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Company Registration Number: C 70823
MERKANTI HOLDING p.l.c.
Annual Financial Report and
Consolidated Financial Statements
31 December 2025
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
Pages
Directors’ report
1 - 7
Statement of Compliance with Corporate Governance Code
8 - 10
Statements of financial position
11 - 12
Income statements
13
Statements of comprehensive income
14
Statements of changes in equity
15 - 17
Statements of cash flows
18 - 19
Notes to the financial statements
20 - 96
Independent auditor’s report
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1
Directors’ report
The board of directors (“the Board”) present their report and the audited financial statements of Merkanti
Holding p.l.c. (the “Company”) and Merkanti Holding p.l.c. Group (the “Group”), for the year ended 31
December 2025. The subsidiaries include Merkanti Bank Limited (the “Bank”), Merkanti (A) International
Ltd (“Merkanti A”), Merkanti (D) International Ltd (“Merkanti D”), (“Merkanti A”, together with “Merkanti D”,
the “Property Companies”), Altmark Industrie Management GmbH (“A.I.M.”) the “Property Management
Company”, and Merkanti Diesel Limited (“Merkanti Diesel”).
Subsidiaries
The following diagram illustrates the corporate structure (voting shares) of the Group as at 31 December
2025:
Principal activities
Merkanti Holding p.l.c. is a holding and finance company that does not carry on any trading activities apart
from the raising of capital and advancing the same to the Group. Accordingly, the Company is economically
dependent on the Group. The principal activities of the Group are comprised of the activities of the Bank,
the Property Companies and their management Company, explained further in the ‘Review of the business’
section below.
On 12 August 2019, the Company issued €25,000,000 secured bonds carried at a tenor of 7 years with a
coupon of 4%. The proceeds of the issuance were utilised to support the expansion of the business of the
Bank and the Property Companies. The bond issuance was listed on the Malta Stock Exchange.
On 3 July 2024, the Company called a Bondholder Meeting to consider and approve proposed changes to
the terms and conditions of the Company’s secured bond due 2026 (ISIN: MT0002291202) (the “
Bonds
”).
Bondholders were being requested “To consider and approve the Proposed Amendments to the terms and
conditions of the Bonds as set out in detail in the Notice to the Bondholders Meeting, consisting primarily of
(1) an increase in the interest rate payable on the Bonds from 4.00% to 5.70% per annum and (2) a 7-year
extension of the term (maturity date) of the Bonds to 12 August 2033” (the “
Resolution”
).”
At the meeting 86.8% of the aggregate nominal value of all outstanding Bonds were represented (in person
or by proxy) with an overwhelming majority (94.2%) voting in favour of the resolution.
As a result of this extension, as per the relevant guidance of International Financial Reporting Standards,
the Company expensed €434,600 of capitalized costs from the original issuance of the bonds in 2024.
Merkanti
Holding Plc
100%
100%
100%
94.9%
94.9%
Merkanti
Bank Ltd
Merkanti (A)
International
Ltd
Merkanti (D)
International
Ltd
Merkanti
Diesel Ltd
Altmark Industrie
Management
GmbH
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2
Directors’ report
- continued
Review of the business
The Bank is a credit institution licensed by the MFSA under the Banking Act (Chapter 371) of the laws of
Malta, in accordance with the credit institution licence granted by the Malta Financial Services Authority.
On 2 January 2026, the Company announced that its Board of Directors and the Board of Directors of
Merkanti Bank Ltd. had formally approved the Bank’s conversion into an unregulated entity, subject to
receiving regulatory approval and any additional instructions from the MFSA.
As a result of this, the Bank
has provided notice to its employees and incurred one-time charges during the period, including an
impairment of the Bank’s intangible assets and the costs of severance for its employees. The bank has
provided for closure costs which resulted in a loss after tax of €3,629,269.
The Property Companies are property holding companies that operate in the industrial real estate sector
in Germany, together holding assets recently valued at €46.6 million (€41.8 million), yielding a combined
rental income of approximately €1.9 million per annum (2024 1.7 million), the Company held 94.9% of the
Ordinary shares of both Merkanti (A) International Ltd and Merkanti (D) International Ltd.
The German Real Estate had a mixed performance with increased occupancy and rents being offset by
costs incurred in the year related to demolition of old structures, which cleared unusable plots of land for
potential sale in the coming years at higher prices.
However, these costs could not be capitalized and
were not fully reflected in the independent valuation of the properties performed as of December 31, 2025.
As result, the net loss from the German Real Estate companies for the year was approximately €694,619
(2024: profit €1,991,546).
The real estate owned by the Property Companies is currently leased out to a number of tenants. Lease
agreements in place between the Property Companies and the respective tenants are either open-ended
indefinite term contracts or definite term contracts (with a number of definite term rental agreements
catering for the automatic renewal of the lease, and with renewal periods ranging from one to six years).
In most cases the lessee has the option to terminate the contract by giving written notice a number of
months prior the expiration of the contract, which notice period ranges between 3 to 18 months. For the
year ending 31 December 2025, 93.0% (2024: 93.9%) of the combined rental income of €1.9 million
(2024: €1.7 million) was generated from areas leased out to third party tenants, with the remaining 7.0%
(2024: 6.1%) generated from leases to related parties.
During the year, the Company made the fifth full annual coupon payment to its bond holders, this year at
the new interest rate of 5.7% equal to €1,425,000 (2024: €1,200,000).
Profit after tax for the year for the Company amounted to €289,012 (2024: loss after tax of €1,041), whilst
the Group reported a loss after tax of €4,280,111 (2024: profit €1,096,990). Group losses excluding the
provisions to convert the bank to a non-regulated entity would have been €653,845.
Total assets for the Company and the Group stood at €83,859,386 and €96,206,029 (2024: €79,776,995
and €106,135,618), respectively.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
3
Directors’ report
- continued
Principal risks and uncertainties
Continued volatile global financial and geopolitical conditions may negatively impact us or our
counterparties
Global financial conditions have been characterized by ongoing volatility. Global financial conditions could
suddenly and rapidly destabilize in response to future events, as government authorities may have limited
resources to respond to future crises. Global capital markets have continued to display increased volatility
in response to global events. Future crises may be precipitated by any number of causes, including natural
disasters, geopolitical instability, civil unrest, changes to energy prices or sovereign defaults. Ongoing
geopolitical challenges such as the Ukraine-Russia war, conflict in the Middle East, tensions between the
United States and China, imposition of new tariffs by the U.S. government and related countermeasures
and other proposed changes to international trade policies have contributed to volatility in global financial
conditions.
The United States of America has recently enacted and proposed to enact significant new tariffs on Canada,
China and other countries and certain of the countries have enacted countermeasures. These and related
developments, or the perception that any of them could occur, may have a material adverse effect on global
economic conditions, the stability of global financial markets and the price and demand for iron ore. The
economic impact of tariffs and countermeasures on the Canadian, American and global economy could
result in increased volatility in commodity prices and negatively impact capital markets and the operations
of the iron ore mine underlying our parent company’s royalty interest, which may negatively impact our
business, results of operations, cash flows and financial condition.
The Group’s business, by its nature, does not produce predictable earnings and it may be materially affected
by conditions in the global financial markets and economic conditions generally. As demand for the Group’s
products and merchant banking services has historically been determined by general global macro-
economic activities, demand and prices for the Group’s products and services have historically decreased
substantially during economic slowdowns. A significant economic downturn may affect sales and profitability
and may adversely affect suppliers and customers. Depending on their severity and duration, the effects
and consequences of a global economic downturn could have a material adverse effect on the Group’s
liquidity and capital resources, including the Group’s ability to raise capital, if needed, and otherwise
negatively impact our business and financial results.
The Group is subject to strategic and business risk.
Improper strategic choices or the actual implementation of strategic decisions, as well as lack of
responsiveness to changes in the economic environment, can have a serious and significant impact on
prospective financial results.
As the Group is engaged in German property business, this risk category is intimately connected with the
overall performance of the global and German economy. In addition, the Group was engaged in the
merchant banking business in markets that were typically in the developing stages of their economic
development and political stability.
The Group may increase its debt in the future.
The Group may continue to fund its operations and future growth by incurring additional debt. A substantial
deterioration in operating cash flows and profitability could make it difficult for the Group to service interest
payments and principal repayments on its borrowings.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
4
Directors’ report
- continued
Principal risks and uncertainties
- continued
The Group could be at risk of default on the occurrence of certain unexpected events. Any failure to satisfy
debt obligations could result in a default under the terms of current and future financing arrangements
The Group’s bank subsidiary is subject to regulatory risk.
In particular, the banking industry is subject to extensive regulation and oversight. The operations of our
Bank are subject to the regulations and directives issued by the European Union, as well as any additional
Maltese legislation. The Bank is subject to direct supervision by the Malta Financial Services Authority, the
Central Bank of Malta and the Financial Intelligence Analysis Unit and indirect supervision by the European
Central Bank. There are various regulations and guidelines that the Bank needs to adhere to but the most
noticeable ones relate to capital requirements, liquidity and the funding and the Anti-Money Laundering and
Anti-Terrorist Financing. As a Maltese credit institution, the Bank is subject to the Capital Requirements
Directive and Regulatory Frameworks, referred to as the “CRD and CRR Framework” (as updated from
time to time), through which the European Union implements the Basel Capital reforms. The CRD and CRR
Framework, among other things, impose minimum statutory capital requirements based on risk adjusted
credit exposures and requires extensive regulatory reporting on own funds, large exposures, liquidity
requirements and various other regulatory requirements. Large exposures consist of credit exposures to a
client or group of connected clients in excess of 10% of the Bank's statutory capital base and such large
exposures cannot exceed 25% of the Bank's statutory capital base, after taking into account eligible credit
risk mitigation. The main liquidity requirements imposed by the CRD and CRR Framework are the liquidity
coverage ratio, referred to as “LCR,” which refers to the proportion of highly liquid assets held by the Bank
to ensure its ongoing ability to meet short-term liquidity obligations. The Bank must maintain a minimum
statutory LCR of 100%. The CRD and CRR Framework also establish a minimum Net Stable Funding Ratio
(referred to “NSFR”) of 100%. Unlike the LCR, the NSFR is a liquidity standard requiring the Bank to hold
enough stable funding to cover the duration of its long-term assets.
During 2025 the Bank was working on the requirements of the revised CRD and CRR Framework,
commonly referred to as the CRD6/CRR3 package, which will be wide-ranging, but is expected to include
core Basel III components as well as market risk. However, the European Commission also introduces
further initiatives in the package, which include: the revision of certain credit risk-weights used to determine
the Bank’s statutory capital adequacy ratio; new capital calculation requirements relating to operational risk;
governance and reporting requirements relating to environmental, social and governance (ESG) risks; and
digital operational resilience (DORA).
In addition, due to the Bank’s decision to pursue a conversion to an unregulated entity, the Company is
exposed to risks and uncertainties relating to the timing, execution and outcome of such conversion. The
completion of this process is subject to a number of factors, many of which are outside the Company’s
control, including obtaining any required regulatory approvals, satisfying applicable legal and operational
requirements, and managing stakeholder expectations. There can be no assurance as to the timing of
such conversion, or that it will be completed within any anticipated timeframe, or at all. Any delays,
changes in regulatory stance, or failure to meet applicable conditions could result in the Bank remaining
subject to the existing regulatory framework for a longer period than expected, which may increase
compliance costs, constrain strategic flexibility, and impact the Company’s operations and financial
condition. Furthermore, the transition process itself may give rise to operational, legal and reputational
risks.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
5
Directors’ report
- continued
Merchant banking as a business is competitive, volatile and subject to various risks.
The Group’s merchant banking business could experience significant periodic variations in revenues and
results of operations in the future. The merchant banking business is also highly competitive and certain
competitors have substantially greater capital and resources, including access to supply, than the Bank. If
the Bank is unable to compete effectively, its business and results of operations will be adversely affected.
The Group is subject to systematic risk in the global financial system.
The Group is exposed to systemic risk caused by the o
ngoing geopolitical challenges such as the Ukraine-
Russia war, conflict in the Middle East, tensions between the United States and China, imposition of new
tariffs by the U.S. government and related countermeasures and other proposed changes to international
trade policies have contributed to volatility in global financial conditions.
Due to the high level of
interdependence between financial institutions, the Bank is and will continue to be subject to the risk of
deterioration of the (actual or perceived) commercial and financial soundness of other financial services
institutions, which is also often referred to as systemic risk.
Even the perceived lack of creditworthiness of about a single counterparty may lead to market wide liquidity
problems and losses or defaults by other institutions, including the Company.
The Group is exposed to litigation risks in its business that are often difficult to assess or quantify.
The Group is exposed to various forms of legal risk arising from its activities. Legal risks arise from the
possibility that unenforceable contracts, lawsuits, or adverse judgements can disrupt or otherwise negatively
affect the operations or condition of the Group. The Group carries on business in various parts of the world
and under different legal systems.
The Group is particularly susceptible to legal risks when entering into structured transactions in emerging
markets, where its legal rights might be susceptible to non-enforcement because of uncertainties of the
local legal and judicial system.
The Group is exposed to the industrial real estate and property market in Germany
.
The industrial real estate market in Germany is, among other things, affected by shifts in demand and
supply, changes in general economic conditions, changing supply within a particular area of competing
space and attractiveness of real estate relative to other investment choices. Changes in regulatory
requirements and applicable laws (such as taxation and planning permits), political conditions, conditions
of the financial markets, inflation, interest rate fluctuations, the availability of financing, yields of alternative
investments and other factors may also have an adverse effect on the property market and, in turn, the
capital values and income streams of the Group.
Future business developments
The Company continues to execute its business plan whilst diligently adhering to its risk management
principles. During 2025, the Company made the decision to convert its regulated Bank subsidiary into a
non-regulated entity. As a result, we expect the lower cost structure profile of the Group to enable profitable
growth into the future.
The Company continues to explore various business opportunities ~ both organic and inorganic ~ with the
goal of maximizing profits for its shareholders and prudently safeguarding the interests of its key
stakeholders.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
6
Directors’ report
- continued
Risk management
The Group is considering various additional strategic transactions to further expand its product profile and
geographical scope, while at the same time maintaining a strong liquidity profile to be able to capitalize on
any opportunities which may arise.
The Group faces a range of business, financial and operational risks. The Group adopts a robust corporate
governance framework with a risk management approach to understand what its risks are, how much risk
is acceptable, and to be able to manage it to create value for shareholders while meeting regulatory
requirements ensuring integrity, ethical and transparent behaviour.
At a strategic level, the Group’s financial risk management objectives are:
i.
to ensure appropriate identification of the Group’s significant risks;
ii.
to ensure that the Group’s plans are consistent with its risk appetite;
iii. to optimise risk/return decisions by taking them as closely as possible to the business, while
establishing strong and independent review and challenge structures; and
iv.
to help the Group’s Management improve the control and co-ordination of risk taking across the business.
A detailed review of the Group’s use of financial instruments, its exposure to liquidity risk, credit risk and A
detailed review of the Group’s use of financial instruments, its exposure to liquidity risk, credit risk and
market risk, and the respective financial risk management objectives and policies is included in Note 2 to
the financial statements.
Results and dividends
The income statement is set out on page 13. No dividend is being recommended by the Board. The
accumulated profits of the Group amounting to €379,052 will be carried forward to the next financial year.
Directors
The directors of the Company who held the office during the year were:
Mario P Galea (Resigned on 12th June 2025)
Benjamin Muscat (Resigned on 12th June 2025)
Silke Stenger
Rene Randall (appointed 23rd January 2025)
Samuel Morrow (Chief Executive Officer)
Martin Ware
In accordance with the Company’s articles of association, directors are appointed during the Company’s
annual general meeting until the next following annual general meeting (unless elected for a longer or
shorter period or unless they resign or are removed), at the end of which term they may stand again for
re-election. No election may be made for a period exceeding three (3) years. The Articles of Association
of the Company clearly set out the procedures to be followed in the appointment of directors.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
7
Directors’ report
- continued
Responsibilities of Directors for the Financial Statements
The directors are required by the Maltese Companies Act (Cap.386) to prepare financial statements which
give a true and fair view of the state of affairs of the Group and the Company as at the end of each reporting
period and of the profit or loss for that period.
In preparing the financial statements, the directors are responsible for:
•
ensuring that the financial statements have been drawn up in accordance with International Financial
Reporting Standards as adopted by the EU;
•
selecting and applying appropriate accounting policies;
•
making accounting estimates that are reasonable in the circumstances;
•
ensuring that the financial statements are prepared on the going concern basis unless it is
inappropriate to presume that the Group and the Company will continue in business as a going
concern.
Material contracts
Other than the contracts specified for and within the Company’s prospectus dated July 18, 2019, for the
issuance of €25 million of 4% seven year secured bonds, amended on 3
rd
July 2024 via a bondholder vote
to change the terms and conditions of the bond to €25 million of 5.7% secured bonds maturing on 12
th
August 2033 there are no material contracts outstanding.
Going concern
The directors, as required by Listing Rule 5.62, have considered the Company’s operational performance,
the statement of Financial Position as at 31 December 2025, as well as the business plans for the coming
year, and that they have a reasonable expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the financial statements.
Auditors
PricewaterhouseCoopers have indicated their willingness to continue in office and a resolution for their re-
appointment will be proposed at the Annual General Meeting.
Statement of Responsibility pursuant to the Listing rules issued by the Listing Authority
The Board declares that to the best of their knowledge, the financial statements included in the Annual
Report are prepared in accordance with the requirements of International Financial Reporting Standards as
adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation taken as a whole, and that this director’s report
includes a fair review of the development and performance of the business and position of the Company,
together with a description of the principal risks and uncertainties that it faces.
Signed on behalf of the Company’s Board of Directors on 29 April 2026 by Rene Randall (Director) and
Martin Ware (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in
conjunction with the Annual Report and Consolidated Financial Statements 2025.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
8
Statement of Compliance with Corporate Governance Code
The Listing Rules issued by the Listing Authority of the Malta Financial Services Authority, require listed
companies to observe The Code of Principles of Good Corporate Governance (the “Code”). Although the
adoption of the Code is not obligatory, companies with securities that are listed on a ‘regulated market’ (and
that are subject to the Listing Rules and the Code) are required to include, among other things, in their
annual report, a corporate governance statement and a statement by the directors on a company’s
compliance with the Code, accompanied by a report of the auditors thereon. Companies that do not have
any listed equity securities, including the Company, are exempt from certain requirements relating to the
contents of this corporate governance statement.
Compliance
The Company’s Board believes in the principles espoused by and the adoption of the Code and the
Company has endorsed them to the extent that they are considered complementary to the size, nature, and
operations of the Company. In particular, the Board believes that, due to the Company’s size, operations
and particular circumstances – including the fact that it is a holding and finance company and does not have
any employees or officers other than the directors and the company secretary – it is not necessary for the
Board to establish the remuneration, nomination and board performance evaluation committees (and the
related supporting principles and Code Provisions) that are suggested in the Code, and that the function of
these committees can efficiently be undertaken by the board itself as necessary. It should also be noted
that the Board’s performance is subject to ongoing evaluation and scrutiny of the Board itself (the majority
of which is composed by independent non-executive directors), the Company’s shareholder and the market.
The shareholders approve the remuneration paid to the directors at the annual general meeting.
The Board
The Board is responsible for devising a strategy, setting policies and the management of the Company. It
is also responsible for reviewing internal control procedures, financial performance and business risks
facing the Company. The Board is also responsible for ensuring that its operations are in conformity with all
relevant rules and regulations. Directors meet regularly, mainly to review the operational and financial
performance of the Company, any significant matters arising, and to review internal control processes.
Board members are notified of forthcoming meetings by the Company Secretary with the issue of an agenda
and supporting documents, which are circulated in advance of the meeting. All the directors have access to
independent professional advice at the Company’s expense should they so require and frequently make
use of this facility on various issues.
The Company has in place systems whereby the directors obtain timely information from the executive
management teams of its subsidiaries, not only at meetings of the Board but at regular intervals or when
the need arises.
The Board is currently composed of one executive, one non-executive and two independent non-executive
directors, as listed below.
Silke Stenger (Independent Non-Executive Director)
Rene Randall (Independent Non-Executive Director) (appointed 23 January 2025)
Samuel Morrow (Executive Director)
Martin Ware (Non-Executive Director)
The Company Secretary of the Company is Ganado Services Limited (C 10785)
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
9
Statement of Compliance with Corporate Governance Code
- continued
Internal Controls & Risk Management Systems in relation to Financial Reporting
The Board is responsible for designing, implementing and maintaining internal controls and risk
management systems that it deems necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and for reviewing their effectiveness. They
are also responsible for safeguarding the assets of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
In particular, systems and procedures are in place for the Company to control, report, monitor and assess
risks and their financial implications, and to take timely corrective actions where necessary, and for the
Board to be kept informed in a structured and systematic manner on the operational and financial
performance of the Company. Regular financial budgets and strategic plans are prepared, and performance
against these plans is actively monitored and reported to the directors on a regular basis. All financial
information and forecasts are reviewed by multiple parties as well as the Board to ensure accuracy.
The monitoring of these controls and systems has been delegated to the Audit Committee (as described
below). The Board and Audit Committee are satisfied with the effectiveness of the Company’s system of
internal controls and risk management systems.
Audit Committee
The Board established an Audit Committee (the “Committee”) in 2019 to assist the Board in fulfilling its
supervisory and monitoring responsibilities. The Committee operates according to detailed terms of
reference established by the Board that reflect the requirements of the Listing Rules as well as current good
corporate governance best practices. These terms of reference establish its composition, role,
responsibilities and function, the parameters of its remit, as well as the basis for the processes that it is
required to comply with. The Committee, which is required to meet at least four times a year, is a sub-
committee of the Board and is directly responsible and accountable to the Board.
The primary purpose of the Committee is to assist the directors in conducting their role effectively so that
the Company’s decision-making capability and the accuracy of its reporting and financial results are
maintained at a high level at all times. Among other responsibilities, the Committee is responsible for
monitoring the financial reporting process and monitoring of the effectiveness of the Company’s internal
controls and risk management systems in relation to the financial reporting of the Company.
The Audit Committee is composed entirely of independent non-executive directors (each of which satisfies
the independence criteria set out in the Listing Rules). All of the members of the Audit Committee are
designated as competent in auditing and/or accounting. Silke Stenger has been appointed as the
Chairperson of the Audit Committee.
The Members of the Audit Committee are:
Silke Stenger (Chairperson)
Rene Randall (Member) (appointed 23 January 2025)
Martin Ware (Member)
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
10
Statement of Compliance with Corporate Governance Code
- continued
Remuneration Statement
In terms of the Company’s Memorandum and Articles of Association, it is the shareholders of the Company
in the General Meeting who determine the maximum annual aggregate remuneration of the directors. The
independent directors received €110,500 in aggregate for services rendered during 2025 in their capacity
as directors of the company. No part of the remuneration paid to the independent directors is performance
based. None of the independent directors, in their capacity as a director of the Company, is entitled to profit
sharing, share options or pension benefits.
Signed on behalf of the Company’s Board of Directors on 29 April 2026 by Rene Randall (Director) and
Martin Ware (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in
conjunction with the Annual Report and Consolidated Financial Statements 2025.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
11
Statements of financial position
Group
Company
As at 31 December
Notes
2025
2024
2025
2024
€
€
€
€
ASSETS
Balances with Central Bank of Malta
and cash
4
24,036,609
20,315,175
-
-
Loans and advances to banks and
other financial institutions
5
3,850,588
8,120,777
2,057,587
2,216,768
Loans and advances to customers
6
-
13,018,574
-
-
Financial assets mandatorily
measured at fair value
through profit or loss
7
792,600
792,601
-
-
Financial assets measured at fair
value through other
comprehensive income
8
192,060
5,145,690
-
-
Investments in subsidiaries
9
-
-
50,620,336
50,559,310
Investment property
10
32,374,000
31,927,000
-
-
Property, plant and equipment
11
155,980
97,514
97,810
4,068
Intangible assets
12
19,136
903,312
-
-
Right-of-use assets
13
608,499
-
608,499
-
Other receivables
14
29,432,800
20,781,744
26,935,101
23,305,793
Current tax assets
390,932
425,493
164,326
177,873
Deferred tax assets
15
46,686
179,569
-
-
Accrued income and other assets
16
4,306,139
4,428,169
3,375,727
3,513,183
Total assets
96,206,029
106,135,618
83,859,386
79,776,995
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
12
Statements of financial position
- continued
Group
Company
As at 31 December
Notes
2025
2024
2025
2024
€
€
€
€
EQUITY AND LIABILITIES
Capital and reserves attributable
to owners of the parent
Share capital
17
1,666,666
1,667,333
1,666,666
1,667,333
Contribution reserve
18
50,873,335
50,892,669
50,873,335
50,892,669
Fair value reserve
19
(1,441)
(90,201)
-
-
Retained earnings
379,052
4,576,993
2,365,600
2,076,588
52,917,612
57,046,794
54,905,601
54,636,590
Non-controlling interests
20
875,989
1,016,809
-
-
Total equity
53,793,601
58,063,603
54,905,601
54,636,590
Liabilities
Borrowings
21
24,527,680
24,481,152
27,709,601
24,481,152
Lease liabilities
13
582,390
-
582,390
-
Amounts owed to banks
22
-
4,965,200
-
-
Amounts owed to customers
23
11,850,474
13,176,014
-
-
Current tax liabilities
90,642
11,317
-
-
Deferred tax liabilities
15
2,368,743
2,386,691
-
-
Other liabilities
24
2,992,499
3,051,641
661,794
659,253
Total liabilities
42,412,428
48,072,015
28,953,785
25,140,405
Total equity and liabilities
96,206,029
106,135,618
83,859,386
79,776,995
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
The financial statements on pages 11 to 96 were approved and authorised for issue by the Board of
Directors on 29 April 2026. The financial statements were signed on behalf on behalf of the Company’s
Board of Directors by Rene Randall (Director) and Martin Ware (Director) as per the Directors’ Declaration
on ESEF Annual Financial Report submitted in conjunction with the Annual Report and Financial
Statements 2025.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
13
Income statements
Group
Company
Year ended 31 December
Notes
2025
2024
2025
2024
€
€
€
€
Interest income
26
2,985,301
3,934,118
1,120,662
1,118,255
Interest expense
27
(1,785,724)
(2,012,523)
(1,568,024)
(1,663,012)
Net interest income
1,199,577
1,921,595
(447,362)
(544,757)
Net fee and commission income
28
250,125
819,940
-
-
Rental income from investment
property
29
1,503,423
1,518,171
172,358
106,525
Changes in the fair value of
investment property
10
31,000
1,353,056
-
-
Realised gains/(losses) on disposal of
investment property, equipment,
and intangible assets
59,134
35,068
(1,256)
-
Net trading income
30
(143,815)
(179,957)
(37,897)
17,146
Loss on disposal of financial assets
measured at fair value through other
comprehensive income
(21,835)
-
-
-
Dividend income
31
-
-
1,091,350
284,700
Other operating income
32
1,342,762
2,607,209
592,093
1,308,708
Operating income
4,220,371
8,075,082
1,369,286
1,172,322
Changes in expected credit losses
33
222,996
(109,106)
(61,758)
-
Administrative expenses
34
(7,244,933)
(6,570,079)
(1,022,725)
(1,148,070)
Depreciation and amortisation
11, 12, 13
(180,310)
(259,767)
(105,117)
(163,184)
Impairment of property, equipment
and intangible assets
11, 12
(977,016)
-
-
-
Movement in provisions
(129,092)
(280,000)
-
-
(Loss)/profit before tax
(4,087,984)
856,130
179,686
(138,932)
Tax (expense)/income
35
(192,127)
240,860
109,326
137,891
(Loss)/profit for the year
(4,280,111)
1,096,990
289,012
(1,041)
(Loss)/profit attributable to:
Owners of the parent
(4,197,941)
1,150,215
Non-controlling interests
20
(82,170)
(53,225)
(4,280,111)
1,096,990
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
14
Statements of comprehensive income
Group
Company
Year ended 31 December
Notes
2025
2024
2025
2024
€
€
€
€
(Loss)/profit for the year
(4,280,111)
