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Company Registration Number: C 1607
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements
31 December 2022
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
1
CONTENTS
Chairman’s Statement to the Members 2
Chief Executive Officer’s Review 4
Directors’ Report 8
Statement of Compliance with the Principles of Good Corporate Governance 25
Remuneration Report 34
Company Information 39
Financial Statements:
Statements of Financial Position 41
Income Statements 43
Statements of Comprehensive Income 44
Statements of Changes in Equity 45
Statements of Cash Flows 49
Notes to the Financial Statements 50
Additional Regulatory Disclosures 167
Five Year Summaries 199
Independent Auditor’s Report to the Shareholders of Lombard Bank Malta p.l.c.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
2
Chairman’s Statement to the Members
The Lombard Bank Group registered a record pre-tax profit of €27.7 million in the financial year 2022. For Lombard
Bank Malta p.l.c. (the ‘Bank’) the year’s performance was facilitated by a generally improved operating
environment characterised by the return to positive interest rates after years of a highly accommodative monetary
policy, a marked recovery of the domestic economy and the resolution of a large non-performing credit exposure.
The operations of the Bank’s subsidiary, MaltaPost p.l.c., on the other hand, continued to be affected by pandemic
and Brexit-related logistical difficulties, generally higher operating costs and unsustainably low postal tariffs,
leading to reduced profitability.
As in previous years net interest income was the Bank’s main revenue source, reflecting the strong growth in loans
and advances to customers in the first half of the year and increased earnings on balances with counterparties and
on the securities portfolio, in part the result of asset switching to take advantage of higher market rates. Net fees
and commission income from our credit and other activities also made a positive contribution to earnings such
that the Bank’s total income resumed its rising trend to reach €29.7 million.
Operating costs partly offset these income flows, though to a lesser extent than in the previous year. Employee
compensation and benefits remained the major cost item. While the staff complement did not increase on
average, the need to attract and retain professional expertise in a highly competitive segment of the labour market
implied greater outlays. The Bank also continued to invest in new information technologies, with an emphasis on
automation of reporting and other systems. Staff training was given increased attention, with several new internal
and external courses being introduced. The Bank’s cost to income ratio eased to 57.4%.
During 2022, after years of judicious management and guidance, the Bank secured the repayment of a large
corporate loan. This was a concrete example of effective credit risk management. This one-off factor contributed
significantly to the Bank’s profit before tax of €28.8 million, making for a return on equity of 14.0%.
At the same time, the Bank’s low-risk business model continued to deliver sound financial fundamentals. This is
an important consideration for both existing and prospective shareholders. The Total Capital Ratio and the
Liquidity Coverage Ratio were both above the statutory minimum levels at 15.4% and 210.7%, respectively, while
the leverage ratio, at 10.8%, was more than three times the required level. The Lombard brand continued to enjoy
the trust of the market, as reflected in the steady growth of deposits and lending and a prudent ratio of loans to
deposits of 70.4%. The Bank’s sound banking practices and reputation were also recognised in 2022 when a leading
US bank accepted to enter into a correspondent banking relationship for dealings in US dollars.
Another encouraging development during the year was the further decline to 3.5% in the ratio of facilities that are
classified as Non-Performing Loans. This ratio is well below the regulatory threshold. The quality of the Bank’s loan
book is also reflected in the relatively low loan-to-value ratios and high levels of collateral. The planned process of
credit diversification meanwhile continued with the share of personal and retail lending increasing to 26%, mainly
reflecting growth in the home loan portfolio.
In a forward-looking perspective, the consolidation of the Bank’s market position called for more investment in a
number of operational areas, not least in our automated anti-money laundering transaction monitoring system,
the IT infrastructure and the introduction of a new core banking system. Specialised personnel were recruited in
the process, while external consultants were contracted to complement in-house expertise in areas such as the
ESG action plan. As part of the Bank’s strategy of providing its services to a wider customer base in response to
market demand, nine branches are now in operation and work on others is underway.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
3
Chairman’s Statement to the Members (continued)
Translating the Bank’s undoubted potential to create further value for its stakeholders into tangible results
depends on the availability of sufficient capital. To this end, each year in the past the Bank retained a part of its
profits to strengthen its capital base, without the need to resort to the shareholders for further capital. In recent
times, however, this method has proved insufficient due particularly to the imposition of ever-higher capital
requirements for banks by the regulators and the growing demand for credit. The Board accordingly drew up a
Capital Plan, validated by external consultants, which concluded that in the current market conditions the interests
of the Bank would be best served by a Rights Issue of shares. As you are aware, however, at a specially convened
EGM in November 2022 the Bank’s Qualifying Shareholder chose to block this proposal. Despite the Bank’s
repeated efforts, however, the Qualifying Shareholder has, to date, not changed its stance. Consequently, the
Bank’s plans for growth have been obstructed due to the Qualifying Shareholder exercising such control over the
Bank’s operations.
In such circumstances the conservation of capital must take precedence and therefore the Board has reluctantly
decided not to recommend the payment of a dividend. Instead, it proposes to issue one bonus share for every
forty-five shares held, such that the Bank’s capital is not reduced.
The Bank’s subsidiary, MaltaPost p.l.c. experienced another challenging year in its financial year ending September
2022 and recorded a reduced net profit after tax of €0.3 million. The persisting economic fallout from the COVID-
19 pandemic was compounded by the wider effects of the war in Ukraine, notably disruptions in global supply
chains and widespread inflationary pressures, and of Brexit on UK-EU trade. The company’s financial performance
was also significantly impacted by low postal tariffs that do not cover the related cost, and this in the context of
further declines in mail volumes and marked increases in labour and other operating costs. These factors, however,
were not allowed to interrupt the company’s investment programme, including the provision of a wider range of
postal services, life and general insurance products and initiatives designed to further reduce carbon emissions.
While the Bank started this year from a strong position, numerous challenges still need to be faced if our growth
momentum is to be maintained. These include the unpredictable effects of higher interest rates on business cash
flows, the economic fallout of the heightened geopolitical tensions in Europe, the increasingly costly one-size-fits-
all regulatory regime and the conduct of the largest shareholder in its role as the Bank’s Qualifying Shareholder in
the context of our plans to raise capital.
The Board is nevertheless determined to ensure the sustainability of its business model which has consistently
created wealth and earned the Bank a reputation for delivering reliable banking services to both personal and
corporate customers underpinned by solid values and best-practice standards. In this spirit we will continue to
implement the growth strategy we outlined to shareholders last November, taking advantage of the market
opportunities we have identified while addressing wider stakeholder interests, but without assuming a higher risk
appetite than at present. If the necessary capital is made available, Lombard Bank is well positioned to realise its
growth potential.
In conclusion, on behalf of the Board I would like to thank the Bank’s staff and management team, ably led by the
Chief Executive Officer, Joseph Said, whose professional expertise and unwavering efforts made the past year’s
encouraging results possible in spite of the capital constraint and other challenges I have described. I would also
like to thank those stakeholders who continue to support the Group by their loyalty and commitment.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) as per the
Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
4
Chief Executive Officer’s Review
The results of the Lombard Bank Group for the financial year ended 31 December 2022 include the financial
performance of Lombard Bank Malta p.l.c. and Redbox Limited which is the company holding the Bank’s shares in
MaltaPost p.l.c.
Summary Overview
The Maltese economy has proven to be resilient, assisted not least by the removal during the year of Malta from
the FATF Grey List. The economy showed strong growth in both private and public consumption and our customers
reported a favourable performance having benefitted from the positive macro-economic conditions.
Against this scenario, the Bank’s performance was a positive one both in terms of financial results as well as
progress registered in the implementation of those strategic priorities that were within its control. Our approach
to business remains consistent in that we continue to embrace the norm of ‘safety first’ by shying away from those
activities which we consider that, sooner or later, may result to be detrimental, both financially as well as
reputationally.
We are proud of our uncomplicated, straightforward and transparent business model, which continues to serve
us consistently well and to the benefit of all stakeholders. Under no circumstances will we compromise our
prudent and traditional approach to the business of banking. With us, the building of long-term and solid
relationships take precedence over the prospect of short-term gains.
In Credit, the single largest Non-Performing Loan was resolved with the resulting write-back being a significant
contributor to the year’s results. We sought to maintain a high-quality Commercial Loans book, with the respective
ratios well within our risk appetite parameters and in line with those of our peers. Home Loans continued to
register encouraging growth, and we also strengthened our offering by the inclusion of related insurance services.
Both these activities are managed by trained and certified staff members in conformity with regulatory
requirements.
We proceeded with our plans to expand into the retail market. Increasing the scale of our operation did not come
without its challenges not least by way of engagement of staff in sufficient numbers, aptitude and competencies.
Healthy counterparty relationships were maintained as these remain important for our continued access to
international currency and money markets. During the year we enhanced our correspondent banking network by
the inclusion of an indigenous US bank. We consider this to be an endorsement of our prudent and judicious
approach to business. We now look forward to working closely with Bank of New York Mellon.
In Wealth Management, our advisory and discretionary portfolio services both picked up pace with a growing
number of customers choosing to avail themselves of our services. As to Fund Management, we should be in a
position to launch this new activity once the issue concerning our project to raise capital is resolved.
The year was a particularly challenging one for our subsidiary, MaltaPost p.l.c. which, although made to bear
significant increases in costs, still continued to sustain the Universal Service Obligation despite the persistent
decline of Letter Mail volumes and delays of over two years by the Regulator to approve increases in postal tariffs.
A long-awaited Regulatory decision allowing a tariff revision towards the latter part of the financial year was a
much-needed development. Meanwhile the Company proceeded with its investments in life and general
insurance, as we continued to support its financial services activities.
Review of Financial Performance
Group Profit before Tax for the FYE 2022 stood at €27.68 million, an increase of 119%.
Loans and Advances to Customers rose by 11% reaching €711.61 million. Total Interest Income increased by 13%
with Interest Receivable and Similar Income on Loans and Advances reaching €25.52 million. Interest Expense was
up by 9% reflecting a higher volume of Amounts Owed to Customers, which stood at €1,008.43 million. Net Interest
Income also rose by 14% to €22.28 million when compared to the previous year.
Net Fee and Commission Income improved by 4% to reach €5.42 million, supported by a positive trend registered
in the Bank’s various business lines during the year.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
5
Chief Executive Officer’s Review (continued)
Group Employee Compensation and Benefits decreased by 1% to €24.01 million, while Group operating costs
decreased by 15% to €20.87 million. The Bank’s Cost Efficiency Ratio was 57.4% (FYE 2021: 60.8%), a reflection of
effective cost management.
Impairment Allowances, as determined by International Financial Reporting Standard 9 (IFRS 9), for the FYE 2022
stood at €10.66 million. The change in ‘Expected Credit Losses’ (ECL) resulted in a net impairment reversal of
€16.24 million compared to a reversal of €1.46 million in the previous year. Besides the full recovery of our single
largest Non-Performing Loan, which had been provided for in previous years, Pandemic-related management
overlays set in the previous year were reversed, reflecting the prevailing changed economic circumstances.
Liquidity and Own Funds
The Bank relies on a diversified liquidity funding base which has proven to be relatively stable, largely from local
retail deposits with emphasis placed on long-term tenors, as we believe that the benefits of such tenors outweigh
the higher interest rate that they command.
Advances to Deposits Ratio stood at 70.6% compared to 65.8% same period last year.
Total Assets stood at €1,203.42 million (2021: €1,172.65 million), while Equity Attributable to the Shareholders of
the Bank stood at €136.21 million. Net Asset Value (NAV) per share stood at €1.50 (2021: €1.53). Group Earnings
per Share (EPS) increased to 19.4 cents. Return on Assets (ROA) stood at 1.5% (2021: 0.7%) while post-tax Return
on Equity (ROE) was 12.8% (2021: 5.7%).
Treasury Management
Just past the first half of 2022, as had been widely anticipated, the European Central Bank (ECB) raised its key
interest rates for the first time in 11 years – raising them again in September, October and December.
Consequently, opportunities to place funds earning positive interest once again emerged. However, our prudent
approach of investing primarily in the local economy continued, with the main objective being that of protecting
assets, particularly in view of the geopolitical crises resulting from the Russia / Ukraine war.
Thus overall, we reduced our exposure to international markets by engaging mostly in short-term interbank
transactions with reputable counterparties and local government, where our positions consisted mainly of
Government of Malta Treasury Bills and Stocks. Despite that as a matter of policy such holdings are held to
maturity, book losses were registered consequent to the sudden, frequent and sharp increases in interest rates.
Risk Management
The Bank has in place an Enterprise-wide Risk Management Framework that covers a comprehensive and
coordinated approach to identify, monitor and measure potential risks. As necessary, such risks are mitigated and
measures taken to bring these within the parameters set in our Risk Appetite Statement.
The acceptance, management and control of risk all are governed by approved policies and procedures that form
the basis of our decision-making processes – always within the risk tolerance parameters set by the Board of
Directors and strictly in compliance with statutory requirements.
In keeping with the principles of the three lines of defence framework, our Risk Management function, reports
directly to the Audit & Risk Committee and Board of Directors. Periodically, a detailed insight into the Bank’s risk
management environment and situation of tolerance limits, as per our Risk Appetite Statement, is submitted and
reviewed also taking into consideration macro-economic developments, the changing policy environment and
current views on relative risks. This ensures that the parameters set within the Statement remain valid and
consistent with the Bank’s business objectives.
In terms of capital planning, in the third quarter of 2022, the Bank informed the market of its intention to raise
capital so as to satisfy current and future regulatory requirements, pursue its growth objectives and also to cater
for any unforeseen adverse economic conditions exogenous to the Bank.
The Bank’s Total Capital Ratio (‘TCR’) at the end of 2022 stood at 15.4%.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
6
Chief Executive Officer’s Review (continued)
The Leverage Ratio, which is also monitored and reported to the Board regularly, allows for the assessment of the
Bank’s exposure to the risk of excessive leverage. At end 2022 this stood at 10.8%, more than three times the
minimum regulatory requirement of 3%.
The Bank ensures that it invariably remains sufficiently liquid. In this respect, key liquidity metrics such as the
Liquidity Coverage Ratio (‘LCR’), the Net Stable Funding Ratio (‘NSFR’) and the Loan-to-Deposit Ratio are constantly
