Malta. In this respect, the Bank recognises the need to
face and embrace the challenges and opportunities brought
about by technology. In 2023 BOV will continue its journey
to shape banking in Malta into the future, while remaining
customer centric. BOV is also determined to be a leader in the
shift towards a new paradigm, where through its actions it can
help focus on the broader concept of wellbeing which factors
environmental, social and governance goals.
Over the years, the Bank has been there to support the
community. In the coming years the Bank will be taking its
mission to the next level, by undertaking a leading role in
ESG matters. This objective will not only shape how the Bank
acts in shouldering its own responsibility towards climate,
environmental and social concerns, but it will also guide the
way we offer our services, to foster a culture of responsibility
towards ESG among our clients too. This priority will be in line
with the ESG regulatory requirements which over time are
likely to become more onerous and be consistent with new
market expectations in this sphere.
Changes have been implemented and more will be necessary,
but there is increasing confidence about a brighter future.
I thank our shareholders for their continued support. Now
that the COVID-19 pandemic is behind us, the Bank looks
forward to improved interaction with our shareholders. I also
thank the executive team and staff for their valuable work and
commitment to support the bank’s performance. We have
reached a good stage of our improvement journey.
LEADER
INNOVATOR
CATALYST
BANK’S POSITION
WITHIN THE
MARKET
30 BRANCHES
offering all services
1 WEALTH
MANAGEMENT
CENTRE
1 CORPORATE
FINANCE
CENTRE
4 AGENCIES
offering
deposit services
5 INVESTMENT
CENTRES
5 BUSINESS
CENTRES
1 SUB AGENCY
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
vi
Mr Kenneth Farrugia is the Chief Executive Officer of Bank of Valletta p.l.c. Mr
Farrugia sits on the Board of Directors of the Bank as an Executive Director, chairs
the Executive Committee and is a member of several management committees.
Mr Farrugia also chairs the Board of Directors of BOV Fund Services Limited and
sits on the Board of Directors of BOV Asset Management Limited.
Mr Farrugia began his career at Bank of Valletta in 1985. Over this period, he
has occupied various executive positions covering the Bank’s asset management,
retail banking and credit business areas.
Mr Farrugia also occupied various financial services related industry positions
including Chair of the Malta Asset Servicing Association, Chair of Malita
Investments p.l.c which is listed on the Malta Stock Exchange, board member
of the European Fund and Asset Management Association as well as Chair of
FinanceMalta, Malta’ national promotional body for the financial services industry.
Mr Farrugia is a Harvard Business School Alumnus, having completed a General
Management Program at Harvard Business School.
Kenneth Farrugia
Director & CEO
ED
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
vii
As I reflect on the key events that shaped this financial year,
FY2022 has yet again followed on the heels of the previous year
and ended to be both challenging and rewarding in equal measure.
As the world was gradually emerging from the pandemic, the
war in Ukraine brought about the onset of significant instability,
economic sanctions against Russia, an unprecedented surge
in inflation as well as the ensuing decision by the world central
banks to increase interest rates in strong succession. These
developments have all left their mark in one way or another on
the global world economies to include Malta. On the other hand,
on the positive side, the removal of Malta from the grey-list as well
as the Bank’s settlement of the Deiulemar legal case, despite the
negative financial impact of its resolution, gave a positive tone to
the year under review.
Despite these challenges, as a result of the Bank’s strong franchise
in the domestic market and robust business model foundations,
we managed to deliver strong organic growth, while at the same
time remaining very well capitalised with a strong capital ratio. In
fact, the Bank registered a double-digit year-on-year percentage
growth in operating revenue, whilst containing the operating costs
to a single digit percentage increase.
Bank of Valletta delivered
a robust financial
performance in 2022
with strong income
growth, continued
franchise strength and
solid capital base as well
as removed a significant
hurdle by settling the
Deiulemar litigation.
CEO's Commentary
Kenneth Farrugia
Chief Executive Officer
OPERATING INCOME
+21%
€293.4 million
NET INTEREST
INCOME
+29%
€201.9 million
NET FEE AND
COMMISSION INCOME
+2.6%
€76.6 million
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
viii
Overall, our core commercial banking value streams remained
strong during the year as a result of a continued recovery in
business activity, which in turn positively impacted the strength
and quality of our loan book. We have also carefully managed the
inflationary impact on our operating costs, especially in the light of
the rising inflation forecasts, which brought about an increase in
wages and other operating expenses.
Moreover, during this reporting period, results were positively
impacted by a net release of estimated credit losses (‘ECL’)
reflecting better economic conditions relative to FY2021 coupled
with significant recoveries of past debts.
These positive results have been driven by the collective
collaboration and commitment of our loyal, and highly committed
employees. This has enabled us to further drive forward our
strategic journey towards a lean, and at the same time digital led,
business and operational model. Our key focus remains centred
around the optimisation of our business and operational model
aiming to ensure that we create and deliver value to our customers
and other key stakeholders, in order to meet, and possibly exceed,
their expectations.
Financial performance of the Group
Bank of Valletta Group delivered a profit before tax for FY2022
of €48.7 million compared to €80.7 million achieved in the
previous year. However, when one considers the one-off net
settlement of €103.0 million Deiulemar litigation, inclusive of
legal fees, which took place in May 2022, the profit before tax
was registered at €151.7million, an increase of €71.0 million, or
88% higher when compared to the results in FY2021.
Operating Income
The Group maintained its business momentum in FY2022 and
delivered solid revenue growth led by client-driven activities and
equally positive interest rate dynamics. Overall, total operating
income at €293.4 million, increased by €50.4 million or 21%,
compared to 2021 with the most significant increase notable in
net interest income (‘NII’).
Net interest income
Net interest income generated during FY2022 was €201.9 million
compared to €156.3 million in the same period last year and
remained the main revenue driver representing 69% of operating
income.
Healthy growth in both the corporate and personal lending
portfolios was significantly supported by the rising of interest rates
in the Eurozone as of mid-year 2022 which reduced the burden
of interest expense paid. Back in 2016, the European Central
Bank (‘ECB’) had introduced a negative interest rate which had,
year on year, a noteworthy negative impact on NII performance.
This stemmed from the Bank’s high levels of liquidity, resulting in
interest being charged on the surplus overnight funds deposited
with the Central Bank of Malta. Consequential to the ECB’s
interest rate rises in 2022, negative interest has firstly reduced
significantly and then moved to positive territory. Furthermore, a
decrease in interest expense relating to term deposits of €4 million
has also played a role in the reduced interest expense.
Commissions and other income
Commission income increased by 2.6% on a year-on-year basis
across all business lines partially subdued by weaker performance
in investment services due to the dampened investor sentiment
and volatile capital markets. Half-way through the year, the high
balance fee for our corporate clients was removed as this was
directly related to interest rate environment. Further growth was
driven by the fair value movements particularly those on equity
investments that are measured at Fair Value Through Profit or Loss
reflecting latest share prices.
Costs
Total costs for FY2022 amounted to €192.6 million which results
in a 1.5% decrease over that registered in FY2021.
Operating costs, which exclude strategic initiatives costs of
€7.8 million, stood at €184.8 million (2021: €172.5 million) up
by 7.1% or €12.3 million compared to prior year. This increase
was mainly driven by human capital requirements in specialised
areas and associated growth in average compensation. During the
year, BOV introduced a voluntary occupational pension scheme
as well as stepped up its early retirement scheme which further
contributed to higher employee costs. Regulatory costs have
declined compared to FY2021 in view of the change in Deposit
Guarantee Scheme (‘DGS’) legislation back in October 2022
coupled by a slower growth in customer deposit levels (2022: 3%
increase whilst FY2021: 8% increase).
PROFITS FOR THE
LAST 5 YEARS
€48.7m*
2022 2021 2020 2019 2018
€80.7m €15.2m €89.2m €71.2m
*Profit of €151.7 million before the one-off net selement of €103.0 million
Deiulemar ligaon.
TOTAL COSTS
-1.5%
€192.6 million
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
ix
The pace of strategic change continued to be critically balanced
with the Bank’s obligation to deliver superior controls in line
with regulatory requirements, the optimisation of the Bank’s
operations and the thrusts to further strengthen the customer
service experience. To this end, strategic initiatives investment
for FY2022 was at €7.8 million versus €23.1 million in FY2021.
The year under review has seen the modernisation of several
processes through business process re-engineering as well as the
automation initiatives driven by robotic process automation and
the introduction of an online solution for home loans.
Releases of credit provisions
During this financial year, the Bank has experienced a net release
of Expected Credit Losses (‘ECL’) of €49.1 million (FY2021: €18.9
million net release). The main factor behind this shift was the
decision, taken earlier in the year, to release COVID-19 provisions
amounting to €24.9 million booked in prior years. Throughout
FY2022, the impact from the COVID-19 pandemic continued to
decline as Malta shifted gradually back to normality.
As at December 2022, the Bank implemented a new internal credit
rating system (‘ICRS’) to support the management of its business
loan portfolio. This new model enables the Bank to differentiate
between different credit profiles as from the origination of
credit exposures, avoiding concentration in a few grades. The
ICRS model was integrated with the ECL model which has now
been enhanced to cater for further triggers indicating significant
increases in credit risk across the business portfolio. During the
first half of FY2023, the Bank will be working on a similar model
for the Retail loan portfolio.
The outcome of the ECL model, €7.1 million release, is a
combination of drivers emanating from the introduction of the
new ICRS, changes resulting from the annual model calibration
exercise and changes on the credit portfolio in terms of volumes,
asset quality and collateral coverage.
A further release in expected credit losses of €13.3 million
relates to changes in post-model adjustments held against the
non-performing portfolio as at December 2022. This release
represents a reversal of prior year adjustments on loans in the
non-performing category for less than 4 years and other reversals
driven by changes in the non-performing portfolio resulting
from settlements and write-offs. The non-performing exposures,
particularly long outstanding, are deemed as highly risky in terms
of recoverability. This supports the need for further provisions in
addition to those resulting from the ECL model.
The Bank continues to monitor and closely manage the portfolio
of non-performing loans and as at December 2022, the non-
performing exposures (‘NPE’) ratio improved from 4.1% in 2021
to 3.5%, whilst the stock of NPLs decreased by €17.5 million.
During the year a total of €11.4 million charge in provisions
resulted from write offs of credit-impaired assets. The latter were
offset by €15.1 million in recoveries from past debts. The ECL
coverage of the credit impaired assets is marginally lower at 53.8%
(2021: 54.1%).
Share of profit from Associates
The Group’s share of profit from insurance associates for the year
resulted in a profit of €1.9 million (2021: €14.5 million profit), a
significant decline of €12.6 million compared to the comparative
period, largely driven by the volatility of global financial markets
during the year and rising interest rates.
Balance Sheet position
Total assets of the Group stood at €14.5 billion as at 31 December
2022, marginally higher than the comparative year (2021: €14.4
billion). The funding of the Bank remains primarily through
customer deposits with more than half of these driven by retail
deposits. Customer deposits as at end of 2022 amounted to
€12.5 billion resulting in a growth of a further 3% compared to
December 2021 (2021: €12.2 billion). Growth was experienced
in both retail and corporate deposits with increases in retail
deposits at a much higher rate than that of business clients.
Earlier in FY2022, measures were taken by the Bank to manage
the growth in liquidity, namely by decreasing interest rates and
refraining from offering term deposit products. The Bank closely
monitors its liquidity position and aims to offer stability to the
market by balancing out the net impact arising from positions held
in customer deposits as well as loans and advances.
Increasing Eurozone interest rates brought about new market
opportunities easing excess liquidity from the €4.6 billion reached
as at December 2021 to 3.4 billion for December 2022 leading to
a growth in investments, primarily in Euro denominated securities,
of €1 billion or 28% when compared to December 2021. Effective
rate of return on treasury investments improved from 0.40% in
2021 to 0.47% in 2022 with the increase mainly driven from
securities in foreign currency. Most of the treasury assets are
measured at amortised cost reflecting the Bank’s primary business
model to hold securities until maturity with a view to collect
interest revenues over the life of the investment.
In order to meet regulatory requirements pertaining to the
minimum requirement for own funds and eligible liabilities (‘MREL’),
on 6 December 2022, the Bank issued €350 million Callable
Senior Non-Preferred Notes with the final maturity date of the
notes being 6 December 2027 at coupon rate of 10% per annum.
The issue attracted an order book of high-quality money accounts
of around €460 million, with amounts evenly split between
domestic and international investors. Investor participation was a
diverse one, with official institutions accounting for around 32.1%
of the Notes allocated, followed by public and private banks at
28%, asset managers at 24.5% and hedge funds at 13.1% (other
2.3%). In terms of geographical diversification, domestic accounts
were allocated 53.7% of the final size and 46.3% were allocated
to a portfolio of international investors. These notes are traded
on the Irish Stock Exchange. This issue will also allow the Bank to
increase its lending book and expand investment horizons of its
treasury operations.
Net loans and advances to customers amounted to €5.6 billion,
an increase of €436.4 million during the year, up 8.4% compared
to FY2021. Retail gross balances grew by 8.5% with home loans
dominating this segment whilst business balances contributed at a
growth rate of 6.6% versus prior year.
The Bank’s liquidity ratio as at year end stood at 426%, down
from 444% as at December 2021. This drop reflects the decrease
in liquid assets year on year as these were transformed into
investments yielding a higher rate of return. Notwithstanding, the
Group’s liquidity position remains significantly above the minimum
regulatory requirement. The Group’s gross advances to deposits
ratio stood at 46%.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
x
As stated earlier, post the Deiulemar settlement, the Group’s
capital ratios remained strong and above regulatory requirements,
with the CET 1 and total capital ratios as at 31 December 2022
of 21.79% (December 2021: 21.90%) and 25.39% (December
2021: 25.53%), respectively.
Deiulemar settlement
In May 2022, the Bank reached an out of court settlement
agreement, without any admission of fault, bringing all legal claims
surrounding the Deiulemar issue to an end. The Bank shall not
have any further ongoing contingent or actual liability relating
to this claim. The impact of this settlement is that BOV’s 2022
profitability has been impacted by €103 million, which is the
settlement of €182.5 million less the provisions already raised by
the Bank in view of previous offers and assessment of legal costs.
BOV has been conservatively preserving capital to ensure it can
withstand any eventuality and that this settlement would not
impact our ability to comfortably meet continuing regulatory
capital requirements. A total of €363 million in pledged assets
previously held with an Italian bank are now free from any
encumbrance. Released capital may be used to explore additional
business opportunities and improve shareholders’ value. The Bank
has sufficient capital to maintain its ratios well above regulatory
requirements, including buffers.
Anti-Financial Crime Transformation
One of our key strategic objectives remains that of implementing
the most effective standards to combat financial crime. During
2022 we continued to invest in strengthening our financial crime
compliance capabilities across the group to enable us to combat
financial crime pro-actively and effectively. We have embarked on
a large project to optimise our pre and post transaction monitoring
capabilities. We are also undergoing a process to review our client
base in a proportionate and risk sensitive manner. We understand,
and regret, that the latter process can cause an inconvenience to
some customers however this interaction is necessary in view of
our regulatory obligations, the expectations of the regulators and
ultimately to protect our customers and the jurisdiction. We are
also implementing digital solutions that will lead to more efficient
interaction with our customers. Financial crime compliance will
remain at centre of our focus in the future years and it is equally
important that other subject persons in Malta strive to retain the
standard reached over the past months which have also led to
Malta’s removal from the FATF grey list in June 2022.
Strategy Update
In 2020, the Board approved a strategy which planned to take
BOV on a transformation journey over three years – BOV 2023.
Although external factors such as COVID-19, legal embattlements
and the economic effects of the outbreak of the war in Ukraine
posed several challenges, we continued moving forward with our
strategic ambitions of digitalisation and simplification.
During the subsequent two years, we invested in regulatory
and mandatory projects, which led to a lower overall investment
level during 2022 as many costs were front-loaded. Despite the
regulatory focus, migration to alternative channels has been robust.
We implemented several quick wins on service delivery using the
latest techniques to provide low-cost-high speed improvements.
Moreover, the Bank took forward the re-engineering of a number
of processes as well as the streamlining of procedures to deliver
customer service improvements.
DEIULEMAR EFFECT
ON PRE TAX PROFIT
€31.2m
TOTAL
PRE TAX PROFIT
€151.7M
NET SETTLEMENT OF
DEIULEMAR CASE
€103.0M
PRE TAX
PROFIT
€48.7M
Through digitalisation, we have already seen early signs of benefit
in terms of the faster growth of the Bank’s investment and lending
businesses. One such initiative was the launch of the Home
Loans digital portal, which is providing our customers with ease of
access to a home loans financing calculator and the ability to apply
for a home loan through a completely digital channel. We have
also invested significantly in our credit and wealth management
back-office processes to deliver more robust controls to reduce
complexity without impacting customer service. On the same
note, the branch modernisation programme kicked off in 2021 and
is making headway. Four branches are now fully renovated with a
refreshed, eco-friendly, and customer-centric layout. Additional
branches across the network will undergo similar renovation in the
coming months. Another area the Bank has started working on
alongside the transformation is the enhancement of internal data
capabilities. Through this initiative, the Bank is aiming to markedly
strengthen its understanding of the customer. Several other data
quality enhancements are also underway which will also support
future product development and customer value propositions.
Overall, we have made good progress in many areas, and further
improvements are in the pipeline. However, we needed to balance
the pace of change we desire when managing staff through a
significant transformation whilst continually improving the Group’s
risk and control environment to ensure compliance with current,
new, and emerging regulatory requirements.
Closing statement
I would like to express my deep appreciation to our customers,
shareholders and business partners who have played an
important role in the achievement of these results. In particular, I
am grateful to continue experiencing the loyalty and commitment
of our employees, as they strive to support our customers and
their requirements, while at the same time maintaining our
commitment to responsible and sustainable banking practices.
They have exemplified our mission to add and create value to
our customers and the Bank and I am proud and grateful to each
one of our employees for the results they achieved during this
reporting period. I also wish to thank my fellow colleagues on the
management team that have once again shown great dedication,
energy and care. We are excited about the opportunities ahead of
us and we look forward to continue progressing further in FY2023
as we take forward our ambitious transformation program.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement
CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xi
Going forward, we will remain anchored to maintain a strong
balance sheet, sustain our business value streams, nurture our
investment in the Bank’s human capital, strengthen our risk,
governance and controls, remain relevant to our customers, and
lastly support the development of the community we operate
in by embedding ESG principles in our business and operational
model.
ENVIRONMENTAL
to strive towards net
zero impact and climate
resilience.
GOVERNANCE
to enhance
awareness and
posive acon at all
levels of the
organisaon with
respect to ethical
and fair behaviour
SOCIAL
to take
responsibility for the
empowerment of
financial literacy and
support vulnerable
members of society
During the course of FY2023, we are also excited to actively
develop and prepare a new 3-year strategic plan – BOV2026. Our
strategic thrusts revolving around our Customers, Operations,
Risk Management and our People will be driven by both Data and
Digital led initiatives as key enablers, ensuring ESG is embedded in
our business and operational model in the process.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xii
Anita Mangion
Non Executive Director
Godfrey Swain
Non Executive Director
Kevin J Borg
Non Executive Director
Elizabeth Camilleri
Non Executive Director
Dr Diane Bugeja
Non Executive Director
James Grech
Non Executive Director
Alfred Lupi
Non Executive Director
Miguel Borg
Executive Director
Kenneth Farrugia
Chief Executive Officer
Executive Director
Dr Gordon Cordina
Chairman
Alfred Mifsud
Non Executive Director
Antonio Piras
Non Executive Director
Deborah Schembri
Non Executive Director
Dr Ruth Spiteri Longhurst
Group Company Secretary
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xiii
Dr Diane Bugeja
Director
CAFC NED *
Dr Diane Bugeja currently chairs the Compliance and Anti Financial
Crime Committee. Dr Bugeja is a lawyer by profession practising
primarily in financial services law, financial regulation and anti-
financial crime compliance. She is currently a Senior Associate
at Camilleri Preziosi Advocates. Prior to joining Camilleri Preziosi,
Dr Bugeja held the post of Senior Manager at a Big Four audit
firm, working in Malta and in London, and subsequently joined the
enforcement departments of the UK Financial Conduct Authority
and the Malta Financial Services Authority.
Dr Bugeja holds a Ph.D in law from King’s College London and a
M.Sc from the London School of Economics and Political Science.
Dr Bugeja is also a visiting lecturer at the University of Malta.
Appointed to the Board in December 2019.
Kevin J. Borg
Director
NRC NED *
A graduate in Economics, Mr Kevin J Borg is an accomplished
professional with almost 25 years experience in leadership of
the business community with the Malta Chamber of Commerce,
Enterprise and Industry, having occupied the position of Director
General for almost 15 years and various other roles within the
Chamber prior to that. Over the years, though these positions,
Kevin built himself a distinct reputation for integrity and
professionalism with all stakeholders he has connected with
including entrepreneurs, political leaders and social partners.
Mr Borg is currently a member of the Nominations and
Remuneration Committee. He is also the Chief Executive Officer
of the Malta Maritime Forum and Consultant to the Malta
Employers’ Association.
Through his previous position, Mr Borg sat on a number of
national boards including the MCESD, MEUSAC, Education Malta,
Malta Business Bureau, and the Retail Price Index Board besides
BusinessEurope and Eurochambres at the European level.
Amongst other projects during his time at the Chamber, Kevin
was actively involved in the EU accession preparations for Malta
as well as in the merger process with the Federation of Industry
which took place in 2009.
Appointed to the Board in May 2021.
Miguel Borg
Director
ED
Mr Miguel Borg is the Chief Risk Officer and an Executive Director
of Bank of Valletta p.l.c. He serves as the Deputy Chairman of
the Executive Committee and chairs the Credit Committee, the
Internal Control & Risk Committee and the Credit Sanctioning
Committee of BOV. Mr Borg is a Director of BOV Fund Services
Limited and chairs the Risk Committee of the company. He also
chairs the Risk Committee of MAPFRE MSV Life p.l.c. Prior to
Elizabeth Camilleri
Director
ESG NED *
Ms Elizabeth Camilleri is a member of the ESG Committee. She is
a digital growth and transformation specialist, working with boards
and C-Level executives across a number of B2C and B2B2C
sectors worldwide.
Born and educated in Malta, Ms Camilleri subsequently moved
to the UK for her MBA at London Business School specialising
in strategy and digital innovation. It was there that she found her
passion for data and digital transformation and its power to enable
any organisation to compete in a fast-changing environment.
joining the Bank, he worked at the Central Bank of Malta. Mr Borg
holds a Masters in Economics and is a member of a number of
international risk management associations. Mr Borg serves as
a member of the Ethics Committee of PRMIA (USA). Mr Borg
lectures at the University of Malta.
Appointed to the Board in August 2017.
Ms Camilleri currently sits on a number of boards and advises
others on digital transformation and the creation of exponential
growth through the use of data and technological innovation.
Before that, she had founded and built a market tech company
(Shopological) which she sold in 2019. Previous roles encompassed
working at global organisations such as Gartner (Head of Strategy
Consulting), Orange Global (Growth Strategist for the Board),
PWC (Consultancy, Malta) and mid-sized companies such as
eDreams (Marketing Director) and Biochemicals (Malta, Export
Marketing Manager).
Appointed to the Board in May 2021.
James Grech
Director
NED
Mr James Grech’s career commenced as a management
accountant with a local accounting firm. He later joined the Bank
in 1998 and is currently the Executive Head of Foreign Bank
Relationships Department. He served on the Compliance, Risk
Management and Audit Board committees. He was also a member
of the ALCO management committee. He is a member of the
Strategy and Advisory committee. Mr Grech was the Chairman
of Malta Industrial Parks and to date is the Chairman of Gozo
Channel Holding Company Limited and a director of other local
companies. He holds an Honours Degree in Management and
a Masters in Business Administration from Henley Management
College (UK). His dissertation focused on the effectiveness of
Board Performance and Corporate Governance. Mr Grech has
lectured on Financial Services at the Malta College of Arts, Science
and Technology, and on Corporate Governance at the University
of Malta.
Appointed to the Board in 2004 till 2008. Re-appointed to the
Board by the shareholders in the respective AGMs in December
2014 to date.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xiv
Deborah Schembri
Director
A NED *
Ms Deborah Schembri is a Certified Public Accountant, holds a
Masters in Business Administration from Henley Management
College (UK) and holds an Advanced Diploma in Retirement
Provision pursued with the UK Pensions Management Institute.
Ms Schembri served as the Chairperson of the Malta Association
of Retirement Scheme Administrators and possesses successful
experience in strategy formulation, corporate governance,
business & product development, customer relationships and
employee engagement. She has over twenty years experience
in the financial services and other local entities, holding C-level
positions. She worked with one of the Big Four audit firms and for
ten years she also served as the CEO & Managing Director of a
financial services organisation.
Alfred Lupi
Director
A NED *
An Accountant by profession, with a university degree in
economics, Mr. Lupi was the Chief Financial Officer of two major
companies in Malta and the Executive Chairman of a supermarket
group. He was also a director of the Central Bank of Malta,
chairing its Audit Committee and also served as Acting Governor.
For a number of years he chaired the Accountancy Board and
was subsequently a member of its Quality Assurance Oversight
Committee. Mr Lupi has held a number of board appointments
mainly in the financial sector.
Mr Lupi was Interim Chairman of the Bank from May 2020 until
October 2020. He currently chairs the Audit Committee and
serves on the board of BOV Fund Services Limited.
Appointed to the Board in December 2015.
Anita Mangion
Director
ESG CAFC NED *
Since her appointment on the Board of Bank of Valletta p.l.c. in
2016, Ms Anita Mangion has served on various committees: Audit,
Remuneration and Compliance Committee. She has also chaired
the Digitilisation and Fintech working groups and co-chaired
the Board’s Strategy Advisory Group. Ms Mangion is currently a
member of the ESG Committee and the Compliance and Anti-
Financial Crime Committee. In November 2021, Ms Mangion was
appointed Non Executive Director on the boards of Vilhena Funds
Sicav and the BOV Joseph Calleja Foundation.
Ms Mangion is an experienced Strategy and IT consultant:
specialised in Corporate Governance, Business Optimisation
and Digital Transformation; passionate on ESG, FinTechs and
Innovation. For almost two decades, she consulted in such matters
diverse local and international entities where she successfully
drove enterprise-wide projects and implemented sustainable
profitable frameworks. Her professional career started at MFSA
and the Malta Stock Exchange before moving to senior roles in
the Telecoms and IT sector and subsequently to advisory, where
she now collaborates with Tech Giants, C-suite executives and
boards. Ms Mangion holds an Executive MBA (eBusiness); B.Com.
Management Hons and B.Sc. Business and Computing (University
of Malta). She also studied Business and IT at Indiana University-
USA; Technology Entrepreneurship and New Business Operations
at University of Malta in collaboration with Oxford University-UK.
She served as Non-Executive Director at Malta Industrial Parks
Limited (today named INDIS) from 2013 to 2017, where she was
appointed member of the Tenders Committee, Audit Committee
and chair of the ICT Steering Committee.
Appointed to the Board in December 2016.
Alfred Mifsud
Director
A R NED *
Mr Alfred Mifsud currently chairs the Risk Committee and is a
member of the Audit Committee. Mr Mifsud was previously a
member of the Compliance and Anti Financial Crime Committee.
Mr Mifsud holds a Masters in Business Administration from
Sheffield Hallam University and a Financial Studies Diploma by
the former Chartered Institute of Bankers. From 2015 to 2017
he was Deputy Governor of the Central Bank of Malta, with main
responsibilities of the monetary policy and banking operations.
Prior to that, Mr Mifsud was Chairman of Crystal Finance
Investments Limited, a position he held for 15 years. From 1992 to
1996 he was a Governor on the Board of Malta Financial Services
Centre which now is MFSA. From 1996 to 1998, Mr Mifsud was
Chairman of Mid-Med Bank p.l.c.
Appointed to the Board in December 2019.
Antonio Piras
Director
NRC R NED *
Mr Antonio Piras co-chairs the Nominations and Remuneration
Committee and is a member of the Risk Committee. He was
previously a member of the Audit Committee. Mr Piras occupies
the role of deputy chairman of the Board of Banca UBAE (Rome)
and is also the chairman of the Remuneration Committee of
Banca UBAE (Rome).
Mr Piras was previously director of the board of Iacobucci
Aerospace HF (Rome) and vice chairman of Eurofidi Soc.
Consortile Garanzia Fidi s.c.a.r.l. (Turin). Until 2014, he was the
CEO of Equitalia Centro S.p.A (Florence) and chairman and CEO
of other companies of Equitalia Group.
In 1971, Mr Piras started his career at UniCredit Group, former
Credito Italiano, holding various key roles in the Italian commercial
network until 1997. Afterwards, Mr Piras was appointed as
CEO of UniCredit Factoring (Milan), Deputy General Manager
of Banca dell’Umbria, Chairman and CEO of Pekao Leasing
Sp.z.o.o (Warsaw) and Leasing Fabryczny Sp.z.o.o (Lublin), CEO of
UniRiscossioni S.p.A. (Turin), all companies held by UniCredit, from
where he ended his career as Senior Executive Vice President in
2009.
Appointed to the Board in December 2016.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xv
Dr Ruth Spiteri Longhurst
Group Company Secretary
Dr Ruth Spiteri Longhurst was appointed Group company
secretary in April 2016. Previously she occupied the post of
Executive Head of the Compliance Unit within the Bank. Ruth
is also the company secretary of MAPFRE MSV Life p.l.c., BOV
Asset Management Limited and BOV Fund Services Limited.
Ruth graduated Doctor of Laws from the University of Malta
in 2001 and obtained Master of Arts in Financial Services in
2004. Ruth has been employed with the Bank for the past
twenty one years.
A Audit Committee
CAFC Compliance and Anti Financial Crime Committee
NRC Nominations and Remuneration Committee
ESG Environmental, Social, and Governance Committee
R Risk Committee
ED Executive Director
NED Non-Executive Director
* Independent
Mr Swain is a business graduate from Monash University, holds
a diploma in strategic management from Henley School of
Management and participated in HSBC executive programmes in
London, Hong Kong and Singapore.
Appointed to the Board in May 2021.
Currently Ms Schembri holds the role of Group CFO of a major
local diversified group of companies operating locally and
internationally and also sits on committees within the Malta
Chamber of Commerce and the Institute of Financial Services
Practitioners.
Appointed to the Board in June 2022 and also serves on the Audit
Committee since October 2022.
Godfrey Swain
Director
ESG R NED *
Mr Godfrey Swain is a member of the Bank’s Risk Committee,
ESG Committee and a Director on the Board of MAPFRE MSV
Life p.l.c. He is an international executive with thirty years of
banking experience, recently serving as CEO of Myanmar Citizens
Bank (MCB) based in Yangon tasked with executing a banking
transformational strategy in partnership with the International
Finance Corporation (IFC), an arm of the World Bank. Mr Swain
previously served as Deputy CEO, Head of Retail Banking and
Marketing based in Ho Chi Minh City delivering a growth and
modernization mission for Vietnam International Bank (VIB), a
large-scale bank with Vietnamese and Australian shareholding.
Mr Swain served as a senior Hong Kong and Shanghai Bank
(HSBC) international executive for twenty years holding key roles
as Managing Director and Country Head of Retail Banking and
Wealth Management for HSBC in Japan, Vietnam and previously
Malta where he also held roles of Head of Marketing and
Communications and founding CEO/MD of HSBC Life Assurance
(Malta) Limited. Mr Swain was a member of the Hong Kong
based HSBC Asia Pacific Regional Management team, director on
various boards including Life Assurance and Fund Management
subsidiaries and EXCO, ALCO, Risk Management and Governance
Committee member in the countries and territories where he
worked. Mr Swain started his financial services career in Adelaide
and Sydney with National Mutual Life, Australia.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xvi
Izabela Banas
Chief Financial Officer
Elena Dourou
Group Chief Internal Auditor
(Observer on ExCo)
Theodoros Papadopoulos
Chief Digital, Strategy and
Transformation Officer
Anatoli Grech
Group Chief Compliance Officer
Miquel Borg
Chief Risk Officer
Ray Debattista
Acting Chief People
& Change Officer
(Observer on ExCo)
Simon Azzopardi
Chief Wealth Management Officer
Joseph Agius
Chief Technology Officer
Albert Frendo
Chief Business Banking Officer
Ernest Agius
Chief Operations Officer
Kenneth Farrugia
Chief Executive Officer
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xvii
Ernest Agius
Chief Operations Officer
Ernest Agius was appointed BOV’s Chief Operations Officer,
in May 2016. He is responsible for the Bank’s Administration
Functions including Facilities, Security and Health & Safety,
Procurement, the Architect’s Unit, the Transaction Monitoring
& Screening Function, Investment & Custody Operations,
Centralised Operations including, Cash, Cheque, ATM and
Safe Deposit Lockers Management, Core Banking System
Development & Support, SWIFT & SEPA Payments Processing
and Reconciliations, Customer On-Boarding including Account
Opening and the Customer Lifecycle Management unit.
Ernest joined Bank of Valletta in 2015. With over 35 years of
experience within the financial services working for local and global
institutions, Ernest has held a number of senior executive positions
within the Business, migrating Customers to digital channels and
IT. He has vast experience in Banking Operations, Financial Crime
Compliance, and has led major transformation projects involving
complex technology, automation, and de-risking.
He has been a member of the Executive Committee since June
2016, a member of the Change Management Committee,
the Internal Control & Risk Management Committee, Product
Governance and Pricing Committee, Change Management
Committee, and the Incident Management Team. Ernest sits on
the Board of Churchwharf Properties Ltd.
Izabela Banas
Chief Financial Officer
Izabela Banas was appointed as the Bank’s Chief Financial Officer
on 1 March 2021.
She serves as Chair of Asset and Liability Management Committee
and is a member of the Bank’s Executive Committee and a number
of management committees. Izabela is a director on the Board of
MAPFRE MMSV Life p.l.c., a member of MAPFRE MMSV Life
p.l.c. Audit Committee and regular attendee at the BOV’s Board
of Directors as well as BOV and MAPFRE Middlesea p.l.c. Audit
Committees.
Izabela is an experienced Finance professional and has held a
number of senior positions within the Financial Services industry
in the UK and Switzerland. Izabela joined Bank of Valletta after
five years with HSBC Group in London where her last role was as
a Chief Financial Officer for Private Bank EMEA. Having started
her career at General Electric Company as part of Financial
Management Programme, she has since covered wide span
of organisations, industries and geographies including Credit
Suisse Group, Willis Insurance Brokers and Private Equity owned
industrial companies in Germany and in the UK.
She holds a degree in Economics with specialisation in Finance
from University of Illinois at Urbana-Champaign and is a certified
Lean Six Sigma Black Belt.
Elena Dourou
Group Chief Internal Auditor
Elena Dourou joined BOV on 1 October 2020 as Group Chief
Internal Auditor.
She has vast experience in the financial sector and internal
audit and a successful international career. Among other major
institutions, she has worked in Deloitte, ABN Amro Bank, National
Bank of Greece, Piraeus Bank (Greece), and Ferratum Bank
(Malta) in positions relevant to an internal audit, consulting, and
internal controls. Before joining the BOV, she was working at
the Hellenic Corporation of Assets and Participations, where she
was responsible to monitor the internal audit departments of its
Joseph Agius
Chief Technology Officer
Joseph Agius was appointed Chief Technology Officer in October
2014 and became a member of the Bank of Valletta Executive
Committee in October 2016.
Since joining the Bank in 1985, Joseph has garnered over thirty-
five years’ of experience in IT and Financial Services. During
this time, he has been actively involved in the implementation
of various mission-critical projects, including the Core Banking
Transformation programme.
In his role as Chief Technology Officer, Joseph is responsible for
driving the Bank’s IT strategy. He is a strong proponent for the
modernisation of IT infrastructure and applications whilst running
IT as a business with its inherent business value. He supports
fellow EXCO colleagues in their technology initiatives.
Joseph holds an Honours degree in Computer Science from the
University of Reading and an MBA in eBusiness from Grenoble
Graduate School of Business. He is also a Chartered Engineer and
a member of the British Computer Society.
Joseph is a non-executive director on the Malta Information
Technology Agency’s (MITA) Board of Directors and was recently
appointed as Chairperson of the Foundation for IT Accessibility
(FITA) Board.
Simon Azzopardi
Chief Wealth Management Officer
Simon Azzopardi joined the Bank of Valletta in 1987. He has
served in various areas of the Bank including the retail network,
corporate lending, strategic planning, and marketing. During his
career at BOV, he has occupied various senior positions in Risk
Management, International Corporate Centre, Chairman’s Office,
and various subsidiaries. He was also responsible for the setting
up and running of the Cairo representative office. Simon enjoys
considerable experience in the provision of investment services. As
Chief Wealth Management Officer (appointment date 22 January
2021), he is a member of the Bank’s Executive Committee, the
Assets and Liabilities Committee, and other executive committees.
He currently is a Director on the Board of BOV Fund Services. He
is also a member of various committees which include, the MMSV
Investment Committee, the MMS Investment Committee, the
Investment Committee BOV Asset Management, and the Risk &
Regulatory Committee BOV Funds Services.
Simon holds a degree (B.Comm Hons) in Banking & Finance from
the University of Malta, and an MSc in International Securities,
Investment, and Banking from the University of Reading. He is also
an Associate of the Chartered Insurance Institute and a Fellow of
the Chartered Institute of Bankers.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xviii
Theodoros Papadopoulos
Chief Digital, Strategy and Transformation Officer
Theodoros Papadopoulos was appointed as Chief Digital,
Strategy and Transformation Officer in September 2021 and
as a member of the Bank’s Executive Committee. Later on, in
2022, Mr. Papadopoulos has also been entrusted to lead the
Transformation and Strategy of BOV. He sits on various other
management committees including CMC, PGPC, and Data
Council.
He has extensive experience in redesigning and implementing
digital products in Customer Experience, Voice of the Customer,
Design Thinking, and Customer Journey Mapping.
Prior to joining the Bank of Valletta, Mr. Papadopoulos occupied
the role of Global Hotels Projects Team Member with Booking.
com in the Netherlands in 2011 and was eventually appointed as
Manager, of Strategic Partnerships in 2013. In 2016, Theodoros
joined Eurobank EFG in Athens, Greece where in his position as
Director of User Experience, he helped the bank to increase its
digital footprint in the market.
Theodoros holds an MSc in Digital Communications and Media/
Multimedia of Stockholm University, an MSc in International
Business (Public Policy) from Södertörn University in Sweden,
and a BA in Public Relations and Communication Policy. He is a
vastly experienced professional in Digital Transformation, Digital
Banking, Innovation, and Technology and has worked with
Fortune 500 companies, recognized for strong people leadership
and Change Management.
Ray Debattista
Acting Chief People & Change Officer
Ray Debattista was appointed as Acting Chief People and Change
Officer in 2022. He is an observer on the Bank’s Executive
Committee. He joined the Bank in 1984 and throughout his
career he occupied various roles within the organisation, spanning
both the retail network and other corporate functions.
Ray has an in-depth knowledge of the Bank and its people, having
garnered over nineteen years of experience in Human Resources.
During this time, his responsibilities spanned recruitment,
employee engagement, performance management, training,
career development, talent management as well as employee and
industrial relations.
In his role, Ray is responsible for developing and executing an
HR strategy in support of the Bank’s overall business plan and
strategic direction. He champions the Bank’s drive to become
the Employer of Choice by focusing on employee journeys and
career paths, whilst driving and implementing initiatives that
enhance the wellbeing of the Bank’s people, promoting initiative
and commitment among employees. Together with his teams,
Ray is also responsible for succession planning, talent and change
management, as well as the management of healthy working
relationships with key stakeholder groups representing the Bank’s
employees.
Ray Debattista also serves on several committees including the
Strategy Advisory Group, the Change Management Committee,
and the Project Investment Review Board. Mr Debattista holds
a Masters Degree in Business Administration from Henley
Management.
subsidiaries to ensure harmonisation of processes and application
of Internal Audit Standards in 15 major Greek Public Sector
organisations.
Elena is a Fellow Certified Chartered Accountant, a Certified
Internal Auditor, and a Certified Information Systems Auditor and
holds an MBA from Oxford Brookes University.
Albert Frendo
Chief Business Banking Officer
Albert Frendo is an accountant by profession and is responsible
for the stewardship of Business Banking being one of the key
pillars of the revamped Business Model along with Investment and
Retail Banking. The provision of credit for business customers is
an important element of such function. His career at the Bank
spans over thirty years with wide-ranging experience in cost
management and financial reporting, risk management, and credit
finance. For twelve years, he headed the Bank’s Risk Function
and was later assigned with the management of the Bank’s
overall Credit Portfolio, responsible for a number of key credit
areas including Corporate, SME, Consumer and Trade Finance,
Collections, and Collateral Management. He was entrusted to
launch Risk Sharing Instruments in Malta aimed at SMEs including
JEREMIE, CIP, SMEG, SME Initiative (JAIME), and SME Invest.
Albert is a member of the Bank’s Executive Committee and
a number of management committees. Albert holds a degree
in Accountancy from the University of Malta and a Master’s in
Business Administration, with a specialisation in Management
Consulting, from Grenoble Graduate School of Business in France.
Albert also sits on the board of Tigne Mall p.l.c.
As communicated to the market on 14 March 2023, Mr Albert
Frendo has taken up voluntary retirement from the Bank and
accordingly has relinquished his position of Chief Business
Banking Officer.
Anatoli Grech
Group Chief Compliance Officer
Anatoli Grech holds the position of Group Chief Compliance
Officer. He previously held the position of Head of Strategy and
Regulatory Affairs at BOV Asset Management Limited, the asset
management company of the Bank.
He is a member of the Executive Committee, the Internal
Control and Risk Management Committee, Change Management
Committee of BOV and chairs the Product Governance and
Pricing Committee. Anatoli is a Director on the Board of BOV Asset
Management Limited and the Chair of its Risk and Regulatory
Committee.
Anatoli is also a member of the Risk and Regulatory Committee
of BOV Fund Services Limited and MAPFRE MSV Life p.l.c. He is
also a member of the board of the European Savings and Retail
Banking Group, a member of the Banking Supervision Committee
of the European Banking Federation and a member of the WSBI-
ESBG Task Force on AML.
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xix
The Pandemic has changed our habits and has rewired a lot of
our actions as humans in the way we go about our daily life. We
got used to ordering food through an app and have generally
increased our usage of digital technologies. At the same time,
we have started a new pattern of habits that includes less
human interactivity, and less cultural activities, interacting
mostly through screens.
Bank of Valletta, through its extensive Community Programme
aims to be one of the triggers that breaks these current habits,
going back to pre-pandemic times or create new ones.
Corporate Social Responsibility (CSR)
Environmental, Resource and Climate Sustainability
We know that the environment plays a big role in people’s health
and well-being – a healthy environment supports healthy people.
Our efforts took a two pronged approach – supporting initiatives
that have a direct positive impact on the environment while
creating awareness about salient issues.
Bank of Valletta’s collaboration with Birdlife through the
Dinja Waħda Programme saw 85 schools, and hundreds of
students taking up initiatives to reduce humanity’s impact on
the environment and creating awareness among the younger
generations.
The Bank conducted an in-depth energy audit, both on its internal
consumption as well as that of its employees, especially when
commuting to work. We are now in the process of highlighting
potential changes that will drastically reduce consumption as well
as ways to incentivise our staff members to reduce their carbon
footprint in relation to their job.
Another awareness campaign, this time related to Life under
Water, was organised in conjunction with Din l-Art Ħelwa through
a photographic competition and exhibition that aimed to highlight
both the beauty of underwater life as well as the destructive
impact we are having on this environment.
Education and Financial Literacy
Education develops skills essential to daily living while financial
literacy is the foundation of one’s lifelong relationship with money.
‘Read with Me’, the Bank’s collaboration with the National Literacy
Agency to promote literacy and reading from a young age, held
over 900 reading sessions across the islands, encouraging reading
in a fun way for young children and their parents.
More emphasis was placed on disseminating information about
the advantages of using digital forms of payment over traditional
methods such as cash or cheques through the Bank’s online
channels, information sessions for customers and through the
‘European Money Week’- a collaboration with the Malta Bankers’
Association. Progress is being registered in the Bank’s mission to
introduce financial literacy across primary and secondary schools
in Malta and Gozo.
Excellence in Education continued to receive the Bank’s support
through sponsorships of the Dean’s List within the Faculty of Arts
at the University of Malta and the Prize in Medicine for the top
Medical Student.
Over 4,000 children attended Fondazzjoni Wirt Artna’s (‘FWA’)
‘Hands on Heritage’ Programme throughout the summer – a hands-
on approach to learning about our History in various historical
venues through FWA’s collaboration with Bank of Valletta. The
Bank also enriched the collections of numerous libraries around
Malta and Gozo through the donation of books, both from the
Bank’s collection as well as purchasing books to cater for the
patrons’ needs.
Hands on Heritage Programme
BOV Prize in Medicine
Din l-Art Ħelwa Underwater photographic competition
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xx
Cultural heritage & environmental capital of the Maltese
Islands
Conserving, protecting, promoting and developing natural and
cultural heritage forms a strategic part of Bank of Valletta’s
contributions towards the community in which it operates.
Due to its long-lasting traditions and dynamic history, the
Maltese Islands are very rich in cultural resources that require
proper conservation.
The long-term restoration project of the imposing Gran
Salon at the Auberge de Provence in Valletta, now in its 5
th
year, a collaboration between the Bank and Heritage Malta,
yielded a knight’s period painting in a blocked arch which has
provided valuable information about the original décor of this
magnificent building.
The 9-piece titular painting at the Parish of The Blessed Virgin
of Lourdes in Paola by Emvin Cremona was restored to its
former glory while other restoration projects, such as a 19
th
Century Crucifix by Mastru Xandru, a statue of the Immaculate
conception by the same artist and a Statue of St Roque are
currently receiving the much-needed attention by professional
restorers and conservators.
Long-term collaborations with the main Heritage Trusts in
Malta, such as Fondazzjoni Wirt Artna, Fondazzjoni Patrimonju
Malti and Din l-Art Ħelwa continue to ensure that Malta’s rich
cultural heritage will be enjoyed by future generations.
The visual and performing arts were also high on the Bank’s
Agenda with support to the musical ‘Sweeney Todd’ at the
Manoel Theatre and the production of operas ‘Aida’ and
‘Carmen’ at the two main theatres in Gozo. Joseph Calleja was
back with his annual traditional Malta concert to the delight of
those present, with new and upcoming artists continuing to
receive support through the BOV Joseph Calleja Foundation.
Ethical and Responsible Behaviour
Ethical behaviour in the corporate and sports environment is
the practice of acting in acceptable ways that are consistent with
the best values of the environment.
Bank of Valletta strongly believes in the physical and mental
benefits of sporting initiatives, for the direct participants, the
people behind scenes and the spectators and continues to
consolidate itself as the main supporter of sporting initiatives on
our Islands. Football, both in Malta and Gozo, Basketball, Aquatic
Sports, Bowling, Horse Racing, Sailing, Tennis and Golf are among
the sporting disciplines that benefit from the Bank’s support.
Besides the support provided to the economy through the
financing of businesses and a host of financial services to increase
their efficiency, Bank of Valletta supports a number of business
associations whose main purposes are to share and discuss their
challenges, whilst providing access to networking for their peers.
Knowledge sharing is provided through seminars and webinars
organised by the Associations in conjunction with BOV for
members and the public at large. Topics are wide ranging and
related to the Association’s targets. Associations include the
Malta Chamber of Commerce, Enterprise and Industry, the Gozo
Business Chamber, the Malta Maritime Forum, the Malta Hotels
and Restaurants Association, Finance Malta, Ernst and Young and
the Chamber of Engineers among others.
Joseph Calleja Concert
Kalkara Crucifix
MHRA seminar
Bank of Valletta p.l.c.
Annual Report 2022
Board of Directors &
Group Company Secretary
Chairman’s Statement CEO’s Commentary
Executive Committee &
Group Chief Internal Auditor
Corporate Social
Responsibility
xxi
Supporting vulnerable members of society
Mahatma Gandhi said ‘the true measure of any society can be
found in how it treats its most vulnerable members.’
The L-Istrina BOV Piggy Bank Campaign, in its 19
th
consecutive
year helped raise the much needed funds for the Malta
Community Chest Fund while creating a sense of solidarity
among schoolchildren.
A new multi-sensory room was inaugurated at the Esplora
Interactive Science Centre in Kalkara through a collaboration
between BOV and the Malta Council for Science and
Technology. This project will provide visitors with an immersive
experience, using specialised equipment to provide a calming
environment which stimulates mental activity and promotes
interaction.
An innovative collaboration with the Karl Vella Foundation will
see patients receiving medical care abroad, and their caregivers
have access to psychological support during these very difficult
periods of their lives.
Charity also begins at home – BOV encourages its staff
members to donate blood regularly and there is never a
shortage of employees who take the opportunity to donate
through blood donation drives organised by the Bank.
The Bank also continued to provide support to various
philanthropic NGOs throughout the year, such as id-Dar tal-
Providenza, Caritas Malta, The Malta Hospice Movement and
the Richmond Foundation among others, to help them in
fulfilling their missions.
Multi-sensory room at Esplora Interactive Science Centre
Blood Donation by BOV staff members
The BOV Gozo Regatta
Directors’ Report as at 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
1
The Directors present their 49th Annual Report, together with the audited financial statements of the Bank of Valletta Group (the
Group) and the Bank for the Financial Year (FY) ended 31 December 2022.
Principal Activities
The Bank of Valletta Group comprises Bank of Valletta p.l.c. (the Bank) and two subsidiary companies namely BOV Asset Management
Limited (BOV AM) and BOV Fund Services Limited (BOV FS). The Group also has two equity-accounted investee companies, MAPFRE
Middlesea p.l.c. and MAPFRE MSV Life p.l.c. The Group’s principal activities are set out below.
The Group offers banking, financial and investment services and connected activities within the domestic Maltese market. The
principal activities of the Bank comprise the following:
1. The receipt and acceptance of customers’ monies for deposit in current, savings and term accounts which may be denominated
in Euro and other major currencies,
2. The provision of loans and advances to a wide array of customers, and
3. The provision of investment services, covering a comprehensive suite of investment products and services that meet the customers’
needs throughout their lifecycle, including stockbroking, advisory and discretionary portfolio management services.
The Group also provides a number of other services, including, bancassurance, corporate advisory, fund management, fund
administration, and other services, such as 24-hour internet banking service, issuance of major credit cards, night safe facilities,
automated teller machines, foreign exchange transactions, and outward and inward payment transfers.
The Parent Company
Bank of Valletta p.l.c. is licensed to carry out the business of banking and investment services in terms of the Banking Act, 1994
(Chapter 371, Laws of Malta) and the Investment Services Act, 1994 (Chapter 370, Laws of Malta). The Bank is an enrolled tied
insurance intermediary of MAPFRE MSV Life p.l.c. under the Insurance Intermediaries Act, 2006 (Chapter 487, Laws of Malta).
The Bank offers the entire range of retail banking services as well as the sale of financial products such as units in collective investment
schemes. The Bank also offers investment banking services, including underwriting and management of Initial Public Offerings (IPOs).
The Subsidiaries
BOV AM provides management services for collective investment schemes and portfolio management services for institutional clients.
BOV AM is a fully owned subsidiary of the Bank and has three regulatory functions: Asset Management, Risk Management and
Compliance.
BOV FS is also a fully owned subsidiary of the Bank and is recognised as a fund administrator and licensed as a Company Services
Provider by the Malta Financial Services Authority. BOV FS provides a comprehensive suite of services to fund managers and fund
promoters, as well as a full suite of fund administration, shareholder registry services, regulatory reporting and corporate services.
Equity-Accounted Investees
MAPFRE MSV Life p.l.c. operates as a life assurance company licensed under the Insurance Business Act, 1998 (Chapter 403, Laws
of Malta). MAPFRE Middlesea p.l.c. is engaged in the business of insurance, including group life assurance.
The Bank’s Strategic Plan
During FY2022, the Board of Directors continued to oversee the implementation of various strategic initiatives by the Bank's Executive
Management team in support of the Bank's 2023 Strategy. The Bank’s strategy is driven by three main strategic objectives: digitizing
the Bank's operational model, dynamically managing the balance sheet, and creating value for customers and stakeholders.
The Bank's program of initiatives revolved around four key areas, including customers, internal operations, human capital of the Bank,
and risk management. These initiatives, along with other supporting enablers such as digital, data, and ESG, are aimed at positioning
the Bank as a leader, innovator, and catalyst in the market while ensuring the sustainability, compliance, and security of the Bank’s
business and operational model.
Throughout the process, the Board ensured that the Bank's strategy remained aligned with the Bank's approved Risk Appetite
Framework (RAF).
For more information on the Bank's Strategic Plan, please refer to the CEO's Commentary.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
2
Principal Risks and Uncertainties pursuant to Article 177 of the Companies Act, 1995 (Chapter 386, Laws of Malta)
The Directors are aware of the various risks faced by the Group as a result of its involvement in different business lines and operations.
A number of measures are in place to ensure that such risks and uncertainties are maintained at acceptable levels and are in line
with the Group’s risk appetite and strategy of sustainable, long-term growth and profitability. In line with Bank policy, the Risk
Appetite Statement and Framework was reviewed and approved by the Board of Directors in October 2021. The said Risk Appetite
Framework was used to monitor and report on a monthly basis the risk level on different material risk types during the year ended
31 December 2022, also triggering timely and decisive corrective action where risk levels surpassed defined thresholds. The RAF was again
reviewed in December 2022. Such revised iteration will be used in financial year 2023. The document lays out the responsibilities of various
stakeholders, including the Board of Directors and Senior Management, and establishes a number of qualitative and quantitative parameters
for acceptable risk taking.
In line with the provisions of the Risk Appetite Statement and Framework, Senior Management is responsible for the day-to-day monitoring
and control of risk-taking, subject to the regular oversight of the Board of Directors through the Risk Committee. The overall structure is
aimed at ensuring a sound risk culture supported by a performance management system that discourages excessive risk taking.
The key risks faced by the Group include credit risk, market risk, liquidity risk and operational risk. These, and other risks and uncertainties
inherent in the business, require sound capital management to ensure adequacy against regulatory requirements and adverse events.
With this in mind, the Group regularly sets out and reviews capital targets in line with actual and forecast business levels and monitors
performance against such targets on a regular basis. A more detailed explanation of key risks and capital management is included within the
Pillar 3 Disclosures Report available on the Bank's website, as well as Note 39 to the Financial Statements.
The Directors also recognise the fact that the Group may be subject to reputation and litigation risk as a result of its actions and operations.
Conscious of the serious repercussions such risks may have on the Group’s and the various stakeholders’ well-being, both the Board of
Directors and Senior Management exercise zero tolerance to conduct risk and aim to instil the highest levels of ethical behaviour through a
number of policies, procedures and controls.
Operational Overview
A review of the business of the Group for the year ended 31 December 2022 and an indication of future developments are provided in the
Chairman’s Statement and the CEO’s Commentary, which can be found in the front section of this Annual Report.
Dividends
In respect of the current period, the Directors did not declare any interim dividends in view of the net loss reported for that period arising
from the settlement of the Deiulemar litigation, and the need to remain aligned with regulatory expectations within this context. The Bank
staged a significant recovery in underlying profitability for the year as a whole, which however remains weighed down by the cost of the
Deiulemar settlement. For this reason, the Directors are not proposing any dividend for the year. This is consistent with efforts to sustain
the capital and liquidity strength of the Bank’s balance sheet, generating the capacity for further business growth over the coming years.
This approach meets the exacting regulatory expectations on the Bank, and is consistent with a prudent approach in the context of overall
developments in the global economy and financial markets.
Board of Directors
The following Directors served on the Board during FY2022:
Gordon Cordina (Chairman)
Stephen Agius (resigned on 2 June 2022)
Kevin J. Borg
Miguel Borg
Diane Bugeja
Elizabeth Camilleri
Kenneth Farrugia (appointed on 12 October 2022)
James Grech
Rick Hunkin (resigned on 12 October 2022)
Alfred Lupi
Anita Mangion
Alfred Mifsud
Antonio Piras
Deborah Schembri (appointed on 20 October 2022)*
Godfrey Swain
*Deborah Schembri was appointed Director on the Bank of Valletta Board during the Annual General Meeting held on the 2 June 2022. Her
appointment was subject to regulatory approval, which approval was received on the 20 October 2022.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
3
Directors’ Responsibilities
The Directors are required by the Companies Act, 1995 (Chapter 386, Laws of Malta) to prepare financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU which give a true and fair view of the state of affairs of the Group
and the Bank as at the end of the financial year and of the profit or loss of the Group and the Bank for the year then ended.
In preparing the financial statements, the Directors should:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and the Bank will
continue in business as a going concern.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time
the financial position of the Group and the Bank, and which enable the Directors to ensure that the financial statements comply with
the Banking Act, 1994 (Chapter 371, Laws of Malta), Companies Act, 1995 (Chapter 386, Laws of Malta) and with the requirements
of Article 4 of the Regulation on the application of IFRS as adopted by the EU. This responsibility includes designing, implementing
and maintaining such internal controls as the Directors determine necessary to enable the preparation of financial statements that
are free from material misstatements, whether due to fraud or error. The Directors are also responsible for safeguarding the assets
of the Group and the Bank, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
After reviewing the Group’s plans for the coming financial years, the Directors are satisfied that at the time of approving these financial
statements, it is appropriate to continue adopting the going concern basis in preparing these financial statements.
Auditors
A resolution to re-appoint KPMG as statutory auditors of the Bank will be proposed at the forthcoming Annual General Meeting
(AGM). KPMG have expressed their willingness to remain in office.
Going concern – Capital Markets Rules 5.62
The financial statements are prepared on a going concern basis. The Directors regard that pursuant to Capital Markets Rule 5.62, this
is appropriate, after due consideration of the Bank’s profitability, liquidity, the statement of financial position, capital adequacy and
solvency. Specifically, the Directors have prepared financial and capital plans for the next three years which show that the Bank is in
a position to continue operating as a going concern for the foreseeable future, which is at least, but is not limited to, twelve months
from the end of the reporting period. These plans take into account risks arising in its ordinary course of business including complaints
or legal proceedings by third parties, operational and compliance risks in relation to but not limited to compliance with legislation and
regulations.
Information Pursuant to Capital Markets Rule 5.64
1. Authorised Share Capital
The Bank has an authorised share capital of €1,000 million divided into 1,000 million ordinary shares with a nominal value of €1.00
each.
2. Issued Share Capital
The issued shares of the Bank consist of one class of ordinary shares with equal voting rights attached. The Bank has an issued and
fully paid up share capital of €583,849,270 divided into 583,849,270 shares with a nominal value of €1.00 each. There were no
changes to the issued share capital during FY2022.
3. Shareholding Structure
Clause 4.3 of the Bank’s Memorandum of Association provides that, with the exception of existing large shareholders, presently the
Government of Malta and UniCredit S.p.A., no person may at any time, whether directly or indirectly and in any manner whatsoever,
acquire such number of shares in the Bank, as would in aggregate be in excess of 5% of the issued share capital of the Bank.
As at 31 December 2022, Malta Government Investments Limited had a shareholding in the Bank of 0.48% and National Development
and Social Fund (NDSF) had a shareholding in the Bank of 2.88%. Both entities are fully owned by the Government.