1,096,990
289,012
(1,041)
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Fair valuation of financial assets
measured at fair value through
other comprehensive income:
- Net changes in fair value arising
during the year
8
69,559
223,350
-
-
- Amounts reclassified to profit or
loss upon disposal
21,837
-
-
-
- Changes in expected credit losses
attributable to debt instruments
measured at fair value through
other comprehensive income
8
(2,636)
1,147
-
-
Other comprehensive income
for the year, net of tax
88,760
224,497
-
Total comprehensive income
for the year
(4,191,351)
1,321,487
289,012
(1,041)
Total comprehensive income
attributable to:
Owners of the parent
(4,109,181)
1,374,712
Non-controlling interests
20
(82,170)
(53,225)
(4,191,351)
1,321,487
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
15
Statements of changes in equity
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Group
Attributable to owners of the parent
Non-
Share
Contribution
Fair value
Retained
controlling
Total
Notes
capital
reserve
reserve
earnings
Total
interests
equity
€
€
€
€
€
€
€
Balance at 1 January 2024
1,667,333
50,892,669
(314,698)
3,426,778
55,672,082
1,085,334
56,757,416
Comprehensive income
Profit for the year
-
-
-
1,150,215
1,150,215
(53,225)
1,096,990
Other comprehensive income:
Fair valuation of financial assets measured at fair
value through other comprehensive income
Net changes in fair value arising during the year
8
-
-
223,350
-
223,350
-
223,350
Changes in expected credit losses attributable
to debt instruments measured at fair value
through other comprehensive income
8
-
-
1,147
-
1,147
-
1,147
Total comprehensive income
-
-
224,497
1,150,215
1,374,712
(53,225)
1,321,487
Transactions with owners in their capacity as owners:
Dividends paid to non-controlling interests in subsidiaries
20
-
-
-
-
-
(15,300)
(15,300)
Transactions with owners in their capacity as owners
-
-
-
-
-
(15,300)
(15,300)
Balance at 31 December 2024
1,667,333
50,892,669
(90,201)
4,576,993
57,046,794
1,016,809
58,063,603
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
16
Statements of changes in equity
- continued
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Group
Attributable to owners of the parent
Non-
Share
Contribution
Fair value
Retained
controlling
Total
Notes
capital
reserve
reserve
earnings
Total
interests
equity
€
€
€
€
€
€
€
Balance at 1 January 2025
1,667,333
50,892,669
(90,201)
4,576,993
57,046,794
1,016,809
58,063,603
Comprehensive income
Loss for the year
-
-
-
(4,197,941)
(4,197,941)
(82,170)
(4,280,111)
Other comprehensive income:
Fair valuation of financial assets measured at fair
value through other comprehensive income
Net changes in fair value arising during the year
8
-
-
69,559
-
69,559
-
69,559
Amounts reclassified to profit or loss upon disposal
-
-
21,837
-
21,837
-
21,837
Changes in expected credit losses attributable
to debt instruments measured at fair value
through other comprehensive income
8
-
-
(2,636)
-
(2,636)
-
(2,636)
Total comprehensive income
-
-
88,760
(4,197,941)
(4,109,181)
(82,170)
(4,191,351)
Transactions with owners in their capacity as owners:
Dividends paid to non-controlling interests in subsidiaries
20
-
-
-
-
-
(58,650)
(58,650)
Cancellation of own shares
17, 18
(667)
(19,334)
-
-
(20,001)
-
(20,001)
Transactions with owners in their capacity as owners
(667)
(19,334)
-
-
(20,001)
(58,650)
(78,651)
Balance at 31 December 2025
1,666,666
50,873,335
(1,441)
379,052
52,917,612
875,989
53,793,601
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
17
Statements of changes in equity
- continued
Company
Notes
Share
capital
Contribution
reserve
Retained
earnings
Total
€
€
€
€
Balance at 1 January 2024
1,667,333
50,892,669
2,077,629
54,637,631
Comprehensive income
Loss for the year
-
-
(1,041)
(1,041)
Balance at 31 December 2024
1,667,333
50,892,669
2,076,588
54,636,590
Balance at 1 January 2025
1,667,333
50,892,669
2,076,588
54,636,590
Comprehensive income
Profit for the year
-
-
289,012
289,012
Transactions with owners:
Cancellation of own shares
17, 18
(667)
(19,334)
-
(20,001)
Balance at 31 December 2025
1,666,666
50,873,335
2,365,600
54,905,601
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
18
Statements of cash flows
Group
As at 31 December
2025
2024
Notes
€
€
Interest, commission, rental and other income received
5,630,051
9,090,763
Interest and commission expense paid
(1,719,645)
(2,072,499)
Cash payments to employees and suppliers
(7,021,937)
(6,994,012)
Income taxes paid
(86,179)
(234,809)
Income taxes refund
122,873
200,615
Cash flows from operating activities before
changes in operating assets and liabilities
(3,074,837)
(9,942)
Changes in operating assets and liabilities:
Net decrease/(increase) in Reserve Deposit with Central Bank
4
130,136
141,310
Net increase in money market placement with Central Bank
4
10,588,122
(10,588,122)
Net increase in loans and advances to banks
and other financial institutions
5
5,000,000
(5,415)
Net decrease/(increase) in loans and advances to customers
6
13,018,574
253,708
Net decrease in dispute resolution funding assets
measured at fair value through profit or loss
7
1
-
Net (increase)/decrease in other receivables
14
(8,651,056)
(3,984,189)
Net (increase)/decrease in other assets
16
122,030
(288,403)
Net decrease in amounts owed to banks
22
(4,965,200)
(400)
Net decrease in amounts owed to customers
23
(1,325,540)
(6,254,747)
Net increase/(decrease) in other liabilities
24
(188,234)
1,722,805
Net cash generated from/(used in) operating activities
10,653,996
(19,013,395)
Cash flows from investing activities
Proceeds from maturity or redemption of financial assets
measured at fair value through other comprehensive
income
8
5,005,568
2,000,000
Purchase of investment properties
10
(626,000)
(547,552)
Proceeds from disposal of investment properties
10
276,438
86,998
Proceeds from disposal of property, plant and equipment
13,697
37,757
Purchase of property, plant and equipment
11
(247,118)
(82,788)
Purchase of intangible assets
12
(11,884)
(14,929)
Net cash generated from investing activities
4,410,701
1,479,486
Cash flows from financing activities
Principal element of lease payments
13
(143,399)
(171,245)
Cancellation of own shares
(20,001)
-
Net cash used in financing activities
(163,400)
(171,245)
Net movement in cash and cash equivalents
14,901,297
(17,705,154)
Effect of exchange rate changes on cash and cash equivalents
121,817
130,136
Cash and cash equivalents at beginning of year
36
12,876,162
30,451,180
Cash and cash equivalents at end of year
36
27,899,276
12,876,162
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
19
Statements of cash flows
- continued
Company
As at 31 December
2025
2024
Notes
€
€
Interest, commission, rental and other income received
1,798,311
1,543,258
Interest and commission expense paid
(1,514,608)
(1,866,224)
Cash payments to suppliers
(1,022,725)
(1,147,779)
Income taxes paid
-
(10,756)
Income taxes refunded
122,873
191,250
Cash flows used in operating activities
before changes in operating assets and liabilities
(616,149)
(1,290,251)
Changes in operating assets and liabilities:
Net decrease in loans and advances to banks
and other financial institutions
5
-
900,000
Net (increase)/decrease in other receivables
14
(2,546,201)
(3,567,211)
Net decrease/(increase) in accrued income and other assets
16
186,361
(120,227)
Net (decrease)/increase in other liabilities
24
(41,698)
40,260
Net cash used in operating activities
(3,017,687)
(4,037,429)
Cash flows from investing activities
Purchase of property, plant and equipment
11
(106,500)
-
Dividends received
846,485
-
Net cash generated from investing activities
739,985
-
Cash flows from financing activities
Principal element of lease payments
13
(143,399)
(171,245)
Cancellation of paid-up capital
(20,001)
-
Proceeds from borrowings
3,181,921
Net cash generated from / (used in) financing activities
3,018,521
(171,245)
Net movement in cash and cash equivalents
740,819
(4,208,674)
Cash and cash equivalents at beginning of year
36
1,316,768
5,525,442
Cash and cash equivalents at end of year
36
2,057,587
1,316,768
The notes on pages 20 to 96 are an integral part of these consolidated financial statements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
Notes to the consolidated financial statements
20
1.
Summary of material accounting policies
The material accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
1.1 Basis of preparation
The consolidated financial statements include the financial statements of Merkanti Holding p.l.c. (“the
Company”) and its subsidiary undertakings (together referred to as “the Group”). These financial
statements have been prepared in accordance with International Financial Reporting Standards
(‘IFRSs’) as adopted by the EU and with the requirements of the Companies Act (Cap. 386) and the
Banking Act (Cap. 371) enacted in Malta. They have been prepared under the historical cost
convention, as modified by the fair valuation of financial assets and financial liabilities measured at
fair value through profit or loss including financial assets measured at fair value through other
comprehensive income, and investment property.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the
use of certain accounting estimates. It also requires directors to exercise their judgement in the
process of applying the Group’s accounting policies (see Note 3 – Critical accounting estimates and
judgements).
Assessment of going concern assumption
For the year ended 31 December 2025, the Group reported an after-tax loss of €4.2 million. This was
primarily driven by the performance of the Group’s subsidiary bank, which recorded after-tax losses
of €3.6 million, alongside one-off costs of €0.7 million incurred by one of the Group’s property
companies.
Despite these results, the directors have reviewed the financial position and performance of the
Group and have a reasonable expectation that both the Company and the Group will continue to
operate as going concerns for the foreseeable future.
In assessing the appropriateness of the going concern basis in the preparation of these financial
statements, the directors have considered the anticipated future developments relating to the
business activities of the Group’s property companies, which are expected to deliver profitable
transactions in the foreseeable future. Should these profits materialise, the directors believe they will
contribute to a reduction in the Group’s borrowing costs, thereby supporting a path towards long term
sustainable profitability.
Furthermore, both the Group and the Company maintain a strong net asset position, with equity levels
significantly in excess of borrowings.
As part of their assessment, the directors have also considered that the majority of exposures of the
Group and the Company are to the ultimate parent entity. These exposures are considered by the
directors to represent a low risk of loss. In addition, while the directors believe that the legal action
described in note 25, ‘Contingent liabilities and commitments’, is without merit, they have evaluated
the potential impact on the Group’s parent entity should the claim materialise. The directors note that,
the case remains at an early procedural stage. Moreover, the directors determined that the Scully
Royalty Limited group has the financial capacity to meet the potential adverse impact of the claim.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.1 Basis of preparation
- continued
21
Accordingly, the directors consider the going concern assumption in the preparation of the Group’s
financial statements as appropriate as at the date of authorisation for issue of these financial
statements.
Standards, interpretations and amendments to published standards effective in 2025
The following standards and interpretations apply for the first time to financial reporting periods
commencing on or after 1 January 2025:
•
Amendments to IAS 21 – Lack of Exchangeability
The amendment described above had no material impact on the Group’s financial statements.
Standards, interpretations and amendments to published standards that are not yet effective
Certain new standards, amendments and interpretations to existing standards have been published
by the date of authorisation for issue of these financial statements but are mandatory for the Group’s
accounting periods beginning after 1 January 2025.
The Group has not early adopted these revisions to the requirements of IFRSs as adopted by the EU
and the Directors are of the opinion that there are no requirements which will have a material impact
on the Group’s financial statements in the period of initial application, other than what is described
below.
As at 31 December 2025, the following standards and interpretations had been issued but were not
mandatory for annual reporting periods ending on 31 December 2025:
•
Amendment to IFRS 9 and IFRS 7 - Classification and Measurement of Financial
Instruments;
•
Amendments to IFRS 9 and IFRS 7 – Contracts referencing nature-dependent electricity;
•
IFRS 18 Presentation and Disclosure in Financial Statements; and
•
IFRS 19 Subsidiaries without Public Accountability: Disclosures.
IFRS 18 ‘Presentation and Disclosure in Financial Statements’ (effective for annual periods beginning
on or after 1 January 2027)
IFRS 18 (issued on 9 April 2024) was endorsed for use in the European Union on 16 February 2026
and is set to replace IAS 1 Presentation of Financial Statements, introducing new requirements that
will help to achieve comparability of the financial performance of similar entities and provide more
relevant information and transparency to users. Even though IFRS 18 will not impact the recognition
or measurement of items in the financial statements, its impacts on presentation and disclosure are
expected to be pervasive, particularly those related to the statement of financial performance. IFRS
18 will also require the disclosure of management-defined performance measures within the financial
statements.
Management is currently assessing the implications of applying IFRS 18 on the Group’s financial
statements.
The new standard will be applicable from its mandatory effective date of 1 January 2027, with
retrospective application, meaning that comparative information will be restated to reflect the new
presentation and disclosure requirements introduced.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.1 Basis of preparation
- continued
22
IFRS 19 ‘Subsidiaries without Public Accountability: Disclosures ‘(effective for annual periods
beginning on or after 1 January 2027)
IFRS 19 (issued on 9 May 2024), which yet to be endorsed for use in the EU, will allow eligible entities
to voluntarily elect to apply reduced disclosure requirements while still applying the recognition,
measurement and presentation requirements in other IFRS accounting standards. To be eligible, at
the end of the reporting period, an entity must be a subsidiary as defined in IFRS 10, which does not
have public accountability and must have a parent (ultimate or intermediate) that prepares
consolidated financial statements, available for public use, which comply with IFRS accounting
standards.
As the Group’s equity is not publicly traded, it will likely be eligible to apply IFRS 19 however
Management is currently assessing the implications of voluntarily applying IFRS 19 on the Group’s
financial statements.
The new standard will be applicable from its mandatory effective date of 1 January 2027, subject to
endorsement for use in the EU, with retrospective application.
1.2 Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred,
the liabilities incurred and the equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of
the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
of identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised
directly in profit or loss.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.2 Consolidation
- continued
23
Inter-company transactions, balances and unrealised gains on transactions between group
companies are eliminated. Unrealised losses are also eliminated. The accounting policies of the
subsidiaries are consistent with the policies adopted by the Group.
In the Company’s separate financial statements, investments in subsidiaries are accounted for by the
cost method of accounting, i.e. at cost less impairment. Provisions are recorded where, in the opinion
of the directors, there is an impairment in value. Where there has been an impairment in the value of
an investment, it is recognised as an expense in the period in which the diminution is identified. The
results of subsidiaries are reflected in the Company’s separate financial statements only to the extent
of dividends receivable. On disposal of an investment, the difference between the net disposal
proceeds and the carrying amount is charged or credited to profit or loss.
(b) Transactions with non-controlling interests
The Group treats transactions with non-controlling interests, where the acquisition or disposal of
partial interests in a subsidiary has no impact on the Group’s ability to govern the subsidiary’s financial
and operating policies, as transactions with equity owners of the Group. For purchases from non-
controlling interests, the difference between any consideration paid and the relevant share acquired
of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is
remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair
value is the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are accounted for as if the Group
had directly disposed of the related assets or liabilities. This may mean that amounts previously
recognised in other comprehensive income are reclassified to profit or loss.
1.3 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (‘the functional currency’).
The consolidated financial statements are presented in euro, which is the Company’s functional
currency and the Group’s presentation currency.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.3 Foreign currency translation
- continued
24
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
1.4 Financial assets
1.4.1 Initial recognition and measurement
The Group recognises a financial asset in its consolidated statement of financial position when it
becomes a party to the contractual provisions of the instrument.
Regular way purchases and sales of financial assets are recognised on the trade date, which is the
date on which the Group commits to purchase or sell the asset. Accordingly, the Group uses trade
date accounting for regular way contracts when recording financial asset transactions.
At initial recognition, the Group measures a financial asset at its fair value plus or minus, in the case
of a financial asset 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, such as fees and commissions.
Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit
or loss. Immediately after initial recognition, an expected credit loss allowance (‘ECL’) is recognised
for financial assets measured at amortised cost and investments in debt instruments measured at
FVOCI, which results in an accounting loss being recognised in profit or loss when an asset is newly
originated.
When the fair value of financial assets differs from the transaction price on initial recognition, the
Group recognises the difference as follows:
•
When the fair value is evidenced by a quoted price in an active market for an identical asset (i.e.
a Level 1 input) or based on a valuation technique that uses only data from observable markets,
the difference is recognised as a gain or loss.
•
In all other cases, the difference is deferred and the timing of recognition of deferred day one
profit or loss is determined individually. It is either amortised over the life of the instrument,
deferred until the instrument's fair value can be determined using market observable inputs, or
realised through settlement.
1.4.2 Classification and subsequent measurement
The Group has applied IFRS 9 and classifies its financial assets in the following measurement
categories:
•
Fair value through profit or loss (FVPL);
•
Fair value through other comprehensive income (FVOCI); or
•
Amortised cost.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
- continued
25
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 and trade receivables purchased from
clients in factoring arrangements without recourse.
Classification and subsequent measurement of debt instruments depend on:
•
the Group's business model for managing the asset; and
•
the cash flow characteristics of the asset.
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'), and that are not designated at FVPL, 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 1.5. Interest income from these
financial assets is included in 'Interest income' using the effective interest rate method. As at 31
December 2025 and 31 December 2024, the Group’s financial assets measured at amortised cost
include ‘Balances with Central Bank of Malta and cash’, ‘Loans and advances to banks and other
financial institutions’, ‘Loans and advances to customers’ and ‘Other receivables’.
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 FVPL, are measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, 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 trading income'. Interest income
from these financial assets is included in 'Interest income' using the effective interest rate method.
As at 31 December 2025 and 31 December 2024, the Group’s financial investments are measured
at FVOCI (Note 8).
FVPL
: Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value
through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value
through profit or loss and is not part of a hedging relationship is recognised in profit or loss and
presented in the profit or loss statement within 'Net trading income' 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 trading income’. Debt instruments that
contain contractual terms that give rise on specified dates to cash flows that are not consistent with
a basic lending arrangement and thus fail the solely payments of principal and interest test are
‘mandatorily’ measured at FVPL. Interest income from these financial assets, including those that are
mandatorily measured at FVPL, is included in ‘Interest income’ using the effective interest rate
method. As at 31 December 2025 and 2024, the Group mandatorily measured financial assets on
the basis that they failed the SPPI test. (Note 7).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
– continued
26
Debt instruments
- continued
The amortised cost is the amount at which the financial asset or financial liability is measured at 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 loss allowance.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial liability to the gross carrying
amount of a financial asset (i.e., its amortised cost before any impairment allowance) or to the
amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums
or discounts and fees and points paid or received that are integral to the effective interest rate, such
as origination fees. For purchased or originated credit-impaired ('POCI') financial assets - assets that
are credit-impaired at initial recognition - the Group calculates the credit-adjusted effective interest
rate, which is calculated based on the amortised cost of the financial asset instead of its gross
carrying amount and incorporates the impact of expected credit losses in estimated future cash flows.
When the Group revises the estimates of future cash flows, the carrying amount of the respective
financial assets or financial liability is adjusted to reflect the new estimate discounted using the
original effective interest rate. Any changes are recognised in profit or loss.
The Group reclassifies debt instruments when and only when its business model for managing those
assets changes. The reclassification takes place from the start of the first reporting period following
the change. Such changes are expected to be very infrequent and none occurred during the period.
(a) Business model assessment
Key management personnel determine the Group’s business model by considering the way financial
instruments are managed in order to generate cash flows. That is, whether the Group's objective is
solely to collect the contractual cash flows from the assets or is to collect both the contractual cash
flows and cash flows arising from the sale of assets. If neither of these is applicable (e.g., financial
assets are held for trading purposes), then the financial assets are classified as part of 'other'
business model and measured at FVPL. Such assessment is performed at a ‘portfolio level' as it best
reflects the way the business is managed and information is provided to management.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
– continued
27
Debt instruments
- continued
(a) Business model assessment
- continued
The information that will be considered in such assessment includes:
•
the objectives for the portfolio including 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 assets;
•
the method for the evaluation of the performance of the portfolio and how such performance is
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; and
•
the frequency, volume and timing of sales in prior periods, the reasons for such sales and
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.
(b)
Cash flows that represent solely payment of principal and interest (SPPI)
In respect of assets where the intention of the business model is to hold the financial assets to collect
the contractual cash flows or to hold to collect and to sell, the Group assesses whether the financial
instruments’ cash flows represent SPPI. In making this assessment, the Group considers whether
the contractual cash flows are consistent with a basic lending agreement. ‘Principal’ is the fair value
of the financial asset at initial recognition. It is not the amount that is due under the contractual terms
of an instrument. ‘Interest’ is the compensation for time value of money and credit risk of a basic
lending-type return. A basic lending-type return could also include consideration for other basic
lending risks (for example, liquidity risk) and consideration for costs associated with holding the
financial asset for a particular period of time (for example, servicing or administrative costs) and/or a
profit margin. Where the contractual terms introduce exposure to risk or volatility that are inconsistent
with a basic lending arrangement, the related financial asset is classified and measured at fair value
through profit or loss.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.4 Financial assets
- continued
1.4.2 Classification and subsequent measurement
- continued
Debt instruments
- continued
(b) Cash flows that represent solely payment of principal and interest (SPPI)
- continued
28
Unlike the business model assessment, the SPPI assessment is performed for each individual
product or portfolio of products. The following considerations are made when assessing consistency
with SPPI:
•
contingent events that would change the amount and timing of cash flows such as contractual
term resetting interest to a higher amount in the event of a missed payment;
•
leverage features, being contractual cash flow characteristics that increase the variability of the
contractual cash flows with the result that they do not have economic characteristics of interest;
•
contractual terms that allow the issuer to prepay (or the holder to put a debt instrument back to
the issuer) before maturity and whether the prepayment amount substantially represents unpaid
amounts of principal and interest, which may include reasonable compensation for early
termination of the contract;
•
contractual terms that allow the issuer or holder to extend the contractual term and the terms of
the extension option result in contractual cash flows during the extension period that are solely
payments of principal and interest, which may include reasonable compensation for the
extension of the contract; and
•
features that modify consideration for the time value of money (for example, periodic reset of
interest rates).
Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and interest.
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.
The Group subsequently measures all equity investments at fair value through profit or loss, except
where the Group's management has elected, at initial recognition, to irrevocably designate an equity
investment at fair value through other comprehensive income. The Group's policy is to designate
equity investments as FVOCI when those investments are held for purposes other than to generate
investment returns. When this election is used, fair value gains and losses are recognised in OCI
and are not subsequently reclassified to profit or loss, including on disposal.
Impairment losses (and reversal of impairment losses) are not reported separately from other
changes in fair value. Dividends, when representing a return on such investments, are recognised in
profit or loss as other income when the Group's right to receive payments is established.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
Summary of material accounting policies
1.4 Financial assets
- continued
29
1.
- continued
1.4.3 Derecognition of financial assets
Financial assets are derecognised when the contractual rights to receive cash flows from the assets
have expired or when the Group has transferred its contractual right to receive the cash flows of the
financial assets, and either:
•
substantially all the risks and rewards of ownership have been transferred; or
•
the Group has neither retained nor transferred substantially all the risks and rewards, but
has not retained control.
1.5 Impairment of financial assets
The Group assesses on a forward-looking basis the expected credit losses (‘ECLs’) associated with
its debt instruments carried at amortised cost and FVOCI and with the exposure arising from loan
commitments and financial guarantee contracts. The Group recognises a loss allowances for such
losses at each reporting date. The measurement of ECLs reflects:
i.
an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes;
ii.
the time value of money; and
iii. 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.
The Group calculates ECL using three main components: a probability of default (‘PD’), a loss given
default (‘LGD’), and the exposure at default (‘EAD’).
Expected credit loss allowances are presented in the statements 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: generally, as a provision;
•
financial instrument with both a drawn and undrawn component, whereby 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, as a
deduction from the gross carrying amount of the drawn component; and
•
debt instruments measured at FVOCI: no loss allowance is recognised in the statements of
financial position against the carrying amount of the asset 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, i.e., presented within other comprehensive income.
1.6 Write-off policy
The Group writes off financial assets when it determines that these are uncollectible, it has exhausted
all practical recovery efforts and has concluded there is no reasonable expectation of recovery. This
is generally the case when the Group determines that the counterparty does not have assets or
sources of income that could generate sufficient cash flows to repay the amounts subject to the write-
offs.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
30
1.7 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the statements of financial
position when there is a legally enforceable right to set off the recognised amounts and there is an
intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
1.8 Investment property
Investment property, principally comprising freehold office and warehouse buildings and parcels of
land (both developed and undeveloped) held mainly for long-term rental yields and capital
appreciation and which is not occupied by the Group.
Investment property is measured initially at its historical cost, including related transaction costs and
borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of
the items. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying
investment property are capitalised as part of its cost. Borrowing costs are capitalised while
acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the
asset is substantially complete and is suspended if the development of the asset is suspended. After
initial recognition, investment property is carried at fair value, representing open market value
determined annually. Fair value is based on active market prices, adjusted, if necessary, for any
difference in the nature, location or condition of the specific asset. If the information is not available,
the Group uses alternative valuation methods such as recent prices on less active markets or
discounted cash flow projections.
These valuations are reviewed annually by professional valuers. Investment property that is being
redeveloped for continuing use as investment property or for which the market has become less
active continues to be measured at fair value. Fair value measurement on property under construction
is only applied if the fair value is considered to be reliably measurable. The fair value of investment
property reflects, among other things, rental income from current leases and assumptions about
rental income from future leases in the light of current market conditions.
The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect
of the property.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that
future economic benefits associated with the expenditure will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss
during the financial period in which they are incurred. When part of an investment property is
replaced, the carrying amount of the replaced part is derecognised.
The fair value of investment property does not reflect future capital expenditure that will improve or
enhance the property and does not reflect the related future benefits from this future expenditure
other than those a rational market participant would take into account when determining the value of
the property.
Changes in fair values are recognised in profit or loss. Investment properties are derecognised either
when they have been disposed of or when the investment property is permanently withdrawn from
use and no future economic benefit is expected from its disposal.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.8 Investment property
- continued
31
If an investment property becomes owner-occupied, it is reclassified as property, plant and
equipment. Its fair value at the date of the reclassification becomes its cost for subsequent accounting
purposes. When the Group decides to dispose of an investment property without development, the
Group continues to treat the property as an investment property. Similarly, if the Group begins to
redevelop an existing investment property for continued future use as investment property, it remains
an investment property during the redevelopment.
1.9 Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset,
as appropriate, only 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. The carrying amount of the
replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during
the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate the cost of the assets to their
residual values over their estimated useful lives, as follows:

| %
Computer equipment | 25
Office improvements and equipment | 10-25

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 1.12).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognised in profit or loss.
1.10 Intangible assets
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and
bring to use the specific software. These costs are amortised over their estimated useful lives of ten
years. Costs associated with maintaining computer software programmes are recognised as an
expense as incurred.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.10 Intangible assets
- continued
32
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Group are recognised as intangible assets when the following
criteria are met:
•
it is technically feasible to complete the software product so that it will be available for use;
•
management intends to complete the software product and use it;
•
there is an ability to use the software product;
•
it can be demonstrated how the software product will generate probable future economic
benefits;
•
adequate technical, financial and other resources to complete the development and to use the
software product are available; and
•
the expenditure attributable to the software product during its development can be reliably
measured.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost
less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset
begins when development is complete, and the asset is available for use. It is amortised over the
period of expected future benefit. Amortisation is recorded in cost of sales. During the period of
development, the asset is tested for impairment annually.
At the end of each reporting period, intangible assets are reviewed for indications of impairment or
changes in estimated future economic benefits. If such indications exist, the intangible assets are
analysed to assess whether their carrying amount is fully recoverable (Note 1.12).
The amortisation period and the amortisation method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are considered
to modify the amortisation period or method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on intangible assets with finite lives is recognised
in the statement of profit or loss in the Administrative expenses as Amortisation of intangible assets.
1.11 Leases
The Group is the lessee
The Group has lease agreements in place related to the leases of property used as office space. At
the inception of a contract, the Group assesses if the contract is or contains a lease and hence
conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. For leases of property, the Group has elected not to separate lease and non-lease
components and instead accounts for these as a single lease component.
Lease liabilities arising from such contracts are measured at the present value of the remaining lease
payments, discounted using the incremental borrowing rate, which is the rate that the Group would
have to pay to borrow the funds necessary to obtain an asset of a similar value in a similar economic
environment with similar terms and conditions. Lease payments to be made under reasonably certain
extension options are also included in the measurement of the liability.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on
the lease liability (using the effective interest method) and by reducing the carrying amount to reflect
the lease payments made.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.11 Leases
- continued
33
The Group measures the associated right-of-use assets at an amount equal to the lease liability at
the date at which the leased asset is made available for use. The right-of-use assets are subsequently
depreciated using the straight-line method from the commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease term.
The Group elects not to recognise right-of-use assets and lease liabilities for low value leases or
leases with a term shorter than 12 months. Lease payments relating to these leases are expensed
to profit or loss on a straight-line basis over the lease term.
1.12 Impairment of non-financial assets
Assets that are subject to depreciation and amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash-generating units). The impairment test
can also be performed on a single asset when the fair value less cost to sell or the value in use can
be determined reliably.
1.13 Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss,
except to the extent that it relates to items recognised in other comprehensive income or directly in
equity. In this case, the tax is also recognised in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the end of the reporting period.
Deferred tax is recognised, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other
than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to
income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where there is an intention to settle the balances on a net basis.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.13 Current and deferred tax
- continued
34
During 2024, the Company formed part of a Fiscal Unit for Maltese income tax purposes as a principal
taxpayer with its subsidiary bank (the “Bank”) as the transparent subsidiary effective from 1 January
2023, which allows the Fiscal Unit group members to be treated as a single taxpayer. Under the
Fiscal Unit the principal taxpayer assumes the tax responsibilities in its entirety towards the tax
authorities, while both entities within the Unit being jointly liable for such tax obligations.
According to the Tax Sharing Agreement entered into between the Company and the Bank, the Fiscal
Unit’s tax liability is calculated based on the respective entities’ notional tax obligation based on
standalone taxable profits and/or losses incurred during the year. The Company remits tax payments
on behalf of the Bank within the Fiscal Unit, where any such remittances are due. Under the terms of
the agreement current tax assets and liabilities are recognised as receivables from or payables to
the Bank.
In addition, under the terms of the Tax Sharing Agreement, the Company shall compensate the Bank
whenever and to the extent, the unutilised and unrecognised tax losses assumed by the Company
are “utilised” in the reduction of the taxable profit of the Fiscal Unit or utilised against the current tax
liability of the Fiscal Unit. Such utilisation is deemed to occur and a compensatory obligation created,
if in any year, any one of the members in the Fiscal Unit reports taxable profit/tax liability, against
which a utilisation is required under the same agreement.
At the level of Fiscal Unit members’ standalone financial statements, entitlement to compensation to
be received by the Bank with respect to unutilised tax losses utilised by the Company against its own
notional tax liability are treated as an investment in subsidiary by the Company (Note 9) and as a
capital contribution within the equity reserves by the Bank in the year in which the Fiscal Unit files its
consolidated tax return, which may be in year(s) subsequent to the financial year in which the
Company’s taxable profit arises. For any unutilised tax losses brought forward that are utilised by the
Company against the Bank’s notional tax expense and liability in a given year, the payment payable
by the Company, under the Tax Sharing Agreement, for the utilisation of such tax losses is credited
to the tax charge in the Bank’s Income Statement in the year in which the relevant taxable profits
arise. The payment payable by the Company will be equivalent to the receivable balance against the
Bank’s tax liability transferred to the Company, hence set off in the intercompany accounts.
1.14 Financial liabilities
1.14.1 Initial recognition and measurement
The Group recognises a financial liability on its consolidated statement of financial position when it
becomes a party to the contractual provisions of the instrument. Financial liabilities not at fair value
through profit or loss are recognised initially at fair value, being the fair value of consideration
received, net of transaction costs that are directly attributable to the acquisition or the issue of the
financial liability.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
1.14.1 Initial recognition and measurement
- continued
35
Financial liabilities are classified as subsequently measured at amortised cost, except for:
•
financial liabilities at fair value through profit or loss: this classification is applied to derivatives,
financial liabilities held for trading (e.g. short positions in the trading booking) and other financial
liabilities designated as such at initial recognition. Gains or losses on financial liabilities
designated at fair value through profit or loss are presented partially in other comprehensive
income (the amount of change in the fair value of the financial liability that is attributable to
changes in the credit risk of that liability, which is determined as the amount that is not
attributable to changes in market conditions that give rise to market risk) and partially profit or
loss (the remaining amount of change in the fair value of the liability). This is unless such a
presentation would create, or enlarge, an accounting mismatch, in which case the gains and
losses attributable to changes in the credit risk of the liability are also presented in profit or loss;
•
financial liabilities arising from the transfer of financial assets which did not qualify for
derecognition, whereby a financial liability is recognised for the consideration received for the
transfer. In subsequent periods, the Group recognises any expense incurred on the financial
liability; and
•
financial guarantee contracts and loan commitments.
1.14.2 Classification and subsequent measurement
Financial liabilities measured at amortised cost comprise principally borrowings, amounts owed to
banks, amounts owed to customers, and other liabilities.
1.14.3 Derecognition
The Group derecognises a financial liability from its consolidated statement of financial position when
the obligation specified in the contract or arrangement is discharged, is cancelled or expires.
The exchange between the Group and its original lenders of debt instruments with substantially
different terms, as well as substantial modifications of the terms of existing financial liabilities, are
accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. The terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received and discounted using
the original effective interest rate, is at least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
In addition, other qualitative factors, such as the currency that the instrument is denominated in,
changes in the type of interest rate, new conversion features attached to the instrument and change
in covenants are also taken into consideration. If an exchange of debt instruments or modification of
terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the
gain or loss on the extinguishment. If the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are
amortised over the remaining term of the modified liability.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
36
1.15 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation, and
the amount can be reliably estimated.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognised
even if the likelihood of an outflow with respect to any one item included in the same class of
obligations might be small.
A provision for restructuring is recognised when the Group has approved a detailed and formal
restructuring plan and the restructuring either commenced or has been announced publicly.
In addition, the Group recognises a liability and expense for termination benefits when it can no
longer withdraw the offer of those benefits.
Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure
required to settle the present obligation at the end of the reporting period. The discount rate used to
determine the present value is a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The increase in the provision due to the passage
of time is recognised as interest expense.
As at 31 December 2025 and 2024, details on the provisions of the Group are presented in Note 24.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
37
1.16 Contingent liabilities
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 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.
1.17 Interest income and expense
Interest income and expense for all interest-bearing financial instruments are recognised within
‘Interest income’ and ‘Interest expense’ in the profit or loss using the effective interest method. The
effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial liability to the gross carrying
amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the
amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums
or discounts and fees and points paid or received that are integral to the effective interest rate, such
as origination fees. For purchased or originated credit-impaired ('POCI') financial assets - assets that
are credit-impaired at initial recognition - the Group calculates the credit-adjusted effective interest
rate, which is calculated based on the amortised cost of the financial asset instead of its gross
carrying amount and incorporates the impact of expected credit losses in estimated future cash flows.
The Group’s income streams includes loan facility origination fees, rescheduling fees (charged when
a customer applies to extend the repayment date), loan facility amendment fees and other fees and
interest charged on revolving and longer term credit products. All these fees are considered to be an
integral part of the effective interest rate of the loans and advances taking cognisance of the nature
of these fees, the purposes for which these fees are assessed and the substance of the services
provided. Accordingly, these fees are amortised to profit or loss using the effective interest method
over the expected term of the instruments and presented within ‘Interest and similar income’.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of
financial assets, except for:
• POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the
amortised cost of the financial asset;
• financial assets that are not '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).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
38
1.18 Fee and commission income and expense
The Group earns fee and commission income from a diverse range of financial services it provides
to its customers. Fee and commission income is recognised at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for providing the services. The
performance obligations, as well as the timing of their satisfaction, are identified, and determined, at
the inception of the contract.
Fees and commission income and expenses that are integral to the effective interest rate on a
financial asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, corporate servicing fees and
property management fees are recognised in the accounting period in which the services are
rendered. For fixed-price contracts, revenue is recognised based on the actual service provided to
the end of the reporting period as a proportion of the total services to be provided because the
customer receives and uses the benefits simultaneously.
Where the contracts include multiple performance obligations, the transaction price will be allocated
to each performance obligation based on the stand-alone selling prices. Where these are not directly
observable, they are estimated based on expected cost-plus margin.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances
change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit
or loss in the period in which the circumstances that give rise to the revision become known by
management.
In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule.
If the services rendered exceed the payment, a contract asset is recognised. If the payments exceed
the services rendered, a contract liability is recognised.
1.19 Rental income
Rental income from investment property
Rental income from investment property is recognised in profit or loss on a straight-line basis over
the term of the lease.
1.20 Dividend income
Dividend income is recognised when the right to receive payment is established.
1.21 Other operating income
Other operating income is recognised on an accrual basis unless collectability is in doubt.
1.22 Cash and cash equivalents
Cash and cash equivalents are carried in the statements of financial position at face value less
expected credit loss allowances. In the statements of cash flows, cash and cash equivalents include
cash in hand, deposits held at call with banks and other financial institutions and other short-term
highly liquid investments with original maturities of three months or less.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
1.
Summary of material accounting policies
- continued
39
1.23 Segment reporting
The Group determines and presents operating segments based on the information that internally is
provided to the Board of Directors of the parent company, which is the Group’s chief operating
decision-maker in accordance with the requirements of IFRS 8, Operating Segments.
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Group’s other components, and for which discrete financial information is available.
1.24 Discontinued operations
A discontinued operation is a component of the Group that has been disposed of or is classified as held
for sale and that represents a separate major line of business or geographical area of operations, is
part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a
subsidiary acquired exclusively with a view to resale. The results of discontinued operations are
presented separately in the statement of profit or loss.
As at 31 December 2025, the Group determined that, although the Bank’s Board had approved the
voluntarily renounce the bank’s license, the criteria for classification as a discontinued operation in
accordance with IFRS 5 were not met.
2.
Financial risk management
2.1 Introduction
The Group’s activities expose it to a variety of financial risks and these activities involve the analysis,
evaluation, acceptance and management of some degree of risk or combination of risks. The Group’s
aim is to achieve an appropriate balance between risk and return and minimise potential adverse
effects on the entity’s financial performance.
The Board of Directors oversees credit, market, funding and liquidity, operational and strategic
business risks. The Group has developed an integrated risk management framework to identify,
assess, manage and report risks and risk adjusted returns.
The Group’s risk management policies are designed to identify and analyse risks, to set appropriate
risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-
to-date information systems. The Board is responsible for the overall effectiveness of the risk
management function, which function is however carried out by all the members of the Group’s
management.
2.2 Credit Risk
The Group takes on exposure to credit risk, which is the risk that a counterparty will cause a financial
loss for the Group by failing to discharge an obligation. Credit exposures arise principally through the
Group’s receivables, mainly with Scully Royalty Group, through the Group’s transactions with
correspondent banks, and through its investments in debt securities and other exposures.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.2 Credit Risk
- continued
40
The Group’s and Company’s credit risk exposures, reflecting the maximum exposure to credit risk
before collateral held or other credit enhancements, as well as an analysis by staging classification:

