Contents Introduction...........................................................................................................................................3 Interpretation and evaluation.................................................................................................................3 Ratio Analysis.......................................................................................................................................3 Profitability ratios..............................................................................................................................4 Capital structure ratios.......................................................................................................................7 Vertical analysis....................................................................................................................................8 Market performance and KPIs.........................................................................................................10 Risks and opportunities.......................................................................................................................13 Conclusion...........................................................................................................................................16 References...........................................................................................................................................17
Introduction The report brings out a discussion on financial analysis of company registered in Malta Stock Exchange. Financial analysis is conducted with the help of ratio analysis and commonsize horizontal analysis with the data of 2017 and 2018. For non-financial analysis, KPIs and market performance has been examined of Bank of Valletta and APS bank. Ratio analysis is to examine several aspects of the organisation’s operation and performance. It can improve theunderstandingoffinancialstatementsandreports.Thereareseveralrisksand opportunities in the banking industry. Bank of Valletta is a Maltese banking service organisation, which is headquartered in Santa Venera. This bank is one of the oldest and established service provider in the nation. The organisation has 44 branches, a head office, wealth management, and regional business centres located near Maltese islands (Bank of Valletta, 2018). The bank was founded in 1974, which is headquartered in BOV centre, Santa Venera, and Triq il kanun. Products offered include commercial and retail banking with number of employees (1843). APS is a private bank, which is founded in 1910 and it was incorporated in 1970 (Bank of Valletta, 2018). It includes and employs 300 staff members across Gozo and Malta. The products offered include commercial banking, asset management, and private banking. Number of employees include 300. The subsidiaries include APS Funds Sicav plc (Bank of Valletta, 2018). Interpretation and evaluation Ratio Analysis Ratio analysis is to examine different aspects of the organisation’s financial situations. While analysing the bank`s performance, it is seen that measurement indicates capital, assets, and liabilities with the help of organisation`s balance sheet (Srinivasan, & Thevaranjan, 2016).
These ratios will ensure the financial stability of banks through profitability ratios, and capital structuralratios.Financialreportinginbankingsector,whichisdifferentfromother industries. The main objective of banking organisation is to attract funds at acceptable cost andfinallyinvesttoearnhigherreturns.Forprofitabilityanalysis,returnoncapital employed, return on equity, return on total assets, and operating income to the total assets. For capital structure ratios, interest coverage ratio, loan to assets ratio and capital adequacy ratio (APS bank, 2018). Profitability ratios While deriving the profitability, investors and analysts use ratios to examine the current profit margin. Operating income to total assets This ratio determines how effectively the company generates income by employing total assets. 12 0% 1% 2% 3% 2% 3% 2% 3% Bank of Valletta APS operating income to total assets Axis Title (Source: Excel, 2020)
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From the above graphical representation, it is seen that the performance of both the banks are same in relation to operating income ratio (Bank of Valletta, 2017). In 2018, bank of Valletta generates 2 percent on total assets, and APS generates 3 percent in 2017. In 2018, bank of Valletta generates 2 percent on total assets in 2018 and APS generates 3 percent in 2017 (APS bank, 2018). According to the overall performance of banking industry, it is reported that as the banks are highly leveraged where 1 to 2 percent of operating income to total assets ratio has been considered profitable. When evaluating through banks, APS and Bank of Valletta has been performing well as being leveraged from two to three percent. 20182017 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 0.42% 1.01% 1% 1% Return on total assets Bank of Valletta APS Axis Title Axis Title 12 0% 1% 2% 3% 4% 5% Non-performing loan/Total Gross loans Bank of Valletta APS
According the banking industry of Malta, standard non-performing loan to total gross loan is estimated at 4.099 percent in 2017 and 5 percent in 2018. Reduced non-performing loan ratio means more secure loans to customers. APS Bank`s has 3.8 and 4.2 percent, which indicates that it performs well in regards to the industry. Bank of Valletta is able to maintain much lower ratio, which is a good indication of recovery the loans. Increasing net interest income ratio is quite helpful. Bank of Valletta generates 7 percent in 2017, and 8 percent interest income in 2018. There is a need to improve interest income ratio by enhancing and increasing net operating income, decreasing operating expense, pay off existing debt, and decreasing the borrowing amount. Expense to income ratio has been one of the important criteria through which banks can evaluate how much expense it has occurred to have operating income. Bank of Valletta generates 43 percent in 2017 and 55 percent in 2018. On the other hand, decreasing expense to income ratio indicates that the company has been incurring less and generating more, which signifies that resources are being used in an efficient way. Return on equity 20182017 0% 2% 4% 6% 8% 10% 12% 14% 5% 12% 9%10% Return on equity Bank of Valletta APS
This indicates the response of net profit in relation to equity. APS is consistent for both the years 2017 and 2018. On the other hand, Bank of Valletta earns 5 percent in 2017 and 12 percent in 2018. Return on total assets 20182017 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 3% 8% 1%1% Bank of Valletta APS This ratio depicts profitability of the company, which indicates per dollar profit that the company earns on total assets. This ratio is seen as important profitability ratio, which indicates per unit profit dollar that organisation earns on assets. Most importantly, banks are highly leveraged then low ROA of 1 to 2 percent will indicate substantial revenues and profits (APS bank, 2018). Bank of Valletta generates 8 percent in 2017 and in 2018; it generates 3 percent of net profits. On the other hand, APS generates 1 percent of return in 2017 and it has 1 percent in 2018.