Any shareholder holding in excess of 50% of the issued share capital of the Bank or if no such shareholder exists, the shareholder
holding the highest number of shares not being less than 25% of the issued share capital, may appoint the Chairman. Qualifying
Shareholders with 10% or more of the shares in issue are entitled to recommend one Director for every 10% holding.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
4
The Directors confirm that as at 31 December 2022, shareholding in excess of 5% of the issued share capital of the Bank was held
directly by:
Government of Malta: 25.0%
UniCredit S.p.A.: 10.2%
4. Appointment of Directors
The rules governing the appointment and replacement of the Bank’s Directors are contained in Articles 24 to 31 of the Bank’s
Articles of Association. More details on the appointment and rotation process of Directors is found under the Corporate Governance
Statement of Compliance, under principle 3.
An extraordinary resolution approved by the shareholders in general meeting is required to amend the Memorandum and Articles of
Association.
5. Powers of Directors
The Board of Directors has the power to transact all business of whatever nature, not expressly reserved by the Memorandum and
Articles of Association of the Bank, to be exercised by the Bank in general meeting or by any provisions contained in any applicable
laws.
The shareholders in general meeting authorised the Board to exercise during the Prescribed Period, all the powers of the Bank to issue
and allot shares up to an aggregate nominal amount equal to the Prescribed Amount. The Prescribed Period refers to a term of five
years approved during an Annual General Meeting held on 2 June 2022 and which term expires on the 1 June 2027. This authority is
renewable for further periods of five years each.
6. Directors’ Service Contracts
The Directors have service contracts with the Bank. More information on the Directors’ service contracts can be found under the
Remuneration Report.
7. Collective Agreements
The relative Collective Agreements regulate the compensation payable to employees in case of resignation, redundancy or termination
of employment for other reasons. More information relating to Collective Agreements is found further below under the section
entitled Non-Financial Disclosures.
8. Employee Share Scheme
The Bank has a Variable Remuneration Share Plan, through which the Board of Directors is authorised to:
i. establish the Plan and to do all such acts and things as may be necessary or expedient to give effect to the Plan; and
ii. issue up to and including 14,596,232 shares from the authorised share capital of the Bank for the purpose of satisfying the
obligations of the Bank that will ensue from the operation of the Plan, without first offering the same to shareholders in proportion
to their then existing holdings.
During FY2022 no shares were issued from the authorised share capital of the Bank for the purpose of satisfying the obligations of
the Bank pursuant to the Plan.
9. Amendments to the Articles of Association
Article 28.3 of the Bank’s Articles of Association was revised, following Shareholders’ approval during the Annual General Meeting
held on the 2 June 2022. The main changes effected to Article 28.3 were intended to:
a. clarify that the Non-Executive Directors required to retire in any given year are those who have been in office longest since the
date of their election or re-election; and
b. make clear that if, in any given year, the Non-Executive Directors who have been in office longest and are due to retire by rotation,
have occupied office for less than two years, said directors shall not retire by rotation.
The practical impact of (b) is that if, in any given year, all the Non-Executive Directors due to retire by rotation - by virtue of their
holding office longest – have occupied office for less than two years, no Non-Executive Directors will retire by rotation in that year.
Information pursuant to Capital Markets Rules 5.64.7 and 5.64.10
It is hereby declared that as at 31 December 2022, information required under Capital Markets Rules 5.64.7 and 5.64.10 was not
applicable to the Bank.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
5
Information pursuant to Capital Markets Rule 5.70.1
There were no material contracts to which the Bank, or any one of its subsidiaries, was a party and in which anyone of the Bank’s
Directors was directly or indirectly interested.
Declaration pursuant to the following Investment Services Rules for Investment Services Providers:
• Part BI: Rules applicable to Investment Services Licence Holders which qualify as MiFID firms (R1-2.2.3)
• Part BIV: Standard Licence Conditions applicable to Investment Services Licence Holders which qualify as Depositories (2.30)
Pursuant to the captioned Malta Financial Services Authority (MFSA) Investment Services Rules, it is hereby declared that during the
reporting period, there were no breaches of the MFSA Investment Services Rules, Standard Licence Conditions or other regulatory
requirements which were subject to an administrative penalty or other regulatory sanction.
Whistleblowing
The Bank has in place a Whistleblowing Policy aimed to encourage reporting of improper practices and suspected wrongdoing in
a controlled manner which safeguards the confidentiality of the whistleblower. The nature of the disclosures made through the
Whistleblowing process are reported to the Audit Committee.
Information pursuant to the Sixth Schedule of the Companies Act, 1995 (Chapter 386, Laws of Malta)
Branches, Agencies and Centres
The Bank has the following Branches, Agencies and Centres around Malta and Gozo:
• 30 Branches offering both deposit taking and lending services
• 4 Agencies offering deposit services only
• 1 Sub-Agency/Satellite Branch
• 1 Corporate Finance Centre
• 5 Business Centres
• 1 Wealth Management Centre
• 5 Investment Centres
Research and Development
In light of the business sector in which it operates, the Bank does not consider research and development as a main area of activity.
Events occurring after the end of the accounting period
There were no events occurring after the end of the accounting period which warrant reporting in this Annual Report.
Related Party Transactions
No significant related party transactions occurred during FY2022.
Non-Financial Disclosures
The following disclosures are made pursuant to Directive 2014/95/EU:
1. Business Model
Bank of Valletta’s business model is driven by its two key customer segments, personal and business customers. We provide our
customers with a comprehensive suite of banking and financial services solutions that in turn contribute to the generation of our
revenues.
Our customer segments are in turn serviced through two key service pillars. The Retail and Wealth Management pillar services
the requirements of our personal customers and micro businesses, through a model that is driven by the presence of Universal
Bankers located across the Bank’s branch network. Complementing the branch footprint as our largest service touch-point, the Bank
also services its customers through a dedicated Customer Call Centre. To address the investment and financial planning service
requirements of our affluent customers, Investment Centres located in Malta and Gozo as well as a Wealth Management Unit. Our
service solutions include amongst others deposit, investments, financing as well as various payment solutions.
On the other hand, through our Business Banking pillar, we provide a suite of banking products and services to our business customers.
Whilst large corporates are serviced through our Corporate Finance Centre, the Bank also has several Business Centres in Malta and
Gozo to service small and medium sized business enterprises.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
6
As the leading Bank in Malta, we have continued to develop and evolve our comprehensive range of product and service solutions to
meet the requirements of our customers as they progress through the different stages of their life-cycle. Insofar as business clients
are concerned, apart from the mainstream corporate banking and financing services, the Bank has also introduced various innovative
financing solutions that have been designed in partnership with the European Investment Bank and the Malta Development Bank that
in turn are delivering significant value to our customers.
We are currently taking forward several projects to strengthen our leadership position in Malta. In the process, we firmly recognise the
important role of ESG going forward and ensuring that we embed ESG factors in our business and operational model. In parallel, we
also continue to heavily invest in the development of the Bank’s human talent. Our People are the foundation of the Bank’s success
as they service our esteemed customers across various touch-points, develop our technological infrastructure, manage the various
risks faced by the Bank and drive our program of innovation. This investment and others that the Bank is taking forward will ensure
that our business model is sustainable and remains compliant and secure to the benefit of our customers, employees, shareholders
and other stakeholders in the economy.
2. Environmentally Friendly Measures – Environmental Social Governance (ESG) Risk Management and Disclosures
The Non-Financial Disclosure relating to Environmental Social Governance are found in the ESG Risk Management Disclosures Report
on page 42 of this Annual Report.
3. Social Matters
a. Trade Unions
The Trade Union element within the BOV Group is still strong with a substantial number of the employees within the Bank being
members of a trade union. The two main trade unions within the Bank are MUBE and GWU. The GWU is currently the recognised
union with which the Bank negotiates its Collective Agreement. This year the Bank achieved this very important milestone of signing
two Collective Agreements for the clerical and managerial categories and the support staff. The Bank’s relationship with both unions
is very good and is characterised by unilateral communication and healthy discussions. In fact, the Bank has not experienced industrial
actions of any form in years.
b. Community Programme
COVID-19 changed the ways we interact with the community. We learned to maintain physical distance and interact via video
platforms.
As the pandemic began to recede, the more conventional methods of community engagement started to return. As Malta’s largest
Bank and a very active citizen of the community, the Bank continued supporting the various sectors of the Maltese Community while
treasuring some of the valuable discoveries made during the pandemic.
We are continuing to invest in the Arts, Heritage, Education, Sport, the Business Community and Charity to make a lasting impact
while focusing on finding better ways to serve our clients in this community.
The Bank’s Corporate Social Responsibility is described in further detail under Principle 12 within the Corporate Governance Statement
of Compliance within this Annual Report.
c. Relationship Management
Customer engagement resides at the very core of Bank of Valletta’s relationship driven value proposition. We do recognise the
importance of a strong customer engagement process and the significant impact that this has on customer loyalty. The Bank’s
engagement with its customers ensures that we remain highly relevant to their needs and service expectations as they dynamically
evolve over the stages of their lifecycle.
Within this context, the Bank’s business model is centred around its key personal and business customer segments. This model
is supported by a comprehensive suite of banking, financing and investment solutions that are delivered through various service
channels aiming to meet the customer service touch-point preferences of the Bank’s customers.
In fact, the Bank has a strong network of branches, as well as specialist investment and business centres spread across Malta and
Gozo, as well as a dedicated Customer Service Centre. Moreover, for those customers that prefer to self-service their banking
requirements, the Bank provides a suite of functionalities through its Internet and Mobile Banking Channels. The Bank’s various
customer touch-points are in turn serviced by highly trained human resources that strive to meet, and possibly exceed, the service
expectations of our customers.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
7
4. Employee Matters
The total headcount of all employees is 2,253 as at 31 December 2022. This includes genders across the whole spectrum as well
as employees working on both permanent and temporary basis. A similar breakdown of the total headcount of is also provided by
Nationality below.
The full-time employment rate is 98.1%. With regards to gender distribution, female employees account for 59.3%. Within the
Management cohort (category 4 and 5), female employees represent 55.1%, whilst the percentage of female Directors stands at
30.8%.
Presently, the percentage figure of multinational workforce increased to 2.75%.
Number Head Count
Number of employees by employment contract Permanent Temporary
By Gender Male Female Male Female
Employees in Management 423 509 13 2
Rest of Workforce 375 681 106 144
By Nationality Male Female Male Female
Maltese 776 1171 109 138
Foreign 22 19 10 8
The Bank uses various tools for screening new employees as part of its due diligence process, including Police Conduct, Safe Watch
and Credit Info screening, reference letters and others, as the case may be, whilst remaining within the ambit of the General Data
Protection Regulation (GDPR) requirements. The due diligence process in respect to recruitment and resourcing is laid down in the
Bank's Resourcing Policy. During the course of employment, employees are also expected to abide with other policies and guidelines,
primarily the Code of Conduct and Ethics Policy, the Conflict of Interest Policy, as well as other, role specific policies to ensure that
staff members abide with regulatory requirements. Compliance is ensured through regular internal and external audits and audit trails.
Non-compliance and breaches of the above, as well as other policies, may lead to sanctions as contemplated in the Discipline Section
of the collective agreement.
STAFF
COMPLEMENT
DIVIDED BY
GENDER
FEMALES
1336
MALES
917
STAFF
COMPLEMENT
DIVIDED BY GRADE
MANAGERS
511
MANAGERS
436
OTHER GRADES
825
OTHER GRADES
481
STAFF
COMPLEMENT
DIVIDED BY
EMPLOYMENT TYPE
PERMANENT
1190
TEMPORARY
146
PERMANENT
798
TEMPORARY
119
STAFF
COMPLEMENT
DIVIDED BY
EMPLOYMENT TYPE
PERMANENT
1190
TEMPORARY
146
PERMANENT
798
TEMPORARY
119
STAFF COMPLEMENT BREAKDOWN
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
8
The ratio of the average basic remuneration, by gender is €36,570 for the Male Workforce and €31,628 for the Female Workforce.
The reason for this variance is due to the difference in tenure, with that of Males being higher than Females (on average 2.5 years). The
ratio of the average basic remuneration by gender was worked out as a sum of female (or male) salary per capita/sum of all salaries per
capita. Moreover, the difference in percentage terms of the total remuneration (salary) is -8.8%. The difference in total remuneration
was worked out taking into consideration all levels of employment type.
The Bank is covered by two Collective Agreements which bind the relationship between the organisation and its employees. The
new Collective Agreement negotiated by the Bank with the recognised union for the clerical & managerial categories was signed on
the 23 March 2022 for the period 1 January 2022 to the 31 December 2024. The percentage of employees under this collective
agreement is 92%. The employees under collective agreement for the clerical & managerial categories includes all employees from
Category 1 up to Category 4 less those working on part-time basis and definite contract. The other Collective Agreement for support
employees was signed on the 30 November 2022.
The prevailing Collective Agreements include several Family Friendly measures ensuring employee matters are taken care of, including
but not limited to Reduced Hours Work Arrangements, Adoption/Fostering Leave, Bereavement Leave, Community Work Leave,
Health Insurance, Employee Welfare, Employee Wellness Allowance and Child Care & Summer School Subsidies.
A major first for the Bank during FY2022 was the launch of the Bank’s first Voluntary Occupation Pension Scheme (VOPS). All full-
time employees are eligible to enroll in this scheme, which provides for direct contributions by the Bank into the employee’s personal
pension pot. Under this workplace pension (Pillar 2), the Bank is effectively committed to match every employee’s contribution up to
a maximum of €2,400 per calendar year, starting from 2022. This commitment is guaranteed for at least five years.
The new Collective Agreement restructured the salary grid and levels within the Bank, removed additional layers which were inhibiting
career or salary progression whilst facilitated enhanced lines of communication and colleague empowerment. The Bank moved from
an eight Salary Level Grid to four Categories resulting in a salary structure that has been broadened significantly. As a result, high
performing employees will be able to progress their salary ahead of promotion opportunities. This will enable the Bank to be in a better
position to reflect market salary levels for more specialised roles needed for the future.
Several other initiatives were introduced during the reporting year with the specific intent of supporting employees’ wellbeing. These
include incentives for employees who are members of a voluntary NGO and for those who carry out at least 80% of their work
commute either walking, cycling, using public transport, electric vehicles, or carpooling. These benefits are consistent with the Bank’s
desire to support our colleagues, the community, and the environment as part of its wider ESG commitment.
The following tables depict the number of employees entitled to parental leave, the number of employees who have taken up this
family friendly measure, the latter also being compared to the total labour hours. The parental leave taken is 2.03% of total labour
hours.
Male Female Total
Parental leave 800 83,048 83,848
Total labour hours 1,749,800 2,372,760 4,122,560
0.046% 3.500% 2.034%
The Bank also has in place a number of policies ensuring respect for human rights including a Bullying Policy, a Sexual Harassment
Policy, a Code of Ethics, an Employee Grievance Policy and an Equality Policy.
The Bank had been awarded with the Equality Mark by the National Commission for the Promotion of Equality (NCPE) in 2011, a
reward that continues to be renewed to date. The Equality Mark recognises the Bank’s efforts to provide a healthy work environment
that is free from any type of discrimination. It also acknowledges the Bank’s responsibility to provide equal access to opportunities and
career development based on employees’ skills, irrespective of their gender and caring responsibilities.
Indeed, Bank of Valletta employs over the requested quota for employees with different abilities. The different ability employment
percentage at BOV is 1.4%.
Moreover, the Bank has an Employee Assistance Programme that assists employees in resolving personal or work-related problems
that may impact their ability to carry out their work-duties. The Bank, in conjunction with the Richmond Foundation, also offers its
staff members free Mental Health Care related services on a confidential basis. The Bank receives annual feedback from Richmond
Foundation regarding the number of employees making use of these services, which information confirms that employees are well
informed about these services and make use thereof when necessary. The Bank also holds a Mental Health Policy.
As part of its people strategy, the Bank gives significant importance to Human Rights matters in various ways, as follows:
Grievances
The Bank is highly committed in ensuring that all employees are given the opportunity to voice their personal and/or collective
grievance without any fear, hesitation, or doubt that this will have a negative impact on their employment and career. To this effect,
the Bank has a grievance policy in place to regulate and facilitate the process of addressing grievances. This involves the setup of an
independent board, which is well versed in the Bank’s Collective Agreement. The Board listens to and evaluates grievances received,
before taking a decision on the remedy to the case. During FY2022, the Bank did not register any official claim under the Grievance
Policy.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
9
Ad Hoc Boards
In those instances where People & Change is notified of any situation/s, either by employees of third parties, which might be adversely
affected by one or more aspects of the Bank’s daily operations, People & Change may also appoint an ad-hoc independent board
to investigate the matter and its veracity and propose a suitable action and way forward. There were no such instances in FY2022.
Discipline
The Bank requires all its employees to comply to its Code of Conduct and Ethics as well as with the proper standards of performance
and behaviour. These are intended to maintain the highest level of integrity both inside and outside the Bank. In the case of breaches of
these standards, the Bank takes the appropriate disciplinary action regulated by its Discipline Policy. Cases which merited disciplinary
action in FY2022 were of a minor nature and were addressed in line with the policy.
Bullying Policy
The Bank considers any unwelcome physical, verbal or non-verbal behaviour which denigrates, ridicules, or intimidates individuals as
unacceptable. Through this policy, the Bank wants to ensure that its employees are treated with respect and dignity, and that their
rights are safeguarded at all times. Moreover, the objective of this policy is to raise organisation-wide awareness on the impact of
bullying on fellow colleagues as well as the implications and consequences of such inappropriate behaviour. There were no reported
cases of bullying in FY2022.
Sexual Harassment Policy
The Bank is committed to provide a professional work environment for every individual that comes into contact with the organisation.
The Bank does not tolerate, condone or allow sexual harassment (verbal or physical) whether engaged in by fellow employees,
management, associates and partners or by outside clients or other non-employees who conduct business with the Bank. The Policy
also acknowledges that the victim of sexual harassment may experience emotional stress, physical stress and/or a negative change
in job performance. Therefore, necessary support through the Staff and Organisation Support Programme would be made available.
There was one claim of sexual harassment in FY2022, and this case is being investigated.
Performance Management Program
The Bank has in place a holistic performance management framework designed and implemented. The performance management
program builds on an updated policy, framework, and technology. The new Performance management program provides clear
deadlines and detailed guidelines for employees and managers to abide by to maximise their contribution and reward.
Diversity, Inclusion and Equality
During FY2022, we set up a Diversity and Inclusion Committee to ensure that we drive our Diversity and Inclusion policies in our
day-to-day actions and promoting various initiatives throughout the year.
During the reporting year, we launched the “Uniqueness Campaign”, aimed at showcasing the many faces of BOV and the uniqueness
of our people on our internal communication platforms. 2022 also saw the Bank extending its support to the LQBTIQ+ community
during Pride Week, by holding a Casual Day for its people. Every team member was encouraged to wear different colours to celebrate
their unique personalities.
We also organised four workshops to discuss burn-out and how we can fight it. Some ideas included taking stock of what’s on our
plate, finding time for ourselves, asking for help, learning to say “no” and “yes” more often, as well as exercising. The final message was
that “You cannot pour from an empty cup. Take care of Yourself first.”
The Bank is presently revising its existing Diversity, Equity, and Inclusion Policy aimed to be launched in 2023. We shall also be
sharing techniques or approaches for leaders, in a bid to promote greater understanding, compassion, and support for diversity, whilst
fostering teamwork across the Bank. Our main goal remains that of embedding respect for diversity, equality, and inclusion in the
Bank’s corporate culture.
5. Anti-Corruption and Bribery Matters
Bank of Valletta is committed to high standards of ethical behaviour and has zero tolerance towards bribery and corruption. A
dedicated Anti-Bribery and Corruption Function is set up within the AFC Department to support the business and stakeholders, the
economy and society, in general, to mitigate bribery and corruption risks through the Groups’ Anti-Bribery and Corruption Policy and
Procedures.
The Bank requires that all employees, including the Board of Directors and third-party providers to comply with the principles in the
policy, in the performance of their duties for or on behalf of the Bank. The policy requires all Bank entities and individuals to apply
controls in order to protect against bribery and corruption risks, particularly within activities such as the receiving and offering of gifts
and hospitality, hiring, third-party management, speaker events, sponsorships, donations, charitable giving, joint ventures, mergers,
and acquisitions. Specific procedures, systems, and controls to manage bribery and corruption risks covering these activities have
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
10
been outlined within the Bank’s procedures. Monthly controls are in place to review the position and escalate any issues as part of
the governance committees' reporting.
During 2022, the Anti-Bribery and Corruption function worked closely with the business to implement and enhance group-wide
systems and controls such as the Third-Party Risks Management system, the Gifts Register and Hiring control, to be in line with
international standards. Further focus was on delivering specific role training on activities that are considered as high risk to bribery
and corruption to employees who by the nature of their role, are exposed to such potential risks, while ensuring that all BOV
employees undergo mandatory annual Anti-Bribery and Corruption training.
6. Identification and Management of Principal Risks
In conducting its day-to-day business activities, the Bank is exposed to different risk types. The sound management and control of
such risks is important to ensure that the relative probability of risk event materialisation is minimised to the greatest extent possible
in the interest of institutional stakeholders.
Risk management and control is practised under the following configuration:
i. Top-level corporate governance
Board of Directors, various Board Committees such as the Risk Committee, Executive Committee, and other management
committees such as the Asset and Liability Management Committee (ALCO) and Internal Control and Risk Management Committee
(ICRMC);
ii. First line
Revenue-generating business units – such ingrained frontline risk management internal control measures, with dedicated risk
correspondents appointed to facilitate the implementation of the operational risk policies and the embedment of the Bank’s risk
culture across the network;
iii. Second line
This comprises various second-tier risk control and oversight functions such as Financial Risk Management, Risk Coordination
and Quality, Environmental Social and Governance, Credit Risk Management, Operational Risk Management, Compliance, Anti-
Financial Crime, Financial Control, and other back-office support functions (example: quality control);
iv. Third line
Independent assurance and constructive challenge by the Group Internal Audit.
The main risk types are outlined hereunder:
a. Credit Risk:
The risk of loss arising from default or credit quality deterioration of a customer or other counterparty to whom the Bank has either
directly provided credit or in respect of whom it has assumed a contractual obligation.
This risk is managed and controlled in various ways, such as through the regular review of credit policies to reflect the Bank’s Risk
Appetite Framework, credit scoring systems, an internal risk rating system supplemented by an Early Warning System to enable
proactive monitoring, a forward-looking expected credit loss model for quantifying provisions compliant with the IFRS 9 accounting
regime, stress testing relating to credit risk, and various other measures. Regular reporting on asset quality and credit risk is made to
the Risk Committee and the Board of Directors. The Bank’s underwriting processes include a four-eye approach for business credit
facilities and retail facilities of significant magnitude. The Bank has implemented more stringent policies relating to forbearance and
non-performing loans and has included more granular credit risk-related Key Risk Indicators in the Bank’s Risk Appetite Framework,
internal limits relating to single-name and sectoral concentration risk, and various other mitigants. The Bank is also implementing a
new credit rating model, making it more granular and intuitive. The outputs of the model will feed into the Bank’s reporting database,
the ECL model, as well as the Bank’s underwriting tool.
b. Operational Risk:
The Group defines operational risk, in line with the Basel framework, as the risk of loss resulting from inadequate or failed internal
processes, people, systems or from external events. It covers execution errors, fraud, legal, regulatory and conduct risk amongst its
sub-categories.
Operational risk spans across all departments, products and channels of the Group and encompasses the entire value chain, including
outsourcing service providers. For this reason, all employees are responsible for managing and controlling the operational risks
generated by their activities.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
11
The Group’s goal in terms of operational risk management is timely identification, assessment, and mitigation of material operational
risks. This is achieved via the use of core risk management tools such as Risk and Control Self-Assessments that are required to be
undertaken by every functional area of the BOV Group as well as Risk Event management, which allows to record and analyse failures
and losses and derive lessons learned.
The Group’s overall operational risk appetite is low; and this aims to protect the BOV franchise, to support its strategic objectives, and
ensure availability of services to support the local economy. Over the last year, the Bank has taken concrete measures to strengthen
the Operational Risk Management Framework, enhance the core set of policies and implement robust governance arrangements and
senior committees that are tasked to oversee the operational risk portfolio of the Group. Every area of the BOV Group has a dedicated
Risk Correspondent, an essential role to support the embedding of operational risk management across the whole organisation. The
Group continues to invest in its technical and human resources to meet and comply with the increased regulatory expectations and
to ensure that it has solid foundations to facilitate timely, accurate and meaningful operational risk reporting which is required to
monitor and take remedial action to address existing and emerging risks. A dedicated IT solution fully integrates the core elements of
operational risk thus having one single repository containing an inventory of key risks and controls including the functionality of action
management and risk event management.
c. Market Risk:
Market risk is the risk incurred as a result of changes in market factors such as interest rate, credit spreads, equity prices and foreign
exchange rates that affect the value of positions mainly in the investment portfolio. A robust and prudent Treasury Management
Policy ensures that responsible and well-informed risk-taking is practised by the Treasury function in line with the overall direction
provided by ALCO and Risk Management Committee. Other important processes include the analysis of counterparty credit risk,
credit valuation adjustment, and the development of a methodology to quantify credit spread risk and equity price risk on the part
of the investment portfolio which is reported in the audited accounts at fair value (i.e. on a mark-to-market basis). The Bank has its
own Interest Rate Risk in the Banking Book (IRRBB) model to quantify risk arising under different stressed scenarios as prescribed by
applicable regulatory dicta and which is premised on two approaches: the Economic Value of Equity approach and the Earnings Based
approach.
d. Liquidity Risk:
Liquidity risk is the risk that the Group will be unable to meet its obligations when they fall due or can only obtain them at an
unreasonably high cost.
A range of liquidity risk management tools are used to monitor liquidity risk such as maturity ladder gap analysis and the regular
updating of key metrics Including: the Liquidity Coverage Ratio, the Net Stable Funding Ratio, the Loans-to-Deposit Ratio, the Maturity
Transformation Metric and various others. Furthermore, over and above the Internal Liquidity Adequacy Assessment Process (ILAAP)
which is thoroughly reviewed every year, the Bank conducts robust stress testing on liquidity in line with the stress testing programme
which is reviewed and updated on an annual basis. Other important elements within the liquidity risk management toolkit include the
Contingency Funding Plan which is regularly updated and tested by means of simulation exercise and a prudent Liquidity Risk Policy
which is also updated periodically.
e. Solvency Risk:
The Group ensures that it is adequately capitalised to meet all regulatory requirements to achieve its strategic objectives in line with
its risk appetite, and to be able to withstand unforeseen macroeconomic downturns. The Group insists that capital should be managed
in a transparent and consistent manner to ensure the most efficient outcome for shareholders, whilst at the same time be compliant
with all relevant regulatory conditions.
As part of the Internal Capital Adequacy Assessment Process (ICAAP) the Bank monitors the capital position on a regular basis and
updates its Capital Plan to ensure that there is enough capital not only to meet Pillar 1 risks – credit, operational, and market – but
also other Pillar 2 risks such as IRRBB, concentration risk, equity risk, and others.
Stress testing which is performed on a quarterly basis, aims to ensure that the Bank’s capital position is able to withstand severe
macroeconomic downturns and/or other adverse events in terms of important capital related ratios, including the Common Equity Tier
1 capital, total Capital Adequacy Ratio and Leverage ratio. This was successfully tested in May 2022 when, following the out-of-court
settlement of the Deiulemar litigation case, the Bank still maintained a strong capital position continued to exhibit a reasonable surplus
over the Overall Capital Requirements supplemented by Pillar 2 Guidance.
f. Regulatory Compliance Risk
The risk of non-compliance with regulatory obligations as well as supervisory expectations which may result in administrative or
disciplinary sanctions, or of material financial loss, due to failure to comply with the provisions governing the Group’s licensable
activities. By ensuring that these rules are observed, the Group works to protect its customers, shareholders, counterparties, and
employees.
This is conducted in alignment with the Group strategy as operating a business model based on prudence and sound governance, and
to continue strengthening the corporate ethos based on integrity, fairness and transparency.
Directors’ Report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
12
i. Financial Crime Compliance
The BOV Group is committed to fight against financial crime and to set up and implement a programme to identify, understand and
mitigate the financial crime risk. The financial crime risk encompasses:
a. money laundering and terrorist financing,
b. breaches of sanctions, and
c. bribery and corruption.
The Bank maintains a thorough anti-financial crime (AFC) risk assessment in order to identify, understand, manage and mitigate
inherent AFC risks. Risk mitigations measures are designed and implemented to control adequately and effectively those inherent
risks. Inherent and residual risks are managed in line with the Bank’s risk appetite.
The Bank continues to invest heavily in a transformation programme and today is able to combat financial crime much more effectively
and sustainably over the long-term.
BOV remains committed to implement a robust financial crime compliance programme.
ii. Regulatory Compliance
Complying with the regulatory obligations and internal codes is the responsibility of all Group employees who must demonstrate
compliance and integrity in their daily tasks. The Bank operates a Three Lines of Defence governance model with the first line
responsible for identifying and managing risk as part of its accountability for achieving objectives.
The Second Line provides the necessary guidance, support and training to enable compliance risks to be managed by the First Line.
The Third Line of Defence provides independent assurance.
Group Compliance is an independent risk control function headed by the Group Chief Compliance Officer and constitutes the second
line of defence for compliance risk. The Group Chief Compliance Officer reports to the Chief Executive Officer and to the Compliance
and Anti Financial Crime Committee, which is a Board Committee. The Bank’s Money Laundering Reporting Officer and a Group Data
Protection Officer report to the Group Chief Compliance Officer.
g. Key Risk Indicators
The Group has in place a set of key performance indicators (KRI) that are quantifiable measures which ensure that material risks are
kept within defined thresholds as formalised in the Risk Appetite Framework. A selection of key metrics is tabulated hereunder.
Solvency CET1 21.79%
CAR 25.39%
LCR 426.03%
Liquidity NSFR 217.23%
Profitability ROE* 2.7%
*Post Tax
Various non-financial KRIs enable the Directors also to evaluate the risk profile exhibited on other risks such as reputational, compliance,
anti-financial crime, operational, and risk culture.
The KRIs are reported on a regular basis in the Risk Appetite Framework Dashboard which includes targets set to facilitate comparison
between progress achieved towards attainment of strategic objectives and the actual risk profile exhibited vis-a-vis: ‘within target’,
‘within tolerance’, ‘limit’.
Other than as disclosed in note 43 to the financial statements, there were no subsequent events which would have otherwise
warranted an adjustment to or disclosure in these financial statements.
Statement of Responsibility by the Directors pursuant to Capital Markets Rule 5.68
We, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable
accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Bank and its
subsidiaries included in the consolidation taken as a whole, and that this report includes a fair review of the performance of the
business and the position of the Bank and its subsidiaries included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
Signed on behalf of the Bank’s Board of Directors on 30 March 2023 by Gordon Cordina (Chairman) and Kenneth Farrugia (Chief
Executive Officer) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report
and Accounts 2022.
Corporate Governance Statement of Compliance
Bank of Valletta p.l.c.
Annual Report 2022
13
A. INTRODUCTION
Pursuant to the Capital Markets Rules, Bank of Valletta p.l.c. (the Bank) as a company whose equity securities are listed on a regulated
market, should endeavour to adopt the Code of Principles of Good Corporate Governance (the Code) contained in Appendix 5.1 to
Chapter 5 of the Capital Markets Rules. In terms of Capital Markets Rule 5.94, the Bank is obliged to prepare a report explaining
how it has complied with the Code. For the purposes of the Capital Markets Rules, the Bank is hereby reporting on the extent of its
adoption of the Code.
The Board of Directors (the Board) is committed to the values of truth, transparency, honesty and integrity in all its actions. The Board
strongly believes that the Bank benefits from having in place more transparent governance structures and from improved relations
with the market which enhance market integrity and confidence. The Board acknowledges that the Code recommends principles for
the Board and the Bank’s management to pursue objectives that are in the interest of the Bank and its shareholders.
Good Corporate Governance is the responsibility of the Board, and in this regard the Board has adopted a corporate decision-making
and supervisory structure that is tailored to suit the requirements of the Bank’s constitutional documents as well as its size, nature and
operational needs. In addition, while the structure provides flexibility and an efficient decentralisation of selective decision-making,
it concurrently provides a system of checks and balances. The Board believes that any structure which is adopted must be geared to
meet the necessary standards of accountability and probity, and considers that the structure which it has adopted does so.
As demonstrated by the information set out in this Statement, together with the information contained in the Remuneration Report, the
Bank believes that it has, save as indicated herein, in the section entitled Non-Compliance with the Code, throughout the accounting
period under review, applied the principles and complied with the provisions of the Code. In the Non-Compliance section, the Board
indicates and explains the instances where it has departed from or where it has not applied the Code.
B. COMPLIANCE WITH THE CODE
Principle 1: The Board
The Board’s role and responsibility is to provide the necessary leadership, to set strategy and to exercise good oversight and
stewardship. The Board is composed of two Executive Directors and eleven Non-Executive Directors, including the Chairman. This
mix of Executive and Non-Executive Directors on the Board enables the Non-Executive Directors to exercise their monitoring function
over the management and the executive arm of the Board at the level of the Board. Moreover, the fact that the Chief Executive Officer
(CEO) is also an Executive Director on the Board, enables the Board to be in receipt of timely and appropriate information in relation
to the business of the Bank and Management’s performance. As a result, the Board can contribute effectively to the decision-making
process, whilst at the same time exercising prudent and effective controls.
The Board delegates specific responsibilities to a number of Committees, notably the Audit Committee, the Risk Committee, the
Compliance and Anti-Financial Crime Committee, the Nominations and Remuneration Committee and the Environmental, Social and
Governance Committee (ESG Committee), each of which operates under formal Terms of Reference approved by the Board.
Further details in relation to the Committees and the responsibilities of the Board is found under Principles 4 and 5 of this Statement.
Principle 2: Chairman and Chief Executive Officer (CEO)
The Bank’s organisational structure incorporates the position of a CEO. The position of the Chairman and that of the CEO are occupied
by different individuals. Their respective positions have been defined with specific roles rendering these positions completely separate
from one another. These specific roles are identified within the Board Terms of Reference and in their contract of engagement. This
separation of roles of the Chairman and the CEO avoids concentration of authority and power in one individual.
The Chairman is responsible to lead the Board and to set its agenda. The Chairman ensures that the Board’s discussions on any issue
put before it goes into adequate depth, that the opinions of all the Directors are taken into account and that all the Board’s decisions
are supported by adequate and timely information. The Chairman ensures that the CEO develops a strategy which is agreed to by
the Board.
On the other hand, the CEO, besides being an Executive Director, leads the Bank’s Executive Committee, which is the highest
executive decision-making body within the Bank.
More information on the Bank’s Executive Committee can be found under the section entitled Executive Committees, within this
Statement.
Principle 3: Composition of the Board
The Board considers that during the year under review the size of the Board, whilst not being too large as to be unwieldy, was
appropriate, taking into account the size of the Bank and its operations. The combined and varied knowledge, experience and skills
of the Board members provided a balance of competencies that are required and add value to the proper functioning of the Board.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
14
Independence of Directors
During Financial Year 2022, the Board consisted of ten Independent Non-Executive Directors.
During the year under review, the Board included also one Non-Independent Non-Executive Director and two Executive Directors (as
indicated on pages (xiii) to (xv) of the Annual Report). In determining the independence or otherwise of its Directors, the Board has considered,
amongst others, the notion of independence as contained in the Code, the Bank’s own practice as well as general good practice principles.
Moreover, the Non-Executive Directors have to prepare a written annual declaration of their independence to the Board in line with Code
Provision 3.4 declaring that they undertake:
• to maintain in all circumstances his/her independence of analysis, decision and action;
• not to seek or accept any unreasonable advantages that could be considered as compromising his/her independence; and
• to clearly express his/her opposition in the event that s/he finds that a decision of the Board may harm the company.
The Board believes that, by definition, employment with the Bank rendered Director James Grech as Non-Independent from the Institution.
However, this should not, in any manner, detract from the said Non-Independent Director’s ability to maintain independence of analysis,
decision and action at all times. Moreover, having considered Mr Grech’s role and duties within the Bank as a Bank employee, the Bank
deemed Mr Grech to be a Non-Executive Director.
Appointment of Executive Directors
The appointment of Executive Directors is regulated by article 24 of the Articles of Association. In accordance with the said article, the CEO
of the Bank shall ex officio become an Executive Director by virtue of his office and shall remain in office until the tenure of office as CEO.
The Non-Executive Directors shall appoint at least one other Executive Director on the Board from amongst the Senior Management and
may also appoint a third Executive Director if the Non-Executive Directors consider it in the best interest of the collective knowledge and
competence of the Board to do so. To date, one additional Executive Director has been appointed and that position is held by the Chief Risk
Officer, which is in line with the Bank’s strategic initiatives to highlight risk management even at Board level.
Appointment of Non-Executive Directors
Article 23.3 of the Bank’s Articles of Association specifies that the Board of Directors shall consist of a maximum of three (3) Executive
Directors and a maximum of nine (9) Non-Executive Directors. In the event of the co-option to the Board, pursuant to article 27A, of a
maximum two (2) additional Non-Executive Directors, the maximum number of Non-Executive Directors shall be eleven (11).
The appointment of the Non-Executive Directors is governed by articles 25 and 27A of the Articles of Association and appointments may
be made as follows:
a. By Qualifying Shareholders – namely members holding at least 10% of the issued share capital of the Bank having voting rights, that
are entitled to nominate, for the approval of the Nominations and Remuneration Committee, one person for each 10% voting shares
held; and
b. By Non-Qualifying Shareholders not having a Qualifying Shareholding, but who individually or in aggregate hold not less than €50,000
in nominal value of shares having voting rights in the Bank and who are entitled to make recommendations for the approval of the
Nominations and Remuneration Committee; or
c. By the Nominations and Remuneration Committee itself seeking the recruitment of fit and proper persons having the right attributes
that can add value to the Board of Directors.
d. By the Non-Executive Directors pursuant to Article 27A of the Articles of Association as explained in further detail below.
Save for the provisions in paragraph (d) above, all Non-Executive Directors are appointed by the Bank’s shareholders during the Annual
General Meeting.
Appointment of Additional Non-Executive Directors by Co-Option
Article 27A of the Bank’s Articles of Association provides for the additional appointment of Non-Executive Directors by Co-Option.
The objective of this article is to address situations where, notwithstanding the efforts that may be made by the Nominations and
Remuneration Committee to ensure that the Board of Directors of the Bank has the necessary mix of skills and experience, there could arise
situations where those efforts could not yield the appropriate mix and combination of skills, or where the regulator could require certain
skills which may not be present on the Board. In these situations, the Board would need to react in a relatively short time to ensure that the
composition of the Board fulfils its ultimate aim. Accordingly, this Article empowers the Board of Directors (specifically, the Non-Executive
Directors) to co-opt up to a maximum of additional two Non-Executive Directors to sit on the Board of Directors of the Bank, only in those
instances where the nine Non-Executive Director positions were already filled, but the then current Board complement did not have the
composition required by regulation or in the opinion of the Nominations and Remuneration Committee, the Board still did not have the
appropriate mix of collective skills, knowledge and experience. Such co-opted Non-Executive Directors would be appointed for a three (3)
year term with eligibility for re-appointment.
The two (2) Non-Executive Directors who were co-opted to the Board pursuant to Article 27A are Alfred Mifsud and Diane Bugeja.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
15
Nominations and Remuneration Committee
All Directors, irrespective of the manner in which they are proposed, can only take office following the approval of their nomination
by the Nominations and Remuneration Committee. In this context, the Nominations and Remuneration Committee is the organ that,
after having scrutinised the list of candidates to ensure that the Board will have the appropriate collective knowledge, experience and
competence, will then place the list of approved candidates for Board recommendation for election at the Annual General Meeting.
When discussing new appointments to the Board, the Nominations and Remuneration Committee ensures that the skills, knowledge
and experience which already exist in current Board members, as well as those needed on the Board, are evaluated. In the light of
such evaluation the Nominations and Remuneration Committee prepares a description of the role, skills, experience and knowledge
needed from directors.
The Nominations and Remuneration Committee informs the Chairman, and the other Non-Executive Directors, about the expected
time commitment in their roles on the Board of Directors of the Bank, and that they undertake to dedicate sufficient time for Board
and Board Committee meetings, preparation ahead of such meetings, as well as training (both induction and ongoing training). The
other significant commitments, including time involvement, of the Chairman and the Non-Executive Directors, are disclosed to the
Nominations and Remuneration Committee before their appointment. All Directors may not take additional directorships on boards of
other entities without the prior approval of the Nominations and Remuneration Committee.
No member of the Nominations and Remuneration Committee is present while his nomination as a director of the Bank is discussed
by the Nominations and Remuneration Committee.
Rotation of Directors
The Bank has a system of rotation of Directors aimed at ensuring a certain level of continuity within the Board of Directors. The system
of rotation of Directors contemplates the retirement of one-third of the Non-Executive Directors in each year, with the remaining
two-thirds of the Board retaining office. This is aimed at providing stability of policy-making and implementation. Those Directors
whose turn it is to retire from office, pursuant to the rotation system, will be eligible for reappointment, subject to approval by the
Nominations and Remuneration Committee. The Directors to retire first shall be determined as follows:
a. Those Non-Executive Directors who wish to retire and who do not seek reappointment prior to the full term of their appointment;
otherwise,
b. To the extent that there are no Non-Executive Directors who wish to retire and who do not seek reappointment prior to the full
term of their appointment, those who retire first shall be the Non-Executive Directors who have been longest in office, including
by virtue of re-election, since their first election, but as between persons who became Directors on the same day or in the event
that the duration in office cannot be properly determined those to retire shall (unless they otherwise agree among themselves)
be determined by lot.
A retiring Director shall only be eligible for re-election provided that such person did not occupy the office of Non-Executive Director
for an aggregate period of more than twelve (12) years in any period of fifteen (15) years.
Pursuant to Article 28.2 of the Bank's Articles of Association, one-third of the Bank’s Non-Executive Directors shall retire at the
Annual General Meeting (AGM).
During the Bank’s AGM held on the 2 June 2022, Article 28.3 of the Articles of Association was revised. The main changes which were
proposed to Article 28.3 were intended to:
a. clarify that the Non-Executive Directors required to retire in any given year are those who have been in office longest since the
date of their election or re-election; and
b. make clear that if, in any given year, the Non-Executive Directors who have been in office longest and are due to retire by rotation,
have occupied office for less than two years, said directors shall not retire by rotation.
The practical impact of (b) is that if, in any given year, all the Non-Executive Directors due to retire by rotation - by virtue of their
holding office longest – have occupied office for less than two years, no Non-Executive Directors will retire by rotation in that year.
Pursuant to Article 28, as revised during the last AGM held on 2 June 2022, one third of the directors who are due to retire by rotation
– by virtue of their holding office longest – are those who have occupied office for more than 2 years including by re-election or re-
appointment. The Chairman Dr Gordon Cordina is the director who has been longest in office (appointed in October 2020). The other
most senior Directors who have been longest in office, including persons who became Directors on the same day, due to retire during
the 2023 AGM are Kevin J. Borg, Elizabeth Camilleri and Godfrey Swain (appointed on the Board in May 2021) as well as Alfred Lupi
and Antonio Piras (re-appointed on the Board in May 2021).
Directors Alfred Lupi and Antonio Piras have decided not to seek re-election/re-appointment for another term during the forthcoming
AGM scheduled for the 25 May 2023.
The Chairman Dr Gordon Cordina has been re-appointed as Chairman of the Bank for another term. Dr Cordina has been re-
appointed Chairman by the Government of Malta as one of the Qualifying Shareholders of the Bank.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
16
Director Antonio Piras was appointed Director by UniCredit SpA, as one of the Qualifying Shareholders of the Bank. In view that
Antonio Piras has decided not to seek re-appointment as Director during the forthcoming AGM, UniCredit SpA exercised their right to
appoint a director of the Bank and in this respect have nominated Nicola Angeli for the role of Director on the Board.
Therefore, the Bank has one vacancy for Non-Executive Director to be filled during the 2023 AGM. On the 2 February 2023, the
Bank issued a call for interested persons who would like to submit their nomination for appointment as Non-Executive Director on
the Board pursuant to Article 25 of its Articles of Association. The Bank received a nomination from one (1) individual. An assessment
of such nomination, as well as the nomination of Nicola Angeli by UniCredit SpA, has been carried out by the Nominations and
Remuneration Committee.
Number of Directorships held by members of the Board of Directors as at end December 2022, including the appointment of the
Board of Bank of Valletta p.l.c.:
Name of Director
Number of Directorships held:
Executive Director (ED) &
Non-Executive Director (NED)
Gordon Cordina (Chairman)* 3 NED and 1 ED
Kenneth Farrugia** 2 NED and 1 ED
Miguel Borg*** 5 NED and 1 ED
Alfred Lupi*** 4 NED
Alfred Mifsud 1 NED and 1 ED
Anita Mangion* 1 NED
Diane Bugeja 1 NED
Antonio Piras 2 NED
James Grech 3 NED
Deborah Schembri 1 NED
Kevin J Borg 1 NED
Godfrey Swain** 7 NED
Elizabeth Camilleri 1 NED
* Gordon Cordina and Anita Mangion are not subject to the provisions of Article 91 of the CRD IV (Capital Requirements
Directive) and Article 14 (3) (a) of the Banking Act, 1994 Chapter 371, Laws of Malta) as regards the number of directorships
held by them in view of their appointment in a national representative capacity.
** Two of the directorships held by Kenneth Farrugia and five of the directorships held by Godfrey Swain refer to directorships
of companies in the same groups, namely MAPFRE MSV Life p.l.c (50% owned by Bank of Valletta p.l.c.) and Vallcara Limited,
Solvanova Limied and Eight Points Limited (all 3 companies owned by the same shareholders), and therefore count as a single
directorship pursuant to Article 14 2A (c) (1) of the Banking Act.
*** Two of the directorships held by Alfred Lupi and Miguel Borg refer to direct directorships of companies in the same group (BOV
Group) and therefore count as a single directorship pursuant to Article 14 2A (c) (1) of the Banking Act. Pursuant to Article
14 (3) of the Banking Act, two other directorships held by Miguel Borg are deemed to be directorships where the director is
directly or indirectly appointed to represent the interests of the Government, and hence are not considered for the purposes
of Article 14 2A (b) of the Banking Act.
Principles 4 and 5: The Responsibilities of the Board and Board Meetings
The Board meets approximately once a month, unless further meetings are required for the Board to discharge its duties effectively.
The Board discusses and decides upon matters relating to the Bank’s business. During the financial year under review, the Board met
twenty-two (22) times.
The Board regularly reviews and evaluates corporate strategy, major operational and financial plans, risk policies, performance
objectives which are benchmarked against industry norms and business alternatives. The strategy, processes and policies adopted for
implementation are regularly reviewed by the Board so that corrective measures can be taken to address any deficiencies and ensure
the future sustainability of the enterprise. The Board also monitors implementation and corporate performance within the parameters
of all relevant laws, regulations and codes of best business practice. The Board has a formal schedule of matters reserved for its
decision and also delegates specific responsibilities to Board Committees.
The Board ensures that it has the appropriate policies and procedures in place which guarantee that the Bank and its employees
maintain the highest standards of corporate conduct, including compliance with applicable laws, regulations, business and ethical
standards.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
17
Notice of the dates of upcoming meetings, together with supporting material, are circulated well in advance to Directors to allow
ample time to appropriately consider the information prior to the next board meeting. Furthermore, advance notice is also provided
of ad hoc meetings to allow sufficient time to re-arrange commitments.
After each Board meeting, minutes that faithfully record attendance, matters discussed and decisions taken, are prepared and
circulated to all Directors as soon as practicable after the meeting.
Members of Senior Management attend Board Meetings by invitation on a regular basis.
Directors’ attendance for Board Meetings during FY 2022 was as follows:
Directors’ Name Independent Directors/ Non-Independent
Directors/ Executive Directors (ED)/
Non-Executive Directors (NED)
Number of Meetings held: 22
Meetings attended by
Directors:
Gordon Cordina (Chairman) Independent NED 22
Stephen Agius* Independent NED 8 (out of 10)
Kevin J. Borg Independent NED 21
Miguel Borg**** ED 20 (out of 20)
Diane Bugeja Independent NED 18
Elizabeth Camilleri Independent NED 21
Kenneth Farrugia** ED 5 (out of 5)
James Grech Non-Independent NED 19
Rick Hunkin**** ED 14 (out of 15)
Alfred Lupi Independent NED 22
Anita Mangion Independent NED 22
Alfred Mifsud Independent NED 20
Antonio Piras Independent NED 19
Deborah Schembri*** Independent NED 12 (out of 12)
Godfrey Swain Independent NED 19
* Stephen Agius resigned during the Annual General Meeting held on 2 June 2022.
** Kenneth Farrugia replaced Rick Hunkin and was appointed as CEO and Executive Director on the 12 October 2022 upon
receipt of Regulatory Approval.
*** Deborah Schembri was appointed to the Board during the Annual General Meeting held on 2 June 2022. Her appointment
was subject to Regulatory Approval which was duly received on 20 October 2022. Pending receipt of Regulatory Approval,
Ms Schembri attended Board meetings as part of her induction process.
**** Both the ex-Chief Executive Officer (Rick Hunkin) and the Chief Risk Officer (Miguel Borg) were excused from attending two
Board Meetings which were convened solely for Non-Executive Directors.
Board Committees
The Board also delegates specific responsibilities to Committees, which operate under their respective formal Terms of Reference. In
this respect, the Board has established the following Committees:
The Audit Committee
The Audit Committee’s Terms of Reference include the monitoring of the financial reporting process, the effectiveness of the Bank’s
internal control, internal audit and risk management systems and the audit of the Bank’s annual and consolidated accounts. The Audit
Committee is also responsible to oversee the establishment of accounting policies by the Bank. The primary purpose of the Audit
Committee is to protect the interests of the Bank’s shareholders and assist the Directors in conducting their role effectively so that the
Bank’s decision-making capability and the accuracy of its reporting and financial results are maintained at high level at all times. The
Audit Committee has established internal procedures and monitors these on a regular basis. The Audit Committee also scrutinizes and
approves related party transactions in line with the Related Party Transaction Policy. The Audit Committee considers the materiality
and the nature of the related party transactions carried out by the Bank to ensure that the arms’ length principle is adhered to at all
times. The Audit Committee, in line with the Capital Markets Rules, is involved in and monitors the external audit processes, performs
oversight on the internal audit function and facilitates communication between the two.
During the period under review, the Committee has conducted its annual self-assessment, confirming its effectiveness in adding
significant value to the oversight function of the Board.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
18
In terms of Capital Markets Rules 5.117, 5.118 and 5.118A, the Audit Committee is composed of the following three Non-Executive
Directors, all of whom are considered as independent of the Bank, since they are free from any business, family or other relationship
with the Bank or its management that may create a conflict of interest such as to impair their judgement. The Non-Executive Directors
appointed on the Audit Committee whom the Bank deems to be competent in accounting by virtue of them being professional
accountants, are Alfred Lupi and Deborah Schembri.
1. Alfred Lupi FCCA, FIA, BSc Econ is a professional accountant with an economics degree and is currently engaged in consultancy
services. He is appointed Chairman of the Audit Committee by the Board and is the Director whom the Bank considers as
competent in accounting. Alfred Lupi is independent of the Bank. More detail on his brief resume is found on pages (xiii) to (xv)
of the Annual Report.
2. Deborah Schembri is a Certified Public Accountant. She holds a Masters in Business Administration from Henley Management
College (UK) and she holds an Advanced Diploma in Retirement Provision pursued with the UK Pensions Management Institute.
Ms Schembri possesses successful experience in strategy formulation, corporate governance, business and product development,
customer relationships and employee engagement. She has over twenty years’ experience in the financial services and various
other local industries. Currently, Ms Schembri holds the role of Group Chief Financial Officer of a major local diversified group
of companies operating locally and internationally and also sits on committees within the Malta Chamber of Commerce and the
Institute of Financial Services Practitioners. She also worked with one of the Big Four audit firms. More detail on her brief resume
is found on pages (xiii) to (xv) of the Annual Report.
3. Alfred Mifsud has occupied various senior positions during his career. Mr Mifsud was the Deputy Governor of the Central Bank of
Malta, Chairman of Crystal Finance Investments Limited, Governor on the Board of Malta Financial Services Centre (which is now
the MFSA) and Chairman of Mid-Med Bank. More detail on his brief resume is found on pages (xiii) to (xv) of the Annual Report.
Mr Mifsud is independent of the Bank and is considered as competent to be a member of the Audit Committee.
In view of the diverse skills and professional experience of each of the Audit Committee Members, the Bank considers the Audit
Committee as a whole to have the adequate competence and to meet the independence criteria as required by the Capital Markets
Rules 5.118.
Audit Committee Members’ Attendance during FY2022 was as follows:
Members
Meetings Held: 10
Meetings attended by member:
Alfred Lupi (Chair) 10
Anita Mangion (Member until end September 2022) 8 (out of 8)
Alfred Mifsud 9
Deborah Schembri (Appointed on 20 October 2022) 2 (out of 2)
The Chief Executive Officer, the Chief Risk Officer and the Group Chief Internal Auditor attend Audit Committee meetings. The
Chief Financial Officer, the Executive Risk Management and a representative of the External Auditors attend the Audit Committee
meetings by invitation. KPMG are the Group’s statutory auditors. A designated person from the Office of the Company Secretary acts
as Secretary to the Audit Committee.
The Nominations and Remuneration Committee – This is considered under the Remuneration Report.
The Risk Committee
The Risk Committee assists the Board in assessing the different types of risks to which the organisation is exposed. This Committee is
responsible for the proper implementation and review of the Group’s risk policies related mainly, but not restricted to, Credit, Market
and Operational Risks. It reports to the Board on the adequacy, or otherwise, of such policies. The Committee is also responsible to
review delegated limits, together with an oversight of the Group’s monitoring and reporting systems, to ensure regular and appropriate
monitoring and reporting on the Group’s risk positions.
Risk Committee Members’ attendance during FY2022 was as follows:
Members
Meetings Held: 13
Meetings attended by member:
Alfred Mifsud (Chair) 13
Antonio Piras 12
Godfrey Swain 13
The Chief Executive Officer, the Chief Risk Officer and the Group Chief Compliance Officer attend Risk Committee meetings. A
designated person from the Office of the Company Secretary acts as Secretary to the Risk Management Committee.
The above information on the Risk Committee, together with the information contained in the Pillar 3 disclosures which are available
on the Bank’s website, is also to be considered as a disclosure for the purposes of Regulation 575/2013 of the European Parliament
and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
19
The Compliance and Anti-Financial Crime Committee
The primary objective of the Compliance and Anti-Financial Crime Committee is to assist and guide the Board of Directors in the
discharge of their obligations imposed from time to time by regulation in the area of financial services and in light of the Bank acting
as a credit and financial institution licensed to provide services under different laws and within the framework of the Compliance
Function as defined in the Compliance Charter and as approved by the Board of Directors. The Committee is also responsible to assist
the Bank in combating financial crime and money laundering activities.
Compliance and Anti Financial Crime Committee Members’ attendance during FY2022 was as follows:
Members
Meetings Held: 5
Meetings attended by member
Diane Bugeja (Chairperson) 4
Kevin J. Borg (Member until end March 2022) 2 (out of 2)
Gordon Cordina 5
Anita Mangion (appointed Member in April 2022) 3 (out of 3)
The Chief Executive Officer, the Chief Risk Officer, the Group Chief Compliance Officer and the Money Laundering Reporting Officer
attend the Compliance and Anti-Financial Crime Committee meetings. A designated person from the Office of the Company Secretary
acts as Secretary to the Compliance and Anti-Financial Crime Committee.
The ESG Committee
In late 2021, the Board discussed the importance of prioritising ESG, noting that ESG is a key theme for the coming years, to be
placed at the same level as second line of defence functions. Hence, it was decided to set up a Board ESG Committee effective from
1 January 2022.
The primary purpose of the ESG Committee is to secure board-level oversight of strategic climate and environmental-related risks and
opportunity management, as well as strengthening the governance structure in relation to ESG factors. The Committee acts as the
approval Board body for the decisions in relation to the Sustainability strategy and its implementation, and senior line management
for points of escalation for decisions relating to climate work underway across the business line of the Bank. The ESG Committee is
chaired by the Bank’s Chairman and is composed of three other Non-Executive Directors, one of whom is also a member of the Risk
Committee. Representatives from relevant business functions are invited to attend ESG Committee meetings.
The ESG Committee Members’ attendance during FY2022 was as follows:
Members
Meetings Held: 7
Meetings attended by member
Gordon Cordina (Chair) 7
Anita Mangion 7
Elizabeth Camilleri 6
Godfrey Swain 7
Suitability Policy
The Bank’s Suitability Policy is applicable to all Directors, Executive Committee Members and Key Function Holders within the BOV
Group (collectively termed as “Subject Persons”). The aim of the Suitability Policy is to ensure the suitability of Board of Directors and
the Executive Committee), as well as other Key Function Holders, not just at the inception of their appointment but also throughout
the duration of their appointment. In this context, suitability refers to the ability of all Subject Persons to ensure, at all times, a
sound and prudent management of the financial institution, viewing, in particular, the safeguarding of the financial system and the
interests of respective clients, depositors, investors and other creditors. Subject Persons must comply with requirements of fitness and
appropriateness, professional qualification, independence of mind and time-commitment (availability).
Board Diversity Policy
The Board Diversity Policy (the Policy) has been drafted in line with European Securities and Markets Authority (ESMA) and European
Banking Authority (EBA) guidelines on the assessment of suitability of members of the management body and key function holders,
as well as in line with the requirements of Article 88 of the CRD V (Capital Requirements Directive).
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
20
The Policy provides that the Board aspires to maintain the following diversity objectives:
i. Gender:
The Board is committed to maintain at least three (3) female Board members and aims to achieve a minimum of 33% female
representation on the Board by end of 2023. During the 2022 AGM held on the 2 June 2022, the Board increased its female
participation from three (3) Board members to four (4) Board members. As a result, as at end of Financial Year 2022, the Bank had
31% female representation on the Board.
ii. Age:
Pursuant to the Bank’s Articles of Association, the age limit for all Non-Executive Directors shall be 75 years. In addition, the Board
shall endeavour to ensure that not all directors are in the same decade of their lives.
iii. Professional Experience:
Directors should preferably have at least five (5) years professional experience in at least one of the following sectors: financial,
banking, accounting and auditing, risk management, governance, compliance and anti-financial crime and information technology.
iv. Educational background:
Directors should have a sound educational background with a qualification in any of the areas of banking, business administration,
economics, risk management, accountancy and auditing, and law.
v. Geographical provenance:
Given the size of Malta as a jurisdiction, coupled with the fact that BOV’s level of international activity is very limited, for BOV,
geographical provenance is not a relevant diversity factor. This notwithstanding, the Bank shall where possible, endeavour to bring
international experience to the Board table, which can be achieved by having directors on the Board with prior relevant international
professional background.
For FY2022, the Nominations and Remuneration Committee prepared a report for the Board outlining the process implemented in
relation to appointment of Board members on the Board. Such report also included the measurable objectives set for implementing
the Policy, as well as the progress made towards achieving those targets. The BOV Diversity Report for FY 2022 detailed the process
relating to the:
i. Appointment of the Non-Executive Directors during the 2022 AGM, whereby Director James Grech was re-appointed on the
Board and Deborah Schembri was appointed Director on the Board.
ii. Appointment process of CEO and Executive Director: Following the previous CEO’s decision not to seek re-appointment for
another term, the Nominations and Remuneration Committee embarked on a recruitment exercise for a new CEO which was
carried out over a period of nine months and led to the appointment of Kenneth Farrugia as the new CEO of the Bank.
iii. Appointment process of Non-Executive Directors Co-Opted on the Board whereby pursuant to Article 27A of the Bank’s Article
of Association, Directors Alfred Mifsud and Dr Diane Bugeja were re-appointed on the Board.