| Group
| 2025 | 2024
| Stage | Gross | ECL | Stage | Gross | ECL
| classification | exposure | Allowance | classification | exposure | allowance
|  | € | € |  | € | €
Credit risk exposures |  |  |  |  |  |
relating to on-balance |  |  |  |  |  |
sheet assets: |  |  |  |  |  |
Financial assets measured as |  |  |  |  |  |
FVPL: |  |  |  |  |  |
Dispute resolution funding |  |  |  |  |  |
assets |  | - | - |  | 1 | -
Loans and advances to |  |  |  |  |  |
customers |  | 792,600 | - |  | 792,600 | -
Subject to IFRS 9 impairment |  |  |  |  |  |
allowances |  |  |  |  |  |
Financial assets measured at |  |  |  |  |  |
FVOCI: |  |  |  |  |  |
Debt securities | Stage 1 | 192,060 | (498) | Stage 1 | 5,145,690 | (3,134)
Financial assets measured at |  |  |  |  |  |
amortised cost: |  |  |  |  |  |
Balances with Central Bank of |  |  |  |  |  |
Malta | Stage 1 | 24,035,080 | - | Stage 1 | 20,313,638 | -
Loans and advances to banks |  |  |  |  |  |
and other financial |  |  |  | Stage 1 |  |
institutions | Stage 1 | 3,861,138 | (10,550) |  | 8,149,109 | (28,332)
Loans and advances to |  |  |  |  |  |
customers |  | - | - | Stage 1 | 8,787,500 | (18,153)
Loans and advances to |  |  |  |  |  |
customers |  | - | - | Stage 2 | 4,552,543 | (303,316)
Other receivables | Stage 1 | 29,506,965 | (74,165) | Stage 1 | 20,810,037 | (28,293)
Accrued income and other |  |  |  |  |  |
assets |  | 4,169,083 | - | Stage 1 | 3,639,034 | -
Credit risk exposure |  | 62,556,926 | (85,213) |  | 72,190,152 | (381,228)

| Company
| 2025 | 2024
| Stage | Gross | ECL | Stage | Gross | ECL
| classification | exposure | allowance | classification | exposure | allowance
|  | € | € |  | € | €
Credit risk exposures |  |  |  |  |  |
relating to on-balance |  |  |  |  |  |
sheet assets: |  |  |  |  |  |
Subject to IFRS 9 impairment |  |  |  |  |  |
allowances |  |  |  |  |  |
Financial assets measured at |  |  |  |  |  |
amortised cost: |  |  |  |  |  |
Loans and advances to banks |  |  |  |  |  |
and other financial institutions | Stage 1 | 2,057,587 | - | Stage 1 | 2,216,768 | -
Other receivables | Stage 1 | 27,043,049 | (107,948) | Stage 1 | 23,351,983 | (46,190)
Accrued income and other |  |  |  |  |  |
assets | Stage 1 | 3,369,990 | - | Stage 1 | 3,321,085 | -
Credit risk exposure |  | 32,470,626 | (107,948) |  | 28,889,836 | (46,190)

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.2 Credit Risk
- continued
41
As part of its dispute resolution funding activities, the Group could be a creditor of, and subject to
direct or indirect credit risk from, a claimant, a defendant, both or other parties. Accordingly, dispute
resolution funding assets are considered by the Group to be subject to credit risk.
As at 31 December 2025 and 2024, the Group did not have any loan commitments or financial
guarantee contracts.
As at 31 December 2025 and 2024, there were no purchased or originated credit-impaired assets
which are subject to the IFRS 9 impairment requirements.
2.2.1 Credit concentration risk
Credit concentration risk by name
The majority of the Group’s and Company’s receivable exposures comprised of exposures to entities
within the Scully Royalty Group. As at 31 December 2025, 98.53% (2024: 85.02%) of the Group’s loans
and advances to customers and other receivables is attributable to Scully Royalty Ltd or entities within
the Scully Royalty Group, while 1.47% (2024: 14.98%) is attributable to third parties. Despite, the high
level of exposure towards the Scully Royalty Group, the Group has determined that as at 31 December
2025 and 2024, its exposures are fully performing and do not show any signs of increased credit risk.
As at 31 December 2025, 37.32% (2024: 42.99%) of the Company’s other receivables relate to
receivables from subsidiaries while 62.68% (2024: 57.01%) is attributable to Scully Royalty Ltd or
entities within the Scully Royalty Group.
Credit concentration risk by geographical region
The geographical concentration of the Group’s and Company’s financial assets as at the end of the
reporting period is analysed below. For the purposes of the table below, the Group has allocated
exposures to regions based on the country of domicile of the respective counterparties or customers.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.6 Credit concentration risk
- continued
42

| Group | Company
|  | Other EU | Rest of |  |  | Rest of |
| Malta | countries | world | Total | Malta | world | Total
| € | € | € | € | € | € | €
As at 31 December 2025 |  |  |  |  |  |  |
Financial assets mandatorily measured at FVPL | - | 792,600 | - | 792,600 | - | - | -
Financial assets measured at FVOCI | 192,060 | - | - | 192,060 | - | - | -
Balances with Central Bank of Malta | 24,036,609 | - | - | 24,036,609 | - | - | -
Loans and advances to banks and |  |  |  |  |  |  |
other financial institutions | 3,308,321 | 542,267 | - | 3,850,588 | 2,057,588 |  | 2,057,588
Other receivables | 2,600 | 181,454 | 29,001,901 | 29,185,955 | 10,058,588 | 16,876,513 | 26,935,101
Accrued income and other assets | 2,099 | - | 4,166,984 | 4,169,083 | 95,897 | 4,166,984 | 4,262,881
| 27,541,689 | 1,516,321 | 33,168,885 | 62,226,895 | 12,212,073 | 21,043,497 | 33,255,570
As at 31 December 2024 |  |  |  |  |  |  |
Financial assets mandatorily measured at FVPL | - | 792,601 | - | 792,601 | - | - | -
Financial assets measured at FVOCI | 5,145,690 | - | - | 5,145,690 | - | - | -
Balances with Central Bank of Malta | 20,315,175 | - | - | 20,315,175 | - | - | -
Loans and advances to banks and |  |  |  |  |  |  |
other financial institutions | 6,925,249 | 1,195,528 | - | 8,120,777 | 2,216,768 | - | 2,216,768
Loans and advances to customers | 4,249,225 | - | 8,769,349 | 13,018,574 | - | - | -
Other receivables | 2,600 | 812,202 | 19,966,942 | 20,781,744 | 10,020,189 | 13,285,604 | 23,305,793
Accrued income and other assets | 131,430 | - | 3,507,604 | 3,639,034 | 516,811 | 2,804,274 | 3,321,085
| 36,769,369 | 2,800,331 | 32,243,895 | 71,813,595 | 12,753,768 | 16,089,878 | 28,843,646

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.2 Credit risk
- continued
2.2.1 Credit concentration risk
- continued
Credit concentration risk by geographical region - continued
43
As at 31 December 2025 and 2024, the rest of the world exposures mainly consist of exposures in
the Cayman Islands and Canada.
Credit concentration risk by industry sector
Loans and advances to customers, gross of allowances, are analysed by industry concentration as
follows:

| Group
| 2025 | 2024
| € | €
Real estate activities | - | 4,552,543
Activities related to mining | - | 8,787,500
| - | 13,340,043

Other receivables, gross of allowances, are analysed by sector concentration as follows:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Financial service | 29,073,769 | 19,992,939 | 27,040,449 | 23,349,383
Management consultancy | 224,848 | 592,250 | - | -
Industrial, commercial and service |  |  |  |
companies | 208,348 | 224,848 | 2,600 | 2,600
| 29,506,965 | 20,810,037 | 27,043,049 | 23,351,983

The financial services sector in the table above is predominantly attributable to the Scully Royalty
Limited group, which in turn is exposed to the iron ore mining sector as well as other investment
activities within the industrial, manufacturing, and resources sectors.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.2 Credit risk
- continued
44
2.2.2 Information on credit quality of other financial assets
As part of its treasury management activities, the subsidiary bank invests in listed sovereign bonds
issued by local governments, in listed debt securities issued by local credit institutions and in other
debt securities. These transactions are monitored through the practical use of exposure limits.
At the end of the reporting period, none of the Group’s financial assets which are subject to the IFRS
9 impairment requirements were past due or impaired.
The following table shows the gross carrying amount of the Group’s financial assets held by the
Group analysed by credit rating based on Moody’s equivalent ratings:

|  |  | Financial |
|  |  | assets |
|  | Loans and | mandatorily | Financial assets
| Balances | advances | measured | measured
| With | to banks | at fair value | at fair value
| Central | and other | through | through other
| Bank | financial | profit or | comprehensive
| of Malta | institutions | loss | income
| € | € | € | €
31 December 2025 |  |  |  |
A1 to A3 | 24,035,080 | 543,237 | - | -
Baa1 - Baa3 | - | 2,944,428 | - | -
Unrated | - | 373,473 | 792,600 | 192,060
Total | 24,035,080 | 3,861,138 | 792,600 | 192,060

|  |  | Financial |
|  |  | assets |
|  | Loans and | mandatorily | Financial assets
| Balances | advances | measured | measured
| With | to banks | at fair value | at fair value
| Central | and other | through | through other
| Bank | financial | profit or | comprehensive
| of Malta | institutions | loss | income
| € | € | € | €
31 December 2024 |  |  |  |
A1 to A3 | 20,313,638 | 1,195,529 | - | 4,928,880
Baa1 - Baa3 | - | 1,686,618 | - | -
Unrated | - | 5,266,962 | 792,601 | 216,810
Total | 20,313,638 | 8,149,109 | 792,601 | 5,145,690

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
45
2.3 Market risk
The Group takes on exposure to market risk, which is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in market prices. Market risks arise from
open positions in interest rate and currency products, all of which are exposed to general and specific
market movements and changes in the level of volatility of market rates or prices such as interest
rates, credit spreads, and foreign exchange rates.
(a) Foreign exchange risk
The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange
rates on its financial position and cash flows. Foreign exchange risk is the risk to earnings and value
caused by a change in foreign exchange rates. Foreign exchange risk arises when financial assets
or liabilities are denominated in currencies which are different from the respective group entity’s
functional currency.
The Group manages its currency risk by ensuring that foreign currency liabilities are utilised to fund
assets denominated in the same foreign currency thereby matching asset and liability positions as
much as is practicable. To the extent that such matching is not possible, the Group may hedge its
open foreign exchange exposures by entering into foreign exchange forward contracts with terms
matching those of the hedged items.
The following tables summarise the Group’s exposure to foreign currency risk at 31 December.
Included in the tables are the Group’s financial instruments at carrying amounts, categorised by
currency.

| Group
| EUR | USD | CAD | GBP | Total
| € | € | € | € | €
As at 31 December 2025 |  |  |  |  |
Financial assets |  |  |  |  |
Financial assets measured at FVPL | 792,600 | - | - | - | 792,600
Financial assets measured at FVOCI | 192,060 | - | - | - | 192,060
Balances with Central Bank of Malta | 13,635,443 | 10,399,637 | - | - | 24,035,080
Loans and advances to banks and |  |  |  |  |
other financial institutions | 2,389,196 | 1,165,280 | 296,112 | - | 3,850,588
Other receivables | 27,751,156 | 1,681,644 | - | - | 29,432,800
Accrued income and other assets | 3,992,650 | 176,433 | - | - | 4,169,083
Total financial assets | 48,753,105 | 13,422,994 | 296,112 | - | 62,472,211
Financial liabilities |  |  |  |  |
Borrowings | 24,527,680 | - | - | - | 24,527,680
Lease liabilities | 582,390 | - | - | - | 582,390
Amounts owed to customers | 75,774 | 11,492,290 | 282,410 | - | 11,850,474
Other liabilities | 1,390,443 | - | - | - | 1,390,443
Total financial liabilities | 26,576,287 | 11,492,290 | 282,410 | - | 38,350,987
Net on-balance sheet position | 22,176,818 | 1,930,704 | 13,702 | - |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.3 Market risk
- continued
(a) Foreign exchange risk
- continued
46

| Group
| EUR | USD | CAD | GBP | Total
| € | € | € | € | €
As at 31 December 2024 |  |  |  |  |
Financial assets |  |  |  |  |
Financial assets measured at FVPL | 792,601 | - | - | - | 792,601
Financial assets measured at FVOCI | 5,145,690 | - | - | - | 5,145,690
Balances with Central Bank of Malta | 7,034,779 | 10,588,122 | 2,690,737 | - | 20,313,638
Loans and advances to banks and |  |  |  |  |
other financial institutions | 7,227,119 | 268,842 | 623,109 | 1,707 | 8,120,777
Loans and advances to customers | 13,018,574 | - | - | - | 13,018,574
Other receivables | 18,479,225 | 2,302,519 | - | - | 20,781,744
Accrued income and other assets | 3,501,284 | 137,591 | 159 | - | 3,639,034
Total financial assets | 55,199,272 | 13,297,074 | 3,314,005 | 1,707 | 71,812,058
Financial liabilities |  |  |  |  |
Borrowings | 24,481,152 | - | - | - | 24,481,152
Amounts owed to banks | 4,965,200 | - | - | - | 4,965,200
Amounts owed to customers | 86,629 | 10,872,887 | 2,216,498 | - | 13,176,014
Other liabilities | 1,915,088 | - | - | - | 1,915,088
Total financial liabilities | 31,448,069 | 10,872,887 | 2,216,498 | - | 44,537,454
Net on-balance sheet position | 23,751,203 | 2,424,187 | 1,097,507 | 1,707 |

The net exposure to foreign exchange rates as at 31 December 2025 includes exposures
denominated in USD which are not hedged. Under the scenario that the euro appreciates against the
USD from 1.1691 to 1.3692 (2024: from 1.0374 to 1.2374) the impact recognised in profit or loss
would amount to a loss of €282,029 (2024: loss of €391,972). If on the other hand, the euro
depreciates against the USD to 1.0000 the impact recognised in profit or loss would amount to a
profit of €326,583 (2024: profit of €89,493).
The net unhedged on-balance sheet exposure to other currencies such as the CAD, as at 31
December 2025 and 2024, is not considered significant taking into account the amounts reported in
the statement of financial position. Accordingly, a sensitivity analysis for foreign exchange risk
disclosing how profit or loss and equity would have been affected by changes in foreign exchange
rates that were reasonably possible at the end of the reporting period is not deemed necessary since
the directors are of the opinion that the net impact would be insignificant.
Typically, the Company does not take on any exposure to foreign currency transactions. As at 31
December 2025, the Company’s exposure to foreign currencies mainly comprises receivables from
ultimate parent company denominated in USD amounting to €255,570 (2024: €288,780) (Note 14).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.3 Market risk
- continued
47
(b) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates either through the re-pricing of floating rate instruments
or through the maturity and replacement of fixed rate instruments. Fair value interest rate risk is the
risk that the value of a fixed rate financial instrument will fluctuate because of changes in market
interest rates. The Group’s exposures analysed by their fixed or floating nature as at 31 December
at carrying amounts are shown below:

|  | Group |
| Floating | Fixed |
| rates | rates | Total
| € | € | €
At 31 December 2025 |  |  |
Interest-bearing assets |  |  |
Financial assets measured at FVPL: |  |  |
Loans and advances to customers | - | 792,600 | 792,600
Financial assets measured at FVOCI: |  |  |
Debt securities | - | 192,060 | 192,060
Financial assets measured at amortised cost: |  |  |
Balances with Central Bank of Malta | - | 24,035,080 | 24,035,080
Loans and advances to banks and other financial |  |  |
institutions | 543,237 | - | 543,237
Other receivables | - | 11,906,932 | 11,906,932
| 543,237 | 36,926,672 | 37,469,909
Interest-bearing liabilities |  |  |
Borrowings | - | 24,527,680 | 24,527,680
Lease liabilities | - | 582,390 | 582,390
| - | 25,110,070 | 25,110,070
Net exposure | 543,237 | 11,816,602 | 12,359,839

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
48

| Group
| Floating | Fixed |
| rates | rates | Total
| € | € | €
At 31 December 2024 |  |  |
Interest-bearing assets |  |  |
Financial assets measured at FVPL: |  |  |
Loans and advances to customers | - | 792,600 | 792,600
Financial assets measured at FVOCI: |  |  |
Debt securities | - | 5,145,690 | 5,145,690
Financial assets measured at amortised cost: |  |  |
Balances with Central Bank of Malta | - | 20,313,638 | 20,313,638
Loans and advances to banks and other financial |  |  |
institutions | 6,175,155 | - | 6,175,155
Loans and advances to customers | 13,018,574 | - | 13,018,574
Other receivables | - | 12,540,468 | 12,540,468
| 19,193,729 | 38,792,396 | 57,986,125
Interest-bearing liabilities |  |  |
Borrowings | - | 24,481,152 | 24,481,152
| - | 24,481,152 | 24,481,152
Net exposure | 19,193,729 | 14,311,244 | 33,504,973

As at 31 December 2025 and 2024, the remaining balance in respect of loans and advances to banks
and other financial institutions, other receivables, amounts owed to customers and other liabilities
are non-interest bearing and accordingly are not included in the above tables. As at 31 December
2024, the remaining balance in respect of financial asset measured at FVPL are non-interest bearing
and accordingly are not included in the above tables. Amounts owed to banks as at 31 December
2024 are non-interest bearing and are not included in the above.
Financial instruments issued at fixed rates potentially expose the Group to fair value interest rate risk.
Balances with Central Bank of Malta, loans and advances to banks and customers, other receivables,
and borrowings are measured at amortised cost and are therefore not subject to fair value interest
rate risk, even though a substantial part of these instruments are subject to fixed interest rates.
The Group’s instruments which are subject to fixed interest rates and that are fair valued comprise
the Group’s investments in debt securities amounting to €192,060 (2024: €5,145,690). This exposes
the Group to the risk of losses arising from fair value interest rate risk.
Using sensitivity analyses, by performing a full revaluation of the portfolio using an instantaneous
shock which measures the potential loss in market value arising from a 200 basis-point upward
parallel shift in yields, the estimated impact as at 31 December 2025 on the fair valuation of its debt
securities measured at FVOCI amounts to a loss of €6,284 (2024: €111,869).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
49
Financial assets and liabilities issued at variable rates expose the Group to cash flow interest rate
risk. The Group is exposed to cash flow interest rate risk principally in respect of financial assets that
were subject to floating interest rates as well as those fixed rate financial instruments that mature in
the short-term.
In this respect, at the end of the reporting period, if interest rates had increased/decreased by 2%
(assuming a parallel shift of 200 basis points in yields) with all other variables held constant, in
particular foreign currency rates, the pre-tax result for the following one year, excluding changes in
fair values, would decrease/increase by €730,281 (2024: €1,038,631).
The Company’s gross exposures analysed by their fixed or floating nature as at 31 December at
carrying amounts are shown below:

| Company
| Floating | Fixed |
| Rates | rates | Total
| € | € | €
At 31 December 2025 |  |  |
Interest-bearing assets |  |  |
Amounts due from the ultimate parent company | - | 5,820,858 | 5,820,858
Amounts due from subsidiaries | - | 9,463,922 | 9,463,922
| - | 15,284,780 | 15,284,780
Interest-bearing liabilities |  |  |
Borrowings | 3,181,921 | 24,527,680 | 27,709,601
Lease liabilities | - | 582,390 | 582,390
| 3,181,921 | 25,110,070 | 28,291,991
Net exposure | (3,181,921) | (9,825,290) | (13,007,211)

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
– continued
2.3 Market risk
- continued
(b) Interest rate risk
- continued
50

|  | Company |
| Floating | Fixed |
| Rates | rates | Total
| € | € | €
At 31 December 2024 |  |  |
Interest-bearing assets |  |  |
Loans and advances to banks and other financial |  |  |
institutions | - | 900,000 | 900,000
Amounts due from the ultimate parent company | - | 5,866,730 | 5,866,730
Amounts due from subsidiaries | - | 9,479,807 | 9,479,807
| - | 16,246,537 | 16,246,537
Interest-bearing liabilities |  |  |
Borrowings | - | 24,481,152 | 24,481,152
| - | 24,481,152 | 24,481,152
Net exposure | - | (8,234,615) | (8,234,615)

As at 31 December 2025, ‘Loans and advances to banks and other financial institutions’ of the
Company consist of non-interest bearing deposits held with third party banks and with its subsidiary.
As at 31 December 2024, ‘Loans and advances to banks and other financial institutions’ of the
Company consist of term deposits held with its subsidiary which are subject to a 0.10% fixed interest
rate.
As at 31 December 2025, ‘Amounts due from subsidiaries’ consist of subordinated loans with a gross
amount of €9,500,000 (2024: €9,500,000) bearing interest at fixed rates.
As at 31 December 2025, ‘Amounts due from the ultimate parent company’ include a revolving credit
facility granted by the Company amounting to €5,892,727 (2024: €5,892,727) which is subject to a
fixed interest rate.
As at 31 December 2025, the Company’s ‘Borrowings’ include €24,527,680 (2024: €24,481,152)
Secured Bonds which are subject to 5.70% (2024: 5.70%) fixed interest rate. The remaining balance
of the Company’s ‘Borrowings’ include €3,181,921 in the form of a loan from a subsidiary which is
subject to interest. These instruments are carried at amortised cost.
In the context of the above, the Company’s exposure to interest rate risk as at 31 December 2025
and 2024 is not considered significant. Accordingly, a sensitivity analysis disclosing how profit or loss
and equity would have been affected by changes in interest rates that were reasonably possible at
the end of the reporting period is not deemed necessary.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
– continued
2.3 Market risk
– continued
(b) Interest rate risk
- continued
51
The following tables includes the Group’s principal financial instruments at carrying amounts,
categorised by re-pricing dates, taking cognisance of the instruments’ interest rate terms. The re-
pricing period in respect of the Group’s interest-bearing assets and liabilities subject to fixed interest
rates is equivalent to the remaining period to maturity.