monitored and regularly reported to the Board. At the end of 2022, these key metrics stood at 210.7%, 148.3%
and 70.4%, respectively and well within our risk appetite parameters.
Also, our Internal Capital Adequacy Assessment Process (ICAAP) is reviewed annually. In line with the Bank’s robust
stress-testing framework, such testing is regularly carried out on Capital and Liquidity to assess the Bank’s
resilience to extreme but plausible shocks.
Human Resources
The investment in human resources was ongoing and this by way of improved remuneration packages for all staff,
various benefits such as advantageous interest rates on lending, health and life insurance cover.
We are aware that attracting, motivating and retaining staff is a challenge in a labour market which remained very
competitive within the financial services sector and more so by way of competition for talent from sectors
perceived as offering better reward and career opportunities. Attrition rates returned to pre-Pandemic levels such
that keeping up with the demand for staff consequent to the Bank’s growth called for intensified recruitment
programmes. These remain based on searching, selecting and engaging a mix of suitably experienced staff with
those starting their career. We also participated in the Malta College of Arts, Science and Technology (MCAST)
Apprenticeship Scheme. Having completed their course of studies, a number of students joined the Bank as full-
time staff members.
The investment in the skills and development of staff members by way of internal and external training and
development opportunities coupled with on-the-job training, was ongoing.
Our human resources remain instrumental for the achievement of objectives and the success of the Group. Indeed
I am proud and grateful to be leading a staff team that, at all levels and grades is truly professional. At year end
the staff complement at the Bank stood at 209 while that of the Group reached 961 members.
Projects
Projects were predominantly related to technology and premises. The ATM network was extended by further
installations at branches and at selected offsite locations. We also introduced modern depository services on the
most recent ATM additions. Our ATM fleet now consists of 18 machines. Besides the ongoing investment in
cybersecurity and reporting systems, work related to replacement of the core banking system proceeded in
earnest. This project also has within its scope the refreshing of customer-facing digital channels.
We continued with our investment in our retail network, and as at the end of FY 2022 operated from eight
branches in Malta and one in Gozo. One new branch was opened in Santa Venera and others are set to follow in
2023. As a matter of policy, rather than lease the Bank seeks the outright ownership of properties it uses to run
its business from. This reflects solid commitment to Malta, while also benefitting from capital appreciation which
in turn enhances the underlying value of the Bank.
Continuing on the success of previous years, in collaboration with the Central Bank of Malta we participated in a
gold bullion coin issue. The Melita coin was struck in four denominations and the issue was well received by
collectors.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
7
Chief Executive Officer’s Review (continued)
Corporate Social Responsibility
While we support various entities in their socially meaningful, charitable and cultural initiatives, however, we
prefer doing so unobtrusively.
An important aspect of CSR initiatives, also in line with our ESG agenda, is that of minimising the negative impact
that the Bank’s operations may have on society and the environment. In this respect, the restoration and
adaptation of important buildings as offices results in reduced building material consumption, less waste
generation and lower energy consumption when compared to new build. Among our branches and offices are
buildings of architectural significance such as those at Palazzo Spinola on Republic Street and Frederick Street in
Valletta and the branch on Tower Road in Sliema. Planning permission has recently been received to convert to a
branch another Grade A listed property, at Saqqajja, Rabat.
These properties are now a hallmark of the Bank and in synch with its image of being traditional and firmly
established in the Maltese community.
Our subsidiary MaltaPost p.l.c. continued to extend its support to the Malta Community Chest Fund, Id-Dar tal-
Providenza and other select social and cultural organisations. Another initiative which merits mention relates
to the MaltaPost p.l.c. facility in Gozo where over 60 persons with special needs are in gainful employment and
form an integral part of the team extending full document management services to a wide range of customers.
This project is being run in collaboration with Jobs Plus as well as the Lino Spiteri Foundation.
MaltaPost p.l.c. also runs a postal museum, housed in a restored building in Valletta. The museum is now also
acknowledged as part of Malta’s unique heritage. In line with its ESG agenda, the Company has continued to invest
in more electric vehicles which now number over 100, thereby substantially reducing carbon emissions. The Group
also continued with its investment in renewable energy sources, and currently has over 400 PV panels installed on
Group buildings.
Outlook
Given our growth plans and considering the current and forthcoming regulatory capital requirements it became
evident that the Bank would need to increase its capital by accessing the capital markets, the first time in over 20
years, as all capital needs since then have been satisfied internally from retained earnings. In consultation with
financial and legal experts several options were considered, and it was decided that the option that would best
serve the Bank was that of a Rights Issue of shares. Unfortunately, this initiative was effectively blocked by the
Bank’s Qualifying Shareholder at an appositely convened EGM in November 2022. One looks forward to having
this issue resolved, sooner rather than later, thereby allowing the Bank to proceed with its plans for growth.
Although the European Commission’s economic forecast for Malta in 2023 is for real GDP to grow by 3.1%, one
however cannot overlook the possible disruptive impact of the high levels of inflation and continued geopolitical
uncertainties. That said, our positive 2022 performance and robust financials, our loyal customer base and the
dedication and commitment of our staff encourage us to look ahead with cautious optimism. The ethos of the
Bank shall remain one of prudent custodianship of customers’ deposits and protection of shareholder funds. The
Bank is confident that it has the potential to grow considerably, thereby remaining a truly indigenous bank having
the exclusive mission and vocation to focus on servicing the needs of the Maltese community at large.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Joseph Said (Chief Executive Officer) as per
the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report and
Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
8
Directors’ Report
The Group
The Lombard Bank Group (the Group) consists of Lombard Bank Malta p.l.c. (the Bank), Redbox Limited, Lombard
Capital Asset Management Limited, Lombard Select SICAV p.l.c. and the MaltaPost p.l.c. Group.
Principal Activities
The Bank was registered in Malta in 1969 and listed on the Malta Stock Exchange (MSE) in 1994. It is licensed as a
credit institution under the Banking Act, 1994 and is an authorised currency dealer and financial intermediary. It
is also licensed to carry out investment services in terms of the Investment Services Act, 1994 and is an enrolled
Tied Insurance Intermediary of IVALIFE Insurance Limited under the Insurance Distribution Act, 2018.
The Bank is a member of the Depositor Compensation Scheme and the Investor Compensation Scheme set up
under the laws of Malta. It is also a member of the MSE for the purpose of the carrying out of stockbroking on the
MSE. The Bank has a network of branches in Malta and Gozo providing an extensive range of banking and financial
services. A list of branches, outlets and departments is found on page 40 of this Annual Report.
During the year under review, Redbox Limited, a company virtually wholly owned by the Bank continued to serve
as the special purpose vehicle holding as at 31 December 2022 the Bank’s 71.5% shareholding in MaltaPost p.l.c.,
with the remaining 28.5% of the ordinary share capital of MaltaPost p.l.c. being held by the general public.
MaltaPost p.l.c. is Malta’s leading postal services company, being the sole licensed Universal Service Provider of
postal services in Malta. More information about the MaltaPost Group may be found on www.maltapost.com.
Lombard Select SICAV p.l.c. holds a collective investment scheme licence in terms of the Investment Services Act,
1994.
Lombard Capital Asset Management Limited is licensed to act as a UCITS management company and to provide
investment management services to undertakings for collective investment in transferable securities (UCITS
schemes).
Review of Performance
An overview of the development in the Bank’s business and that of its subsidiaries during the year under review
together with an indication of likely future developments may be found in the ‘Chief Executive Officer’s Review’
of this Annual Report.
Group profit before tax for the financial year ended 31 December 2022 amounted to €27.7 million (2021: €12.6
million). Profit attributable to equity holders of the Bank was €17.5 million (2021: €7.5 million).
Net interest income at €22.3 million was 13.9% higher than the previous year. Increase in credit activity and
increased interest earned on treasury operations contributed to this increase. Higher activity in most business
lines during the year resulted in an increase of 3.9% in net fee and commission income.
Net loans and advances to customers increased by 10.7% to €711.6 million. Customer deposits increased by 3.2%
to €1,008.4 million. Group post tax return on equity for 2022 was 12.8% (2021: 5.7%). Group total assets increased
to €1,203.4 million (2021: €1,172.6 million). Total capital ratio at 15.4% (2021: 15.9%) exceeded the minimum
regulatory requirements.
Bank cost efficiency ratio at 57.4% (2021: 60.8%) was affected by increases in human resource cost well offset by
revenues from increased business volumes.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
9
Directors’ Report (continued)
Expected Credit Losses (ECL) as determined by International Financial Reporting Standard 9 (IFRS 9) resulted in a
release of €16.2 million compared to a reversal of €1.5 million taken in the previous year. This was mainly
attributable to a significant recovery on a commercial non-performing loan which had been largely provided for in
previous years. Management overlays reserved in the previous year in connection with the pandemic were
reversed in line with the changed circumstances pertaining as at the end of the financial year.
MaltaPost p.l.c. realised lower profitability as it continues to carry the unfair financial burden of subsidising out of
pocket, a number of postal services within the Universal Service Obligation, including those relating to Local Mail
and Outbound Parcels. While non-regulated postal and non-postal revenue streams continued to provide
reasonable profit margins, the full impact on revenue of Brexit and the EU’s removal of VAT exemption on all non-
EU origin small value items was felt. As traditional postal volumes continued to drop, other non-postal income
arose from document management services, bill collection, financial services and insurance.
Equity attributable to equity holders of the Bank stood at €136.2 million (2021: €137.3 million). Group net asset
value (NAV) per share stood at €1.5 (2021: €1.5). Group earnings per share (EPS) increased to 19.4 cents.
Profits after taxation of €17.6 million and €18.5 million for the Group and the Bank, respectively were registered
for the twelve months ended 31 December 2022.
The Board of Directors is proposing a bonus share issue of one (1) share for every forty-five (45) shares held. The
bonus issue will be funded by a capitalisation of reserves amounting to €252,022. Resolutions to this effect will be
proposed to the 2023 Annual General Meeting. No dividend is being proposed by the Board of Directors.
Board of Directors and Senior Management
The composition of the Bank’s Board of Directors and Senior Management is shown in the section on ‘Company
Information’ on page 39 of this Annual Report and further information is given in the ‘Statement of Compliance
with the Principles of Good Corporate Governance’.
Risk Management
The Financial Risk Management note to the Financial Statements (note 2), illustrates the process of how the Group
identifies and manages its risks and uncertainties. The main categories of risk described in this note are credit risk,
market risk, liquidity risk and operational risk. The same note includes extensive detail of the processes undertaken
by the Bank to manage these risks.
The Directors are required by the Companies Act, 1995 to prepare financial statements which give a true and fair
view of the state of affairs of the Group and the parent company as at the end of each reporting period and of the
profit or loss for that period.
Statement of Directors’ Responsibilities for the Financial Statements
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; and
• ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to
presume that the Group and the parent company will continue in business as a going concern.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
10
Directors’ Report (continued)
The Directors are also responsible for designing, implementing and maintaining such internal controls as they
deem necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error, and that comply with the Companies Act, 1995 and the Banking Act, 1994. They are
also responsible for safeguarding the assets of the Group and the parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The financial statements of the Bank for the year ended 31 December 2022 are included in this Annual Report and
made available on the Bank’s website. The Directors are responsible for the maintenance and integrity of the
Annual Report on the website in view of their responsibility for the controls over, and the security of, the website.
Access to information published on the Bank’s website is available in other countries and jurisdictions where
legislation governing the preparation and dissemination of financial statements may differ from requirements or
practice in Malta.
Statement of the Directors pursuant to Capital Markets Rule 5.68
The Directors confirm that, to the best of their knowledge:
• the financial statements give a true and fair view of the financial position of the Bank as at 31 December 2022,
and of its financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards as adopted by the EU; and
• the Annual Report includes a fair review of the development and performance of the business and the position
of the Bank, together with a description of the principal risks and uncertainties that they faced.
Investment Services Rules for Investment Service Providers
In accordance with R4- 4.3.4 of the Investment Services Rules for Investment Service Providers regulated by the
Malta Financial Services Authority, licence holders are required to disclose any regulatory breaches of the Rules
or other regulatory requirements in this Report. The Directors confirm that during the reporting period, there
were no breaches of the Investment Services Rules or other regulatory requirements, which were subject to an
administrative penalty or other regulatory sanction other than those in the public domain.
Information provided in accordance with Capital Markets Rule 5.70.1
There were no material contracts to which the Bank, or any of its subsidiaries were a party, and in which any one
of the Bank’s Directors was directly or indirectly interested, except for transactions disclosed in the notes to the
financial statements.
Going Concern
In compliance with Capital Markets Rule 5.62 and after having duly considered the Bank’s performance, the
Directors declare that they expect the Bank will continue to operate as a going concern for the foreseeable future.
Capital Markets Rules – Disclosures
In terms of Capital Markets Rule 5.64, the Directors are required to disclose the following information.
As at the Annual General Meeting held on 26 May 2022, the authorised share capital of the Bank was €20,000,000
made up of 80,000,000 ordinary shares of a nominal value of 25 cent each. As at that date the issued and fully
paid-up share capital of the Bank was €11,191,740 divided into 44,766,961 ordinary shares of a nominal value of
25 cent each, all of one class.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
11
Directors’ Report (continued)
Following the approval by the Bank’s shareholders at the above-mentioned 2022 Annual General Meeting, the
amount of €149,226.50 from the Bank’s Retained Earnings Account was capitalised for the purpose of issuing
596,906 fully paid ordinary shares of a nominal value of €0.25 per share representing 1 bonus share for every 75
shares held allotted to the eligible members appearing on the Bank’s Register of Members as at close of trading
on the Malta Stock Exchange on 22 June 2022. Following this allotment, the Issued and fully paid-up Share Capital
of the Bank increased to €11,340,966.75 divided into 45,363,867 ordinary shares of a nominal value of 25 cent
each, all of one class.
The Bank held an Extraordinary General Meeting on 10 November 2022. Among other resolutions, the
shareholders approved a redenomination of nominal value of share capital (share split) and an increase in
authorised share capital.
By virtue of the above, the authorised share capital of the Bank was increased and redesignated to €37,500,000
divided into 300,000,000 Ordinary Shares of a nominal value of €0.125 each and the Issued and fully paid-up share
capital of the Bank was redesignated to €11,340,966.75 divided into 90,727,734 Ordinary Shares of a nominal