The BOV Diversity Report also included the progress made by the Bank during 2022 to maintain or improve its Board diversity
objectives and targets as defined in the Policy. For FY2022, the Bank has met its Board diversity objectives and targets in all areas.
Learning and Self-Development Policy
In line with the Bank’s strategic intent, Learning and Development Centre acts as a key enabler of continuous capability-building for
a future-proof Bank. Our mantra is ‘Learn, Grow, and Empower Others’, and we focus on building people resource liquidity through
skilling, shaping the future talent pipeline through continuous upskilling, and nurturing great leaders through robust leadership
development programmes.
The Bank as a licensed Further and Higher Education Institution (License Number: 2018-003) by the Malta Further and Higher
Education Authority (MFHEA), offers a wide range of accredited courses as well as blended learning solutions and bespoke development
programmes tailored to our employees’ needs and career aspirations.
The Learning and Development team provides bespoke and specialised training programmes through its Onboarding and Customer
Centricity, Personal Development, Leadership Development & Executive and Advisory pillars. The Bank also has an e-learning platform,
intended to give its employees the opportunity to develop themselves further, both at the workplace and in the comfort of their home.
The easing of COVID-19 restrictions has led to a return to daily classroom-based training at the Bank’s Training Centre in Gżira for
employees from across all the functions within the Bank. Apart from allowing for greater interaction among participants, this return to
the classroom has been an opportunity for new colleagues to meet face-to-face for the first time, as well as an ideal opportunity for
old friends to simply catch up. The following table depicts the average hours of training undertaken by all employees during FY2022.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
21
Hours
Average number of hours of training (per person) that the Group’s employees
have undertaken during FY2022
28
Total number of hours of training during FY2022 57,939
In the last quarter of 2022, a Learning Needs Analysis has been conducted to ensure effective learning provision and skills across the
Bank and to keep the business agile and responsive to future changes. Its main goal is to develop employees’ skills, improve employee
retention and address business and regulatory exigencies in an increasingly demanding and rigorous regulatory landscape. Internally
developed training programs are blended with available external training opportunities to broaden employees’ existing skill sets, whilst
bringing in new ways of thinking and problem-solving.
The Bank remains committed to keep supporting its employees both professionally and academically, thus it commits the necessary
resources and time to ensure continuous development through the Learning and Self-Development Policy. This Policy encourages all
Group employees, both those on indefinite and definite employment, to continuously seek self-development. It offers assistance by
way of grants, study loans and study/dissertation leave in line with the Bank’s present business needs.
Performance Management Process
The Bank has a performance management process which is aligned and consistent with the Bank’s structure and objectives. The
performance management system guides all employees to work towards the same goals, so that everyone is able to deliver, both in
terms of numbers and behaviours.
The Bank’s performance management process aims to deliver open and continuous communication through various channels for both
appraisers and appraisees, provide improved templates, hands-on training, and clearly defined timelines. In fact, it features quarterly
and mid-year reviews for every appraisee, followed by a calibration exercise by December 2022, with the final review being concluded
by March 2023.
During December 2022, employees were requested to complete their self-appraisal and reflect on their respective achieved targets,
agree on a performance rating with their appraiser, as well as take this opportunity to discuss areas of future focus and objectives for
2023.
Percentage of Employees Eligible for the Performance Management Programme in 2022 organised by Category
CATEGORY FEMALE MALE
5 38% 62%
4 60% 40%
3 66% 34%
2 41% 59%
1 54% 46%
The table above displays the percentage female to male ratios for employees that are eligible under the Group’s performance
management programme for financial year 2022. The information presents aggregates for both definite and indefinite employment
contracts organised by category.
Starting off from financial year 2022, employees on probation are now included as part of the performance management programme
subject to successful completion of their respective probationary term.
The total number of employees participating in the Achieve performance framework is 2029 equivalent to 96% of the total workforce.
Suitability of Board of Directors, Executive Committee Members and Key Function Holders
The Nominations and Remuneration Committee undertakes a suitability assessment of members proposed to be appointed on the
Board of Directors or on the Executive Committee, as well as individuals proposed to be appointed for Key Function Holder positions.
This comprehensive assessment is based on the individual’s knowledge, skills and expertise. Due consideration is also given to criteria
of reputation, conflicts of interest, independence of mind and time commitment.
During Financial Year 2022, the Nominations and Remuneration Committee, considered the suitability assessment exercise which was
carried by an independent third party which was engaged to assess the fitness and properness of members of the Board of Directors,
Executive Committee and Key Function Holders (the Subject Persons) for FY 2021. The objective of this suitability assessment was to:
i. Perform an individual suitability assessment for the Board of Directors, Executive Committee and Key Function Holders in relation
to: their reputation, knowledge, skills, and experience to perform their duties; acting with honesty, integrity and independence of
mind; and time commitment to their role;
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
22
ii. Perform a collective suitability assessment of the Board of Directors and Executive Committee to assess the collective skillset,
expertise and diversity of the Board of Directors and the Executive Committee.
The assessment exercise was based on the detailed guidelines issued by the European Securities and Markets Authority (“ESMA”)
and the European Banking Authority (“EBA”), specifically Directives 2013/36/EU and 2014/65/EU (ESMA 35-36-23) and EBA/
GL/2021/06 both issued on 2 July 2021 (hereinafter referred to as “the Guidelines”).
From this assessment exercise it emerged that all Subject Persons were deemed to be individually and collectively suitable.
Executive Committee
The Executive Committee is entrusted with the overall responsibility for monitoring and managing the Bank’s financial and operational
performance, overseeing the execution of the Bank’s strategy, monitoring customer experience and taking the necessary decisions so
as to ensure that the Bank is operating with the applicable rules and regulations.
During FY2022, the Bank has reviewed its organisation structure and reviewed the composition of the Executive Committee by amalgamating
roles and removing others, which will enable the Executive Committee to deliver the Bank’s strategy. With expertise in accountancy, risk,
economics, business, risk & compliance, IT, digitization, the Members of the Executive Committee are deemed to have the necessary
collective knowledge, skills and competence to manage the business of the Group, exert oversight of the Group’s operations, recommend
and follow a strategic plan for the Bank, oversee the Group’s financial, business and operational performance, establish and maintain a risk
appetite framework, organised the allocation and adequacy of the Group’s human resources and ensure that the Bank has a reliable and
sustainable IT infrastructure, amongst other functions.
The Bank’s Executive Committee meets at least on a monthly basis. It is chaired by the Chief Executive Officer and the Chief Risk Officer
acts as Deputy Chair. The other members of the Committee are:
• Chief Financial Officer
• Chief Operations Officer
• Chief Business Banking Officer
• Chief Wealth Management Officer
• Group Chief Compliance Officer
• Chief Technology Officer
• Chief Digital, Strategy and Transformation Officer
Apart from the above Members, in 2022, the Executive Committee also included the position of Chief Marketing & Customer Intelligence
Officer, who later during the year, voluntarily relinquished his position and duties. Moreover, in 2022 the Chief People and Change Officer
resigned from the role and left the Bank. A vacancy was issued in February 2023 to fill this position. Meanwhile, an Acting Chief People and
Change Officer was appointed to fill in the role. He attends Executive Committee meetings as an observer.
Later in the year, following the appointment of Kenneth Farrugia as the new Chief Executive Officer for BOV, the roles of the Chief Retail
Banking Officer, previously occupied by Mr Farrugia and the role of Chief Wealth Management Officer, were amalgamated.
The Group Chief Internal Auditor has an open invitation to attend Executive Committee meetings at her discretion. Other Chief Officers and
Bank Executives attend Executive Committee Meetings by invitation.
More detail on the Executive Committee members and their experience is found in their brief CV on page (xvi) of this Annual Report.
Besides the Executive Committee, the Bank also has the following seven (7) Executive Committees:
• Asset and Liability Management Committee
• Internal Control and Risk Management Committee
• Credit Committee
• Credit Sanctioning Committee
• Product Governance and Pricing Committee
• Change Management Committee
• Data Council
More detail on each of these Executive Committees is found below.
The Asset Liability Management Committee (ALCO) is an integral part of the Bank. The Committee takes an integrated view in managing
the Group’s assets and liabilities to achieve an optimal balance between risk and return. ALCO evaluates the asset and liability cash flows,
and the management of integrated exposures at a consolidated level, to enable it to give strategic direction to the business. Consideration
is given, inter alia, to the funding and investment strategy, solvency, liquidity and interest rate risks. ALCO monitors the liquidity and capital
position of the Group on a continuous basis by evaluating and approving the Internal Liquidity Adequacy Assessment Process (ILAAP)
and Internal Capital Adequacy Assessment Process (ICAAP) respectively on an annual basis and making use of forecasts to ensure that
business and regulatory requirements are met. Additionally, the Committee ensures that the investment of the Bank’s funds is conducted in
accordance with the approved investment strategy and exercises executive authority in the area of interest rate management by setting the
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
23
interest rates payable on deposit products. The Committee further serves as a Steering Committee for the Bank’s Recovery and Resolution
Plan. ALCO meets at least once a month to analyse financial information and to ensure cautious management of balance sheet and market
risks. The Committee is chaired by the Chief Financial Officer and is composed of members of Senior Management.
The Internal Control and Risk Management Committee (ICRMC) was set up with the responsibility for the oversight and coordination of
risk management, internal controls, compliance, and AML/CFT across the BOV Group. The ICRMC was originally constituted in February
2020 as an amalgamation of the Group Risk Compliance Committee and the Anti-Money Laundering Committee. It continued to meet
regularly during 2021 and in 2022. In November 2021, an ICRMC effectiveness review exercise was conducted wherein the Committee’s
structure and modus operandi were revisited to determine the best way forward. Such led to the revision of the ICRMC terms of reference
in February 2022 which, inter alia, included the institution of five ICRMC subcommittees relating to:
a. Operational Risk Management Forum;
b. Outsourcing Risk Management Forum;
c. Environmental, Social, and Governance (ESG) Risk Management Forum;
d. Financial Crime Compliance Management Forum; and
e. Compliance Management Forum.
The abovementioned exercise streamlined the ICRMC to render it more effective. This was achieved mainly through rationalised
membership, devolving the approval of policies categorized as ‘Level 2’ under the Group’s ‘Governance Framework Policy’ to a sub-
committee (save for well-defined exceptions), inducing more concise reporting, and the possibility of allocating more time to specific
items on the redacted agenda.
The ICRMC is responsible for the proper implementation and review of the Group's risk and internal control policies. It reports to the
Board on the adequacy, or otherwise, of such policies. The ICRMC is also responsible to advise and support the Executive Committee
in the formulation of the Bank's risk appetite and to advise and support in the monitoring of the Group's actual and future risks. The
ICRMC meets at least once a month to advise and support the Board in assessing the different types of risks to which the Group is
exposed, whilst also taking a forward-looking perspective in respect of emerging risks. The Committee is also responsible to review and
discuss issues raised by the control functions on the effectiveness of the internal control systems. The Committee provides effective
management oversight over the Group's main risks, AML and Compliance initiatives as well as the progress on any remediation action
required by the supervisory authorities. The ICRMC is chaired by the Chief Risk Officer, whilst the Chief Compliance Officer serves as
the Deputy Chairperson. All other Executive Committee members (except the Chief Digital, Strategy and Transformation Officer and
the Chief People and Change Officer) are members of the ICRMC.
The Credit Committee is responsible for assisting the Executive Committee in implementing and monitoring the credit strategy, Non-
Performing Loan (NPL) strategy, level of credit provisioning and debt management. It advises and supports the Executive Committee in
the formulation of the Bank’s risk appetite and strategy on credit and also approves policies in relation to credit in line with the Policy
Governance Framework. The Credit Committee is chaired by the Chief Risk Officer whilst the Chief Executive Officer acts as Deputy
Chair. The other members of the Committee are the Chief Business Banking Officer, Chief Retail Banking Officer, Chief Financial
Officer, Head Credit Underwriting and Head – Business Banking – Reporting and Control. The Group Chief Internal Auditor Officer is
in attendance, whilst other members of Senior Management are invited to attend the Committee as and when required.
The Credit Sanctioning Committee (CSC) was established to sanction/decide on credit facilities both in the performing and non-
performing categories. The CSC is a management committee reporting to the Executive Committee with escalation to Board of
Directors in line with the terms of reference. The Credit Underwriting Session, for assets within the performing category handles
connected exposures above €10,000,000 whilst the Non-Performing Loans session, decides on Non-Performing exposures above
€5,000,000. Both sessions of the CSC are chaired by the Chief Risk Officer. Non-voting representatives from Corporate Business and
Risk may attend the Committee meetings by invitation.
The Product Governance and Pricing Committee is entrusted with ensuring that the Bank has in place a product governance and
pricing framework:
• a product approval matrix inclusive of delegated authority outline;
• a periodic review program of all products and services; and
• assessment of product/service pricing and approval of changes in fees and charges.
In discharging its responsibilities, the Committee will ensure that both existing and new products are analysed in terms of target
market, appropriateness, testing validation of methodologies have been considered, appropriateness of distribution channels for the
target market, that any potential conflicts of interest are managed and that pricing adequately covers the risk and costs involved.
The Committee is composed of the Chief Executive Officer, Chief Financial Officer, Chief Retail Banking Officer, Chief Risk Officer,
Group Chief Compliance Officer and the Chief Business Banking Officer, Chief Wealth Management Officer, Chief Operations Officer
and Chief Digital, Strategy and Transformation Officer.
The Change Management Committee’s (CMC) primary role is to develop, oversee and direct the Bank’s major change programmes in
order to fulfil the strategic objectives. This includes reviewing, prioritising, establishing, resourcing, allocating capital investment and
monitoring all the Bank’s major strategic initiatives.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
24
The above responsibilities are achieved by ensuring alignment and support of all selected prioritised initiatives with the major goals,
strategy and overall direction of the Bank. In addition to this, the CMC ensures that all initiatives currently in execution are well-
optimised and provide good value and return on investment. Apart from maintaining continual oversight of in-flight programmes, the
Change Management Committee resolves resource conflicts as well as redundancies between or among potential new investment
and continuing initiatives.
The Committee, which meets on a monthly basis, is chaired by the Chief Digital, Strategy and Transformation Officer and is composed
of members of the Executive Committee and other Senior Management.
The Data Council was established in early 2022 by the Executive Committee and was entrusted with overseeing all aspects of data
management controls and governance within the Bank, including the development oversight, and implementation of data strategy,
data systems, data Confidentiality, Integrity, Availability (CIA), data ownership and governance, and data plans and initiatives while
managing the upstream and downstream impacts of data changes.
The Council meets on a monthly basis and is composed of Chief Executive Officer, Chief Financial Officer, Chief Technology Officer,
Chief Digital, Strategy and Transformation Officer, Chief Risk Officer, Chief Retail Banking Officer, Chief Wealth Management Officer,
Chief Business Banking Officer, Chief Operations Officer, Information Security Officer, Data Protection Officer, Chief People &
Change Officer, Group Chief Compliance Officer, Head of Data Governance, Head of Enterprise Architecture and Transformation.
Succession Policy
During the first quarter of 2022, the Bank established a Succession Policy for the BOV Board of Directors. The objectives of this
Succession Policy are primarily to:
• establish guidelines and processes for a planned, orderly succession of Directors (both Executive and Non-Executive Directors)
and filling any unplanned vacancy on the Board;
• enable new Board members to effectively succeed the Board’s departing members and to contribute to governing the organization
as quickly as possible;
• ensure that collectively the members of the Board have the knowledge and skills necessary to performance the governance role
effectively whilst taking into account the objectives and targets defined in the Bank’s Diversity Policy;
• effectively prepare Board members for leadership positions on the Board and prevent the risk of key people dependencies at the
governing level.
The Nominations and Remuneration Committee is responsible for the Succession Policy for the BOV Board of Directors and the
Succession Policy for Executive Committee members and Key Function Holders. Alignment with Code Provision 4.2.7 of the
Capital Markets Rules is achieved given that the Chairman of the Board of Directors is also co-chairman of the Nominations and
Remuneration Committee. Moreover, the Succession Policy for the BOV Board of Directors is approved by the Board of Directors,
upon the recommendations of the Nominations and Remuneration Committee.
The Bank has also established a Succession Policy for Executive Committee members and Key Function Holders. This policy aims to
define and sustain the Bank's management and governance profiles through time, lessen any emerging gaps, identify and develop new
talent in order to mitigate any risks that may arise from the change in the executive function and leadership whilst securing a sound
and cautious management of the Bank during planned or inadvertent transitional periods.
Given that Succession Planning is a vital organisational practice aimed at ensuring that a succession plan is established to provide
continuity across the Bank, the Bank is presently in the final stages of completing the review process in relation to succession across
all tiers. To address such a requirement, the need was felt for the Group to establish a framework for succession planning across
Categories 1 to 5. Such a plan is important for the Group as it helps preserve its corporate memory and knowledge that would
otherwise be lost because of key individuals retiring, getting promoted to a different role or in cases of attrition. The succession
planning process is the main driver in identifying the best profile candidates that will form part of an in-house talent pool that cuts
across the whole organisation.
Principle 6: Information and Professional Development
The CEO is appointed by the Board and is inter alia responsible for the recruitment and selection of Senior Management and consults
with the Nominations and Remuneration Committee and with the Board on the appointment of Senior Management. Training of
management and employees is a priority and internal and external training is provided by the Bank’s Training Centre specifically set up
for this purpose. The Bank also has a system in place which monitors management and staff morale.
On joining the Board, a Non-Executive Director is provided with briefings by the CEO and Chief Officers on the activities of the Bank.
All Directors are provided with appropriate induction training and a dossier that, apart from incorporating relevant information on the
Bank, also includes the Bank’s Policy documents.
The Bank has a Board Governance Manual which provides a clear overview of the governance arrangements in place for the BOV
Board of Directors. It also has the objective of showing how various key elements of governance, oversight, risk management and
control link together and serves as a useful reference point for existing Directors and an induction manual for Directors newly
appointed to the Board.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
25
Directors may, where they judge it necessary to discharge their duties as Directors, take independent professional advice on any
matter at the Bank’s expense. Directors have access to the advice and services of the Company Secretary, who is responsible for
ensuring adherence to Board procedures as well as good information flows within the Board and its Committees.
In addition, the Company Secretary directs members of the Board to seminars or conferences which serve as professional development
for Directors in the discharge of their functions on the Board and on the Committees.
During the reporting year, Directors attended training relating to the following:
• Personal, business and wealth management banking
• Risk management
• Anti-Financial Crime, Anti-Money Laundering and Combating Financial Terrorism
• Non-Executive Directors operations
• IFRS 17
• Asset quality and expected credit losses
• Emerging technologies and climate change
• Compliance
• Environmental, Social and Governance (ESG)
Directors are also required to attend mandatory e-learning modules on a number of subjects including Anti-Financial Crime (AFC),
Information Security Awareness, conflicts of interest, market abuse and GDPR.
Principle 7: Evaluation of the Board’s Performance
During the period under review, the Nominations and Remuneration Committee undertook an evaluation of the performance of the
Board, the Chairman and the Board Committees. The evaluation exercise was conducted through a Board Effectiveness Questionnaire
(the “Questionnaire”) prepared by the Nominations and Remuneration Committee. Directors, including the Executive Directors, were
required to complete this Questionnaire.
The outcome result of the Board Effectiveness Questionnaire was a positive one. The Board’s main strengths are in the following
areas, where improvement was noted when compared to previous year:
i. Board Committees
ii. Conflicts of Interests
iii. Induction and Training
iv. Corporate responsibility
v. Quality and timeliness of information
From the Questionnaire, the need for improvement in the following areas was noted:
i. Succession planning - Some progress in this respect was made in 2022 with the implementation of the Board Succession Policy.
ii. Managing the Board relationship with others
iii. Reaction to events
The result of the Board Effectiveness Questionnaire was analysed by the Nominations and Remuneration Committee and discussed
at Board level.
Furthermore, in accordance with the Board Diversity Policy, as part of the annual evaluation of the Board and its’ Committees
effectiveness, the Board members are required to take into consideration the balance of all diversity aspects mentioned in the Board
Diversity Policy and the level of their diversification as a whole. In order to assess the Board’s effectiveness during FY2022 with
respect to the diversity aspects in the Board Diversity Policy, relating to gender, age, professional experience, educational background
and geographical provenance, the Directors were required to complete a brief questionnaire. The Board scored very well with respect
to all diversity aspects.
Principle 8: Committees
The Nominations and Remuneration Committee is dealt with under the Remuneration Report which also includes the Remuneration
Statement of Compliance in terms of Code Provisions 8.A.3 and 8.A.4, as well as in line with 8.B.7.
Principles 9 and 10: Relations with Shareholders and with the Market and Institutional Shareholders
The Bank recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure
that its strategies and performance are well understood.
The Board is of the view that during the year under review, the Bank has communicated effectively with the market through a number
of company announcements and press releases.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
26
The Bank also communicates with its shareholders through the Bank’s Annual General Meeting (AGM) (further detail is provided under
the section entitled General Meetings). During 2022, the AGM held on 2 June 2022 was held remotely and was streamed live on
the Bank’s website. Albeit the shareholders could not physically attend the AGM, shareholders could participate during the AGM by
appointing the Chairman as their proxy and indicating their voting preferences. Moreover, shareholders had the right to ask questions,
ahead of the AGM and to have such questions answered by the Directors during the AGM. A full report of the meeting, including
answers to shareholders questions, was uploaded on the Company’s website within 48 hours from termination of the meeting.
On the 15 June 2022, the Bank held an information session for its shareholders at the Hilton Hotel St. Julian’s. Several topics related
to the operations of the Bank were discussed during the session, which was attended by a substantial number of shareholders. The
Board of Directors, headed by the Chairman, answered all questions put forward by shareholders, with particular questions related
to the agreement reached in the Deiulemar case. Information was also provided on the Bank’s business plans for the short and long
term, as well as how the Bank assisted the country’s economy during the pandemic.
The Chairman and the CEO also ensure that sufficient contact is maintained with major shareholders to understand issues and
concerns. During these meetings no market sensitive information is disclosed.
The Chairman also ensures that arrangements are made for all Directors to attend the AGM and for the Chairman of the Audit
Committee, Nomination and Remuneration Committee to be available to answer questions at the AGM.
Apart from the AGM, the Bank communicates with its shareholders by way of the Annual Report and Financial Statements, by
publishing its results on a six-monthly basis and through an annual newsletter to shareholders. The Bank also issues the Interim
Directors’ Statement for Quarter 1 and Quarter 3 of its financial year. In addition, the Bank’s website (www.bov.com) contains
information about the Bank and its business, including an Investor Relations Section.
Furthermore, the Bank holds a meeting for stockbrokers and financial intermediaries, usually on a quarterly basis, to coincide with
the publication of its Financial Statements and the Interim Directors’ Statement. Other meetings with stockbrokers and financial
intermediaries are held as necessary. From time to time, the Bank also holds meetings with the Malta Association of Small Shareholders.
The Office of the Company Secretary maintains two-way communication between the Bank and its investors. Individual shareholders
can raise matters relating to their shareholding and the business of the Group, at any time throughout the financial year and are
given the opportunity to ask questions at the AGM or submit written questions in advance. In terms of Article 18.3 of the Articles
of Association of the Bank and Article 129 of the Companies Act, 1995 (Chapter 386, Laws of Malta), the Directors may call an
Extraordinary General Meeting on the requisition of shareholders holding not less than one-tenth of the paid-up share capital of the
Company.
Principle 11: Conflicts of Interest
Should an actual or potential conflict arise during the tenure of a directorship, a Director must disclose and record the conflict in full
and in time to the Board and subsequent reporting to the Compliance department is required. A Director shall not participate in a
discussion concerning matters in which s/he has a conflict of interest unless the Board finds no objection to the presence of such
Director. In any event, the Director shall refrain from voting on the matter.
A director having a continuing material interest that conflicts with the interests of the Group, should take effective steps to eliminate
the grounds of conflict. Each director should declare to the Group his or her interest in the share capital of the Group and should only
deal in such shares as allowed by law and in accordance with internal policies.
Directors’ interest in the share capital of the Bank as at 31 December 2022 was as follows:
Beneficial Interest*
Miguel Borg 7,635 shares
Diane Bugeja 29,310 shares
Alfred Lupi 34,204 shares
Kenneth Farrugia 94,054 shares
*Includes any shares held by spouses or partners
No Director has any other benefit or non-beneficial interest in the share capital of the Bank.
Principle 12: Corporate Social Responsibility
Bank of Valletta prides itself as being an instrumental player in Malta’s sustainable development - responsible and caring towards the
communities it operates in.
The Corporate Social Responsibility (CSR) and Sustainability Strategy adopted by BOV is focused on delivering long-term benefits to
the community in which we operate, creating a positive impact on society covering areas such as the Arts and Culture, Heritage, the
Environment, Philanthropy, Sports and Education.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
27
Our present CSR programme is based on the following pillars:
Pillar 1 - Environmental, Resource and Climate Sustainability
Pillar 2 - Education and Financial Literacy
Pillar 3 - Support Vulnerable Members of Society
Pillar 4 - Cultural Heritage and Environmental capital of the Maltese Islands
Pillar 5 - Ethical and Responsible Behaviour
Pillar 1 - Environmental, Resource and Climate Sustainability
Humans have been carbonising our planet for millennia, which undeniably has seen us impact the planet negatively, resulting in the
warming of the atmosphere, ocean, and land. The Bank is a strong advocate in embracing and promoting environmental stability, both
in its operations and its people, and its impact on the economy as the largest Bank on the islands, partaking in various initiatives to
greatly reduce our carbon footprint and waste, while helping maintain a stable environment for future generations.
Pillar 2 - Education and Financial Literacy
Academic Education and Financial Literacy play a very important role throughout a person’s lifetime. Education provides stability in
life and is a precursor to financial security that tends to lead to better employment with the required skills for constant improvement.
Rising life expectancies increase strains on pension and social welfare systems, placing more responsibility on individuals in planning
their savings and investments to ensure a comfortable level of living both before and after retirement.
The Bank supports various projects and initiatives aimed at promoting literacy and education from a very young age and using all its
available channels to educate people about the importance of financial literacy and security.
Pillar 3 - Supporting vulnerable members of society
A society is only as strong as its most vulnerable members. The number of vulnerable people is on the increase, and it is our duty as
an active and responsible player within the community.
Assisting the vulnerable is a priority for Bank of Valletta, through partnerships and collaborations with local organisations as well as
promoting philanthropy and solidarity with our extensive workforce.
Pillar 4 - Cultural heritage & environmental capital of the Maltese Islands
Cultural heritage does not consist of money or property, but of culture, values and traditions. It represents our history and our identity
- our bond to the past, to our present, and the future. With thousands of years of history, this heritage is a result of the influence of
different societies that have come into contact with our Islands and adaptation over time.
The Bank is at the forefront in helping to protect this unique heritage for future generations, helping improve accessibility and at the
same time promoting creativity.
Pillar 5 - Ethical and Responsible Behaviour
Ethical behaviour is essential for a society to function properly. Acting ethically promotes other people’s confidence both in personal
and work relationships.
Besides the firmly established, Business and Sport follow a number of unwritten rules driven by key virtues such as fairness, integrity,
respect and responsibility.
Bank of Valletta partners with various Business Organisations and Sporting Associations to help promote these virtues, promoting a
healthy lifestyle and a positive work-life balance while building trust, respecting dignity and treating others equally.
Further details about how the Bank is continuing to play a leading role in the communities in which it operates and the actions taken
to bring about real change in our society can be found in the Corporate Social Responsibility section of this publication.
C. NON-COMPLIANCE WITH THE CODE
Principle 6 (Code Provision 6.4.4)
A Succession Policy for Executive Committee Members and Key Function Holders was established in Q1 2022. The implementation
of such policy commenced during the last quarter of 2022 and is ongoing. The Bank is presently in the final stages of completing the
review process in relation to succession planning across all tiers of the organisation.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
28
Principle 9 (Code Provision 9.2, 9.3 and 9.4)
Code Provision 9.2 provides that minority shareholders should be able to call special meetings on matters of importance to the
company. However, a minimum threshold of share ownership, as established in the Memorandum or Articles of Association of the
company, should be set up before a Group or an individual may call a special meeting. The Bank does not have such a threshold
included in its Memorandum or Articles. Nevertheless, as required in terms of the Capital Markets Rules, shareholders holding not less
than 5% of the voting issued share capital of the Bank may request the Bank to include items on the agenda of a general meeting, of
the Bank and to table draft resolutions for items included in the agenda of such general meeting.
Code Provision 9.3 requires the Bank to have in place a mechanism to resolve conflicts between minority shareholders and controlling
shareholders. Despite the fact that the Bank does not have such a mechanism in place, the Bank maintains an open dialogue with all
its Qualifying and Non-Qualifying shareholders to ensure no such conflicts arise.
Code Provision 9.4 requires that minority shareholders should be allowed to formally present an issue to the Board of Directors.
Although the Bank does not have a policy in terms of this Code Provision, the Bank maintains an open dialogue with the Malta
Association of Small Shareholders.
These Code Provisions were not applicable to the Bank during the financial year.
D. INTERNAL CONTROL
Authority to manage the activities of the Bank is delegated to the CEO within the limits set by the Board.
The Board is ultimately responsible for the Bank’s systems of internal control and for reviewing their effectiveness. Such systems
are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable as
opposed to absolute assurance against material misstatement or loss. Through the Audit Committee, the Risk Committee and the
Compliance and Anti Financial Crime Committee, the Board reviews the process and procedures to ensure the effectiveness of the
Group’s systems of internal control, which are monitored by the Group Internal Audit Department.
The key features of the Group’s systems of internal control are as follows:
Organisation
The Group operates through the Board of Directors of subsidiary companies and equity-accounted investee companies with clear
reporting lines and delegation of powers.
Control Environment
The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations.
Group policies and employee procedures are in place for the reporting and resolution of fraudulent activities. The Group has an
appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Group
objectives.
Risk Identification
The Management of each of the Group members is responsible for the identification and evaluation of key risks applicable to their
areas of business. The risk management model adopted by BOV is the classic “three lines of defence model”, wherein, the first line
of defence is constituted by the functions that own and manage risks, namely the business units; the second line is constituted by
the functions that oversee risks, namely Risk Management, Compliance and Anti-Financial Crime; and the third line is constituted by
Internal Audit, which is the function that provides independent assurance. The Risk Management function, within the second line
of defence, falls under the responsibility of the Chief Risk Officer, and operates within a wider Bank structure that reflects the risk
appetite and risk management philosophy articulated by the Board of Directors.
Reporting
Functional, operating and financial reporting standards are applicable to all entities of the Group. These are supplemented by operating
standards set, as required, by the Bank’s Board and the Executive Committee. Systems and procedures are in place to identify, control
and to report on the major risks including credit risk, changes in the market prices of financial instruments, liquidity, operational error
and fraud. Exposure to these risks is monitored by ALCO and by the Risk Committee. The Board receives periodic management
information giving comprehensive analysis of financial and business performance including variances against budgets.
E. CAPITAL MARKETS RULE 5.97.5
Whilst Capital Markets Rule 5.97.5 is not applicable, the information relating to the shareholder register required by this Capital
Markets Rule is found in the Directors’ Report.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
29
F. GENERAL MEETINGS
The general meeting is the highest decision-making body of the Bank. A general meeting is called by twenty-one days’ notice and it is
conducted in accordance with the Articles of Association of the Bank.
The AGM deals with what is termed as “ordinary business”, namely, the receiving or adoption of the annual financial statements,
the declaration of a dividend, if any, the appointment of the auditors, Board authorisation to fix the auditors’ emoluments and the
election of Directors. Other business which may be transacted at a general meeting (including at the AGM) will be dealt with as special
business.
All shareholders registered in the Shareholders’ Register on the Record Date as defined in the Capital Markets Rules, have the right to
attend, participate and vote in the general meeting. A shareholder or shareholders holding not less than 5% in nominal value of all the
shares entitled to vote at the general meeting may request the Bank to include items on the agenda of a general meeting and/or table
draft resolutions for items included in the agenda of a general meeting. Such requests are to be received by the Bank at least forty-six
days before the date set for the relative general meeting.
A shareholder who cannot participate in the general meeting can appoint a proxy by written or electronic notification to the Bank.
Every shareholder represented in person or by proxy is entitled to ask questions which are pertinent and related to items on the
agenda of the general meeting and to have such questions answered by the Directors or by such persons as the Directors may
delegate for that purpose. Pursuant to Legal Notice 288 of 2020, during the 2022 AGM, shareholders could not attend physically for
the AGM and shareholders could only participate during the AGM by appointing the Chairman of the Meeting as their proxy.
Annual General Meeting 2022
Pursuant to Legal Notice 288 of 2020, the Annual General Meeting was held remotely on 2 June 2022. Notwithstanding that
shareholders could not attend physically for the AGM, shareholders could participate during the AGM by appointing the Chairman of
the Meeting as their proxy and indicating their voting preferences. Shareholders were also granted the right to submit any questions
they might have in writing to the Company Secretary, ahead of the Meeting. These questions were subsequently responded to by
the Chairman during the AGM itself, which was also streamed live on the Bank’s website. The questions and answers of questions
submitted by shareholders prior to the AGM, were uploaded on the Bank’s website.
The Annual General Meeting held during 2 June 2022 discussed and approved three ordinary resolutions – special business. These
related to the following matters:
1. Renewal of Authority to issue shares:
Article 3.2 of the Articles of Association provided that the Company may, pursuant to and in accordance with the Companies Act
(Cap.386 of the Laws of Malta) generally and unconditionally authorise the directors, during the prescribed period (five years) to
exercise all the powers of the Company to issue and allot Equity Securities under such terms and conditions including (but not limited
to) with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or
otherwise, up to the prescribed amount. Provided that such an authorisation shall be valid for a period of five (5) years renewable for
further periods of five years each.
The authority of the Board was granted during the Extraordinary General Meeting of the Company held on the 27 July 2017 for a
period of five (5) years and expired on the 26 July 2022. Thus, the resolution discussed and approved at the AGM held on 2 June 2022
approved the renewal of this authority for a further five (5) year period, with effect from the 2 June 2022 to expire on the 1 June 2027.
The purpose of this authority was to grant flexibility to the Board of Directors to act in accordance with this authority without the
need to convene a general meeting of the Company.
2. Revised Remuneration Policy for Directors:
Pursuant to Chapter 12 of the Capital Markets Rules, the Shareholders of the Company are granted the right to vote on the
Remuneration Policy for Directors and any material change thereof. The Remuneration Policy for Directors was approved by the
Shareholders of the company during the Annual General Meeting held on 26 November 2020. The Remuneration Policy for Directors
(the “Policy”) was revised and thus submitted for the Shareholders Approval. The main changes to the Policy were as follows:
a. The annual remuneration of Non-Executive Directors (NEDs) and the Chairman is increased by €2,000, and thus from the current
€20,500 to €22,500 for NEDs, and from the current €80,000 to €82,000 for the Chairman.
b. The Executive Directors on the Bank’s Board of Directors will not receive Board honoraria in addition to their executive role
package.
c. The Nominations and Governance Committee and the Remunerations Committee have merged into one committee, namely the
Nominations and Remuneration Committee. This change in the name of the Committee was also reflected in the revised Policy.
Corporate Governance Statement of Compliance (continued)
Bank of Valletta p.l.c.
Annual Report 2022
30
3. Directors Remuneration Report (Advisory Vote):
Pursuant to Chapter 12 of the Capital Markets Rules, the Shareholders of the Company were granted the right to hold an advisory
vote on the Remuneration Report
The Annual General Meeting held on 2 June 2022, also discussed and approved an extraordinary resolution – special business relating
to changes in the Bank’s Memorandum and Articles of Association. The main changes thereto related to the introduction of a new
article 28 which related to the Rotation of Directors. A detailed explanation thereon, is found further above, under the section entitled
“Rotation of Directors”.
All resolutions submitted for the approval of the Annual General Meeting of 2022 were approved accordingly.
Remuneration report as at 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
31
Report of the Nominations and Remuneration Committee as at 31 December 2022
1. Terms of Reference and Membership of the Nominations and Remuneration Committee
As from 1 January 2022 the Remuneration Committee and the Nominations and Governance Committee were amalgamated into a single
committee namely the Nominations and Remuneration Committee, with the functions served by each committee to continue being carried
out by the new committee.
The Nominations and Remuneration Committee (the Committee) works under the guidance of its Terms of Reference as approved by the
Board of Directors. The Committee is responsible to propose Board candidates and assess Board performance, recommend changes where
necessary, and assess adequacy of individual Board Members periodically. It is also responsible to ensure that succession is in place for
the ExCo and key functions of the Group, reviews periodically the Board policy for selection and appointment of ExCo members and Key
Function Holders and to nominate suitable candidates for these positions and those of senior management.
The Committee is also charged with overseeing the development and implementation of the remuneration and related policies of the
Group. It makes recommendations to the Board of Directors on the Remuneration Policy of the Group, supports the Board of Directors in
overseeing the remuneration system’s design and operation and ensure that remuneration is appropriate and consistent with the Bank’s
culture, long term business and risk appetite, performance and control environment as well as with any legal or regulatory requirements. The
role of the Committee is to devise the appropriate remuneration packages needed to attract, retain and motivate Directors, as well as Key
Function Holders required for the proper governance of the Group.
During FY2022 the Committee was co-chaired by Gordon Cordina and Antonio Piras. Steve Agius (until 2 June 2022) and Kevin J Borg
(as from 2 June 2022) were members of the Committee. All Committee members are Independent Non-Executive Directors. The Chief
Executive Officer attends meetings of the Committee. The Chief People and Change Officer attends meetings of the Committee by
invitation. None of the Executives participated in the discussion regarding their remuneration. The Company Secretary acts as secretary to
the Committee.
2. Meetings
The Committee held ten (10) meetings during the period under review. Gordon Cordina and Antonio Piras attended all ten (10) meetings.
Steve Agius attended 4 (out of 4) meetings and Kevin J. Borg attended 6 (out of 6) meetings.
3. Remuneration Statement
3.1 Bank of Valletta p.l.c. Remuneration Policy – Executive Management
The Board of Directors determines the framework of the overall remuneration policy for Executive Management based on recommendations
from the Committee. The Committee, on the recommendations of the Chief Executive Officer, then establishes the individual remuneration
arrangements of the Group’s Executive Management, namely the members of the Executive Committee.
The Remuneration Policy applies consistently to all employees within the Group. Its objective is to align employees’ remuneration with 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.
During 2022, the Bank reviewed its Remuneration Policy primarily to ensure that it is compliant with applicable regulations and to set out a
comprehensive approach towards variable remuneration.
Further details about the Bank’s Remuneration Policy are found in the Pillar 3 disclosures which are published on the Bank’s website.
The Committee considers that the current Executive Management remuneration packages are based upon the appropriate local market
equivalents and are adequate for the responsibilities involved. The Committee is of the opinion that the remuneration packages are such,
as to enable the Bank to attract, retain and motivate executives having the appropriate skills and qualities, in order to ensure the proper
management of the organisation. Such packages should therefore be kept under constant review.
Hereinafter, for the purposes of this Remuneration Statement, references to “Senior Executives” shall mean the Chief Executive Officer and
the other members of the Executive Committee.
Senior Executives enjoy the health insurance arrangements and death in service benefits as all Bank employees. Senior Executives are also
entitled to the use of a company car. Certain members of the Executive Committee have a clause in their contract, wherein should their
contract be terminated without due reason, they may be eligible for monetary compensation.
The Chief Executive Officer’s remuneration is reviewed and approved by the Committee and by the Board of Directors. The Chief Executive
Officer is eligible for an annual bonus entitlement by reference to the attainment of pre-established objectives and targets as laid down in
the Chief Executive Officer’s contract of engagement or as may be determined by the Committee.
The Members of the Executive Committee are eligible for an annual bonus entitlement. The Members of the Executive Committee are also
eligible for an annual salary increase which is approved by the Committee.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
32
No supplementary pension or other pension benefits are payable to the Senior Executives. Insofar as early retirement schemes are concerned,
the Senior Executives are subject to the schemes which are set out and defined in the Collective Agreement (for Managerial and Clerical
Grades) as may be applicable to employees from time to time.
The Bank officially launched its first workplace pension - BOV VOPS in October 2022, a Voluntary Occupational Pension Scheme that falls
under the second pillar. It is one of the initiatives spearheaded by the People and Change function to strengthen employee retention and
engagement.
The salient features and benefits of BOV VOPS are the following:
• The Bank will match every employee’s contribution up to €2,400 in a given calendar year. This commitment is guaranteed for at least
the next five years;
• The employee will be eligible for 25% tax rebate on his/her contributions (max €750 on €3,000), under Pillar 2 (Work Place Pensions);
• Fringe Benefit Tax does not apply on BOV VOPS;
• Employees who have a workplace pension in place through their previous employer(s), are eligible to transfer their pot under BOV
VOPS.
The BOV VOPS is classified as a Defined Contribution Pension Scheme. To date over 700 employees have enrolled in the scheme and
the total amount of defined contribution plan benefits paid by the Bank during 2022 in relation to the BOV VOPS is included in Note 7
(Employee Compensation and Benefits) of the Financial Statements.
The Committee is of the view that the amount of performance bonus paid out at all staff levels is not significant.
Non-Executive Directors (excluding any Non-Executive Directors who are also employees of the Bank) are not eligible to participate in and
to benefit from the BOV VOPS.
Total emoluments received by Senior Executives during FY2022 are reported under Section 3.3 within this Report, in terms of Code
Provisions 8.A.5.
Variable Remuneration of Senior Executives (Executive Committee)
The Variable Remuneration of Senior Executives is determined by the Nominations and Remuneration Committee. Early in 2022, all Senior
Executives were given targets for the year. Risk set out the performance metrics against which each Senior Executive was individually
assessed. There are 4 core elements to each performance assessment as follows:
1. Personal Performance against Targets
2. Risk Management Performance
3. Customer and Employee
4. Leadership Behavioural Assessment
During Q1 2023, an assessment of the performance of the Senior Executives was carried out by the Chief Executive Officer and approved
by the Nominations and Remuneration Committee. All reviews were conducted by the Chief Executive Officer. However, in the case of
the Chief Risk Officer, Group Chief Internal Auditor and Group Chief Compliance Officer, further discussions were held with the respective
Committee Chairs.
Variable Remuneration of Chief Executive Officer
Information on the performance assessment and the variable remuneration of the Chief Executive Officer is reported in the Directors’
Remuneration Report, within this Annual Report in terms of Chapter 12 of the Capital Markets Rules.
3.2 Remuneration Policy – Directors
The Remuneration Policy for Directors was drawn up in accordance with Capital Markets Rules 12.26 and was approved during the Bank’s
Annual General Meeting. The maximum annual aggregate emoluments that may be paid to the Directors is approved by shareholders at the
General Meeting in terms of Article 33.1 of the Bank’s Articles of Association. The aggregate emoluments of all Directors of €450,000 per
annum, was fixed at an Extraordinary General Meeting held on 27 July 2017. This amount excludes the salaries of Directors in the Bank’s
employment.
During FY2022, a base annual fee of €22,500 was paid to each Non-Executive Director and €82,000 was paid to the Chairman of the
Board. In addition to the base fee, Non-Executive Directors who are also appointed as members of one of the Board Committees receive
additional compensation. The additional remuneration paid depends on whether the Non-Executive Director is Chair or a member of such
Board Committee. During 2022, Non-Executive Directors who were appointed Chair of a Board Committee were granted an annual €8,000
Committee fee whilst Non-Executive Directors who were appointed Members of a Board Committee were granted an annual €5,000
Committee fee. During the Annual General Meeting held on the 2 June 2022, a revised Remuneration Policy for Directors was approved
which inter alia provides that Executive Directors shall not be entitled to any fees for sitting on the Bank’s Board of Directors. The total
remuneration paid to Non-Executive Directors during FY2022 complies with the Remuneration Policy for Directors. The remuneration
granted to Non-Executive Directors contributes to the long-term performance of the Bank in view that Non-Executive Directors contribute
actively during Board and Board Committee discussions, and prepare themselves well ahead of meetings. There is positive engagement and
interaction amongst Non-Executive Directors, as well as with the Bank’s management and employees, which is consistently observed also
during training sessions which are organised from time to time by the Bank specifically for Directors.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
33
Service Contracts for Directors
Non-Executive Directors
The Non-Executive Directors have service contracts with the Bank, none of which provide for severance payments upon termination of
their respective directorship. In terms of the said service contracts as well as pursuant to the Remuneration Policy for Directors, the Non-
Executive Directors are entitled to certain benefits after the termination of their directorship, including discounts on products and services
offered by the Group. Service contracts regulate the term of office of Non-Executive Directors, referring specifically to the concept of
Rotation of Directors provided within the Memorandum and Articles of Association (as further explained under Principle 3 of the Corporate
Governance Statement of Compliance). Non-Executive Directors are not paid any benefits linked to the termination of their office and they
do not benefit from any pension or early retirement schemes by virtue of their office.
Executive Directors
The Chief Executive Officer is appointed as Executive Director, on an ex officio basis, by virtue of his role of Chief Executive Officer. By virtue
of his contract of engagement, the current Chief Executive Officer is not entitled to any pension, retirement scheme or other entitlements
upon termination of contract.
The second Executive Director on the Board is currently the Chief Risk Officer, who has a term of office of three (3) years and shall thereafter
be eligible for reappointment. On a non-contractual basis, the Chief Risk Officer may be eligible to a retirement gratuity of up to a 3 times
salary, subject to a prescribed level of service, by virtue of his being an employee of the Bank.
Vacation of office of Directors shall be served in writing. Service contracts also provide for the Directors’ powers and duties vis-à-vis the
Bank and their obligation to dedicate sufficient time to carry out their responsibilities. Directors are obliged to avoid conflicts of interest and
shall take reasonable steps to keep the Bank’s matters confidential. Directors’ emoluments are designed to reflect the time committed by
Directors to the Bank’s affairs, including the different Board Committees of which Directors are members, and their responsibilities on such
Committees.
Share Options and Share-Incentive Schemes
None of the Non-Executive Directors, in the capacity as a Director of the Bank, is entitled to profit sharing, share options or pension benefits.
Pursuant to the Remuneration Policy for Directors, in the case of Executive Directors, subject to the de minimis rule, in order to align the
interests of Executive Directors with the long-term interests of shareholders, at least 50% of the annual bonus outcome will normally be
paid out in ordinary shares of the Bank, with the balance normally be paid out in cash. For Financial Year 2022, given that the de minimis
exceptions permitted by relevant banking regulations applies for the variable pay granted to Rick Hunkin, the bonus awarded to Rick Hunkin
shall be paid fully in cash and no part thereof will be deferred to a later year/s. On the otherhand, in the case of Miguel Borg, 50% of his
bonus shall be awarded in cash, whereas the remaining 50% shall be awarded in BOV shares and deferred for five (5) years. In the case of
Kenneth Farrugia, given that he was appointed Chief Executive Officer of the Bank in Q4 of 2022, his variable remuneration for 2022 was
paid for his role of Chief Retail and Banking Officer. In 2024, Mr Farrugia will be granted a variable remuneration as Chief Executive Officer,
covering the period 12 October 2022 till 31 December 2023.
In terms of non-cash benefits, Directors are entitled to health insurance. They are also entitled to a refund of out-of-pocket expenses. In
addition, the Executive Directors only are entitled to the use of a company car.
One of the Non-Executive Directors, as well as both the Executive Directors, are employees of the Bank and therefore also receive
remuneration by virtue of their employment.
3.3 Code Provision 8.A.5
Senior Executives’ Emoluments (Executive Committee)
Fixed Remuneration
Group Directors’
Fees
Variable
Remuneration
Share Options VOPS Fringe Benefits
€1,937,811* €54,675** €352,279 None €12,250***
Non-cash benefits: health
insurance and refund of out-
of-pocket expenses: €11,238
*This amount includes €54,739 and €16,860 compensation paid to two (2) former Senior Executives in connection with the termination of their
activities during FY2022.
**This amount represents emoluments received by Senior Executives in relation to their directorships on the Bank’s subsidiary companies.
*** This amount represents contribution made by the Bank under the BOV Voluntary Occupation Pensions Scheme (VOPS) with respect to those
Senior Executives who have registered under the BOV VOPS.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
34
Directors’ Fees (Non-Executive Directors and Executive Directors)*
Fixed Remuneration Group Directors Fees Variable Remuneration Share Options Fringe Benefits
€417,735 €22,834 None None
Non-cash benefits: health
insurance and refund of
out-of-pocket expenses:
€25,135
*In addition to the fees paid to Non-Executive Directors, this table also includes fees earned by Executive Directors in relation to their
directorships on the Bank’s subsidiary companies and their membership on Board Committees of the Bank’s subsidiary companies.
Directors’ Remuneration Report in terms of Chapter 12 of the Capital Markets Rules
During the Annual General Meeting of the Bank which was held on the 2 June 2022, the general meeting approved the revised
Remuneration Policy for Directors. The votes obtained with respect to the resolution relating to the Remuneration Policy for Directors
were as follows:
Votes in favour: 317,346,892
Votes against: 5,184,911
Votes abstained: 22,747,668
The Remuneration Policy for Directors (the “Policy”) regulates the remuneration of the Non-Executive Directors as well as that of the
Executive Directors. The Nominations and Remuneration Committee is tasked with keeping the Policy under review and considers
whether it requires revision or updating in line with market demands in order to ensure that the Bank’s Board of Directors attracts and
retains, suitable members that provide the collective skills and experience required for the proper functioning of the Board. The Policy
shall be reviewed and any material amendments to the Policy shall be submitted to a vote by the general meeting before adoption,
and in any case at least every four years.
The Remuneration Policy for Directors is available on the Bank’s website on https://www.bov.com/content/remuneration-policy-for-
directors and on https://www.bov.com/content/financial-reports.
There were no deviations from the procedure for the implementation of the Remuneration Policy for Directors.
Information in terms on Appendix 12.1 of the Capital Markets Rules
Executive Directors
The Executive Directors’ total remuneration as salaried employees is regulated pursuant to the Remuneration Policy for Directors, the
Bank’s Remuneration Policy and the Executive Director’s respective contract of engagement. The Bank’s policy is that the remuneration
of Executive Directors ought to reflect mainly their executive positions within the Bank. Such remuneration consists of a fixed salary,
variable remuneration and benefits as may be provided for in their employment contract with the Bank.
The Bank believes that a combination of fixed and variable remuneration aims to attract and retain suitable executives who have the
necessary competence, skills, qualities and experience to enable them to discharge their duties according to the highest standards.
The fixed remuneration component gives due consideration to the level of responsibility which such position entails, whereas the
variable component is subject to the performance assessment by the Nominations and Remuneration Committee. This assessment
may include risk adjusted performance indicators and shall be aligned with the strategic objectives and delivery value to shareholders.
Any variable component of Executive Director remuneration is subject to malus and clawback provisions which allow a reduction or
reversal of any variable remuneration. The Nominations and Remuneration Committee may enforce such provisions up to 7 years
from the date of the performance assessment (which may be increased to 10 years if there is an on-going investigation) in case of:
• (Malus only) material misstatement of the Bank’s financial results
• (Malus only) material error
• (Malus and clawback) circumstances warranting summary dismissal
• (Malus and clawback) material failure of risk management
• (Malus only) material downturn in economic activity
During the period under review no malus and clawback provisions were exercised.
Non-Independent Non-Executive Director by virtue of being salaried employee of the Bank
Besides being a Non-Executive Director on the Bank’s Board of Directors, James Grech holds an indefinite salaried office with the
Bank. However, James Grech is not considered to be an Executive Director because his position is not one of executive decision
making with the Bank, and he is appointed to the Board by shareholders in general meeting.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
35
Rick Hunkin*
€
Kenneth Farrugia**
€
Miguel Borg
€
James Grech
€
Fixed pay 301,702 39,780 164,182 60,370
Fringe Benefits 42,529 2,044 16,579 5,104
VOPS N/A 532 2,400 N/A
Allowance 17,563 N/A 20,500 N/A
BOV directors’ fees N/A N/A N/A 25,000****
Other Group Companies directors’ fees N/A 3,884 9,000 N/A
Total Fixed Remuneration 361,794 46,240 212,661 90,474
Variable pay
-Cash 22,530 30,625 29,553 2,944
-Value of Shares N/A N/A 29,553*** N/A
Aggregate 384,324 76,865 271,767 93,418
Fixed vs Variable Pay Ratio (%) 94-6 60-40 78-22 97-3
*The remuneration of Rick Hunkin is pro rata, in line with his termination date pursuant to his contract of engagement. The €22,530 bonus
follows a final assessment undertaken by the Nominations and Remuneration Committee. The Chief Executive Officer contract provides for
the possibility of a final bonus at the conclusion of the contract.
** The fixed remuneration of Kenneth Farrugia is pro rata in line with his date of appointment as Chief Executive Officer of the Bank, this being
the 12 October 2022. The variable remuneration of Kenneth Farrugia is for his role of Chief Retail Banking Officer for the period 1 January
to 11 October 2022. Mr Farrugia was appointed Chief Executive Officer on the 12 October 2022. In 2024, Mr Farrugia will be granted a
variable remuneration as Chief Executive Officer covering the period 12 October 2022 till 31 December 2023.
*** The shares component of the variable remuneration will be acquired from the secondary market following the publication of the Bank’s
financial statements on the 30 March 2023. These shares shall be retained for a period of at least 12 months from the date they are vested.
**** Includes remuneration as member of the Digitalisation, Strategy and Transformation Group (previously Strategy Advisory Group), a
temporary group set up to advise the Board on the Bank’s strategic implementation plan.
During FY2022, the Bank acquired 23,502 Bank of Valletta p.l.c. shares off-exchange, at a market price of €0.885 on behalf of the
Bank’s ex-Chief Executive Officer Mr Rick Hunkin, in fulfilment of the shares component of his variable remuneration for FY2020.
Shares and Share Options awarded in 2022
Share Value € Performance Period
Miguel Borg
Vested Shares 29,553 1 January to 31 December 2022
In terms of the requirements within Appendix 12.1 of the Capital Markets Rules, the table hereunder represents the percentage annual
change of remuneration of the executive directors and non-independent non-executive director by virtue of his being a salaried employee
of the Bank, of the Bank’s performance, and of average remuneration on a full-time equivalent basis of the Bank’s and Group’s employees
(excluding directors) over the previous three financial years.
Performance Indicators % Difference 2020 vs 2021 % Difference 2021 vs 2022
Annual Change of the Bank’s Performance based on Cost to Income
Ratio
8 percentage points (17) percentage points*
Annual Change of the Bank’s Performance based on Profit Before Tax 2698% (18)%**
Annual Change of Remuneration for Rick Hunkin 2% (18)%
Annual Change of Remuneration for Kenneth Farrugia n/a n/a
Annual Change of Remuneration for Miguel Borg 6% 19%
Annual Change of Remuneration for James Grech 7% (6)%
Annual Change of the Average Remuneration of the Bank’s employees,
on a full-time equivalent basis
3.2% 5.31%***
Annual Change of the Average Remuneration of the Group’s employees,
on a full-time equivalent basis
2.7% 4.89%***
* The drop in the total Cost to Income ratio for FY2022 was driven by a slower pace in transformation investment to prioritise projects of
regulatory requirement.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
36
** The Bank’s Profit Before Tax for FY2022 of €50.9m includes net litigation settlement charge of €103m. This year’s profit is driven by a
more positive interest rate environment and lower transformational investment postponed to future periods to prioritise projects of regulatory
requirement. The Bank’s Profit before Tax for FY2021 was €61.9m.
*** The increase in average remuneration was computed after considering the total remuneration to employees (excluding Directors) divided
by full-time equivalent employees for Bank and Group for 2021 and 2022. For the purposes of this computation, total remuneration paid
to employees excluded Early Retirement Scheme lump sum payments and Voluntary Occupational Pension Scheme payments to allow for a
meaningful comparison.
Determining the Performance of the Executive Directors and of the Non-Independent Non-Executive Director by virtue of being
salaried employee of the Bank
The performance assessment of Rick Hunkin was based on the evaluation of the targets achieved against the objectives laid down in
his contract of engagement. These objectives are in line with the Bank’s overall targets, strategy, risk appetite framework and long-
term goals. These objectives together with their respective weighting are listed below:
Regulatory Compliance: 33%
Transformation Business Plan: 33%
Leadership Team Composition: 33%
The performance bonuses paid to Rick Hunkin in 2020 and 2021 were the following:
Jun 2020 €41,600 (50% in shares, 50% in cash)
Dec 2021 €46,500 (cash)
Total €88,100
In agreement with Rick Hunkin, these payments, were to serve as part-contributions towards a final total bonus to be determined at
the end of the contract. The assessment of Rick Hunkin’s performance was carried out by means of scores which each Non-Executive
Director of the Board was invited to allocated to each of the KPIs specified in Rick Hunkin’s contract. Upon the recommendation of
the Nominations and Remuneration Committee, a final bonus payment of €22,530 was approved by the Board.
In accordance with the Remuneration Policy for Directors, the percentage of variable remuneration received by Rick Hunkin for the
period January to November 2022, was approximately 8% of his fixed salary (excluding benefits) and is therefore lower than 100% of
fixed remuneration threshold.
In accordance with the Remuneration Policy for Directors, given that the percentage of variable remuneration received by Rick Hunkin
is lower than the 100% of fixed remuneration threshold, no deferral principle applies for Rick Hunkin’s bonus.
The performance and the variable remuneration of Rick Hunkin were reviewed and approved by the Nominations and Remuneration
Committee and by the Board of Directors.
An assessment of the performance of Kenneth Farrugia was carried out by the Chairman, and approved by the Nominations and
Remuneration Committee. The performance assessment of Kenneth Farrugia was undertaken for his role of Chief Retail Banking
Officer, given that until 11 October 2022 (and prior to his appointment of Chief Executive Officer of the Bank) Mr Farrugia occupied
the role of Chief Retail Banking Officer. The performance assessment of the role of the Chief Retail Banking Offcer was based on a
Profit Before Tax Target and four core elements to each performance assessment, namely personal performance against targets, risk
management performance, customer and employee and leadership behavioural assessment.
Given that the de minimis exceptions permitted by relevant banking regulations apply for the variable pay granted to Kenneth Farrugia
for Financial Year 2022, the bonus awarded to him shall be paid fully in cash and no part thereof will be deferred to a later year/s.
An assessment of the performance of Miguel Borg was carried out by the Chief Executive Officer, following discussions with the
Chairman of the Risk Committee, and approved by the Nominations and Remuneration Committee. The performance assessment of
the role of the Chief Risk Officer, was based on a Profit Before Tax Target and four core elements to each performance assessment,
namely personal performance against targets, risk management performance, customer and employee and leadership behavioural
assessment.
The variable pay granted to Miguel Borg for Financial Year 2022 shall be paid 50% in cash 50% in BOV shares, deferred for 5 years
in accordance with the Remuneration Policy for Directors. The amount of variable pay to be received by Miguel Borg amounts to
approximately 36% of his fixed salary and is lower than the 100% of fixed pay threshold.
In the case of James Grech, his variable remuneration as a salaried employee of the Bank, is governed by the Remuneration Policy
of the Group. The Key Performance Indicators of Mr James Grech consisted of both corporate and individual objectives that in turn
reflect performance and behavioural competencies. The performance assessment of James Grech was carried out by the Chief Officer
Treasury to whom James Grech reports. The amount of variable pay to be received by James Grech amounts to approximately 4% of
his fixed salary and is lower than the 95% of fixed pay threshold. No deferral requirements applied to James Grech during performance
year 2022.