| Group
|  | Within |  |  |
|  | three | Within one |  |
| Within | months but | year but |  |
| one | over one | over three | More than |
| month | month | Months | one year | Total
| € | € | € | € | €
As at 31 December 2025 |  |  |  |  |
Financial assets |  |  |  |  |
Financial assets measured at |  |  |  |  |
FVPL | - | - | 792,600 | - | 792,600
Financial assets measured at |  |  |  |  |
FVOCI | - | - | 192,060 | - | 192,060
Balances with Central Bank of Malta | 23,991,390 | 43,690 | - | - | 24,035,080
Loans and advances to banks |  |  |  |  |
and other financial institutions | 543,237 | - | - | - | 543,237
Other receivables | 10,480,858 | - | - | 1,426,075 | 11,906,932
| 35,015,485 | 43,690 | 984,660 | 1,426,075 | 37,469,909
Financial liabilities |  |  |  |  |
Borrowings | - | - | - | 24,527,680 | 24,527,680
Lease liabilities | - | - | 117,897 | 464,493 | 582,390
| - | - | 117,897 | 24,992,173 | 25,110,070
Interest rate gap | 35,015,485 | 43,690 | 866,763 | (23,566,098) |
Cumulative gap | 35,015,485 | 35,059,175 | 35,925,938 | 12,359,839 |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
– continued
2.3 Market risk
– continued
(b) Interest rate risk
- continued
52

|  |  | Group |  |
|  | Within |  |  |
|  | three | Within one |  |
| Within | months but | year but |  |
| one | over one | over three | More than |
| month | month | Months | one year | Total
| € | € | € | € | €
As at 31 December 2024 |  |  |  |  |
Financial assets |  |  |  |  |
Financial assets measured at |  |  |  |  |
FVPL | - | - | 792,600 | - | 792,600
Financial assets measured at |  |  |  |  |
FVOCI | - | - | 3,965,100 | 1,180,590 | 5,145,690
Balances with Central Bank of Malta | 9,595,380 | 130,136 | 10,588,122 | - | 20,313,638
Loans and advances to banks |  |  |  |  |
and other financial institutions | 1,195,529 | 4,979,626 | - | - | 6,175,155
Loans and advances to customers | - | 3,746,403 | 9,272,171 | - | 13,018,574
Other receivables | 10,526,730 | - | - | 2,013,738 | 12,540,468
| 21,317,639 | 8,856,165 | 24,617,993 | 3,194,328 | 57,986,125
Financial liabilities |  |  |  |  |
Borrowings | - | - | - | 24,481,152 | 24,481,152
| - | - | - | 24,481,152 | 24,481,152
Interest rate gap | 21,317,639 | 8,856,165 | 24,617,993 | (21,286,824) |
Cumulative gap | 21,317,639 | 30,173,804 | 54,791,797 | 33,504,973 |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
– continued
53
2.4 Other risk attributable to financial assets that are mandatorily measured at FVPL
As at 31 December 2025 and 2024, the Group’s financial instruments that are mandatorily measured
at fair value through profit or loss comprise of a loan that has a profit participation feature enabling
the Group to participate in any profit earned as a result of the activity being financed. As at 31
December 2024, the Group’s financial instruments that are mandatorily measured at fair value
through profit or loss also comprised of direct dispute resolution funding assets, with a fair value of
€1.
The loan with a profit participation feature is exposed to both credit risk as well as interest rate risk,
by virtue of a fixed interest rate element within the contractual agreement. These risks are assessed
as part of the Group’s credit risk and interest rate risk management frameworks and considered within
the respective disclosures in sections 2.2 and 2.3 respectively. In addition, the Group is also exposed
to model risk, which is the potential for adverse consequences from business decisions informed by
models.
In this respect, the loan was utilised to acquire claims to an insolvent company currently in
administration. The terms of the loan includes a profit participation feature that enables the Group to
participate in any profit earned as a result of loans advanced to fund the claims. Presently, the claims
have the status of “suspended claims”, and are expected to be legally assessed at a later stage in
the bankruptcy proceedings when certain information related to the claims becomes available to the
Administrator.
Considering the status of the claims, the discounted cash flow valuation takes into consideration a
scenario where the claims are accepted by the Administrator and a scenario where the claims are
rejected by the Administrator, applying a 50% probability weight to each scenario based on
reasonably possible information available from the Administrator. In the scenario where the claims
are rejected by the Administrator, the expected cash flows/recovery from the loan is nil, whilst in the
scenario where the claims are accepted by the Administrator expected cash flow approximate €1.5
million. The key model inputs include:

Amount per claim | the amount per claim is based on the total assets in the estate
| divided by the total number of claims to the estate.
Discount rate | the discount rate is the risk-free rate adjusted for the credit risk
| spread of the exposure at origination.
Time to collect | based on the Group’s best estimate of the recovery of claims.

The higher the amount per claim, the higher the resultant fair valuation. Conversely, the lower the
discount rate the higher the fair value. The longer the time to collect, the lower the resulting fair value.
Notwithstanding the above considerations, the key assumption in the Group’s discounted cash flow
calculation of the fair value is the acceptability of the claims.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
54
2.5 Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The
consequence may be the failure to meet obligations to repay depositors and fulfil commitments.
The Group manages this risk by maintaining a strong base of shareholders’ capital considering the
stage of its operations. The Group manages its asset base with liquidity in mind and monitors future
cash flows and changes in available liquidity on a regular basis.
The following tables disclose financial assets and liabilities at the end of the reporting period by
remaining period to maturity.

| Group
|  | Within |  |  |  |
|  | Three | Within one |  |  |
| Within | months but | year but |  |  |
| one | over one | over three | More than | No |
| month | month | months | one year | maturity | Total
| € | € | € | € | € | €
As at 31 December 2025 |  |  |  |  |  |
Financial assets |  |  |  |  |  |
Financial assets measured |  |  |  |  |  |
at FVPL | - | - | 792,600 | - | - | 792,600
Financial assets measured |  |  |  |  |  |
at FVOCI | - | - | 192,060 | - | - | 192,060
Balances with Central |  |  |  |  |  |
Bank of Malta | 23,991,390 | - | - | - | 43,690 | 24,035,080
Loans and advances to |  |  |  |  |  |
banks and other financial |  |  |  |  |  |
Institutions | 3,850,588 | - | - | - | - | 3,850,588
Other receivables | 28,006,726 | - | - | 1,426,074 | - | 29,432,800
Accrued interest income |  |  |  |  |  |
and other assets | 3,290,424 | 878,659 | - | - | - | 4,169,083
| 59,139,128 | 878,659 | 984,660 | 1,426,074 | 43,690 | 62,472,211
Financial liabilities |  |  |  |  |  |
Borrowings | - | - | - | 24,527,680 | - | 24,527,680
Amounts owed to |  |  |  |  |  |
customers | - | - | 117,897 | 464,493 | - | 582,390
Other liabilities | 609,184 | 110,926 | 1,136,491 | 80,334 | - | 1,936,935
| 609,184 | 110,926 | 1,254,388 | 25,072,507 | - | 27,047,005
Maturity gap | 58,529,944 | 767,733 | (269,728) | (23,646,433) |  |
Cumulative gap | 58,529,944 | 59,297,677 | 59,027,949 | 35,381,516 |  |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
55

| Group
|  | Within |  |  |  |
|  | Three | Within one |  |  |
| Within | months but | year but |  |  |
| one | over one | over three | More than | No |
| month | month | months | one year | maturity | Total
| € | € | € | € | € | €
As at 31 December 2024 |  |  |  |  |  |
Financial assets |  |  |  |  |  |
Financial assets measured |  |  |  |  |  |
at FVPL | - | - | 792,600 | 1 | - | 792,601
Financial assets measured |  |  |  |  |  |
at FVOCI | - | - | 3,965,100 | 1,180,590 | - | 5,145,690
Balances with Central |  |  |  |  |  |
Bank of Malta | 9,595,380 | - | 10,588,122 | - | 130,136 | 20,313,638
Loans and advances to |  |  |  |  |  |
banks and other financial |  |  |  |  |  |
Institutions | 3,141,151 | - | - | 4,979,626 | - | 8,120,777
Loans and advances to |  |  |  |  |  |
customers | - | 3,746,403 | 9,272,171 | - | - | 13,018,574
Other receivables | 18,768,006 | - | - | 2,013,738 | - | 20,781,744
Accrued interest income |  |  |  |  |  |
and other assets | 2,805,624 | 827,958 | 5,452 | - | - | 3,639,034
| 34,310,161 | 4,574,361 | 24,623,445 | 8,173,955 | 130,136 | 71,812,058
Financial liabilities |  |  |  |  |  |
Borrowings | - | - | - | 24,481,152 | - | 24,481,152
Amounts owed to |  |  |  |  |  |
customers | 13,176,014 | - | - | - | - | 13,176,014
Amounts owed to banks | - | 4,965,200 | - | - | - | 4,965,200
Other liabilities | 811,074 | 486,777 | 586,720 | 310,517 | - | 2,195,088
| 13,987,088 | 5,451,977 | 586,720 | 24,791,669 | - | 44,817,454
Maturity gap | 20,323,073 | (877,616) | 24,036,725 | (16,617,714) |  |
Cumulative gap | 20,323,073 | 19,445,457 | 43,482,182 | 26,864,468 |  |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
56

| Company
|  | Within three | Within one |  |
| Within | months but | year but |  |
| one | over one | over three | More than |
| month | month | months | one year | Total
As at 31 December 2025 | € | € | € | € | €
Financial assets |  |  |  |  |
Loans and advances to banks |  |  |  |  |
and other financial institutions | 2,057,587 | - | - | - | 2,057,587
Other receivables | 17,471,179 | - | - | 9,463,922 | 26,935,101
Accrued interest income and other |  |  |  |  |
assets | 3,369,990 | - | - | - | 3,369,990
| 22,898,756 | - | - | 9,463,922 | 32,362,678
Financial liabilities |  |  |  |  |
Borrowings | - | - | 3,181,921 | 24,527,680 | 27,709,601
Lease liabilities | - | - | 117,897 | 464,493 | 582,390
Other liabilities | 87,971 | 85,926 | 487,897 | - | 661,794
| 87,971 | 85,926 | 3,787,715 | 24,992,173 | 28,953,785
Maturity gap | 22,810,785 | (85,926) | (3,787,715) | (15,528,251) |
Cumulative gap | 22,810,785 | 22,724,859 | 18,937,144 | 3,408,893 |

| Company
|  | Within three | Within one |  |
| Within | months but | year but |  |
| one | over one | over three | More than |
| month | month | months | one year | Total
As at 31 December 2024 | € | € | € | € | €
Financial assets |  |  |  |  |
Loans and advances to banks |  |  |  |  |
and other financial institutions | 1,316,768 | 900,000 | - | - | 2,216,768
Other receivables | 13,825,986 | - | - | 9,479,807 | 23,305,793
Accrued interest income and other |  |  |  |  |
assets | 3,321,085 | - | - | - | 3,321,085
| 18,463,839 | 900,000 | - | 9,479,807 | 28,843,646
Financial liabilities |  |  |  |  |
Borrowings | - | - | - | 24,481,152 | 24,481,152
Other liabilities | 44,810 | 129,101 | 485,342 | - | 659,253
| 44,810 | 129,101 | 485,342 | 24,481,152 | 25,140,405
Maturity gap | 18,419,029 | 770,899 | (485,342) | (15,001,345) |
Cumulative gap | 18,419,029 | 19,189,928 | 18,704,586 | 3,703,241 |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.5 Liquidity risk
- continued
57
The following table analyses the Group’s principal undiscounted cash flows payable under non-
derivative financial liabilities into relevant maturity groupings based on the remaining period at the
end of the reporting period to the contractual maturity date.

| Group
|  | Within | Within |  |  |
|  | three | one |  |  |
| Within | months but | year but |  |  |
| One | over one | over three | More than |  | Carrying
| Month | month | Months | one year | Total | amount
| € | € | € | € | € | €
As at 31 December 2025 |  |  |  |  |  |
Borrowings | - | - | 1,425,000 | 36,400,000 | 37,825,000 | 24,527,680
Amounts owed to |  |  |  |  |  |
customers | 11,850,474 | - | - | - | 11,850,474 | 11,850,474
Other liabilities | 609,184 | 110,926 | 1,136,491 | 80,334 | 1,936,935 | 1,936,935
| 12,459,658 | 110,926 | 2,561,491 | 36,480,334 | 51,612,409 | 38,315,089
As at 31 December 2024 |  |  |  |  |  |
Borrowings | - | - | 1,425,000 | 36,400,000 | 37,825,000 | 25,418,512
Amounts owed to |  |  |  |  |  |
customers | 13,176,014 | - | - | - | 13,176,014 | 13,176,014
Amounts owed to banks | 4,965,200 | - | - | - | 4,965,200 | 4,965,200
Other liabilities | 811,074 | 486,777 | 586,720 | 310,517 | 2,195,088 | 2,195,088
| 18,952,288 | 486,777 | 2,011,720 | 36,710,517 | 58,161,302 | 45,754,814

As at 31 December 2025 and 2024, the Company’s assets, other than the shares of the property
companies which are pledged in favour of bondholders (Note 21), are available to support potential
future funding and collateral needs. Further, as at 31 December 2024, loans and advances to banks
amounting to €900,000 pledged in favour of the Bank subsidiary, all of the Company’s assets are
available to support potential future funding and collateral needs.
The Company’s principal liabilities comprise borrowings as reflected within the tables above. The
differences between the Company’s other liabilities with respect to those of the Group are deemed
immaterial. Accordingly, the Company’s undiscounted cash flows payable under non-derivative
financial liabilities analysed into relevant maturity groupings based on the remaining period at the end
of the reporting period to the contractual maturity date are principally reflected in the tables.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
58
2.6 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders, and
to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the
capital structure, the Company may issue new shares or adjust the amounts of dividends paid to
shareholders.
The Group monitors the level of capital on the basis of the ratio of borrowings to total capital. Total
borrowings, as shown in the consolidated statement of financial position, consist of the listed bonds
issued to the general public (refer to Note 21). Total capital is the aggregate of total equity, as
reflected in the consolidated statement of financial position, and borrowings. As at 31 December
2025, the Group’s total borrowings amounted to €25 million (2024: €24 million) and its total capital
amounted to €78 million (2024: €82 million), consisting of total equity and borrowings. Hence the
Group’s borrowings/capital ratio at 31 December 2025 to 32% (2024: 29%).
The Group manages the relationship between equity injections and borrowings, being the constituent
elements of capital as reflected above, with a view to managing the cost of capital. The level of capital,
computed by reference to amounts reported in the consolidated statement of financial position, is
maintained taking cognisance of the Group’s respective financial obligations and commitments
arising from operational requirements. In view of the nature of the Group’s activities and the extent
of borrowings or debt, the capital level at the end of the reporting period determined by reference to
the consolidated financial statements is deemed adequate by the directors.
One of the Company’s principal subsidiaries is a credit institution, which is regulated by the Malta
Financial Services Authority. The bank is required to maintain a ratio of total regulatory capital to risk-
weighted assets (“Capital requirements ratio”) above the prescribed minimum level at all times.
During the year ended 31 December 2025 and 2024, the bank has complied with all such externally
imposed regulatory capital requirements.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
59
2.7 Fair value of financial instruments and non-financial instruments
Financial instruments measured at fair value
The following table analyses financial instruments that are measured in the consolidated statement
of financial position at fair value, by level of the following fair value measurement hierarchy. The
different levels have been defined as follows:
•
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
•
Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
•
Inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (level 3). If one or more of the significant inputs is not based on observable market data,
the instrument is included in level 3.
The following table presents the Group’s financial instruments that are measured at fair value.

| Level 1 | Level 2 | Level 3 | Total
| € | € | € | €
As at 31 December 2025 |  |  |  |
Assets |  |  |  |
Financial assets measured at FVPL: |  |  |  |
Loans and advances to customers | - | - | 792,600 | 792,600
Financial assets measured at FVOCI: |  |  |  |
Debt securities | 192,060 | - | - | 192,060
Total financial assets at fair value | 192,060 | - | 792,600 | 984,660
As at 31 December 2024 |  |  |  |
Assets |  |  |  |
Financial assets measured at FVPL: |  |  |  |
Dispute resolution funding assets | - | - | 1 | 1
Loans and advances to customers | - | - | 792,600 | 792,600
Financial assets measured at FVOCI: |  |  |  |
Debt securities | 5,145,690 | - | - | 5,145,690
Total financial assets at fair value | 5,145,690 | - | 792,601 | 5,938,291

At 31 December 2025 and 2024, the Company does not have financial assets measured at fair value.
As at 31 December 2025 and 2024, the Group and the Company do not have financial liabilities
measured at fair value.
There were no transfers between levels 1, 2 and 3 during the year.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
Financial instruments measured at fair value - continued
60
(a) Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at
the end of the reporting period. A market is regarded as active 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 quoted market price used for financial assets held by the Group is the current bid
price.
As at 31 December 2025, instruments included in level 1 comprise of debt instruments issued by
local credit institutions which are listed on the Malta Stock Exchange. As at 31 December 2024,
instruments included in level 1 comprise debt instruments issued by the Government of Malta and
debt instruments issued by local credit institutions which are listed on the Malta Stock Exchange.
(b) Financial instruments in level 2
Fair values of instruments included in level 2 are based on quoted prices but in markets that are not
active. As at 31 December 2025 and 31 December 2024, there were no instruments included under
this hierarchy.
(c) Financial instruments in level 3
Fair values of instruments included in level 3 consist of instruments for which a valuation technique
includes inputs not based on observable data and the unobservable inputs have a significant effect
on the instrument’s valuation. This category includes loans to customers that have failed the solely
payments of principal and interest test and is therefore mandatorily measured at fair value as at 31
December 2025. As at 31 December 2024, they also include dispute resolution funding assets, which
represent financing by the Group to fund a portfolio of homogenous legal cases.
In view of the absence of quoted market prices or observable inputs for modelling value, the fair value
of the instruments held is derived using internal models. Unobservable inputs and assumptions in
respect of the loan and debt securities that have failed the SPPI test include cash inflows under
different scenarios, the timing of such cashflows, the probability outcomes under the different
scenarios and the discount rate.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
Financial instruments measured at fair value - continued
61
The following table presents the changes in level 3 items:

|  | Dispute |  |  |
| Non-fixed | resolution |  | Loans and |
| income | funding | Equity | advances to |
| securities | assets | instruments | customers | Total
|  |  | € | € | €
At 1 January 2024 | 1 | 1 | 267,180 | 792,600 | 1,059,782
Additions | - | 312,981 | - | - | 312,981
Disposals | - | - | (284,037) | - | (284,037)
Repayments | - | (139,652) | - | - | (139,652)
Net movement in fair value | (1) | (173,329) | 16,857 | - | (156,473)
At 31 December 2024 | - | 1 | - | 792,600 | 792,601
At 1 January 2025 | - | 1 | - | 792,600 | 792,601
Additions | - | - | - | - | -
Disposals | - | - | - | - | -
Repayments | - | - | - | - | -
Net movement in fair value | - | (1) | - | - | (1)
At 31 December 2025 | - | - | - | 792,600 | 792,600

There were no transfers between different levels of the fair value hierarchy during the years ended
31 December 2025 and 2024.
Disclosure of the model inputs in respect of loans and advances to customers mandatorily measured
at fair value through profit or loss are presented in note 2.4.
Financial instruments not measured at fair value
Balances with Central Bank of Malta, loans and advances to banks and financial institutions and
loans and advances to customers as well as other receivables are carried at amortised cost in the
statements of financial position. The directors consider the carrying amounts of such financial assets
to be a reasonable estimate of their fair value principally in view of the relatively short periods to
repricing or maturity from the end of the reporting periods.
The fair value of the amounts owed to customers at 31 December 2025 and 2024 is also
approximately equivalent to their carrying values in view of their short period to maturity. The fair
value of the amounts owed to banks at 31 December 2024 is also approximately equivalent to their
carrying values in view of their short period to maturity.
With regards to the €25 million 5.7% (2024: 5.7%) Secured Bonds as disclosed under Note 21, the
fair value of these liabilities as at 31 December 2025 was €25,000,000 (2024: €25,875,000). These
estimates are considered level 1 fair value estimates.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7 Fair value of financial instruments and non-financial instruments
- continued
62
Non-financial instruments measured at fair value
The Group’s land and buildings within investment property, were revalued on 31 December 2025 and
2024 by an external valuation expert having appropriate recognised professional qualifications and
experience in the location and category of the property being valued.
The directors have reviewed the carrying amounts of the properties as at 31 December 2025 and
2024 on the basis of the valuations carried out by the independent property valuers.
Valuations were made on the basis of open market value taking cognisance of the specific location
of the properties, the size of the sites together with their development potential, the availability of
similar properties in the area, and whenever possible, having regard to recent market transactions
for similar properties in the same location.
At 31 December 2025 and 2024 the carrying amounts of the Group’s investment property was
adjusted to reflect the properties’ estimated open market value on an individual asset level.
The Group is required to analyse non-financial assets carried at fair value by level of the fair value
hierarchy within which the recurring fair value measurements are categorised in their entirety (Level
1, 2 or 3). The different levels of the fair value hierarchy have been defined above as fair value
measurements using:
•
Quoted prices (unadjusted) in active markets for identical assets (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset, either
directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
•
Inputs for the asset that are not based on observable market data (that is, unobservable inputs)
(Level 3).
Investment property comprises commercial property including offices and industrial premises leased
out to third parties, as well as other parcels of land (both developed and undeveloped). All the
recurring property fair value measurements at 31 December 2025 and 2024 use significant
unobservable inputs and are accordingly categorised within Level 3 of the fair valuation hierarchy.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels on the date the
event or change in circumstances that causes the transfer occurs. There were no transfers between
different levels of the fair value hierarchy during the years ended 31 December 2025 and 2024.
A reconciliation from the opening balance to the closing balance of investment property for recurring
fair value measurements is reflected in the table in Note 10.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
Non-financial instruments measured at fair value - continued
63
Valuation processes
The valuations of the properties are performed annually on the basis of valuation reports prepared
by an independent and qualified valuer. These reports are based on both:
•
information provided by the Group which is derived from the Group’s financial systems and is
subject to the Group’s overall control environment; and
•
assumptions and valuation models used by the valuers - the assumptions are typically market-
related. These are based on professional judgement and market observation.
The information provided to the valuer, together with the assumptions and the valuation models used
by the valuer, are reviewed by the Chief Executive Officer (CEO) of the Company. This includes a
review of fair value movements over the period.
Valuation techniques
The external valuations of the Level 3 investment property are prepared in accordance with the
relevant German regulations, namely the German Building Code (Baugesetzbuch, BauGB) and
ImmoWertV. ImmoWertV was published in order to provide a detailed framework for the
determination of market values. The external valuations have been performed using the comparative
value approach for the purpose of valuing land and using the traditional investment method of
valuation based on the capitalised maintainable income approach for the purpose of valuing the
buildings. The land component of the building is valued using the comparative value approach. The
valuations have been performed using the unobservable inputs described below:
(i)
Comparative value approach for developed and undeveloped land
Comparable land values
per sqm
derived
from
the
Regional
Authorities
for
Survey
and
Geoinformation covering Saxony-Anhalt as at 1 January 2024
(2024: 1 January 2024).
Land specific adjustments
object-specific costs and income affecting the ultimate value of the
real estate at hand, including decreases in market value of land area
affected by any form of contamination less the value of the land
component of the building, as applicable.
(ii)
Capitalised maintainable income approach for buildings
Maintainable income
the maintainable income is equivalent to the expected income which
the valuer expects the property to generate in the foreseeable
future, being the gross yield which the property is able to generate
through contractual agreements less an appropriate level of
management costs, including: administrative costs, maintenance
expenses and rental failure costs, deemed necessary for the
operation of the buildings and adjusted for the profitable value of the
land. The expected income which the valuer expects the property to
generate in the foreseeable future is based on the market averages
attributable within the region of respective properties.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
Non-financial instruments measured at fair value - continued
64
Discount rate
the discount rate is based on the property-specific adjusted property
interest rate.
Expected service (useful)
life
based on the valuer’s best estimate of the remaining useful life of
the buildings, after taking into consideration the location, the state
of construction and possible economic utilisation of the buildings.
Land component of the
building
the land component of the building is valued separately from the
building and follows the same valuation approach with the
developed and undeveloped land.
Building specific
adjustments
object-specific costs and income affecting the ultimate value of the
real estate at hand, including repairs and maintenance costs and
vacancy costs.

