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CEO's Message - FIMBank Group Performance Review
29.04.2024
CEO’s message
As we review the financial year ending 31 December 2023, it is with a sense of grounded optimism that I share our Group's performance details with you. The financial year has been one of substantial improvement for FIMBank Group, marking a significant turnaround, posting a pre-tax profit of USD5.8 million. This reflects a remarkable improvement from the previous year, where we reported a pre-tax loss of USD24.7 million. The financial results of 2023 are the culmination of the efforts undertaken over the past years and serve as a strong indicator that the transformation that the Group has undertaken is starting to yield results.
Midway through the year, our interim results indicated an encouraging upward trend in performance, suggesting the potential for an even more favourable outcome by the end of the year. This was overshadowed by an increase in corporate tax, with the year-end results showing a modest post-tax profit of USD7,674, effectively break-even. Notwithstanding, this remains a noteworthy recovery from the previous financial years.
I am pleased to report that for the fourth year running there are no new material non-performing loans. Banks with strong risk management, diversified portfolios, and effective recovery processes are always better positioned to maintain lower non-performing ratios, and our objective is to continue building on these positive recovery results in the years ahead. We are confident that our focus on robust risk management practices, diversified portfolios, and efficient recovery processes will continue to enhance these ratios.
Since my appointment as Group Chief Executive Officer of the Bank on 30 November 2023, I have witnessed firsthand the resilience and determination with which our team continues to overcome our existing challenges. As we look ahead, we see a stable business model that is poised to capitalise on growth opportunities and business potential within the international and local markets. Our commitment to marching towards sustainable growth, driven by our collective efforts, is aimed at forging a prosperous future that maximises shareholder value.
Overview of financial results
During this financial period, net interest income increased by 26% year on year, reaching USD55.2 million. This increase is primarily attributed to the favourable interest rate environment, which allowed the Group to expand its interest margins. Moreover, the net fees and commission expense saw a marked improvement, reducing to USD0.7 million, a decrease of USD1.2 million from the previous year. Operating results from the non- trading portfolio increased by USD9.1 million to USD54.8 million, reflecting a growth of 20% over the previous year. The increase in operating results from the non-trading portfolio reflects the successful execution of our diversified business strategy.
Turning our focus to trading performance, although we recorded a net trading loss of USD3.2 million for the year, this represents a significant recovery from the previous year's USD6.9 million loss. The Group's trading operations encountered challenges stemming from the pervasive impact of geopolitical unrest and fluctuations in economic policies within the primary markets we operate in. This situation was further exacerbated by the default of an asset in our LFC subsidiary's trading book. Even in the face of these challenges, our strategic actions have been geared towards minimizing impacts and ensuring financial stability. Through diligent planning and proactive measures, we remain steadfast in our commitment to mitigating adverse effects and strengthening our financial resilience.
As of 31 December 2023, the Group’s total consolidated assets increased by 1.60% to USD1.58 billion, reflecting a prudent yet strategic approach to steadily managing our asset size and capital positions. The Group’s consolidated liabilities increased slightly to USD1.40 billion, following the shift of focus towards broadening the Bank’s deposit base through an enhanced emphasis on diversifying funding sources. During the period, customer deposits increased by 6.7% to USD935 million. This was complemented by a strategic stance that actively promotes franchise deposits, targeting stable, lower-cost deposits generated through our established reputation and strong customer relationships.
The Group’s Common Equity Tier 1 Ratio and TCR ratios stood at 18.3%, well above the overall capital requirements and supervisory pillar two guidance.
Achieving a 6.46% reduction in the Non-Performing Loan (“NPL”) Ratio demonstrates our commitment to maintaining a healthy and resilient portfolio. This result is a testament to our rigorous management of assets and our successful efforts in reducing net impairment losses.
Our financial performance has demonstrated remarkable improvement that encourages us to build on these results. Our strategic initiatives are setting the stage for sustainability. As we progress further in our journey, our focus remains on optimizing our operational efficiency, solidifying our risk management framework, and expanding our revenue generation capabilities, delivering superior value to our customers and shareholders. The diverse business units within the bank are actively demonstrating their strong capabilities in originating new business, with a robust pipeline of transactions consistently being converted, showcasing a dynamic and healthy business origination environment.
Business unit performance
Trade Finance
The Bank continues to prioritise Trade Finance as one of its core businesses. During the year, the Trade Finance team successfully maintained a steady client base while also integrating a select group of new clients. This diligent approach culminated in a notable uptick in trade finance volumes. A significant effort was devoted to enhancing operational efficiency throughout 2023, including updated risk frameworks, streamlined processes, upgrading of technology, and revised policies. These strategic improvements were aimed at optimizing service delivery. FIMBank is renowned for its expertise in maritime finance, offering tailored banking and finance services for the shipping industry from a base in Dubai. In response to emerging market dynamics, the Bank renewed its focus on re-entering trade finance operations within a select number of African countries. Following the strategic decision taken the previous year, the Greek portfolio was transferred to Malta, and during 2023 continued to be managed by a dedicated team of factoring specialists. The portfolio size remains stable, and this realignment has led to notable performance improvements.
Corporate Finance
Beyond trade finance, the local lending activity began with the establishment of the Real Estate Finance unit in 2016, offering project financing for residential and commercial projects in Malta. Over the past eight years, the Real Estate portfolio has consistently delivered positive results, maintaining portfolio stability at the desired levels. After achieving success in this sector and securing a substantial market share, the Bank took a significant step forward in 2023 with the launch of its Corporate Finance proposition. This initiative spearheaded the development of a comprehensive suite of financial solutions tailored specifically for corporate clients. The corporate offering includes business loans, overdrafts, general banking facilities, and revolving loans, aimed at meeting the diverse needs of businesses operating in Malta. This initiative has resulted in stable growth and heightened visibility in the home market, positioning the Bank to capitalise on potential opportunities for increased business and diversification. Corporate Finance is well-positioned to grow in a sustainable manner while reinforcing the Bank’s presence and visibility in its home country.