Remuneration report as at 31 December 2022 (continued)
Bank of Valletta p.l.c.
Annual Report 2022
37
Non-Executive Directors
The maximum annual aggregate emoluments that may be paid to the Directors is approved by shareholders at the General Meeting in terms
of Article 33.1 of the Bank’s Articles of Association. The aggregate emoluments of all directors of €450,000 per annum, was fixed at an
Extraordinary General Meeting held on 27 July 2017. This amount excludes the salaries of Directors in the Bank’s employment.
Information on annual emoluments paid to Non-Executive Directors is outlined in section 3.2 above.
Non-Executive Directors may receive various benefits as approved by the Nominations and Remuneration Committee. Currently, all Non-
Executive Directors are entitled to health insurance and to a reimbursement of out-of-pocket expenses incurred by them. As per Bank’s
Remuneration Policy for Directors, Non-Executive Directors are not eligible to participate in the annual bonus plan or pension arrangement.
In this regard, the ratio of Fixed vs Variable Pay for the Bank’s Non-Executive Directors is 100% - 0%.
Non-Executive
Directors’
fees and benefits
FY2021 FY 2021
Total 2021
FY2022 FY2022
Total
2022
Percentage
Annual
Change of
Aggregate
Emoluments
(2020 – 2021)
Percentage
Annual
Change of
Aggregate
Emoluments
(2021 - 2022)
Fees
Fringe
Benefits
Fees
Fringe
Benefits
€ € € € € € % %
Gordon Cordina
(Chairman)
88,833 1,444 90,277 101,501 1,444 102,945 -2% 14%
Stephen Agius* 27,083 2,063 29,146 12,692 1,480 14,172 4% 16%
Diane Bugeja 30,000 2,302 32,302 30,500 2,264 32,764 -2% 1%
James Grech 22,583 1,534 24,117 25,000 1,611 26,611 10% 10%
Alfred Lupi 31,500 3,185 34,685 35,500 3,191 38,691 -38% 12%
Alfred Mifsud 30,000 4,004 34,004 35,500 4,072 39,572 -3% 16%
Anita Mangion 25,583 2,366 27,949 36,523 2,352 38,875 13% 39%
Antonio Piras 28,500 - 28,500 34,000 - 34,000 -3% 19%
Elizabeth
Camilleri**
16,140 - 16,140 32,500 - 32,500 n/a 20%
Godfrey Swain** 14,890 441 15,331 32,500 2,029 34,529 n/a 35%
Kevin J. Borg** 14,890 588 15,478 27,500 2,571 30,071 n/a 16%
Deborah
Schembri***
n/a n/a n/a 14,018 1,274 15,292 n/a n/a
Total 330,002 17,927 347,929 417,734 22,288 440,022
*Percentage annual change of aggregate emoluments (2021-2022) was based on annualised remuneration for 2022. Stephen Agius resigned from
Director of the Bank on 2 June 2022. Therefore, directors’ remuneration for 2022 was paid pro rata until date of resignation.
** Percentage annual change of aggregate emoluments (2021-2022) was based on annualised remuneration for 2022. Elizabeth Camilleri, Godfrey
Swain and Kevin J. Borg were appointed on the Board on 20 May 2021. Therefore, Directors’ remuneration for 2021 was paid pro rata as from date
of appointment.
***Deborah Schembri was appointed Director on the Board of Directors during the Bank’s Annual General Meeting held on the 2 June 2022. Her
appointment was subject to regulatory approval which was subsequently received in October 2022.
The directors’ remuneration takes into consideration the Board members’ required competencies, skills, effort and scope of the board work.
It is intended to ensure that the Bank can attract and retain high-quality people, enabling the Bank to execute its business strategy and serve
its long-term interests, including its sustainability goals.
The Bank has complied in full with the procedure for the implementation of the Remuneration Policy for Directors as defined in Chapter 12
of the Capital Markets Rules.
The Directors’ Remuneration Report for 2021 was approved at the Annual General Meeting held on 2 June 2022, with 317,921,768 votes
in favour, 4,351,427 votes against and 23,006,276 abstentions. There were no issues raised on the Report during the said Annual General
Meeting.
The Directors’ Remuneration Report in terms of Chapter 12 of the Capital Markets Rules is being put forward to an advisory vote during the
2023 Annual General Meeting pursuant to the requirements of Capital Markets Rule 12.26L.
In accordance with Capital Markets Rule 12.26N, the External Auditors have checked that all information, as required in terms of Appendix
12.1 of Chapter 12 of the Capital Markets Rules, has been included in the Directors’ Remuneration Report within this Remuneration Report.
Bank of Valletta p.l.c.
Annual Report 2022
38
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company
limited by guarantee.
The firm is registered as a partnership of Certified Public
Accountants in terms of the Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report
To the Shareholders of Bank of Valletta p.l.c
Report required by Capital Markets Rules 5.98 and 12.26N issued by the Malta Financial Services
Authority (the “MFSA”)
We were engaged by the Directors of Bank of Valletta p.l.c (the “Bank”) to report on the disclosures of specific
elements in the Corporate Governance Statement and the Remuneration Report (the “Disclosures”) as at 31
December 2022, in the form of an independent reasonable assurance conclusion, as to whether they are,
in all material respects, in compliance with the corporate governance regulations and information to be
provided in the Remuneration Report set out in the Capital Markets Rules issued by the MFSA (the “Capital
Market Rules”). More specifically, we are required to report on the Disclosures in the form of an independent
reasonable assurance conclusion about whether:
(a) in light of our knowledge and understanding of the Bank and its environment obtained in the course of
the statutory audit, we have identified material misstatements with respect to the information referred to
in Capital Markets Rules 5.97.4 (dealing with the Bank’s internal control and risk management systems
in relation to the financial reporting process) and 5.97.5 (where a takeover bid applies). Where material
misstatements are identified in relation to those requirements, we shall, in addition to our conclusion,
provide an indication of the nature of such misstatements;
(b) the Disclosures include the other information required by Capital Markets Rule 5.97, insofar as it is
applicable to the Bank; and
(c) the Disclosures include the information required by Appendix 12.1, ‘Information to be provided in the
Remuneration Report’, to Chapter 12 of the Capital Markets Rules (as applicable).
Responsibilities of the Directors
The Directors are responsible for preparing and presenting the Disclosures that are free from material
misstatement in accordance with the requirements of the Capital Market Rules and for the information
contained therein.
This responsibility includes designing, implementing and maintaining internal control as they determine is
necessary to enable the preparation and presentation of the Disclosures that are free from misstatement,
whether due to fraud or error.
The Directors are also responsible for preventing and detecting fraud and for identifying and ensuring that
the Bank complies with laws and regulations applicable to its activities. The Directors are responsible for
ensuring that personnel involved in the preparation and presentation of the Disclosures are properly trained,
systems are properly updated and that any changes in reporting relevant to the Disclosures encompass all
significant business units.
Bank of Valletta p.l.c.
Annual Report 2022
39
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a partnership of Certified Public
Accountants in terms of the Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report (continued)
To the Shareholders of Bank of Valletta p.l.c
Our Responsibilities
Our responsibility is to examine the Disclosures prepared by the Bank and to report thereon in the form of
an independent reasonable assurance conclusion based on the evidence obtained. We conducted our
engagement in accordance with International Standard on Assurance Engagements 3000
(Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (“ISAE
3000”) issued by the International Auditing and Assurance Standards Board. That standard requires that we
plan and perform our procedures to obtain reasonable assurance about whether the Disclosures are properly
prepared and presented, in all material respects, in accordance with the requirements set out in the relevant
Capital Markets Rules.
The firm applies International Standard on Quality Management 1, which requires the firm to design,
implement and operate a system of quality management including policies or procedures regarding
compliance with ethical requirements, professional standards and applicable legal and regulatory
requirements.
We have complied with the independence and other ethical requirements of the International Ethics
Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including
International Independence Standards) (IESBA Code), together with the ethical requirements that are
relevant to our assurance engagement in accordance with the Accountancy Profession (Code of Ethics for
Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Chapter 281, Laws of Malta),
and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA
Code. The IESBA Code is founded on fundamental principles of integrity, objectivity, professional
competence and due care, confidentiality and professional behavior.
The procedures selected and our determination of the nature, timing and extent of those procedures, will
depend on our judgment, including the assessment of the risks of material misstatement of the preparation
and presentation of the Disclosures whether due to fraud or error.
In making those risk assessments, we have considered internal control relevant to the preparation and
presentation of the Disclosures in order to design assurance procedures that are appropriate in the
circumstances, but not for the purposes of expressing a conclusion as to the effectiveness of the Bank’s
internal control over the preparation and presentation of the Disclosures. Reasonable assurance is less than
absolute assurance.
Bank of Valletta p.l.c.
Annual Report 2022
40
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a partnership of Certified Public
Accountants in terms of the Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report (continued)
To the Shareholders of Bank of Valletta p.l.c
Our Responsibilities (continued)
We are not required to, and we do not, consider whether the Directors’ statements on internal control and
risk management systems cover all the risks and controls in relation to the financial reporting process or form
an opinion on the effectiveness of the Bank’s corporate governance procedures or its risks and control
procedures, nor on the ability of the Bank to continue in operational existence. Our opinion in relation to the
disclosures pursuant to Capital Markets Rules 5.97.4 and 5.97.5 (as appropriate) is based solely on our
knowledge and understanding of the Bank and its environment obtained in forming our opinion on the audit
of the financial statements.
As part of this engagement, we have not performed any procedures by way of audit, review or verification of
the Disclosures nor of the underlying records or other sources from which the Disclosures were extracted.
Other Information
We also read the other information included in the Annual Report that contains the Disclosures, and our
report thereon, in order to identify material inconsistencies, if any, with the Disclosures. We have nothing to
report in this regard.
Conclusion
Our conclusion has been formed on the basis of, and is subject to, the matters outlined in this report.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our
conclusion.
Bank of Valletta p.l.c.
Annual Report 2022
41
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
The firm is registered as a partnership of Certified Public
Accountants in terms of the Accountancy Profession Act.
A list of partners and directors of
the firm is available at 92,
Marina Street, Pietà, PTA9044,
Malta.
Independent Assurance Report (continued)
To the Shareholders of Bank of Valletta p.l.c
Conclusion (continued)
In our opinion:
(a) in light of our knowledge and understanding of the Bank and its environment obtained in the course of
the statutory audit, we have not identified material misstatements with respect to the information
requirements referred to in Capital Markets Rules 5.97.4 and 5.97.5;
(b) the Disclosures include the other information required by Capital Markets Rule 5.97; and,
(c) the Disclosures include the information required by Appendix 12.1 to Chapter 12 of the Capital Markets
Rules.
The Principal authorised to sign on behalf of KPMG on the work resulting in this assurance report is Claude
Ellul.
KPMG 30 March 2023
Registered Auditors
Environmental Social and Governance (ESG)
Risk Management and Disclosures
Bank of Valletta p.l.c.
Annual Report 2022
42
1.1 ESG Strategy
In 2022, Bank of Valletta p.l.c. (‘BOV’), defined its ESG strategy that outlines the Bank’s vision, values, and beliefs, in working towards
enhancing its commitment to the environmental, resource and climate sustainability in its business activities. Underpinning the strategy
is the Bank’s commitment to ensure that it acts ethically and responsibly in dealing with its clients, stakeholders, and wider society, to
make a meaningful contribution to the attainment of the Paris Agreement and the UN sustainable Development Goals.
The Bank’s core beliefs across Environmental, Social and Governance remain to:
Environment: to strive towards net zero impact and climate resilience, instil a meaningful shift towards green loans and induce
environmentally friendly behaviour towards its customers; and refocus investments towards ethical and green opportunities to
redefine the balance sheet.
Social: to take responsibility for the empowerment of financial literacy and support vulnerable members of society; and sustain the
appreciation of the uniqueness of the cultural heritage and environmental capital of the Maltese Islands.
Governance: to enhance awareness and positive action at all levels of the organisation with respect to ethical and fair behaviour; and
enhance the pace of simplification, accessibility, and digitalisation of all the Bank’s activities towards positive ESG outcomes.
1.2 Sustainability and Climate Change
Our focus on sustainability is core to the Bank’s ESG strategy. We are focused on building an inclusive society and supporting the
transition to a low-carbon economy as this is where we can make the biggest difference, while creating new avenues for our future
growth. It is only by doing right for our colleagues, customers, and communities that we can achieve higher, more sustainable returns
for investors, whilst meeting the needs of broader stakeholders and interests of our shareholders.
The Bank is reinforcing its prior commitments by working with its customers, the market, and the relevant authorities to tap to new
fast-growing areas linked to environmental sustainability. We support clients in all sectors and recognise that the challenges ahead
and the trajectory to transit to greener practices is different for each sector, with certain sectors facing more significant challenges
to decarbonise than others. We also believe that a divestment strategy can be one of the levers used to incentivise action, however,
focusing solely on divestment is not in line with our purpose and we want to finance the changes needed to live and do business more
sustainably, in line with a just transition. For this reason, the Bank will be monitoring its top emitting clients.
1.3 The strengthening of an ESG Department
The Bank founded its ESG Department with the aim of enhancing and integrating sustainability into its strategic and operational
processes. The department is responsible to develop and implement strategies that are steering a change in the organisation’s
operations and awareness on ESG. Furthermore, the department is pushing for the incorporation of ESG factors, especially climate
and environmental risks process across the entire ecosystem of the Bank. The Department is steering the Bank’s sustainability vision
while ensuring the execution of the Bank’s environmental and social goals and targets. The department is earmarked to be a powerful
resource for clients looking to deliver resilient growth and build strong balance sheets, while allowing them to withstand future shocks
and make the changes needed to mitigate climate change and physical and transition risk, thereby cushioning the impact from a
business risk perspective.
1.3.1 Building our expertise
The Bank continues to invest in its resources and capabilities to support the execution of its climate strategy and sustainability
ambition. In this regard, the Bank rolled Board training on climate change, climate-related risks, sustainability and ESG. This training
was developed and delivered in conjunction with third party consultants through the ESG department. Concurrently, during 2022, the
Bank provided sustainability & ESG training to its employees through a Group-wide e-learning course on ESG which was launched to
introduce the topic of climate change and ESG. The ESG department provided training to risk correspondents in relation to Climate
and Environmental related risks covering different C&E risk scenarios. As part of this training, risk correspondents were provided with
a list of Climate and Environmental risks under physical and transition risks.
1.4 Sustainability and Climate and Environmental related risk governance
Oversight and management of climate-related issues are embedded within our governance structure. The Board and Senior
Management are cognisant of the climate and environmental related risks and monitors the frameworks and their accompanying
implementation. Bank of Valletta’s governance structure consists of the Board, Executive and Management Committees across both
business and compliance entity lines. The Bank’s Board sets the strategic direction and risk appetite of the Group and is the ultimate
decision-making body for matters of Group-wide strategic, financial, regulatory, and reputational significance.
Oversight and management of climate and environmental related risks has become part of the business-as-usual management
structures, including the channelling of the information to a number of executive and management committees. These committees
are mandated and form part of the Bank’s formal governance architecture and covers not just the technical part of climate and
environmental related risks, but also regulations. The Committees are convened to oversee and to contribute to the Bank’s control
framework. Each committee is itself governed by terms of reference that lay out the duties, decision-making authority, and escalation
route of any material issues.
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
43
During 2022, the Board received regular updates on ESG matters placing greater emphasis on climate and environmental related risks
from the ESG Committee and the ESG Management Forum both of which help shape key decisions on the Group’s approach towards
sustainability.
1.4.1 ESG Committee
The ESG Committee became effective during 2022 and saw the board-level oversight to monitor strategic climate and environmental
related risks, while strengthening the governance structure in relation to the other elements of the ESG factors. This committee is chaired
by the Bank’s Chairman and is composed of three Non-Executive Directors and includes stakeholders from across the Organisation. During
2022, the ESG Committee discussed and reported on various topics namely a) a materiality assessment which integrates a climate risk
taxonomy, with different transmission channels and which encompasses credit, operational, reputational, strategic, market and liquidity
risks analysis, b) the development of an internal climate stress test model to assess C&E (‘climate and environmental’) scenarios for physical
and transition risks, taking three different scenarios under an orderly transition, disorderly transition or hothouse world, thereby aligning
with the ECB’s wide climate stress testing methodology, c) preliminary results relating to the assessment of the Bank’s internal climate risk
stress testing integrating different scenarios to measure the probability of default and loss given default of its clients capturing a longer
time horizon, d) the Bank’s ECB Thematic review on the implementation and integration of climate and environmental related risks and, e)
monitored and provided oversight of the Bank’s climate strategy and policies and discussed its setting, progress, and evolution.
1.4.2 ESG Forum
The role of the ESG Management Forum which was established during 2022 is to foster collaboration across the Bank’s business departments
and divisions, principally focusing on climate and environmental related risks. The forum carries out initial discussions on matters to be
decided by the ESG Committee and the Board, especially on the implementation of the Bank’s ESG strategy, as well as the decarbonisation
roadmap encompassing a new process to design a strict environmental programme, while strengthening the governance structure in relation
to the other elements of the ESG factors. This committee is chaired by the Bank’s Head of the ESG department and sees the participation
of various stakeholders covering different departments within the Bank.
During 2022, the ESG Management Forum discussed and reported to the ESG Committee and the Risk Committee priorities, within the
realm of Climate & Environmental risks, which included
a. a data gap analysis including the Energy Performance Certification as a major stumbling block,
b. the Bank’s green financing product portfolio,
c. launched an energy audit and a carbon footprint calculation covering Scope1, Scope 2 and Scope 3 emissions, with the latter
identifying the top emitting sectors and clients financed by the Bank,
d. the creation of a scientific geographical heatmap for a granular concentration analysis covering physical and transition risks, and
e. the imposition of limits in the Bank’s Risk Appetite Framework to exclude sectors that are harmful for the environment and that
contribute to the acceleration of climate change that include coke and petroleum extraction and mining and quarrying.
Furthermore, the Bank reinforced its strategic climate leadership and alliance ambition by also becoming a founding member of the Malta
ESG Alliance; a platform for Maltese businesses to work together to achieve national ESG goals.
1.5 Business Model and Strategy
1.5.1 Our climate strategy
Addressing climate change is an urgent and complex challenge not just for Malta but also globally. It requires a fundamental transformation,
so that society refrains from adding to the total amount of greenhouse gases in the atmosphere. The financial sector has a critical role to
play in supporting the economy to reach this goal. Our strategy is underpinned by the way we assess and manage our exposure to climate
and environmental related risks, as explained in the preceding chapters. For this reason, the Bank’s climate strategy is aligned and outlined
in the ESG Strategy. The main pillars oblige the Bank to a) strive towards net zero operations and this is the reason why the Bank calculated
its carbon footprint, to reduce its financed emissions, b) financing the transition and c) refocus investments towards ethical and green
opportunities.
Over the coming years, our strategy will continue to evolve, and it would require us to adapt to reflect market, technological, regulatory, and
geopolitical developments affecting the shape and timing of the transition to a low-carbon economy. We will retain our policies, targets, and
progress under review considering the rapidly changing external environment and the need to support our clients in delivering an orderly
transition thereby supporting the Maltese economy. Progress may vary and we need to be able to adapt our approach to optimise the
effectiveness and impact of our support for the transition.
1.5.2 Understanding our Green House Gases (‘GHG’) emissions in 2022
The GHG Protocol Corporate Accounting and Reporting Standard provides requirements and guidance for companies and other organizations
preparing a corporate-level GHG emissions inventory. GHG Protocol categorizes all corporate emissions under three scopes, as follows:
• Scope 1: Direct emissions related to an organization’s operation, activities and processes (e.g. gas and transport fuels).
• Scope 2: Indirect emissions derived from electricity used for a company’s operation (lighting, appliances and equipment, cooling).
• Scope 3: Indirect emissions from company’s value chain, upstream and downstream, including specifically Category 15 “Investment”
or “financed emissions”, GHG emitted by entities that receive financial services, loans, or investments from the Bank.
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
44
During 2022, the Bank pushed through its green transition plans to build a more responsible finance industry with the execution of
a carbon footprint calculation to gauge its impact on the environment and transform its business with sustainability-based decision-
making. In 2022, the Bank engaged a third-party expert and made significant progress in the collection of information to calculate
its carbon emissions, including Scope 1, Scope 2, and Scope 3 emissions. The calculations were performed leveraging the GHG
Protocol and the Partnership for Carbon Accounting Financials (‘PCAF’) methodology for financed emissions. In tandem the Bank
commissioned an Energy Audit to understand the energy performance of its buildings including the head office, based on a scientific
measurement estimating the emissions primarily observing the use of energy, efficiency, and consumption. In summary, the report
provided performance improvement opportunities and a decarbonization roadmap for the Bank taking a three-phased approach
scenario primarily focusing on the largest and least efficient buildings. Furthermore, Bank of Valletta is committed to aligning its
financing portfolios in every sector with the goals and timelines set in the Paris Agreement.
The Bank continues to work on setting targets consistent with its commitments to reduced financed emissions and has preliminary
identified its high emitting customers. In 2023, the Bank will be engaging with these customers to understand and support their
transition to a low-carbon economy. The transition to a low-carbon economy is today’s defining opportunity for innovation and
growth. There is a significant opportunity for Bank of Valletta to play a leading role in helping to meet the demand for climate change
related financing and commits to support the transition. The Bank foresees to readjust its investments, including capital to steer it
toward projects that contribute to new green technologies and infrastructure projects that contribute to a low-carbon economy.
BOV’s GHG emissions Scope 1 & 2
Carbon footprint calculations for Scope 1 and 2 focuses exclusively on the vehicle fleet owned by the Bank, plus 66 BOV operated
buildings and 33 ATMs scattered across Malta. This represents 100% of the Bank’s facilities located in Malta. The emitting activities
covered in this carbon footprint report for 2022 includes direct emissions resulting from the Bank’s owned or controlled equipment
and assets and emissions from purchased electricity. It is important to highlight that under the GHG Protocol, the reporting of both
direct emissions and indirect emissions, resulting from purchased electricity, are compulsory.
Listed in the table below are the main activities contributing to the Bank’s 2022 Carbon Footprint classified according to the relevant
scope.
Table 1. Emission scopes and sources identified for BOV's 2022 carbon footprint calculations.
Greenhouse Gas Emissions
Indicator 2022 Units
Total GHG Emissions
(Scope 1 + Scope 2)
2,137.22 t CO2e
Scope 1 107.89 t CO2e
Stationary fuel combustion in BOV’s owned or
operated generators
1.61 t CO2e
Fugitive emissions 2.30 t CO2e
Mobile fuel combustion in BOV’s owned or
operated vehicles
103.98 t CO2e
Scope 2 2,029.33 t CO2e
Electricity used in buildings 1,981.84 t CO2e
Electricity used by ATMs. 47.79 t CO2e
1
Reporting period: Due to data availability limitations the reporting period covers 30 September 2021 to 30 September 2022..
1.5.3 Climate & Environmental Risks in Research Reports
In 2022, the Bank engaged with different external stakeholders to create awareness on climate and environmental related risks.
The Bank participated in different workshops, and conferences organised by the Maltese authorities, including Malta Enterprise,
the Malta Business Bureau, the Chamber of Commerce, and the Chamber of Engineers to primarily foster awareness on climate and
environmental risks, especially on the upcoming reporting requirements for non-financial institutions in line with the EU Directives and
regulations. However, in 2023 the Bank will be engaging in research related to climate and environmental related risks encompassing
different sectors of the Maltese economy by financing reports that contribute to the mitigation of climate change and C&E risks. A
market sector analysis is planned for 2023 to mainly shed light on the dissection of climate and environmental related risks within the
local economy.
1.5.4 Risk Management
During 2022, the Bank added Climate and Environmental risk as a ‘key risk’ within its risk management framework, and therefore
became part of the Bank’s standard procedures for assessing and reporting material risks.
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
45
Risk Appetite Framework (RAF) KRIs of C&E
The Bank defined RAF KRIs in relation to sustainable finance targets in the retail and business loan issuance including reduction in
exposure of manufacture of coke and refined petroleum, which is monitored and reported bi-monthly. Reduction in manufacture of
coke and refined petroleum products by 2031 within the proprietary portfolio was articulated in the Bank’s in the investment policy
– the Treasury Management Policy (TMP) in 2022.
1.5.5 Our approach to the Materiality Assessment
In the first quarter of 2022, the Bank has carried out a Materiality Assessment with the development of a climate risk taxonomy. The
exercise assessed the physical and transition risks for credit, operational, liquidity, market, and reputational risks. Further details on the
climate and environmental related risks potentially arising in the short, medium, and long term, that could potentially have a material
financial impact on the Bank, were identified including the processes and methodologies used to determine these risks. The materiality
assessment is now part of the business-as-usual processes of the Bank, and the ESG department is responsible to monitor C&E risks
and other newly emerging risks in the realm of ESG.
Materiality Assessment: In Q1 2022, the Bank performed its first Materiality Assessment exercise to assess the materiality of Climate
and Environmental risks on its portfolio by calculating both physical and transition risk for the sectors. The materiality assessment
covered 3 steps:
I. Development of an exhaustive taxonomy of C&E risk drivers both for physical risks (acute and chronic) and transition risks. The
risk drivers included in the taxonomy cover both climate and environmental risks. To do so, the Bank combined the existing
C&E risk drivers from multiple reference industry taxonomies (sources included ECB, EBA and EU taxonomies for physical risks,
and the World Economic Forum, TCFD1, Institute for Climate Economics for instance for transition risk). It then tailored the
taxonomy to properly account for the specificities of its business model (e.g., high relevance of temperature related hazards,
such as heatwaves, droughts, and soil erosion, specifically for Malta where the activities of the Bank are concentrated). The
Bank also mapped the risk drivers of the ECB thematic review (in the materiality assessment tab) to its internal risk taxonomy
to ensure a proper integration of the exercise in its risk processes.
II. Analysis of transmission channels. The Bank performed an exhaustive literature review and leveraged insights from climate
experts to identify 23 transmission channels through which C&E risk drivers would impact the Bank’s various risk types. The
transmission channels for physical risk and transition risk include Credit risk: Change in corporate credit worthiness due to
damages to assets (means of production), Change in retail credit worthiness due to unemployment, Change in government
credit worthiness, Change in LGD due to damages to collateral; Operational risk: Damage to branches / headquarters, Staffing
issues, Damages to power facilities, Payment services disruption, Cloud services disruption; Reputational risk: Exposure to
sectors with a high negative environmental impact, Accusation of greenwashing, Failure to announce / meet net-zero targets,
Failure to comply with C&E regulation; Strategic risk: Revenue at risk across business units and client segments; Liquidity risk:
Reduction of liquidity buffer due to value reduction of HQLA caused by shifting market sentiment towards bonds in sectors
with a negative environmental impact, Increased cost of funding for the Bank caused by misalignment of activities with low
carbon economy.
Each transmission channel has also been assessed in terms of the time-horizon in which the risks would likely materialise within 2
years (Short Term), 2 to 5 years (Medium Term), or beyond 5 years (Long Term).
III. Assessment of the materiality. Specifically, for each one of the transmission channels, a tailored qualitative (concentration
analysis, sensitivity analysis and / or quantitative approach (qualitative scorecard) has been developed to assess the materiality
of the climate related and environmental risk impact on each business unit of the Bank.
As already mentioned, the materiality assessment methodology was designed for the specificities of Malta. Indeed, the Bank went a
step further than the ECB on the designation of the geographical areas, and used Malta’s seventh communication to the UN, as well
as the River Basin Directive Reports, and the IPCC reports for the Maltese islands. The Bank identified key risk geographical areas in
Malta that are subject to climate physical risks. The ESG department designed and made use of the Local Administrative Unit statistics
rather than the NUTS3 statistics to get a better insight and a granular analysis of the areas that might be affected by climate change
in Malta, and which are flood risk prone areas. This gave the ESG department, and the Management, a better understanding on the
future financed investments and projects that the Bank should consider taking on board.
IV. In order to assess the potential impact of climate physical risk on the capital adequacy, the Bank has leveraged the results of
the materiality assessment, as well as data from historical events to recreate a scenario where one of the branches located in
a flooding- prone area is impacted by a physical event. The results of such exercise and the quantification of the overall losses,
were included in the Internal Capital Adequacy Assessment Process (ICAAP
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
46
1.5.6 ECB Wide Stress test and the Bank’s internal Climate Stress Testing Model
During 2022, the Bank participated in the ECB’s wide climate stress testing and successfully completed the process. Furthermore,
in 2022 the Bank designed its own Climate Stress Testing Model, to primarily induce an element of C&E risk culture within the Risk
Management Department. The internal climate stress test model is based on an econometric model deemed as a good practice by
the ECB in their reports. The CST model cover different climate scenarios both for the physical and the transition risks. The scenarios
are aligned with the ECB’s methodologies and takes three different scenarios under transition risk that include an orderly transition,
disorderly transition, or hothouse world. The 2022 Climate Stress Test results will be published in the ensuing ICAAP reports and
publications.
1.5.7 Credit Underwriting
To strengthen its climate and environmental related risks monitoring in 2022 the Bank embedded climate risk assessments in its credit
risk management framework. For instance, for commercial banking the Bank managed to set up an in-house pilot approach to assess
broader climate and environmental risks in the Bank’s Corporate Lending portfolio. A specific sector questionnaire was launched with
the Bank’s clients covering six high-risk sectors that have strategic relevance for the Bank, namely accommodation, power, real estate,
transport, warehousing, and wholesale trade. Questionnaires will be triggered during the credit annual review process for high-risk
sectors and will be included in the credit underwriting tool for eventual record keeping.
The Bank continued to embed climate and environmental related risk assessment into its credit risk management framework. In
this regard, the Bank established a RAF sectorial constraint to further manage the Bank’s exposure to very high-risk sectors namely
the manufacturing of coke and petroleum and the manufacturing of basic metals, as well as mining and quarrying. Furthermore,
the Bank updated its Level 3 Credit Lending policy to reflect the changes in the RAF. For the transition risks, the ESG department
in collaboration with the Treasury designed the process for the screening of the purchasing of corporate bonds and equities of
the automotive manufacturing industry, by utilising the European Commission Transition Pathway to invest in those automotive
companies that are reaching the regulatory targets as specified by the EU.
1.5.8 Treasury Management Policy (TMP) /Corporate Credit Lending Policy (CMP)
The C&E risks management is integrated in the TMP and the Corporate Credit Lending Policy. Both policies were updated with
a framework to monitor the transition and physical risks of high and very high-risk sectors, following the conclusion of C&E risk
ratings. In total, the Bank has four risk categories, ranging from low to very high risk. During 2022, the Bank has set a €1 million
limit for each of the following sectors: a) manufacture of basic metals and b) mining & quarrying. The policies also include minimum
requirements for the automotive manufacturing sector. Also, the Bank’s target is to increase the financing to corporates issuing green
bonds that intensify climate change mitigation and/or climate change adaptation joining the global climate ambition of reaching the
Paris Agreement goal and European Green targets. The Bank has 4% of green bond holdings in the total bond portfolio which are all
aligned with the EU Taxonomy criteria and not issued under standards other than the EU standards. The 4% holding as of December
2022 represents an exceeded target of 2% holdings by year 2023. In the eventuality of a policy limit breach, the Bank has defined an
internal escalation process requiring a further investigation and ratification.
ESG disclosures
Our approach to environmental and social issues is becoming increasingly integrated in the work we do across our business and is
subject to the governance and oversight of our management and Board structures. Reflecting this trend, we have taken the decision
to integrate our ESG reporting into this year’s Annual Report. The ESG report section sets out more information on our approach to
ESG, including how we think about, and measure, our environmental and social impact. Our approach is informed by our engagement
with our stakeholders, customers, colleagues, investors, regulators, and the wider society.
EU Taxonomy economic performance indicators
Environmental and Climate change risk mitigation and adaptation objectives.
The European Commission (‘EC’) has set out the EU Taxonomy classification system
2
that gives companies, investors, and policymakers
with appropriate definitions for which economic activities can be considered environmentally sustainable. In 2021, the European
Commission adopted the Delegated Act supplementing Article 8 of the Taxonomy Regulation (‘the Disclosures Delegated Act’)
3
. Under
these regulations, the bank is required to provide information to investors about the environmental performance of our assets and
economic activities. The Disclosures Delegated Act applied to BOV as of 1 January 2022. The approach is a phased one and in the
first year of reporting, the bank has provided below, its reporting related to Taxonomy-eligibility of economic activities.
2
Taxonomy Regulation EU 2020/852
3
Commission Delegated Regulation (EU) 2021/2178
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
47
The table of information below contains the information specified in the Disclosures Delegated Act and is based on the methodology.
Performance Indicators of Taxonomy-eligibility of economic activities
As at 31 Dec 2022
Proportion of total assets
The proportion in BOV’s total assets of exposures to Taxonomy-eligible economic activities 27.6%
The proportion in BOV’s total assets of exposures to Taxonomy non-eligible economic activities 19.0%
The proportion in BOV’s total assets of exposures to central governments, central banks and
supranational issuers and derivatives
48.6%
Other Assets 4.8%
Total 100%
Scope of BOV entities included
The percentages in the above table, represent exposures and balances as a proportion of total assets for the principal operating entity
within the BOV group as of 31 December 2022
Assets in scope
The percentages for taxonomy-eligible economic activities and taxonomy non-eligible activities for on-balance exposures covering
loans and advances, including home loans, business loans, consumer loans and treasury. This also includes exposures to undertakings
such as large EU banks, asset managers, insurance companies and issuers that are subject to Non-Financial Reporting Directive
obligation.
Eco loans have been included and accounted for as part of both home and business loans. To prevent double counting, they have not
been analysed separately.
The second phase of reporting relates to Taxonomy-alignment of economic activities. The above information will assist the bank in
preparing for the second phase of EU disclosures related to Taxonomy-alignment of economic activities (i.e., disclosure of the key
performance indicators) from 1 January 2024 when Taxonomy ‘eligible’ economic activities will be assessed to determine whether they
are environmentally sustainable (i.e., Taxonomy ‘aligned’).
Other assets
Cash, tangible, and intangible assets, are excluded from the taxonomy framework and therefore cannot be assessed for taxonomy
eligibility. On this basis, these assets are excluded from the eligibility assessment. However, these assets are included in the total
assets used in the denominator for the calculation of the ratios.
Taxonomy Eligible Economic Activities
These are those activities which can be assessed in future disclosures as environmentally sustainable. Eligibility related disclosures
shall be based on actual information provided by the financial or non-financial undertakings. An eligible economic activity is defined in
the Delegated Acts and in some instances corresponds to one or more specific Nomenclature of Economic Activities (‘NACE’) code.
The assessment of taxonomy eligibility for mandatory disclosures is made using the specific description of the activity provided in the
Delegated Acts.
Since this is the second year of reporting under the EU taxonomy, financial and non-financial undertakings have not yet reported on
their taxonomy eligibility related disclosures. As a result, to determine the eligibility of exposures, we have relied on the NACE code
of the principal activity of the immediate counterparty and have not needed to rely on data from the counterparty. Given the Lack of
data from such counterparties, we have relied on the NACE code of the principal activity to determine the counterparty’s eligibility. In
addition, loans collateralised by commercial property to undertakings not subject to NFRD have been included as taxonomy eligible.
Taxonomy non-eligible economic activities
Taxonomy non-eligible economic activities are those activities which cannot be assessed as environmentally sustainable or not.
Included in taxonomy non-eligible are those assets in scope that cannot be assessed for taxonomy eligibility, either due to activities
not covered by the taxonomy framework, limited data availability from our counterparties or lack of required information.
Environmental Social and Governance (ESG)
Risk Management and Disclosures
(continued)
Bank of Valletta p.l.c.
Annual Report 2022
48
Data Limitations
Non-Financial Reporting Directive
4
Data limitations made it difficult to determine which undertakings are not obliged to publish under the Non-Financial Reporting
Directive. Therefore, regardless of the reporting requirements for such exposures we have included them as part of the total assessment
of taxonomy-eligible economic activities. Given the bank’s work on improving its data and reporting, it expects that availability of data
and improvements in data quality over time, will happen. Also, as its counterparts adopt the Taxonomy requirements for their own
disclosures, reporting such exposures as a single indicator could lead to differences in the data reported in future years as compared
to the current year. The bank will continue to engage with customers, market data providers and standard setters to improve the
quality and completeness of our Taxonomy data as we develop our capabilities to assess the Taxonomy alignment of our portfolios in
preparation for future Taxonomy reporting requirements from 1 January 2024.
Central Governments, central banks, supranational issuers, interbank loans, and Derivatives
Exposures to central governments, central banks, supranational issuers, held for trading derivatives and on-demand interbank loans
are disclosed separately and are included as a separate indicator on the same basis and methodology.
4
NFRD as per Article 19a or Article 29a of Directive 2013/34/EU
Statements for profit or loss
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
49
The Group The Bank
Note 2022 2021 2022 2021
€000 €000 €000 €000
Interest and similar income
- on loans and advances 2 196,277 172,429 196,277 172,429
- on debt and other fixed income instruments 2 23,933 22,384 23,933 22,384
Interest expense 3 (18,311) (38,503) (18,311) (38,503)
Net interest income 201,899 156,310 201,899 156,310
Fee and commission income 89,114 84,273 79,995 74,462
Fee and commission expense (12,546) (9,678) (12,546) (9,678)
Net fee and commission income 4 76,568 74,595 67,449 64,784
Dividend income 641 1,447 9,386 2,946
Trading profits 5 14,163 10,511 14,206 10,470
Net gain on investment securities and hedging instruments 6 86 45 86 45
Operating income 293,357 242,908 293,026 234,555
Employee compensation and benefits 7 (100,033) (81,568) (97,659) (79,067)
General administrative expenses (72,945) (93,897) (71,075) (92,546)
Amortisation of intangible assets 20 (11,861) (11,708) (11,772) (11,708)
Depreciation 21 (7,777) (8,430) (7,716) (8,244)
Net impairment reversal 8 49,075 18,856 49,075 18,856
Operating profit before litigation settlement charge 149,816 66,161 153,879 61,846
Net litigation settlement charge 33 (102,958) - (102,958) -
Operating income 46,858 66,161 50,921 61,846
Share of results of equity-accounted investees, net of tax 18 1,860 14,498 - -
Profit before tax 9 48,718 80,659 50,921 61,846
Income tax expense 10 (17,547) (24,468) (18,514) (22,947)
Profit for the year 31,171 56,191 32,407 38,899
Earnings per share 11 5.3c 9.6c 5.6c 6.7c
Statements for profit or loss and other comprehensive income
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
50
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Profit for the year 31,171 56,191 32,407 38,899
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Debt investments at FVOCI
- change in fair value (4,823) (151) (4,823) (151)
tax thereon 1,688 53 1,688 53
(3,135) (98) (3,135) (98)
Items that will not be reclassified to profit or loss:
Equity investments at FVOCI
- change in fair value (1,723) (2,640) (1,723) (2,640)
tax thereon 603 924 603 924
Property revaluation 3,366 5,306 3,366 5,306
tax thereon (337) (531) (337) (531)
Remeasurement of actuarial losses on defined benefit plans 2,485 42 2,485 42
tax thereon (870) (15) (870) (15)
Other comprehensive income for the year, net of tax 389 2,988 389 2,988
Total comprehensive income 31,560 59,179 32,796 41,887
The notes are an integral part of these financial statements.
Statements of financial position
as at 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
51
The Group The Bank
Note 2022 2021 2022 2021
€000 €000 €000 €000
ASSETS
Balances with Central Bank of Malta, treasury bills and cash 13 3,389,261 4,626,066 3,389,261 4,626,066
Financial assets at fair value through profit or loss 14 146,363 138,986 146,211 138,823
Investments 15 4,567,064 3,568,669 4,567,064 3,568,669
Loans and advances to banks 16 394,546 452,469 394,546 452,469
Loans and advances to customers at amortised cost 17 5,560,076 5,097,598 5,560,076 5,097,598
Investments in equity-accounted investees 18 145,615 145,501 72,870 72,870
Investments in subsidiary companies 19 - - 6,230 6,230
Intangible assets 20 56,047 56,074 55,836 56,074
Property and equipment 21 132,691 130,622 132,605 130,484
Current tax 20,706 28,640 21,017 29,205
Deferred tax 23 67,898 84,563 67,872 84,563
Assets held for realisation 40 12,138 11,740 12,138 11,740
Other assets 24 7,227 5,423 7,227 5,423
Prepayments 18,521 12,091 16,112 10,165
Total Assets 14,518,153 14,358,442 14,449,065 14,290,379
LIABILITIES
Derivative liabilities held for risk management 14 4,535 5,485 4,535 5,485
Amounts owed to banks 25 77,074 560,117 77,074 560,117
Amounts owed to customers 26 12,547,911 12,176,854 12,554,584 12,185,989
Deferred tax 23 7,054 6,717 7,054 6,717
Other liabilities 27 191,552 203,141 191,284 202,522
Provisions 33 16,518 104,449 16,368 104,449
Derivatives designated for hedge accounting 29 2,167 12,157 2,167 12,157
Debt securities in issue 30 350,260 - 350,260 -
Subordinated liabilities 30 163,237 163,237 163,237 163,237
Total Liabilities 13,360,308 13,232,157 13,366,563 13,240,673
EQUITY
Called up share capital 31 583,849 583,849 583,849 583,849
Share premium account 49,277 49,277 49,277 49,277
Revaluation reserves 32 57,212 58,438 57,100 58,326
Retained earnings 32 467,507 434,721 392,276 358,254
Total Equity 1,157,845 1,126,285 1,082,502 1,049,706
Total Liabilities and Equity 14,518,153 14,358,442 14,449,065 14,290,379
MEMORANDUM ITEMS
Contingent liabilities 33 374,109 351,362 374,109 351,362
Commitments 34 1,918,119 1,898,310 1,918,119 1,898,310
The notes are an integral part of these financial statements.
These financial statements on pages 49 to 153 were approved by the Board of Directors and authorised for issue on 30 March 2023
and signed on its behalf by Dr Gordon Cordina (Chairman), Alfred Lupi (Director) and Kenneth Farrugia (Chief Executive Officer) as
per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Accounts 2022.
Statements in changes of equity
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
52
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Retained
Earnings Total
The Group €000 €000 €000 €000 €000
At 1 January 2021 583,849 49,277 55,477 388,522 1,077,125
Profit for the year - - - 56,191 56,191
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax - - (98) - (98)
Equity investments at FVOCI
- change in fair value, net of tax - - (1,716) - (1,716)
Property revaluation, net of tax - - 4,775 - 4,775
Remeasurement of actuarial losses on defined benefit plans,
net of tax
- - - 27 27
Total other comprehensive income - - 2,961 27 2,988
Total comprehensive income for the year - - 2,961 56,218 59,179
Transactions with owners, recorded directly in equity:
Dividends to equity holders - - - (10,019) (10,019)
At 1 January 2022 583,849 49,277 58,438 434,721 1,126,285
Profit for the year - - - 31,171 31,171
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax - - (3,135) - (3,135)
Equity investments at FVOCI
- change in fair value, net of tax - - (1,120) - (1,120)
Property revaluation, net of tax - - 3,029 - 3,029
Remeasurement of actuarial losses on defined benefit plans,
net of tax
- - - 1,615 1,615
Total other comprehensive income - - (1,226) 1,615 389
Total comprehensive income for the year - - (1,226) 32,786 31,560
At 31 December 2022 583,849 49,277 57,212 467,507 1,157,845
The notes are an integral part of these financial statement
Statements in changes of equity
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
53
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Retained
Earnings Total
The Bank €000 €000 €000 €000 €000
At 1 January 2021 583,849 49,277 55,365 329,347 1,017,838
Profit for the year - - - 38,899 38,899
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax - - (98) - (98)
Equity investments at FVOCI
- change in fair value, net of tax - - (1,716) - (1,716)
Property revaluation, net of tax - - 4,775 - 4,775
Remeasurement of actuarial losses on defined benefit plans,
net of tax - - - 27 27
Total other comprehensive income - - 2,961 27 2,988
Total comprehensive income for the year - - 2,961 38,926 41,887
Transactions with owners, recorded directly in equity:
Dividends to equity holders - - - (10,019) (10,019)
At 1 January 2022 583,849 49,277 58,326 358,254 1,049,706
Profit for the year - - - 32,407 32,407
Other comprehensive income
Debt investments at FVOCI
- change in fair value, net of tax - - (3,135) - (3,135)
Equity investments at FVOCI
- change in fair value, net of tax - - (1,120) - (1,120)
Property revaluation, net of tax - - 3,029 - 3,029
Remeasurement of actuarial losses on defined benefit plans,
net of tax
- - - 1,615 1,615
Total other comprehensive income - - (1,226) 1,615 389
Total comprehensive income for the year - - (1,226) 34,022 32,796
At 31 December 2022 583,849 49,277 57,100 392,276 1,082,502
The notes are an integral part of these financial statements.
Statements of cashflows
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
54
The Group The Bank
Note 2022 2021 2022 2021
€000 €000 €000 €000
Cash flows from operating activities
Interest and commission receipts 292,044 269,028 282,958 259,179
Interest, commission and compensation payments (22,542) (42,405) (22,542) (42,405)
Payments to employees and suppliers (171,472) (168,867) (166,474) (163,920)
Operating profit before changes in operating assets and
liabilities
98,030 57,756 93,942 52,854
(Increase)/decrease in operating assets:
Loans and advances (391,817) (329,153) (391,817) (329,234)
Reserve deposit with Central Bank of Malta (8,866) (7,059) (8,866) (7,059)
Fair value through profit or loss financial assets (24,765) (12,732) (24,765) (12,732)
Fair value through profit or loss equity instruments (63) 1,668 (63) 1,668
Treasury bills with original maturity of more than 3 months 50,125 69,600 50,125 69,600
Other assets (1,771) (1,580) (1,772) (1,568)
Increase/(decrease) in operating liabilities:
Amounts owed to banks and to customers (89,253) 1,384,221 (91,715) 1,387,953
Other liabilities (199,433) 13,071 (199,515) 13,225
Net cash from operating activities before tax (567,813) 1,175,792 (574,446) 1,174,707
Tax refunded/(paid) 6,440 (18,691) 5,753 (17,704)
Net cash (used in)/from operating activities (561,373) 1,157,101 (568,693) 1,157,003
Cash flows from investing activities
Dividends received 2,387 2,443 9,386 2,251
Interest received from amortised and other fixed income
instruments
30,940 36,575 30,940 36,575
Injection of capital in associate (note 18) - (20,000) - (20,000)
Purchase of debt instruments (1,535,766) (812,470) (1,535,766) (812,470)
Proceeds from sale or maturity of debt instruments 511,350 523,367 511,350 523,367
Purchase of property and equipment and intangible assets (16,567) (11,849) (16,259) (11,789)
Net cash used in investing activities (1,007,656) (281,934) (1,000,349) (282,066)
Cash flows from financing activities
Interest paid on long-term liabilities (5,781) (5,776) (5,781) (5,776)
Proceeds from issue of senior non-preferred notes 350,000 - 350,000 -
Outflows from issue of senior non-preferred notes (2,274) - (2,274) -
Payment of lease liabilities (1,739) (1,919) (1,726) (1,689)
Dividends paid to equity holders (10,019) - (10,019) -
Net cash from/(used in) financing activities 330,187 (7,695) 330,200 (7,465)
Net change in cash and cash equivalents before fx changes (1,238,842) 867,472 (1,238,842) 867,472
Effect of exchange rate changes on cash and cash equivalents 433 (250) 433 (250)
Net change in cash and cash equivalents after effect of
exchange rate changes
(1,239,275) 867,722 (1,239,275) 867,722
Net change in cash and cash equivalents (1,238,842) 867,472 (1,238,842) 867,472
Cash and cash equivalents at 1 January 4,818,144 3,950,672 4,818,144 3,950,672
Cash and cash equivalents at 31 December 36 3,579,302 4,818,144 3,579,302 4,818,144
The notes are an integral part of these financial statements.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
55
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 Basis of preparation
Legal Notice 19 of 2009 as amended by Legal Notice 233 of 2016, Accountancy Profession (Accounting and Auditing Standards)
(Amendments) Regulations, 2016, defines compliance with generally accepted accounting principles and practice as adherence to
International Financial Reporting Standards (IFRS) as adopted by the EU for financial periods starting on or after 1 January 2008.
These Regulations have come into force on 17 June 2016.
Article 4 of Regulation 1606/2002/EC requires that, for each financial period starting on or after 1 January 2005, companies
governed by the law of an EU Member State shall prepare their consolidated financial statements in conformity with IFRS as
adopted by the EU if, at their reporting date, their securities are admitted to trading on a regulated market of any EU Member
State. This Regulation prevails over the provisions of the Companies Act, 1995, (Chapter 386, Laws of Malta) to the extent that the
said provisions of the Companies Act, 1995, (Chapter 386, Laws of Malta) are incompatible with the provisions of the Regulation.
Consequently, the separate and the consolidated financial statements are prepared in conformity with IFRS as adopted by the EU.
These financial statements have also been prepared in accordance with the provisions of the Banking Act, 1994 (Chapter 371, Laws
of Malta) and the Companies Act, 1995 (Chapter 386, Laws of Malta).
The financial statements have been prepared on the historical cost basis. Assets and liabilities are measured at historical cost except
for the following that are measured at fair value: financial assets measured at fair value through other comprehensive income
(FVOCI), financial instruments classified at fair value through profit or loss (FVTPL), derivatives and land and buildings. Additionally,
assets held for realisation are measured at fair value less costs to sell if it is lower than their cost.
References to the ‘Group’ applies also to the ‘Bank’.
1.1.1 Going concern
Stress testing scenarios were carried out to evaluate the appropriateness of the going concern basis in preparing the financial
statements for 2022.
In making this assessment as at 31 December 2022, which is at least, but not limited to, twelve months from the end of the
reporting period, the Directors considered the Group’s business, profitability projections, funding and capital plans, together with
a range of other factors such as the uncertainty that the Russia/Ukraine conflict brought about and the outlook for the Maltese
and European economy, as well as external factors on the Banking sector triggered by contagion risk. The matters of primary
consideration by the Directors are set out below:
Capital: The Group has developed capital plans under base and stress scenarios and the Directors believe that the Group has
sufficient capital to meet its regulatory capital requirements throughout the period of assessment. Stress tests used (both for
capital and liquidity) were based upon an assessment of reasonably possible downside that the Bank may experience. The capital
ratios will only be materially impacted under an improbable extreme scenario amalgamating the escalation of the Ukraine/Russian
conflict whilst concurrently, the government in Malta will no longer be able to sustain the energy subsidies. However, under such
extreme scenario, the Bank is expected to be able to meet the Total SREP (the supervisory review and evaluation process) Capital
requirement.
Funding and Liquidity: The Directors have considered the Group's funding and liquidity position and are satisfied that the Group
has sufficient funding and liquidity throughout the period of assessment. This statement is based on the development of different
stress testing scenarios.
In order to meet regulatory requirements pertaining to MREL, the Bank has obtained approval from the Central Bank of Ireland
for a base prospectus towards the establishment of a Euro Medium Note Programme of a maximum amount of €500 million. On 6
December 2022, the Bank issued €350 million Senior non-preferred notes (Refer to Note 30).
Based on the above, the Directors consider it appropriate to prepare the financial statements on a going concern basis having
concluded that there are no material uncertainties related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern over the period of assessment.
1.1.2 New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1
January 2022:
- Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent
Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020)
- Amendments to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021)
The above amendments did not have a significant impact on the Group and the Bank’s annual report as at 31 December 2022.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
56
1.1.3 Standards issued but not yet effective
A number of new standards and amendments were endorsed by the EU but effective for periods after 1 January 2022 and earlier
application is permitted as disclosed hereunder. However, the Group has not early adopted the new standards in preparing these
consolidation financial statements.
These standards and amendments include the following:
Effective date Title Key Requirements
1 January 2023 Amendments to IFRS 17 Insurance
contracts: Initial Application of IFRS 17
and IFRS 9 – Comparative Information
(issued on 9 December 2021)
The amendment is a transition option relating to comparative information
about financial assets presented on initial application of IFRS 17. The
amendment is aimed at helping entities to avoid temporary accounting
mismatches between financial assets and insurance contract liabilities,
and therefore improve the usefulness of comparative information for
users of financial statements.
1 January 2023 Amendments to IAS 12 Income
Taxes: Deferred Tax related to Assets
and Liabilities arising from a Single
Transaction (issued on 7 May 2021)
The amendments were issued in response to a recommendation
from the IFRS Interpretations Committee. Views differed on whether
the recognition exemption applied to transactions, such as leases,
that lead to the recognition of an asset and liability. It is expected
that the amendments will reduce diversity in the reporting and align
the accounting for deferred tax on such transactions with the general
principle in IAS 12 of recognizing deferred tax for temporary differences.
1 January 2023 Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice
Statement 2: Disclosure of Accounting
policies (issued on 12 February 2021)
The amendments to IAS 1 require entities to disclose their material
accounting policies rather than their significant accounting policies. The
amendments are applied prospectively.
1 January 2023 Amendments to IAS 8 Accounting
policies, Changes in Accounting
Estimates and Errors: Definition of
Accounting Estimates (issued on 12
February 2021)
IASB has published 'Definition of Accounting Estimates (Amendments
to IAS 8)' to help entities to distinguish between accounting policies and
accounting estimates.
1 January 2023 IFRS 17 Insurance Contracts (issued on
18 May 2017); including Amendments
to IFRS 17 (issued on 25 June 2020)
The amendments are aimed at helping companies implement the
Standard and making it easier for them to explain their financial
performance.
The impact that the adoption of the above standards and amendments will have on the financial statements of the Group and
the Bank in the period of initial application is currently being assessed by the Directors. The assessment on IFRS 17 and IFRS 9 is
disclosed in Note 1.1.4.
1.1.4 The adoption of IFRS 17 and IFRS 9 by associate entities
The associates (refer to Note 18) of the Group will apply IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments for the first
time on 1 January 2023. These standards will bring significant changes to the accounting for insurance and reinsurance contracts
and financial instruments and are expected to have a material impact on the associates consolidated financial statements in the
period of initial application.
IFRS 17, published on 18 May 2017, and amended on 25 June 2020, supersedes IFRS 4 Insurance Contracts and is applicable for
annual periods beginning on or after 1 January 2023, with early adoption permitted. IFRS 17 was adopted by the European Union
(‘EU’) on 19 November 2021, with an exemption regarding the annual cohort requirement. The current standard on insurance
contracts, IFRS 4, has been amended accordingly, extending to 2023 the temporary exemption for qualifying insurers to apply IFRS
9. The associates have not early adopted IFRS 17.
IAS 39 Financial Instruments: Recognition and Measurement and is effective for annual periods beginning on or after 1 January 2018,
with early adoption permitted. However, the associates have met the relevant criteria and have applied the temporary exemption
from IFRS 9 for annual periods before 1 January 2023.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.1 Basis of preparation (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
57
The associates have elected to apply the optional temporary relief under IFRS 4 that permits the deferral of the adoption of IFRS 9
for eligible insurers. The associates have continued to apply IAS 39 until the financial reporting period ending 31 December 2022.
Consequently, the associates will apply IFRS 9 for the first time on 1 January 2023.
The new expected credit losses model replaces the incurred loss impairment model used in IAS 39. For financial liabilities there
were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive
income, for liabilities designated at fair value through profit or loss. The associates are considering the implications of the standard
and its impact on the financial results and position once adopted. For those assets which are not measured at fair value through
profit or loss, the Group is assessing the impact of the new impairment model introduced by the standard. As at the time of issue
of these financial statements, the impact is not yet known or reasonably estimable.
The associates are not able to disclose known or reasonably estimable information relevant to assessing the possible financial
impact that the application of IFRS 17 and IFRS 9 will have on the associates’ financial statements and consequently on the Group’s
consolidated financial statements in the period of initial application when the 2022 financial statements were authorised for issue.
IFRS 17 must be applied retrospectively and consequently, the associates will need to restate the opening Statement of financial
position at transition date (i.e. at 1 January 2022), the Statement of profit or loss for 2022 as well as the Statement of financial
position as at 31 December 2022. The associates expect that two of the largest differences will pertain to the value of in-force
business and the measurement of its in-scope contracts in accordance with the requirements of IFRS 17. On the other hand, the
impact of the measurement of in-scope contracts in accordance with IFRS 17 is still to be determined. This will impact the Share
of profit at Group level.
1.1.5 Standards and amendments not yet endorsed by the EU
The following new standards and amendments have not yet been endorsed by the EU:
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and
Classification of Liabilities as Current or Non-current – Deferral of Effective Date (issued on 23 January 2020 and 15 July
2020 respectively)
- Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued on 22 September 2022)
1.2 Basis of consolidation
The Group financial statements comprise the financial statements of Bank of Valletta p.l.c., (the Bank), a public liability company
domiciled and incorporated in Malta, and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group 'controls' an
entity if it is exposed to, or has rights to, variable returns from its involvement with the entity. The Group reassesses whether it
has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights
held (e.g., those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.
The results of subsidiaries are included in the consolidated financial statements from the date that control commences until the
date that control ceases. Intragroup balances, transactions, income and expenses are eliminated on consolidation. Non-controlling
interests that represent ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event
of liquidation may be initially measured either at their present ownership interests' proportionate share in the recognised amounts
of the acquiree's identifiable net assets or at fair value. The choice of measurement basis is made on an acquisition-by-acquisition
basis. After initial recognition, non-controlling interests in the net assets consist of the amount of those interests at the date of
the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination.
The excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities is recognised
as goodwill and is included within the carrying amount of the investment and assessed for impairment as part of the investment. If
the cost of acquisition is less than the Group’s share of the net fair value of the identifiable assets and liabilities, the difference is
included as income in the determination of the Group's share of the profit or loss in the period in which the investment is acquired.
Equity-accounted investees comprise interests in associates. The results and assets and liabilities of equity-accounted investees
are incorporated in the consolidated financial statements using the equity method of accounting from the date that significant
influence or joint control commences until the date that significant influence or joint control ceases. Equity-accounted investees are
those entities in which the Group has significant influence, but not control or joint control over the financial and operating policies.
The significant accounting policies adopted are set out in the following pages.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.1 Basis of preparation (continued)
1.1.4 The adoption of IFRS 17 and IFRS 9 by associate entities (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
58
1.3 Financial instruments
1.3.1 Amortised cost and effective interest rate
Interest income and expense is recognised using the effective interest method, by reference to the principal outstanding and the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the instrument or, when appropriate, a shorter period to that instrument’s gross carrying amount. When calculating
the effective interest rate, the Group estimates cash flows considering all contractual terms of the instrument but not future credit
losses. The calculation includes payments and receipts that are an integral part of the effective interest rate, transaction costs and
all other discounts or premiums upon initial recognition.
Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial
liability.
The ‘amortised cost’ of a financial asset or financial liability is measured on initial recognition minus the principal repayments, plus
or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the
maturity amount and, for financial assets adjusted for any expected credit loss allowance.
1.3.2 Interest income
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:
- Financial assets that are not purchased or originated credit-impaired (POCI) but have subsequently become credit-impaired
(or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of
the expected credit loss provision), or
- POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the amortised cost of the
financial asset.
1.3.3 Initial Recognition
Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the
instrument. All loans and advances to customers and to banks are recognised when cash is advanced to borrowers. All purchases
and sales of securities are recognised and derecognised on settlement date, which is the date that an asset is delivered to or by the
Group.
1.3.4 Measurement at initial recognition
At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in the case of financial
asset or financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to
the acquisition or issue of the financial asset or financial liability, such as fees and commissions. Transaction costs of financial assets
and financial liabilities carried at fair value through profit or loss are expensed in profit or loss.