| At 31 December 2025
|  |  | Significant | Range of
| Fair value | Valuation | unobservable | unobservable
| €’000 | technique | input | Inputs
Description by class |  |  |  |
Developed and | 16,108 | Comparative | Comparable land | €12-€23 per
undeveloped land |  | value | values per sqm | sqm
(excluding land |  | approach |  |
component of the building, |  |  |  |
if any) |  |  |  |
Land specific adjustments | (47) |  |  |
| 16,061 |  |  |
Buildings - current use as |  | Capitalised | Maintainable | €282,000 -
third party offices, |  | maintainable | income | €778,000 p.a.
production and storage |  | income | Discount rate | Approximately
| 13,022 |  |  |
facilities |  | approach |  | 6.75%-7%
|  |  | Expected service |
|  |  |  | 10-20 years
|  |  | (useful) life |
Land component of the |  | Comparative | Comparable land | €12-€23 per
building | 4,634 | value | values per sqm | sqm
|  | approach |  |
Building specific | (1,343) |  |  |
adjustments |  |  |  |
| 16,313 |  |  |
Total fair value | 32,374 |  |  |

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
2.
Financial risk management
- continued
2.7
Fair value of financial instruments and non-financial instruments
- continued
Non-financial instruments measured at fair value - continued
65

| At 31 December 2024
|  |  | Significant | Range of
| Fair value | Valuation | unobservable | unobservable
| €’000 | technique | input | Inputs
Description by class |  |  |  |
Developed and | 16,020 | Comparative | Comparable land | €12-€23 per
undeveloped land |  | value | values per sqm | sqm
(excluding land |  | approach |  |
component of the building, |  |  |  |
if any) |  |  |  |
Land specific adjustments | (317) |  |  |
| 15,703 |  |  |
Buildings - current use as | 12,939 | Capitalised | Maintainable | €282,000 -
third party offices, |  | maintainable | income | €757,000 p.a.
production and storage |  | income | Discount rate | Approximately
facilities |  | approach |  | 6.75%-7%
|  |  | Expected service | 10-20 years
|  |  | (useful) life |
Land component of the | 4,569 | Comparative | Comparable land | €12-€23 per
building |  | value | values per sqm | sqm
|  | approach |  |
Building specific | (1,284) |  |  |
adjustments |  |  |  |
| 16,224 |  |  |
Total fair value | 31,927 |  |  |

The higher the maintainable income per annum and the comparable land value per square metre,
the higher the resultant fair valuation. Conversely, the lower the capitalisation rate the higher the fair
value. The highest and best use of the properties reflected in the tables above is equivalent to their
current use.
In this respect, if the comparable land values per sqm increased/decreased by 5%, with all other
variables held constant, the fair value of the investment property would increase/decrease by
approximately €1,037,000 (2024: approximately €1,007,000). If maintainable income per annum
increased/decreased by 5%, with all other variables held constant, the fair value of the investment
property would increase/decrease by approximately €582,000 (2024: approximately €551,000).
3.
Critical accounting estimates, and judgments in applying accounting policies
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
3.
Critical accounting estimates, and judgments in applying accounting policies
- continued
66
In the opinion of the directors, other than for estimates relating to the fair value of Group’s level 3
financial instruments mandatorily measured at fair value through profit or loss and the fair value of
Group’s investment properties, the accounting estimates and judgments made in the course of
preparing these financial statements are not difficult, subjective or complex to a degree which would
warrant their description as critical in terms of the requirements of IAS 1.
Accordingly, the directors believe there are no areas involving a higher degree of judgment that would
have a significant effect on the amounts recognised in the financial statements, and there are no key
assumptions and other key sources of estimation uncertainty relating to estimates that require
subjective or complex judgments, other than for estimates relating to the fair value of Group’s level 3
financial instruments mandatorily measured at fair value through profit or loss and fair value of
Group’s investment properties.
The Group’s financial assets mandatorily measured at fair value through profit or loss are fair valued
on the basis of an internal valuation model. The Level 3 valuations have been performed using the
discounted cash flow approach. The valuation approach takes into account key judgments and
assumptions, including the sensitivity of such, as outlined in Note 2.4.
The Group’s investment properties are fair valued on the basis of a valuation carried out by an
independent property valuer. The Level 3 valuations of investment property have been performed
using the comparative value approach for the purpose of valuing land and using the traditional
investment method of valuation based on the capitalised maintainable income approach for the
purpose of valuation of the buildings. The land component of the building is valued using the
comparative value approach. The valuation approach takes into account key judgments and
assumptions, including the sensitivity of such, as outlined in Note 2.7.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
67
4.
Balances with Central Bank of Malta and cash

| Group
| 2025 | 2024
| € | €
Cash in hand | 1,529 | 1,537
Balances held with Central Bank of Malta | 24,035,080 | 20,313,638
| 24,036,609 | 20,315,175

Balances held with Central Bank of Malta include reserve deposits relating to the Minimum Reserve
Requirement in terms of Regulation (EC) No 1745/2003 of the ECB. The average reserve deposit
held for the relevant maintenance period amounted to €43,690 (2024: €130,136). Deposits with the
Central Bank amounting to €13,591,753 (2024: €6,904,642) are withdrawable on demand and were
subject to an interest rate of 2% (2024: of 3%) per annum. The remaining deposits of €10,399,637
consisted of money market placements in USD with a contractual maturity of five days and with
interest rates up to 3.49%. As at 31 December 2024, the remaining deposits of €13,278,860 consisted
of money market placements in USD with a contractual maturity of six months and CAD with a
contractual maturity of seven days and with interest rates of up to 4.2% and 2.3% per annum for USD
and CAD respectively.
5.
Loans and advances to banks and other financial institutions

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Repayable on call and at short notice | 3,861,138 | 3,149,109 | 2,057,587 | 1,316,768
Term loans and advances | - | 5,000,000 | - | 900,000
Allowances for expected credit losses | (10,550) | (28,332) | - | -
| 3,850,588 | 8,120,777 | 2,057,587 | 2,216,768

Term loans and advances of the Group as at 31 December 2024 were unsecured, had been granted
for an initial period of 18 months, and bore interest rate subject to floating interest rates. The loans
were designated as lower ranking liabilities as referred to in regulation 108(4) of the Recovery and
Resolution Regulations (Subsidiary Legislation 330.09).
As at 31 December 2025, the Group’s amounts repayable on call and at short notice are due from
banks and other financial institutions. Placements with other financial institution amount to €2,122,350
(2024: €1,536,638). As at 31 December 2025 and 2024, all the Company’s amounts repayable on
call and at short notice are due solely from banks, of which €1,663,326 (2024: €1,292,089) is held
with the subsidiary bank. As at 31 December 2024, the Company’s term loans and advances were
placed with the subsidiary bank with a contractual maturity of 7 months and was subject to a fixed
interest rate.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
68
6.
Loans and advances to customers

| Group
| 2025 | 2024
| € | €
Gross loans and advances | - | 13,340,043
Allowance for credit losses | - | (321,469)
Carrying amount as at 31 December | - | 13,018,574

Gross loans and advances to customers as at 31 December 2024 include credit exposures with
related parties amounting to €8,900,000.
Movements in expected credit loss allowances during 2025 and 2024 were as follows:

| Group
| 2025 | 2024
| € | €
At beginning of year | 321,469 | 219,052
Change in expected credit losses (Note 33) | (321,469) | 102,417
At end of year | - | 321,469

7.
Financial instruments mandatorily measured at fair value through profit or loss

| Group
| 2025 | 2024
| € | €
Financial assets |  |
Dispute resolution funding assets | - | 1
Loans and advances to customers | 792,600 | 792,600
| 792,600 | 792,601

As at 31 December 2025 and 2024, the Group’s financial instruments that are mandatorily measured
at fair value through profit or loss comprise a fixed interest loan that also has a profit participation
feature that enables the Group to participate in any profit earned as a result of the activity being
financed, and loans advanced to fund dispute resolution claims.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
7.
Financial assets mandatorily measured at fair value through profit or loss
- continued
69
The movement in financial assets measured at fair value through profit or loss is summarised as
follows:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
At 1 January | 792,601 | 1,059,781 | - | 267,181
Additions | - | 312,981 | - | -
Disposal of equity instruments | - | (284,036) | - | (284,037)
Repayments of dispute resolution |  |  |  |
funding assets | - | (139,652) | - | -
Net movement in fair value | (1) | (156,473) | - | 16,856
At 31 December | 792,600 | 792,601 | - | -

8.
Financial assets measured at fair value through other comprehensive income

| Group
| 2025 | 2024
| € | €
Debt and other fixed income instruments | 192,060 | 5,145,690
| 192,060 | 5,145,690
Analysed by issuer: |  |
- local general government | - | 4,928,880
- local credit institutions | 192,060 | 216,810
| 192,060 | 5,145,690
Listing status: |  |
- listed on Malta Stock Exchange | 192,060 | 5,145,690
| 192,060 | 5,145,690

| Group
| 2025 | 2024
| € | €
At 1 January | 5,145,690 | 6,946,560
Disposals/redemptions | (5,005,568) | (2,000,000)
Amortisation | (17,621) | (24,220)
Net fair value movements | 69,559 | 223,350
At 31 December | 192,060 | 5,145,690

As at 31 December 2025, an expected credit loss allowance amounting to €498 was accounted for
in terms of IFRS 9 (2024: €3,134).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
70
9.
Investments in subsidiaries

| Company
| 2025 | 2024
| € | €
At 1 January | 50,559,310 | 50,530,850
Contribution | 61,026 | 28,460
At 31 December | 50,620,336 | 50,559,310

Upon forming the Fiscal Unit and under the terms of the Tax Sharing Agreement, unabsorbed tax
losses carried forward by the Bank amounting to €60.9 million as at 31 December 2022 were
transferred to the Company for utilisation against the Fiscal Unit’s current and future taxable profits.
The Company compensates the Bank whenever and to the extent, the unutilised and unrecognised
tax losses assumed by the Company, as principal taxpayer, are “utilised” in the reduction of the
taxable profit of the Fiscal Unit or utilised against the current tax liability of the Fiscal Unit.
As at 31 December 2025, the contribution represents the compensation to the Bank for the utilisation
of tax losses by the Company against the current tax liability of the Company.
The subsidiaries at 31 December 2025 and 2024, whose results and financial position affected the
figures of the Group, are shown below:

Name of company | Registered office
Merkanti Bank | Level 13 Q2 Quad Central, Triq L-Esportaturi,
Limited | Birkirkara CBD 1040, Malta
Merkanti (A) | Level 13 Q2 Quad Central, Triq L-Esportaturi,
International Ltd | Birkirkara CBD 1040, Malta
Merkanti (D) | Level 13 Q2 Quad Central, Triq L-Esportaturi,
International Ltd | Birkirkara CBD 1040, Malta
Merkanti Diesel | Level 13 Q2 Quad Central, Triq L-Esportaturi,
Limited | Birkirkara CBD 1040, Malta
Altmark Industrie | Sanner Strasse 2
Management GmbH | 39596 Arneburg, Germany

By virtue of a resolution dated 17 December 2025, the Board of Directors of Merkanti Bank Limited
approved the plan to voluntarily renounce the Bank’s license.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
9.
Investments in subsidiaries
- continued
71
As at 31 December 2025 and 2024, the Company held 63.75% of the ordinary shares of Merkanti
Diesel. The remaining shares held by a third party do not have any voting rights. Accordingly, the
Company retained 100% of the voting rights in Merkanti Diesel Limited.
As at 31 December 2025 and 2024, the Company held 100% of the Ordinary shares of both Merkanti
Bank Limited and Altmark Industrie Management GmbH, and 94.9% of the Ordinary shares of both
Merkanti (A) International Ltd and Merkanti (D) International Ltd.
Disclosure of financial information related to non-controlling interests in the Group’s activities and
cash flows as required by IFRS 12 is not being made on the basis that
non-controlling interests are
not considered material to the Group.
10.
Investment property

| Group
| 202 5 | 2024
| € | €
At 1 January | 31,927,000 | 30,081,000
Additions | 626,000 | 547,552
Disposals | (210,000) | (54,608)
Changes in fair value | 31,000 | 1,353,056
At 31 December | 32,374,000 | 31,927,000

The Group also disposed a part of its investment property, in respect of which a gain of €66,438
(2024: €32,390) was realised.
The Group’s investment property is measured at fair value. The fair value as at 31 December 2025
and 2024 was estimated by an external valuation expert reflecting the actual market state, conditions
and circumstances as at the reporting date. Disclosures relating to the valuation techniques,
judgments and assumptions in arriving at the fair value of investment property are explained in detail
in Note 2.7.
The Group’s investment property serves as security for the Group’s issued bonds (Note 21).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
72
11.
Property, plant and equipment
Group

|  | Office |
| Computer | improvements |
| equipment | and equipment | Total
| € | € | €
At 1 January 2024 |  |  |
Cost | 147,430 | 344,026 | 491,456
Accumulated depreciation | (123,697) | (241,295) | (364,992)
Net book amount | 23,733 | 102,731 | 126,464
Year ended 31 December 2024 |  |  |
Opening net book amount | 23,733 | 102,731 | 126,464
Additions | 14,557 | 68,231 | 82,788
Disposals | (18,961) | (41,216) | (60,177)
Depreciation charge | (14,874) | (61,785) | (76,659)
Depreciation released on disposals | 18,961 | 6,137 | 25,098
Closing net book amount | 23,416 | 74,098 | 97,514
At 31 December 2024 |  |  |
Cost | 143,026 | 371,041 | 514,067
Accumulated depreciation | (119,610) | (296,943) | (416,553)
Net book amount | 23,416 | 74,098 | 97,514
Year ended 31 December 2025 |  |  |
Opening net book amount | 23,416 | 74,098 | 97,514
Additions | 90,608 | 156,510 | 247,118
Disposals | (97,124) | (48,453) | (145,577)
Depreciation charge | (25,987) | (36,292) | (62,279)
Depreciation released on disposals | 96,038 | 31,730 | 127,768
Impairment charge | (86,951) | (21,613) | (108,564)
Closing net book amount | - | 155,980 | 155,980
At 31 December 2025 |  |  |
Cost | 136,510 | 479,098 | 615,608
Accumulated depreciation | (136,510) | (323,118) | (459,628)
Net book amount | - | 155,980 | 155,980

During 2025, the Group disposed of computer and office equipment for €13,697, in respect of which
a loss of €4,112 was realised (2024: gain of €2,678).
Following the Bank’s Board approval to voluntarily renounce the Bank’s license, the carrying value of
property, plant and equipment attributable to the bank was fully impaired.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
73
11.
Property, plant and equipment
- continued
Company

| Office
| improvements
| and
| equipment
| €
At 1 January 2024 |
Cost | 131,077
Accumulated depreciation | (102,571)
Net book amount | 28,506
Year ended 31 December 2024 |
Opening net book amount | 28,506
Depreciation charge | (24,438)
Closing net book amount | 4,068
At 31 December 2024 |
Cost | 131,077
Accumulated depreciation | (127,009)
Net book amount | 4,068
Year ended 31 December 2025 |
Opening net book amount | 4,068
Additions | 106,500
Disposals | (2,512)
Depreciation charge | (11,502)
Depreciation released on disposals | 1,256
Closing net book amount | 97,810
At 31 December 2025 |
Cost | 235,065
Accumulated depreciation | (137,255)
Net book amount | 97,810

During 2025, the Company disposed of a part of its property, plant and equipment in respect of which
a loss of €1,256 was realised (2024: nil).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
74
12.
Intangible assets
Group

| Computer
| software
| €
At 1 January 2024 |
Cost | 1,489,399
Accumulated amortisation | (556,655)
Net book amount | 932,744
Year ended 31 December 2024 |
Opening net book amount | 932,744
Additions | 14,929
Disposals | (4,158)
Amortisation charge | (44,361)
Amortisation released on disposals | 4,158
Closing net book amount | 903,312
At 31 December 2024 |
Cost | 1,500,170
Accumulated amortisation | (596,858)
Net book amount | 903,312
Year ended 31 December 2025 |
Opening net book amount | 903,312
Additions | 11,884
Disposals | (31,777)
Amortisation charge | (26,635)
Amortisation released on disposals | 28,585
Impairment charge | (866,233)
Closing net book amount | 19,136
At 31 December 2025 |
Cost | 1,480,277
Accumulated amortisation | (1,461,141)
Net book amount | 19,136

During 2025, the Group disposed computer equipment which included computer software, in respect
of which a loss of €3,192 was realised.
Following the Bank’s Board approval to voluntarily renounce the Bank’s license, the carrying value of
intangible assets attributable to the subsidiary bank was fully impaired.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
75
13.
Right-of-use assets and lease liabilities
The Group and the Company lease office space. The lease contracts are for fixed periods with no
extension periods but can be pregerminated subject to six months advance notice.
Leases are recognised as a right-of-use (‘ROU’) asset and a corresponding liability at the date at
which the leased asset is available for use by the Group. The right-of-use asset is recognised at an
amount equal to the lease liability at the date at which the leased asset is made available for use,
and subsequently depreciated till the earlier of the end of the useful life of the ROU asset or the end
of the lease term.
Right-of-use-assets

| Group and Company
| 2025 | 2024
| € | €
At 1 January | - | 138,747
Additions | 702,114 | -
Depreciation | (93,615) | (138,747)
At 31 December | 608,499 | -

On 16 December 2019, the Group entered into a lease agreement for office space for a fixed period
until 16 December 2024. On 4 December 2024, the Group entered into a short-term lease agreement
until 16 June 2025 to continue to use the office space, for which the Group had elected not to
recognise right-of-use assets.
On 7 May 2025, the Group entered into a lease agreement for the lease of new office space for a
fixed period until 6 May 2030. With an option to terminate at an earlier date upon giving notice to the
landlord. The right-of-use asset in respect of this lease is included within the above table.
As at 31 December 2025, the Group does not have leases with contract terms shorter than one year
and leases of low-value items for which the Group has elected not to recognise right-of-use assets.
The lease liabilities were initially measured at the present value of the remaining lease payments,
discounted using the Group’s incremental borrowing rate, which represents the rate that the
Company or its subsidiaries would have to pay to borrow the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment with similar terms, security
and conditions. The movement in lease liabilities is analysed below:

| Group and Company
| 2025 | 2024
| € | €
At 1 January | - | 168,809
Additions | 702,114 | -
Interest expense on lease liabilities | 23,675 | 2,436
Repayment of lease liabilities | (143,399) | (171,245)
At 31 December | 582,390 | -

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
13.
Right-of-use assets and lease liabilities
- continued
76
Lease liabilities are split into maturity groupings as follows:

| Group and Company
| 2025 | 2024
| € | €
Current | 117,897 | -
Non-current | 464,493 | -
At 31 December | 582,390 | -

The income statement reflects the following amounts relating to leases:

| Group and Company
| 2025 | 2024
| € | €
Short-term lease expense | 29,822 | 6,278
Depreciation charge of right-of-use-assets | 93,615 | 138,747
Interest expense | 23,675 | 2,436

Total cash payments for leases of the Group in 2025 were €173,221 (2024: €177,523), of which cash
payments of €29,822 relate to short-term lease (2024: 6,278).
14.
Other receivables

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Trade and other receivables | 433,195 | 817,098 | 2,600 | 2,600
Amounts due from ultimate |  |  |  |
parent company | 29,073,770 | 19,992,939 | 16,984,283 | 13,311,600
Amounts due from subsidiaries | - | - | 10,092,066 | 10,037,783
| 29,506,965 | 20,810,037 | 27,043,049 | 23,351,983
Allowance for credit losses | (74,165) | (28,293) | (107,948) | (46,190)
| 29,432,800 | 20,781,744 | 26,935,101 | 23,305,793

