EU and US could reach trade deal this weekend - Reuters
Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) and Viability Rating (VR) of Bank of Valletta p.l.c. (BoV). The new IDR is ’BBB’, up from ’BBB-’, and the VR has been raised to ’bbb’ from ’bbb-’. The Outlook for the Long-Term IDR is Stable. Fitch also assigned a long-term deposit rating of ’BBB+’ and a short-term deposit rating of ’F2’ to BoV on March 25, 2025.
The upgrade is a reflection of BoV’s strong domestic presence, which has enabled the bank to consistently seize profitable business opportunities in Malta’s favorable operating environment. This has been achieved while maintaining satisfactory asset quality and capitalization, despite the inherent high risk concentrations due to the small size of the bank and Malta.
BoV’s ratings are influenced by its leading position in the domestic market, contributing to steady earnings despite limited business diversification. The bank’s small scale and concentrated operations in a small economy are also factored into the ratings. However, its adequate capitalization and stable funding, along with reasonable asset quality and well-managed risk from above-average loan concentrations, are positive factors.
Malta’s economy, though small and less diversified than larger countries, has a strong credit profile and macroeconomic record. Fitch forecasts Malta’s economy to grow by 4.3% in 2025 and 2026, following a 6% growth in 2024. This growth rate is significantly higher than the eurozone’s forecast of 0.7% and 1.1% for the same periods.
BoV’s business profile is focused on traditional commercial banking activities, with limited diversification in fee-generating activities. It operates almost exclusively domestically, where it holds a very strong market share. The bank’s lending standards and investment guidelines align with global industry practices, and its risk framework has been strengthened in line with regulatory expectations.
As of the end of September 2024, the bank’s impaired loan ratio was 2.8%, which is manageable and broadly on par with southern European averages. This ratio is expected to remain below 3% in the next two years, supported by a healthy domestic economy and growth of performing loans.
BoV’s profitability has significantly improved over the past two years due to higher interest rates, lending growth, and near-zero deposit remuneration. An operating profit of above 3% of risk-weighted assets (RWAs) is expected in 2025 and 2026.
The bank’s common equity Tier 1 (CET1) ratio at the end of September 2024 was 22.5%, providing ample buffers over regulatory minimum requirements. Despite the resumption of regular dividend payments, these buffers are expected to be maintained.
BoV has a dominant domestic deposit franchise and a highly granular deposit base that significantly exceeds lending. The bank has no structural need to raise wholesale debt, with liquidity being ample, as cash and high-quality bonds account for over half of its total assets.
Negative rating actions could occur if the impaired loan ratio increases above 4% for a prolonged period, if operating profit deteriorates towards 2% of RWAs, or if the CET1 ratio falls below 18%. The ratings are also sensitive to a weaker assessment of the operating environment for Maltese banks.
Positive rating actions are limited due to BoV’s small size and concentration in the small domestic market unless the operating environment improves above the current ’bbb’ score. An upgrade would also require an impaired loan ratio structurally below 2%, the maintenance of the CET1 ratio above 20%, a record of solid risk governance, and reduced risk concentrations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.