An expected credit loss allowance (ECL) is also recognised immediately after initial recognition for financial assets measured
at amortised cost and investments in debt instruments measured at FVOCI, as described in Note 39.2.1.2, which results in an
accounting loss being recognised in profit or loss when an asset is newly originated.
1.4 Financial Assets
1.4.1 Classification and measurement of financial assets
The Group classifies its financial assets in the following measurement categories:
- Fair value through profit or loss (FVTPL);
- Fair value through other comprehensive income (FVOCI); or
- Amortised cost.
Debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuer's perspective, such as loans,
government and corporate bonds.
Classification and subsequent measurement of debt instruments depend on:
(i) the Group's business model for managing the asset; and
(ii) the cash flow characteristics of the asset.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
59
Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories:
• Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments
of principal and interest (SPPI) on specified dates, and that are not designated at FVTPL, are measured at amortised cost. The
carrying amount of these assets is adjusted by any expected credit loss allowance recognised and measured as described in
Note 39.2.1.1. Interest income from these financial assets is included in 'Interest and similar income' using the effective interest
rate method.
• Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash
flows and for selling the assets, where the assets' cash flows represent solely payments of principal and interest, and that are
not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the
recognition of impairment gains or losses on specified dates, interest revenue and foreign exchange gains and losses on the
instrument's amortised cost which are recognised in profit or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in 'Net gain on investment
securities and hedging instruments'. Interest income from these financial assets is included in 'Interest and similar income' using
the effective interest rate method.
• Fair value through profit or loss (FVTPL): Assets that do not meet the criteria for amortised cost or FVOCI are measured at
FVTPL. A gain or loss on a debt investment that is subsequently measured at FVTPL and is not part of a hedging relationship
is recognised in profit or loss and presented in the statement of profit or loss within ‘Trading profits’ in the period in which
it arises, unless it arises from debt instruments that were designated at fair value or which are not held for trading, in which
case they are presented separately in ‘Net gain on investment securities and hedging instruments’. Interest income from these
financial assets is included in ‘Interest income’ using the effective interest rate method.
Financial assets and liabilities are designated at fair value through profit or loss on initial recognition where such designation results
in more relevant information because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes
referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and
losses on them on different bases.
Business Model Assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this
best reflects the way the business is managed, and information is provided to management. The information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether
management's strategy focuses on earning contractual interest revenue maintaining a particular interest rate profile,
matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash
flows through the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Group's management;
- the risks that affect the performance of the business model (and the financial assets held within that business model) and
how those risks are managed;
- the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales
activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how
the Group's stated objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading and whose performance is evaluated on a fair value basis are measured at FVTPL because
they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
Cash flows that represent solely payments of principal and interest
'Principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time
value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for
other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, 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 considers:
• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and
• features that modify consideration of the time value of money – e.g. periodical reset of interest rates.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.4 Financial Assets (continued)
1.4.1 Classification and measurement of financial assets (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
60
Embedded derivatives
Derivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an embedded
derivative separately from the host contract when:
- the host contract is not an asset in the scope of IFRS 9;
- the host contract is not itself carried at FVTPL;
- the terms of the embedded derivative would meet the definition of a derivative if they were contained in a separate
contract; and
- the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics
and risks of the host contract.
Separated embedded derivatives are measured at fair value, with all changes in fair value recognised in profit or loss unless they
form part of a qualifying cash flow or net investment hedging relationship. Separated embedded derivatives are presented in the
statement of financial position together with the host contract.
Equity instruments
Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is instruments that do
not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. Examples of equity
instruments include basic ordinary shares.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an investment-by-investment basis and is irrevocable. Other equity instruments
are classified as measured at FVTPL.
Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised. Dividends are
recognised in profit or loss (see Note 1.25) unless they clearly represent a recovery of part of the cost of the investment, in which
case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal of
an investment.
Gains and losses on equity investments at FVTPL are included in the ‘Trading profits’ line in the statement of profit or loss.
1.4.2 Modification of terms
When modification of a loan agreement occurs as a result of commercial restructuring activity rather than due to the credit risk of
the borrower, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are
substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this
case, the original financial asset is derecognised (see 1.4.4) and a new financial asset is recognised at fair value. If the cash flows of
the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of
the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount
arising from adjusting the gross carrying amount as a modification gain or loss in profit or loss.
Additionally, in the case of loans and advances which encountered actual or apparent financial difficulties, the Group may grant a
concession where a customer's financial difficulty indicates that with the original terms and conditions of the contract satisfactory
repayment may not be possible. Such concessions are recognised as revisions to the expected credit loss on the associated loan.
A concession refers to either of the following:
- a change in the previous terms and conditions of a contract the customer is considered unable to comply with due to its
financial difficulties to allow for sufficient debt service ability, that would not have been granted had the customer not been
in financial difficulties; or
- a total or partial refinancing of a troubled debt contract, that would not have been granted had the customer not been in
financial difficulties.
1.4.3 Impairment
The Group assesses on a forward-looking basis the expected credit losses (‘ECL’) associated with its debt instrument assets carried
at amortised cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Group
recognises a loss allowance for such losses at each reporting date. The measurement of ECL reflects:
- an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
- the time value of money; and
- reasonable and supportable information that is available without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic conditions.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.4 Financial Assets (continued)
1.4.1 Classification and measurement of financial assets (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
61
Note 39.2.1.2 provides more detail of how the expected credit loss allowance is measured.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position as follows:
- financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
- loan commitments and financial guarantee contracts: as a provision;
- where a financial instrument includes both a drawn and undrawn component, and the Group cannot identify the ECL on
the loan commitment component separately from those on the drawn component: the Group presents a combined loss
allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of
the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a
provision; and
- debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair
value reserve.
Measurement of ECL
ECL are a probability-weighted estimate of credit losses. They are measured as follows:
- financial assets that are not credit-impaired at the reporting date: at the present value of all cash shortfalls (i.e. the difference
between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to
receive);
- financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the
present value of estimated future cash flows;
- undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the
Group if the commitment is drawn down and the cash flows that the Group expects to receive; and
- financial guarantee contracts: the present value of the expected payments to reimburse the holder less any amounts that
the Group expects to recover.
Modification of financial assets
When there is a modification of financial assets’ terms (Note 1.4.2), the date of renegotiation is considered to be the date of
initial recognition for impairment calculation purposes including for the purpose of determining whether a significant increase
in credit risk has occurred.
1.4.4 Derecognition of financial assets
A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the Group
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and
rewards of ownership and it does not retain control of the financial asset and the transfer qualifies for derecognition.
1.4.5 Fair valuation of financial assets
Where possible, fair value is based on quoted bid prices in an active market. A market is regarded as active if transactions for the
asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market
for a financial asset is not active, the Group establishes fair value by using valuation techniques that maximise the use of relevant
observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that
market participants would take into account in pricing a transaction.
1.5 Financial liabilities
1.5.1 Classification and measurement of financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Financial liabilities are initially measured at fair value less, in the case of financial liabilities not at fair value through profit or loss, transaction
costs that are directly attributable to their issue. Financial liabilities are subsequently measured at amortised cost using the effective
interest method, except for financial liabilities at fair value through profit or loss, which are measured at fair value
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.4 Financial Assets (continued)
1.4.3 Impairment (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
62
Financial liabilities at fair value through profit or loss include financial liabilities classified as held for trading and those designated at fair
value through profit or loss upon initial recognition. During the current and the previous year, the Group did not designate any financial
liabilities as at fair value through profit or loss upon initial recognition. Derivatives are categorised as held for trading, unless they are
designated and effective hedging instruments.
Financial liabilities that are measured at amortised cost using the effective interest method include amounts owed to banks, amounts
owed to customers, senior non-preferred liabilities and subordinated liabilities.
The gain or loss on financial liabilities at fair value through profit or loss is recognised in profit or loss. For financial liabilities carried at
amortised cost, the gain or loss is recognised in profit or loss when the financial liability is derecognised and through the amortisation
process whereby any difference between the proceeds net of transaction costs, and the settlement or redemption is recognised over
the term of the financial liability.
Financial liabilities are classified in separate captions of the Statement of Financial Position based on the nature of the instrument
and the counterparty. Financial liabilities where the creditor has a lower priority than others are classified as subordinated liabilities
whilst Senior non-preferred liabilities that fulfil the minimum requirements for own funds and eligible liabilities (MREL) are presented
in a separate caption.
1.5.2 Derecognition of financial liabilities
A financial liability is derecognised when it is extinguished. This occurs when the obligation specified in the contract is discharged,
cancelled or expires.
1.6 Interest rate benchmark reform
The amendments to various standards as a result of the interest rate reform – phase 2 were applied for the first time in 2021.
When the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortised cost
changed as a result of interest rate benchmark reform, the Group updated the effective interest rate of the financial asset or
financial liability to reflect the change that is required by the reform. A change in the basis for determining the contractual cash
flows is required by interest rate benchmark reform if the following conditions are met:
- the change is necessary as a direct consequence of the reform; and
- the new basis for determining the contractual cash flows is economically equivalent to the previous basis – i.e. the basis
immediately before the change.
When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual
cash flows required by interest rate benchmark reform, the Group first updated the effective interest rate of the financial asset or
financial liability to reflect the change that is required by interest rate benchmark reform. After that, the Group applied the policies
on accounting for modifications to the additional changes.
The Phase 2 amendments provide practical relief from certain requirements in the standards to ease adoption of alternative
interest rate benchmarks. These reliefs relate to modifications of financial instruments, lease contracts or hedge relationships when
a benchmark interest rate in a contract is replaced with a new alternative benchmark rate. The Phase 2 amendments also require
disclosure of the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The
Phase 2 amendments are effective for annual periods beginning on or after 1 January 2021. The Group has early adopted the Phase
2 amendments. As a result of the limited exposure to IBOR related financial instruments, these amendments had an insignificant
effect on the Group’s financial statements.
IBOR Phase 2 amendments provide practical relief from certain requirements in the standards. These reliefs relate to modifications
of financial instruments, lease contracts or hedging relationships when a benchmark interest rate in a contract is replaced with a
new alternative benchmark rate. When the basis for determining the contractual cash flows of a financial instrument is changed as
a direct consequence of interest rate benchmark reform and is made on an economically equivalent basis, the Phase 2 amendments
provide a practical expedient to update the effective interest rate of a financial instrument before applying the existing requirements
in the standards. The amendments also provide an exception to use a revised discount rate that reflects the change in interest rate
when remeasuring a lease liability because of a lease modification that is required by interest rate benchmark reform. Finally, the
Phase 2 amendments provide a series of reliefs from certain hedge accounting requirements when a change required by interest
rate benchmark reform occurs to a hedged item and/or hedging instrument and consequently the hedge relationship can be
continued without any interruption.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.5 Financial liabilities (continued)
1.5.1 Classification and measurement of financial liabilities (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
63
1.7 Financial guarantee contracts and loan commitments
‘Financial guarantees’ are contracts that require the Group to make specified payments to reimburse the holder for a loss that it
incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. ‘Loan
commitments’ are firm commitments to provide credit under pre-specified terms and conditions.
Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value.
Subsequently, they are measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially
recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15.
For financial guarantees issued or commitments the Group recognises a loss allowance.
Impairment allowances and provisions on loan commitments that comprise both a drawn and undrawn commitment are presented
in accordance with the policy set out in the Note 1.4.3 Impairment.
1.8 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when the
Group currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
1.9 Derivatives held for risk management purposes and hedge accounting
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or
liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position.
The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments as hedging
instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally documents the relationship
between the hedging instrument(s) and hedged item(s), including the risk management objective and strategy in undertaking the
hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Group makes an
assessment, both on inception of the hedging relationship and on an ongoing basis, of whether the hedging instrument(s) is (are)
expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged item(s) during the
period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125%. For a cash
flow hedge of a forecast transaction, the Group makes an assessment of whether the forecast transaction is highly probable to
occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
The Group normally designates a portion of the cash flows of a financial instrument for cash flow or fair value changes attributable
to a benchmark interest rate risk, if the portion is separately identifiable and reliably measurable.
These hedging relationships are discussed below.
Fair value hedges
When a derivative is designated as the hedging instrument in a hedge of the change in fair value of a recognised asset or liability or
a firm commitment that could affect profit or loss, changes in the fair value of the derivative are recognised immediately in profit
or loss. The change in fair value of the hedged item attributable to the hedged risk is recognised in profit or loss. If the hedged item
would otherwise be measured at cost or amortised cost, then its carrying amount is adjusted accordingly.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for fair value hedge
accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. However, if the derivative is
novated to a Central Counterparty Clearing (CCP) by both parties as a consequence of laws or regulations without changes in its
terms except for those that are necessary for the novation, then the derivative is not considered expired or terminated.
Any adjustment up to the point of discontinuation to a hedged item for which the effective interest method is used is amortised to
profit or loss as an adjustment to the recalculated effective interest rate of the item over its remaining life.
On hedge discontinuation, any hedging adjustment made previously to a hedged financial instrument for which the effective
interest method is used is amortised to profit or loss by adjusting the effective interest rate of the hedged item from the date on
which amortisation begins. If the hedged item is derecognised, then the adjustment is recognised immediately in profit or loss when
the item is derecognised.
Other non-trading derivatives
Other non-trading derivatives are recognised on balance sheet at fair value on initial recognition. If a derivative is not held for
trading, and is not designated in a qualifying hedge relationship, then all changes in its fair value are recognised immediately in profit
or loss as a component of trading profits and net income from other financial instruments at FVTPL (refer to Note 5).
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
64
1.9.1 Hedges directly affected by interest rate benchmark reform
As yet, none of the Group’s hedging relationships has been impacted by the benchmark reform.
1.10 Sale and repurchase agreements
Securities sold subject to a linked repurchase agreement (repos) are retained in the financial statements as financial assets at fair
value through profit or loss or as investment securities as appropriate, and the counterparty liability is included in amounts owed
to banks. Securities purchased under agreements to resell (reverse repos) are not recognised but the amounts paid are recorded
as loans and advances to banks. The difference between sale and repurchase price or purchase and subsequent sale price is
recognised over the life of the repo/reverse repo agreements using the effective interest method and is treated as interest.
1.11 Investments in subsidiaries and equity-accounted investees
Investments in subsidiaries and equity-accounted investees are initially included in the Bank’s statement of financial position at cost
and subsequently at cost less any impairment loss which may have arisen. Interest in equity-accounted investees are accounted for
using the equity method at Group level. They are initially recognised at cost, which includes transaction costs. Subsequently, the
consolidated financial statements include the Group's share of profit or loss and other comprehensive income of equity-accounted
investees, until the date on which significant influence ceases. Dividends from the investments are recognised in the Bank's profit
or loss when its right to receive dividend is established.
Impairment
At the end of each reporting period, the Bank reviews the carrying amount of its investments in subsidiaries and equity-accounted
investees to determine whether there is any indication of impairment and if any such indication exists, the recoverable amount of
the asset is estimated.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable
amount is the higher of fair value less costs of disposal and value in use. An impairment loss recognised in a prior year is reversed
if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was
recognised. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate
of its recoverable amount, provided that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years. Impairment losses and reversals are recognised
immediately in profit or loss.
1.12 Property and equipment
Property and equipment are classified into the following classes – land and buildings, IT infrastructure and equipment and other
(primarily furniture and fittings).
Property and equipment are initially measured at cost. Subsequent costs are included in the asset’s carrying amount when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. Expenditure on repairs and maintenance of property and equipment is recognised as an expense when incurred.
Subsequent to initial recognition, freehold and long-term leasehold properties are stated in the statement of financial position at
revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.
Revaluations are performed by a professionally qualified architect on a regular basis such that the carrying amount does not differ
materially from that which would be determined using fair values at the end of the reporting period. Any surpluses arising on such
revaluation are recognised in other comprehensive income and accumulated in equity as a revaluation reserve unless they reverse
a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or
loss to the extent of the decrease previously charged. Any deficiencies resulting from decreases in value are deducted from this
revaluation reserve to the extent that the balance held in this reserve relating to a previous revaluation of that asset is sufficient to
absorb these, and charged to profit or loss thereafter.
Other tangible assets are stated at cost less accumulated depreciation and any accumulated impairment losses.
Property and equipment are derecognised on disposal or when no future economic benefits are expected from their use or
disposal. Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the
carrying amount, and are included in profit or loss in the period of derecognition.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.9. Derivatives held for risk management purposes and hedge accounting (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
65
1.13 Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
1.13.1 Group acting as a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates consideration in the
contract to each lease component on the basis of its relative stand-alone price. However, for leases of branches and office premises,
the Group has elected not to separate non-lease components and accounts for the lease and non-lease components as a single
lease component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove any improvements
made to branches or office premises.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of
the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using its incremental borrowing rate. This rate was based on the swap rate curves as proxies for the risk-free rate, the
MGS yield to include the local context and applying a risk margin.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of
the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a
purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain to be exercised or
a termination option is reasonably certain not to be exercised.
The Group presents right-of-use assets in ‘property and equipment’ and lease liabilities in ‘other liabilities’ in the statement of
financial position.
1.13.2 Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets (below €5,000) and
short-term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis
over the lease term.
1.14 Intangible assets
Intangible assets comprise computer software. In determining the classification of an asset that incorporates both intangible and
tangible elements, judgement is used in assessing which element is more significant. Computer software which is an integral part of
the related hardware is classified as property and equipment and accounted for in accordance with the Group’s accounting policy
on property and equipment. Where the software is not an integral part of the related hardware, this is classified as an intangible
asset. Computer software is externally generated.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which
it relates.
Computer software is initially measured at cost. It is subsequently carried at cost less accumulated amortisation and any accumulated
impairment losses.
Computer software is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Gains
or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount,
and are included in profit or loss in the period of derecognition.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
66
1.15 Depreciation and amortisation
Depreciation on property and equipment commence when these assets are available for use and are charged to profit or loss so as
to write off the cost or revalued amount of assets, other than land, less any estimated residual value, over their estimated useful
life, using the straight line method, on the following bases:
Property and equipment
Freehold and long-term leasehold buildings 2% per annum
IT infrastructure and equipment 10% - 25% per annum
Other (primarily furniture and fittings) 5% - 33% per annum
Right-of-use assets Over the life of the lease
The depreciation method applied, the residual value and the useful life are reviewed at the end of each reporting period and
adjusted if appropriate.
Amortisation on intangible assets commence when these assets are available for use and are charged to profit or loss so as to write
off the cost or revalued amount of assets, less any estimated residual value, over their estimated useful life, using the straight line
method, on the following bases:
Intangible assets
Computer software 10% - 20% per annum
The amortisation method applied, the residual value and the useful life are reviewed at the end of each reporting period and
adjusted if appropriate.
1.16 Impairment of property and equipment and intangible assets
At the end of each reporting period the Group reviews the carrying amount of its property and equipment and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists the
recoverable amount is estimated in order to determine the extent of the impairment loss and the carrying amount of the asset is
reduced to its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use.
An impairment loss is recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case the
loss is recognised in other comprehensive income to the extent that it does not exceed the amount in the revaluation surplus for
that asset.
An impairment loss recognised in a prior year is reversed if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised. When an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its recoverable amount, to the extent that it does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Impairment
reversals are recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case the impairment
reversal is recognised in other comprehensive income, unless an impairment loss on the same asset was previously recognised in
profit or loss.
1.17 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 Directors’ best estimate of the expenditure required to
settle the present obligation at the end of the reporting period. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability. In such case, the unwinding of the discount is recognised
as finance cost.
A contingent liability is (a) a possible obligation that arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or (b) a present
obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient
reliability. Contingent liabilities are not recognised but are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote.
A contingent asset is a possible asset 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.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
67
1.18 Non-current assets and disposal groups held for sale
Non-current assets and disposal groups are classified as held for sale if it is highly probable that they will be recovered primarily
through a sale transaction rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower
of their carrying amount and fair value less costs to sell and the asset or disposal group is available for immediate sale in its present
condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within a reasonable period from the date of classification. Non-current assets are not depreciated (or amortised) while they are
classified as held for sale or while they are part of a disposal group classified as held for sale.
1.19 Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and deposits repayable on demand or with a contractual period to maturity of
less than 3 months; advances to banks repayable within 3 months from the date of the advance; balances with the Central Bank of
Malta, excluding reserve deposit requirements, and treasury bills with an original maturity of less than 3 months. Amounts owed
to banks that are repayable on demand or with a contractual period to maturity of less than 3 months and which form an integral
part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statements
of cash flow.
1.20 Dividends payable
Interim dividends and special dividends approved by the Directors are recognised when paid. Final dividends are recognised as
liability upon approval by the shareholders at the Annual General Meeting. Special dividends may be declared separately from the
typical dividend cycle (interim and final) and are usually a one-off payment distributed to shareholders from the profit of the period
and/or from retained earnings.
1.21 Operating segments
An operating segment is a component of an entity (a) that engages in business activities from which it may earn revenues and incur
expenses, (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available.
Unallocated items comprise mainly head office expenses and tax assets and liabilities.
1.22 Operating Income
Operating income includes net interest income and net fee and commission income together with the dividend income, trading
profits and net gain on investment securities and hedging instruments components of the statement of profit or loss.
1.23 Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or in, its absence, the most advantageous market to which the Group has
access at the date. The fair value of a liability reflects its non-performance risk.
Fair value reflects conditions, including but not limited to liquidity in the market, at a specific date and may therefore differ significantly
from the amounts which will actually be received on the maturity or settlement date. The Bank's portfolio remains deployed across
a wide spread of holdings of moderate duration debt securities issued by quality, credit rated, sovereign, supranational, corporate
and financial institutions, as further disclosed in Notes 14 and 15 to the financial statements.
The best evidence of fair value of an instrument is a quoted price in an actively traded market for that instrument. The determination
of what constitutes an active market is subjective and requires the collation of data and the exercise of judgement.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm's length basis. The Bank determines whether active market conditions exist by taking into consideration
various characteristics, including:
- a significant decline in volume and level of trading activity;
- significant variations in available prices either over time or among market participants;
- the absence of or stale prices;
- unusually wide bid/offer spreads; and
- exceptionally minimal transactions when compared with the quantum of the issue in question.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
68
Where it is concluded that an active market does not exist a valuation technique is used. The latter gives consideration to transaction
prices in inactive markets, however it makes use of other observable market data which include a combination of the following:
- the risk premium of more active instruments of the same issuer, the same type of debt, the same currency and with the
same or similar maturity;
- the spreads payable on Credit Default Swaps of the issuer;
- the risk premium over and above the risk free bonds for similarly rated issuers in the same industry sector;
- yield curve or Discounted Cash Flow (DCF) calculations to maturity using appropriate interest rate/discount factors;
- liquidity adjustments to reflect ability to sell asset over a reasonable timeframe; and
- other overall reasonableness tests.
The main assumptions and estimates which management considers when using valuation techniques are the likelihood and expected
timing of future cash flows on the instrument, selecting an appropriate discount rate for the instrument and a risk premium. The
valuation techniques used by the Group incorporate all factors that market participants would consider in setting a price and are
consistent with accepted economic methodologies for pricing financial instruments.
1.24 Taxation
Income tax expense comprises current and deferred tax and is recognised in profit or loss, except when it relates to items recognised
in other comprehensive income or directly in equity, in which case it is dealt with in other comprehensive income or in equity, as
appropriate.
Current tax
Current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit
or loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible
in other periods. Current tax also includes any tax arising from dividends. It is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period, and any adjustments in relation to the prior periods.
Deferred tax
Deferred tax is determined under the liability method in respect of all temporary differences between the carrying amount of an
asset or liability in the financial statements and its tax base. Deferred tax liabilities are generally recognised for all taxable temporary
differences subject to certain exceptions and deferred tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is
settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realised. Deferred tax is not recognised for temporary differences related to investments in subsidiaries to the extent that it is
probable that they will not reverse in the foreseeable future.
1.25 Revenue recognition
Revenue is recognised to the extent that it is probable that future economic benefits will flow to the Group and these can be
measured reliably. The following specific recognition criteria must also be met before revenue is recognised.
Dividend income from investments is recognised when the right to receive payment has been established.
Interest income and expense is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the instrument or, when appropriate, a shorter period to that instrument’s net carrying amount. When calculating the effective
interest rate, the Group estimates cash flows considering all contractual terms of the instrument but not future credit losses. The
calculation includes payments and receipts that are an integral part of the effective interest rate, transaction costs and all other
discounts or premiums.
Generally, fee and commission income, is recognised as the related services are performed.
A contract with a customer that results in a recognised financial instrument in the Group's financial statements may be partially
in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and
measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.
Other fee and commission expenses are expensed as the services are received.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.23 Fair value (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
69
1.26 Foreign currency translation
For the purpose of the consolidated and separate financial statements, the presentation currency is the Euro. The functional
currency of the Bank and of all its subsidiaries is the Euro.
In preparing the financial statements of the individual group entities, transactions denominated in currencies other than the
functional currency are translated at the exchange rates ruling on the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to Euro at the rates of exchange ruling at the end of the reporting period. Gains
and losses arising from such translation are dealt with in profit or loss and presented with trading income. Non-monetary assets
and liabilities denominated in foreign currencies that are stated at fair value are translated to Euro at the exchange rate ruling on
the date the fair value was measured. Non-monetary assets and liabilities denominated in foreign currencies that are measured in
terms of historical cost are not retranslated.
1.27 Employee benefits
The Group and the Bank contribute towards the state pension in accordance with local legislation. The only obligation of the Group
and the Bank is to make the required contribution. Costs are expensed in the period in which they are incurred in profit or loss.
1.27.1 Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected
to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
1.27.2 Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided and recognised in
Employee compensation and benefits in the Statement of Profit or Loss. Prepaid contributions are recognised as an asset to the
extent that a cash refund or a reduction in future payments is available.
1.27.3 Defined benefit plans
For the Group’s and the Bank’s defined benefit plans, the cost of providing benefits is determined using the projected unit credit
method, with estimations being carried out at each reporting date. Past service cost is recognised as an expense at the earlier of the
following dates (a) when the plan amendment or curtailment occurs and (b) when the entity recognises related restructuring costs
or termination benefits. The amount recognised in the Statement of Financial Position represents the present value of the expected
future payments required to settle the obligation resulting from employee service in the current and prior periods.
The service cost and the net interest on the net defined benefit liability are recognised in profit or loss. Remeasurements of the net
defined benefit liability, comprising actuarial gains and losses are recognised in other comprehensive income and are not reclassified
to profit or loss in a subsequent period. Such remeasurements are recognised immediately in retained earnings. Actuarial gains and
losses are changes in the present value of the defined benefit obligation resulting from experience adjustments and the effects
of changes in actuarial assumptions. Actuarial assumptions are an entity’s best estimates of the variables that will determine the
ultimate cost of providing post-employment benefits. Due to the nature of the actuarial assumptions, in accordance with the
provisions of IAS 19, Employee Benefits, the Group and the Bank did not involve a qualified actuary in the measurement of their
post-employment benefit obligations.
1.27.4 Termination benefits
Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when
the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting
date, then they are discounted.
1.28 Judgements in applying accounting policies and key sources of estimation uncertainty
The amounts recognised in the financial statements are sensitive to the accounting policies, assumptions and estimates that underlie
the preparation of financial statements. The judgements made by management in applying the Group’s and the Bank's accounting
policies that have the most significant effect on the amounts recognised in the financial statements, together with information
about the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting
period have been disclosed in the financial statements.
1.28.1 Credit Impairment
Estimates and underlying assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are either disclosed below or in Note 39.2.1.2.5. This discloses the determination of
inputs in the IFRS 9 ECL measurement model, including key assumptions used in incorporation of forward-looking information.
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
70
1.28.2 Fair value of financial instruments not quoted in active markets
The fair value of financial instruments that are not quoted in active markets is determined by using valuation techniques. Periodically,
the Group calibrates these valuation techniques and tests them for validity. Where possible the valuation techniques used by
the Group make use of observable data and incorporate all factors that market participants would consider in setting a price
and are consistent with accepted economic methodologies for pricing financial instruments. Management is required to make
certain assumptions and estimates in arriving at an appropriate fair value, based on available observable market data. A change in
assumptions could affect the reported fair value of these financial instruments. Further disclosures are provided in Note 39.
1.28.3 Fair value of land and buildings
The fair value of the Group's and the Bank's land and buildings is determined by using valuation techniques as further disclosed in
Note 21. In arriving at an estimate of fair value at the end of the reporting period, the Group and the Bank make use of significant
unobservable inputs. A change in such inputs could affect the reported fair value of these land and buildings.
1.28.4 Classification of facilities as forborne
Management follows the European Banking Authority technical standard in identifying performing/non-performing exposures and
in determining forborne exposures. Judgement is exercised in determining whether the modification of the original terms of a facility
are granted, because of financial difficulties, which would result in the exposure being classified as forborne.
1.28.5 Provisions and contingent liabilities
In the ordinary course of operations, the Group faces loss contingencies that may result in the recognition of a liability. Management
periodically assesses these issues based on information available and assessments from internal and/or external legal counsel.
The Group is currently involved in various claims and legal proceedings arising out of it normal business operations. Periodically, the
status of each significant loss contingency is reviewed to assess the potential financial exposure. If the potential loss from any claim
or legal proceeding is considered probable and the amount can be reasonably estimated, a liability for the estimated loss is provided
for. Due to the uncertainties inherent in such matters, provisions are based on the best information available at the reporting
date. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and,
if required, estimates are revised. Such revisions in the estimates of the potential liabilities could have a material impact on results
of operations and the financial position of the Group. Where an individual provision is material, the fact that a provision has been
quantified would not constitute any admission of wrongdoing or legal liability.
2. INTEREST AND SIMILAR INCOME
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
On loans and advances to banks 946 - 946 -
On loans and advances to customers 191,602 172,429 191,602 172,429
On balances with Central Bank of Malta 3,638 - 3,638 -
On treasury bills 91 - 91 -
196,277 172,429 196,277 172,429
On debt and other fixed income instruments
- fair value through other comprehensive income 5,328 5,405 5,328 5,405
- amortised cost 29,855 31,286 29,855 31,286
- fair value through profit or loss 3,139 4,163 3,139 4,163
38,322 40,854 38,322 40,854
Amortisation of discounts and premiums
- fair value through other comprehensive income (1,192) (1,409) (1,192) (1,409)
- amortised cost (13,197) (17,061) (13,197) (17,061)
(14,389) (18,470) (14,389) (18,470)
Net interest income on debt and other fixed income instruments
using the effective interest rate method 23,933 22,384 23,933 22,384
220,210 194,813 220,210 194,813
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
1.28 Judgements in applying accounting policies and key sources of estimation uncertainty (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
71
3. INTEREST EXPENSE
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
On amounts owed to banks 599 31 599 31
On interest rate swaps 2,811 4,256 2,811 4,256
On amounts owed to customers 6,140 10,229 6,140 10,229
On debt securities in issue 2,534 - 2,534 -
On subordinated liabilities 5,781 5,776 5,781 5,776
Negative interest on loans to banks, treasury bills and balances
with Central Bank of Malta 446 18,211 446 18,211
18,311 38,503 18,311 38,503
4. NET FEE AND COMMISSION INCOME
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
On loans and advances, similar activities and local business 44,035 39,375 44,096 39,419
On life assurance, fund management and similar activities 22,692 25,877 13,512 16,022
On other activities 9,841 9,343 9,841 9,343
76,568 74,595 67,449 64,784
The fees and commission presented in this note include income of €30.0 million (2021: €26.6 million) relating to financial assets and
financial liabilities not measured at FVTPL.
A significant portion of the fees and commissions earned by the Group are recognised at the point in time when the transaction takes
place. These include service charges, processing fees and card related income.
The other fee and commission income earned from contracts with customers is measured based on the consideration specified in the
contract with a customer. The Group recognises revenue over time as the services are provided.
5. TRADING PROFITS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Net income on foreign exchange activities 8,630 9,036 8,663 8,998
Fair value movements and net gains on sale of financial
instruments designated at fair value through profit or loss 5,530 1,471 5,540 1,468
Fair value movements and net gains on sale of financial
instruments mandatorily measured at fair value through profit
or loss 3 4 3 4
14,163 10,511 14,206 10,470
6. NET GAIN ON INVESTMENTS AND HEDGING INSTRUMENTS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Amortised cost instruments
- net (loss)/gain on disposal (4) 51 (4) 51
(4) 51 (4) 51
Financial assets at FVOCI - debt instruments
- net revaluation loss attributable to hedged risk (10,451) (5,005) (10,451) (5,005)
(10,451) (5,005) (10,451) (5,005)
Derivative financial instruments
- net gain on derivative financial instruments held for hedging 10,541 4,999 10,541 4,999
86 45 86 45
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
72
7. EMPLOYEE COMPENSATION AND BENEFITS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Employee compensation and benefits
- wages and salaries 78,037 69,632 75,839 67,230
- social security costs 5,010 3,996 4,869 3,897
- retirement benefits 7,380 2,141 7,380 2,141
- contribution plan benefits 860 - 841 -
- other staff costs 8,746 5,799 8,730 5,799
100,033 81,568 97,659 79,067
The average number of employees are analysed as follows:
Managerial 873 737 851 715
Supervisory and clerical 1,137 1,119 1,108 1,084
Others 72 66 61 57
2,082 1,922 2,020 1,856
8. NET IMPAIRMENT REVERSAL
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Loans and advances to customers
- increase in expected credit losses (41,002) (62,824) (41,002) (62,824)
- bad debts written off (11,383) (10,260) (11,383) (10,260)
(52,385) (73,084) (52,385) (73,084)
Loans and advances to customers
- decrease in expected credit losses 85,658 81,859 85,658 81,859
- recoveries of amounts previously written off 15,149 10,728 15,149 10,728
100,807 92,587 100,807 92,587
Investments
- increase/(decrease) in expected credit losses 653 (647) 653 (647)
Net impairment reversal 49,075 18,856 49,075 18,856
Net impairment reversal for the year includes post-model adjustment reversal of €38.2 million (2021: Net impairment charge €19.3
million) (Note 39.2.1.2.5)
9. PROFIT BEFORE TAX
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Profit before tax is stated after charging:
Total remuneration payable to the external auditors of the parent company
- the audit of financial statements 878 844 836 804
- other assurance services 404 104 388 91
- tax advisory services 14 4 8 -
- other non-audit services 73 98 73 96
1,369 1,050 1,305 991
Directors' emoluments:
- fees 474 406 443 389
- directors' salaries as full-time bank employees
880 683 880 683
1,354 1,089 1,323 1,072
Compensation to other key management personnel is analysed as follows
- other fees 106 156 - -
- short term employee benefits
1,647 1,456 1,619 1,456
- post-employment benefits
12 - 12 -
1,765 1,612 1,631 1,456
Total remuneration of directors and other key management
personnel
3,119 2,701 2,954 2,528
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
73
10. INCOME TAX EXPENSE
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Through profit and loss
Current (539) 17,787 402 16,266
Deferred 18,086 6,681 18,112 6,681
17,547 24,468 18,514 22,947
The charge for income tax is based on the taxable profit for the period at a rate of 35%. The income tax expense and the product
of accounting profit multiplied by the statutory domestic income tax rate are reconciled as follows:
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Profit before tax 48,718 80,659 50,921 61,846
Tax at the applicable rate of 35% 17,051 28,231 17,822 21,646
Tax effect of:
Exempt and untaxed dividends (112) (40) (505) (40)
Share of results of equity-accounted investees (651) (5,074) - -
Withholding tax on property sales (101) (224) (101) (224)
Depreciation on premises 906 1,031 906 1,031
Non-deductible expenses 13 918 13 918
Other differences 441 (374) 379 (384)
Income tax expense 17,547 24,468 18,514 22,947
Other comprehensive income
- current - (977) - (977)
- deferred (1,084) 546 (1,084) 546
(1,084) (431) (1,084) (431)
The credit in the current tax through other comprehensive Income is offset by the current tax expense in profit or loss.
11. EARNINGS PER SHARE
The Group The Bank
2022 2021 2022 2021
cents per
share
cents per
share
cents per
share
cents per
share
Earnings per share 5.3c 9.6c 5.6c 6.7c
The earnings per share for the Group and Bank have been calculated on the profits of the Group and the Bank, as shown in the
statements of profit or loss, divided by number of shares in issue.
Earnings per share was calculated on profit attributable to shareholders of the Group €31,171,000 (2021: €56,191,000) and the
Bank €32,407,000 (2021: €38,899,000) divided by 583,849,270 shares outstanding as at 31 December 2022.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
74
12. DIVIDENDS
The amounts of dividends recognised as distributions to equity holders during the period, and the related amount per qualifying
share, are as follows:
The Bank
2022 2021 2022 2021
cents per cents per €000 €000
share share
Gross of income tax
- interim dividend - 2.64 - 15,414
- 2.64 - 15,414
Net of income tax
- interim dividend - 1.72 - 10,019
- 1.72 - 10,019
During the comparative year, the Directors authorised a gross ordinary dividend of €0.0264 per share amounting to €15.4 million
(net ordinary dividend of €0.0172 per share amounting to €10.0 million) to be paid to shareholders. Payment was affected in the
current period on 28 January 2022. Dividend was paid out of profits taxed at 35%.
In respect of the current period, the Directors did not declare any dividends.
13. BALANCES WITH CENTRAL BANK OF MALTA, TREASURY BILLS AND CASH
The Group The Bank
Note 2022 2021 2022 2021
€000 €000 €000 €000
Balances with Central Bank of Malta 3,065,473 4,351,884 3,065,473 4,351,884
Malta Government Treasury Bills 238,028 188,671 238,028 188,671
Cash 36 85,760 85,511 85,760 85,511
3,389,261 4,626,066 3,389,261 4,626,066
Balances with Central Bank of Malta include Reserve Deposit, in terms of Regulation (EC) No. 1745/2003 of the European Central
Bank amounting to €124.5 million (2021: €115.7 million) in respect of both the Group and the Bank. During the second half of
2022, Balances with Central Bank of Malta and Malta Government Treasury Bills were no longer subject to a negative interest
following the increase in interest rates.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
75
14. DERIVATIVE LIABILITIES HELD FOR RISK MANAGEMENT
Financial assets at fair value through profit or loss
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Financial assets mandatorily measured at FVTPL:
Debt and other fixed income instruments (Note 14.1) 26 29 26 29
Derivative financial instruments (Note 14.3) 28,866 1,204 28,866 1,204
28,892 1,233 28,892 1,233
Financial assets designated at FVTPL:
Debt and other fixed income instruments (Note 14.1) 1,046 1,119 1,046 1,119
Equity and other non-fixed income instruments (Note 14.2) 37,700 31,784 37,548 31,621
Loans and advances to customers (Note 17) 78,725 104,850 78,725 104,850
117,471 137,753 117,319 137,590
146,363 138,986 146,211 138,823
Financial liabilities at fair value through profit or loss
Financial liabilities classified as held for trading:
Derivative financial instruments (Note 14.3) 4,535 5,485 4,535 5,485
14.1 Debt and other fixed income instruments
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Issued by public bodies
- local general government 1,040 1,114 1,040 1,114
- foreign general government
10 6 10 6
1,050 1,120 1,050 1,120
Issued by other issuers
- foreign banks
22 28 22 28
22 28 22 28
1,072 1,148 1,072 1,148
Listing status
- listed on Malta Stock Exchange 1,040 1,114 1,040 1,114
- listed elsewhere
32 34 32 34
1,072 1,148 1,072 1,148
Summary of movements during the year:
At the beginning of the year 1,148 9,430 1,148 9,430
Movement in accrued interest receivable 1 (155) 1 (155)
Disposals at carrying amount - (58) - (58)
Redemptions - (7,814) - (7,814)
Movement in fair value (77) (308) (77) (308)
Exchange adjustment
- 53 - 53
At the end of the year
1,072 1,148 1,072 1,148
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
76
14.2 Equity and other non-fixed income instruments
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Issued by other issuers
- local banks 183 326 183 326
- foreign other 37,147 31,075 37,147 31,075
- local other 370 383 218 220
37,700 31,784 37,548 31,621
Listing status
- listed on Malta Stock Exchange 554 709 402 546
- foreign unlisted 37,146 31,075 37,146 31,075
37,700 31,784 37,548 31,621
Summary of movements during the year:
At the beginning of the year 31,784 31,369 31,621 31,209
Acquisitions 63 307 63 307
Disposals at carrying amount - (1,832) - (1,835)
Movement in fair value 4,605 1,479 4,616 1,479
Exchange adjustment 1,248 461 1,248 461
At the end of the year 37,700 31,784 37,548 31,621
14.3 Derivative financial instruments
Fair value of assets 28,866 1,204 28,866 1,204
Fair value of liabilities 4,535 5,485 4,535 5,485
The above comprise over-the-counter forward exchange contracts and interest rate swaps that have not been designated as
hedging instruments stated at fair value, with notional amounts analysed with remaining life as follows:
- less than 3 months 126,317 212,088 126,317 212,088
- between 3 months and 1 year 452,615 14,120 452,615 14,120
- more than 1 year 194,429 85,466 194,429 85,466
773,361 311,674 773,361 311,674
14. DERIVATIVE LIABILITIES HELD FOR RISK MANAGEMENT (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
77
15. INVESTMENTS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Debt and other fixed income instruments
- measured at FVOCI (note 15.1) 82,210 106,327 82,210 106,327
- measured at amortised cost (note 15.2) 4,467,433 3,443,199 4,467,433 3,443,199
Equity and other non-fixed income instruments (note 15.3)
- measured at FVOCI 17,421 19,143 17,421 19,143
4,567,064 3,568,669 4,567,064 3,568,669
Investments with a nominal value of €640.1 million (2021: €640.1 million) have been pledged against the provision of credit lines by the
Central Bank of Malta.
Investments with a nominal value of €40.0 million (2021: €40.0 million) have been pledged in favour of Depositor Compensation Scheme
as at 31 December 2022.
In the comparative year, investments with a nominal value of €293 million were pledged in favour of the Italian bank Intesa San Paolo against
the precautionary warrant of seizure in respect of Deiulemar case. Following the settlement of the case in the first half of 2022, these
investments were released and are now free from any encumbrance (notes 16 and 33).
15.1 Debt and other fixed income instruments measured at FVOCI
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Issued by public bodies
- local general government 15,926 32,839 15,926 32,839
- local public sector 66,284 73,488 66,284 73,488
82,210 106,327 82,210 106,327
Listing status
- listed on Malta Stock Exchange 82,210 106,327 82,210 106,327
82,210 106,327 82,210 106,327
Summary of movements during the year:
At the beginning of the year 106,327 124,279 106,327 124,279
Movement in interest receivable accrued (81) (299) (81) (299)
Redemptions and disposals (13,141) (17,156) (13,141) (17,156)
Amortisation (1,192) (1,549) (1,192) (1,549)
Movement in fair value (14,102) (4,928) (14,102) (4,928)
Expected credit losses 14 12 14 12
Exchange adjustment 4,385 5,968 4,385 5,968
At the end of the year 82,210 106,327 82,210 106,327
As at 31 December 2022 the loss allowance on Debt Instruments at FVOCI amounts to €21,367 (2021: €18,828).
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
78
15.2 Debt and other fixed income instruments measured at amortised cost
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Issued by public bodies
- local general government 1,175,138 1,043,285 1,175,138 1,043,285
- foreign general government 2,418,976 1,334,643 2,418,976 1,334,643
3,594,114 2,377,928 3,594,114 2,377,928
Issued by other issuers
- foreign banks 743,253 880,785 743,253 880,785
- foreign other 127,628 182,051 127,628 182,051
- other local 2,438 2,435 2,438 2,435
873,319 1,065,271 873,319 1,065,271
4,467,433 3,443,199 4,467,433 3,443,199
Listing status
- listed on Malta Stock Exchange 1,177,576 1,045,720 1,177,576 1,045,720
- listed elsewhere 3,090,750 2,136,330 3,090,750 2,136,330
- foreign unlisted 199,107 261,149 199,107 261,149
4,467,433 3,443,199 4,467,433 3,443,199
At 31 December 2022, the fair value of debt and other fixed income instruments measured at amortised cost, without deducting
transaction costs, amounted to €4,094.4 million (2021: €3,464.7 million).
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Summary of movements during the year:
At the beginning of the year 3,443,199 3,133,350 3,443,199 3,133,350
Movement in interest receivable accrued 4,324 570 4,324 570
Acquisitions 1,535,766 812,470 1,535,766 812,470
Redemptions (498,205) (506,262) (498,205) (506,262)
Amortisation (13,197) (17,061) (13,197) (17,061)
Realised (loss)/profit on disposals (4) 51 (4) 51
Impairment reversal/(loss) 64 (81) 64 (81)
Exchange adjustment (4,514) 20,162 (4,514) 20,162
At the end of the year 4,467,433 3,443,199 4,467,433 3,443,199
15.3 Equity and other non-fixed income instruments measured at FVOCI
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Issued by other issuers
- local other 16,096 17,632 16,096 17,632
- local Banks 91 100 91 100
- local Public
1,234 1,411 1,234 1,411
17,421 19,143 17,421 19,143
Listing status
- listed on Malta Stock Exchange
17,421 19,143 17,421 19,143
17,421 19,143 17,421 19,143
Summary of movements during the year:
At the beginning of the year 19,143 21,783 19,143 21,783
Movement in fair value
(1,722) (2,640) (1,722) (2,640)
At the end of the year
17,421 19,143 17,421 19,143
15. INVESTMENTS (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
79
16. LOANS AND ADVANCES TO BANKS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Repayable on call and at short notice 308,922 334,848 308,922 334,848
Term placements with other banks 83,657 112,945 83,657 112,945
Cheques in course of collection 1,967 4,676 1,967 4,676
394,546 452,469 394,546 452,469
Balances with a carrying amount of €2.0 million (2021: €16.4 million) were held as collateral against derivative contracts.
In the comparative year, an amount of €70.5 million had been pledged in favour of the Italian bank Intesa San Paolo against the
precautionary warrant of seizure in respect of Deiulemar case (notes 15 and 33). Following the settlement of the case in the first half
of 2022, this amount was released and are now free from any encumbrance.
17. LOANS AND ADVANCES TO CUSTOMERS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Repayable on call and at short notice 475,245 404,216 475,245 404,216
Term loans and advances 5,217,748 4,857,167 5,217,748 4,857,167
5,692,993 5,261,383 5,692,993 5,261,383
Less impairment losses (132,917) (163,785) (132,917) (163,785)
Net loans and advances at amortised cost 5,560,076 5,097,598 5,560,076 5,097,598
Loans and advances designated at fair value through profit or
loss (note 14) 78,725 104,850 78,725 104,850
Total loans and advances 5,638,801 5,202,448 5,638,801 5,202,448
Expected credit loss allowances 132,917 163,785 132,917 163,785
132,917 163,785 132,917 163,785
18. INVESTMENTS IN EQUITY-ACCOUNTED INVESTEES
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
At the beginning of the year 145,501 111,999 72,870 52,870
Additions - 20,000 - 20,000
Share of results, net of tax 1,860 14,498 - -
Dividend received (1,746) (996) - -
At the end of the year 145,615 145,501 72,870 72,870
Amounts include:
Local listed 34,467 34,568 22,304 22,304
Local unlisted 111,148 110,933 50,566 50,566
145,615 145,501 72,870 72,870
On the historical cost basis, shares in equity-accounted investees of the Group, would have been included at a cost of €72.9 million (2021:
€72.9 million).
On the 25 March 2021, the Bank made a capital injection of €20 million in its associate company MAPFRE MSV Life p.l.c (MMSV). MMSV
had approached its two shareholders, Bank of Valletta p.l.c. and MAPFRE International S.A, as parent of MAPFRE MIDDLESEA p.l.c for a
capital injection of a total €40 million (€20 million from MAPFRE MIDDLESEA p.l.c and €20 million from the Bank). Following this capital
injection, the Bank continues retaining its 50% shareholding in MMSV and therefore, the Bank retains the same influence within MMSV.
The fair value of the equity-accounted investees that is publicly quoted amounted to €45.7 million (2021: €65.8 million) at 31 December
2022. The cost of this investment is €22.3 million (2021: €22.3 million).
The fair value of the publicly quoted investee is calculated using observable inputs and is regarded as Level 1 under the fair value hierarchy
of IFRS 13.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
80
Details of the associates held by the Group and the Bank are as follows:
Equity Interest Class Incorporated in Nature of Business
2022 2021
Name of company % %
MAPFRE Middlesea p.l.c. 31.08 31.08 Ordinary Malta Insurance
MAPFRE MSV Life p.l.c.* 50.00 50.00 Ordinary Malta Life Assurance
Group's share of results
2022 2021
Name of company €000 €000
MAPFRE Middlesea p.l.c. 644 4,261
MAPFRE MSV Life p.l.c.
1,216 10,237
1,860 14,498
*A further 15.54% (2021:15.54%) is held indirectly via another equity-accounted investee. Although the Bank has an effective
participating interest of 65.54% (2021: 65.54%), it does not exercise control over the financial and operating decisions of the associate
as it only has the right for equal representation on the Board of Directors of the associate together with the other shareholders.
Furthermore, as from 1 October 2011 the Bank is deemed to exercise significant influence on MAPFRE MSV Life p.l.c. as opposed
to joint control as a result of a shareholders' agreement which gives the other shareholder control and as from the financial year 30
September 2012 it is being treated as an equity-accounted investee.
The financial statements of the equity-accounted investees are prepared to 31 December. The registered addresses of the associates
are as follows:
MAPFRE Middlesea p.l.c. Middlesea House, Floriana FRN 1442, Malta
MAPFRE MSV Life p.l.c. The Mall, Mall Street, Floriana FRN 1470, Malta
Summarised financial information extracted from the published preliminary statement of annual results of the associates as at 31
December 2022 in respect of the equity-accounted investees:
2022 2021
€000 €000
Total assets 2,470,186 2,831,750
Total liabilities 2,244,952 2,609,779
Revenues 343,163 454,047
Profit for the year 14,643 12,923
Other Comprehensive Income
(7,979) 10,947
The Group
2022 2021
€000 €000
Share of net assets of equity-accounted investees
145,615 145,501
Share of results of equity-accounted investees 1,860 14,498
The share of results of equity-accounting investees, net of tax in the Statement of Profit or Loss includes both the profit and other
comprehensive income components of the associates.
The carrying amount of the equity-accounted investees is equal to the equity interest of the Bank in the net assets of the respective
investees.
IFRS 9 is generally effective for years beginning on or after 1 January 2018. However, in September 2016, the IASB issued amendments to
IFRS 4 which provide optional relief to eligible insurers in respect of IFRS 9. The option permits entities whose predominant activity is issuing
insurance contracts within the scope of IFRS 4, a temporary exemption to defer the implementation of IFRS 9.
Entities that apply the optional temporary relief will be required to adopt IFRS 9 on 1 January 2023 which aligns with the new effective date
of IFRS 17 (refer to Note 1.1.4).
18. INVESTMENTS IN EQUITY-ACCOUNTED INVESTEES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
81
The Group is permitted to retain the relevant accounting policies applied by the equity-accounted investees for consolidation purposes
when the Group applies IFRS 9 but the associates apply the temporary exemption from IFRS 9.
The equity-accounted investees evaluated its liabilities at 31 December 2015, the prescribed date of assessment under the optional
temporary relief provisions and concluded that all of the liabilities are predominantly connected with insurance. More than 90% of the
equity-accounted Investees’ liabilities as at 31 December 2015 are liabilities arising from contracts within the scope of IFRS 4. As at the
same date the equity-accounted Investees’ predominant activities were also established to be insurance related as evidenced through
revenues reported in the Annual Report of that year.
The fair value of the financial assets held by the equity-accounted investees which would otherwise fall under the relevant IFRS 9 classification
as at 31 December 2022 and the amount of change in the fair value during the year will be disclosed in the associates’ financial statements.
These financial statements are available on the respective companies' websites.
The judgements made by the equity-accounted investees and the key sources of estimation uncertainties are disclosed below:
Estimate of in-force business
Assumptions
The value of in-force business is determined by the directors of the equity-accounted investee based on the advice of the entity’s consulting
actuaries. The valuation represents a projection of the equity-accounted investee cash flows expected from contracts in force at the year
end, appropriately adjusted for taxation and discounted by a risk adjusted discount rate. In assessing the projected cash flows, the directors
of the equity-accounted investee assume a long-term view of a maintainable level of investment return and fund size. This valuation requires
the use of a number of assumptions relating to future mortality, persistency, levels of expenses, investment returns and asset allocations
over the longer term.
Gross investment returns assumed vary depending upon the mix of investments held by the associates and expected market conditions.
The value depends on assumptions made regarding future economic and demographic experience. The impact of the change of the present
value of in-force (PVIF) accounts was 62% of the result of the year. The PVIF represents 55% of the carrying value of the investments in
equity-accounted investees.
This valuation assumes a spread of 1.4% (2021: 1.0%) between the weighted average projected investment return and the risk adjusted
discount factor applied of 4.5% (2021: 4.0%). Expenses are assumed to inflate at 2.1% (2021: 2.0%).
Changes in assumptions
Assumptions are reviewed on an annual basis to reflect the development of experience and to improve on the reliability of the estimation
process.
Ultimate liability arising from claims made under insurance contracts
There are several sources of uncertainty that need to be considered in the estimate of the liability that the equity-accounted investees will
ultimately pay for such claims. In particular insurance risks including exposure to liability can span over more than one accounting year, and
this increases the uncertainty surrounding the estimate for final settlement.
In calculating the estimated cost of unpaid claims, the equity-accounted investees use a combination of estimation techniques, based
partly on known information at year end, partly on statistical analysis of historical experience and on actuarial valuations carried out by an
independent external actuary.
Further information can be found in the public release of financial results as issued by the associates.
18. INVESTMENTS IN EQUITY-ACCOUNTED INVESTEES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
82
19. INVESTMENTS IN SUBSIDIARY COMPANIES
Equity interest Class Incorporated in Nature of Business
2022 2021
Name of company % %
BOV Asset Management Limited 100 100 Ordinary Malta Fund Management
BOV Fund Services Limited 100 100 Ordinary Malta Fund Administration
The Bank
2022 2021
Name of company €000 €000
BOV Asset Management Limited 5,481 5,481
BOV Fund Services Limited 749 749
Cost/Carrying amount 6,230 6,230
The registered address of the above unlisted undertakings is as follows:
BOV Asset Management Limited 58, Triq San Zakkarija, Il-Belt Valletta VLT1130
BOV Fund Services Limited 58, Triq San Zakkarija, Il-Belt Valletta VLT1130
All subsidiaries prepared their financial statements to the same date, 31 December.
20. INTANGIBLE ASSETS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Software
Cost
1 January 105,467 101,706 105,467 101,706
Additions 11,834 8,116 11,534 8,116
Assets retired from active use (4,377) (4,355) (4,377) (4,355)
31 December 112,924 105,467 112,624 105,467
Accumulated amortisation
1 January 49,393 42,040 49,393 42,040
Charge for the year 11,861 11,708 11,772 11,708
Accumulated amortisation on assets retired from active use (4,377) (4,355) (4,377) (4,355)
31 December 56,877 49,393 56,788 49,393
Carrying amount at 31 December 56,047 56,074 55,836 56,074
Future capital expenditure:
- contracted but not provided for in the financial statements 329 1,136 329 1,136
- authorised by the directors but not contracted 34,190 42,304 34,190 42,304
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
83
21. PROPERTY AND EQUIPMENT
Reconciliation of Carrying Amount
Land and
buildings
IT
infrastructure
and equipment
Other Total
The Group €000 €000 €000 €000
Cost or valuation
Balance at 1 January 2021 125,079 33,593 29,163 187,835
Adjustment 368 - (16) 352
Adjusted balance at 1 January 2021 125,447 33,593 29,147 188,187
Additions 3,960 1,248 261 5,469
Assets retired from active use (416) (1,885) (3,804) (6,105)
Disposals (1,106) - (65) (1,171)
Revaluation 5,306 - - 5,306
Balance at 31 December 2021 133,191 32,956 25,539 191,686
Balance at 1 January 2022 133,191 32,956 25,539 191,686
Additions 3,718 1,312 1,660 6,690
Assets retired from active use (68) (2,278) (481) (2,827)
Disposals (1) - (89) (90)
Revaluation 3,365 - - 3,365
Balance at 31 December 2022 140,205 31,990 26,629 198,824
Accumulated depreciation
Balance at 1 January 2021 18,840 19,563 20,786 59,189
Adjustment (246) - 13 (233)
Depreciation for the year 2,864 4,002 1,564 8,430
Accumulated depreciation on assets retired from active use (416) (1,886) (3,787) (6,089)
Disposals (233) - - (233)
Balance at 31 December 2021 20,809 21,679 18,576 61,064
Balance at 1 January 2022 20,809 21,679 18,576 61,064
Depreciation for the year 2,721 3,481 1,575 7,777
Accumulated depreciation on assets retired from active use (68) (2,159) (481) (2,708)
Balance at 31 December 2022 23,462 23,001 19,670 66,133
Carrying amount at:
Balance at 31 December 2021 112,382 11,277 6,963 130,622
Balance at 31 December 2022 116,743 8,989 6,959 132,691
As at 31 December 2022, Property and Equipment includes right-of-use assets of €8.6 million (2021: €7.2 million) related to office
premises and motor vehicles (note 22).
Adjustments represent IFRS 16 related movement emanating from updates to the subsidiaries opening balances.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
84
Land and
buildings
IT
infrastructure
and equipment
Other Total
The Bank €000 €000 €000 €000
Cost or valuation
Balance at 1 January 2021 124,378 32,942 27,278 184,598
Additions 3,961 1,194 253 5,408
Assets retired from active use (416) (1,886) (3,787) (6,089)
Disposals (76) - (65) (141)
Revaluation 5,306 - - 5,306
Balance at 31 December 2021 133,153 32,250 23,679 189,082
Balance at 1 January 2022 133,153 32,250 23,679 189,082
Additions 3,718 1,302 1,660 6,680
Assets retired from active use (68) (2,278) (435) (2,781)
Disposals (1) - (89) (90)
Revaluation 3,365 - - 3,365
Balance at 31 December 2022 140,167 31,274 24,815 196,256
Accumulated depreciation
Balance at 1 January 2021 18,415 18,692 19,336 56,443
Depreciation for the year 2,743 3,957 1,544 8,244
Accumulated depreciation on assets retired from active use (416) (1,886) (3,787) (6,089)
Balance at 31 December 2021 20,742 20,763 17,093 58,598
Balance at 1 January 2022 20,742 20,763 17,093 58,598
Depreciation for the year 2,722 3,432 1,562 7,716
Accumulated depreciation on assets retired from active use (68) (2,160) (435) (2,663)
Balance at 31 December 2022 23,396 22,035 18,220 63,651
Carrying amount at:
Balance at 31 December 2021 112,411 11,487 6,586 130,484
Balance at 31 December 2022 116,771 9,239 6,595 132,605
As at 31 December 2022 Property and Equipment includes right-of-use assets of €8.6 million (2021: €8.5 million) related to office
premises and motor vehicles (see note 22).
21.1 Reconciliation of carrying amount
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Carrying amount of land and buildings occupied for own use
116,743 112,382 116,772 112,410
Future capital expenditure:
- contracted but not provided for in the financial statements 1,492 1,328 1,492 1,328
- authorised by the directors but not contracted for
22,746 25,863 22,738 25,863
Land and buildings are revalued by professionally qualified architects in accordance with the policy documented in Note 1. The carrying
amounts of land and buildings that would have been included in the financial statements had these assets been carried at cost less
accumulated depreciation are:
2022: Group and Bank €49.8 million (2021: Group and Bank €49.0 million).