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Capital structure ratios 20182017 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 4.49 3.94 3.68 4.46 Interest Coverage Bank of Valletta APS This ratio depicts the efficiency/times of the company to pay off interest on loans in a year. In 2017, bank of Valletta has 3.94 times and APS has 4.46 times. In 2018, bank of Valetta has 4.49 times to pay off interests whereas; APS has 3.68 times of paying interests (Noor, & Rosyid, 2018). Low ICR indicates that the company has lower profits to meet interest expense on debt. Both the companies are able to pay off their interest expense on time such as from 2017. APS and BOV improves the ICR times. 20182017 0% 5% 10% 15% 20% 25% 30% 35% 40% 21%19% 14%16% Capital adequacy ratio
CAR is the ratio of the bank`s capital to the risks. This ensures how one absorbs reasonable amount of losses. This ratio determines the capability to accomplish liabilities and other more risks such as operational risks and credit risks (Bank of Valletta, 2017). Higher capital adequacy ratio has been considered as safe. Moreover, banks are less likely to become insolvents when unexpected losses being occurred. According to the industry, it is mandatory to maintain 8 to 12 percent of the CAR to maintain proportion of assets and liabilities. Both the companies have been maintaining considerable CAR in relation to the industry. 12 61.00 62.00 63.00 64.00 65.00 66.00 67.00 68.00 69.00 70.00 65.93 64.24 68.9668.94 Total loan/Total assets Bank of Valletta APS Loan to Assets ratio derive more income from loan. Banks with the lower level of loan-to- assets derive larger portion of total income from asset management, and non-interest earning source. The industrial data reveals that ratio of 40 percent is considered as good debt ratio and 60 percent is considered as poor. It is seen that bank of Valletta and APS are more leveraged, which is not a good sign. Vertical analysis Vertical analysis is a popular tool of financial analysis, which shows that every element in statement is the percentage ofbase figure. For analysing vertical analysis of income statement, figure (sales) is used as base. Other element of the income statement such as
income tax, gross profit, and cost of goods sold and net income shown as percentage of sales (Srinivasan, & Thevaranjan, 2016). To analyse the balance sheet, total asset is used as base figure. All current assets, fixed assets and current liabilities, total liabilities, stockholder`s equity, and long term debt are shown as percentage of total assets. Particulars20182017%Difference € '000€ '000 Operating Profit/(Loss)257766.0300473.0-0.142132571 Net interest income1,56,5461,82,947-0.144309554 operating expense1,41,0481,30,600-0.08 Finance cost57350.076247.0-0.247839259 Net profit51410.0119498-0.569783595 Loans and advances to banks364493334313930.062231286 Loans and advances to customers436298341620320.048281945 Total Assets12146988.01,18,20,6300.027609188 Average assets6073494.018057303-0.663654423 Amount owned to Banks146021192196-0.240249537 Amount owned to customers10414908101006250.031115203 Gross loan460000446200-0.030927835 Non-performing loan1080015,6000.307692308 Asset earning assets1892570.52072811.750.086954954 Total risk weighted assets4673540.04802010.0-0.02675338 Total capital986405.09,31,4850.058959618 Shareholders' Equity994133.0962087-0.033308838 Bank of Valletta This segment shed reasonable light on vertical analysis of Bank of Valletta. It is seen that the operating profit has reduced by 14 percent from 2017 to 2018. It is reasonable that the company has reduced its interest liability. The company has reduced its net profit, which was 119498 in 2017 and 51410 in 2018. Most important transactions of banks cover from loan, and loan advances to customers, which has increased by 4 to 6 percent by 2018. The capital proportions has increased by 5 percent in 2018 (APS bank, 2017). Particulars20182017%Difference € '000€ '000 Operating Profit/(Loss)44719.042750.00.04605848 Finance cost12149.09592.00.266576314 Net profit12584.013,108-0.039975587 Total capital127659.0121571.00.050077732 Loans and advances to banks50384.033246.00.515490585 Loans and advances to customers1253883.0998377.00.25592136 Average assets945615.01693837.5-0.441732161 Total assets1891230.01496445.00.263815242 Amount owned to Customers1650308.012,25,5760.346557047 Amount owned to Banks74473.01,11,132-0.329868985 Total risk weighted assets939074.0760207.00.235287231 Shareholders' Equity142244.01364030.042821639 APS