value of €0.125 each.
Amendments to the Memorandum and Articles of Association of the Bank are effected in conformity with the
provisions in the Companies Act, 1995. Furthermore, in terms of the Articles of Association:
• Directors may be authorised by the Bank to issue shares subject to the provisions of the Memorandum and
Articles of Association and the Companies Act;
• Directors may decline to register the transfer of a share (not being a fully paid share) to a person of whom they
do not approve;
• Directors may decline to recognise any instrument of transfer, unless accompanied by the necessary evidence;
• no registration of transfers of shares shall be made and no new particulars shall be entered in the register of
members when the register is closed for inspection; and
• the Bank may, from time to time, by extraordinary resolution reduce the share capital, any Capital Reserve
Fund, or any Share Premium Account in any manner.
Currently there are no matters that require disclosures in relation to:
• holders of any securities with special rights;
• employee share schemes;
• restrictions on voting rights or relevant agreements thereto; or
• significant agreements to which the Bank is a party, and which take effect, alter or terminate upon a change of
control of the Bank.
The Remuneration Report on page 34 refers to the financial contributions towards retirement gratuities that the
Board of Directors approves from time to time. The same Board had previously resolved that a retirement gratuity
be eventually paid on an ex-gratia basis to the Chief Executive Officer on his retirement.
The rules governing the changes in Board membership are contained in the ‘Statement of Compliance with the
Principles of Good Corporate Governance’.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
12
Directors’ Report (continued)
Shareholders holding five per cent (5%) or more of the share capital of the Bank:
Shares in Lombard Bank Malta p.l.c.
31 December 2022 31 March 2023
National Development & Social Fund (NDSF) 49.01% 49.01%
Virtu Holdings Ltd 9.89% 9.89%
First Gemini p.l.c. 5.31% 5.31%
LifeStar Insurance p.l.c. 5.01% 5.01%
Directors’ Interest in Group Companies
Joseph Said, who is a Director of the Bank, is also a Director of the following companies that have a shareholding
in the Group as follows:
Shares in Lombard
Bank Malta p.l.c.
at 31 December 2022
Shares in MaltaPost p.l.c.
at 31 December 2022*
Safaco Ltd 86,642 44,745
First Gemini p.l.c. 4,814,122 36,341
Shares in Lombard
Bank Malta p.l.c.
at 31 March 2023
Shares in MaltaPost p.l.c.
at 31 March 2023*
Safaco Ltd 86,642 92,774
First Gemini p.l.c. 4,814,122 75,350
* The increase in the shareholding of Safaco Ltd and First Gemini p.l.c. in MaltaPost p.l.c. between 31 December 2022 and 31
March 2023 is attributed to a Scrip Dividend and the redenomination (Share Split) of the Share Capital of MaltaPost p.l.c. from
€0.25 per share to €0.125 per share with effect from 21 March 2023.
In addition, Joseph Said holds preference shares in Safaco Ltd.
Audit & Risk Committee
The Audit & Risk Committee is composed of non-executive Directors and is intended to ensure effective internal
controls, compliance and accountability. The Committee also acts to ensure that high ethical standards are
maintained, as explained in the ‘Statement of Compliance with the Principles of Good Corporate Governance’ in
another section of this Annual Report.
Auditors
PricewaterhouseCoopers have expressed their willingness to continue in office as auditors of the Bank and a
resolution proposing their reappointment will be put at the forthcoming Annual General Meeting.
Events occurring after the end of the accounting period
There were no significant events affecting the Bank or any of its subsidiary undertakings which have occurred after
31 December 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
13
Directors’ Report (continued)
Other Information
During 2022, the Bank announced that it would be accessing the capital markets to raise circa €50 million through
the issue of new shares. In this regard an Extraordinary General Meeting was held on 10 November 2022 with
resolutions concerning the following submitted for consideration and approval by the shareholders:
1. Redenomination of Nominal Value of Share Capital (Share Split)
2. Increase in Authorised Share Capital
3. Amendments to Memorandum and Articles of Association
4. Authority for Directors to issue new shares
By way of background, a revised strategy was also presented to further place the said resolutions within a context.
While the first three resolutions were approved, the National Development & Social Fund, the Bank’s Qualifying
Shareholder, blocked the fourth resolution that was key to allow the Directors to issue new shares. (Refer to
Company Announcements Ref. LOM 272 to 278.)
The Board of Directors continues to seek a way forward with its share issue so as to allow the Bank meet both its
regulatory capital levels as well as reach its growth potential.
In the circumstances therefore, the Board has reluctantly decided not to recommend the payment of a dividend
so as to preserve its capital levels.
Non-Financial Statement
The Companies Act requires that a non-financial statement be included in this report containing information on
the Group’s development, performance, position and impact of its activity, relating to, as a minimum,
environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters and
this in the form of particular disclosures on certain aspects.
1. Business Model
The Bank is a Malta-based bank and for financial stability purposes is considered by the Central Bank of Malta
as a core domestic bank, catering mostly for the local economy, and therefore actively supporting economic
sectors in their activities. The lending activity of the Bank consists mainly of Commercial and Retail Lending.
Commercial Lending is largely characterised by loan facilities to the commercial sector with short to medium
term maturities. Retail Lending consists mainly of home loan facilities with medium to long term maturities.
Asset diversification strategy is intended to increase the resilience of the Bank’s loan book and its lending
capacity. The Bank was enrolled as a Tied Insurance Intermediary for long term insurance business and can
therefore provide its Home Loan customers with a more comprehensive service offering. Lending is funded by
a diversified deposit base and underpinned by solid financial fundamentals and stakeholder value. The Bank
has never relied, and does not intend to rely, on the interbank market for its funding requirements, and retains
ample liquidity from its retail operations. The Bank seeks prudent growth, while adhering to the highest
standards of professional conduct, as evidenced by the quality of its assets and relationships. The Bank follows
risk review processes to ensure that business is in line with its risk appetite frameworks and its compliance
standards, which themselves are also reviewed periodically in light of regulatory developments and emerging
risks. The Bank continues seeking to expand its product and services portfolio into the retail market. It firmly
believes that in the Maltese market physical presence remains an important element, more so in respect of
customers who demand a personalised service, being the service delivery ethos of the Bank. Concurrently with
its investment in digital banking services, the Bank seeks to foster new relationships across a wider
demographic spectrum, and for this reason widened its physical presence. Presently the Bank has 11 physical
customer contact points, with a further 2 Bank owned properties earmarked for this purpose.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
14
Directors’ Report (continued)
The Bank’s business model is based on building stakeholder value by delivering financial services and solutions
in a prudent manner and by setting the highest standards in professional behaviour and implementing the
highest standards of compliance. The Bank’s competitive strengths are in its unique business operating model,
its conservative outlook towards risk and its robust fundamentals. The characteristics of its business model
give the Bank a competitive advantage, enabling it to continue to deliver value to all its stakeholders in a
challenging environment which remains highly competitive and increasingly regulated. The Bank’s brand,
which stands for the provision of personalised and tailored financial services, remains strong.
The Bank’s subsidiary, MaltaPost p.l.c. (MaltaPost) is Malta’s leading postal services company, being the sole
licensed Universal Service Provider of postal services on the Maltese Islands in terms of the Postal Services Act
(Chapter 254 Laws of Malta) and under the terms of the Universal Postal Union Convention and Constitution
on behalf of the Government of Malta. The Company operates a network of 6 Postal Hubs, 41 Post Offices and
28 Sub-Post Offices around Malta and Gozo.
Postal services remain characterised by a decline in Letter Mail volumes and in the corresponding income, and
on an opposing trajectory, increasing costs. MaltaPost p.l.c. continues to pursue its diversification into logistics,
document management, insurance and financial services. In insurance, MaltaPost p.l.c. has a 25% shareholding
in IVALIFE Insurance Limited, a company licensed to conduct long-term business of insurance and a 49%
shareholding in PostaInsure Agency Limited, an insurance agency for MAPFRE Middlesea p.l.c.
Document management services are offered through a fully owned subsidiary, Tanseana Limited. While
MaltaPost p.l.c. remains committed to be the trusted postal and logistics operator offering a comprehensive
product portfolio, these investments in non-postal sectors are intended to supplement income streams from
the core activity. MaltaPost p.l.c. continues with its engagement with the Regulator with a view of ensuring
that regulated postal tariffs are at a level which enable the company sustain the Universal Service Obligation.
As evident from the above disclosures, there were no notable changes to the core business strategies and
business models of Group entities.
2. Anti-Corruption and Bribery Matters
The Group remains committed to a zero-tolerance policy to bribery and corruption, financial crime and
breaches of the relative laws and regulations. The Group developed and maintains robust policies designed to
prevent and detect potential bribery and corruption in the form of an Anti-Bribery and Corruption (ABC) Policy
and Whistleblowing Policy.
The implementation of these policies is by means of processes, procedures and respective controls, which are
embedded in the Group’s structures and manuals in order to ensure that staff members act responsibly within
the workplace and outside. Guidelines and instructions regarding ABC and Whistleblowing are applicable and
available to all staff members. All staff members, including Directors and, where relevant, associated persons
are required to comply with the principles outlined. The Group supports a ‘speak-up attitude’ to encourage
reporting of concerns relating to what might appear to be suspected illegal, unethical or otherwise improper
acts or their concealment. The same standards are expected from any third parties providing services for or on
behalf of the Group. Staff members who fail to comply with the Group’s policies and standards may face
disciplinary action, up to and including dismissal or termination of employment. Training sessions keep staff
members abreast of their obligations at all times.
The Risk Management and Compliance functions exercise oversight over the implementation of respective
Policies, the former by including ABC in risk assessments and the latter by ensuring constant standards of
compliance. The Risk and Compliance functions also work together to ensure the proper functioning of these
policies, while the Internal Audit reviews results. Matters arising, if any, out of the adoption of these policies
are reported by the Compliance function in its reports to the Audit & Risk Committee and Board of Directors.
Policies are reviewed annually, or more often as required, by the relative business and internal control
functions with suitable recommendations, as is necessary, made to the Audit & Risk Committee and the Board
of Directors. During the year under review, there were no reported cases on the basis of the abovementioned
policies and therefore no necessary investigations.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
15
Directors’ Report (continued)
3. Social and employee-related matters
Social and employee matters are given full attention by the Group. The Group’s human capital is a key resource
for the carrying out of business. The ability to attract and retain human resources of the right skill-mix and
experience condition to a large extent the Group’s performance. The risk of not attracting or retaining the
appropriate quality staff in line with the Group’s business needs is mitigated generally by the approach to
managing this resource and specifically through a number of measures. Further information on employees may
be found in the Chief Executive Officer’s Review, Human Resources on page 6 and Note 31 to the Financial
Statements.
Collective Agreements are in place at the Bank and MaltaPost p.l.c., setting the conditions of work and
generally regulating the employer/employee relationship. The prevailing Agreements contain a number of
measures of assistance to staff members including days of special paid leave additional to those stipulated at
law, such as Study Leave, and extended Bereavement Leave. The Group enjoys harmonious industrial relations
with the full co-operation of respective trade unions, staff members and their representatives.
Oversight of key indicators, by which human resource performance is evaluated is maintained by the Head of
the Human Resources function and reported to senior management and the Risk Management function as
appropriate for suitable action if and as required. Performance management takes into consideration
leadership and other competencies required by particular positions as well as the Group’s corporate values.
The Group does not place quotas on the number of staff members whose personal circumstances require them
to work on reduced hours or need to absent themselves from work for an extended period of time on Child
Care Leave or other absences related to immediate family matters. In this regard, the Group is committed to
supporting and developing work-life balance measures further.
The Bank also extends a number of products and services to Group staff members on favourable terms
including, among others, advantageous terms on home loans and other personal borrowing. The Group keeps
an active line of communication with staff members through circulars, branch / department staff meetings and
one-to-one meetings among others and is committed to maintaining a working environment where staff is
valued, respected and supported to fulfil potential.
All members of staff are treated on equal terms with regard to career development and appointments and the
Group supports and practises gender equality and diversity. The Group, however, does not set specific targets
in this regard, as it firmly believes that progress is dependent largely on skill, competencies, attributes and
performance, rather than gender and / or other diversity factors. Being the largest employer in the Group,
MaltaPost p.l.c. was awarded the Equality Certification Mark following certification by local authorities in
recognition of its non-discriminatory values and as a provider of equal opportunities to its staff.
The Group abides by all applicable laws, rules and regulations relating to employment. While conscious of the
fact that the legal obligations are the minimum acceptable standard, the Group strives to surpass standards in
this area and continues to increase awareness among staff. The Group, for example, with circa 8%, well exceeds
the obligation to have 2% of the total staff complement composed of persons with disabilities. This reaffirms
the Group’s social outlook and its commitment to create a positive impact in society. Remuneration levels are
regularly reviewed to ensure that they are in line with the Group’s Remuneration Policy.
Investment in human capital was and still remains a fundamental pillar of sustainability for the company and
to this effect the Group has committed to invest in developing the skills of its workforce through both internal
and external training.
As in previous years, during 2022, Group staff members participated in several training sessions and on-the-
job training programmes. Training is driven by the requirement to meet identified training needs rather than
by the pursuit of specific numerical targets, which are therefore not set.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
16
Directors’ Report (continued)
The Group remains committed towards extending its support to a number of charitable, social and cultural
organisations.
Regarding consumer relations and protection, the Group adheres to all respective regulatory requirements
such as, inter alia, those arising from Markets in Financial Instruments Directive II (MiFID II), as also reflected
in the MFSA Conduct of Business Rulebook, the Cross Border Payments Regulation II (CBPR II), Payment
Services Directive II (PSD II), Payment Accounts Directive (PAD) and Banking Rule BR/22 Complaints Handling
Procedures for Credit Institutions Authorised Under the Banking Act, 1994.
The Group Complaints Management policies and relevant details on respective web sites provide the
information required for a consumer to submit complaints. During 2022 the Bank had no complaints brought
in front of the Arbiter for Financial Services for hearing and adjudication. In the case of MaltaPost p.l.c.,
customer complaints accounted for 0.002% of all mail items handled.
The Group does not actively push customers away from physical delivery channels. Maintaining a presence in
core community areas is given importance so as to facilitate accessibility and delivery of important services to
the community.
Please also refer to the Chief Executive Officer’s Review, Corporate Social Responsibility on page 7 and to