Property valuations are mainly valued using the 'comparative investment approach' whereby market value is arrived at by capitalising at an
appropriate yield rate, the annual income produced, should the property be leased out to third parties. The income is arrived at by analysing
a number of estate agent listings for comparative properties and determining a mean rental value rate. The valuation techniques were
consistent with those applied for the year ended 31 December 2021. Revaluations are carried out on a regular basis in accordance with the
Group's accounting policies.
21. PROPERTY AND EQUIPMENT (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
85
Property fair value measurement is classified as Level 3. Significant unobservable inputs used in the valuation of these properties is the rental
income for office space and the percentage capitalisation rate which indicates the multiplier relationship between Net Rental Income and
Property Value. Further details about these significant inputs are summarised in the table below:
Significant unobservable input Narrative sensitivity
Buildings in Commercial Area Price per square metre, The higher the price per square
ranging from €55/sqm to €1,050/sqm metre the higher the fair value
Capitalisation rate, ranging from The higher the capitalisation rate
5.79% to 8.10% the lower the fair value
Buildings in Residential Area Price per square metre, ranging from The higher the price per square metre
€117/sqm to €529/sqm the higher the fair value
Capitalisation rate, ranging from The higher the capitalisation rate
5.82% to 8.10% the lower the fair value
22. LEASES
The Group's lease arrangements comprise long-term leasehold properties, other immovable property leaseholds, equipment leases
and property space for ATMs. The Group does not recognise low value items (below €5,000) or short-term arrangements of one year
or less.
Information about leases for which the Group is a lessee is presented below.
i. Right-of-use assets
Right-of-use assets relate to office premises and motor vehicles that are presented within property and equipment (see note 21)
The Group
Land and
Buildings
Other Total
€000 €000 €000
Balance at 1 January 2021 8,111 1,110 9,221
Net adjustment 622 (11) 611
Additions 1,217 51 1,268
Depreciation charge for the year (1,388) (271) (1,659)
Disposals (883) (65) (948)
Balance at 31 December 2021 7,679 814 8,493
Balance at 1 January 2022 7,679 814 8,493
Additions 1,504 332 1,836
Depreciation charge for the year (1,356) (263) (1,619)
Disposals - (89) (89)
Balance at 31 December 2022 7,827 794 8,621
21. PROPERTY AND EQUIPMENT (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
86
i. Right-of-use assets (continued) The Bank
Land and
Buildings
Other Total
€000 €000 €000
Balance at 1 January 2021 7,779 1,066 8,845
Additions 1,217 50 1,267
Depreciation charge for the year (1,241) (258) (1,499)
Disposals (76) (65) (141)
Balance at 31 December 2021 7,679 793 8,472
Balance at 1 January 2022 7,679 793 8,472
Additions 1,503 333 1,836
Depreciation charge for the year (1,356) (250) (1,606)
Disposals - (89) (89)
Balance at 31 December 2022 7,826 787 8,613
See note 28 for maturity analysis of lease liabilities as at 31 December 2022.
ii. Amounts recognised in profit or loss
The Group
Land and
Buildings
Other Total
€000 €000 €000
Interest on lease liabilities 2021 240 18 258
Expenses relating to short-term leases 2021 356 18 374
596 36 632
Interest on lease liabilities 2022 194 14 208
Expenses relating to short-term leases 2022 88 - 88
282 14 296
The Bank
Land and
Buildings
Other Total
€000 €000 €000
Interest on lease liabilities 2021 197 16 213
Expenses relating to short-term leases 2021 356 18 374
553 34 587
Interest on lease liabilities 2022 194 13 207
Expenses relating to short-term leases 2022 88 - 88
282 13 295
22. LEASES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
87
iii. Amounts recognised in statement of cash flows
The Group
Land and
Buildings
Other Total
€000 €000 €000
Total cash outflow for leases 2021 1,640 287 1,927
Total cash outflow for leases 2022 1,460 279 1,739
The Bank
Land and
Buildings
Other Total
€000 €000 €000
Total cash outflow for leases 2021 1,417 272 1,689
Total cash outflow for leases 2022 1,460 266 1,726
iv. Extension options
Some property leases contain extension options exercisable by the Group and not by the lessors. The Group assesses at lease
commencement date whether it is reasonably certain to exercise the extension options, and if it is reasonably certain to exercise the
extension option, the Group includes this period in the lease term and the potential future lease payments in the lease liability.
23. DEFERRED TAX
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Deferred taxation is analysed as follows:
Net deferred tax asset arising on:
Fair value movement of financial instruments 281 281 281 281
Net gain on financial instruments through OCI 2,291 - 2,291 -
Impairment allowances 52,250 65,669 52,250 65,669
Allowance for employee benefits 3,548 2,943 3,548 2,943
Excess of capital allowances over depreciation (16,218) (15,669) (16,218) (15,669)
Defined benefit plans 2,469 3,339 2,469 3,339
Provisions and other temporary differences 310 28,000 284 28,000
Unabsorbed tax losses 22,967 - 22,967 -
67,898 84,563 67,872 84,563
Deferred tax liability arising on:
Property revaluation 7,054 6,717 7,054 6,717
22. LEASES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
88
The Group
At 31
December
2021
Recognised in
profit or loss
Recognised in
OCI
At 31
December
2022
€000 €000 €000 €000
Movement in temporary differences relating to:
Fair value movement of financial instruments 281 - - 281
Net gain on financial instruments through OCI - - 2,291 2,291
Impairment allowances 65,669 (13,419) - 52,250
Allowance for employee benefits 2,943 605 - 3,548
Excess of capital allowances over depreciation (15,669) (549) - (16,218)
Defined benefit plans 3,339 - (870) 2,469
Property revaluation (6,717) - (337) (7,054)
Provisions and other temporary differences 28,000 (27,690) - 310
Unabsorbed tax losses - 22,967 - 22,967
77,846 (18,086) 1,084 60,844
The Group
At 31
December
2020
Recognised in
profit or loss
Recognised in
OCI
At 31
December
2021
€000 €000 €000 €000
Movement in temporary differences relating to:
Fair value movement of financial instruments 281 - - 281
Impairment allowances 69,992 (4,323) - 65,669
Allowance for employee benefits 4,046 (1,103) - 2,943
Excess of capital allowances over depreciation (14,414) (1,255) - (15,669)
Defined benefit plans 3,354 - (15) 3,339
Property revaluation (6,186) - (531) (6,717)
Provisions and other temporary differences 28,000 - - 28,000
85,073 (6,681) (546) 77,846
The Bank
At 31
December
2021
Recognised in
profit or loss
Recognised in
OCI
At 31
December
2022
€000 €000 €000 €000
Movement in temporary differences relating to:
Fair value movement of financial instruments 281 - - 281
Net gain on financial instruments through OCI - - 2,291 2,291
Impairment allowances 65,669 (13,419) - 52,250
Allowance for employee benefits 2,943 605 - 3,548
Excess of capital allowances over depreciation (15,669) (549) - (16,218)
Defined benefit plans 3,339 - (870) 2,469
Property revaluation (6,717) - (337) (7,054)
Provisions and other temporary differences 28,000 (27,716) - 284
Unabsorbed tax losses - 22,967 - 22,967
77,846 (18,112) 1,084 60,818
23. DEFERRED TAX (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
89
The Bank
At 31
December
2020
Recognised in
profit or loss
Recognised in
OCI
At 31
December
2021
€000 €000 €000 €000
Movement in temporary differences relating to:
Fair value movement of financial instruments 281 - - 281
Impairment allowances 69,992 (4,323) - 65,669
Allowance for employee benefits 4,046 (1,103) - 2,943
Excess of capital allowances over depreciation (14,414) (1,255) - (15,669)
Defined benefit plans 3,354 - (15) 3,339
Property revaluation (6,186) - (531) (6,717)
Provisions and other temporary differences 28,000 - - 28,000
85,073 (6,681) (546) 77,846
The Group's deferred tax assets and liabilities on the statement of financial position have not been off-set to the extent that there is
no legally enforceable right of set-off with the tax authorities.
The Bank is expected to have sufficient profits in the future to absorb the deferred tax asset recognised.
24. OTHER ASSETS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Settlement account 5,963 4,388 5,963 4,388
Deferred expenditure 281 1,035 281 1,035
Other assets 983 - 983 -
7,227 5,423 7,227 5,423
Settlement account consists of card settlements.
25. AMOUNTS OWED TO BANKS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Term deposits 55,878 515,790 55,878 515,790
Repayable on demand 21,196 44,327 21,196 44,327
77,074 560,117 77,074 560,117
Balances with a carrying amount of €25.7 million (2021: Nil) were held as collateral against derivative contracts.
During the first quarter of 2021, the Bank participated in the third targeted longer-term refinancing operations (TLTRO III) Euro system
funding. A negative borrowing rate was applied on this loan which depended on the lending patterns of the Bank. The reduced interest rate
was subject to the achievement of predefined lending performance thresholds and interest to be settled in arrears on the maturity of the
TLTRO III operation or on early repayment. This funding has contributed to the mitigation of costs of funding liabilities through which the
Bank continues to sustain its position as a key player in the provision of finance to local businesses and households.
In October 2022, the European Central Bank (ECB) added three additional early repayment dates with the first one being on the 23
November 2022. The Bank has chosen to use this repayment option to early repay.
Euro system funding was a financial liability at amortised cost in accordance with the requirements of IFRS 9 Financial Instruments. Negative
interest on this loan was calculated using the effective interest rate with interest amount disclosed in the Statements of Cash flows.
23. DEFERRED TAX (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
90
26. AMOUNTS OWED TO CUSTOMERS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Term deposits 430,195 1,341,761 430,195 1,341,761
Repayable on demand 12,117,716 10,835,093 12,124,389 10,844,228
12,547,911 12,176,854 12,554,584 12,185,989
27. OTHER LIABILITIES
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Post-employment and termination liabilities (see note 35) 17,282 18,042 17,282 18,042
Cash collateral for commitments 68,361 70,351 68,361 70,351
Deposits from companies in formation 4,235 3,428 4,235 3,428
Bills payable 40,633 46,299 40,633 46,299
Accruals and deferred income 24,096 25,780 23,875 25,288
Payment orders outwards 4,910 3,184 4,910 3,184
Lease liability (see note 28) 8,918 8,703 8,910 8,682
Taxation payable 4,368 3,898 4,368 3,898
Dividend payable - 10,019 - 10,019
Other 18,749 13,437 18,710 13,331
191,552 203,141 191,284 202,522
28. LEASE LIABILITY
At 31 December 2022, the future minimum lease payments under non-cancellable operating leases were payable as follows:
The Group
Land and
Buildings
Other Total
€000 €000 €000
Maturity analysis - Contractual undiscounted cash flows
Less than one year 1,416 244 1,660
Between one and five years 4,261 524 4,785
More than five years
4,246 68 4,314
Total undiscounted lease liabilities at 31 December 2022 9,923 836 10,759
Lease liabilities included in statement of financial position at 31 December 2022:
Current 1,239 234 1,473
Non-current
6,870 575 7,445
8,109 809 8,918
The Bank
Land and
Buildings
Other Total
€000 €000 €000
Maturity analysis - Contractual undiscounted cash flows
Less than one year 1,416 244 1,660
Between one and five years 4,261 515 4,776
More than five years
4,246 68 4,314
Total undiscounted lease liabilities at 31 December 2022 9,923 827 10,750
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
91
Lease liabilities included in statement of financial position at 31 December 2022:
Current 1,239 233 1,472
Non-current
6,870 568 7,438
8,109 801 8,910
At 31 December 2021, the future minimum lease payments under non-cancellable operating leases were payable as follows:
The Group
Land and Buildings Other Total
€000 €000 €000
Maturity analysis - Contractual undiscounted cash flows
Less than one year 1,277 279 1,556
Between one and five years 4,623 593 5,216
More than five years 3,985 - 3,985
Total undiscounted lease liabilities at 31 December 2021 9,885 872 10,757
Lease liabilities included in statement of financial position at 31 December 2021:
Current 1,071 265 1,336
Non-current 6,801 566 7,367
7,872 831 8,703
The Bank
Land and Buildings Other Total
€000 €000 €000
Maturity analysis - Contractual undiscounted cash flows
Less than one year 1,277 264 1,541
Between one and five years 4,623 569 5,192
More than five years 3,985 - 3,985
Total undiscounted lease liabilities at 31 December 2021 9,885 833 10,718
Lease liabilities included in statement of financial position at 31 December 2021:
Current 1,071 253 1,324
Non-current 6,802 556 7,358
7,873 809 8,682
29. DERIVATIVES DESIGNATED FOR HEDGE ACCOUNTING
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Derivative financial instruments designated as fair
value hedges 2,167 12,157 2,167 12,157
Refer to note 6: Net gain on Investments and hedging instruments for the net gain/loss on the bond and hedging instrument. The impact on
hedging relationships as a consequence of the interest rate benchmark reform has been disclosed in note 39.9.
The above comprise over-the-counter interest rate swaps, stated at fair value with notional amounts analysed by the remaining life as
follows:
-more than 1 year 60,879 57,375 60,879 57,375
60,879 57,375 60,879 57,375
28. LEASE LIABILITY (continued)
The Bank
Land and Buildings Other Total
€000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
92
30. DEBT SECURITIES IN ISSUE AND SUBORDINATED LIABILITIES
Note The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Debt securities in issue
Senior non-preferred notes 30.1 350,260 - 350,260 -
350,260 - 350,260 -
Subordinated liabilities
3.50% Euro subordinated unsecured bonds 30.2 113,130 113,130 113,130 113,130
3.75% Euro subordinated unsecured bonds 30.2 50,107 50,107 50,107 50,107
163,237 163,237 163,237 163,237
30.1 Senior non-preferred notes
On 6 December 2022, the Bank has issued €350 million Callable Senior Non-Preferred Notes (traded on the Irish Stock Exchange) with a
final maturity date of 6 December 2027 and a fixed coupon of 10% per annum. The Bank has the right (subject to regulatory approval) to call
the Notes in whole, but not in part, on maturity date. The fair value as of 31 December 2022 is €358.1m. The Senior Non-Preferred Notes
constitute direct, unconditional, unsecured, and unsubordinated obligations of the Bank and rank in priority to all subordinated claims but are
junior in right of payment to all preferred claims and all ordinary unsecured claims. The Notes were rated by Fitch as BBB-.
30.2 Subordinated liabilities
The 3.5% Euro subordinated bonds are redeemable at par on 8 August 2030 and are listed on the Malta Stock Exchange. The fair value of
these unsecured bonds as of 31 December 2022 is €94.2 million (2021: €116.1 million).
The 3.75% Euro subordinated bonds are redeemable at par on 15 June 2031 and are listed on the Malta Stock Exchange. The fair value of
these unsecured bonds as of 31 December 2022 is €45.0 million (2021: 52.0 million).
The bonds are unsecured and subordinated to the claims of all holders of senior indebtedness.
31. SHARE CAPITAL AND SHARE PREMIUM The Bank
2022 2021
€000 €000
Share Capital
Authorised:
1,000,000,000 Ordinary shares of €1.00 each 1,000,000 1,000,000
(2021: 1,000,000,000 Ordinary shares of €1.00 each)
Issued and paid up:
583,849,000 Ordinary shares of €1.00 each fully paid 583,849 583,849
(2021: 583,849,000 Ordinary shares of €1.00 each)
32. OTHER RESERVES
Retained Earnings
Retained earnings represent the profits retained over the years and primarily comprise the profit attributable to equity holders and
transfers to share capital in respect of the bonus issue. This reserve includes the amount held in respect of General Banking Reserves.
General Banking Reserves
The revised Banking Rule 09 requires banks in Malta to hold additional reserves for general banking risks against non-performing loans.
This reserve is deductible from distributable funds. As at the reporting date this reserve amounts to €3.6 million (2021: €3.3million).
Revaluation Reserves
Revaluation reserves represent fair value movements on land and buildings and financial assets at FVOCI net of tax, which are
recognised in Other Comprehensive Income.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
93
The Group The Bank
€000 €000
On land and buildings:
Balance at 31 December 2020 44,247 44,247
Property revaluation 5,306 5,306
Deferred tax and effect of changes in property tax rates (531) (531)
Balance at 31 December 2021 49,022 49,022
Property revaluation 3,366 3,366
Deferred tax and effect of changes in property tax rates (337) (337)
Balance at 31 December 2022 52,051 52,051
On fair-value-through-other comprehensive income:
Balance at 31 December 2020 11,230 11,118
Fair value adjustments (2,791) (2,791)
Tax thereon 977 977
Balance at 31 December 2021 9,416 9,304
Fair value adjustments (6,546) (6,546)
Tax thereon 2,291 2,291
Balance at 31 December 2022 5,161 5,049
Total 57,212 57,100
32. OTHER RESERVES (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
94
33. PROVISIONS AND CONTINGENCIES
33.1 Provisions
The Bank considers the provisions recognised to be the best estimate of the amounts likely required to settle its claims and are
presented as follows:
The Group
Financial
guarantees
and loan
commitments
provisions
Custody and
trust litigation
provision
Other
litigation
provision
Total
Provisions €000 €000 €000 €000
Carrying amount at 1 January 2022 22,949 80,945 555 104,449
Movement (7,393) (80,945) 407 (87,931)
Carrying amount at 31 December 2022 15,556 - 962 16,518
The Bank
Financial
guarantees
and loan
commitments
provisions
Custody and
trust litigation
provision
Other
litigation
provision
Total
Provisions €000 €000 €000 €000
Carrying amount at 1 January 2022 22,949 80,945 555 104,449
Movement (7,393) (80,945) 257 (88,081)
Carrying amount at 31 December 2022 15,556 - 812 16,368
The Group and the Bank
Financial
guarantees
and loan
commitments
provisions
Custody and
trust litigation
provision
Other
litigation
provision
Total
Provisions €000 €000 €000 €000
Carrying amount at 1 January 2021 32,380 80,000 1,500 113,880
Movement (9,431) 945 (945) (9,431)
Carrying amount at 31 December 2021 22,949 80,945 555 104,449
The amount in respect of financial guarantees contracts and loan commitments issued represent the expected credit loss as of 31
December 2022. The custody and trust litigation provision consists of movement relating to the Deiulemar case whilst other litigation
provision movement represents the increase/(decrease) in liabilities or the release of liability following settlement of other litigation
claims.
There have been significant developments during 2022 in relation to the principal legal case of the Group and Bank, that relating to
custody and trusts. In November 2014, court action was instituted against the Bank by the curators of Deiulemar group which was
declared insolvent when the shares in the ultimate holding company were held in trust by the Bank with a claim of €363 million. In
February 2022, the first court in Torre Annunziata decided against the Bank and in favour of the Deiulemar bankruptcy and ordered
the Bank to pay a sum equivalent to around €370 million. The Bank proceeded to immediately appeal this judgement on the strong
merits of its legal case. However, subsequently in May 2022, the Bank reached an out-of-court settlement agreement of €182.5
million, without any admission of fault, bringing all legal claims surrounding the issue to an end. The Bank shall not have any further
ongoing contingent or actual liability relating to this claim. This resulted in the reversal of €80.9 million provision as disclosed in Note
33 and a resultant impact of €103.0 million including legal fees in 2022 statement of profit or loss.
A total of €363 million in pledged assets held with an Italian bank following a garnishee order were released and are now free from
any encumbrance.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
95
33. PROVISIONS AND CONTINGENCIES (continued)
33.2 Contingent liabilities
In its ordinary course of business, the Group and the Bank is subject to complaints or legal proceedings by third parties, as well as
legal and regulatory reviews, enquiries and examinations concerning legal, operational and compliance risks in relation to but not
limited to compliance with legislation and regulations. Such legal and regulatory matters are reassessed on an ongoing basis whilst
the Group and the Bank collaborates continuously with the relevant authorities as appropriate. The assistance of external professional
consultants is obtained where appropriate, to determine the likelihood of the Group and the Bank incurring a liability.
Contingent liabilities are backed by corresponding obligations from third parties. The recognition of provisions and the disclosure of
contingent liabilities in relation to such matters involves critical accounting estimates and judgements and is determined in accordance
with the relevant accounting policies described in Note 1 (1.28.5). Except as disclosed hereunder, it is not practicable to provide an
aggregate estimate of other potential liability for the Group’s and the Bank’s legal proceedings, legal and regulatory reviews as a class
of contingent liabilities.
Contingencies
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Acceptances and endorsements 19 32 19 32
Guarantees 354,907 333,564 354,907 333,564
Other contingent liabilities 19,183 17,766 19,183 17,766
374,109 351,362 374,109 351,362
34. COMMITMENTS
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
Documentary credits 28,849 27,710 28,849 27,710
Undrawn formal standby facilities, credit facilities and other
commitments to lend
1,887,449 1,867,939 1,887,449 1,867,939
Capital expenditure contracted but not provided for in the
financial statements
1,821 2,463 1,821 2,463
Commitments to financial institutions - 198 - 198
1,918,119 1,898,310 1,918,119 1,898,310
35. EMPLOYEE BENEFITS
35.1 Post-employment benefits
35.1.1 Defined benefit plan – Pension Top-up
The Group and the Bank contributes to a post-employment benefit plan (“the plan”) which is applicable to eligible individuals. The
benefits provided to the individuals in terms of the plan are computed on a specified formula which takes into consideration, amongst
other things, the employees’ salary on retirement and the pension entitlement in terms of Maltese law.
The provision is computed in accordance with the accounting policy for post-employment benefit plans and represents the Group’s
and the Bank’s obligation:
i. discounted to the net present value at the rate which has been determined by reference to market yields at the end of the
reporting period on high-quality corporate bonds;
ii. after considering the life expectancy of such employees based on the latest publicly available mortality tables;
iii. the expected terminal salaries; and
iv. the Bank’s expectations of the employees’ retirement date.
The year-end obligation in relation to the plan is mainly in relation to retired employees.
i. The plan exposes the Group and the Bank to the following main risks:
ii. interest risk, since a decrease in market yields will increase the plan liability; and
iii. longevity risk, since an increase in the life expectancy of the plan participants will increase the plan liability.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
96
35. EMPLOYEE BENEFITS (continued)
35.1 Post-employment benefits (continued)
35.1.1 Defined benefit plan – Pension Top-up (continued)
The significant actuarial assumptions applied by the Group and the Bank in respect of the plan are as follows:
The Group and the Bank
2022 2021
Weighted discount rates - Euro corporate yield per Bloomberg 3.55% 0.24%
Life expectancy (years):
Males 81 81
Females 85 85
The Group and the Bank are providing sensitivity analysis in connection with each significant actuarial assumption applied in respect
of the plan. These analyses are prepared as of the end of the reporting period, showing how the liability would have been affected
by hypothetical changes in the relevant actuarial assumptions that were reasonably possible at that date, while holding all other
assumptions constant. The analysis presented below are for illustrative purposes only and may not be representative of the actual
change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another. In
presenting the sensitivity analysis, the present value of the obligation has been calculated using the projected unit credit method at
the end of the reporting period. The amounts generated from the analysis represent forward-looking estimates and hence, actual
results in the future may differ materially from those projected results. In accordance with the transitional provisions in the revised IAS
19, the Group and the Bank have not disclosed comparative information in this respect.
• If the discount rate is 100 basis points higher (lower) with all other assumptions held constant, the defined benefit obligation
decreases by €0.6 million (increases by €0.7 million).
• If the life expectancy increases (decreases) by two years for both men and women with all other assumptions held constant,
the defined benefit obligation increases by €2.2 million (decreases by €2.4 million).
The weighted average duration of the liability in respect of the plan at 31 December 2022 is 7 years (2021: 8 years).
The Bank does not fund these pensions by assigning specific assets as there is sufficient liquidity to meet the required payments
as these arise. In view of the non-complexity of the inputs involved, no actuary was deemed necessary in estimating this obligation.
Furthermore, the Group and the Bank make payments to certain eligible employees in consideration of the liquidation of a defunct
pension scheme.
35.1.2 Defined contribution plan – Voluntary Occupational Pensions Scheme
The Voluntary Occupational Pension Scheme was introduced in 2022 in which the Group and the Bank assists eligible employees that
opt for the scheme in saving for their retirement (Note 7).
35.2 Termination benefits
The Group and the Bank had during the financial year 2019 launched three Voluntary Retirement Schemes, a Gradual Retirement
Scheme, and a Retirement Gratuity Scheme, all of which were valid up to the end of the comparative period, 31 December 2021.
During financial year 2022, the Bank has retained the Gradual Retirement and Retirement Gratuity Schemes similar to prior years.
The Gradual retirement consists of reduced number of hours worked whilst applicants eligible for the Retirement Gratuity Scheme
shall be given a lump sum payment of one time their terminal salary and a proportion of the terminal annual salary depending on the
aggregate years of service.
Furthermore, the Group and Bank have introduced a new Voluntary Retirement Scheme for eligible employees as of 1 April 2022 in
which formal notice is required within a stipulated period. The scheme shall remain open indefinitely whilst remaining at the Group
and Bank’s discretion. Accepted applicants under the respective scheme shall be given a lump sum payment of three times their
terminal salary reduced pro-rata up to the age of 61.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
97
35. EMPLOYEE BENEFITS (continued)
35.3 Summary of movements in post-employment and termination benefits
The Group and the Bank
2022 2021
€000 €000
Present value at 1 January 18,042 21,239
Payments effected (5,650) (5,297)
Recognised in profit or loss:
- Interest expense (67) (133)
- Terminal benefits 7,447 2,275
Remeasurement of actuarial (losses)/gains recognised in other comprehensive income
resulting from:
- Experience adjustments (229) (272)
- Changes in financial assumptions (2,574) (116)
- Changes in demographic assumptions 313 346
Present value at 31 December 17,282 18,042
36. NOTES TO THE STATEMENTS OF CASH FLOWS
The Group The Bank
Note 2022 2021 2022 2021
€000 €000 €000 €000
Cash 13 85,760 85,511 85,760 85,511
Balances with Central Bank of Malta
(excluding Reserve Deposit)
2,940,953 4,236,230 2,940,953 4,236,230
Treasury bills (with original maturity of less than 3 months) 235,064 135,582 235,064 135,582
Money at call and short notice 392,596 447,811 392,596 447,811
Amounts owed to banks (75,071) (86,990) (75,071) (86,990)
Cash and cash equivalents included in the statements of cash flows 3,579,302 4,818,144 3,579,302 4,818,144
Balances with contractual maturity of more than 3 months 2,911 (415,380) 2,911 (415,380)
3,582,213 4,402,764 3,582,213 4,402,764
Equivalent items reported in the statements of financial position:
Balances with Central Bank of Malta, Treasury bills and cash
(excluding Reserve Deposit)
3,264,741 4,510,412 3,264,741 4,510,412
Loans and advances to banks 394,546 452,469 394,546 452,469
Amounts owed to banks (77,074) (560,117) (77,074) (560,117)
3,582,213 4,402,764 3,582,213 4,402,764
37. RELATED PARTY TRANSACTIONS
During the current and prior year, the Group and the Bank entered into transactions during the course of their normal business,
with equity-accounted investees, subsidiaries, the Government of Malta ("The Government") (which has a 25% holding in the Bank),
Government related entities, key management personnel, and other related parties. Government related entities are those where, in
the opinion of the Bank, the Government is either deemed to exercise control, that is, it has the power to govern the financial and
operating policies of the entity or linked to the Government but not controlled by the Government.
Key management personnel includes the Chairman, Directors, the members of the Management Board and their respective spouses,
spousal equivalent and dependants. Other related parties are those companies over which the key management personnel hold
control or significant influence (directorship).
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
98
Transactions with related parties are made on an arm's length basis.
The Bank also entered into related party transactions on an arm's length basis with its subsidiaries and equity-accounted investees.
Transactions between the Bank and its subsidiaries have been eliminated on consolidation.
The amounts due to or from related parties are settled in cash and the amount of related party transactions and outstanding balances
at the reporting date are disclosed below:
The Group 2022
Related party
balances
Total activity/
balance
% of
total
2021
Related party
balances
Total activity/
balance
% of
total
€000 €000 €000 €000
Interest and similar income:
- on loans and advances
Equity-accounted investees - 21
The Government 4,609 1,198
Government related entities 13,905 14,207
Key management personnel 29 24
Other related parties 335 426
18,878 196,277 10% 15,876 172,429 9%
Interest and similar income:
- on debt and other fixed income instruments
The Government 9,184 23,933 38% 6,693 22,384 30%
Interest expense
Equity-accounted investees 958 1,587
The Government 105 17,282
Government related entities 42 92
Key management personnel 2 2
1,107 18,311 6% 18,963 38,503 49%
Fee and commission income
Equity-accounted investees 4,877 6,078
The Government 3,654 2,762
Government related entities 1,957 1,530
Key management personnel 2 2
Other related parties 25 19
10,515 89,114 12% 10,391 84,273 12%
Short term employee compensation and benefits
including post-employment benefits
Key management personnel 3,119 100,033 3% 2,701 81,568 3%
General administrative expenses
Equity-accounted investees 311 156
Key management personnel 51 27
Other related parties 62 21
424 72,945 1% 204 93,897 0%
37. RELATED PARTY TRANSACTIONS (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
99
Movement in impairment allowances
The Government (59) (808)
Government related entities 3,082 1,001
Key management personnel (15) 5
Other related parties (23) (18)
2,985 49,075 6% 180 18,856 1%
Balances with Central Bank of Malta
treasury bills and cash
The Government 3,303,501 3,389,261 97% 4,541,065 4,626,066 98%
Financial assets at fair value through profit or loss
The Government 1,040 146,363 1% 1,114 138,986 1%
Investments
The Government 1,191,064 4,567,064 26% 1,076,124 3,568,669 30%
Loans and advances to customers (net)
The Government 35,954 32,452
Government related entities 381,306 441,603
Key management personnel 3,967 3,969
Other related parties 10,094 11,914
431,321 5,560,076 8% 489,938 5,097,598 10%
Impairment allowances
The Government (109) (50)
Government related entities (138) (3,220)
Key management personnel (23) (8)
Other related parties (24) 1
(294) (132,917) 0% (3,277) (163,785) 2%
Amounts owed to customers
Equity-accounted investees 164,344 189,161
The Government 441,086 373,436
Government related entities 236,340 193,576
Key management personnel 6,876 4,482
Other related parties 3,224 3,379
851,870 12,547,911 7% 764,034 12,176,854 6%
Total Assets less Liabilities
Equity-accounted investees (164,344) (189,161)
The Government 4,090,364 5,277,269
Government related entities 144,828 244,807
Key management personnel (2,932) (521)
Other related parties 6,846 8,536
4,074,762 5,340,930
Commitments
Equity-accounted investees 317 317
The Government 72,958 76,817
Government related entities 105,909 79,567
Key management personnel 181 331
Other related parties 1,086 566
180,451 1,918,119 9% 157,598 1,898,310 8%
The Group 2022
Related party
balances
Total activity/
balance % of
2021
Related party
balances
Total activity/
balance % of
€000 €000 total €000 €000 total
37. RELATED PARTY TRANSACTIONS (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
100
Interest and similar income:
- on loans and advances
The Government 4,609 1,198
Government related entities 13,905 14,207
Key management personnel 14 13
Other related parties 335 423
18,863 196,277 10% 15,841 172,429 9%
Interest and similar income:
- on debt and other fixed income instruments
The Government 9,184 23,933 38% 6,693 22,384 30%
Interest expense
Equity-accounted investees 958 1,587
The Government 105 17,282
Government related entities 42 92
Key management personnel 1 1
1,106 18,311 6% 18,962 38,503 49%
Fee and commission income
Equity-accounted investees 4,877 6,078
Subsidiaries 1,682 2,275
The Government 3,654 2,762
Government related entities 1,957 1,530
Key management personnel 2 2
Other related parties 25 19
12,197 79,995 15% 12,666 74,462 17%
Dividend income
Equity-accounted investees 2,046 1,499
Subsidiaries 6,700 -
8,746 9,386 93% 1,499 2,946 51%
Short term employee compensation and benefits
including post-employment benefits
Key management personnel 2,954 97,659 3% 2,528 79,067 3%
General administrative expenses
Equity-accounted investees 311 156
Key management personnel 26 26
Other related parties 21 21
358 71,075 1% 203 92,546 0%
Movement in impairment allowances
The Government (59) (808)
Government related entities 3,082 1,001
Key management personnel - 1
Other related parties (25) (1)
2,998 49,075 6% 193 18,856 1%
The Bank 2022
Related party
balances
Total activity/
balance % of
2021
Related party
balances
Total activity/
balance % of
€000 €000 total €000 €000 total
37. RELATED PARTY TRANSACTIONS (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
101
Balances with Central Bank of Malta
treasury bills and cash
The Government 3,303,501 3,389,261 97% 4,541,065 4,626,066 98%
Financial assets at fair value through profit or loss
The Government 1,040 146,211 1% 1,114 138,823 1%
Investments
The Government 1,191,064 4,567,064 26% 1,076,124 3,568,669 30%
Loans and advances to customers (net)
The Government 35,954 32,452
Government related entities 381,306 441,603
Key management personnel 2,733 2,915
Other related parties 10,094 11,914
430,087 5,560,076 8% 488,884 5,097,598 10%
Impairment allowances
The Government (109) (50)
Government related entities (138) (3,220)
Key management personnel (4) (4)
Other related parties (24) 1
(275) (132,917) 0% (3,273) (163,785) 2%
Other assets
Subsidiaries 78 124,366 0% 866 141,096 1%
Amounts owed to customers
Equity-accounted investees 164,344 189,161
Subsidiaries 6,673 9,135
The Government 441,086 373,436
Government related entities 236,340 193,576
Key management personnel 6,143 3,850
Other related parties 3,224 3,379
857,810 12,554,584 7% 772,537 12,185,989 6%
Total Assets less Liabilities
Equity-accounted investees (164,344) (189,161)
Subsidiaries (6,595) (7,776)
The Government 4,090,364 5,277,269
Government related entities 144,828 244,807
Key management personnel (3,414) (939)
Other related parties 6,846 8,536
4,067,685 5,332,736
Commitments
Equity-accounted investees 317 317
The Government 72,958 76,817
Government related entities 105,909 79,567
Key management personnel 160 301
Other related parties 1,086 566
180,430 1,918,119 9% 157,568 1,898,310 8%
37. RELATED PARTY TRANSACTIONS (continued)
The Bank 2022
Related party
balances
Total activity/
balance % of
2021
Related party
balances
Total activity/
balance % of
€000 €000 total €000 €000 total
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
102
The Group The Bank
2022 2021 2022 2021
€000 €000 €000 €000
All outstanding balances are secured except for the following:
Loans and advances to customers:
- Key management personnel 66 678 60 361
66 678 60 361
Details of guarantees received are disclosed below:
Loans and advances to customers:
- Amounts guaranteed by The Government 323,246 350,699 323,246 350,699
The above facilities do not involve more than the normal risk of repayment or present other unfavourable features and were made
in the ordinary course of business on substantially the same terms as for comparable transactions with persons of a similar standing,
or where applicable, other employees.
Loans to and commitments on behalf of directors and other key management personnel (including connected persons):
The Group The Bank
Loans and Loans and
advances Commitments advances Commitments
€000 €000 €000 €000
Directors
At 31 December 2020 1,156 130 576 99
Additions 1,528 51 475 31
2,684 181 1,051 130
Less reductions/repayments (715) (67) (136) (45)
At 31 December 2021 1,969 114 915 85
Additions 282 32 39 24
2,251 146 954 109
Less reductions/repayments (99) (18) (36) (10)
At 31 December 2022 2,152 128 918 99
Other key management personnel
At 31 December 2020 1,951 215 1,951 215
Additions 241 18 241 18
2,192 233 2,192 233
Less reductions/repayments (192) (17) (192) (17)
At 31 December 2021 2,000 216 2,000 216
Additions 163 7 163 7
2,163 223 2,163 223
Less reductions/repayments (349) (169) (349) (169)
At 31 December 2022 1,814 54 1,814 54
38. SEGMENTAL INFORMATION BY CLASSES OF BUSINESS
38.1 Changes in reportable segments
Effective 1 January 2022, a change in the determination of reportable segments was required to better reflect the structure by which the Chief
Operating Decision Maker now reviews the internal organisational information. This is in line with the new internal organisational structure.
This revision to reporting segments has been reflected retrospectively with the restatement in comparative information representing the
new segments as per note 38.2.
37. RELATED PARTY TRANSACTIONS (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
103
The Group's reportable segments in the comparative year were as follows:
Reportable segments Operations
Personal Banking & Wealth Management Loans and other transactions and balances with retail customers, including wealth and asset
management related activities
Corporate Banking Loans and other transactions and balances with corporate customers
Proprietary Investments Funding and centralised risk management activities through borrowings and issues of debt
securities
Liquidity Management Investments in liquid assets such as short-term placements and corporate and government
debt securities
The Group’s revised reportable segments effective 1 January 2022 and as at 31 December 2022 are as follows:
Reportable segments Operations
Retail Banking Loan products, cards, payment and other transactions for all client segments of the Bank. It
also includes all deposit products for non-corporate and non-institutional client segments,
internet/mobile banking activities, ATM activities and all Bank retail branches operations.
Wealth Management Discretionary advisory and wealth management services, insurance and stock broking
services, asset and fund management, prestige and private banking.
Business Banking Financing and business deposit products for all business client segments including business
and corporate centres.
Treasury Proprietary investments, derivatives, and other investment related revenues. It also includes
custody services and investment operations.
Associates and Others Share of profits from associates, custody services, and other non-client specific investments.
This includes the management of the Bank's property, plant and equipment, investments,
other assets, long-term liabilities and other liabilities.
38.2 Information by segment
Interest income is the main revenue generating activity for all segments. The customer-oriented segments also have income derived from
fees and commissions and earnings arising on foreign exchange transactions.
Retail Banking Wealth Management Business Banking Treasury
Associates,
Investments & Others
Total
Reportable Segments
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Interest income
95,976 81,895 - - 99,262 88,999 24,972 23,919 - - 220,210 194,813
Interest expense
(4,625) (7,616) - - (2,277) (10,095) (3,094) (20,792) (8,315) - (18,311) (38,503)
Fee and commission
income
43,222 33,473 21,651 24,092 21,799 20,022 447 5,327 1,995 1,359 89,114 84,273
Fee and commission
expense
(10,530) (8,020) (23) (224) (161) (99) (1,140) (1,028) (692) (307) (12,546) (9,678)
Trading income
- - (40) 53 - - 8,670 8,983 - - 8,630 9,036
Gains from financial
assets
- - (1,157) 3 - - 3,377 1,517 3,399 - 5,619 1,520
Dividend income
- - - - - - 641 1,447 - - 641 1,447
Depreciation/
amortisation
(12,239) (13,846) (2,476) (1,934) (3,736) (3,348) (630) (389) (557) (621) (19,638) (20,138)
Other costs
(95,504) (95,103) (24,497) (25,244) (40,309) (43,908) (6,155) (6,224) (6,513) (4,986) (172,978) (175,465)
Impairment reversal/
(charge)
1,288 (1,673) - - 47,708 20,632 79 (103) - - 49,075 18,856
Operating profit/(loss)
before litigation provision
17,588 (10,890) (6,542) (3,254) 122,286 72,203 27,167 12,657 (10,683) (4,555) 149,816 66,161
Net Deiulemar litigation
settlement
- - - - - - - - (102,958) - (102,958) -
Operating profit/(loss)
before share of results
of equity-accounted
investees
17,588 (10,890) (6,542) (3,254) 122,286 72,203 27,167 12,657 (113,641) (4,555) 46,858 66,161
Group share results after
tax of equity-accounted
investees
- - - - - - - - 1,860 14,498 1,860 14,498
Group profit before
taxation for the year
48,718 80,659
38. SEGMENTAL INFORMATION BY CLASSES OF BUSINESS (continued)
38.1 Changes in reportable segments (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
104
39. FINANCIAL RISK MANAGEMENT
39.1 Use of financial instruments
By their nature, the Group's activities are principally related to the use of financial instruments including derivatives. The Group
accepts deposits from customers at both fixed and floating rates and for various periods and seeks to earn interest margins by
investing these funds in high-quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending
for longer periods at higher rates, while maintaining sufficient liquidity to meet all claims that might fall due.
The Group also seeks to increase its interest margins through lending to commercial and retail borrowers with a range of credit
standings. Such exposures involve both on-balance sheet loans and advances, as well as guarantees and other commitments such as
performance and other bonds and letters of credit.
The Board places trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions.
Foreign exchange and interest rate exposures are normally offset by entering into counterbalancing positions, thereby controlling the
variability in the net cash amounts required to liquidate market positions.
Given that the difference between the Group and the Bank balances in respect of financial instruments, and the corresponding effect
on the statement of profit or loss and other comprehensive income and reserves in respect thereof, are not material, references in this
note to the Group are to be construed as references to the Bank, unless otherwise stated.
The principal areas of financial risk are detailed below:
39.2 Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an
obligation.
Financial assets which could potentially expose the Group to credit risk, mainly include balances with Central Bank of Malta, treasury bills,
derivative financial assets, debt and other fixed income instruments, and loans and advances to banks and customers.
39.2.1 Credit risk management and exposure
i. Loans and advances
The purpose of credit risk management is to keep credit risk exposure to a permissible level relative to capital, to maintain the soundness of
assets, and to ensure returns commensurate with risk. This leads to a loan portfolio that achieves high returns on capital and assets.
38. SEGMENTAL INFORMATION BY CLASSES OF BUSINESS (continued)
38.2 Information by segment (continued)
Retail Banking Wealth Management Business Banking Treasury
Associates,
Investments &
Others
Total Reportable
Segments
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
ASSETS
2,963,486 2,719,598 1,316 264 2,697,029 2,500,823 8,409,882 8,676,643 112,087 128,917 14,183,800 14,026,245
Property and equipment
and intangible assets
236 284 289 128 13,337 13,705 - - 156,471 159,056 170,333 173,173
Additions to property and
equipment and intangible
assets
26 22 8 10 1,443 1,075 - - 16,928 12,416 18,405 13,523
Carrying value of equity-
accounted investees
- - - - - - - - 145,615 145,501 145,615 145,501
Total Assets
2,963,748 2,719,904 1,613 402 2,711,809 2,515,603 8,409,882 8,676,643 431,101 445,890 14,518,153 14,358,442
LIABILITIES
Total Liabilities
8,405,729 8,165,839 1,719 981 4,289,969 4,248,665 250,321 744,075 412,570 72,597 13,360,308 13,232,157
The revenue which is reported above represents revenue generated from external customers. There was no inter-segment revenue during the
year and comparative year.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segment's
operating profit represents the profit earned by each segment.
There are no material activities which are carried out outside Malta
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
105
Credit risk is managed and controlled throughout the Bank on the basis of established credit processes, and within a framework of credit
policy and delegated authorities based on responsibility, skill and experience.
Credit grading and monitoring systems are in place to accommodate the early identification and management of deterioration in loan quality.
In addition, the credit management process is underpinned by an independent system of credit review.
Credit risk analysis is carried out on two levels: the single name; and the Bank’s lending portfolio review. The Bank uses a number of tools to
limit its exposure to undue credit risk. These include the application of:
• High-level credit policies designed to ensure a balanced and managed approach to the identification and mitigation of credit risk;
• Lending guidelines defining the responsibilities of lending officers that seek to provide a disciplined and focused benchmark for credit
decisions;
• Independent reviews of credit exposures;
• Sector caps, encompassing both industry and specific product types, to communicate the Board’s risk appetite for specific types of
business;
• Establishment and maintenance of large exposures and provisioning policies in accordance with regulatory reporting requirements; and
• Communication and provision of general guidance on all credit-related risk issues, including regulatory changes to promote consistent
and best practice throughout the Bank.
Where possible the Bank aims to reduce and control risk concentrations. Broadly stated, concentration results when the Bank has a high
level of exposure to a single or related group of borrowers, credit exposures secured by a single security, or credit exposures with common
characteristics within an industry, such that adverse developments in this exposure would be damaging to the Bank.
Given the size and nature of the domestic financial sector and the local economy, the Bank is exposed to concentration risk in its credit
business. The Bank has systems in place to identify material concentrations in the loan portfolio, and to ensure adherence to prudential
limits set by the Board of Directors and/or the regulator to single borrowers or groups of related borrowers and other significant risk
concentrations. The CEO and the Board of Directors are regularly informed on the concentration of the Bank’s portfolio.
The Group
2022 2021
€000 €000
Households and Individuals 2,964,559 2,719,877
Wholesale and retail trade 376,063 374,139
Accommodation and food service activities 354,506 302,155
Financial and insurance activities 438,467 456,171
Real estate activities 225,030 402,974
Transportation and storage 413,326 176,354
Construction 285,021 273,135
Electricity, Gas, Steam and Air Conditioning Supply 127,360 112,147
Human health and Social work activities 46,134 42,732
Manufacturing 53,401 128,525
Arts, Entertainment and Recreation 141,000 38,974
Professional, Scientific and Technical activities 139,371 122,848
Administrative and Support service activities 76,238 127,890
Agriculture, Forestry and Fishing 27,631 5,051
Information and communication 39,135 23,592
Education 35,134 25,552
Other services activities 9,837 16,772
Public administration and Defence, Compulsory social security 13,528 15,376
Mining and quarrying 1,884 76
Water supply, Sewerage waste management and remediation activities 4,093 1,890
Activities of extraterritorial organisations and bodies - 3
Loans and advances to customers 5,771,718 5,366,233
Loans and advances to banks 394,546 452,469
6,166,264 5,818,702
Loans and advances to customers comprise gross loans and advances at amortised cost and loans and advances designated at fair
value through profit and loss as per Note 17.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
106
ii. Other financial assets
The credit risk in respect of other financial assets is mitigated through limits set in the Treasury Management Policy. The Bank assigns limits on
the level of credit risk undertaken in relation to any single counterparty or sovereign exposure in accordance with external ratings based on
Fitch’s ratings or on those of other major rating agencies.
Changes in credit ratings are monitored on a daily basis and are subject to frequent review, when considered necessary. The limits on the level
of credit risk are reviewed consistently and approved by the Board of Directors at regular intervals. Actual exposures are monitored against
limits on an on-going basis. The Bank enters into security transactions only with such authorised counterparties and it invests only in securities
or paper with credit quality within specific parameters stated in the Treasury Management Policy.
The level of concentration in respect of other significant financial assets is disclosed in the remaining notes to the financial statements.
Collateral and other credit enhancements
Credit risk mitigation is one of the key elements of the Group’s credit policy. This includes the requirement to obtain collateral, depending on
the nature of the proposal, as set out in the Bank’s policies and procedures. The nature and level of collateral required depends on a number
of factors, including, but not limited to the amount of the exposure, the type of facility provided, the term of the facility, the amount of the
counterparty’s contribution and an evaluation of the level of the credit risk or probability of default involved (see note 39.2.1.5).
Settlement Risk
The Group’s activity may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to failure
of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. Settlement risk in respect of security
transactions is mitigated through settlement limits assigned to counterparties based on external credit ratings or by effecting payment on a
delivery versus payment (DVP) basis.
Sovereign Debt
Sovereign risk refers to the risk that a government may default on its obligations and includes refinancing risk related to the inability to raise
capital to repay maturing bonds. The Group monitors sovereign risks through sovereign credit ratings issued by credit rating agencies which
include Fitch, Moody’s, and Standard & Poor’s. The Treasury Management Policy seeks to mitigate sovereign risk, whether directly or indirectly
through exposures to corporate and financial institutions domiciled therein, through investment limits assigned on the basis of the long-term
credit rating of such sovereigns. This is further supplemented by in depth economic reviews undertaken periodically and assessments of the
fiscal, economic and socio-political aspects upon which such limits are accordingly aligned.
39.2.1.1 Credit Quality
iii. Financial Assets by external rating agency designation
Balances with CBM
and Treasury Bills
Debt Securities Loans and
Advances to Banks
Derivatives Total
The Group €000 €000 €000 €000 €000
As at 31 December
2022
AAA 3,065,473 1,221,231 3,943 4,062 4,294,709
AA- to AA+ - 820,064 46,845 - 866,909
A- to A+ 238,028 2,104,631 184,882 19,000 2,546,541
BBB- to BBB+ - 383,553 68,682 5,363 457,598
Lower than BBB- - 21,228 9,435 - 30,663
Unrated - 8 80,759 441 81,208
3,303,501 4,550,715 394,546 28,866 8,277,628
As at 31 December
2021
AAA 4,351,884 510,476 42,747 9 4,905,116
AA- to AA+ - 596,324 89,780 - 686,104
A- to A+ 188,671 2,154,469 152,288 153 2,495,581
BBB- to BBB+ - 282,861 106,924 - 389,785
Lower than BBB- - 6,535 17,687 - 24,222
Unrated - 9 43,043 1,042 44,094
4,540,555 3,550,674 452,469 1,204 8,544,902
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
107
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.1 Credit Quality (continued)
The tables below analyse debt securities by sector, classification and residency.
Sector
The Group
Amortised cost FVOCI FVTPL
2022 €000 €000 €000
Banks 743,253 - 22
Government 3,594,113 15,926 1,050
Public - 66,284 -
Others 130,067 - -
4,467,433 82,210 1,072
The Group
Amortised cost FVOCI FVTPL
2021 €000 €000 €000
Banks 880,785 - 28
Government 2,377,928 32,839 1,120
Public - 73,488 -
Others 184,486 - -
3,443,199 106,327 1,148
Residency
The Group
Amortised cost FVOCI FVTPL
2022 €000 €000 €000
Malta 1,177,576 82,210 1,040
Monetary Union member states 1,932,275 - 10
Rest of the world 1,357,582 - 22
4,467,433 82,210 1,072
The Group
Amortised cost FVOCI FVTPL
2021 €000 €000 €000
Malta 1,045,720 106,327 1,114
Monetary Union member states 1,421,997 - 6
Rest of the world 975,482 - 28
3,443,199 106,327 1,148
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
108
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.1 Credit Quality (continued)
Loans and advances to customers analysed into performing and non-performing exposures.
The Group The Group
Total Gross/Forborne Exposures Total
Of which
Forborne Total
Of which
Forborne
2022 2022 2021 2021
€000 €000 €000 €000
Performing
Stage 1 4,998,276 - 4,506,916 -
Stage 2 569,137 172,474 637,392 164,047
5,567,413 172,474 5,144,308 164,047
Non-performing
Stage 3 204,305 93,135 221,925 115,118
204,305 93,135 221,925 115,118
Total Gross/Forborne Exposures 5,771,718 265,609 5,366,233 279,165
Gross Forborne Exposures are analysed as follows:
Modification
in Terms Refinancing
Modification
in Terms Refinancing
2022 2022 2021 2021
Performing €000 €000 €000 €000
Personal 15,372 219 18,321 191
Business 155,632 1,251 144,027 1,508
171,004 1,470 162,348 1,699
Non-performing
Personal 19,941 469 23,025 219
Business 65,623 7,102 87,510 4,364
85,564 7,571 110,535 4,583
The movement in forbearance activity during the period is as follows:
Loans & Advances
2022 2021
€000 €000
1 January 279,165 115,875
Additions 46,558 183,103
Retired from forborne (60,114) (19,813)
31 December 265,609 279,165
(iii) Analysis of past due balances
Past due up to 29 days 63,193 50,428
Past due 30 - 59 days 5,845 15,251
Past due 60 - 89 days 2,139 4,763
71,177 70,442
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
109
Analysis of past due balances comprise all loan exposures (including forborne exposures).
A financial asset is past due when a counterparty has failed to make a payment when contractually due.
2022 2021
€000 €000
Defaulted gross loans by segment:
Business 155,105 167,523
Personal 49,200 54,402
204,305 221,925
Defaulted facilities are those credit facilities with payments of interest and/or capital overdue by 90 days or more or where the Group
has reasons to doubt the eventual recoverability of funds. A variety of types of collateral are accepted including property, securities, cash,
guarantees and insurance, as disclosed in note 39.2.1.5.
Information about impairment allowances is disclosed in note 39.2.1.2 in respect of the Group’s exposures as at 31 December 2022 and
31 December 2021.
39.2.1.2 Expected credit loss measurement
IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below:
• A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1 and has its credit risk continuously
monitored by the Group.
• If a significant increase in credit risk (SICR) since initial recognition is identified, the financial instrument is moved to Stage 2 but is
not yet deemed to be credit-impaired. Refer to note 39.2.1.2.1 for a description of how the Group determines when a significant
increase in credit risk has occurred.
• If the financial instrument is credit-impaired, the financial instrument is then moved to Stage 3. Refer to note 39.2.1.2.2 for a
description of how the Group defines credit-impaired and default.
• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that
result from default events possible within the next 12 months. Instruments in Stages 2 and 3 have their ECL measured based on
expected losses on a lifetime bases. Refer to note 39.2.1.2.4 for a description of inputs, assumptions and estimation techniques used
in measuring the ECL.
• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information. Note
39.2.1.2.5 includes an explanation of how the Group has incorporated this in its ECL models.
Further explanation is also provided of how the Group determines appropriate groupings when ECL is measured on a collective basis
(refer to note 39.2.1.2.8).
The following diagram summarises the impairment requirements under IFRS 9 (other than purchased or originated credit-impaired
financial assets):
Change in credit quality since initial recognition
Stage 1 Stage 2 Stage 3
(Initial recognition) (Significant increase in credit risk since
initial recognition)
(Credit-impaired assets)
12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses
39.2.1.2.1 Significant increase in credit risk
With the exception of instruments measured at FVTPL, exposures with low credit risk at the reporting date and any originated credit-
impaired financial assets (note 39.2.1.2.2), the Group assesses whether financial instruments have experienced a significant increase
in credit risk since initial recognition.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.1 Credit Quality (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
110
When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group
considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the Group’s historical experience and expert credit assessment and
including forward-looking information. A quantitative backstop trigger (30 days in arrears) shift exposures from stage 1 to stage 2 as
significant increase in credit risk is deemed to have occurred.
The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of
default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are
indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower.
During the year the Bank implemented a new more robust Internal Credit Rating System (‘ICRS’) for the business portfolio which
enhanced granularity and differentiates credit risk through more gradings avoiding concentration in a few grades. The business
portfolio was segmented into five groups of exposures sharing similar credit risk characteristics: Corporate, Business Centre, Business
Branches, Sole Traders and Specialised Lending. Corporate and Business Centre segments make use of both a behavioural and a
financial scorecard with the results of these two different scorecards combined through a weight to get to a credit grading. The other
three segments only make use of a behavioural scorecard to determine the credit grading.
Stage Allocation
Business Portfolio: At the origination of a loan, all business exposures, irrelevant of the credit grading, are allocated to stage 1 as the
bank accepts the credit risk profile at an agreed price. It follows that 12 months of expected credit losses are held against newly
originated loans as long as the credit risk at origination does not increase significantly. A transfer to stage 2 is only triggered when
SICR, compared to the credit risk at origination, occurs. Assessment of SICR has been enhanced to include a comparative assessment
between the PD at a point in time and that at origination to determine whether credit risk has increased over time. A second backstop
trigger for SICR was also introduced. The latter pushes exposures to underperforming whenever the PD is found to have doubled
that at origination. Similar to previous model, the new internal credit rating system maps performing and non-performing exposures
to ratings 1 to 5 and 6 to 11 respectively.
Retail Portfolio: A new internal credit grading for the retail portfolio will be developed during 2023. In the interim, the legacy model is
still in use for the Retail portfolio. Retail exposures are allocated to stages on the basis of the credit grading at the point in time with
internal ratings 1 to 3 allocated to stage 1, grades 4 and 5 in stage 2 and grades, 6 to 11 in stage 3. Exposures are subject to ongoing
qualitative monitoring, which may also result in an exposure being moved to a different credit risk grade. The monitoring typically
involves use of the following data.
Commercial exposures Personal exposures All exposures
• Information obtained during periodic
review of customer files - e.g. audited
financial statements, management
accounts, budgets and projections.
Examples of areas of particular focus
are: gross profit margins, financial
leverage ratios, debt service coverage,
compliance with covenants, quality
of management, senior management
changes
• Actual and expected significant
changes in the political, regulatory
and technological environment of the
borrower or in its business activities
• Internally collected data on customer
behaviour -e.g. utilisation of credit
card facilities
• Affordability metrics
• Payment record - this includes
overdue status as well as a range of
variables about payment ratios
• Utilisation of the granted limit
• Requests for and granting of
forbearance
• Existing and forecast changes in
business
• Financial and economic conditions
The Group applies the low credit risk simplification for all investments which are of an investment grade, which comprises the vast
majority of its treasury portfolio. The Group accordingly only assesses SICR for investments in those debt securities which are rated as
sub-investment grade. For sub-investment grade securities, the Group considers a security to have experienced a significant increase
in credit risk if the security has been the subject to a credit rating downgrade since initial recognition.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.1 Significant increase in credit risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
111
COVID-19 impact on credit quality
In line with the European Banking Authority (EBA) guidance ‘Statement on the application of the prudential framework regarding
Default, Forbearance and IFRS 9 in light of COVID-19 measures’ dated 25th March 2020, the application of moratoria or deferral
of payments, aimed at addressing the adverse systematic economic impact of the COVID-19 pandemic, was not by itself taken as a
trigger to conclude that significant increase in credit risk occurred. However, this did not remove the obligations of a credit institution
to assess the credit quality of the exposures benefiting from these measures and identifying any situation of unlikeliness to pay.
The moratoria period was considered a suitable measure to give relief to borrowers who were temporarily unable to serve their
loan obligations due to COVID-19 disruptions. Specific customer information available, coupled with expert judgement was applied
to identify whether a significant increase in credit risk exists by distinguishing between borrowers taking up payment deferrals for
temporary liquidity issues related to Government imposed restrictions and other borrowers taking up payment deferrals that shall lead
to long-term financial difficulties over the life of the exposure.
Over the past 3 years ongoing monitoring has been undertaken on customers and related facilities impacted by COVID market
disruptions. This resulted in adjustments being made on the affected portfolios both in terms of credit grading and related ECL levels.
One of the most material actions taken included downgrading a very high percentage of the Accommodation sector to stage 2/3 thus
moving to a lifetime PD calculation and increasing the provisioning coverage. Nearly all moratoria extended have now expired, and
customers have started repaying their facilities.
A review of the COVID impacted portfolio reveals that 98% of total moratoria have now expired and repayments have initiated. 2.7%
of balances benefiting from a moratorium have not started repaying upon expiry. A high number of facilities have now been repaying
for number of months. As at reporting date no major deterioration has been noticed and the absolute majority of COVID-19 loans are
being repaid according to the established schedule. The number of balances with days in arrears over 90 days on this mostly impacted
portfolio is 0.2% of total balances.
The table below presents the Bank's credit portfolio grouped by type of COVID-19 assistance availed of and industry risk.
2022 2021
COVID-19 Assistance
Industry Risk
Balance
Malta
Development Bank
Covid Assist Moratoria granted
of which
expired moratoria Balance
€000 €000 €000 €000
€000
High 841,991 116,178 233,903 227,473 811,179
Medium 892,218 52,556 133,366 130,704 878,704
Other 4,037,509 56,695 305,590 303,728 3,676,350
Total 5,771,718 225,429 672,859 661,905 5,366,233
The total balance comprises gross loans and advances at amortised cost and loans and advances designated at fair value through profit
and loss as per Note 17.
The majority of exposures with expired moratoria are now following the agreed repayment program. In those instances where loan
repayments were not following the agreed repayment schedule following the expired moratoria, such exposures were deemed to have
incurred a significant increase in credit risk. Consequently, such loans have been downgraded accordingly.