As at 31 December 2025, the Group and the Company’s amounts due from the ultimate parent
company consist of a revolving credit facility having a gross amount of €5,892,727 (2024: €5,892,727)
due on demand and subject to a fixed interest rate, revolving credit facility having a gross amount of
€8,181,921 (2024: €5,000,000) due on demand and not subject to interest, receivables amounting to
€2,618,164 (2024: €2,130,093) due on demand and not subject to interest and receivables amounting
to $300,000, equivalent to €255,570 (2024: $300,000, equivalent to €288,780) relating to the sale of
unlisted equity securities due on demand and not subject to interest.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
14.
Other receivables
- continued
77
As at 31 December 2025, the Group’s amounts due from the ultimate parent company also include a
gross loan amounting to €4,660,000 (2024: €4,660,000) which is repayable on demand and subject
to a fixed interest rate, a gross loan amounting to €6,000,000 (2024: nil) which is repayable on
demand and not subject to interest, receivables amounting to $1,674,135, equivalent to €1,436,075
(2024: $2,013,738, equivalent to €2,089,115) relating to the sale of unlisted equity securities which
are repayable on 3 May 2029 and subject to a fixed interest rates and other receivables amounting
to €39,313 (2024: €7,600) due on demand and not subject to interest.
Amounts due by the Company from subsidiaries include the provision of subordinated loans with
gross amounts of €9,500,000 (2024: €9,500,000) bearing interest at fixed rates maturing on 9
September 2026, dividend receivables amounting to €244,865 (2024: €284,700) and receivables
amounting to €347,201 (2024: €253,083) due on demand and not subject to interest.
15.
Deferred taxes
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal
authority.
The following amounts determined after appropriate offsetting are shown in the statements of
financial position:

| Group
| 2025 | 2024
| € | €
Deferred tax assets | 46,686 | 179,569
Deferred tax liabilities | (2,368,743) | (2,386,691)
| (2,322,057) | (2,207,122)

Deferred taxes are calculated on all temporary differences under the liability method and are
measured 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 (and tax laws) that have been substantively enacted by the end
of the reporting period. The principal tax rates used are 5% (2024: 35%) in relation to the Maltese
jurisdiction, being the effective tax rate at Company level, and 15.825% (2024: 15.825%) in respect
of the German fiscal authority.
The principal tax rate in Malta is 35%, however under Maltese corporate income tax rules, refunds
are available to shareholders of Maltese companies following the distribution of profits to the
shareholders. The ‘standard’ refund amounts to six-sevenths of the tax paid in Malta, resulting in a
net post-refund effective tax rate in Malta typically amounting to 5% to 11.67%.
Deferred tax assets and liabilities are attributable to the following:

| Group
| 2025 | 2024
| € | €
Unremitted earnings | - | 150,174
Fair valuation of properties | (2,368,743) | (2,386,691)
Other | 46,686 | 29,395
| (2,322,057) | (2,207,122)

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
15.
Deferred taxes
- continued
78
The deferred tax liabilities arise on the investment properties of the Group’s subsidiaries Merkanti (A)
International Ltd and Merkanti (D) International Ltd.
The deferred tax liabilities are calculated on the difference between the balance sheet value of the
investment property, being the fair value as per the external valuation report, less the tax cost as
stipulated by the local German GAAP, which would be the capital gain recognised upon the sale of
these assets. This difference is multiplied by the German tax rate of 15.825%.
These two companies were redomiciled to Malta with effect from 8 July 2019, and as a result became
subject to Maltese income tax.
For Maltese income tax purposes, any unrealised fair value gains derived from the revaluation of the
investment properties of the Group’s subsidiaries Merkanti (A) International Ltd and Merkanti (D)
International Ltd should also result in a deferred tax liability. Such deferred tax liability should be
calculated by multiplying the fair value gains, being the difference between the value of the
immovable properties as at year end less their cost of acquisition, with the standard corporate rate of
tax in Malta of 35%.
However, for Maltese income tax purposes, in terms of Article 4A of the Maltese Income Tax Act
(Chapter 123, Laws of Malta), there is an election for immovable properties to be deemed to be
assets acquired by the companies on the date of their redomiciliation to Malta at a cost which is
deemed to be their market value as at that date.
Furthermore, when calculating the capital gain for Maltese income tax purposes derived upon the
future transfer of any of the immovable properties, the companies are able to claim relief from tax
suffered in Germany by way of a tax credit against the Maltese income tax liability, if any. As a result,
as at 31 December 2025 and 2024, no tax liability was expected to arise in Malta over the foreseeable
future and accordingly the German tax rate remains suitable for determining the Group’s deferred tax
liability in this respect.
Until 31 December 2024, the deferred tax asset in respect of unremitted earnings arose as a result
of undistributed profits earned by Merkanti (A) International Ltd and Merkanti (D) International Ltd
(the “property companies”). It was calculated as the difference between the Maltese corporate income
tax rate of 35% to which the profits earned by the property companies are subject to in Malta, and
the effective tax rate (between 5% and 11.67%) at consolidated level, which difference represented
the amount of the Malta tax refund available to Merkanti Holding p.l.c. following a dividend distribution
by the property companies.
During 2024, the Company and the Bank, resolved to form a Fiscal Unit for Maltese income tax
purposes, in terms of the Maltese Consolidated Group (Income Tax) Rules (L.N. 110 of 2019). These
Rules allow a group of companies to elect to be treated as one single taxpayer and to compute their
chargeable income or loss on a consolidated basis. Upon formation of the Fiscal Unit, all unabsorbed
tax losses carried forward by the Bank amounting to €60.9 million were transferred to the Company
for utilisation against profits earned by the Fiscal Unit in Malta and as a result against profits of the
Company itself, including profits arising from dividend distributions by the property companies,
allowing for a full refund of any Malta income taxes paid by the property companies.
This tax assets have not been offset against tax liabilities arising in respect of profits earned by the
property companies as the balances are not expected to be settled on a net basis.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
15.
Deferred tax
- continued
79
The movements in deferred tax assets and liabilities, which are all recognised in profit or loss, are
analysed below:

| Group
| 2025 | 2024
| € | €
As at 1 January | (2,207,122) | (2,003,448)
Deferred tax asset arising in respect of unremitted earnings | (150,174) | -
Deferred tax liabilities arising on the fair valuation of properties | 17,948 | (233,069)
Deferred tax asset arising in respect of other movements | 17,291 | 29,395
As at 31 December | (2,322,057) | (2,207,122)

The recognised deferred tax asset and liabilities are expected to be recovered or settled after more
than 12 months from the end of the reporting period.
At 31 December 2025, the Group and, as a result of the formation of the Fiscal unit, the Company,
had unutilised tax losses amounting to €57 million (2024: €57 million) on which no deferred tax asset
was recognised in the consolidated statement of financial position in view of the uncertainty of
realisation of these tax benefits.
16.
Accrued income and other assets

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Accrued interest receivable | 4,169,083 | 3,430,234 | 3,369,990 | 3,321,085
Other fees receivable | - | 208,800 | - | -
Other assets | 24,632 | 3,471 | 5,737 | 23,915
Prepayments | 112,424 | 785,664 | - | 168,183
| 4,306,139 | 4,428,169 | 3,375,727 | 3,513,183

As at
31 December 2025, the Group’s accrued interest receivable amounting to €4,166,984 (2024:
€3,297,125) are attributable to the ultimate parent company. As at 31 December 2024, accrued
interest and other fees receivable amounting to €1,678 and €208,800 respectively, were attributable
to other related parties. At Company level, accrued interest receivable amounting to €3,290,424
(2024: €2,804,274) is attributable to the ultimate parent company and €79,566 (2024: €516,811) is
attributable to subsidiaries.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
80
17.
Share capital

| 2025 | 2024
| € | €
Authorised | 100,000,00 | 100,000,00
1,000,000,020 Ordinary “A” shares of €0.10 each | 2 | 2
| 100,000,00 | 100,000,00
1,000,000,020 Ordinary “B” shares of €0.10 each | 2 | 2
| 200,000,00 | 200,000,00
Issued |  |
16,666,666 (2024: 16,673,333) Ordinary “A” shares of €0.10 each | 1,666,666 | 1,667,333
1 Ordinary “B” shares of €0.10 each | - | -
| 1,666,666 | 1,667,333

The holders of ordinary “A” shares and ordinary “B” shares are entitled to one vote per share at
general meetings of the Group for each share held. The ordinary “A” shares and ordinary “B” shares
rank equally with regard to the Group’s residual assets.
On 5 March 2025, a third-party shareholder, transferred 6,667 Ordinary “A” shares of €0.10 each to
Merkanti Holding plc, for €20,001 as consideration, which shares have been cancelled effective 5
March 2025.
18.
Contribution reserve

| 2025 | 2024
| € | €
At beginning of year | 50,892,669 | 50,892,669
Cancellation of shares | (19,334) | -
At end of year | 50,873,335 | 50,892,669

The contributed reserve is free from all claims, charges, liens, equities and encumbrances and it is
made as a contribution into the distributable reserves of the Company. The contribution is irrevocable
and unconditional.
19.
Fair value reserve
The fair value reserve reflects the effects of the fair value measurement of financial investments
measured at fair value through other comprehensive income, net of any deferred taxes. This reserve
is non-distributable.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
81
20.
Non-controlling interests

| Group
| 2025 | 2024
| € | €
At beginning of year | 1,016,809 | 1,085,334
Share of losses attributable to non-controlling interests | (82,170) | (53,225)
Dividends distributed during the year | (58,650) | (15,300)
At end of year | 875,989 | 1,016,809

During 2025, Merkanti (A) International Ltd and Merkanti (D) International Ltd declared net dividends
amounting to €1,000,000 (2024: €200,000) and €150,000 (2024: €100,000) respectively, to the
ordinary shareholders in accordance with their proportionate shares held in these property
companies.
21.
Borrowings

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Non-current |  |  |  |
€25 million 5.7% Bonds 2033 | 24,527,680 | 24,481,152 | 24,527,680 | 24,481,152
From subsidiary bank | - | - | 3,181,921 | -
Total borrowings | 24,527,680 | 24,481,152 | 27,709,601 | 24,481,152

By virtue of an offering memorandum dated 18 July 2019, the Company issued €25,000,000 secured
bonds with a face value of €100 each. The bonds have a coupon interest of 4% which is payable
annually in arrears on 12 August of each year. The bonds are redeemable at par. On 3 July 2024,
the Bondholders approved the proposed amendments to the terms and conditions of the Bonds,
consisting primarily of (1) an increase in the interest rate payable on the Bonds from 4.00% to 5.70%
per annum and (2) a 7-year extension of the term of the Bonds to 12 August 2033. During 2024, the
modification of the terms qualified as substantial modification by which the original bond was
extinguished and the new bond was recognised at fair value, which resulted in a loss on
extinguishment amounting to €434,600 (Note 27).
The bonds are secured by real estate owned by the property companies within the Group by means
of the German Law Mortgages, the Pledges of shares and the Pledges of Deposited Monies. The
bonds were admitted on the Official List of the Malta Stock Exchange on 16 August 2019. The quoted
market price as at 31 December 2025 for the bonds was €100.00 (2024: €103.50), which in the
opinion of the directors fairly represents the fair value of these financial liabilities. At the end of the
reporting period, none of the bonds were held by the Company’s directors.
During 2025, the Company entered into a loan agreement with its subsidiary bank amounting to
€3,181,921 which is payable on 12 August 2026 and is subject to a floating interest rate.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
21.
Borrowings
- continued
82
The bonds are measured at the amount of the net proceeds adjusted for the amortisation of the
difference between the net proceeds and the redemption value of such bonds, using the effective
yield method as follows:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Original face value of bonds issued | 25,000,000 | 25,000,000 | 25,000,000 | 25,000,000
Principal amount of loan from |  |  |  |
subsidiary | - | - | 3,181,921 | -
Issue costs | 524,555 | 524,555 | 524,555 | 524,555
Accumulated amortisation | (52,235) | (5,707) | (52,235) | (5,707)
Unamortised issue costs | 472,320 | 518,848 | 472,320 | 518,848
Amortised cost and closing carrying |  |  |  |
amount | 24,527,680 | 24,481,152 | 27,709,601 | 24,481,152

22.
Amounts owed to banks

| Group
| 2025 | 2024
| € | €
Repayable at short notice | - | 4,965,200

Amounts owed to banks were repayable subject to a 35-day prior notice period and were not subject
to interest.
23.
Amounts owed to customers

| Group
| 2025 | 2024
| € | €
Repayable at call and short notice | 11,850,474 | 13,176,014

Amounts owed to customers include amounts of €11,859,474 (2024: €13,157,125) due to related
parties. As at 31 December 2025 and 2024, all amounts owed to customers were not subject to
interest.
Amounts owed to customers are classified as liabilities measured at amortised cost.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
83
24.
Other liabilities

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Trade payables | 400,737 | 502,224 | - | -
Accrued interest payable | 487,897 | 485,342 | 502,129 | 485,342
Deferred revenue | 1,055,564 | 1,197,339 | - | -
Provisions for liabilities | 546,492 | 280,000 | - | -
Accrued expenses and other payables | 501,809 | 586,736 | 159,665 | 173,911
| 2,992,499 | 3,051,641 | 661,794 | 659,253

As at 31 December 2025, the Group’s accrued expenses and other payables include dividends
payable to non-controlling interests amounting to €293,463 (2024: €234,813). As at 31 December
2024, the Group’s accrued expenses and other payables also include amounts due to ultimate parent
company amounting to €6,053.
During 2025, the Board of Directors of the subsidiary bank approved to voluntarily renounce the
Bank’s license. The approval, together with the communication of a detailed formal implementation
plan to key stakeholders to voluntarily renounce the Bank’s license, gave rise to the recognition of a
restructuring provision in terms of IAS 37, which requires the recognition of liabilities for direct
expenditure arising from the restructuring, including termination benefits resulting from the
restructuring, but not for costs expected to be incurred through the end of the bank’s activities
including, such as staff costs and directors’ fees for services required to support the Bank’s
operations until date of closure.
As a results, provisions for restructuring amounting to €409,092, are included in the table above
within “provisions for liabilities”.
25.
Contingent liabilities and commitments
Legal proceedings
The Scully Royalty Limited (‘SRL’) group is subject to routine litigation incidental to its business and
is named from time to time as a defendant in a number of legal actions arising in connection with its
activities, certain of which may include large claims for punitive damages. Due to the size, complexity
and nature of SRL group's operations, a number of legal and tax matters are outstanding, including
periodic audit by tax authorities. SRL, the Company's ultimate parent company and certain of its
subsidiaries, including the Company, have been named as a defendant in a legal action in a foreign
jurisdiction relating to an alleged guarantee of the former parent of the SRL group amounting to
approximately €81 million. The SRL group believes that such claim is without merit and intends to
defend such claim vigorously. On the basis of legal advice, and the fact that the Company has
obtained risk mitigation securities for this litigation, the directors believe that it is not probable that
such a claim will require the outflow of economic benefit from the Company.
.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
25.
Contingent liabilities and commitments -
continued
84
Operating lease commitments - where the Group is a lessor
The operating lease agreements entered into by the Group with the tenants of its properties typically
either have a maturity of between one to three years and are non-cancellable, or alternatively are
entered into on an indefinite basis but are cancellable by the tenant at notice of up to six-months.
During 2024, the Company had also entered into an arrangement with one of its subsidiaries to sub-
lease part of the premises which it leases for a term of 6 months.
The future minimum lease payments receivable under non-cancellable operating leases are as
follows:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
- Not later than one year | 2,756,784 | 2,522,334 | - | 39,318
- Later than one year and not later than |  |  |  |
three years | 1,453,413 | 1,394,317 | - | -
- Later than three years and not later than |  |  |  |
five years | 294,855 | 480,948 | - | -
| 4,505,052 | 4,397,599 | - | 39,318

26.
Interest income

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
On financial assets measured at fair value |  |  |  |
through other comprehensive income: |  |  |  |
- coupon interest | 30,383 | 38,119 | - | -
- net amortisation of premiums and discounts | (17,621) | (24,221 | - | -
On financial assets measured at amortised cost: |  |  |  |
On loans and advances to banks and |  |  |  |
other financial institutions | 731,121 | 1,242,689 | - | -
On loans and advances to customers | 1,324,286 | 1,736,878 | - | -
On receivables from ultimate parent company | 917,132 | 940,653 | 486,150 | 487,482
On receivables from subsidiaries | - | - | 634,512 | 630,773
| 2,985,301 | 3,934,118 | 1,120,662 | 1,118,255

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
85
27.
Interest expense

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
On amounts owed to customers | 290,521 | 349,507 | - | -
On borrowings | 1,471,528 | 1,225,980 | 1,544,349 | 1,225,976
Loss on extinguishment of bond | - | 434,600 | - | 434,600
On lease liabilities | 23,675 | 2,436 | 23,675 | 2,436
| 1,785,724 | 2,012,523 | 1,568,024 | 1,663,012

28.
Net fee and commission income
The Group derives revenue from the provision of services over time, as follows:

| Group
| 2025 | 2024
| € | €
Fee and commission income: |  |
Corporate services | - | 519,781
Property management fees | 194,372 | 220,312
Account maintenance, payment services |  |
and other related fees | 59,877 | 79,847
| 254,249 | 819,940
Fee and commission expense | (4,124) | -
| 250,125 | 819,940

29.
Rental income from investment property
Rental income is generated through lease agreements entered into by Merkanti (A) International Ltd
and Merkanti (D) International Ltd in respect of their investment property. The Company also
generated rental income through a sub-lease agreement with one of its subsidiaries.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
86
30.
Net trading income

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Fair value movements on financial |  |  |  |
instruments mandatorily measured at |  |  |  |
fair value through profit or loss | (1) | (156,473) | - | 16,856
Interest written down on financial assets |  |  |  |
mandatorily measured at |  |  |  |
fair value through profit or loss | - | (210,589) | - | -
Foreign exchange revaluation |  |  |  |
(losses)/gains | (268,206) | 151,140 | (37,897) | 290
Income from foreign exchange activities | 124,392 | 35,965 | - | -
| (143,815) | (179,957) | (37,897) | 17,146

During 2024, the Group sold unlisted equity securities issued by a related party to the ultimate parent
company which were valued at €267,180 for $300,000 (or €284,037), resulting in a fair value gain of
€16,856 on the date of sale.
During 2024, the Group also recognised fair value losses on its investments in dispute resolution
funding assets amounting to €173,330.
As at 31 December 2025 and 2024, foreign exchange revaluation gains and income from foreign
exchange activities arise mainly from balances resulting from transactions with related parties.
31.
Dividend income
As at 31 December 2025 and 2024, dividend income represents dividends declared by the
Company’s subsidiaries, namely Merkanti (A) International Ltd and Merkanti (D) International Ltd.
During 2025, the ‘Dividend income’ received by the Company from its subsidiaries amounting to
€244,865 (2024: €284,700) were included under ‘Amounts due from subsidiaries’ as at 31 December
2024 (Note 14).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
87
32.
Other operating income

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Recharges to ultimate parent company | 483,000 | 1,476,560 | 483,000 | 1,194,560
Recharges to other related parties | - | 643,800 | - | -
Recharges to third parties | 859,762 | 473,678 | - | -
Recharges to subsidiaries | - | - | 109,093 | 114,148
| 1,342,762 | 2,607,209 | 592,093 | 1,308,708

Recharges made to the ultimate parent company relate to expenses paid by the Company to certain
officers and other professional service firms on behalf of Scully Royalty Limited, recharges to other
related parties relate to expenses paid by the subsidiary Bank to certain officers, while recharges to
third parties relate to expenses paid in relation to the common and other ancillary costs incurred by
the Group’s property companies.
Recharges made by the Company to subsidiaries relate to expenses paid by the Company to certain
officers on behalf of the subsidiaries.
33.
Changes in expected credit losses

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Change in expected credit losses on: |  |  |  |
- loans and advances to banks and financial | (17,782) | 5,246 | - | -
- loans and advances to customers | (321,469) | 102,417 | - | -
- financial assets measured at FVOCI | (2,636) | 1,147 | - | -
- other receivables | 45,872 | - | 61,758 | -
Write-off | 73,019 | 296 | - | -
| (222,996) | 109,106 | 61,758 | -

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
88
34.
Expenses by nature
Other administrative expenses mainly comprise other services or expense items which are incurred
in the course of the Group’s operations.

