CEO's Message - FIMBank Group Performance Review

23.03.2023

FIMBank’s financial results for the year 2022 demonstrated an improving trend in its underlying performance, as evidenced by the Group's ‘income before net impairment and net trading results’. This showed a considerable growth, increasing from a negative USD1.9million in 2021 to USD8.0 million in 2022. The improved performance in net interest, net fee and dividend income, as well as in operating expenses, were however overshadowed by the impact from impairment of legacy positions and from trading results.

Regrettably, the effect from impairment of legacy positions, which are related to larger balance sheet positions that date back to pre-pandemic (2020), together with elevated trading losses, significantly impacted our bottom line in this year's financial results. With regards to specific legacy relationships, the Group absorbed the impact of the latest developments in the recovery process. In respect to our investments in subsidiaries in Egypt and India, we recognised the impact from a lower valuation due to a combination of rising interest rates and uncertainties regarding their growth potential in the future.

In respect to trading losses, the default of two forfaiting assets in the portfolio of our subsidiary, London Forfaiting Company, impacted to the resulting bottom line, as the recovery value for these assets had to be adjusted downwards in light of the prevailing uncertainty. The Group's net trading results were also affected by lower trading volumes, which were primarily a consequence of the current market conditions.

On a positive note, for the third consecutive year, the Group's prudent risk appetite has allowed it to reap tangible benefits, with no new material non-performing loans registered for the period. The Group’s responsible lending practices and effective risk management strategies have played a critical role in this regard. Effective risk management strategies have enabled the Group to identify potential risks and take measures to mitigate them proactively through the adoption of responsible lending practices, thus ensuring that only creditworthy borrowers receive loans, reducing the likelihood of defaults. Containing non-performing loans is crucial for sustaining a healthy banking business. During the year, the Group has made noteworthy progress in recovering legacy non-performing exposures. Resolution of non-performing loans is a complex task that requires a multidisciplinary approach and we have a dedicated team of specialists working tirelessly with the mandate to purge the balance sheet of legacy non-performing loans.

The organisation recognises that the banking industry is dynamic and constantly evolving. We are therefore committed to continuously refine our strategies to ensure that the Group stays ahead of emerging trends and potential risks.

Overview of financial results

While we are pleased to report a notable improvement in our performance in 2022, we are disappointed to acknowledge that this progress was overshadowed by the impairment of legacy positions and underperformance in our trading portfolio. As a result, the FIMBank Group reported a post-tax loss of USD26.7 million for the financial year ended 31 December 2022, compared to a post-tax loss of USD3.6 million in 2021.

The Group's total consolidated assets stood at USD1.69 billion, a decrease of 6%, or USD101 million, when compared to the previous year. Despite this minor rebalancing, we are confident that our ongoing focus on a risk reward model, steadily managing our assets size and capital positions, will enable us to continue operating effectively and deliver value for our stakeholders.

At FIMBank, we place great importance on maintaining a strong risk management framework and prudent risk appetite. We are proud to report that our efforts have paid off, as we did not recognise any new material non-performing loans in 2022. This is a significant achievement for us, as it reflects our commitment to providing sustainable financial solutions that meet the needs of our customers while minimising our risk exposure. It is a testament to our ongoing efforts to identify and mitigate risks, as well as our dedication to maintaining a healthy loan portfolio. By not registering any new non-performing loans, we have been able to focus on other ongoing initiatives, including expanding our lending products. This achievement also demonstrates our ability to adapt to changing market conditions and our commitment to deliver long-term value to our stakeholders.

In addition, we reviewed the level of gross non-performing exposures and identified several fully provided exposures with remote recovery prospects which were written off. This led to an improvement of our asset quality ratios, allowing our management team to concentrate on expanding our performing portfolio. We will continue to monitor the quality of our assets and take proactive measures to mitigate potential risks.

I believe that balancing risk and reward is crucial for the Bank’s financial health. We manage risks associated with lending, whilst also earning a suitable return on investment. This ensures sustainable growth and success for the Bank. We do this by focusing on prudent risk management and sustainable growth, in order to deliver value to our stakeholders. Our focus going forward will remain to carefully manage our assets and liabilities, to optimise our capital position and support our ongoing business operations.

During the period under review, the Group initiated a transformation exercise to revitalise our strategy and streamline operations in response to the new economic realities, as well as developments in the regulatory and compliance spheres. As part of our strong compliance-focused policy, we exited various business activities, jurisdictions, and customer groups. The Group also pursued a strategy of optimising our structure, with the aim of streamlining our operations and reducing expenses. We worked to improve the efficiency of our processes and organisation, allowing us to focus on our core business areas. During 2022, we closed our Hellenic branch in Athens and saw the liquidation of FIM Holdings (Chile) S.p.A. By optimising our structure, we were able to create a more agile and flexible business model, be better positioned to respond to changing market conditions and customer needs. This ongoing effort to optimise our operations will continue to be a key focus for the Group, as we strive to maintain our competitive edge.