London Forfaiting Company Ltd (“LFC”)
The year 2023 was a very successful one for LFC, which returned a net profit after tax of USD8.64 million (2022: USD0.73 million) to its shareholder. LFC also embarked on a strategy of diversifying its portfolio last year. LFC takes a proactive approach to managing its non-performing assets, and whilst there was one new non-payment in 2023, this was fully provided for during the year. LFC experienced a general increase in underlying interest rates following the tightening of monetary policy in many of the developed and developing economies. This trend was particularly relevant in countries where LFC operates, significantly contributing to an enhancement in the company's profitability in 2023. Significantly, LFC celebrates its 40th anniversary in 2024, and its ability to adapt to constant economic and operational changes in the environment where it operates stands as a testament to its longevity, robustness, and resilient business model.
India Factoring and Finance Solutions Private Ltd (“India Factoring”)
During the year in review, India Factoring registered a profit of USD0.30 million, compared to a loss of USD0.70 million registered in 2022. India Factoring retained its leadership position in the provision of factoring services in India for the sixth 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 2023, India Factoring maintained its portfolio at a similar level to that of the previous year in spite of various challenges such as geopolitical tensions, inflationary trends, rising interest rates, etc. Despite strong outperformance in terms of operational profit, the subsidiary experienced an increase in provisions and deferred tax asset charge, which impacted the overall 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 excellent.
The Egyptian Company for Factoring S.A.E. (“Egypt Factors”)
Egypt Factors registered a profit of USD1.9 million and an increase in its factoring portfolio during 2023. The subsidiary was the first licensed Egyptian company specializing in factoring services, it is considered a pioneer in the financial services sector in Egypt and maintained its leading market position measured by market share. It has consistently maintained its premier market position, as evidenced by its substantial market share. Egypt Factors has built a strong reputation for its responsiveness to client needs, primarily through providing high-quality accounts receivable management. This approach supports suppliers in fulfilling buyer expectations.
Investment in technology
Digital and technology serve as indispensable catalysts for modern banking, and FIMBank has wholeheartedly embraced this ethos through continuous investment over the years. In 2023, we achieved several significant milestones in our digital transformation voyage. Among our top priorities was the enhancement of our digital banking platform, FIMBank Direct, for which most of the work was concluded in 2023. Our primary focus remains on enriching our customers' digital experiences and broadening the platform's functional capabilities, thereby empowering them to seamlessly manage their banking needs with heightened security. Throughout 2023, we have made substantial progress in replacing the legacy Group factoring operating system with a successful migration to a new platform for our India business. The Bank also embarked on a new payments project hub which is set to be launched in 2024. This initiative falls in line with the Bank’s commitment to modernise its payments framework and support industry changes. These enhancements further solidify our dedication to innovation and excellence in banking services.
Corporate Social Responsibility
At FIMBank we believe that our actions have a direct impact upon the community in which we operate. During the period of 2023, the Bank has sought to embark on a number of initiatives to support organisations making valid contributions to society. The Bank, along with its employees, collectively contributed to Puttinu Cares through an internal initiative that supplemented the Bank’s own charitable donation. FIMBank supported Pink October and Movember initiatives aimed at raising awareness for men's and women's health. Bank employees were encouraged to wear pink or blue at the workplace to show solidarity towards the cause and enjoyed some sweet baked treats, all while collecting donations for Hospice Malta.
Earlier in the year, the Bank backed the Valletta Concours event as part of its CSR program, celebrating automotive heritage and cultural preservation. This sponsorship fosters historical appreciation through the showcasing of vintage and classic automobiles, educational platforms for enthusiasts of all ages, while also bolstering tourism. Such engagement reflects a dedication to CSR by investing in initiatives that enrich lives and promote sustainable cultural practices and community involvement.
Environmental, Social and Corporate Governance principles (ESG)
The FIMBank Group acknowledges the growing importance of Environmental, Social, and Governance (“ESG”) standards and our responsibility in advancing sustainable practices. As an organisation operating in various continents across the globe, we have a direct influence on the well-being of individuals across numerous countries, evident through our role as an employer, the nature of our products and services, and our broader impact on the environment and local communities.
At FIMBank, we pledge to embed ESG considerations into our business strategy, facilitating the integration of sustainability principles into our decision-making processes. We are steadfast in our belief that by championing sustainable practices, we contribute to forging a more resilient future for all stakeholders, including customers, shareholders, employees, and broader society. As we continue to embed ESG into our operational framework, we strive to effect positive change and uphold our duty as a responsible corporate entity.
We have engaged external consultants to aid in implementing an ESG framework within our organisation. This framework serves to align our efforts with the European Union's ESG objectives and proactively manage environmental risks affecting the Group, our clientele, and society at large.
Concluding remarks
Whilst recent results have shown that recent efforts spearheaded over the years are now starting to bear fruit, our business approach remains grounded and cautious, as we acknowledge that we must undertake more work. The priorities for 2024 have been clearly defined: the maximisation of revenues through high-quality, good-yielding assets across various verticals while emphasizing a heightened awareness toward our cost base. Furthermore, assessing capital consumption is instrumental in achieving higher returns and strategically balancing our portfolios to ensure optimal performance. I am confident that with an approach focusing on collective collaboration, we will achieve our objectives.
I extend my gratitude to our dedicated team, our Board of Directors, and our stakeholders for their unwavering support and commitment to our vision. Together, we are poised for success in the years to come.