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Staff costs |  |  |  |
- Staff salaries | 2,357,420 | 2,396,219 | - | -
- Social security costs | 36,047 | 32,624 | - | -
- Other staff costs | 165,738 | 198,369 | - | -
Directors’ fees and emoluments | 402,588 | 434,509 | 111,033 | 110,500
Repairs and maintenance | 627,625 | 256,631 | 16,071 | 15,728
Professional fees | 1,329,147 | 1,520,154 | 618,369 | 762,900
Property selling and ancillary expenses | 663,351 | 304,536 | - | -
Marketing costs | 288,535 | 359,417 | - | -
Utilities and janitorial expenses | 216,421 | 176,313 | 7,225 | 7,468
Information technology | 430,914 | 363,741 | 9,491 | 13,107
Insurance costs | 23,143 | 10,399 | - | -
Taxes and licenses | 50,004 | 24,996 | - | -
Other administrative expenses | 654,000 | 492,171 | 260,536 | 238,367
Total administrative expenses | 7,244,933 | 6,570,079 | 1,022,725 | 1,148,070

Average number of persons employed by the Group throughout the financial year:

| Group
| 2025 | 2024
- Managerial | 13 | 13
- Clerical | 11 | 11
| 24 | 24

Auditor’s remuneration
Fees charged by the auditor and affiliated entities for services rendered during the financial year
relate to the following:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Annual statutory audit | 171,250 | 167,500 | 60,000 | 55,000
Tax and VAT compliance services | 66,580 | 36,475 | 32,450 | 13,315
Non-audit assurance services | 43,060 | 40,500 | - | -
Other non-audit services | 6,030 | 4,415 | - | -

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
89
35.
Tax expense
The Group’s and Company’s tax expense recognised in profit or loss is analysed below:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Current tax expense/(income) |  |  |  |
- Current year tax income | - | (145,799) | - | (137,891)
- Under/(over)-provision of tax |  |  |  |
in prior years | 77,192 | (298,735) | (109,326) | -
Deferred tax expense | 114,935 | 203,674 | - | -
| 192,127 | (240,860) | (109,326) | (137,891)

The Company and the Bank form part of a Fiscal Unit for Maltese income tax purposes effective from
1 January 2023 being the Company as the principal taxpayer and the Bank as the transparent
subsidiary, which allows the Group to be treated as a single taxpayer. By virtue of the Tax Sharing
Agreement, unabsorbed tax losses carried forward by the Bank amounting to €60.9 million as at 31
December 2022 were transferred to the principal taxpayer for utilisation against the Fiscal Unit’s
current and future taxable profits from the formation of the Fiscal Unit (Note 15).
As a result of the formation of the Fiscal Unit, the Company is able to set-off its own taxable profits
against the unutilised tax losses transferred by the Bank. Under the Tax Sharing Agreement and at
the level of Fiscal Unit members’ standalone financial statements, entitlement to compensation to be
received by the Bank with respect to unutilised tax losses utilised by the Company against its own
notional tax liability are treated as an investment in subsidiary by the Company (Note 9) and as a
capital contribution within the equity reserves by the Bank in the year in which the Fiscal Unit files its
consolidated tax return, which may be in year(s) subsequent to the financial year in which the
Company’s taxable profit arises.
As a consequence of the formation of the Fiscal Unit, the Company remits tax payments on behalf of
the Bank. Under the terms of the Tax Sharing Agreement, the Bank’s notional tax expense and liability
transferred to the Company are recognised as receivables from the Bank. For any unutilised tax
losses brought forward that are utilised by the Company against the Bank’s notional tax expense and
liability in a given year, the amount payable by the Company, for the utilisation of such tax losses is
credited to the tax charge in the Bank’s Income Statement in the year in which the relevant taxable
profits arise. The amount payable by the Company will be equivalent to the receivable balance
against the Bank’s tax liability transferred to the Company, hence set off in the intercompany
accounts.
During 2025, following successful registration of the Company’s shareholder with the Commissioner
for Tax and Customs for tax refund purposes in accordance with applicable Maltese tax legislation,
owing to the fact that the Company forms part of a fiscal unit as its shareholder, the profits of the
Fiscal Unit is subject to a rate of 5% (being a rate that takes account of the tax refund that the
shareholder would be entitled to receive in terms of Maltese tax legislation). As at 31 December 2024,
the effective tax rate of 35% was applied because the shareholder was not yet registered for tax
refund purposes.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
35.
Tax expense
- continued
90
The tax on the Group’s and Company’s profit before tax, differs from the theoretical amount that
would arise using the effective tax rate applicable to the Group as follows:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
(Loss)/profit before tax | (4,087,987) | 856,130 | 179,684 | (138,932)
Tax on (loss)/profit at 5% (2024: 35%) | (204,399) | 299,646 | 8,984 | (48,626)
Tax effect of: |  |  |  |
Expenses not deductible for tax |  |  |  |
purposes | 237,421 | 797,948 | - | 387,739
Income not subject to tax | (62,292) | (295,955) | (54,568) | (5,900)
Utilisation of unabsorbed tax losses |  |  |  |
upon formation of the Fiscal Unit | - | (471,104) | - | (471,104)
Utilisation of unabsorbed tax losses |  |  |  |
carried forward from previous years | - | (246,411) | - | -
Under/(over)-provision of tax in |  |  |  |
prior years | 77,192 | (298,735) | (109,326) | -
Movement in deferred tax assets |  |  |  |
attributable to unremitted earnings | 150,174 | - | - | -
Tax losses for which no deferred tax |  |  |  |
asset is recognised | 50,700 | - | 45,584 | -
Difference in overseas tax rates | (56,669) | (26,249) | - | -
| 192,127 | (240,860) | (109,326) | (137,891)

36.
Cash and cash equivalents
For the purposes of the statements of cash flows, cash and cash equivalents comprise the following
balances with contractual maturities of not more than three months:

| Group | Company
| 2025 | 2024 | 2025 | 2024
| € | € | € | €
Balances with Central Bank of Malta |  |  |  |
(Note 4) | 24,036,609 | 9,725,515 | - | -
Cash in hand (Note 4) | 1,529 | 1,537 | - | -
Loans and advances to banks and other |  |  |  |
financial institutions (Note 5) | 3,861,138 | 3,149,110 | 2,057,587 | 1,316,768
| 27,899,276 | 12,876,162 | 2,057,587 | 1,316,768

Non-cash transactions
As at 31 December 2025, the ‘Dividend income’ amounting to €244,865 (2024: €284,700) were
included under ‘Amounts due from subsidiaries’ (Note 14).
During 2024, the consideration for the disposal of the Group’s unlisted equity securities is included
under ‘Amounts due from ultimate parent company’ (Note 14).
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
91
37.
Related party transactions
Related parties of the Group include the ultimate parent company, Scully Royalty Limited, all entities
controlled by the ultimate parent, key management personnel, close family members of key
management personnel and entities which are controlled or jointly controlled by key management
personnel or their close family members. Key management personnel are defined as those
persons having authority and responsibility for planning, directing and controlling the activities of the
Group, being the Company’s directors.
During the year, the Group carried out the following transactions in the ordinary course of business
with the ultimate parent company, its controlled entities (referred to as ‘other related parties’), and
the Company’s subsidiaries and at year end had the following balances with these entities:

|  | Group | Company
|  | 2025 | 2024 | 2025 | 2024
| Not | € | € | € | €
Assets | es |  |  |  |
Loans and advances to banks and other |  |  |  |  |
financial institutions: |  |  |  |  |
- Balances with a subsidiary bank |  | - | - | 1,663,326 | 2,192,089
Loans and advances to customers: | 6 |  |  |  |
- Loans to other related parties |  | - | 8,900,000 | - | -
Other receivables: | 14 |  |  |  |
- Amounts due from ultimate parent |  |  |  |  |
company |  | 29,073,770 | 19,992,939 | 16,948,383 | 13,311,600
- Amounts due from subsidiaries |  | - | - | 10,092,066 | 10,037,783
Accrued income and other assets: | 16 |  |  |  |
- Accrued interest receivable from ultimate |  |  |  |  |
parent company |  | 4,166,984 | 3,297,125 | 3,290,424 | 2,804,274
- Accrued interest receivable from other |  |  |  |  |
related parties |  | - | 1,678 | - | -
- Accrued interest receivable from |  |  |  |  |
subsidiaries |  | - | - | 79,566 | 516,811
- Other fee receivable from other related |  |  |  |  |
parties |  | - | 208,800 | - | -
Liabilities |  |  |  |  |
Amounts owed to customers: | 23 |  |  |  |
- Amounts owed to ultimate parent company |  | - | 304,734 | - | -
- Amounts owed to other related parties |  | 11,850,474 | 12,852,391 | - | -
Borrowings | 21 |  |  |  |
- Amounts due to subsidiary |  | - | - | 3,181,921 | -
Other liabilities: |  |  |  |  |
- Amounts due to ultimate parent company |  | - | 6,053 | - | -

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
37.
Related party transactions
- continued
92

|  | Group | Company
|  | 2025 | 2024 | 2025 | 2024
| Not | € | € | € | €
| es |  |  |  |
Income statement |  |  |  |  |
Interest income: | 26 |  |  |  |
- On loans to and receivables from |  |  |  |  |
ultimate parent company |  | 917,132 | 940,653 | 486,150 | 487,482
- On loans to and receivables from |  |  |  |  |
other related parties |  | 1,324,286 | 1,179,799 | - | -
- On loans to and receivables from |  |  |  |  |
subsidiaries |  | - | - | 634,512 | 630,773
Interest expense: | 27 |  |  |  |
- On amounts owed to other related |  |  |  |  |
parties |  | 290,521 | 349,507 | - | -
Fee and commission income: | 28 |  |  |  |
- From ultimate parent company |  | - | 1,322 | - | -
- From other related parties |  | - | 578,022 | - | -
- From subsidiaries |  | - | - | - | 12,948
Rental income: | 29 |  |  |  |
- From subsidiaries |  | - | - | 172,358 | 106,525
Net trading income | 30 | - | 16,856 | - | 16,856
Dividend income from subsidiaries | 31 | - | - | 1,091,350 | 284,700
Other operating income: | 32 |  |  |  |
- From ultimate parent company |  | 483,000 | 1,476,560 | 483,000 | 1,194,560
- From other related parties |  | - | 643,800 |  | -
- From subsidiaries |  | - | - | 109,093 | 114,148
Administrative expenses | 34 |  |  |  |
- Expenses paid to other related parties |  | 113,795 | 149,518 | 113,795 | 149,518
- Compensation of key management |  |  |  |  |
personnel |  | 223,068 | 340,470 | 223,068 | 340,470
- Long term employee benefits of key |  |  |  |  |
management personnel |  | 75,489 | 108,000 | 75,489 | 108,000
- Expenses paid to subsidiaries |  | - | - | - | 12,592

The administrative expenses paid to other related parties relate to services granted by a consultancy
company owned by one of the Company’s key management personnel. Administrative expenses
amounting to €412,352 (2024: €597,988) included in the table above have been recharged to the
ultimate parent company and are accordingly included above within ‘Other operating income’.
Key management personnel compensation, consisting of directors’ remuneration, has been disclosed
in Note 34 to these financial statements. Directors’ emoluments comprise solely of short-term
employee benefits.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
93
38.
Segmental information
The Group provides a comprehensive range of services to its customers, which are organised into
the following reportable segments in terms of IFRS 8, ‘Operating Segments‘:
i)
Corporate services, through which the Group provides niche merchant banking services; and
ii)
property rental & management activities, which involves the leasing and management of
industrial space for storage and production facilities as well as for office space.
The Board considers the reportable segments referred to above to represent the most appropriate
information for the users of the financial statements to best evaluate the nature and financial effects
of the business activities in which the Group engages, and the economic environments in which it
operates.
The financial information for the reportable segments in relation to the year ended 31 December 2025
and 2024 is presented in the tables below.
Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
38.
Segmental information
- continued
94

|  | Group |
|  | As at 31 December 2025 |
|  | Property |
|  | rental and |
| Corporate | management |
| services | activities | Total
| € | € | €
Segment total assets | 49,626,774 | 46,579,255 | 96,206,029
Segment equity | 15,798,599 | 37,995,002 | 53,793,601

|  | Group |
|  | As at 31 December 2025 |
|  | Property |
|  | rental and |
| Corporate | management |
| services | activities | Total
| € | € | €
Interest income | 2,554,232 | 431,069 | 2,985,301
Interest expense | (290,453) | (1,495,271) | (1,785,724)
Net interest income | 2,263,779 | (1,064,202) | 1,199,577
Net fee and commission income | 55,753 | 194,372 | 250,125
Rental income from investment property | - | 1,503,423 | 1,503,423
Changes in the fair value of |  |  |
investment property | - | 31,000 | 31,000
Net trading income | 55,613 | (199,428) | (143,815)
Loss on disposal of financial assets measured |  |  |
at fair value through other comprehensive income | (21,835) | - | (21,835)
Realised (losses)/gains on disposal of investment |  |  |
properties, equipment, and intangible assets | (5,535) | 64,669 | 59,134
Other operating income | 483,000 | 859,762 | 1,342,762
Total operating income | 2,830,775 | 1,389,596 | 4,220,371
Changes in expected credit losses | 296,013 | (73,017) | 222,996
Net operating income | 3,126,788 | 1,316,579 | 4,443,367
Administrative expenses | (4,510,685) | (2,734,248) | (7,244,933)
Depreciation and amortisation | (153,995) | (26,315) | (180,310)
Impairment of equipment and intangible assets | (977,016) | - | (977,016)
Movement in provisions | (129,092) | - | (129,092)
Reportable profit before tax | (2,644,000) | (1,443,984) | (4,087,984)

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
38.
Segmental information
– continued
95

| Group
| As at 31 December 2024
|  | Property |
|  | rental and |
| Corporate | management |
| services | activities | Total
| € | € | €
Segment total assets | 64,328,300 | 41,807,318 | 106,135,618
Segment equity | 19,709,285 | 38,354,318 | 58,063,603

| Group
| As at 31 December 2024
|  | Property |
|  | rental and |
| Corporate | management |
| services | activities | Total
| € | € | €
Interest income | 3,480,916 | 453,202 | 3,934,118
Interest expense | (1,381,501) | (631,022) | (2,012,523)
Net interest income | 2,099,415 | (177,820) | 1,921,595
Net fee and commission income | 599,628 | 220,312 | 819,940
Rental income from investment property | - | 1,518,171 | 1,518,171
Changes in the fair value of |  |  |
investment property | - | 1,353,056 | 1,353,056
Net trading income | (330,807) | 150,850 | (179,957)
Realised gains on disposal of investment properties, |  |  |
equipment, and intangible assets | - | 35,068 | 35,068
Other operating income | 2,120,360 | 486,849 | 2,607,209
Total operating income | 4,488,596 | 3,586,486 | 8,075,082
Changes in expected credit losses | (108,811) | (295) | (109,106)
Net operating income | 4,379,785 | 3,586,191 | 7,965,976
Administrative expenses | (4,279,051) | (2,291,028) | (6,570,079)
Depreciation and amortisation | (222,160) | (37,607) | (259,767)
Movement in provisions | (280,000) | - | (280,000)
Reportable profit before tax | (401,426) | 1,257,556 | 856,130

Merkanti Holding p.l.c.
Annual Financial Report and Consolidated Financial Statements - 31 December 2025
96
39.
Reclassification
The Group previously presented certain deferred tax assets as part of ‘Accrued income and other
assets’ in the Statement of Financial position. However, management considers it to be more relevant
that such are presented as part of ‘Deferred tax asset’. The prior year comparative for the year ended
31 December 2024 has been restatated by reclassifying €29,395 from ‘Accrued income and other
assets’ to ‘Deferred tax asset’.
The Company previously presented certain recharges to subsidiaries as part of ‘Net fee and
commission income’ in the Income Statement. However, management considers it to be more
relevant that such are presented as part of ‘Other operating income’. Prior year comparative for the
period ended 31 December 2024 have been restated by reclassifying €92,940 from ‘Net fee and
commission income’ to ‘Other operating income’.
40.
Events after reporting date
There are no events after the reporting date that require disclosure in these financial statements.
41.
Statutory information
Merkanti Holding p.l.c. is a limited liability company and was incorporated in Malta on 28 May 2015,
having its registered address at Level 13 Q2 Quad Central, Triq L-Esportaturi, Birkirkara CBD 1040,
Malta.
The immediate and ultimate parent company of Merkanti Holding p.l.c. is Scully Royalty Limited, a
company registered in the Cayman Islands under the registration number HS-323455 and having its
registered office at 4th Floor One Capital Place, Shedden Road, George Town, PO Box 2255,
KY1
‑
1107, Cayman Islands. Scully Royalty Limited is listed on the New York Stock Exchange (NYSE:
SRL).

#
Independent auditor’s report

## To the Shareholders of Merkanti Holding p.l.c.

## Report on the audit of the financial statements

### Our opinion

In our opinion:

· The Group financial statements and the Parent Company financial statements (the “financial statements”) of Merkanti Holding p.l.c. give a true and fair view of the Group and the Parent Company’s financial position as at 31 December 2025, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and

· The financial statements have been prepared in accordance with the requirements of the Maltese Companies Act (Cap. 386).

Our opinion is consistent with our additional report to the Audit Committee.

What we have audited

Merkanti Holding p.l.c.’s financial statements comprise:

· the Consolidated and Parent Company statements of financial position as at 31 December 2025;

· the Consolidated and Parent Company income statements and statements of comprehensive income for the year then ended;

· the Consolidated and Parent Company statements of changes in equity for the year then ended;

· the Consolidated and Parent Company statements of cash flows for the year then ended; and

· the notes to the financial statements, comprising material accounting policy information and other explanatory information.

### 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 Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group and the Parent Company in accordance with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to audits of financial statements of an EU Public Interest Entity in Malta and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as applicable to audits of financial statements of public interest entities. We have also fulfilled our other ethical responsibilities in accordance with these Codes.

To the best of our knowledge and belief, we declare that non-audit services that we have provided to the parent company and its subsidiaries are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).

The non-audit services that we have provided to the parent company and its subsidiaries, in the period from 1 January 2025 to 31 December 2025, are disclosed in note 34 to the financial statements.

### Our audit approach

Overview

| Overall group materiality: €537,000, which represents 1% of net assets.
The group is composed of 6 components. We tailored the scope of our audit to perform sufficient work to enable us to provide an opinion on the group financial statements as a whole.
Valuation of the Group’s investment property

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall group materiality | €537,000
How we determined it | 1% of net assets
Rationale for the materiality benchmark applied | We chose net assets as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. We chose 1% which is within the range of quantitative materiality thresholds that we consider acceptable.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €26,900 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

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 period. 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.

Key audit matter | How our audit addressed the key audit matter
Valuation of the Group’s investment property The Group’s investment property portfolio, which is fair valued on an annual basis in accordance with the requirements of the Group’s accounting policy, has a carrying amount of €32 million as at 31 December 2025. On an annual basis, the Company’s directors determine the fair value of the investment property based on external valuations by an independent property valuer using valuation models comprising the comparative value approach for the respective land component and the capitalised income approach for the respective building component. In view of the limited number of similar comparable properties and property transactions, comprising sales or rentals in the respective markets in which the properties are located, the valuations are carried out using unobservable inputs. Such unobservable inputs include discount rates, the market rates used for determining maintainable income, the expected service life, land and building specific adjustments and the sales price per square metre of the land specifically for the purposes of the comparative value approach. The valuation of the Group’s investment property is inherently subjective principally due to the judgemental nature of the factors mentioned above and the assumptions used in the underlying valuation models. The significance of the estimates and judgements involved warrants specific audit focus in this area. Hence, the extent of judgement and the carrying amount of investment property in the context of the Group’s consolidated financial position resulted in this matter being identified as an area of audit focus. Relevant reference in the financial statements: • Summary of material accounting policies: Note 1.8; • Note on fair value of financial instruments and non-financial instruments: Note 2.7 and • Note on investment property: Note 10 | As part of our audit we performed the following procedures: • We engaged our own in-house experts to review the valuation approach adopted and the underlying assumptions applied in the property valuations in order to assess the reasonableness of the estimated fair value for the properties; • We evaluated the competence of the external valuer, which included due consideration of qualifications and expertise; • We verified that the requirements underlying the valuation regulators used for the purposes of compiling valuation reports for the Group’s properties are consistent with the parameters outlined by the Royal Institution of Chartered Surveyors’ (RICS) Valuation, Global Standards (2017), which are in line with the requirements of IFRS 13, ‘Fair value measurement’; • With respect to comparable land values, we assessed the reasonableness of the standard land value applied in the valuation against comparable rates as per market information on the German real estate market; • We confirmed that the market rates applied in the valuation model to determine maintainable income are consistent with the average rental rates generated by the Group for the respective properties; • We assessed the appropriateness of the standard land value used in the valuation against comparable observable sale prices from recent transactions completed by the Group; • We assessed whether administration costs are adequately considered, whether maintenance expenses applied in the valuation of the property reflect the age of the property and any equipment in use, whether rental failure costs are adequately taken into account, and whether the remaining useful life takes cognisance of the property location, state of construction and possible future economic environment; • We also ensured that object-specific costs such as costs of repairs, renovation and preparation of exterior facilities, together with marketing costs for vacancy periods are appropriately factored into the valuations; • We assessed the mathematical accuracy of the calculations underlying each fair valuation within the valuation reports; and • We reviewed the adequacy of the quantitative and qualitative disclosures in the financial statements. Based on our work, we concluded that the Group’s underlying assumptions are within an acceptable range of outcomes.

We have no key audit matters to report with respect to our audit of the Parent Company’s financial statements.

How we tailored our group audit scope

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The group is composed of 6 reporting units, namely Merkanti Holding p.l.c. (the Parent Company) and its subsidiaries Merkanti Bank Limited, Merkanti (A) International Ltd, Merkanti (D) International Ltd, Merkanti Diesel Limited, and Altmark Industrie Management GmbH. The group auditor performed full scope audit and specified procedures by applying the overall group materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the consolidated financial statements as a whole.

### Other information

The directors are responsible for the other information. The other information comprises the Directors’ report and the Statement of Compliance with Corporate Governance Code (but does not include the financial statements and our auditor’s report thereon).

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon except as explicitly stated within the Report on other legal and regulatory requirements.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above 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.

### Responsibilities of the directors and those charged with governance for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Companies Act (Cap. 386), and for such internal control as the directors 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 Group’s and the Parent Company’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 Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

### Auditor’s 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 auditor’s 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. 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.

· 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 Group’s and the Parent Company’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 Group’s or the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern

· 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.

· Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance 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 those charged with governance 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 those charged with governance, 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 auditor’s 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.

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Report on other legal and regulatory requirements

### Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6

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 (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the Annual Financial Report of Merkanti Holding p.l.c. for the year ended 31 December 2025, entirely prepared in a single electronic reporting format.

Responsibilities of the directors

The directors are responsible for the preparation of the Annual Financial Report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.

Our responsibilities

Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report, including the consolidated financial statements and the relevant electronic tagging therein, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.

Our procedures included:

· Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Financial Report, in accordance with the requirements of the ESEF RTS.

· Obtaining the Annual Financial Report and performing validations to determine whether the Annual Financial Report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.

· Examining the information in the Annual Financial Report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the Annual Financial Report for the year ended 31 December 2025 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

### Other reporting requirements

The Annual Financial Report and Consolidated Financial Statements 2025 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.

The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.

Area of the Annual Financial Report and Consolidated Financial Statements 2025 and the related Directors’ responsibilities | Our responsibilities | Our reporting
Directors’ report The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act. | We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements. In addition, we are required to state whether, in the light of the knowledge and understanding of the Company and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements. | In our opinion: · the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and · the Directors’ report has been prepared in accordance with the Maltese Companies Act (Cap. 386). We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
Statement of Compliance with Corporate Governance Code The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules. The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97. The Statement provides explanations as to how the Company has complied with the provisions of the Code, presenting the extent to which the Company has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles. | We are required to report on the Statement of Compliance by expressing an opinion as to whether, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements. We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97. We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s corporate governance procedures or its risk and control procedures. | In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority. We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
| Other matters on which we are required to report by exception We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion: · adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us. · the financial statements are not in agreement with the accounting records and returns. · we have not received all the information and explanations which, to the best of our knowledge and belief, we require for our audit. We also have responsibilities under the Capital Markets Rules to review the statement made by the directors that the business is a going concern together with supporting assumptions or qualifications as necessary. | We have nothing to report to you in respect of these responsibilities.

### Other matter - use of this report

Our report, including the opinions, has been prepared for and only for the Parent Company’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.

### Appointment

We were first appointed as auditors of the Company on 22 August 2018 for the year 31 December 2015. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 11 years. The company became listed on a regulated market on 16 August 2019.

Norbert Paul Vella

Principal

For and on behalf of

PricewaterhouseCoopers
78, Mill Street
Zone 5, Central Business District
Qormi

Malta
29 April 2026