Other economic uncertainties and their impact on credit quality
Impact of the Russian/Ukrainian Crisis on Expected Credit Losses
An extensive exercise was carried out by the Bank’s Business and Risk units to identify the areas of risk emanating from the Russian/
Ukrainian conflict and the possible impacts to the Bank’s business. Three potential areas of increased risk were identified:
- Directly impacted exposures who are directly impacted by the sanctions and measures put in place due to this conflict. The Bank
has undergone an exercise to identify these, and the outcome was that no customers are directly impacted by the conflict as the
Bank does not have a large amount of Russian or Ukrainian nationals and all of them are based in Malta.
- Secondary-impacted sectors are those sectors deemed as exposed to a high or medium risk given the industry in which they
operate in and how the prices and availability of materials might have been impacted by this conflict.
- Macro-economic impact namely due to Inflationary pressures.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.1 Significant increase in credit risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
112
By virtue of this analysis, it was concluded that there are no indicators to substantiate an increase in specific risk emanating from the
Russia/Ukraine war. The Bank will continue monitoring any developments within this area.
From a more macro-outlook, the share of Malta’s import of goods from Russia and Ukraine is minimal at less than 1% of imports
originating from these countries. Most imports from Russia and Ukraine are of an agriculture and fuel nature. The rise in fuel prices
has not been felt by the general consumer as fuel prices are currently being fixed by the Government.
Likewise, Malta’s share of exports to these countries also stands at less than 1% and hence, is negligible.
39.2.1.2.2 Definition of default and credit-impaired
The Group considers financial assets in the advances portfolio to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising
security (if any is held); or
• the borrower is past due more than 90 days on any material credit obligation to the Group.
Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit lower than
the current amount outstanding.
In assessing whether a borrower is in default, the Group considers indicators that are:
• qualitative – e.g. breaches of covenant;
• quantitative – e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and
• based on data developed internally and obtained from external sources.
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in
circumstances.
The definition of default aligns with that applied by the Group for regulatory capital purposes.
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or past due event;
• the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.
A loan 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. In addition, a retail loan that is overdue for 90 days or more is considered impaired.
In the case of the treasury portfolio, the Group considers investments in debt instruments to be in default when a payment, including a
coupon payment, is missed.
39.2.1.2.3 Cure rate
An instrument in the Group’s advances portfolio is considered to be no longer in default (i.e. to have cured) when it no longer meets any
of the default criteria for a consecutive period of three months. This period of three months has been determined based on an analysis
which considers the likelihood of a financial instrument returning to default status after cure using different possible cure definitions.
A forborne instrument is considered to no longer be in default when it no longer meets any of the criteria for a consecutive period of twelve
months.
The Group’s experience is that defaulted debt investments within the treasury portfolio do not cure given that a security’s default mechanism
is triggered when a security’s issuer misses a coupon payment. Any new instruments which the Group receives as part of an eventual debt
restructuring exercise is considered to be a new instrument altogether.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.1 Significant increase in credit risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
113
39.2.1.2.4 Measuring ECL
The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or Lifetime basis depending on whether a significant increase in credit
risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. Expected credit losses are the discounted
product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows:
- The PD represents the likelihood of a borrower defaulting on its financial obligation (as per "Definition of default and credit-impaired"
above), either over the next 12 months (12M PD), or over the remaining lifetime (Lifetime PD) of the obligation.
- EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months (12M EAD) or over the
remaining lifetime (Lifetime EAD). For example, for a revolving overdraft, the Group includes the current drawn balance plus any further
amount that is expected to be drawn up to the current contractual limit by the time of default, should it occur.
- LGD represents the Group’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and
seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure at the time
of default (EAD). LGD is calculated on a 12 month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made
if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if the default occurs over the
remaining expected lifetime of the loan.
The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual exposure or collective segment.
These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an
earlier month). This effectively calculates an ECL for each future month, which is then discounted back to the reporting date and summed. The
discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof.
These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted to reflect
forward-looking information as described in note 39.2.1.2.5.
PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating tools tailored
to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both
quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large corporate counterparties.
If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate of the associated PD. PDs are
estimated considering the contractual maturities of exposures and estimated prepayment rates.
The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the
contract including amortisation. The EAD of a financial asset is its gross carrying amount. For lending commitments and financial guarantees,
the EAD includes the amount drawn, as well as potential future amounts that may be drawn under the contract, which are estimated based on
historical observations and forward-looking forecasts. For some financial assets, EAD is determined by modelling the range of possible exposure
outcomes at various points in time using scenario and statistical techniques.
The Group estimates LGD parameters on its advances portfolio based on historical data sets of property contractual prices and recovered claims
against defaulted counterparties. From this data, future property prices are estimated, which are then discounted to allow for costs to sell and
time to sell. Net realisable values are discounted using the individual exposure’s interest rate. The LGD models consider the structure, collateral,
seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. For loans secured by retail
property, LTV ratios are a key parameter in determining LGD. In the case of the Group’s treasury portfolio, the Group lacks historical experience
of defaults, and accordingly makes use of the LGD parameters set out by the Bank for International Settlements.
As described above, and subject to using a maximum of a 12-month PD for financial assets for which credit risk has not significantly increased,
the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower’s extension options)
over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. The maximum contractual
period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee.
However, for retail overdrafts and credit card facilities that include both a loan and an undrawn commitment component, the Group measures
ECL over a period longer than the maximum contractual period if the Group’s contractual ability to demand repayment and cancel the undrawn
commitment does not limit the Group’s exposure to credit losses to the contractual notice period. These facilities do not have a fixed term or
repayment structure and are managed on a collective basis. The Group can cancel them with immediate effect but this contractual right is not
enforced in the normal day-to-day management, but only when the Group becomes aware of an increase in credit risk at the facility level. This
longer period is estimated taking into account the credit risk management actions that the Group expects to take and that serve to mitigate ECL.
These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms.
39.2.1.2.5 Forward-looking information
The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed historical
analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
114
These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. Quarterly Central Bank
of Malta (CBM) forecasts for those macro-economic factors, that are found to be statistically significant for the bank’s credit portfolio,
are used. On an annual basis, as part of the model recalibration exercise an assessment is carried out to ensure that the selected
macro-economic model is still adequate and statistically significant.
The impact of these economic variables on the PD, EAD and LGD is determined by performing statistical regression analysis to
understand the impact, changes in these variables have had historically on default rates, and on the components of LGD.
As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and
therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to represent its
best estimate of the possible outcomes.
As at 31 December 2022, the IFRS 9 model was updated with the Central Bank of Malta, (CBM) Quarter 4, 2022 baseline macro-
economic projections for the period 2022 to 2025 for GDP growth, inflation and unemployment.
The PD model has changed from the Vector Auto regressive, (‘VAR’) model, sourcing data from Trading Economics to be able to
generate its own forecasts to the direct use of official publicly available forecasts. This ensures that the IFRS 9 model is always
updated with the latest forecasts issued by the official authorities.
The calibrated model still includes three scenarios (base/optimistic/pessimistic) whereby the baseline scenarios are mapped to the
economic forecasts published quarterly by the Central Bank of Malta for Unemployment rate and Inflation rate, and bi-annually in the
Budgetary Plan and the Update of Stability Program for GDP growth rate issued by the Ministry for Finance and Employment.
The upside and downside scenarios are then derived as follows:
• The Budgetary Plan and the Update of Stability Program publish upside and downside scenarios for real GDP growth (GDP fan
chart);
• Okun’s law is used to derive the upside and downside scenarios for Unemployment rate. Okun’s law prescribes a presumably
stable economic relationship between the Unemployment rate and GDP growth rate;
• The Phillips Curve is used to derive the upside and downside scenarios for Inflation rate. The Phillips Curve prescribes a presumably
stable economic relationship between the Inflation rate and Unemployment rate.
The following table compares the three key forecasts as per CBM issue Quarter 4: 2021 to those issued by the CBM in Quarter 4:
2022.
December 21 CBM Forecasts December 22 CBM Forecasts
2021 2022 2023 2024 2022 2023 2024 2025
Macrovariable % % % % % % % %
GDP 6.0 6.5 5.3 3.8 6.8 3.7 3.6 3.5
Inflation 0.7 2.1 1.9 1.8 6.1 4.5 2.3 2.0
Unemployment 3.4 3.4 3.6 3.6 3.0 3.0 3.2 3.3
Management adjustments to models for impairment
Management adjustments to impairment models are applied in order to factor in certain conditions or changes in policy that
are not fully incorporated into the impairment models, or to include additional facts and circumstances at the period end.
Management adjustments are reviewed and incorporated into future model development where applicable.
Post-model adjustments including those predominantly due to long-outstanding non-performing exposures
COVID-19 impacted the global economy throughout 2020 and 2021, however recent macro-economic forecasts do indicate a decline in
the impact from the COVID-19 pandemic as Malta shifts back to normality. In fact, by June 2022 practically all restrictions in Malta and
across the EU had been removed which is a positive sign towards economic activity going forward. The easing of the restrictions previously
put in place helped kick-start Malta’s economic activity.
From an analysis done internally, it was noted that most industries have recovered to the average economic activity observed in 2019 with
some having also surpassed this point. Considering all external and internal factors, the management of the bank had concluded that all post
model adjustments triggered by COVID, a total of €24.9 million, were to be reversed. This decision was effectively taken as at June 2022.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.5 Forward-looking information (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
115
A total of €37.8 million (2021: €51.1 million), are held as post-model adjustments related to non-performing exposures, thereby
releasing €13.3 million. This adjustment was determined on the basis of the possible recovery over an extended period of
time and factoring in costs to dispose and additional haircuts to the underlying collateral held. The assessment also took into
consideration that, during the year, a new LGD model was implemented providing more granularity as it differentiates by type of
property and relationship. This led the management to conclude that no post-model adjustments were necessary against non-
performing loans which have been less than four years in this category as the ECL model was deemed robust enough and thus
provision levels adequate. The latter resulted in a release in provisions of €4.7 million. The remaining movement of €8.6 million
reflects changes in the portfolio
The long-outstanding/legacy non-performing exposures are considered as very high-risk exposures with a high degree of
uncertainty associated with the realisation of their collateral. For this group of exposures time to sell is longer than normally
expected resulting in additional costs to maintain the assets in a good and saleable condition. For these types of exposures,
it is also highly probable that the debt is realised through court proceedings and hence, further legal costs would be incurred.
Taking all these factors into consideration, the Bank is of the view that an additional independent analysis, from the LGD model
is necessary to estimate the adequate ECL coverage for this group of exposures with an intention to improve the coverage.
39.2.1.2.6 Critical estimates
The most significant key macro-economic variables used for the ECL estimate as at 31 December 2022 are set out below.
As part of the annual calibration exercise, the IFRS 9 model has been updated to include a revised mix of macro-economic variables
(Gross domestic product, inflation rate and unemployment rate) to make the model more intuitive and reflective of the current economic
conditions. The forecast for housing index was excluded from the PD model.
The macro-economic model includes GDP growth rate, HICP inflation rate and year on year difference in Unemployment rate for both retail
and business portfolio. The credit cycle coefficients together with their relative weights in the credit cycle are summarized in the table below:
Macro-economic credit-cycle for Retail and Business portfolio:
2022 2021
Variable Retail Weights Business Weights Total portfolio
GDP Growth -0.0043 44.19% -0.0157 41.01% -0.0222
Unemployment Rate 0.0535 54.29% 0.1450 37.09% 0.1819
Inflation Rate 0.0008 1.52% 0.0441 21.90% 0.1538
As part of the model calibration exercise carried out during 2022, the ECL model was enhanced to cater for separate macro-economic
models (‘MEV’) for the business and the retail portfolios rather than a common MEV model. The GDP is proven to be a universal variable
capturing the overall state of the economy and as such it has an important role in both Retail and Business segments. The unemployment
rate has a higher impact on Retail (in fact it is the most important variable in this segment) than on Business, which is in line with expectations.
Inflation impacts businesses mainly through input cost increases, while individuals are, to a large extent, shielded from these effects by
government measures.
Three scenarios "baseline", “downside” and "upside" were used for all loan portfolios.
Macro-economic forecasts (2022-2025) Downside Baseline Upside
% % %
GDP Growth rate 0.4 4.4 8.8
Inflation rate 3.5 3.7 3.9
Unemployment rate 3.8 3.1 2.4
Probability (%) 25.0 50.0 25.0
Other forward-looking considerations not incorporated within the above scenarios, such as the impact of any regulatory, legislative, or political
changes, have also been considered, but are not deemed to have a material impact. This is reviewed and monitored for appropriateness on
a quarterly basis.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.5 Forward-looking information (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
116
39.2.1.2.7 Sensitivity of ECL to future economic conditions
ECL is sensitive to judgements and assumptions made regarding formulation of forward-looking scenarios and how such scenarios
are incorporated into the calculations.
A sensitivity analysis is performed on the ECL requirement for the credit portfolio, assuming the upside and downside forward-looking
scenarios as the baseline and weighted at 100% instead of applying an unbiased set of probability weights.
2022
€000
Gross performing exposures 5,567,413
ECL variance
- Upside (3,624)
- Downside 4,207
Applying a baseline scenario would approximate the probability weighted scenario.
The Group performed additional ECL runs to sensitise expected credit loss requirements to changes in the impact of macro-variable
inputs and their impact on projected PD curves. The most significant change in ECL resulting from shifts in macro variable inputs is
coming from unemployment since, over the past 10 years unemployment has been gradually decreasing and applying an abrupt shift
upwards would cause a shock to the model. A higher unemployment rate would result in a significant impact on the purchasing power
and hence on the borrowers' ability to meet its contractual obligations.
Set out below are the changes to ECL as at 31 December 2022 that would result from changes in parameters from the actual
observations. The most significant sensitivity tests affecting the ECL allowance are as follows:
Macrovariable Shift in basis points Increase in ECL
€000
Inflation rate +150 682
Unemployment +100 2,741
Gross Domestic Product -300 740
A further sensitivity scenario is that which assumes an economic downturn, assuming a 1% shift of exposures from Stage 1 moving to
Stage 2. Applying the difference in Stage 2 and Stage 1 average impairment coverage ratios to the movement in gross exposure, it is
estimated that ECL will increase by €1.3 million (2021: €1.4 million), mostly arising on loans and advances to customers.
39.2.1.2.8 Grouping by shared risk characteristics
Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk
characteristics that include:
- instrument type;
- credit risk gradings;
- collateral type;
- LTV ratio for retail mortgages;
- date of initial recognition;
- remaining term to maturity;
- industry; and
- geographic location of the borrower.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
117
The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous.
As at December 2022 Exposure External benchmarks used
LGD
Investments in debt securities within the
treasury portfolio
€ 4,550,212 14% - 59%
Bank for International Settlements parameters
As at December 2021 Exposure External benchmarks used
LGD
Investments in debt securities within the
treasury portfolio
€ 3,550,159 8% - 55%
Bank for International Settlements parameters
All instruments are of an investment grade and as such the Bank has applied simplification rules as permitted by IFRS 9.
39.2.1.3 Gross carrying amount and exposure to credit risk
The following table sets out information about the credit quality of financial assets measured at amortised cost, and FVOCI debt
investments. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.
Explanation of the terms: 12-month ECL, lifetime ECL and credit-impaired are included in Note 39.2.1.1.
Stage 1
12-month
ECL
Stage 2
Lifetime ECL
not Credit-
Impaired
Stage 3
Lifetime
ECL Credit-
Impaired Total
€000 €000 €000 €000
Loans and advances to banks at amortised cost
As at 31 December 2022
AAA 3,069,417 - - 3,069,417
AA- to AA+ 46,845 - - 46,845
A- to A+ 422,918 - - 422,918
BBB- to BBB+ 68,683 - - 68,683
Lower than BBB- - 9,454 - 9,454
Unrated 80,759 - - 80,759
3,688,622 9,454 - 3,698,076
Loss allowance (10) (19) - (29)
Carrying amount 3,688,612 9,435 - 3,698,047
Loans and advances to banks at amortised cost
As at 31 December 2021
AAA 4,394,631 - - 4,394,631
AA- to AA+ 8,007 - - 8,007
A- to A+ 222,482 - - 222,482
BBB- to BBB+ 10,755 - - 10,755
Lower than BBB- - 17,671 - 17,671
4,635,875 17,671 - 4,653,546
Loss allowance (11) (35) - (46)
Carrying amount 4,635,864 17,636 - 4,653,500
The Group makes use of external ratings based on major rating agencies.
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.2.8 Grouping by shared risk characteristics (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
118
Stage 1
12-month
ECL
Stage 2
Lifetime ECL
not Credit-
Impaired
Stage 3
Lifetime
ECL Credit-
Impaired Total
€000 €000 €000 €000
Loans and advances to customers at amortised cost
As at 31 December 2022
Grades 1-3 4,811,994 18,462 60 4,830,516
Grades 4-5 107,557 550,675 31 658,263
Grades 6-11 - - 204,214 204,214
4,919,551 569,137 204,305 5,692,993
Loss allowance (16,486) (13,495) (102,936) (132,917)
Carrying amount 4,903,065 555,642 101,369 5,560,076
Loans and advances to customers at amortised cost
As at 31 December 2021
Grades 1-3 4,402,066 3,918 290 4,406,274
Grades 4-5 - 633,474 61 633,535
Grades 6-11 - - 221,574 221,574
4,402,066 637,392 221,925 5,261,383
Loss allowance (23,940) (19,789) (120,056) (163,785)
Carrying amount 4,378,126 617,603 101,869 5,097,598
Exposures under probation or which experienced a deterioration in stage subject to the doubling of the PD result in an ECL stage
which is worse than the stage related to their internal grading.
Exposures graded 4 and 5 and allocated in Stage 1 comprise of newly originated business exposures. (Refer to 39.2.1.2.1 – Stage
Allocation)
The following table represents the average 12-month PD corresponding to the internal credit grading.
Grading 12-month average PD
Grades 1 - 3 0.017
Grades 4 - 5 0.327
Grades 6 - 11 1.000
Stage 1
12-month ECL
Stage 2
Lifetime ECL not
credit-Impaired
Stage 3
Lifetime ECL
credit-Impaired Total
€000 €000 €000 €000
Investments in debt securities
As at 31 December 2022
AAA 1,221,249 - - 1,221,249
AA- to AA+ 820,073 - - 820,073
A- to A+ 2,103,870 - - 2,103,870
BBB- to BBB+ 383,683 - - 383,683
Lower than BBB- - 21,337 - 21,337
4,528,875 21,337 - 4,550,212
Loss allowance (450) (119) - (569)
Carrying amount 4,528,425 21,218 - 4,549,643
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.3 Gross carrying amount and exposure to credit risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
119
Stage 1
12-month ECL
Stage 2
Lifetime ECL not
Credit-Impaired
Stage 3
Lifetime ECL
Credit- Impaired Total
€000 €000 €000 €000
Investments in debt securities
As at 31 December 2021
AAA 510,508 - - 510,508
AA- to AA+ 596,336 - - 596,336
A- to A+ 2,143,847 9,882 - 2,153,729
BBB- to BBB+ 282,994 - - 282,994
Lower than BBB- - 6,592 - 6,592
3,533,685 16,474 - 3,550,159
Loss allowance (570) (63) - (633)
Carrying amount 3,533,115 16,411 - 3,549,526
The treasury portfolio is made up primarily of investment grade securities.
39.2.1.4 Maximum exposure to credit risk on FVTPL securities, Financial guarantees and loan commitments
Maximum exposure
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the
maximum exposure to credit risk without taking account of the value of any collateral obtained, except as disclosed below.
Financial guarantees
The maximum exposure to credit risk is the full amount that the Group would have to pay if the guarantees are called upon (note 33).
Loan commitments
The maximum exposure to credit risk arising on loan commitments and other credit related commitments that are irrecoverable over
the life of the respective facilities is the full amount of the committed facilities (note 34).
The following table contains an analysis of the maximum credit risk exposure from financial assets not subject to impairment (i.e.
FVTPL):
Maximum exposure to credit risk
2022 2021
€000 €000
Financial assets mandatorily measured at FVTPL:
- Debt securities 26 29
26 29
Financial assets designated at fair value:
- Debt securities 1,046 1,119
- Loans and advances to customers 78,725 104,850
79,771 105,969
79,797 105,998
Derivatives financial instruments 28,866 1,204
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.3 Gross carrying amount and exposure to credit risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
120
39.2.1.5 Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most common of these is accepting collateral for funds
advanced. The Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral
types for loans and advances are:
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equities; and
• Margin agreement for derivatives, for which the Group has master netting agreements imposed by way of law.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured.
Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Debt securities,
treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are
secured by portfolios of financial instruments. Derivatives are also collateralised.
The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no
significant change in the overall quality of the collateral held by the Group since the prior period.
A portion of the Group’s financial assets originated by the mortgage business has sufficiently low ‘loan to value’ (LTV) ratios, which results in
no loss allowance being recognised in accordance with the Group’s expected credit loss model. The carrying amount of such financial assets
is €398.5 million as at 31 December 2022 (2021: €305.6 million).
Security values are reviewed on a regular basis and are also re-assessed at time of default if it is found that the carrying value of the collateral
item could have materially changed since last valuation. The Bank calculates the value of collateral as the market value less a haircut, with
the latter representing a conservative estimate of the costs to sell and the potential loss of value in a forced sale scenario. For financial
instruments, haircuts are calculated according to the risk profile of each individual security and depend on a number of variables including
price volatility and liquidity/marketability of the instrument.
The table below shows the financial effect and main types of collateral held against the Group's customer loan exposures:
The Group
As at 31 December 2022
Loans and advances to
customers
Undrawn credit facilities
and other commitments to
lend
€000 €000
Loans collateralised by:
Prime bank guarantees 438 143
Cash or quasi cash 84,449 27,616
Guarantees and/or letters of comfort issued by the Malta Government,
the Central Bank of Malta or Public agencies
541,494 116,397
Residential property 2,652,625 867,453
Commercial property 1,228,490 401,737
Personal guarantees and others 257,623 144,927
4,765,119 1,558,273
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
121
The Group
As at 31 December 2021
Loans and advances to
customers
Undrawn credit facilities
and other commitments to
lend
€000 €000
Loans collateralised by:
Prime bank guarantees 30 10
Cash or quasi cash 81,861 28,495
Guarantees and/or letters of comfort issued by the Malta Government,
the Central Bank of Malta or Public agencies
629,708 219,195
Residential property 2,351,848 818,658
Commercial property 1,168,211 406,644
Personal guarantees and others 184,620 64,264
4,416,278 1,537,266
In 2021, an extensive collateral valuation exercise was carried out by the Bank during the reporting period resulting in an increase in
collateral of €24.8 million. Following the exercise, regular updates of collateral valuations were maintained.
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
As at 31 December 2022
Gross carrying
amount
Impairment
allowance
Net carrying
amount
Fair value of
collateral held
post haircut as
per model
€000 €000 €000 €000
Credit-impaired assets
Loans to individuals:
- Personal Loans 6,033 (4,586) 1,447 2,362
- Home Loans 42,405 (24,223) 18,182 35,379
- Personal Overdrafts 510 (473) 37 156
- Credit Cards 253 (168) 85 -
Loans to corporate entities:
- Business Loans 126,552 (56,941) 69,611 103,738
- Business Overdrafts 27,431 (15,432) 11,999 40,070
- Encroachments 1,121 (1,113) 8 -
Total credit-impaired assets 204,305 (102,936) 101,369 181,705
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.5 Collateral (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
122
The Group
As at 31 December 2021
Gross carrying
amount
Impairment
allowance
Net carrying
amount
Fair value of
collateral held
post haircut as
per model
€000 €000 €000 €000
Credit-impaired assets
Loans to individuals:
- Personal Loans 5,942 (4,569) 1,373 2,015
- Home Loans 47,160 (26,116) 21,044 37,582
- Personal Overdrafts 679 (594) 85 157
- Credit Cards 621 (469) 152 -
Loans to corporate entities:
- Business Loans 137,614 (68,131) 69,483 99,381
- Business Overdrafts 28,760 (19,036) 9,724 16,962
- Encroachments 1,149 (1,141) 8 -
Total credit-impaired assets 221,925 (120,056) 101,869 156,097
On specific exposures, the fair value of the collateral exceeds the carrying amount of the loan.
The impairment allowances on the credit-impaired assets comprises model driven expected credit loss amounting to €65.1 million (2021:
€66.7 million) and post model adjustments €37.8 million (2021: €51.1 million). Refer to note 39.2.1.2.5.
Fair value of collateral refers to architect's valuation less applicable haircuts.
Collateral valuations vary from full valuations by external independent appraisers to desktop valuations according to the Bank’s collateral
policy. The frequency of collateral valuations range between 1 and 3 years depending on the type of property, exposure status (i.e. whether
performing or non-performing) as well as exposure range in line with the Bank’s collateral policy.
Lending and Commitments covered by Residential Property
The table below stratifies credit exposures, covered by residential property, to customers by ranges of loan-to-value (‘LTV’). LTV is calculated
as the ratio of the gross amount of loan or the amount committed for loan commitments to the value of the collateral. The gross amounts
exclude any impairment allowances. The valuation of the collateral excludes any adjustments for obtaining and selling the collateral. The
value of the collateral for these loans is based on the collateral value at origination updated based on changes in house price indices.
Lending and commitments covered by residential lending
2022 2021
€000 €000
Less than 25% 364,125 347,928
25% to 50% 1,217,317 1,204,872
51% to 75% 1,011,173 841,772
76% to 90% 755,132 460,540
91% to 100% 10,964 -
3,358,711 2,855,112
The following table classifies the Group's mortgage credit-impaired exposures which are covered by residential property by ranges of
loan-to-value (LTV). The value of collateral for these loans is calculated by taking into consideration the eligibility of collateral pursuant
to Article 208 of the Capital Requirement Regulation.
2022 2021
Mortgage portfolio - LTV distribution
Credit-Impaired (Gross
carrying amount)
Credit-Impaired (Gross
carrying amount)
€000 €000
Lower than 25% 4,084 3,450
25% to 50% 12,299 15,685
51% to 75% 4,060 3,597
76% to 90% 711 1,305
Total 21,154 24,037
39. FINANCIAL RISK MANAGEMENT (continued)
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.1 Credit risk management and exposure (continued)
39.2.1.5 Collateral (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
123
39.2.2 The expected credit loss provision and write-offs of exposures
39.2.2.1 Reconciliation of ECL
The following tables explain the changes in the loss allowance between the beginning and the end of the annual period due to the
following factors:
• Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases)
of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month
and Lifetime ECL. Changes in the staging allocation of balances existing at 1 January 2022 (and associated ECL changes) are
presented in "transfers to/(from)", whereas subsequent changes in the staging allocation of new assets originated during the year
are presented in "new financial assets originated";
• Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments
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 measurement of ECL due to changes made to models and assumptions;
• Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis;
• Foreign exchange retranslations for assets denominated in foreign currencies and other movements; and
• Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the
period (see note 39.2.2.4)
Allowances on On-Balance Sheet Exposures Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Total allowances at 1 January 2022 23,940 19,789 120,056 163,785
Home Loans
Allowances at 1 January 2022 1,349 536 26,116 28,001
Transfer to/(from):
Stage 1 (1) 126 678 803
Stage 2 9 (154) 181 36
Stage 3 - 30 (511) (481)
New financial assets originated* 718 371 - 1,089
Financial assets that have been derecognised (77) (84) (1,492) (1,653)
Write-offs - - (917) (917)
Changes to model assumptions and methodologies 203 378 (298) 283
Post-Model Adjustments - - (3,139) (3,139)
Other movements** (1,073) (589) 3,604 1,942
Allowances on home loans at 31 December 2022 1,128 614 24,222 25,964
Personal
Allowances at 1 January 2022 608 829 5,163 6,600
Transfer to/(from):
Stage 1 (3) 51 148 196
Stage 2 23 (670) 121 (526)
Stage 3 1 14 (176) (161)
New financial assets originated* 302 83 589 974
Financial assets that have been derecognised (54) (34) (701) (789)
Write-offs - - (86) (86)
Changes to model assumptions and methodologies (206) (11) 13 (204)
Post-Model Adjustments - - (111) (111)
Other movements** 232 20 100 352
Allowances on personal at 31 December 2022 903 282 5,060 6,245
39. FINANCIAL RISK MANAGEMENT (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
124
Credit Cards
Allowances at 1 January 2022 1,331 404 469 2,204
Transfer to/(from):
Stage 1 (60) 157 19 116
Stage 2 96 (227) 45 (86)
Stage 3 5 15 (159) (139)
New financial assets originated* 74 13 16 103
Financial assets that have been derecognised (40) (34) (189) (263)
Changes to model assumptions and methodologies (822) (70) - (892)
Other movements** 918 76 (34) 960
Allowances on credit cards at 31 December 2022 1,502 334 167 2,003
Business
Allowances at 1 January 2022 20,652 18,020 88,308 126,980
Transfer to/(from):
Stage 1 (2,501) 5,856 6,580 9,935
Stage 2 530 (7,729) 4,437 (2,762)
Stage 3 7 365 (2,860) (2,488)
New financial assets originated* 6,891 917 1,746 9,554
Financial assets that have been derecognised (285) (552) (13,692) (14,529)
Write-offs - - (6,915) (6,915)
Changes to model assumptions and methodologies 422 1,586 2,729 4,737
Post-Model Adjustments (16,664) (695) (10,679) (28,038)
Other movements** 3,901 (5,503) 3,833 2,231
Allowances on business at 31 December 2022 12,953 12,265 73,487 98,705
Total allowances at 31 December 2022 16,486 13,495 102,936 132,917
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.1 Reconciliation of ECL (continued)
Allowances on On-Balance Sheet Exposures Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
125
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Total allowances at 1 January 2021 17,362 30,558 118,755 166,675
Home Loans
Allowances at 1 January 2021 2,224 1,383 21,844 25,451
Transfer to/(from):
Stage 1 (8) 129 219 340
Stage 2 5 (498) 287 (206)
Stage 3 - 5 (363) (358)
New financial assets originated* 954 246 54 1,254
Financial assets that have been derecognised (125) (205) (870) (1,200)
Write-offs - - (1,316) (1,316)
Changes to model assumptions and methodologies (465) (25) - (490)
Post-Model Adjustments - - 7,365 7,365
Other movements** (1,236) (499) (1,104) (2,839)
Allowances on home loans at 31 December 2021 1,349 536 26,116 28,001
Personal
Allowances at 1 January 2021 833 588 4,803 6,224
Transfer to/(from):
Stage 1 (35) 633 382 980
Stage 2 4 (223) 118 (101)
Stage 3 1 9 (205) (195)
New financial assets originated* 210 78 466 754
Financial assets that have been derecognised (87) (31) - (118)
Write-offs - - (1,209) (1,209)
Changes to model assumptions and methodologies (163) (16) - (179)
Post-Model Adjustments - - 250 250
Other movements** (155) (209) 558 194
Allowances on personal at 31 December 2021 608 829 5,163 6,600
Credit Cards
Allowances at 1 January 2021 1,475 761 1,345 3,581
Transfer to/(from):
Stage 1 (86) 180 93 187
Stage 2 102 (367) 166 (99)
Stage 3 7 39 (322) (276)
New financial assets originated* 67 11 8 86
Financial assets that have been derecognised (86) (104) (324) (514)
Changes to model assumptions and methodologies (271) 16 - (255)
Other movements**
Allowances on credit cards at 31 December 2021
123 (132) (497) (506)
1,331 404 469 2,204
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.1 Reconciliation of ECL (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
126
Business
Allowances at 1 January 2021 12,830 27,826 90,763 131,419
Transfer to/(from):
Stage 1 (985) 1,327 579 921
Stage 2 96 (7,406) 10,034 2,724
Stage 3 4 599 (17,626) (17,023)
New financial assets originated* 8,227 2,997 1,513 12,737
Financial assets that have been derecognised (377) (1,050) (1,185) (2,612)
Write-offs - - (7,528) (7,528)
Changes to model assumptions and methodologies (1,157) (1,177) - (2,334)
Post-Model Adjustments 7,113 - 5,059 12,172
Other movements** (5,099) (5,096) 6,699 (3,496)
Allowances on business at 31 December 2021 20,652 18,020 88,308 126,980
Total allowances at 31 December 2021 23,940 19,789 120,056 163,785
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
Provisions on Off-Balance Sheet Exposures €000 €000 €000 €000
Total Provisions at 1 January 2022 9,676 5,560 7,061 22,297
Home Loans
Provisions at 1 January 2022 617 54 764 1,435
Transfer to/(from):
Stage 1 - - - -
Stage 2 - (11) 1 (10)
Stage 3 - - (1) (1)
New financial assets originated* 426 312 403 1,141
Financial assets that have been derecognised (69) - (400) (469)
Write-offs - - (54) (54)
Changes to model assumptions and methodologies (731) (105) (82) (918)
Post-Model Adjustments - - (265) (265)
Other movements** 213 70 127 410
Provisions on home loans at 31 December 2022 456 320 493 1,269
Personal
Provisions at 1 January 2022 62 20 222 304
Transfer to/(from):
Stage 1 - 4 6 10
Stage 2 - (1) - (1)
Stage 3 - - - -
New financial assets originated* 77 9 43 129
Financial assets that have been derecognised (15) (1) (196) (212)
Write-offs - - (1) (1)
Changes to model assumptions and methodologies 40 (47) 7 -
Post-Model Adjustments - - (123) (123)
Other movements** (72) 46 126 100
Provisions on personal at 31 December 2022 92 30 84 206
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.1 Reconciliation of ECL (continued)
Allowances on On-Balance Sheet Exposures Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
127
Credit Cards
Provisions at 1 January 2022 342 15 20 377
Transfer to/(from):
Stage 1 (7) 7 1 1
Stage 2 11 (10) 1 2
Stage 3 1 - (12) (11)
New financial assets originated* 19 - - 19
Financial assets that have been derecognised (17) (2) (6) (25)
Changes to model assumptions and methodologies 925 106 - 1,031
Post-Model Adjustments - - (4) (4)
Other movements** (931) (105) 4 (1,032)
Provisions on credit cards at 31 December 2022 343 11 4 358
Business
Provisions at 1 January 2022 8,655 5,471 6,055 20,181
Transfer to/(from):
Stage 1 (197) 653 242 698
Stage 2 467 (3,011) 877 (1,667)
Stage 3 7 1 (559) (551)
New financial assets originated* 4,009 839 909 5,757
Financial assets that have been derecognised (1,604) (1,083) (402) (3,089)
Write-offs - - (90) (90)
Changes to model assumptions and methodologies 708 (2,322) 86 (1,528)
Post-Model Adjustments (6,667) (101) 275 (6,493)
Other movements** 300 1,527 (1,400) 427
Provisions on business at 31 December 2022 5,678 1,974 5,993 13,645
Total Provisions at 31 December 2022 6,569 2,335 6,574 15,478
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Total Provisions at 1 January 2021 9,024 9,427 13,820 32,271
Home Loans
Provisions at 1 January 2021 718 740 414 1,872
Transfer to/(from):
Stage 1 (1) - 70 69
Stage 2 - (529) 42 (487)
Stage 3 - - (210) (210)
New financial assets originated* 554 37 305 896
Financial assets that have been derecognised (65) (115) (18) (198)
Write-offs - - (15) (15)
Changes to model assumptions and methodologies (251) (6) - (257)
Post-Model Adjustments - - 258 258
Other movements** (338) (73) (82) (493)
Provisions on home loans at 31 December 2021 617 54 764 1,435
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.1 Reconciliation of ECL (continued)
Allowances on On-Balance Sheet Exposures Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
128
Personal
Provisions at 1 January 2021 59 25 79 163
Transfer to/(from):
Stage 1 - - 8 8
Stage 2 - (1) 1 -
Stage 3 - - (5) (5)
New financial assets originated* 49 9 2 60
Financial assets that have been derecognised (12) (15) - (27)
Changes to model assumptions and methodologies (17) (1) - (18)
Post-Model Adjustments - - 122 122
Other movements** (17) 3 15 1
Provisions on personal at 31 December 2021 62 20 222 304
Credit Cards
Provisions at 1 January 2021 413 27 49 489
Transfer to/(from):
Stage 1 (13) 9 5 1
Stage 2 12 (14) 3 1
Stage 3 3 2 (27) (22)
New financial assets originated* 17 - - 17
Financial assets that have been derecognised (36) (5) (13) (54)
Changes to model assumptions and methodologies (82) (2) - (84)
Post-Model Adjustments - - 4 4
Other movements** 28 (2) (1) 25
Provisions on credit cards at 31 December 2021 342 15 20 377
Business
Provisions at 1 January 2021 7,834 8,635 13,278 29,747
Transfer to/(from):
Stage 1 (115) 343 378 606
Stage 2 1 (844) 329 (514)
Stage 3 2 1,402 (6,717) (5,313)
New financial assets originated* 5,630 477 199 6,306
Financial assets that have been derecognised (885) (181) (2,258) (3,324)
Changes to model assumptions and methodologies (527) (517) - (1,044)
Post-Model Adjustments 196 - (1,747) (1,551)
Other movements** (3,481) (3,844) 2,593 (4,732)
Provisions on business at 31 December 2021 8,655 5,471 6,055 20,181
Total Provisions at 31 December 2021 9,676 5,560 7,061 22,297
** Other movements comprise changes in impairment against accounts which have not been upgraded nor downgraded
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.2 Contributors to changes in provision
Allowances on On-Balance Sheet Exposures Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
129
39.2.2.2 Contributors to changes in provision (continued)
Significant changes in the gross carrying amount of financial assets that contributed to changes in the loss allowance were as follows:
• Gross loans and advances increased by 8% during the year (2021: increase by 7%). The high volume of new loans originated
during the period, aligned with the Group’s organic growth objective, increased the gross carrying amount of the loan book by
16% (2021: 15%), with a corresponding €11.7 million increase in loss allowance (2021: increase of €14.8 million).
• There were no significant changes to the modification of facility contracts following renegotiation with customers facing financial
difficulties.
• The write-off of loans with a total gross carrying amount of €11.4 million (2021: €10.3 million) resulted in the reduction of the
Stage 3 expected credit losses by €7.9 million (2021: €10.1 million).
The following tables further explain changes in the gross carrying amount of the loan portfolio to help explain their significance to the
changes in the loss allowance for the same portfolio as discussed above:
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Total Gross Carrying Amount at 1 January 2022 4,506,916 637,392 221,925 5,366,233
Home Loans
Gross carrying amount at 1 January 2022 2,442,514 50,198 47,160 2,539,872
Transfer to/(from):
Stage 1 (11,844) 9,036 2,762 (46)
Stage 2 10,220 (12,336) 1,717 (399)
Stage 3 1,650 2,035 (3,939) (254)
New financial assets originated* 447,996 2,357 - 450,353
Financial assets that have been derecognised (121,855) (2,790) (4,839) (129,484)
Write-offs - - (237) (237)
Repayment on existing assets** (94,858) (2,639) (219) (97,716)
Home loans gross carrying amount at 31 December 2022 2,673,823 45,861 42,405 2,762,089
Personal
Gross carrying amount at 1 January 2022 147,898 8,550 6,621 163,069
Transfer to/(from):
Stage 1 (912) 561 168 (183)
Stage 2 2,969 (4,546) 437 (1,140)
Stage 3 66 109 (265) (90)
New financial assets originated* 44,510 402 598 45,510
Financial assets that have been derecognised (14,513) (1,079) (805) (16,397)
Write-offs - - (165) (165)
Repayment on existing assets** (18,181) (409) (46) (18,636)
Personal gross carrying amount at 31 December 2022 161,837 3,588 6,543 171,968
Credit Cards
Gross carrying amount at 1 January 2022 39,186 5,929 621 45,736
Transfer to/(from):
Stage 1 (1,935) 2,300 35 400
Stage 2 3,117 (3,538) 90 (331)
Stage 3 176 133 (286) 23
New financial assets originated* 2,035 192 21 2,248
Financial assets that have been derecognised (1,199) (370) (209) (1,778)
Drawdown/(repayment) on existing assets** 2,118 25 (19) 2,124
Credit cards gross carrying amount at 31 December 2022 43,498 4,671 253 48,422
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
130
Business
Gross carrying amount at 1 January 2022 1,877,318 572,715 167,523 2,617,556
Transfer to/(from):
Stage 1 (145,652) 111,900 24,683 (9,069)
Stage 2 117,904 (158,624) 18,299 (22,421)
Stage 3 235 4,336 (5,448) (877)
New financial assets originated* 327,410 13,912 7,448 348,770
Financial assets that have been derecognised (91,122) (12,122) (45,256) (148,500)
Write-offs - - (10,982) (10,982)
Drawdown/(repayment) on existing assets** 33,025 (17,100) (1,163) 14,762
Business gross carrying amount at 31 December 2022 2,119,118 515,017 155,104 2,789,239
Total Gross carrying amount at 31 December 2022 4,998,276 569,137 204,305 5,771,718
Less Allowances (16,486) (13,495) (102,936) (132,917)
Net Loans and Advances to customers 4,981,790 555,642 101,369 5,638,801
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Total Gross Carrying Amount at 1 January 2021 4,216,884 579,430 237,489 5,033,803
Home Loans
Gross carrying amount at 1 January 2021 2,205,875 51,635 47,523 2,305,033
Transfer to/(from):
Stage 1 (21,116) 14,317 6,263 (536)
Stage 2 12,984 (15,079) 2,952 857
Stage 3 2,389 1,485 (4,125) (251)
New financial assets originated * 450,989 1,462 53 452,504
Financial assets that have been derecognised (114,722) (2,148) (4,783) (121,653)
Write-offs - - (241) (241)
Repayment on existing assets** (93,885) (1,474) (482) (95,841)
Home loans gross carrying amount at 31 December 2021 2,442,514 50,198 47,160 2,539,872
Personal
Gross carrying amount at 1 January 2021 144,906 7,752 7,222 159,880
Transfer to/(from):
Stage 1 (5,735) 4,267 1,139 (329)
Stage 2 1,673 (2,243) 200 (370)
Stage 3 814 69 (1,017) (134)
New financial assets originated * 39,306 476 594 40,376
Financial assets that have been derecognised (16,195) (871) - (17,066)
Write-offs - - (2,524) (2,524)
Repayment on existing assets** (16,871) (900) 1,007 (16,764)
Personal gross carrying amount at 31 December 2021 147,898 8,550 6,621 163,069
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.2 Contributors to changes in provision (continued)
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
131
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL Total
€000 €000 €000 €000
Credit Cards
Gross carrying amount at 1 January 2021 36,415 7,404 1,398 45,217
Transfer to/(from):
Stage 1 (2,374) 2,848 131 605
Stage 2 3,391 (4,080) 226 (463)
Stage 3 214 427 (673) (32)
New financial assets originated * 2,000 153 8 2,161
Financial assets that have been derecognised (2,324) (813) (409) (3,546)
Drawdown/(repayment) on existing assets** 1,864 (10) (60) 1,794
Credit cards gross carrying amount at 31 December 2021 39,186 5,929 621 45,736
Business
Gross carrying amount at 1 January 2021 1,829,688 512,639 181,346 2,523,673
Transfer to/(from):
Stage 1 (118,408) 113,627 6,394 1,613
Stage 2 22,121 (59,311) 37,204 14
Stage 3 935 32,226 (38,328) (5,167)
New financial assets originated * 228,556 33,571 2,340 264,467
Financial assets that have been derecognised (74,864) (23,624) (6,172) (104,660)
Write-offs - - (7,495) (7,495)
Repayment on existing assets** (10,710) (36,413) (7,766) (54,889)
Business gross carrying amount at 31 December 2021 1,877,318 572,715 167,523 2,617,556
Total Gross carrying amount at 31 December 2021 4,506,916 637,392 221,925 5,366,233
Less Allowances (23,940) (19,789) (120,056) (163,785)
Net Loans and Advances to customers 4,482,976 617,603 101,869 5,202,448
Gross carrying amount comprises of loans and advances to customers at amortised cost and loans and advances to customers
designated as fair value through profit or loss.
* Newly originated financial assets during the period comprises of:
- In stage 2 - business loans originate in stage 1 and deteriorate to stage 2 if they experience a significant increase in credit risk.
An exception to this arises when new accounts are opened as part of a restructuring agreement in replacement of exposures
which would have already experienced significant increase in credit risk. Retail exposures are allocated to stage 2 at origination if
granted to counterparties in stage 2 that are still subject to the Bank’s cure/probation criteria.,
- In stage 3 - include €6.9 million (2021: €2.6 million) of originated credit-impaired assets which relate to new facilities granted to
counterparties in default as part of existing commitments.
** Drawdown/(repayment) on existing assets is comprised of changes in carrying amount balance of accounts which have not been
upgraded nor downgraded
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.2 Contributors to changes in provision (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
132
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.2 The expected credit loss provision and write-offs of exposures (continued)
39.2.2.3 Impairment Allowances on Total/Forborne Exposures
The Group The Group
Total
Of which
Forborne Total
Of which
Forborne
2022 2022 2021 2021
€000 €000 €000 €000
Performing
Stage 1 16,486 - 23,940 -
Stage 2 13,495 5,053 19,789 6,044
29,981 5,053 43,729 6,044
Non-performing
Stage 3 102,936 49,102 120,056 58,005
102,936 49,102 120,056 58,005
Total Impairment Allowances 132,917 54,155 163,785 64,049
The movement in allowance accounts for loans and advances to customers are as follows:
The Group
Allowances Allowances
2022 2021
€000 €000
Change in allowances for uncollectability:
At 1 January
163,785 166,675
Additions
24,558 59,852
Reversals
(55,426) (62,742)
At 31 December
132,917 163,785
Interest income recognised during the year ended 31 December 2022 in respect of forborne assets amounted to €12.5 million (2021:
€12.6 million).
39.2.2.4 Write-off policy
Loans and debt securities are written off in full when there is no realistic prospect of recovery. This is generally the case when the
Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the
amounts. However, financial assets that are written off could be subject to enforcement activities in order to comply with the Group’s
procedures for recovery of amounts due.
39.2.2.5 Contractual amounts outstanding on assets that were written off
The contractual amount outstanding on financial assets that were written off during the year ended 31 December 2022 and that are
still subject to enforcement activity is €11.4 million (2021: €10.3 million).
39.2.3 Modification of financial assets’ terms
The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention
and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been
modified may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance with the accounting
policy set out in note 1.4.2.
When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether
the asset’s credit risk has increased significantly reflects comparison of:
- its remaining lifetime PD at the reporting date based on the modified terms; with
- the remaining lifetime PD estimated based on date at initial recognition and the original contractual terms.
For financial assets modified as part of the Group’s policy, the estimate of PD reflects whether the modification has improved or 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 evaluates the borrower’s payment performance against the modified contractual terms and considers various behavioural indicators.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
133
Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may constitute
evidence that an exposure is credit-impaired (see Note 39.2.1.1 (ii)). A customer needs to demonstrate consistently good payment behaviour
over a period of 12 months before the exposure is no longer in default or a period of 3 months before the exposure’s PD is considered to
have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECL.
During the current financial year there were no significant modification of financial assets.
39.2.4 Equity instruments designated as at FVOCI
The fair value of equity instruments designated at FVOCI and the dividend income recognised is detailed below.
Fair value
Dividend
income
recognised Fair value
Dividend
income
recognised
2022 2022 2021 2021
€000 €000 €000 €000
Local Other 16,096 287 17,632 119
Local Banks 91 3 100 2
Local Public 1,234 62 1,411 62
17,421 352 19,143 183
39.3 Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.
Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Group monitors and manages this risk
by maintaining sufficient cash and, where possible, financial assets for which there is a liquid market and that are readily saleable to meet
liquidity needs. The Group is exposed to daily calls on its available cash resources from overnight deposits, current and call deposits, maturing
term deposits, loan drawdowns, guarantees and from margin and other calls on cash-settled derivatives.
In order to ensure that maturing funds are always available to meet expected demand for cash, the Board sets parameters within which
maturities of assets and liabilities may be mismatched. Unmatched positions potentially enhance profitability, but also increase the risk
of losses. In addition, the Group manages its risk to a shortage of funds by monitoring forecast and actual cashflows, by monitoring the
availability of raising funds to meet commitments associated with financial instruments and by holding financial assets which are expected
to generate cash inflows that will be available to meet cash outflows on liabilities.
The following table analyses Group financial liabilities into relevant maturity groupings, based on the remaining period at the reporting date
to the contractual maturity date. The balances in this table do not agree directly to the balances in the statement of financial position as
the table incorporates all cash flows, on an undiscounted basis, related to both principal as well as those associated with all future coupon
payments. Furthermore, loan commitments do not meet the criteria for recognition in the statement of financial position.
Derivative liabilities held for risk management and derivatives designated for hedge accounting, disclosed represent amounts for which net
cash flows are exchanged..
39. FINANCIAL RISK MANAGEMENT (continued)
39.2.3 Modification of financial assets’ terms (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
134
The Group
Due within
Due
between 3
and 12
Due
between 1
and 5 Due after
Gross
Nominal Carrying
3 months months years 5 years outflow amount
At 31 December 2022 €000 €000 €000 €000 €000 €000
Derivative liabilities held for risk management 2,756 1,471 308 - 4,535 4,535
Amounts owed to banks 75,168 8 2,075 - 77,251 77,074
Amounts owed to customers 12,182,394 225,847 140,456 6,786 12,555,483 12,547,911
Debt securities in issue - 35,000 490,000 - 525,000 350,260
Subordinated liabilities 1,953 3,828 22,623 180,308 208,712 163,237
Derivatives designated for hedge accounting 41 - 2,884 - 2,925 2,167
Other financial liabilities 189,721 5,503 11,976 13,031 220,231 215,124
12,452,033 271,657 670,322 200,125 13,594,137 13,360,308
Loan commitments 1,887,449
Financial Guarantees 354,907
At 31 December 2021
Derivative liablities held for risk management 210 1,784 4,350 1,179 7,523 5,485
Amounts owed to banks 61,118 891 496,459 - 558,468 560,117
Amounts owed to customers 11,144,050 755,574 279,315 6,572 12,185,511 12,176,854
Subordinated liabilities 1,953 3,828 22,623 185,964 214,368 163,237
Derivatives designated for hedge accounting 140 2,349 8,964 824 12,277 12,157
Other financial liabilities 207,809 82,080 12,346 13,308 315,543 314,307
11,415,280 846,506 824,057 207,847 13,293,690 13,232,157
Loan commitments 1,867,939
Financial Guarantees 333,564
Assets available to meet these liabilities, and to cover outstanding commitments, include balances with Central Bank of Malta, treasury
bills and cash, cheques in course of collection, loans to banks and to customers and marketable securities and undrawn credit lines.
The following table analyses the assets and liabilities that are recognised in the statement of financial position into relevant maturity
groupings, based on the remaining period at the reporting date to their contractual maturity date.
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
135
The Group
At 31 December 2022
Less than
3 months
Between 3
months
and 1 year
Between 1
and
5 years
More than
5 years Other
Carrying
Amount
€000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta, treasury
bills and cash
3,300,537 2,964 - - 85,760 3,389,261
Financial assets at fair value through profit or
loss
- Debt and other fixed income instruments - 1,040 - 32 - 1,072
- Equity and other non-fixed income instruments - - - - 37,700 37,700
- Loans and advances 475 72 29,626 48,552 - 78,725
- Derivative financial instruments 1,167 18,138 5,238 4,323 - 28,866
Investments
- Debt and other fixed income financial
instruments
- FVOCI - 3,099 - 79,111 - 82,210
- Amortised cost 121,214 923,890 2,045,296 1,377,033 - 4,467,433
- Equity and other non-fixed income instruments
- FVOCI - - - - 17,421 17,421
Loans and advances to banks 394,546 - - - - 394,546
Loans and advances to customers 536,261 91,695 635,298 4,296,822 - 5,560,076
Investments in equity-accounted investees - - - - 145,615 145,615
Other assets - - - - 315,228 315,228
4,354,200 1,040,898 2,715,458 5,805,873 601,724 14,518,153
Liabilities and Equity
Derivative liabilities held for risk management 2,756 1,471 308 - - 4,535
Amounts owed to banks 75,063 8 2,003 - - 77,074
Amounts owed to customers 12,181,880 224,491 135,085 6,455 - 12,547,911
Other liabilities - - - - 215,124 215,124
Derivatives designated for hedging accounting - - - 2,167 - 2,167
Debt securities in issue - 2,493 347,767 - - 350,260
Subordinated liabilities 1,540 107 - 161,590 - 163,237
Equity holders of the Bank - - - - 1,157,845 1,157,845
12,261,239 228,570 485,163 170,212 1,372,969 14,518,153
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
136
The Group
Less than
3 months
Between 3
months
and 1 year
Between 1
and
5 years
More than
5 years Other
Carrying
Amount
€000 €000 €000 €000 €000 €000
At 31 December 2021
Assets
Balances with Central Bank of Malta, treasury
bills and cash
4,487,468 53,087 - - 85,511 4,626,066
Financial assets at fair value through profit or
loss
- Debt and other fixed income instruments - - 1,114 34 - 1,148
- Equity and other non-fixed income instruments - - - - 31,784 31,784
- Loans and advances - 2,152 23,812 78,886 - 104,850
- Derivative financial instruments 1,144 60 - - - 1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI - 13,441 3,277 89,609 - 106,327
- Amortised cost 160,878 314,460 1,573,843 1,394,018 - 3,443,199
- Equity and other non-fixed income instruments
- FVOCI - - - - 19,143 19,143
Loans and advances to banks 452,469 - - - - 452,469
Loans and advances to customers 435,497 34,800 628,082 3,999,219 - 5,097,598
Investments in equity-accounted investees - - - - 145,501 145,501
Other assets - - - - 329,153 329,153
5,537,456 418,000 2,230,128 5,561,766 611,092 14,358,442
Liabilities and Equity
Derivative liabilities held for risk management 886 100 568 3,931 - 5,485
Amounts owed to banks 61,111 889 498,117 - - 560,117
Amounts owed to customers 11,143,414 751,654 275,570 6,216 - 12,176,854
Other liabilities - - - - 314,307 314,307
Derivatives designated for hedging accounting - - - 12,157 - 12,157
Subordinated liabilities - - - 163,237 - 163,237
Equity holders of the Bank - - - - 1,126,285 1,126,285
11,205,411 752,643 774,255 185,541 1,440,592 14,358,442
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
137
The Bank
Less than 3
months
Between 3
months
and 1 year
Between 1
and
5 years
More than
5 years Other
Carrying
Amount
At 31 December 2022 €000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta, treasury
bills and cash
3,300,537 2,964 - - 85,760 3,389,261
Financial assets at fair value through profit or
loss
- Debt and other fixed income instruments - 1,040 - 32 - 1,072
- Equity and other non-fixed income instruments - - - - 37,548 37,548
- Loans and advances 475 72 29,626 48,552 - 78,725
- Derivative financial instruments 1,167 18,138 5,238 4,323 - 28,866
Investments
- Debt and other fixed income financial
instruments
- FVOCI - 3,099 - 79,111 - 82,210
- Amortised cost 121,214 923,890 2,045,296 1,377,033 - 4,467,433
- Equity and other non-fixed income instruments
- FVOCI - - - - 17,421 17,421
Loans and advances to banks 394,546 - - - - 394,546
Loans and advances to customers 536,261 91,695 635,298 4,296,822 - 5,560,076
Investments in equity-accounted investees and
subsidiaries
- - - - 79,100 79,100
Other assets - - - - 312,807 312,807
4,354,200 1,040,898 2,715,458 5,805,873 532,636 14,449,065
Liabilities and Equity
Derivative liabilities held for risk management 2,756 1,471 308 - - 4,535
Amounts owed to banks 75,063 8 2,003 - - 77,074
Amounts owed to customers 12,188,553 224,491 135,085 6,455 - 12,554,584
Other liabilities - - - - 214,706 214,706
Derivatives designated for hedge accounting - - - 2,167 - 2,167
Debt securities in issue - 2,493 347,767 - - 350,260
Subordinated liabilities 1,540 107 - 161,590 - 163,237
Equity holders of the Bank - - - - 1,082,502 1,082,502
12,267,912 228,570 485,163 170,212 1,297,208 14,449,065
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
138
The Bank
Less than
3 months
Between 3
months
and 1 year
Between 1
and
5 years
More than
5 years Other
Carrying
amount
At 31 December 2021 €000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta, treasury
bills and cash
4,487,468 53,087 - - 85,511 4,626,066
Financial assets at fair value through profit or
loss
- Debt and other fixed income instruments - - 1,114 34 - 1,148
- Equity and other non-fixed income instruments - - - - 31,621 31,621
- Loans and advances - 2,152 23,812 78,886 - 104,850
- Derivative financial instruments 1,144 60 - - - 1,204
Investments
- Debt and other fixed income financial
instruments
- FVOCI - 13,441 3,277 89,609 - 106,327
- Amortised cost 160,878 314,460 1,573,843 1,394,018 - 3,443,199
- Equity and other non-fixed income instruments
- FVOCI - - - - 19,143 19,143
Loans and advances to banks 452,469 - - - - 452,469
Loans and advances to customers 435,497 34,800 628,082 3,999,219 - 5,097,598
Investments in equity-accounted investees and
subsidiaries
- - - - 79,100 79,100
Other assets - - - - 327,654 327,654
5,537,456 418,000 2,230,128 5,561,766 543,029 14,290,379
Liabilities and Equity
Derivative liabilities held for risk management 886 100 568 3,931 - 5,485
Amounts owed to banks 61,111 889 498,117 - - 560,117
Amounts owed to customers 11,152,549 751,654 275,570 6,216 - 12,185,989
Other liabilities - - - - 313,688 313,688
Derivatives designated for hedge accounting - - - 12,157 - 12,157
Subordinated liabilities - - - 163,237 - 163,237
Equity holders of the Bank - - - - 1,049,706 1,049,706
11,214,546 752,643 774,255 185,541 1,363,394 14,290,379
The ratio of net liquid assets to deposits from customers and short-term funding is used by the Group for managing liquidity risk. For this
purpose, ‘net liquid assets’ includes cash and cash equivalents and high-quality liquid assets for which there is an active and liquid market.
‘Deposits from customers and short-term funding’ includes deposits from banks, customers, debt securities issued, other borrowings and
commitments due within 30 days from reference date. Details of the reported Group ratio of net liquid assets to deposits from customers
at the reporting date and during the reporting period were as follows.
2022 2021
At 31 December 46.48% 47.62%
Average for the period 45.88% 45.92%
Maximum for the period 47.35% 47.62%
Minimum for the period 40.00% 44.55%
Banking Rule 07 transposing the provisions of the EBA Guidelines on Disclosures of Encumbered and Unencumbered Assets (EBA/
GL/2014/03) requires disclosure on asset encumbrance. The Group is in compliance with the contents thereof.
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
139
This disclosure provides details of available and unrestricted assets that could be used to support potential future funding and collateral
needs. An asset is considered as encumbered when it has been pledged as collateral against an existing liability, and as a result is no longer
available to the Group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement.
This disclosure is limited to assets available for central bank refinancing and securities that are transferable and is not designed to identify
assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the event of a
resolution or bankruptcy.
Asset Encumbrance
Carrying amount
of encumbered
assets
Fair value of
encumbered
assets
Carrying amount
of unencumbered
assets
Fair value of
unencumbered
assets
€000 €000 €000 €000
The Group
As at 31 December 2022
Equity instruments - - 55,121 55,121
Debt securities 72,782 66,198 4,715,961 4,349,525
Loans and advances - - 9,098,819 -
Other assets - - 575,470 -
72,782 66,198 14,445,371 4,404,646
The Group
As at 31 December 2021
Equity instruments - - 50,927 50,927
Debt securities 892,086 902,124 2,847,260 2.859,080
Loans and advances 71,000 - 9,935,801 -
Other assets - - 561,368 -
963,086 902,124 13,395,356 2,910,007
The Bank
As at 31 December 2022
Equity instruments - - 54,969 54,969
Debt securities 72,782 66,198 4,715,961 4,349,525
Loans and advances - - 9,098,819 -
Other assets - - 506,534 -
72,782 66,198 14,376,283 4,404,494
The Bank
As at 31 December 2021
Equity instruments - - 50,764 50,764
Debt securities 892,086 902,124 2,847,260 2,859,080
Loans and advances 71,000 - 9,935,801 -
Other assets - - 493,468 -
963,086 902,124 13,327,293 2,909,844
The Group does not encumber any of the collateral received or any of its debt securities issued.