Principle 12 ‘Corporate Social Responsibility’ on page 31 for further information concerning social matters.
4. Health and safety
Maintaining the highest levels of health and safety and physical security of staff is of paramount importance.
As a minimum, the Group meets with all the statutory obligations set out in the Occupational Health and Safety
Authority Act, 2000. Further measures for the management of health and safety are adopted by way of
standards in Collective Agreements, appointment of Health & Safety Officers and appointment of local first
aiders and fire wardens. Regular checks of related processes and systems are carried out with outcomes
reported to the Health & Safety Officers, who will take action as and if required. Furthermore, health and safety
risk assessments are carried out to ensure that situations that may pose risks to the health and safety of staff
and others on Group premises are identified and mitigated. Occupational health awareness training is also
provided. No Health and Safety incidents were reported at the Bank, while MaltaPost Group registered a
decrease in the number of such incidents when compared to previous years and this result is mostly attributed
to investment in education, equipment and awareness. Some Group staff benefit from personal accident
insurance cover and others benefit from private health care insurance, as well as death in service cover.
5. Human rights
The Group is aware of the importance of ensuring that human rights are upheld across its operations. In this
respect the Group carries out its business without discrimination, respecting the standards set by national law
or higher standards as applicable, such as effective information and consultation processes, particularly where
these affect the place and conditions of work. Business conduct policies are in place to support this stance,
which extend also to counterparties. The Group avoids business with counterparties operating in economic
sectors that may be linked to or present a significant risk to violation of human rights or to social vices.
Additionally, the Bank’s AML/CFT processes, inter alia, assist in the identification of the proceeds of potential
human rights abuses. Any suspicions resulting from these processes are reported to law enforcement as per
current legislative requirements. Services that promote financial inclusion have been introduced also by way
of the PostaPay&Save account which serves as a basic payment account. This account was introduced to
encourage financial inclusion well before this was required by regulation. The account allows persons who may
have been unable to open bank accounts to enjoy the facilities of basic payment accounts with relative services.
PostaPay&Save accounts have now been opened for more than 14,000 individuals, though about 12,000
remain active.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
17
Directors’ Report (continued)
The Group did not encounter any issues, claims or reports on any human rights related matters and / or
violations. A grievance procedure is in place to provide effective remedy as and when needed. The Group is
committed to investigate any reports of human rights violations. As previously stated, the Bank has in place a
Whistleblowing Policy which covers among others, related issues. In accordance with this Policy reports are
submitted to the Heads of Risk Management and Internal Audit. During the year ending 2022, no reports in
accordance with this Policy were submitted.
Premises, including self service areas and ATMs, meet all accessibility regulations, apart from where physical
restrictions make this impossible, in which case discussions with the relevant regulatory bodies are held.
Property added to the Group’s real estate during 2022 provides full accessibility to persons with disabilities.
6. Environmental Matters
The Group does not execute a formal policy relating to environmental matters given its size, scale and nature
of operations. Nonetheless, the Group is mindful of the important role it has to play to contribute towards
safeguarding the environment as much as is possible, thereby minimising the environmental impact of its
operations. Besides assisting in the reduction of costs, being environmentally friendly and taking measures to
reduce its carbon footprint fits within the overall corporate social responsibility initiatives of the Group. The
Group continues with its programme of investment aimed at reducing reliance on fossil fuel power and demand
on the national power grid, as far as practical and opportune.
Relative initiatives included installation of PV panels. The Group has 426 PV panels on its buildings producing
7.6% of electrical energy requirements. Investment is aimed at reducing emissions from purchased electricity
through investment in renewable sources and energy efficient systems, such as installations of modern Heating
Ventilation Air Conditioning (HVAC) systems and Light Emitting Diodes (LED) light fittings. Waste separation
facilities and recycling processes are in place and are ongoing throughout the Group.
The Group operates approximately 100 electric vehicles, which replace internal combustion motor vehicles
and reduce the demand for more fossil fuelled vehicles, thereby contributing to an overall reduction of
approximately 118,000 kg of CO
2
per year. The Group continues with its efforts to reduce paper use. In this
respect, during 2022, the Group implemented a major paper-saving initiative with a view to reduce carbon
emissions.
The Group continues with its efforts to preserve buildings of architectural importance now serving as modern
and functional branches/offices. ‘Restoration with respect’ continues to be the Group’s motto when acquiring
and renovating buildings of architectural heritage value, delivering them back to society in their original
splendour.
Preservation and reuse of such property reduces resources and material consumption, generates less waste
and consumes less energy than developing greenfield and / or brownfield sites.
MaltaPost p.l.c. runs a postal museum also in a restored building in Valletta housing a collection of artefacts
related to Malta’s postal history. Additions to the collection of artefacts are made as opportunities arise,
thereby enriching further the country’s postal heritage.
The Group’s business is mostly carried out in Malta. The Malta climate-related risks are not expected to have
a consequence on the impairment or fair value of assets, give rise to credit losses and/or potential provisions
or contingent liabilities. Therefore, the impact of climate change on the financial performance is not expected
to be material. That said, like any other business the Group is however not shielded from the economic risks
of climate change, which in turn can have an impact on the financial performance.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
18
Directors’ Report (continued)
The Bank is mindful of the evolving Environmental, Social & Governance (ESG) regulatory landscape. It
continues following developments closely so as to further determine how ESG considerations influence the
manner in which it carries out its business and the extent to which such considerations are incorporated within
its risk management framework. ESG initiatives geared towards the Bank meeting with regulatory expectations
remain on-going. During the year, an ESG Working Group was set up with the aim of coordinating, advising and
providing recommendations on ESG related matters. This Working Group will also be responsible for ensuring
compliance with regulatory expectations and liaising with Senior Management, the Board-appointed
Committees and the Board of Directors in this regard. The Group also intends to further enhance its data
collection efforts in order to widen its scope for further improving its ESG credentials.
7. Risk Reporting
A Group enterprise-wide risk management framework is in place. It lays down the foundation for the risk
management reporting processes. This framework is subject to constant evaluation to ensure it constantly
meets the requirements of the markets in which the Group operates, including regulatory standards and
industry best practices.
The Group’s robust governance framework is supplemented by well-defined procedures embedded in
processes and subject to ongoing review and clear organisational structures and reporting lines.
The simple but clear organisation structure ensures that responsibilities and duties are well-defined and
communicated. Within the functions defined, processes are in place to identify, monitor, manage and report
risks. Internal control mechanisms, together with appropriate administrative and accounting procedures are
in place to ensure that the first line of defence complies with relevant processes.
To achieve an appropriate balance between sound practices and adequate returns to shareholders, a formal
Risk Management Policy, which is reviewed periodically, is in place. This overarching Policy allows for the
application of strict internal controls and discretionary limits, and optimising the returns thereof, in line with
the Bank’s risk appetite.
The risk appetite determines the maximum risk the Bank is willing to accept to meet business objectives. It is
updated for the purposes of strategic direction, macro-economic developments and changes in the regulatory
environment, this after a thorough analysis of the current risk profile. The risk appetite is reviewed by the
Board of Directors at least once a year.
The main categories of risk to which the Group is exposed to are:
Capital Risk Management – This is the inability to hold sufficient capital to safeguard the Group’s ability to
continue as a going concern, provide suitable returns for shareholders, maintain a strong capital base to
support the development of the business, comply with regulatory requirements and ensure sufficient capital
in the event of unexpected shocks. Capital management includes constant monitoring of capital positions
against regulatory and management limits as set in the Risk Appetite Statement. This monitoring is
supplemented by robust capital planning which process establishes suitable capital levels tailored for the
Bank’s risk profile and regulatory requirements (Notes to the Financial Statements note 2.7; Additional
Regulatory Disclosures notes 6 and 7).
Credit Risk – This is the risk of suffering loss should any of the Group’s customers or counterparties fail to
honour their contractual obligations to the Group. In this respect, Credit risk mainly arises from customer loans
and advances, since credit risk arising from its exposures to credit institutions and investment activities is
considered to be low. It constitutes the Bank’s single largest risk in view of its significant lending and securities
portfolio. Prior to granting a facility, a comprehensive assessment of the customer’s repayment capability is
carried out. To further minimise this risk, facilities are generally adequately secured by tangible security that is
reviewed periodically in line with regulatory requirements to ensure that the collateral still covers the facilities.
Also, periodic reviews are carried out to ensure that the conduct of facilities is in line with stipulated terms and
conditions (Notes to the Financial Statements note 2.3; Additional Regulatory Disclosures note 2).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
19
Directors’ Report (continued)
Liquidity Risk – This is the risk arising when the Bank is unable to meet current and future payment obligations
as they fall due. Liquidity management includes the constant monitoring of liquidity positions through
established ratios against internal limits as set in the Risk Appetite Statement, taking cognisance of minimum
regulatory requirements. Through its Assets & Liabilities Committee, the Bank’s liquidity profile is managed in
such a way that cash flows and all anticipated obligations are met when due. During the year, the Bank
continued to maintain robust liquidity buffers and adequate stable funding that the Liquidity Coverage Ratio
(LCR) and Net Stability Funding Ratio (NSFR) remain well above regulatory minima. (Notes to the Financial
Statements note 2.5; Additional Regulatory Disclosures note 4).
Market Risk – This is associated with fluctuations in the fair value or future cash flows because of changes in
market prices. The Bank does not operate a Trading Book and hence this is limited to Interest Rate Risk,
Currency Risk and Equity Price Risk. The Bank is accordingly able to manage the interest rate terms of its
financial assets and simultaneously to effect changes to interest terms of liabilities reflecting the Bank’s
strategy together with market developments. Currency risk for the Group is low since a natural hedge strategy
is adopted whereby Customer Deposits in one currency are matched with a corresponding asset of a similar
currency almost instantaneously. Also, Equity Price risk is also deemed to be low given that the Group’s assets
in the form of equity is less than 1% of the Group’s assets (Notes to the Financial Statements note 2.4;
Additional Regulatory Disclosures note 3).
Non-Financial Risks – These are the risk of losses that relate to inadequate or failed internal processes, people
or systems. Non-financial risks and losses cover a wide spectrum of areas including financial crime, regulatory
compliance, fraud, people, systems and processes which would in turn affect income and capital. Non-financial
risks are described in depth in the Risk Appetite Statement which acts as one of the four pillars of the Risk
Management Framework. These risks are benchmarked by using set parameters that are reviewed periodically
and determined by the Board. To ensure that the Bank remains in compliance with the limits set within its Risk
Appetite, operational policies and procedures are in place and are reviewed on an on-going basis. Since the
nature and frequency of non-financial risks materialising cannot be predicted, the Bank has in place adequate
insurance cover to cater for operational failures. To allow for such losses, as part of the Bank’s Capital Risk
management, a capital charge for unforeseeable losses arising from these risks is also taken (Notes to the
Financial Statements note 2.6; Additional Regulatory Disclosures note 5).
Compliance Risk – This is the risk of legal sanctions, material financial loss, or loss to reputation which the Bank
may suffer because of failure to comply with regulations, code of conduct, and standards of best practice. This
risk is managed by the Compliance function which identifies, assesses, advises, monitors and reports on the
Bank’s compliance risks. The Function acts as the Bank’s central point through which all interaction with
regulatory and enforcement bodies is channelled.
Financial Crime Risk – This is the risk related to offences such as money laundering, terrorist financing, fraud,
bribery & corruption, market abuse, insider trading and sanctions. The Bank through its various policies,
procedures and systems in place, is committed to combating financial crime and ensuring that its products and
services are not misused for the purpose of money laundering, terrorism financing and fraud events.
Information Security Risk – This is associated with the risk of data and/or financial loss resulting from deliberate
or accidental loss, alteration, falsification or leakage of information, destruction, disruption, errors or misuse
of information systems. Also, in its daily operations, the Bank runs the risk of losses from threats or malicious
attacks from internal staff and/or potential malicious intruders. While cognisant of these threats, having zero
appetite for such losses, the Bank has in place an Information & Cyber Security Policy, with robust procedures
supporting its implementation that ensures that strict internal controls and adequate measures are set and
maintained at all times to mitigate such threats. This Policy is reviewed annually to ensure it remains relevant.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
20
Directors’ Report (continued)
Key Performance Indicators (KPIs)
The Group has in place a set of financial and non-financial key performance indicators (KPIs) that are set by the
Board of Directors in its Risk Appetite Statement, monitored by the Risk Management Function and regularly
submitted to the Audit & Risk Committee for continuous assessment. They are a set of quantifiable measures
which ensure that material risks faced are kept within established parameters as detailed in the Risk Appetite
Statement and relevant policies. A selection of key metrics as at 31 December 2022 are presented hereunder.
Solvency TCR 15.4%
Leverage 10.8%
Liquidity LCR 210.7%
NSFR 148.3%
Profitability
Asset Quality
ROE
1
NPL
12.8%
3.5%
1
After tax
The KPIs are reported regularly to the Audit & Risk Committee and Board of Directors in the form of a Risk
scorecard. The scorecard takes the form of the “traffic light” approach and compares the actual metric to the
objectives set in the Risk Appetite Statement. As at the end of December 2022, all KPIs were within acceptable
ranges and/or tolerance limits as set within the Bank’s Risk Appetite.
Disclosures pursuant to Article 8 of the Taxonomy Regulation
To achieve the targets established by the European Union of reaching net zero greenhouse gas emissions (GHG)
by 2050, with an interim target of reducing GHG emissions by 55%, compared to 1990 levels by 2030, the
European Commission (’EC’) has developed a taxonomy classification system, by virtue of EU Regulation
2020/852, (‘the Taxonomy Regulation’ or ‘the EU Taxonomy’), which establishes the criteria for determining
whether an economic activity qualifies as environmentally sustainable.
The EU Taxonomy establishes criteria in terms of six environmental objectives against which entities will be
able to assess whether economic activities qualify as environmentally sustainable. To qualify as such, an
economic activity must be assessed to substantially contribute to one of these environmental objectives, whilst
doing no significant harm to the remaining objectives by reference to technical screening criteria established