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Operating profit has increased by 4 percent in 2018. Finance cost has increased by 26 percent in 2018. Total capital has increased by 5 percent in 2018. The important element and transaction include loans and advances to banks and customers by 51 percent and 25 percent. Total asset has increased by 26 percent in 2018. Net profit has been decreased by 3 percent by 2018. Total risk weighted assets has increased by 26 percent in 2018 (Srinivasan, & Thevaranjan, 2016). Market performance and KPIs KPIs Customer retention Certain KPIs listed for the banking industry include asset quality, customer penetration, assets under management, and customer retention. Bank of Valletta pertains to perform the esteemed customers coming over the last few months by updating the documentation by ensuring all customer data is complete and up to date (Blanchard et al., 2018). Bank has been requesting the customer for kind cooperation in respect to deadlines and provisions of completedata,whichtheyhavereceivedfrombanks.Bankwillunderstandcertain inconvenience and striving in making the procedure simple and concise (APS bank, 2017). As far as employee retention is concerned, APS has been working on small scale while comparing it to the bank of Valletta.
With total of employee count, it is seen that employees have decreased by 0.8 percent. Further, in the first year, it has increased by 6.9 percent and then it has increased 16.9 percent in last two years. Opening of new branch of APS is marked new standard in local retail banking.Branchhastraditionalretailpoint,whichconnectswithcustomers.New technologies include “bricks and mortar” is under the pressure from the digital technologies. Real estate has been expensive with cost of technology, which has been decreasing. Rate of adoptionandnewtechnologiesbythecustomersleadingthebankstolookattow segmentation strategies. Convention branch remain vital for the business in helping customer retention. Customer penetration The bank is able to attract shareholders, which has approached 1 billion Euros in 2017. While handling and delegating BOV complaints, it is seen that bank strives to create long-term relationship with customers by supporting and feeling special. Banks avail professional, caring and customer experience. Complimenting customers and encouraging for being honest and genuine and submitting their documents on time. Market performance Bankof Valletta has been providing financial, investment and banking services in Malta. Currently, the company has been trading 59.4 percent below fair value. The earnings have been growing by 25.1 percent for the last few years (Aidoo, & Mensah, 2018). Bank of Valletta has forecasted annual growth of 7.6 percent in 1 to 3 years where projection is based on consensus estimations of professional analysts helping the investors to understand the organisational ability to generate profits. There have been criteria for risk checks-
Revenue and earnings forecasted to grow (over past 5 years) -.39 Shareholders have been diluted over past years Fail Forecasting to achieve profitabilityPass (in three months) Whether the dividend sustainableDid not pay consistent dividend Liquidity of share price and its stabilityStable over three months Higher quality earningsPass Profit margins improved over the past yearsBOV has become profitable Sufficient financial dataAvailability of 3 years of financial data Current market performance of APS bank announces strong operating performance of 2018 with activation and reaching all round record level (Blanchard et al., 2018). Group`s operating income has expanded through 4.6 percent and also pre-tax profits have been increased by 1.5 percent. Deposit raising and activity related to lending grew through strong 34.7 percent (1.65 billion dollars). Result has been achieved on backs of the continuous growth in the business momentum in people, network transformation, process reorganisation, functional, and investment in people. Transformation of APS bank has turned it into strong market players, which has enriched customer proposition, risks control, which has improved quality of income statement. This group allocates appropriate capital for the operational risks (Blanchard et al., 2018). Risks and opportunities It is seen that there is increased operational and operational risks for the banking sector. Poor transparency is another feature for bank. Risk score has been seen as six out of ten rating. European banking Authority indicates where Malta`s has failed to impose several effective
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sanctions. It has been reported that central bank of Malta is profitable, sound, and resilient with non-performing loans at the historic lows (Bank of Valletta, 2018). Risk category Stakeholder affected Likelihood rating Consequenc e rating Risk control Credit riskCustomers andother banks B4Checkingnew customer`s creditscore andcreating humble relationship with customers (Pratiwi,& Handayani, 2018). The organisation canestablish creditlimits andpolitical riskinsurance (Lindman, Tuunainen,& Rossi, 2017). Operational risk Employees and owners C3Distribution of tasksamong