Overall, these actions have positioned us for continued success in a rapidly evolving business landscape. We are committed to continue exploring opportunities to improve our operations and deliver sustainable financial solutions to our valued customers. By remaining vigilant and proactive in monitoring market conditions, regulatory requirements, and evolving customer needs, we will be able to adapt effectively, and succeed in a rapidly changing business environment.

Despite the challenging market conditions in 2022, we are pleased to report that the FIMBank Group's capital position and liquidity remained strong.

Our Total Capital Ratio (TCR) was of 17.8%, which is well above the minimum TCR requirement of 16%. Recently, the results of the Supervisory Review and Evaluation Process (SREP) from the Malta Financial Services Authority resulted in a decrease in our minimum TCR requirement from 17.5% to 16%. We appreciate the confidence shown by the Malta Financial Services Authority and are proud of our strong capital position, which demonstrates our commitment to maintaining a solid financial foundation that can withstand market fluctuations.

Our Liquidity Coverage Ratio (LCR) was managed well above the regulatory requirements. An average LCR of 198% reflects our consistently strong shorter term liquidity position. Similarly, our Net Stable Funding Ratio (NSFR) averaging 128% in 2022 was well above our regulatory requirements and demonstrated solid liquidity from a longer-term perspective. The level of liquidity balances maintained, was in line with the Group’s prudent banking practices defined in our carefully crafted Risk Appetite Statement.

Business unit performance

London Forfaiting Company Ltd (“LFC”)
Founded in 1984, LFC has a proven track record of providing efficient custom finance solutions to importers, exporters, and financial institutions. The company is dedicated to partnering with clients in key markets to offer forfaiting services and trade finance solutions, with an extensive global network of offices providing unmatched breadth of nation coverage. During the year in review, the trading results of LFC's portfolio were affected by a downward fair valuation of USD7.3 million mainly due to two overdue assets. Some level of volatility is typical for LFC's trading business, but the impact in 2022 was higher than in previous years. Nonetheless, LFC generated sufficient profits from its normal business activities to fully absorb the negative trading impact, and record a profit after tax of USD0.7 million. It is worth noting that LFC has maintained its trademark ability to be dynamic and adaptable, enabling it to upsize or downsize its portfolio in response to current market opportunities and group strategies. The fact that LFC has been able to generate a profit each year since being acquired by FIMBank, even after absorbing any negative trading impact, underscores the inherent and resilient consistency of its business model.

India Factoring and Finance Solutions Private Ltd (“India Factoring”)
India Factoring retained its leadership position in the provision of factoring services in India for the fifth consecutive year. The company continues to support small and medium enterprises with tailor-made working capital solutions. Clients benefit from access to immediate liquidity, to smooth out cash requirements, improve financial planning, and more importantly, optimise their financials. In 2022, India Factoring maintained its portfolio at a similar level to that of the previous year. Despite outperforming in terms of operational profit, the subsidiary experienced an increase in provisions which impacted the positive performance. The increase in provisions was on account of one legacy domestic relationship. The company’s performance of its export book, has been strong and its current portfolio status remains impeccable. During the year in review, India Factoring sustained a loss of USD0.7 million, compared to a profit of USD1.9 million registered in 2021.

The Egyptian Company for Factoring S.A.E. (“Egypt Factors”)
Egypt Factors experienced a decline in its factoring portfolio during the first six months of 2022, however rebounded with steady growth during the second half of the year. The subsidiary returned a profit of USD0.4 million, a level which is similar to the previous year. Egypt Factors was the first licensed Egyptian company specialising in factoring services, it is considered a pioneer in the financial services sector in Egypt and maintained its leading market position measured by the market share. The subsidiary was awarded the ‘Leaders in Innovation and Development 2022’ by Aalam EL Mal newspaper, one of the principal business journalism media organisations in Egypt.
 
Investment in technology

Digital and technology are critical enablers for modern banking, and FIMBank has fully embraced this paradigm through continuous investment over the years. During 2022, we successfully achieved a number of milestones on our digital transformation journey. One of our main priorities during the year was the upgrade of our digital banking platform, FIMBank Direct, which will be completed in 2023. Our focus is on enhancing our customer’s digital journey and expanding the platform's functional capabilities. This will enable our customers to securely manage their banking requirements in a streamlined manner. We are also well on the way to replace our Group factoring operating platforms, in anticipation of market driven changes which are due in the payments industry.