For the financial years ended 31 December 2022 and 31 December 2021, the Bank has an outstanding liability with regards to
significant claims associated with encumbered assets.
The Group and the Bank undertake the following:
i. Pledging of debt securities against the provision of credit lines by the Central Bank of Malta. Such pledged assets are free from
any encumbrance as from December 2022.
ii. Pledging of debt securities in favour of the Depositor Compensation Scheme.
iii. Pledging of assets in favour the Italian bank Intesa San Paolo against the precautionary warrant of seizure in respect of
Deiulemar Trust. In view that in May 2022 the Bank reached an out-of court settlement agreement in relation to the Deiulemar
litigation, a total of €363 million in assets pledged with the Italian bank were released and are now free from any encumbrance
(Note 15 and 16)
39. FINANCIAL RISK MANAGEMENT (continued)
39.3 Liquidity risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
140
39.4 Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. It arises in all areas of the Group’s
activities and is managed by a variety of different techniques as detailed below.
The objective of the Group is to manage and control market risk exposures in order to optimise return on risk while maintaining a
market profile consistent with the Bank’s status as a leading Bank in providing financial products and services.
The market risk appetite is articulated in the Treasury Management Policy. It is defined as the quantum and composition of market risk
that the Bank is currently exposed to and the direction in which the Bank desires to manage this risk. Market risk is managed through
limits set in the Treasury Management Policy. The Policy is reviewed by Treasury department in co-ordination with Risk Management
department and is approved by the Asset and Liability Management Committee (ALCO) and the Board of Directors.
39.4.1 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument would fluctuate because of changes in
market interest rates.
The Group is exposed to fair value interest rate risk arising from financial assets and liabilities with fixed interest rates and to cash flow
interest rate risk arising from financial assets and liabilities with floating interest rates. The Group is not directly exposed to interest
rate risk on investment in equity instruments. The Group uses interest rate swaps to hedge the interest rate risk of certain financial
instruments.
The analysis of interest rate risk has evolved from assessing the sensitivity of the treasury portfolio, using a modified duration method,
to a more comprehensive methodology. The latter approach covers all interest sensitive assets and liabilities, as well as off-balance
sheet items; this effectively widens the analysis and enables the stressing of various movements in the yield curve. The tables below
depict the movement of stressed yield curves and the changes in the Report Equity and Net Interest Income to such movement.
For further unaudited information related to the measurement of interest rate risk can be found in the Pillar 3 Disclosures Report as
included in the Bank’s website.
Bps Direction
Parallel Shock Up 200 Up
Parallel Shock Down 200 Down
Short Rates Up 250 Up
Short Rates Down 250 Down
Steepener 250 Short Rates Down
100 Long Rates Up
Flattener 250 Short Rates Up
100 Long Rates Down
The below table applies both the Group and the Bank.
Parallel
Shock Up
Parallel
Shock
Down
Short
Rates Up
Short
Rates
Down Steepener Flattener
€ millions € millions € millions € millions € millions € millions
Sensitivity of reported equity to interest rate
movements
2022
At 31 December 85 (87) 48 (50) (11) 26
Average for the year 78 (62) 50 (50) (20) 37
Most favourable for the year 85 (8) 67 (26) (11) 48
Least favourable for the year 68 (87) 28 (65) (32) 26
2021
At 31 December 13 56 21 - (23) 31
Average for the year 3 42 19 10 (23) 31
Most favourable for the year 13 56 23 16 (20) 37
Least favourable for the year (7) 29 13 - (26) 25
39. FINANCIAL RISK MANAGEMENT (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
141
Parallel
Shock Up
Parallel
Shock
Down
€ millions € millions
Sensitivity of projected net interest income to
interest rate movements
2022
At 31 December (8) (127)
Average for the year 4 (94)
Most favourable for the year 11 (67)
Least favourable for the year (8) (127)
2021
At 31 December 20 (65)
Average for the year 21 (64)
Most favourable for the year 25 (63)
Least favourable for the year 19 (65)
Interest rate repricing gap
The table below summarises the Group's exposure to interest rate risk. Included in the table are Group assets and liabilities, including
derivative financial instruments which are principally used to reduce exposure to interest rate risk, categorised by repricing date.
The Group's assets and liabilities are set to reprice as follows:
Up to
1 Month
3 months
or less but
over
1 month
1 year or
less but
over
3 months
Over
1 year Others Total
€000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta, treasury
bills and cash
3,070,972 214,091 18,438 - 85,760 3,389,261
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments - 14 1,043 15 - 1,072
- Equity and other non-fixed income instruments - - - - 37,700 37,700
- Loans and advances 78,725 - - - - 78,725
- Derivative financial instruments 541 12 529 - 27,784 28,866
Investments
- Debt and other fixed income financial
instruments
- FVOCI - - 3,099 - 79,111 82,210
- Amortised cost 67,223 151,494 915,321 3,333,395 - 4,467,433
- Equity and other non-fixed income instruments
- FVOCI - - - - 17,421 17,421
Loans and advances to banks 75,254 9,367 - - 309,925 394,546
Loans and advances to customers 4,138,202 876,831 352,763 192,280 - 5,560,076
Investments in equity-accounted investees - - - - 145,615 145,615
Other assets - - - - 315,228 315,228
Total 2022 7,430,917 1,251,809 1,291,193 3,525,690 1,018,544 14,518,153
Total 2021
8,273,731 1,068,941 971,507 3,093,530 950,733 14,358,442
39. FINANCIAL RISK MANAGEMENT (continued)
39.4 Market risk (continued)
39.4.1 Interest rate risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
142
Liabilities and Equity
Derivative liabilities held for risk management 1,714 522 1,653 646 - 4,535
Amounts owed to banks - 53,875 - 2,003 21,196 77,074
Amounts owed to customers 12,151,503 46,143 215,403 115,606 19,256 12,547,911
Other liabilities - - - - 215,124 215,124
Derivatives designated for hedge accounting - - - 2,167 - 2,167
Debt securities in issue - - - 350,260 - 350,260
Subordinated liabilities - - - 163,237 - 163,237
Equity holders of the Bank - - - - 1,157,845 1,157,845
Total 2022 12,153,217 100,540 217,056 633,919 1,413,421 14,518,153
Total 2021 10,967,659 198,422 741,574 935,087 1,515,700 14,358,442
Interest rate swaps - 2022 (17,780) (32,468) (82,733) 132,981 -
Interest rate swaps - 2021 (21,845) (39,240) (81,756) 142,841 -
Gap - 2022 (4,740,080) 1,118,801 991,404 3,024,752 -
Gap - 2021 (2,715,773) 831,279 148,177 2,301,284 -
Cumulative Gap - 2022 (4,740,080) (3,621,279) (2,629,875) 394,877 -
Cumulative Gap - 2021 (2,715,773) (1,884,494) (1,736,317) 564,967 -
39. FINANCIAL RISK MANAGEMENT (continued)
39.4 Market risk (continued)
39.4.1 Interest rate risk (continued)
Up to
1 Month
3 months
or less but
over
1 month
1 year or
less but
over
3 months
Over
1 year Others Total
€000 €000 €000 €000 €000 €000
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
143
39.4.2 Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange
rates. The Board of Directors sets limits on the level of exposure by currency and in total, which levels are monitored daily.
The following table summarises the Group's exposure to foreign currency exchange rate risk at the reporting date. Included in the table are
the Group's assets and liabilities at carrying amounts, analysed into relevant currency groupings.
Other
Currencies
The Group EUR USD GBP AUD Total
2022 €000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta
treasury bills and cash 3,386,511 1,575 489 209 477 3,389,261
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments
income instruments
1,072 - - - - 1,072
- Equity and other non-fixed income instruments 19,053 18,647 - - - 37,700
- Loans and advances 78,725 - - - - 78,725
- Derivative financial instruments 28,865 1 - - - 28,866
Investments
- Debt and other fixed income financial instruments
- FVOCI 15,926 66,284 - - - 82,210
- Amortised Cost 3,795,198 367,992 266,162 38,081 - 4,467,433
- Equity and other non-fixed income instruments
- measured at FVOCI 17,421 - - - - 17,421
Loans and advances to banks 30,461 114,986 47,352 3,665 198,082 394,546
Loans and advances to customers 5,514,781 29,127 16,168 - - 5,560,076
Other assets 461,585 (751) (1) - 10 460,843
13,349,598 597,861 330,170 41,955 198,569 14,518,153
Liabilities and Equity
Derivative liabilities held for risk management 4,535 (87) 64 23 - 4,535
Amounts owed to banks 61,921 9,519 4,662 3 969 77,074
Amounts owed to customers 11,830,982 294,126 184,321 40,160 198,322 12,547,911
Other liabilities 194,619 3,812 576 222 (623) 198,606
Provision 16,518 - - - - 16,518
Derivatives designated for hedge accounting - 2,167 - - - 2,167
Debt securities in issue 350,260 - - - - 350,260
Subordinated liabilities 163,237 - - - - 163,237
Equity 1,157,831 - 14 - - 1,157,845
13,779,903 309,537 189,637 40,408 198,668 14,518,153
Net on balance sheet financial position 288,324 140,533 1,547 (99)
Notional amount of derivative instruments (302,336) (143,026) (700) (540)
Net open position (14,012) (2,493) 847 (639)
39. FINANCIAL RISK MANAGEMENT (continued)
39.4 Market risk (continued)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
144
39. FINANCIAL RISK MANAGEMENT (continued)
39.4 Market risk (continued)
39.4.2 Currency risk (continued)
The Group EUR USD GBP AUD
Other
Currencies Total
2021 €000 €000 €000 €000 €000 €000
Assets
Balances with Central Bank of Malta
treasury bills and cash 4,621,318 2,055 1,913 231 549 4,626,066
Financial assets at fair value through profit or loss
- Debt and other fixed income instruments 1,148 - - - - 1,148
- Equity and other non-fixed income instruments 15,729 16,055 - - - 31,784
-Loans and advances 104,850 - - - - 104,850
- Derivative financial instruments 1,204 - - - - 1,204
Investments
- Debt and other fixed income financial instruments
- FVOCI 32,839 73,488 - - - 106,327
- Amortised cost 3,099,357 90,486 184,569 68,787 - 3,443,199
- Equity and other non-fixed income instruments
- measured at FVOCI 19,143 - - - - 19,143
Loans and advances to banks 138,808 90,335 24,458 3,950 194,918 452,469
Loans and advances to customers 5,057,476 23,702 16,360 - 60 5,097,598
Other assets 475,084 (717) 277 - 10 474,654
13,566,955 295,404 227,577 72,968 195,537 14,358,442
Liabilities and Equity
Derivative liabilities held for risk management 5,487 (93) 68 23 - 5,485
Amounts owed to banks 529,522 18,350 3,526 50 8,669 560,117
Amounts owed to customers 11,413,493 275,046 251,697 53,105 183,513 12,176,854
Debt securities in issue - - - - - -
Other liabilities 205,288 4,045 (1,619) 18 2,126 209,858
Provision 104,449 - - - - 104,449
Derivatives designated for hedge accounting - 12,157 - - - 12,157
Subordinated liabilities 163,237 - - - - 163,237
Equity 1,121,102 5,169 14 - - 1,126,285
13,542,578 314,674 253,686 53,196 194,308 14,358,442
Net on balance sheet financial position (19,270) (26,109) 19,772 1,229
Notional amount of derivative instruments 15,229 31,829 (19,374) (2,363)
Net open position (4,041) 5,720 398 (1,134)
Currency risk, commonly referred to as exchange-rate risk, arises from the change in price of one currency in relation to another where
a possibility of losing money due to unfavourable moves in exchange rates can arise. The following table shows how a 1% change in
the exchange rate of the Group's main three foreign currencies would impact the institution. The sensitivity analysis performed shows
that the impact on the balance sheet is minimal. No other currency other than the domestic currency, exceeded the 5% aggregate
amount of liabilities to total liabilities, thus only the euro-denominated currency is considered significant. In fact, 94.5% of total
liabilities are euro-denominated and in principle, BOV does not finance its assets in a currency different from that in which the assets
are denominated.
Currency Risk Sensitivity Analysis impact on Net Open position
USD GBP AUD
Total
€000 €000 €000 €000
+1% change in foreign exchange 1,280 949 476 2,705
-1% change in foreign exchange (1,306) (968) (486) (2,760)
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
145
39 FINANCIAL RISK MANAGEMENT (continued)
39.4 Market risk (continued)
39.4.3 Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
The Group is exposed to equity price risks arising from the holding of equity instruments classified either as FVOCI or at fair value
through profit or loss.
The carrying amounts of financial instruments at the reporting date which could potentially subject the Group to equity price risk are
disclosed in the notes to the financial statements.
This risk is monitored and managed by the Risk management function of the Bank, as disclosed in more detail above.
39.5 Transferred financial assets that are not derecognised in their entirety
The Group and the Bank
2022 2021
€000 €000
Debt securities classified as amortised cost 30,883 17,664
Amounts owed to banks 30,883 17,664
These transactions are covered by the TBMA/ISMA Global Repurchase Master Agreement (“the Agreement”) and involve the sale of
financial assets with a simultaneous agreement to repurchase them at a pre-determined price at a future date. The securities sold
comprise investment securities. The counterparty’s liability is included in amounts owed to banks. The Group and the Bank continue
to recognise the transferred assets since all the risks and rewards of the assets will be substantially retained in a manner that does not
result in the transferred assets being derecognised for accounting purposes.
Each party to a transaction is subject to the events of default listed in the Agreement. In the event that any of the events of default
is/are triggered, transactions are immediately terminated. Consequently, performance of the respective obligations of the parties with
respect to the delivery of securities, the payment of the repurchase prices for any equivalent securities and the repayment of any cash
margin shall become due and payable.
39.6 Fair value of financial instruments
The Group's accounting policy for determining the fair value of financial instruments is described in note 1.3, 1.23 and 1.28 to these
Financial Statements.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs
to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which
are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either
directly or indirectly. This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation
techniques in which all significant inputs are directly or indirectly observable from market data.
- Level 3 inputs are unobservable inputs for the asset or liability. This category includes all instruments for which the valuation
technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments'
valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group and the Bank
determine when transfers are deemed to have occurred between Levels in the hierarchy at the end of each reporting period. There
were no material transfers between the levels during the year.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
146
39. FINANCIAL RISK MANAGEMENT (continued)
39.6 Fair value of financial instruments (continued)
Bases of valuing financial assets and liabilities measured at fair value
Fair value measurement
Level 1 Level 2 Level 3 Total
€000 €000 €000 €000
The Group
At 31 December 2022
Assets
Financial assets at fair value through profit or loss
- debt and other fixed income instruments 1,055 17 - 1,072
- equity and other non-fixed income instruments 553 30,327 6,820 37,700
- loans and advances - 78,725 - 78,725
- derivative financial instruments - 28,866 - 28,866
Investments
Debt and other fixed income instruments
- FVOCI 15,926 - 66,284 82,210
Equity and other non-fixed income instruments
- FVOCI 9,503 7,918 - 17,421
27,037 145,853 73,104 245,994
Liabilities
Financial liabilities at fair value through profit or loss - 4,535 - 4,535
Derivatives designated for hedge accounting - 2,167 - 2,167
- 6,702 - 6,702
Fair value measurement
Level 1 Level 2 Level 3 Total
€000 €000 €000 €000
The Group
At 31 December 2021
Assets
Financial assets at fair value through profit or loss
- debt and other fixed income instruments 1,133 15 - 1,148
- equity and other non-fixed income instruments 710 21,185 9,889 31,784
- loans and advances - 104,850 - 104,850
- derivative financial instruments - 1,204 - 1,204
Investments
Debt and other fixed income instruments
- FVOCI 32,839 - 73,488 106,327
Equity and other non-fixed income instruments
- FVOCI 12,073 7,070 - 19,143
46,755 134,324 83,377 264,456
Liabilities
Financial liabilities at fair value through profit or loss - 5,485 - 5,485
Derivatives designated for hedge accounting - 12,157 - 12,157
- 17,642 - 17,642
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
147
39. FINANCIAL RISK MANAGEMENT (continued)
39.6 Fair value of financial instruments (continued)
Control Framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of
the risk taker and that they are appropriately performed and reviewed by competent personnel. To this end, the determination of fair values
is a process which is performed by Financial Markets and Investments and reviewed by Finance. Finance establishes the accounting policies
and, in conjunction with Financial Markets and Investments, it establishes the procedures governing valuation, and is responsible for ensuring
that they comply with all relevant accounting standards. The valuation techniques and procedures applied are subject to a process of due
diligence, which process was duly approved by the Board and the Audit Committee and documented accordingly.
For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing inputs to
valuation techniques, independent price determination or validation is utilised, to the extent practicable. In inactive markets, direct
observation of a traded price may not be possible. In these circumstances, the Bank sources alternative market information to validate the
financial instrument's fair value, with greater weight given to information that is considered to be more relevant and reliable. The factors
which are mainly considered are the following:
- the extent to which prices may be expected to represent genuine traded or tradable prices;
- the degree of similarity between financial instruments;
- the degree of consistency between different sources;
- the process followed by the pricing provider to derive the data;
- the elapsed time between the date to which the market data relates and the end of the reporting period; and
- the manner in which the data was sourced.
In determining the fair values for financial instruments measured at fair value the credit risk adjustment for the counterparty, the Bank or
both, as the case may be, is deemed to be immaterial and hence no adjustment to the fair value of financial instruments at fair value through
profit or loss was effected.
The Group calculates the credit risk adjustment by applying the probability of default of the counterparty to the expected positive exposure
to the counterparty and multiplying the result by the loss expected in the event of default. The calculation is performed over the life of the
potential exposure.
Financial instruments at fair value through profit or loss and financial assets which are held for investment purposes as FVOCI are carried
at their fair value.
The Treasury Bills captioned with Balances with Central Bank of Malta and cash are held as FVOCI.
Financial instruments not measured at fair value:
i. Investments - Debt and other fixed income instruments held to collect
This category of asset is carried at amortised cost. Their fair value is disclosed separately in the respective note to the financial statements.
ii. Loans and advances to customers
Loans and advances to customers are the largest financial asset held by the Group and are reported net of allowances to reflect the estimated
recoverable amounts. The carrying amount of loans and advances to customers is a reasonable approximation of fair value because these are
re-priced to consider changes in both benchmark rate and credit spreads. Their fair value measurement is a Level 2 input.
iii. Loans and advances to banks, balances with Central Bank and Treasury bills
The majority of these assets reprice or mature in less than 1 year. Hence their fair value is not deemed to differ materially from their carrying
amount at the respective reporting dates.
iv. Amounts owed to banks and customers
These liabilities are carried at amortised cost. The majority of these liabilities reprice or mature in less than 1 year. Hence their fair value is
not deemed to differ materially from their carrying amount at the respective reporting dates. Their fair value measurement is a Level 2 input.
v. Debt securities in issue
These liabilities are carried at amortised cost. Their fair value is disclosed separately in the respective notes to the financial statements.
vi. Subordinated liabilities
These liabilities are carried at amortised cost. Their fair value is disclosed separately in the respective notes to the financial statements.
vii. Other financial liabilities
The fair value of other financial liabilities is not deemed to differ materially from their carrying amount at the respective reporting dates.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
148
39. FINANCIAL RISK MANAGEMENT (continued)
39.6 Fair value of financial instruments (continued)
Basis of valuing financial assets and liabilities not measured at fair value
The following table provides an analysis of financial instruments that are not measured at fair value subsequent to initial recognition:
Fair value measurement
Level 1 Level 2 Level 3 Total
Carrying
Amount
€000 €000 €000 €000 €000
2022
Financial assets
Investments
Debt and other fixed income instruments
-Amortised 3,912,356 182,066 - 4,094,422 4,467,433
Financial liabilities
Debt securities in issue 358,120 - - 358,120 350,260
Subordinated liabilities 139,181 - - 139,181 163,237
497,301 - - 497,301 513,497
Fair value measurement
Level 1 Level 2 Level 3 Total
Carrying
Amount
€000 €000 €000 €000 €000
2021
Financial assets
Investments
Debt and other fixed income instruments
-Amortised 3,201,300 263,440 - 3,464,740 3,443,199
Financial liabilities
Subordinated liabilities 168,055 - - 168,055 163,237
168,055 - - 168,055 163,237
The reconciliation of Level 3 fair value measurements of financial instruments is disclosed below:
2022 2021
FVTPL FVOCI FVTPL FVOCI
Equity and other
non-fixed income
instruments
Debt and other fixed
income instruments
Equity and other
income instruments
Debt and other fixed
income instruments
€000 €000 €000 €000
Opening balance 9,889 73,488 10,227 72,115
Total gains or losses
- in profit or loss (3,133) - 2,339 -
- in other comprehensive income - (7,204) - 1,373
Purchases 63 - - -
Sales - - (2,677) -
Closing balance 6,819 66,284 9,889 73,488
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
149
39. FINANCIAL RISK MANAGEMENT (continued)
39.6 Fair value of financial instruments (continued)
The instruments classified within Level 3 comprise:
- an externally managed fund: the Bank has determined that the reported net asset value of the fund represents its fair value at
the end of the reporting period;
- shares in a global payments technology company; the shares held in the technology company are valued using the intrinsic value
of the conversion shares less a discount for liquidity and litigation risk; and
- debt placed with the institutional investors: the Bank values its holding in the bond on the basis of MGS yields to maturity on the
premises that the bond is guaranteed by the Government of Malta. A haircut is also included in the pricing of the bond to factor
in differences between the bond and the MGSs used as a comparable in relation to the price of other risks, including illiquidity
premium, guarantee enforcement risk, currency risk and make whole call prepayment risk,
Unobservable inputs used in measuring fair value
The following table sets out information about significant unobservable inputs used at 31 December 2022 and 2021 in measuring
financial instruments categorised as Level 3 in the fair value hierarchy.
Type of financial
instruments
Fair value as at
31 December
2022
Valuation
technique
Significant
unobservable input
Fair value measurement
sensitivity
to unobservable input
€000
FVTPL Equity
(unlisted fund)
3,981
(2021: 4,661)
Based on
reported NAV
Reported share of
assets representing
the fair value at
year-end
Significant increase in
NAV would result in a higher fair
value.
FVTPL Equity
2,838
(2021: 5,228)
Price-based
adjusted with a
discount
Discount for
liquidity and
litigation risk
50%
(2021: 50%)
Significant increase in discount
would result in a lower fair value.
FVOCI Debt
66,284
(2021: 73,488)
Price-based
adjusted with a
haircut
Haircut
representative of
the related risks
6%
(2021: 6%)
Significant increase in haircut would
result in a lower fair value.
39.7 Capital risk management
The Group’s capital management approach ensures a sufficient level of capitalisation to manage the risk exposures whilst supporting
business growth and providing adequate returns to the shareholders. Risk capital management does not in any way substitute risk
mitigation measures. It is vital that the structure of limits and thresholds should be able to prevent concentrations of risk from building
up in such a way as to compromise a significant proportion of the Group’s capital resources.
On 1 January 2014, the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulations (CRR) came into effect,
constituting the European implementation of the Basel capital and liquidity agreement of 2010. The Group has made the necessary
changes in order to ensure that it is compliant with the Pillar I capital requirements set by the CRR and its subsequent revisions. Other
material risks are also allocated capital as part of the Internal Capital Adequacy Process (ICAAP) embedded in the Pillar II process.
This process helps to measure with greater risk sensitivity the amount of regulatory capital which the Group requires to cover risks
assumed in the course of its business, including risks not covered in Pillar I. The Board submitted the latest ICAAP capital document
to the JST in April 2022.
Capital management is under the direct control of the Asset and Liability Committee (ALCO). During the financial period, ALCO has
monitored the adequacy of the Group’s capital and gave strategic direction on the most efficient use of capital.
During the period under review and during the comparative period, there were no reported breaches in respect of the externally
imposed capital requirements. The Group uses the Standardised Approach for credit risk, the Basic Indicator Approach for operational
risk and the Standardised Approach with respect to the Group's foreign exchange risk in line with CRR requirements.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
150
39 FINANCIAL RISK MANAGEMENT (continued)
39.7 Capital risk management (continued)
The following table shows the components and basis of calculation of the Group's and the Bank's own funds.
The Group The Bank
2022 €000 €000
Own funds
Tier 1
-Paid up capital instruments 583,849 583,849
-Share premium 49,277 49,277
-Retained earnings* 391,234 388,690
-Accumulated other comprehensive income 5,162 5,050
-Other reserves 52,051 52,051
-Funds for general banking risk 3,586 3,586
-Deductions:
Prudential Valuation fair valued assets and liabilities (626) (560)
Other intangible assets (41,843) (41,843)
Depositor Compensation Scheme (24,780) (24,780)
Deferred Tax Assets related to unutilised tax losses (22,967) (22,967)
Regulatory coverage on non-performing exposures (7,142) (7,142)
Total Tier 1 Capital 987,801 985,211
*Retained earnings includes current period's profit which is subject to regulatory approval.
Tier 2
-Capital instruments and subordinated loans 163,237 163,237
Total Tier 2 Capital 163,237 163,237
Total Own Funds 1,151,038 1,148,448
The Group The Bank
2021 €000 €000
Own funds
Tier 1
-Paid up capital instruments 583,849 583,849
-Share premium 49,277 49,277
-Retained earnings* 358,786 354,952
-Accumulated other comprehensive income 9,416 9,304
-Other reserves 49,021 49,021
-Funds for general banking risk 3,302 3,302
-Deductions:
Prudential Valuation fair valued assets and liabilities (596) (529)
Other intangible assets (32,106) (32,106)
Depositor Compensation Scheme (35,507) (35,507)
Total Tier 1 Capital 985,442 981,563
*Retained earnings include current period's profit which is subject to regulatory approval.
Tier 2
-Capital instruments and subordinated loans 163,237 163,237
Total Tier 2 Capital 163,237 163,237
Total Own Funds 1,148,679 1,144,800
Further information on the Group's capital adequacy ratios may be found in the Pillar 3 Disclosures Report – section 4.2, table CC1.
The unaudited report will be available on the Bank’s website.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
151
39. FINANCIAL RISK MANAGEMENT (continued)
39.8 Offsetting financial assets and financial liabilities
The derivative financial assets with a positive carrying amount and the derivative financial liabilities with a negative carrying amount
are set-off to the extent that there are liabilities and if not, they are presented separately in the Statement of Financial Position. These
instruments are subject to the ISDA Master Agreement. The ISDA Master Agreement provides, amongst others, for the netting of
termination values for purposes of determining a single lump-sum termination amount upon the insolvency of a counterparty. By
virtue of the Set-off and Netting on Insolvency Act, 2003 (Chapter 459, Laws of Malta), the close-out netting provisions contained in
the ISDA Master Agreement are valid and enforceable under Maltese law. The set-off provisions under the ISDA Master Agreement
can be triggered where an event of default, credit event upon merger or any termination event has been declared.
The Bank also has in place credit support annexes "CSAs" with a number of its financial counterparties for purposes of the
collateralisation of exposures between the Bank and its counterparties. The CSA is a schedule to the ISDA Master Agreement. By
virtue of such CSAs, a party to a derivative that has an exposure to its counterpart, will post collateral to its counterpart to cover such
exposure by way of an outright title transfer of such collateral. All CSAs that the Bank has in place are of a two-way nature.
In the case of non-financial counterparties, the Bank enters into pledging collateral arrangements with the counterparties, in favour
of the Bank. Such pledging agreements are of a one-way nature, in favour of the Bank.
The Group
2022 2021
€000 €000
Derivative financial assets
Gross amounts of recognised financial assets 28,866 3,080
Gross amounts of recognised financial liabilities set off in the statement of financial position - (1,876)
Net amounts of financial assets presented in the statement of financial position 28,866 1,204
Related amounts not set off in the statement of financial position:
Financial instruments (2,212) (1,204)
Financial collateral received (25,684) -
Net amount 970 -
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar
agreements
Derivative financial liabilities
Gross amounts of recognised financial liabilities 6,702 19,518
Gross amounts of recognised financial assets set off in the statement of financial position - (1,875)
Net amounts of financial liabilities presented in the statement of financial position 6,702 17,643
Related amounts not set off in the statement of financial position:
Financial instruments (2,212) (1,204)
Financial collateral pledged (2,015) (16,439)
Net amount 2,475 -
A number of financial assets and financial liabilities are being offset and it is the intention to settle net, since they relate to the same
counterparties and have the same maturities.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
152
39. FINANCIAL RISK MANAGEMENT (continued)
39.9 Interest Rate Benchmark Reform
i. Overview
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank
offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). The Group does not have significant exposure
to IBORs on its financial instruments which are subject to this market-wide initiative. Most reforms affecting the Group have been
completed by the end of 2021. However, although sterling LIBOR and US dollar LIBOR were planned to be discontinued by the end
of 2021, consultations and possible regulatory changes are in progress.
In March 2021, the Financial Conduct Authority (FCA), as the regulator of ICE (the authorised administrator of LIBOR), announced
that after 31 December 2021 LIBOR settings for sterling, euro and the one-week and two-month US dollar setting will either cease
to be provided or no longer be representative. The remaining US dollar settings will either cease to be provided or no longer be
representative after 30 June 2023.
The Group deems that IBOR reform has not and will not have significant operational, risk management and accounting impacts across
all of its business lines. Financial risk is predominantly limited to interest rate risk. The Bank has entrusted its Treasury and Business
Banking functions to manage its transition to alternative rates. Their objectives included: evaluating the extent to which loans granted
and financial instruments which are based on IBOR cash flows; whether such contracts need to be amended as a result of IBOR
reform; and how to manage communication about IBOR reform with counterparties.
For contracts indexed to an IBOR that matures after the expected cessation of the IBOR rate, the IBOR committee has establish
policies to amend the contractual terms. These amendments include the additional fallback clauses or replacement of the IBOR rate
with an alternative benchmark rate. With effect from 1 November 2021, all newly originated floating-rate loans and advances to
customers incorporate fallback provisions.
The Group monitors the progress of transition from IBOR to new benchmark rates by reviewing the total amounts of contracts that
have yet to transition to an alternative benchmark rate and the amounts of such contracts that include an appropriate fallback clause.
The Group considers that a contract is not yet transitioned to an alternative benchmark rate when interest under the contract is
indexed to a benchmark rate that is still subject to IBOR reform, even if it includes a fallback clause that deals with the cessation of
the existing IBOR.
As at 31 December 2021, the IBOR reform in respect of currencies to which the Group has exposure has been largely completed. The
table below sets out the IBOR rates that the Group had exposure to, the new benchmark rates to which these exposures have or are
being transitioned, and status of transition, mainly GBP LIBOR to Sterling Overnight Interbank Average Rate (SONIA), USD LIBOR to
Secured Overnight Financing Rate (SOFR), JPY LIBOR to Tokyo Over-Night Average Rate (TONAR) and EONIA to €STR.
ii. Non-derivative financial assets
All loans and advances to customers indexed to IBOR as at 31 December 2021 were transitioned on 3 January 2022. As at 31
December 2021, the Group amended all existing loans and advances to customers contracts indexed to IBOR and inserted fallback
provisions.
During 2022, the Group had the following principal IBOR and ARR (alternative Reference Rate) exposures in respect of non-derivative
financial assets:
- Floating rate loans and advances to customers: EURIBOR, SONIA and CDOR;
- Floating rate indexed assets and investment securities indexed to EURIBOR, GBP Libor, SONIA and USD Libor held throughout
its operations.
iii. Non -derivative financial liabilities:
The Bank does not have any financial liabilities linked to interbank offer rates (IBOR) as at 31 December 2022 and 31 December 2021.
During 2021 floating rate securities amounting to £19.3 million held in GBP changed the benchmark from GBP LIBOR to SONIA.
During 2022 no floating rate securities required transitioning to new benchmarks
iv. Derivatives and hedge accounting:
The derivatives held by the Group in US Dollar (refer to note 39.4.2) are held for risk management purposes and have floating legs
that are indexed to USD LIBOR. The Group’s derivative instruments are governed by ISDA’s 2006 definitions. ISDA has reviewed its
definitions in light of IBOR reform and issued an IBOR fallbacks supplement on 23 October 2020. This sets out how the amendments
to new alternative benchmark rates (e.g. SOFR, SONIA) in the 2006 ISDA definitions will be accomplished.
Notes to the financial statements
for the year ended 31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
153
The effect of the supplement is to create fallback provisions in derivatives that describe what floating rates will apply on the permanent
discontinuation of certain key IBORs or on ISDA declaring a non-representative determination of an IBOR. The Group has adhered to
the protocol to implement the fallbacks to derivative contracts that were entered into before the effective date of the supplement.
If derivative counterparties also adhere to the protocol, then new fallbacks will be automatically implemented in existing derivative
contracts when the supplement becomes effective – i.e. on 25 January 2021. From that date, all new derivatives that reference the
ISDA definitions will also include the fallbacks.
The Group’s interest rate derivatives held for hedging amount to $65 million in notional value (market value: € 2.2 million) as of
31 December 2022. The floating legs of the interest rate swaps are indexed to the 6-month USD LIBOR which will no longer be
published following the 30 June 2023. In anticipation of this deadline, the Group has initiated a transition plan to address any potential
issues prior to the actual transition of these instruments to the alternative rate (SOFR). No major impact is being envisaged to the
hedge effectiveness of existing transactions.
40. ASSETS HELD FOR REALISATION
The assets held for realisation mainly comprise immovable properties that were held as collateral for outstanding loans, which
properties were taken into the possession of the Bank following defaults by the counterparty. The Bank’s policy is to dispose of such
assets within a reasonable timeframe from the date of classification, unless events or circumstances which are beyond the Bank’s
control extend the period to complete the sale.
41. TRUST ACTIVITIES
The Group acts as trustee and provides trust activities that result in the holding and placing of assets on behalf of third parties. Trust
assets are not assets of the Group and therefore they are not included in its Statement of Financial Position.
Income derived from trust assets is excluded from revenue. Fees arising from the rendering of trustee services are recognised in the
Group's profit or loss.
At 31 December 2022, the total assets held by the Group on behalf of its customers amounted to €14.7 million (2021: €63.9 million).
Details on significant claims related to Deiulemar trust litigation settlement are given in note 33..
42. REGULATORY COMPENSATION SCHEMES
As at 31 December 2022, no balances with Central Bank of Malta have been pledged in favour of the Depositor Compensation
Scheme (refer to note 16).
In accordance with the provisions of the Investor Compensation Scheme Regulations, 2003, issued under the Investment Services
Act, 1994, licence holders are required to transfer a variable contribution to an Investor Compensation Scheme Reserve and place the
equivalent amount with a bank, pledged in favour of the Scheme. Alternatively, licence holders can elect to pay the amount of variable
contribution directly to the Scheme.
Bank of Valletta p.l.c. has elected to pay the amount of the variable contribution directly to the Scheme.
Regulatory contributions amounting to €12.1 million (2021: €15.0 million), included with administrative expenses, reflect the Group's
annual obligations arising from the recent EU Directives on Deposit Guarantee Scheme and Single Resolution Fund.
43. EVENTS SUBSEQUENT TO THE FINANCIAL REPORTING DATE
There are no events subsequent to the financial reporting date to report.
44. REGISTERED OFFICE
The registered and principal office of the Bank is 58, Triq San Zakkarija, Il-Belt Valletta, VLT1130, Malta.
39. FINANCIAL RISK MANAGEMENT (continued)
39.9 Interest Rate Benchmark Reform (continued)
.
Bank of Valletta p.l.c.
Annual Report 2022
154
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP
, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited by
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report
To the Shareholders of Bank of Valletta p.l.c.
1 Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Bank of Valletta p.l.c. (the “Bank” or the “Company”) and of the
Group of which the Company is the parent, which comprise the statements of financial position as at 31
December 2022, the statements of profit or loss and other comprehensive income, changes in equity and
cash flows for the year then ended, and notes, comprising significant accounting policies and other
explanatory information.
In our opinion, the accompanying financial statements:
(a) give a true and fair view of the financial position of the Bank and the Group as at 31 December 2022,
and of their financial performance and their cash flows for the year then ended in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the EU; and
(b) have been properly prepared in accordance with the provisions of the Companies Act, 1995 (Chapter
386, Laws of Malta) (the “Act”) and the Banking Act, 1994 (Chapter 371, Laws of Malta) (the “Banking
Act”) and, additionally, specifically in relation to those of the Group, with the requirements of Article 4 of
the Regulation on the application of IFRS as adopted by the EU.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities
under those standards are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We are independent of the Group and the Company in accordance with the
International Ethics Standards Board for Accountants’ International Code of Ethics for Professional
Accountants (including International Independence Standards) (IESBA Code), together with the ethical
requirements that are relevant to our audit of the financial statements in accordance with the Accountancy
Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act
(Chapter 281, Laws of Malta), and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Bank of Valletta p.l.c.
Annual Report 2022
155
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current year (as communicated to the audit committee), and include
a description of the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
We summarise below the key audit matter, together with our response by way of the audit procedures we
performed to address that matter in our audit, and key observations arising with respect to such risks of
material misstatement.
Measurement of impairment allowances on loans and advances to customers at amortised cost,
including off-balance sheet elements of those exposures and related disclosures.
Accounting policy notes 1.4.3 to the financial statements and notes 8, 17, 33, 34 and 39.2 for further
disclosures.
Expected credit loss allowance on ‘Loans and advances to customers at amortised cost’ (Bank and Group:
€5.56 billion) amounted to €132.9 million. Expected credit loss provision on ‘Financial guarantees contracts
and loan commitments’ (Bank and Group: €2.2 billion) amounted to €15.6 million.
The calculation of the expected credit loss (‘ECL’) involves significant judgement and estimates. Of all the
Group’s financial instruments, the most significant impact in terms of complexities around the measurement
of the ECL and of the materiality of the resultant allowances was in relation to the loans and advances to
customers’ portfolio (and the related off-balance sheet elements namely financial guarantees contract and
loan commitments). In that regard, our key areas of audit risk in the Group’s calculation of the ECL were the
following:
Bank of Valletta p.l.c.
Annual Report 2022
156
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters (continued)
• Model estimations – Inherently judgmental modelling is used to estimate ECL which involves determining
Probabilities of Default (“PD”), Loss Given Default (“LGD”) and Exposures at Default (“EAD”). In
particular, the PD models are the key drivers of the Group’s ECL calculation and are therefore the most
significant judgmental element of the Group’s ECL modelling approach.
• Economic Scenarios - Significant management judgement is applied in determining the selection of (i)
forward looking macroeconomic scenarios, (ii) the associated scenario probabilities and (iii) the material
economic variables which drive the scenarios and the related weightings. Management’s assessment of
economic scenarios has been heightened by the current global macroeconomic uncertainties driven by
the Russia-Ukraine conflict that have resulted in supply chain disruptions and significant inflationary
pressures.
• Qualitative adjustments to the model-driven ECL raised by the Group to address known impairment
model limitations or emerging trends as well as risks not captured by the model. These adjustments are
inherently uncertain and significant management judgement is involved in the estimation process.
• Identification of a significant increase in credit risk (‘SICR’) is also a key area of judgement within the
Group’s ECL calculation as the application of the SICR criteria determines whether a twelve month or
lifetime provision is recorded.
• Individually assessed stage 3 exposures may be materially misstated if individual impairments are not
appropriately identified and estimated. The calculation of expected credit losses on stage 3 exposures
includes a range of estimates of future cash flows and valuation of collateral, which are inherently
uncertain and judgmental. Management judgement is also involved in post-model adjustments on stage
3 exposures.
The disclosures regarding the application of IFRS 9 are important in the context of explaining the key
judgements made, as referred to in this key audit matter, and inputs used to generate the IFRS 9 ECL results.
Bank of Valletta p.l.c.
Annual Report 2022
157
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters (continued)
Our response
As part of our procedures:
• We tested the design and implementation as well as the operating effectiveness of relevant manual and
automated controls (that is, Information Technology based). More specifically, the following controls were
tested:
— the Group’s review and approval of loan credit ratings;
— the Group’s review control over the completeness and accuracy of loan exposures’ inputs, data and
assumptions keyed into the ECL model;
— the Group’s review control over model validation and monitoring;
— management’s review control over ECL movements, calculation and authorization of post model
adjustments and management overlays; and
— testing the design and operating effectiveness of the key controls over past due days calculations and
automated credit rating calculation.
• We involved our own financial risk modelling specialists in evaluating the appropriateness of the Group’s
IFRS 9 impairment methodologies (including the SICR criteria used) as well as changes implemented
during the year as disclosed in Note 39.2.1.2, 39.2.1.2.5 and 39.2.1.2.6. We inspected model code for
the calculation of certain components of the ECL model to assess its consistency with the Group’s
approved methodology. We used our experience of the Group to independently assess PD and LGD
assumptions. On a sample basis, we assessed the reasonableness of the model predictions by
comparing them against actual results. We made enquiries of the Group as to the reasons for any
significant variations identified and assessed the reasonableness of the explanations provided, against
the specialists’ expectations on the direction and extent of variations identified.
• We involved our own economics specialist to assist in assessing:
— the appropriateness of the methodology for determining the macroeconomic scenarios used and the
reasonableness of the probability weightings applied to them;
— the appropriateness of the stage determination criteria based on the ECL methodology.
Bank of Valletta p.l.c.
Annual Report 2022
158
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Key audit matters (continued)
— the key macroeconomic variables (as set out in note 39.2.1.2.5 to the financial statements) as well as
the accuracy of macroeconomic data feeding the ECL model; and
— the reasonableness of the Group’s considerations of the ECL impact due to economic environment
factors.
• In evaluating the Group’s credit grading process, we assessed the Internal Credit Risk System (ICRS)
model. We have also performed credit reviews on a selection of corporate exposures selected
qualitatively based on risk, including a sample of stage 3 loans and advances to customers. In performing
those credit reviews, we:
— considered relevant internal information available used in the Group’s assessment and any relevant
external data in relation to those exposures;
— evaluated whether those exposures were graded in line with the Group’s credit policy; and
— determined whether a SICR was appropriately identified.
In addition, for the selected stage 3 corporate exposures, we independently re-performed the impairment
calculation to assess the reasonableness of the Bank’s related ECL.
• On a sample of loans and advances to customers, we:
— performed testing over key data elements (EAD, PD and LGD) impacting the ECL calculations to
assess the accuracy of information used; and
— re-performed model calculations for accuracy for all stages.
• We assessed the post model adjustments, in order to assess the reasonableness of the adjustments by
challenging key assumptions, inspecting the calculation methodology and tracing a sample of the data
used back to source data.
• We assessed whether the disclosures in relation to IFRS 9 adequately explain the key judgements made
and significant inputs used in the recognition of expected credit losses as at the end of the financial
reporting period.
We have no key observations to report, specific to this matter.
Bank of Valletta p.l.c.
Annual Report 2022
159
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Other information
The directors are responsible for the other information which comprises the:
— Contents and General Information;
— Chairman’s Statement;
— CEO’s Commentary;
— Board of Directors and Group Company Secretary;
— Executive Committee and Group Chief Internal Auditor;
— Corporate Social Responsibility
— Directors’ Report;
— Corporate Governance Statement of Compliance;
— Remuneration Report;
— ESG Risk Management and Disclosures;
— The Group’s five year summary; and
— Group’s Financial Highlights in US dollars.
but does not include the financial statements and our auditors’ report thereon.
Our opinion on the financial statements does not cover the other information and, other than in the case of
the Directors’ report on which we report separately below in our ‘Opinion on the Directors’ Report’, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information,
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
Bank of Valletta p.l.c.
Annual Report 2022
160
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Responsibilities of the directors for the financial statements
The directors are responsible for the preparation of financial statements that (a) give a true and fair view in
accordance with IFRS as adopted by the EU, and (b) are properly prepared in accordance with the provisions
of the Act and the Banking Act, and, additionally, specifically in relation to those of the Group, with the
requirements of Article 4 of the Regulation on the application of IFRS as adopted by the EU. The directors
are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s and the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the Company
and/or the Group or to cease operations, or have no realistic alternative but to do so.
The directors are also responsible for overseeing the financial reporting process.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes
our opinion. ‘Reasonable assurance’ is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional
scepticism throughout the audit.
Bank of Valletta p.l.c.
Annual Report 2022
161
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Auditors’ responsibilities for the audit of the financial statements (continued)
We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting 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.
• Consider the extent of compliance with those laws and regulations that directly affect the financial
statements, as part of our procedures on the related financial statement items. For the remaining laws
and regulations, we make enquiries of directors and other management, and inspect correspondence
with the regulatory authority, as well as legal correspondence. As with fraud, there remains a higher risk
of non-detection of other irregularities (whether or not these relate to an area of law directly related to the
financial statements), as these may likewise involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s and the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s and the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditors’ report. However, future events or conditions may cause the Company and/or the
Group to cease to continue as a going concern.
Bank of Valletta p.l.c.
Annual Report 2022
162
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta plc.
Auditors’ responsibilities for the audit of the financial statements (continued)
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the audit committee regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the audit committee with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with the audit committee, we determine those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors’ report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Bank of Valletta p.l.c.
Annual Report 2022
163
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
2 Opinion on the Directors’ Report
The directors are responsible for preparing a directors’ report in accordance with the provisions of article 177
of the Act and other applicable legal requirements, and is to include a statement that the Company is a going
concern with supporting assumptions or qualifications as necessary, as required by Capital Markets Rule
5.62 issued by the Listing Authority in Malta.
We are required to consider whether the information given in the directors’ report for the accounting period
for which the financial statements are prepared is consistent with those financial statements; and, if we are
of the opinion that it is not, we shall state that fact in our report. We have nothing to report in this regard.
Pursuant to article 179(3) of the Act, other than for the non-financial information that is exclusively required
to be disclosed by paragraph 8 of the Sixth Schedule of the Act with respect to the Bank, and paragraph 11
of the Sixth Schedule of the Act with respect to the Group (and on which we report separately below in our
‘Report on Other Legal and Regulatory Requirements’), we are also required to:
• express an opinion on whether the directors’ report has been prepared in accordance with the applicable
legal requirements; and
• state whether, in the light of the knowledge and understanding of the entity and its environment obtained
in the course of our audit of the financial statements, we have identified material misstatements in the
directors’ report, giving an indication of the nature of any such misstatements.
Pursuant to Capital Markets Rule 5.62 of the Capital Markets rule issued by the Listing Authority in Malta,
we are required to review the directors’ statement in relation to going concern.
In such regards:
• in our opinion, the directors’ report has been prepared in accordance with the applicable legal
requirements;
• we have not identified material misstatements in the directors’ report; and
• we have nothing to report in relation to the statement on going concern.
Bank of Valletta p.l.c.
Annual Report 2022
164
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
3 Report on Other Legal and Regulatory Requirements
Matters on which we are required to report by the Act, specific to public-interest entities
Pursuant to article 179B(1) of the Act, we report as under matters not already reported upon in our ‘Report
on the Audit of the Financial Statements’:
• we were first appointed as auditors by the shareholders on 19 June 2015, and subsequently reappointed
at the Company’s general meetings for each financial period thereafter. The period of total uninterrupted
engagement is eight years;
• our opinion on our audit of the financial statements is consistent with the additional report to the audit
committee required to be issued by the Audit Regulation (as referred to in the Act); and
• we have not provided any of the prohibited services as set out in the APA.
Matters on which we are required to report by the Act, specific to large undertakings which are public-
interest entities and public-interest entities which are parent undertakings of a large group that
(individually and on a consolidated basis, respectively) exceed the criterion of an average number of
five hundred employees during the financial year
Pursuant to article 179(3) of the Act, we report as under matters not already reported upon in our ‘Opinion
on the Directors’ Report:
The Directors’ Report contains the information required by paragraph 8 of the Sixth Schedule, with respect
to the Bank and paragraph 11 of the Sixth Schedule with respect to the Group.
Bank of Valletta p.l.c.
Annual Report 2022
165
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Matters on which we are required to report by the Banking Act and by exception by the Act
Pursuant to article 31(3)(a), (b) and (c) of the Banking Act, in our opinion:
• we have obtained all the information and explanations which, to the best of our knowledge and belief,
were necessary for the purpose of our audit;
• proper books of account have been kept by the Bank so far as appears from our examination thereof;
and
• the Bank’s financial statements are in agreement with the books of account.
Furthermore, we have nothing to report in respect of the above matters, where the Act requires us to report
to you by exception pursuant to articles 179(10) and 179(11).
Pursuant to article 31(3)(d) of the Banking Act, in our opinion and to the best of our knowledge and belief
and, on the basis of the explanations given to us, the financial statements give the information required by
law in force in the manner so required.
Report on compliance with the requirements of the Commission Delegated Regulation (EU) 2018/815
supplementing Directive 2004/109/EC (the “ESEF Regulation”), by reference to Capital Markets Rule
5.55.6 issued by the Listing Authority
We have undertaken a reasonable assurance engagement in accordance with the requirements of
Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act, 1979 (Chapter
281, Laws of Malta), the Accountancy Profession (European Single Electronic Format) Assurance
Directive, on the Group’s Annual Report for the year ended 31 December 2022, prepared in a single
electronic reporting format.
Bank of Valletta p.l.c.
Annual Report 2022
166
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Responsibilities of the directors for compliance with the requirements of the ESEF Regulation
As required by Capital Markets Rule 5.56A, the directors are responsible for the preparation of the Annual
Report in XHTML format, including the specified mark-ups, in accordance with the requirements of the
ESEF Regulation.
In addition, the directors are responsible for such internal control as they determine is necessary to enable
the preparation of the Annual Report that is in compliance with the requirements of the ESEF Regulation.
Auditors’ responsibilities to report on compliance with the requirements of the ESEF Regulation
Our responsibility is to obtain reasonable assurance about whether the Annual Report in XHTML format,
including the specified mark-ups, comply in all material respects with the ESEF Regulation based on the
evidence we have obtained.
In discharging that responsibility, we:
• obtain an understanding of the entity's financial reporting process, including the preparation of the
Annual Report, in accordance with the requirements of the ESEF Regulation;
• perform validations to determine whether the Annual Report has been prepared in accordance with
the requirements of the technical specifications of the ESEF Regulation; and
• examine the information in the Annual Report to determine whether all the required mark-ups therein
have been applied and whether, in all material respects, they are in accordance with the requirements
of the ESEF Regulation.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Bank of Valletta p.l.c.
Annual Report 2022
167
KPMG
92, Marina Street
Pietà, PTA 9044
Malta
Telephone (+356) 2563 1000
Fax (+356) 2566 1000
Website www.kpmg.com.mt
KPMG, a Maltese civil partnership and a member firm of the KPMG global
organisat
ion of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee.
KPMG LLP, a UK limited liability partnership and a member firm of the
KPMG global organisation of independent member firms affiliated with
KPMG International Limited, a private English company limited b
y
guarantee.
The firm is registered as a partnership of Certified Public Accountants
in terms of the Accountancy Profession Act
Registered in England No OC301540
Registered office: 15 Canada Square, London, E14 5GL
For full details of our professional regulation please refer to
‘Regulatory information’ under ‘About’ at www.kpmg.com/uk
Independent Auditors’ Report (continued)
To the Shareholders of Bank of Valletta p.l.c.
Opinion
In our opinion, the Annual Report for the year ended 31 December 2022 has been prepared, in all material
respects, in accordance with the requirements of the ESEF Regulation,
by reference to Capital Markets
Rule 5.55.6.
The Principals authorised to sign on behalf of KPMG on the audit resulting in this independent auditors’
report are Claude Ellul and Michael McGarry.
Claude Ellul
Partner, for and on behalf of
KPMG
Registered Auditors,
92
Marina Street,
Pietà PTA 9044,
Malta
Michael McGarry
Partner, for and on behalf of
KPMG LLP
Chartered Accountants,
15 Canada Square,
Canary Wharf,
London E14 5GL,
United Kingdom
30 March 2023
The Group’s five-year summary
extracted from the respective audited financial statements
Bank of Valletta p.l.c.
Annual Report 2022
168
A. STATEMENTS OF PROFIT OR LOSS
For the financials years
2022 2021 2020 2019 2018
12 months to
December 2022
12 months to
December 2021
12 months to
December 2020
12 months to
December 2019
12 months to
December 2018
€000 €000 €000 €000 €000
Interest and similar income 220,210 194,813 190,282 206,963 213,896
Interest expense (18,311) (38,503) (43,476) (54,113) (57,350)
Net interest income 201,899 156,310 146,806 152,850 156,546
Other operating income 91,458 86,598 84,809 96,436 101,220
Other operating charges (192,616) (195,603) (170,382) (162,540) (130,598)
Net impairment reversal/(charge) 49,075 18,856 (65,136) 11,562 10,816
Net litigation settlement (charge)/reversal (102,958) - 8,584 (25,000) (75,000)
Share of results of equity-accounted investees,
net of tax 1,860 14,498 10,520 15,897 8,214
Profit before tax 48,718 80,659 15,201 89,205 71,198
Income tax expense (17,547) (24,468) (1,399) (25,713) (19,788)
Profit for the year 31,171 56,191 13,802 63,492 51,410
Attributable to:
Equity holders of the Bank 31,171 56,191 13,802 63,492 51,410
31,171 56,191 13,802 63,492 51,410
Earnings per share 5.3c 9.6c 2.4c 10.9c 8.8c
The Group’s five-year summary
extracted from the respective audited financial statements (continued)
Bank of Valletta p.l.c.
Annual Report 2022
169
B. STATEMENTS OF FINANCIAL POSITION
2022 2021 2020 2019 2018
€000 €000 €000 €000 €000
ASSETS
Balances with Central Bank of Malta, treasury
bills and cash
3,389,261 4,626,066 3,798,449 3,669,580 3,400,588
Financial assets at fair value through profit or
loss and Investments
4,713,427 3,707,655 3,447,912 3,276,299 3,521,161
Loans and advances to banks 394,546 452,469 479,409 501,686 490,644
Loans and advances to customers at amortised
cost
5,560,076 5,097,598 4,741,443 4,445,812 4,362,983
Investments in equity-accounted investees 145,615 145,501 111,999 101,479 108,510
Property and equipment and intangible assets 188,738 186,696 188,312 186,659 161,198
Current tax 20,706 28,640 26,759 15,185 7,606
Deferred tax 67,898 84,563 91,259 76,017 71,769
Assets held for realisation 12,138 11,740 9,958 10,123 4,335
Other assets 7,227 5,423 5,251 42,627 7,880
Prepayments 18,521 12,091 10,020 5,142 10,314
Total Assets 14,518,153 14,358,442 12,910,771 12,330,609 12,146,988
LIABILITIES
Derivative liabilities held for risk management
and designated for hedge accounting 6,702 17,642 28,406 24,870 19,018
Amounts owed to banks 77,074 560,117 88,031 66,047 146,021
Amounts owed to customers 12,547,911 12,176,854 11,272,289 10,629,719 10,414,908
Deferred tax 7,054 6,717 6,186 5,736 5,743
Other liabilities 191,552 203,141 161,617 189,593 196,960
Provisions 16,518 104,449 113,880 118,109 95,767
Debt securities in issue 350,260 - - - 40,197
Subordinated liabilities 163,237 163,237 163,237 234,230 234,241
Total Liabilities 13,360,308 13,232,157 11,833,646 11,268,304 11,152,855
EQUITY
Called up share capital 583,849 583,849 583,849 583,849 530,772
Share premium account 49,277 49,277 49,277 49,277 49,277
Revaluation reserve 57,212 58,438 55,477 54,898 50,034
Retained earnings 467,507 434,721 388,522 374,281 364,050
Total Equity 1,157,845 1,126,285 1,077,125 1,062,305 994,133
Total Liabilities and Equity 14,518,153 14,358,442 12,910,771 12,330,609 12,146,988
MEMORANDUM ITEMS
Contingent liabilities 374,109 351,362 285,775 341,618 335,405
Commitments 1,918,119 1,898,310 1,811,954 1,828,756 1,881,392
The Group’s five-year summary
extracted from the respective audited financial statements
Bank of Valletta p.l.c.
Annual Report 2022
170
C. STATEMENTS OF CASH FLOW
2022 2021 2020 2019 2018
€000 €000 €000 €000 €000
Net cash (used in)/from operating activities (561,373) 1,157,101 295,040 90,157 251,776
Cash flows from investing activities
Dividends received 2,387 2,443 219 24,186 10,774
Interest received from investing securities 30,940 36,575 40,332 50,840 54,953
Injection of capital in associate (note 18) - (20,000) - - -
Proceeds from sale of equity instruments - - 562 - 12,296
Net (outflow)/inflow on investment securities (1,024,416) (289,103) (259,471) 263,225 129,240
Purchase of property and equipment (16,567) (11,849) (15,724) (34,996) (26,295)
Proceeds on disposal of property and
equipment
- - - 330 2,000
Net cash (used in)/from investing activities (1,007,656) (281,934) (234,082) 303,585 182,968
Cash flows from financing activities
Interest paid on debt securities and
subordinated liabilities
(5,781) (5,776) (6,457) (10,050) (13,414)
Proceeds from issue of senior non-preferred
notes
350,000 - - - -
Outflows from issue of senior non-preferred
notes
(2,274) - - - -
Repayment of debt securities - - (70,993) (40,208) (55,400)
Payment of lease liabilities (1,739) (1,919) (1,704) (1,475) -
Dividends paid (10,019) - - - (17,678)
Net cash from/(used in) financing activities 330,187 (7,695) (79,154) (51,733) (86,492)
(Decrease)/increase in cash and cash
equivalents (1,238,842) 867,472 (18,196) 342,009 348,252
D. PERFORMANCE EXPRESSED IN RELATION TO AVERAGE TOTAL ASSETS AND AVERAGE CAPITAL EMPLOYED
2022 2021 2020 2019 2018
% % % % %
Operating income to total assets 2.0 1.8 1.8 2.0 2.2
Operating expenses to total assets 1.3 1.4 1.4 1.3 1.1
Profit before tax to total assets 0.3 0.6 0.1 0.7 0.6
Profit before tax to capital employed 4.3 7.3 1.4 8.7 7.3
Profit attributable to equity holders to total
assets
0.2 0.4 0.1 0.5 0.4
Profit attributable to equity holders to capital
employed
2.7 5.1 1.3 6.2 5.3
Group Financial Highlights in US dollars
31 December 2022
Bank of Valletta p.l.c.
Annual Report 2022
171
The following figures were converted from Euro to US Dollars using the rate of exchange ruling on 31 December 2022. The rate used
was €1 = US$ 1.0677. This does not reflect the effect of the change in the rate of exchange since 31 December 2022 which was €1
= US$ 1.1329.
2022 2021
US$000 US$000
Net income attributable to equity holders of the Bank 33,281 63,659
Net income per share 6.0c 12.0c
Gross dividend paid 16,457 -
Net dividend paid 10,697 -
Gross dividend per share 2.8c -
Total assets 15,501,032 16,266,679
Liquid funds 3,618,714 5,240,870
Investments and financial assets at fair value through profit or loss 5,032,526 4,200,402
Advances 6,357,750 6,287,671
Investments in equity-accounted investees 155,473 164,838
Share capital 623,376 661,443
Capital reserves 113,698 122,030
Retained earnings 499,157 492,495
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