theright people for right job. Examining itinregular intervals (Aaron, Rivadeneyra, &Shoal, 2017). Reputational risk Customers and shareholders D5Understanding actions,which willaffect public perception Focusingon thepositive imageand communicating withthe customers. Liquidity risk InvestorsE2Eliminatethe uselessassets, controllingthe overhead expensesand
switching from shorttermto long-term debt. Negotiatingto havelong payment cycles (Ahmad,& Zabri, 2016). Likelihood rating of A is considered excellent, B is very good, C is good, D is average, and E is bad. Consequence rating has been considered as the level of risks/ business situations affecting APS and bank of Valletta (Ahmad, & Zabri, 2016). Non-financial analysis CSR activities include sustainability among leaders integrating it into environmental and social issues in the business model. APS undertakes to conduct innovations so that it can become sustainable (Roberts, Neumann, & Cauvin, 2017). Bank of Valletta undertakes to come up with toolkit for several SMEs in Malta. CSR practise on the board are tapping local best practises one they are tested. Number of workshops include representatives from local company. CSR initiative by the Maltese companies can promote concept of obliged entrepreneurship in the business community when maximising the advantages of business operations (Roberts, Neumann, & Cauvin, 2017). Conclusion From the above discussion, it is seen that APS has been working on smaller scale whereas, BOV (bank of Valletta) has been offering products and services at much larger scale. Certain
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risks identified are credit risks, operational risk, reputational risk, and liquidity risks. It is seen that Malta banking industry has been suffering from several risks, which affects different group of stakeholders. Furthermore, the profitability of both the companies say that both are performing well at their own level. The capital adequacy ratio tier says market positioning of Central bank “BOV” retains more customers and employment of people is much higher than APS. BOV (Bank of Valletta) has attracted the shareholders of $1 billion in 2017, which has been increasing with time. APS suffers from various risks at higher level due to increasing sufferings of whole industry.
References Aaron, M., Rivadeneyra, F., & Sohal, S. (2017).Fintech: Is This Time Different?: A Framework for Assessing Risks and Opportunities for Central Banks. Bank of Canada. Ahmad,K.,&Zabri,S.M.(2016).Theapplicationofnon-financialperformance measurementinMalaysianmanufacturingfirms.ProcediaEconomicsand Finance,35, 476-484. Aidoo, M., & Mensah, F. S. (2018). Development of financial performance assessment indices for bank performance rating in Ghana.Global Journal of Management And Business Research. APS bank, (2017). ANNUAL REPORT & FINANCIAL STATEMENTS 2017. Retrieved from:file:///C:/Users/System04099/Downloads/APS%20Annual%20Report %202017%20(1).pdf APS bank, (2018). ANNUAL REPORT & FINANCIAL STATEMENTS 2018. Retrieved from:file:///C:/Users/System04099/Downloads/APS%20Bank%20Annual%20Report %202018%20(2).pdf BankofValletta,(2017).Annualreports,2017.Retrievedfrom: file:///C:/Users/System04099/Downloads/BOV_Annual_Report_2017%20(1).pdf BankofValletta,(2018).Annualreports,2018.Retrievedfrom: file:///C:/Users/System04099/Downloads/2._Annual_Report_web_version_final_08.0 4.19%20(1).pdf
Blanchard, O., Collins, C. G., Jahan-Parvar, M. R., Pellet, T., & Wilson, B. A. (2018). A year of rising dangerously? The US stock market performance in the aftermath of the presidential election.Journal of Policy Modeling,40(3), 489-502. Ferris,E.,&Aris,B.(2018).EconomicRisksandOpportunitiesforPutin'sFourth Term.Russian Analytical Digest (RAD),224. Lindman, J., Tuunainen, V. K., & Rossi, M. (2017). Opportunities and risks of Blockchain Technologies–a research agenda. Noor, M. I., & Rosyid, P. I. (2018). Effect of Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR) and Return on Equity (ROE) on Share Price PT Bank Danamon Indonesia,TBK.InternationalJournalofBusinessandAppliedSocialScience (IJBASS) Vol,4. Pratiwi, S., & Handayani, S. R. (2018). ANALYSIS OF FINANCIAL PERFORMANCE INDONESIA SHARIA BANKS (Empirical Study on Muamalat Bank, BRI Sharia, BNI Sharia, and Bank Sharia Mandiri).Jurnal Administrasi Bisnis,63(1), 140-147. Roberts, M. L., Neumann, B. R., & Cauvin, E. (2017). Individual Performance Measures: EffectsofExperienceonPreferenceforFinancialorNon-FinancialMeasures. InAdvances in Management Accounting(pp. 191-221). Emerald Publishing Limited. Srinivasan, D., & Thevaranjan, A. (2016). The role of non-financial measures in controlling myopic activities: the case of hard selling.International Journal of Accounting, Auditing and Performance Evaluation,12(2), 103-130.