in Delegated Acts. The economic activity is also required to meet minimum safeguards established in the
Taxonomy Regulation. The six environmental objectives considered by the EU taxonomy are the following:
i. Climate change mitigation;
ii. Climate change adaptation;
iii. Sustainable use and protection of water and marine resources;
iv. Transition to a circular economy;
v. Pollution prevention and control; and
vi. Protection and restoration of biodiversity and ecosystems.
The EC subsequently adopted the Delegated Act supplementing Article 8 of the Taxonomy Regulation (‘the
Disclosures Delegated Act’) in 2021 which establishes the disclosure requirements of entities within the scope
of the Taxonomy Regulation. At this stage, this solely comprises entities subject to an obligation to publish non-
financial information pursuant to Article 19a or Article 29a of Directive 2013/34/EU (being those entities
subject to the Non-Financial Reporting Directive, ‘NFRD’).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
21
Directors’ Report (continued)
The Disclosures Delegated Act became applicable for the first time on 1 January 2022, with the first disclosures
applicable for the financial reporting period ended 31 December 2021, adopting a phased-in approach to the
disclosure requirements of key performance indicators. In the first two years of its adoption, the Bank is only
required to disclose its proportion of exposures towards taxonomy-eligible and non-eligible activities, along
with its out-of-scope exposures in accordance with the Disclosure Delegated Act.
Identifying taxonomy-eligible economic activities will serve as a basis for determining taxonomy-alignment of
economic activities with reference to the technical screening criteria established in the Climate Delegated Act
and eventually the Environmental Delegated Act to the Taxonomy Regulation, and subsequently the
determination of the Bank’s Green Asset Ratio (‘GAR’), which it will be required to disclose from 1 January
2024.
The following table was prepared in accordance with the disclosure requirement established in the Disclosures
Delegated Act. Accordingly, for the purposes of classifying exposures as either taxonomy-eligible or non-
eligible, the Bank has only considered the first two environmental objectives established in the Taxonomy
Regulation (being climate change mitigation and climate change adaptation), with reference to the Climate
Delegated Act. The remaining four environmental objectives are expected to be captured as from 1 January
2024, in accordance with the draft Environmental Delegated Act (‘EDA’) which was published on 5 March 2023
and is subject to a feedback period until expected adoption by EC by June 2023. The Bank will therefore
continue to monitor market regulation and guidance in respect of this aspect of its Taxonomy reporting, given
the imminent nature of such reporting requirements.
Carrying amount
As a proportion of
total assets
2022 2021 2022 2021
€ 000 € 000 % %
Taxonomy eligible
251,192 196,678
21.5 17.3
Taxonomy non-eligible 48,466 90,851 4.1 8.0
Out-of-scope exposures* 870,962
852,085 74.4 74.8
of which non-NFRD counterparties 474,786 462,605 40.6 40.6
of which derivatives - -
- -
of which on demand interbank loans 17,584 22,916 1.5 2.0
of which other assets (incl. cash-related
assets) 70,841
88,649 6.1 7.8
of which trading portfolio -
-
- -
of which central governments, central
banks and supranational exposures 307,751 293,647 26.3 25.8
Total assets 1,170,620 1,139,614 100.0 100.0
*Out of scope exposures consist of (i) non-NFRD counterparties, (ii) derivatives, (iii) on demand interbank loans, (iv) other assets
including retail loans not related to residential real estate, house renovation and motor vehicles, and other assets not related to lending
or investments, (v) trading portfolio and (vi) governments, central banks and supranational exposures.
Scope of consolidation
The ratios disclosed above represent the Bank’s exposures on a standalone basis as a proportion of total assets
as at 31 December 2022 and 2021.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
22
Directors’ Report (continued)
Assets in scope
The amounts disclosed above as taxonomy-eligible and taxonomy non-eligible economic activities consider on-
balance sheet financial assets not held for trading by the Bank. These include:
i) Loans and advances, debt securities and equity instruments in relation to undertakings that are subject to
Non-Financial Reporting Directive;
ii) Real estate collaterals obtained by the Bank by taking possession in exchange for the cancellation of debts;
iii) Loans and advances towards individuals in respect of residential real estate, house renovation and motor
vehicles (the latter of which was nil as at 31 December 2022 and 2021); and
iv) The investment in the Bank’s subsidiary.
Other assets considered to be out-of-scope of the Taxonomy Regulation have been disclosed separately in the
table above.
Taxonomy-eligible and Taxonomy non-eligible economic activities
Taxonomy-eligible economic activities are those activities for which technical screening criteria have been
established by virtue of the Climate Delegated Act, and therefore may be assessed to determine whether the
activity is performed in an environmentally sustainable manner (i.e. taxonomy alignment may be assessed). By
contrast, taxonomy non-eligible economic activities are those activities which cannot be assessed as
environmentally sustainable as technical screening criteria against which one can assess the activity have not
been established. In assessing whether or not an exposure is taxonomy-eligible, the Bank must consider the
activity being financed rather than the principle operating activity of the counterparty. However, due to data
limitations from counterparties or lack of required information, this was not always possible, as explained
further below.
Total exposures to undertakings not subject to the Non-Financial Reporting Directive (NFRD)
Exposures to undertakings that are not obliged to publish Non-Financial Reporting Information as per Article
19a or Article 29a of Directive 2013/34/EU as a proportion of total assets are also being disclosed separately.
Data limitations
The Bank relies on several data sources to determine Taxonomy-eligible and non-eligible exposures and
exposures not subject to NFRD. As scoped-in entities adopt the Taxonomy Regulation requirements for their
own disclosures, this could lead to a lack of comparability between the data reported in the current reporting
period and that reported in future periods.
To establish the taxonomy-eligibility of exposures, the Bank has relied on the NACE classification of the
principal activity of the counterparty. However, this is considered to be work-in-progress as certain NACE
classifications do not necessarily reflect the economic activity for which the exposure has been granted. An
assessment has been carried out, on a sampled basis and for significant exposures, where the purpose of the
facility differs significantly from the primary economic activity of the entity to determine the correct
classification of taxonomy-eligible financed activities.
As per Article 19a or Article 29a of Directive 2013/34/EU, large public undertakings with more than an average
of 500 employees during the reporting year are subject to NFRD. Given limited data availability, it has not been
possible to identify with certainty all entities falling within the scope of NFRD.
The Bank is in the process of continuing to implement procedures to overcome such limitations, adopting
methodologies with the aim of improving the accuracy of the information being reported over time.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
23
Directors’ Report (continued)
Other information
As the Bank does not finance or perform any activities related to natural gas and nuclear energy (activities 4.26
– 4.31), the Bank is not using the dedicated template introduced by the Complementary Delegated Act as
regards activities in certain energy sectors.
Additional Voluntary Disclosures in Respect of the Bank’s Subsidiary MaltaPost p.l.c.
The Bank’s subsidiary MaltaPost p.l.c. is subject to the NFRD and is therefore also subject to disclosure
requirements stemming from the Delegated Act supplementing Article 8 of the Taxonomy Regulation.
However, given that that MaltaPost p.l.c. is consolidated at the level of the Bank (its parent entity), the
company may claim an exemption from such disclosure requirements given that its parent entity complied
with the requirements of the Disclosure Delegated Act.
Despite this, the Group has opted to disclose, on a voluntary basis, the disclosure requirements with respect
to non-financial undertakings in accordance with the Disclosure Delegated Act for MaltaPost p.l.c. on a stand-
alone basis. However, given that such disclosures are presented on a voluntary basis, the Bank has opted to
not disclose taxonomy alignment, which is required for non-financial undertakings as from 1 January 2023, and
will do so as from the following year, as of when it is required for financial undertakings to do so.
The table below shows the taxonomy-eligible share of economic activities for the year ending 30 September
2022 and in accordance with Regulation (EU) 2020/852, Article 8:
Taxonomy Eligible
Activities
Taxonomy non-Eligible
Activities
Total
Share % €000 Share % €000 Share % €000
Turnover 83 26,162 17 5,351 100 31,513
CapEx 44 990 56 1,256 100 2,246
OpEx 78 895 22 251 100 1,146
The company also provides comparatives for the financial year ended 30 September 2021.
Taxonomy Eligible
Activities
Taxonomy non-Eligible
Activities
Total
Share % €000 Share % €000 Share % €000
Turnover 88 30,095 20 7,433 100 37,528
CapEx 54 1,828 46 1,539 100 3,367
OpEx 40 726 60 1,104 100 1,830
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
24
Directors’ Report (continued)
i) Turnover consists of the revenue generated by MaltaPost p.l.c. during the financial year ended 30
September 2022 from all of its business activities. When determining taxonomy eligibility, the
company has identified the following economic activities that fall within the scope of the Taxonomy
Regulation in the transport sector:
- 6.4 Operation of personal mobility devices, cycle logistics -
- 6.5 Transport by motorbikes, passenger cars and light commercial vehicles -
- 6.6 Freight transport services by road
Whilst the company currently assesses its operating activities in accordance with activities classified
under section 6 ‘Transport’ of the Climate Delegated Act , it should be noted that in September 2022,
PostEurop, the trade association that represents European public postal operators, submitted a
position paper on the EU Taxonomy recommending that the postal sector be captured under a
specific sector, as opposed to ‘Transport’. Therefore, in the future, should the Climate Delegated Act
be amended in light of such a proposal, the company may assess the eligibility of its revenue
generating activities under different activities.
ii) CapEx consists of additions to property, plant and equipment and intangible assets during the
financial year ending 30 September 2022 considered before depreciation, amortisation, and any re-
measurements (including those resulting from revaluations and impairments, if applicable). When
determining taxonomy eligibility, the company has identified the following economic activities that
fall within the scope of the Taxonomy Regulation:
- 6.15 Infrastructure enabling low-carbon road transport and public transport;
- 7.2 Renovation of existing buildings;
- 7.3 Installation, maintenance and repair of energy efficiency equipment;
- 7.4 Installation, maintenance and repair of charging stations for electric vehicles in buildings
(and parking spaces attached to buildings);
- 7.6 Installation, maintenance and repair of renewable energy technologies; and
- 7.7 Acquisition and ownership of buildings.
iii) OpEx consists of direct non-capitalised costs incurred during the financial year ending 30 September
2022 that relate to day-to-day servicing of assets of property, plant and equipment (including also
intangible assets) that are necessary to ensure the continued and effective functioning of such assets.
As the company does not perform any activities related to natural gas and nuclear energy (activities 4.26 –
4.31), the company is not using the dedicated template introduced by the Complementary Delegated Act as
regards activities in certain energy sectors.
Sustainability Reporting
Apart from submitting data in accordance with the disclosure requirement as stipulated in the Disclosures
Delegated Act, the Group also recognises the need to integrate environmental protection, corporate social
responsibilities and business ethics within its vision, operations and manner in which it conducts its business.
In fact, for the first time, Environment, Social and Governance (ESG) was incorporated within MaltaPost p.l.c.’s
Business Plan for the next three years.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) and Joseph
Said (Director and Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report
submitted in conjunction with the Annual Report and Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
25
Statement of Compliance with the Principles of Good Corporate Governance
A. Introduction
In terms of the Capital Markets Rules of the Malta Financial Services Authority (Rule 5.94), Lombard Bank Malta
p.l.c. (the Bank), as a company having its securities admitted to trading on a regulated market, is obliged to report
on the extent to which it has adopted the ‘Code of Principles of Good Corporate Governance’ (the Principles)
embodied in Appendix 5.1 to Chapter 5 of the same Capital Markets Rules, as well as the measures which have
been taken by the Bank to ensure compliance with these Principles.
While the Principles are not mandatory, the Board of Directors of the Bank has endeavoured to ensure that they
are upheld to the fullest extent possible, and this while acknowledging that good corporate governance is indeed
beneficial to all the Bank’s stakeholders. The instances in which the Bank has departed from the Principles are
explained below under Section C - ‘Non- Compliance with the Code’.
After having carried out a review of the extent to which the Bank has been compliant with the Principles throughout
the financial year ended 31 December 2022, the Board of Directors, in terms of Capital Markets Rule 5.97, presents
its report as follows:
B. COMPLIANCE WITH THE CODE
PRINCIPLE 1: THE BOARD
As at 31 December 2022, the Board of Directors of the Bank consisted of five (5) Directors, four (4) of whom being
non- executive Directors together with the Chief Executive Officer of the Bank being also a Director.
The Directors, individually and collectively, are considered fit and proper to direct the business of the Bank, having
the necessary skills and experience to be able to do so.
In order to assist it in the execution of its duties and responsibilities, the Board of Directors has set up a number of
committees and these include the Audit & Risk Committee, the Assets & Liabilities Committee, the Credit Committee
and the Suitabilities & Evaluations Committee, all of which are regulated by their own Terms of Reference as approved
and periodically reviewed by the Board.
Principle 2: Chairman and Chief Executive Officer
Different individuals occupy the positions of Chairman and Chief Executive Officer. A clear division of
responsibilities exists between the Chairman’s responsibility for the running of the Board of Directors and the
Chief Executive Officer’s responsibility for the running and managing of the Bank’s business. This separation of
roles of the Chairman and Chief Executive Officer avoids concentration of power, authority and unfettered
discretion in one individual alone and differentiates leadership of the Board from the running of the Bank’s
business.
The Chairman’s responsibilities, inter alia, include: (i) leading the Board and helping it reach its full potential,
particularly by facilitating the effective contribution of Directors and encouraging discussion; (ii) setting of the
Agenda for Board meetings; (iii) ensuring that the Directors receive precise, timely and objective information so
that they can make sound decisions and effectively monitor the performance of the Bank; (iv) ensuring that all
strategic and policy issues are appropriately discussed and formally approved; and (v) maintaining effective
communication with the Bank’s shareholders at all times. As stated below, the Chairman meets the independence
criteria set out in the Principles.
The Board of Directors appoints the Chief Executive Officer. The Chief Executive Officer is responsible for managing
the day-to-day business of the Bank in conformity with the agreed plans, policies and strategies approved by the
Board. With effect from 1 April 2023, the Board of Directors also appointed two Deputy Chief Executive Officers,
Anthony Bezzina and Eugenio Farrugia, to support the Chief Executive Officer in the exercise of his duties while
continuing to carry out their previously held duties leading the Credit and Operations functions.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
26
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 3: Composition of the Board
The following Directors served on the Board during the period under review:
Michael C. Bonello
Graham A. Fairclough
Kimon Palamidis
Peter Perotti
Joseph Said
All Board members are non-executive Directors who are not engaged in the daily management of the Bank,
with the exception of Joseph Said who is also Chief Executive Officer of the Bank. Furthermore, the Board
considers Michael C. Bonello, Kimon Palamidis and Peter Perotti as independent Directors.
Kimon Palamidis is
still considered to be independent despite the fact that he has served on the Board for more than twelve
consecutive years. In determining the independence of its members, the Board takes into consideration the
relevant criteria and Principles as well as what are generally considered sound, acceptable standards. All
non-executive Directors have declared in writing to the Board that they undertake:

to maintain in all circumstances their independence of analysis, decision and action;

not to seek or accept any unreasonable advantages that could be considered as compromising their
independence; and

to clearly express their opposition in the event that they find that a decision of the Board may harm the Bank.
It is considered that, in the current circumstances in which the Bank is operating, the size of the Board is
sufficient for the requirements of the business and that the balance of skills and experience therein is appropriate
to properly enable the Board to carry out its duties and responsibilities. This is considered so also taking into
account, inter alia, the Bank’s simple model and the principle of proportionality, based on the Bank’s size and the
nature, scale and complexity of its activities and products. Should the necessity arise to supplement the skills of
its members, the Board has at its disposal the facility to appoint any external consultants to provide assistance and
advice so as to further enhance the Board’s oversight functions.
The composition and election of the Board of Directors is determined by the Bank’s Articles of Association wherein
it is established that it is the shareholders who must appoint Directors to serve on the Board. Within these
parameters, options for further strengthening the Board are always considered. In addition, however, the Bank,
by virtue of the Board-appointed Suitabilities & Evaluations Committee, carries out suitability assessments of its
existing Directors and any new nominated Directors in order to ensure that the suitability, fit and proper criteria
are observed, pursuant to all applicable laws, rules, regulations, guidelines etc.
The overall composition of the Board and the collective knowledge, skills and experience required are evaluated
during individual suitability assessments and collective suitability assessments so as to ensure that the Board is
effectively discharging all its duties and obligations at all times.
The appointment of Directors to the Board is a matter that is reserved entirely to the Bank’s shareholders in terms
of the Memorandum and Articles of Association. Therefore diversity, to an extent, depends on the profiles of
nominees proposed and their suitability in terms of applicable laws, rules, regulations, guidelines etc. The benefits
of diversity, including that in educational and professional backgrounds, age, gender, experience and
geographical provenance would be considered by the Suitability and Evaluations Committee in its assessment of
suitability of any nominees.
The Board considers that as a policy and as reflected in its Board of Directors’ Charter, it endeavours to have a
varied board, particularly in terms of diverse educational and professional backgrounds and extensive and
specialised experience of its members. The Board is confident that for this reason, and in light of the current
circumstances in which it is operating, also taking into account proportionality and the Bank’s size and the nature,
scale and complexity of its activities and products, it benefits from a satisfactory diversity of skills, knowledge and
experience. This allows for a good understanding of current affairs, the Bank’s activities, business model, strategy
and associated risks and the environment in which the Bank operates and longer-term risks and opportunities
related to the Bank’s business. It also benefits from international expertise.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
27
Statement of Compliance with the Principles of Good Corporate Governance (continued)
The Board is cognisant of the fact that the appropriate mix of Board Members ensures diverse perspectives,
experience and knowledge. It continues to remain committed to achieving further diversity among its members
particularly in terms of number, age, geographical provenance, gender, experience, educational and professional
backgrounds.
Principle 4: The Responsibility of the Board
In pursuing the execution of the four basic roles of corporate governance, namely, accountability, monitoring,
strategy formulation and policy development, the Board of Directors, having the first level of responsibility for
such execution:

regularly reviews and evaluates corporate strategy, major operational and financial plans, risk policy,
performance objectives and monitors implementation and corporate performance within the parameters of
all relevant laws, regulations and codes of best business practice;

applies high ethical standards and takes into account the interests of stakeholders and acts responsibly and
with integrity and on a fully informed basis, in good faith, with due diligence and in the best interests of the
Bank and its shareholders;

recognises that the Bank’s success depends upon its relationship with all groups of its stakeholders, including
employees, suppliers, customers and the wider community in which the Bank operates;

monitors effectively the application and implementation by Management of its policies and strategy;

recognises and supports enterprise and innovation within Management and examines how best to motivate
the Bank’s Management;

seeks to establish an effective decision-making process in order to develop the Bank’s business efficiently;
and

ensures that a balance is struck between enterprise and control in the Bank.
Furthermore, the Board of Directors:

defines in clear and concise terms the Bank’s strategy, policies, management performance criteria and
business policies and effectively monitors the implementation of such by Management;

establishes a clear internal and external reporting system so that the Board has continuous access to
accurate, relevant and timely information;

has appointed Committees, including the Audit & Risk Committee, Credit Committee, Assets & Liabilities
Committee and Suitabilities & Evaluations Committee;

continuously assesses and monitors the present and future operations’ opportunities, threats and risks;

evaluates the Management’s implementation of corporate strategy and financial objectives;

ensures that the Bank has appropriate policies and procedures in place to assure that the Bank and its
employees maintain the highest standards of corporate conduct, including compliance with applicable laws,
regulations, business and ethical standards;

ensures that the financial statements of the Bank and the annual audit thereof are completed within the
stipulated time periods; and