Malta Corporate Finance

FIMBank recently launched its Corporate Finance strategy to proactively engage with Malta's corporate customers, increase its presence in the local market, and establish stronger roots through a selective approach. The Bank has expanded its range of corporate lending products to support this forward-looking strategy and create tailored financial solutions for commercial customers. FIMBank is well-equipped to offer working capital finance solutions, including overdrafts, guarantee facilities, revolving loans, and project financing, as well as loans for capital expenditures.

The Bank's goal is to build and maintain valued relationships with local customers by understanding their business models and prospects. FIMBank provides tailored financing packages that align with the customers' growth strategies, while ensuring that the Bank always acts in the clients' best interests and fosters long-lasting relationships.

FIMBank is sensitive to its customers' business needs and is agile in its approach, helping clients reach their desired prospects. This contributes to the Bank's strategy of increasing profitability and asset class diversification, while expanding its role in supporting the community through corporate social responsibility initiatives.

Corporate Social Responsibility

At FIMBank, we are committed to making a positive impact on our community. During this financial period, we donated funds in support of various philanthropic organisations and initiatives.

One of these was Children's Dreams, which fulfils the Christmas wishes of children identified by the Foundation for Social Welfare Services. These children come from challenging financial and social backgrounds, and our support has helped bring them joy during the holiday season. We also supported the ‘Nahseb Fik’ project, which provides assistance to elderly people who come from challenging financial and social backgrounds. In October, we also showed our support for Breast Cancer Awareness month with a donation to Europa Donna Malta, an organisation that raises awareness about breast cancer and provides support to those affected by it. In November, we supported the ‘Movember’ annual event, which raises awareness and funds for men suffering from prostate and testicular cancer.

In 2022, FIMBank provided further support to the Research Trust of the University of Malta and the University of Malta, as part of an ongoing research study revolving around the findings and remains resulting from the excavation of deposits, retrieval of faunal material and extraction of speleothems. This research requires the specialised research and input of foreign scientists. The project is anticipated to produce a series of major scientific peer-reviewed papers, each of which will expand the existing knowledge on the subject. The project is being undertaken together with the Superintendence of Cultural Heritage.

At FIMBank, we believe in giving something back to our community, particularly by supporting philanthropic organisations and initiatives. We will continue to explore new ways to make a positive impact and support those in need.

 
Environmental, Social and Corporate Governance principles (ESG)

The FIMBank Group recognises the increasing significance of Environmental, Social, and Governance (“ESG”) standards and our role in promoting sustainable practices. As a business, we have a direct influence on the health of people in many countries, through our role as an employer, the products and services we offer, as well as our external influence on the environment and the communities in which we operate.

At FIMBank, we are committed to integrating ESG into our business strategy to effectively promote sustainability in the investment decision-making process. This includes identifying and mitigating ESG-related risks, enhancing our social impact, and reducing our environmental footprint. We believe that by promoting sustainable practices, we can help create a more resilient future for all stakeholders, including our customers, shareholders, employees, and the wider community. As we continue to integrate ESG into our business operations, we will strive to make a positive impact and fulfil our role as a responsible corporate citizen.

To ensure that we are fulfilling our responsibility to the community, we have engaged external consultants to assist us in implementing an ESG framework within the organisation. This framework will enable us to support the European Union's ESG objectives and manage the risks posed by environmental change to the Group, our customers, and society as a whole.

Concluding remarks

As we navigate through uncertain times marked by high inflation and geopolitical uncertainty, FIMBank remains grounded and cautious in its projections. We will continue to execute our strategy while searching for business opportunities that match our risk appetite, with the principle of risk-adjusted returns. This approach will ensure that we experience moderate growth in diversified product offerings, in business lines that provide superior returns.

The Group's balance sheet remains resilient, with lower legacy exposures and improved and sustainable revenue-generation capabilities. Over the past years, we have learned that we can change and adapt to overcome unprecedented situations. Our goal is to integrate this commitment within our customer centricity mindset and transform it into a prudently designed ecosystem that guarantees the realisation of mutual value.

Our primary mission is to remain customer centric. This will continue to underline our continuous Group-wide efforts to provide a superior customer experience. We recognise that finding the right balance between risk and reward is crucial for banks to remain financially healthy, and we remain committed to ensuring that we do so while maintaining our focus on our customers. With the dedication of our employees, we are confident that we will continue to navigate these challenging times and emerge stronger and better than ever before.

Finally, I would like to take this opportunity to express my sincere thanks and gratitude to our Board of Directors for their continuous guidance and support, and to the Management and all our employees for their dedication, hard work and support.

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