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Bank of Valletta Particulars20182017%Differe nce € '000€ '000 Operating Profit/(Loss)257766.0 300473. 0 - 0.1421325 71 Net interest income1,56,5461,82,947 - 0.1443095 54 operating expense1,41,0481,30,600-0.08 Finance cost57350.076247.0 - 0.2478392 59 Net profit51410.0119498 - 0.5697835 95 Loans and advances to banks36449333431393 0.0622312 86 Loans and advances to customers43629834162032 0.0482819 45 Total Assets12146988.0 1,18,20, 630 0.0276091 88 Average assets6073494.0 1805730 3 - 0.6636544 23 Amount owned to Banks146021192196 - 0.2402495 37 Amount owned to customers10414908 1010062 5 0.0311152 03 Gross loan4600044620 - 0.0309278 35 Non-performing loan1080015,600 0.3076923 08 Asset earning assets1892570.5 2072811 .75 0.0869549 54 Total risk weighted assets4673540.0 4802010 .0 - 0.0267533 8 Total capital986405.09,31,485 0.0589596 18 Shareholders' Equity994133.0962087 - 0.0333088 38 Computation of ratio analysis
Profitability Ratios20182017 Operating income to total assetsOperating income/ Total assets2%3% Return on Capital Employednet profit/capital emplyed5%13% Return on Equitynet profit/ equity5%12% Expense to income ratiooperating expense/Operating income55%43% Net interest income margin interest income/average earnings assets8%9% non performing loannon-performing loan/Gross loan23%35% Return on Total assetsnet profit/total assets0.42%1.01% Solvency Ratios Capital structure ratio20182017 Interest coverage ratioEBIT/Interest4.493.94 Liquidity ratio20182017 Total loan/Total assets0.660.64 Capital adequacy ratio Tier 1 capital+Tier II capital/Risk weighted assets21%19% APS Particulars20182017%Differe nce € '000€ '000 Operating Profit/(Loss)44719.042750.0 0.0460584 8 Finance cost12149.09592.0 0.2665763 14 Net profit12584.013,108 - 0.0399755 87 Total capital127659.0 121571. 0 0.0500777 32 Loans and advances to banks50384.033246.0 0.5154905 85 Loans and advances to customers1253883.0 998377. 0 0.2559213 6 Average assets945615.0 169383 7.5 - 0.4417321 61 Total assets1891230.0 149644 5.0 0.2638152 42 Amount owned to Customers1650308.0 12,25,5 76 0.3465570 47 Amount owned to Banks74473.0 1,11,13 2 - 0.3298689 85
Total risk weighted assets939074.0 760207. 0 0.2352872 31 Shareholders' Equity142244.0136403 0.0428216 39 Computation of ratio analysis Profitability Ratios20182017 Operating income to total assetsOperating income/ Total assets2%3% Return on Capital Employednet profit/capital employed10%11% Return on Equitynet profit/ equity9%10% Return on Total assetsnet profit/total assets1%1% Solvency Ratios Capital structure ratio20182017 Interest coverage ratioEBIT/Interest3.684.46 Liquidity ratio20182017 Total loan/Total assets0.690.69 Capital adequacy ratio Tier 1 capital +Tier II capital/Risk weighted assets14%16%
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