requires Management to constantly monitor performance and report fully and accurately to the Board.
Furthermore, Directors keep themselves updated on an ongoing basis of their statutory and fiduciary duties, the
Bank’s operations and prospects, the general business environment and skills and competences of Senior
Management. The expectations of the Board are also discussed regularly.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
28
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 5: Board Meetings
The Board convened seventeen (17) times during the period under review with attendance of the Directors as
follows:
Michael
C.
Bonello
17
Graham A. Fairclough
17
Kimon Palamidis
17
Peter Perotti
14*
Joseph Said
17
* Peter Perotti was co-
opted and appointed as a Director of the Bank with effect from 14 April 2022
and was re-appointed during the Annual General Meeting held on 26 May 2022.
The dates when the Board meetings are scheduled to be held are determined prior to the beginning of the year in
question. When required, further meetings are scheduled.
Ahead of Board meetings an agenda and supporting documentation are made available to all Directors. Other than in
the case of meetings specially convened to discuss particular matters, generally the agendas of regular Board
meetings set out items of a long-term strategic nature, as well as performance-related issues together with credit
applications which fall within the discretionary limits of the Board and also include various compliance-related
matters. During meetings, Directors are encouraged to present their views pertinent to the subject matter and are
given every opportunity to contribute to the relevant issues on the agenda. Following each meeting, minutes which
record attendance as well as all decisions taken are circulated to all Board members.
Principle 6: Information and Professional Development
Each newly appointed Member of the Board is briefed by the Chief Executive Officer, Senior Management officials,
Heads of Internal Control Functions and any other staff members as necessary, on all aspects of the Bank’s
business and functions, while the Company Secretary provides each newly appointed Director with relevant
corporate governance information and references to relevant Legislation, Rules, Guidelines, the Bank Statute as
well as policy documents.
Board members are reminded that the Company Secretary is at their disposal to provide any advice or service
that may be required in the discharge of their duties and responsibilities.
The Company Secretary is responsible
for advising the Board, through the Chairman, on all governance matters. The Secretary is responsible for ensuring
that Board procedures are complied with as well as that effective information flows within the Board, its
committees and with Senior Management. The Secretary also facilitates induction and assists with professional
development, as required.
Directors are given the opportunity to update and develop their skills and knowledge, particularly through detailed
presentations, briefings and training by senior executives and other relevant Bank officials. They are invited to attend
training sessions organised specifically for the Board and are also informed of and encouraged to attend externally
run seminars throughout their directorship. In addition, all Board members may obtain independent professional
advice at the Bank’s expense.
Furthermore, Directors have access to the advice and services of the external auditors who are invited to attend
all Audit & Risk Committee meetings as well as Board meetings when required, including the meetings at which
the Bank’s financial statements are approved.
The Board continues to be mindful of the crucial importance of recruiting, retaining and motivating quality
management. The ongoing training and development of staff at all levels is considered of the utmost importance
and this also in the light of the need for orderly succession.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
29
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 7: Evaluation of the Board’s Performance
An assessment exercise of the Board’s performance was carried out through a ‘self-evaluation’ questionnaire in which
Board members participated. Furthermore, assessment exercises of performance of the committees were also
carried out by virtue of ‘self- evaluation’ questionnaires completed by the members and some regular attendees
of the Audit & Risk Committee, the Assets & Liabilities Committee and the Credit Committee. These exercises also
included an evaluation of the Chairman of each respective Committee. These ‘self-evaluation’ questionnaires were
then analysed by the Suitabilities & Evaluations Committee established by the Board to report to the Board
accordingly. This exercise did not reveal the need for any material changes in the Bank’s governance structures
and organisation.
Principle 8: Committees
The Board has appointed the following committees:
Audit & Risk Committee
The primary purpose of the Audit & Risk Committee is to protect the interests of the Bank’s shareholders and to
assist the Directors in conducting their role effectively so that the Bank’s decision- making capability and the
accuracy of its reporting and financial results are maintained at a high level at all times. The Committee assists
the Board in fulfilling its supervisory and monitoring responsibility for effective financial reporting, risk
management, control and governance and this by, inter alia, reviewing any financial information, statements and
disclosures to be issued, systems of governance, systems of internal control established by Management and the
Board, the risk management processes, the external and internal audit processes as well as the compliance
processes. The Audit & Risk Committee met eleven (11) times during the period under review.
With respect to Risk Management, the Committee, inter alia, reviews reports from the Risk Management
Function which enable the Committee (and the Board) to consider the process of risk identification and
management, to assess the risks involved in the Bank’s business and to understand how they are controlled and
monitored by Management. The Committee also advises the Board on the Bank’s overall current and future risk
appetite and strategy and assists the Board in overseeing the implementation of that strategy by Management.
During the year under review, the Audit & Risk Committee was composed of the following four (4) non-
executive Board members three (3) of whom being independent: Michael C. Bonello, Graham A. Fairclough,
Kimon Palamidis and Peter Perotti in accordance with the Audit & Risk Committee’s Terms of Reference.
Kimon Palamidis is the Chairman of this Committee and is considered by the Board to be independent as
explained earlier on in this statement. Together with the other members, he is also competent in accounting
and/or auditing in terms of the Capital Markets Rules. The Bank’s Head of Internal Audit and Head of Risk attend
meetings of the Audit & Risk Committee. The Bank’s External Auditors and members of Senior Management and
others, including, inter alia, the Chief Executive Officer, Chief Financial Officer, Chief Officer Credit and the
Compliance Officer, are also invited to attend meetings as is deemed necessary by the Committee. The Company
Secretary acts as Secretary to the Audit & Risk Committee.
Assets & Liabilities Committee (ALCO)
Membership of this Committee is made up of a number of Chief Officers and senior officers, including from the
Finance and Treasury departments and the Corporate Advisory & Research and Asset and Fund Management
functions. The Chief Executive Officer chairs the ALCO whose main objective is to manage risks within approved
limits at the same time as maximising returns by efficient and judicious management of the Bank’s assets and
liabilities. Risk Management officials are also invited to attend meetings. A Secretary is appointed by the
Committee.
Credit Committee
The Credit Committee is responsible for considering and approving credit applications within delegated limits of
authority. It is composed of a number of Chief Officers and senior officers. The Chief Executive Officer chairs this
Committee and a Secretary is appointed by the Committee.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
30
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Suitabilities & Evaluations Committee
This Committee is responsible for carrying out suitability assessments of nominated and existing Directors, Key
Function holders or any other persons as may be required and also assesses the Board’s annual performance and
that of its committees following the completion of the self-evaluations by the Board and committee members.
The chairman of the Committee is selected by the Board of Directors (currently the non-executive Director and
Committee member, Graham A. Fairclough) and the Company Secretary acts as Secretary.
Remuneration Committee
The functions of the Remuneration Committee are carried out by the Board of Directors in view of the fact that the
remuneration of Directors for the holding of their office on the Board is not performance-related.
A separate ‘Remuneration Report’ features on page 34 of this Annual Report in compliance with the Principles.
Principle 9 and 10: Relations with Shareholders and Markets and Institutional Shareholders
The Bank fully appreciates the importance of maintaining open lines of communication with shareholders, the
markets and institutional shareholders. The Board, in this regard, considers that throughout the period under
review the Bank has continued to communicate appropriately by means of regular company announcements.
The Bank communicates with its shareholders with respect to its General Meetings. The 2022 Annual General Meeting
was held remotely due to the COVID-19 Pandemic in terms of the Companies Act (Public Companies – Annual General
Meetings) Regulations, 2020 (L.N. 288 of 2020). The Extraordinary General Meeting held in November 2022 was
held in person as will be the forthcoming 2023 Annual General Meeting. The documentation relative to General
Meetings is sent to all shareholders at least twenty-one (21) days prior to the holding of the Meeting.
The Bank’s website (www.lombardmalta.com), contains information about the Bank and its business and is
updated regularly.
It is therefore the Bank’s policy:

to publish information that can have a significant effect on the Bank’s share price through the Malta Stock
Exchange and immediately after on the Bank’s website;

to make other published information available to the public on the Bank’s website;

to strive for open, transparent communications;

to ensure continuity and high quality in the information disclosed; and

to be accessible to all stakeholders.
Minority shareholders are entitled to call special meetings should a minimum threshold of share ownership be
established in accordance with the Bank’s Memorandum and Articles of Association. Furthermore, minority
shareholders may formally present an issue to the Board if they own the predefined minimum threshold of shares.
Principle 11: Conflicts of Interest
The Board of Directors recognises that its members have a primary responsibility to always act in the interest of
the Bank and its shareholders as a whole, irrespective of who appointed them to the Board.
Strict policies are in place, particularly in the Board of Directors’ Charter, to enable the management of conflict
of interest, both actual as well as potential, should the occasion arise.
In addition, the Bank’s ‘Policy on the Prevention of Market Abuse’ was adopted and implemented in conformity
with Market Abuse laws and regulations. Directors and staff members are also regularly reminded of their
obligations when dealing in securities of the Bank and other scheduled financial instruments.
Joseph Said, who is a Director of the Bank, holds a directorship in two companies that have a shareholding in the
Group, as disclosed in the Directors’ Report.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
31
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 12: Corporate Social Responsibility
The Bank is well aware of the need to adhere to accepted principles of corporate social responsibility and in this
regard remains fully committed to conducting its activities ethically at all times. It consistently seeks to
contribute to economic and social development while also improving the quality of life of its staff members and
their families. These principles also include matters concerning data privacy and protection, diversity and
inclusion, talent management, customer relations, innovation, community and staff engagement as well as
responsible lending.
The Bank implements these principles of corporate social responsibility through strong governance and risk
management practices.
It extends support to various initiatives and projects together with direct community involvement. The Bank is
also sensitive to the fact that success in these areas requires investment in the community, customers and staff
members while not overlooking the impact that its activities may have on the environment.
C. Non-Compliance with the Code
The above Code Provision states, ‘The Board should develop a succession policy for the future
composition of the Board of Directors and particularly of the executive component thereof, for which the
Chairman should hold key responsibility’.
The appointment of Directors to serve on the Board is a matter which is entirely reserved to the shareholders
of the Bank in terms of its Memorandum and Articles of Association (except where the need arises to fill a casual
vacancy). While the Board may consider formulating basic principles to be adopted to ensure the orderly
succession of its current directors should the conditions permit, in the meantime it remains guided by other
relevant policies, applicable laws, rules, regulations, guidelines etc. as well as its Memorandum and Articles of
Association. The concept of rotation of directors as set out by the Bank’s Memorandum and Articles of
Association also provides an element of continuity on the Board of Directors. Furthermore, within the above
parameters, options and opportunities for further strengthening the Board continue to be considered.
Principle 8A: (Remuneration Committee)
The Board did not establish a Remuneration Committee as specified in Code Provision 8.A.1. In terms of Code
Provision 8.A.2 of the Principles, given that the remuneration of Directors for the holding of their office on the
Board is not performance- related, the functions of the Remuneration Committee are carried out by the Board of
Directors.
Principle 8B: (Nomination Committee)
A Nomination Committee has not been set up since the appointment of Directors to the Board is a matter that is
reserved entirely to the Bank’s shareholders in terms of the Memorandum and Articles of Association.
In this connection every member of the Bank holding in the aggregate at least fifteen percent (15%) of the ordinary
issued share capital of the Bank shall be entitled to appoint one (1) Director for each and every fifteen percent
(15%) of the ordinary issued share capital owned by that member.
Any fractional shareholding in excess of fifteen percent (15%) not applied in appointing such a Director or Directors,
and only that fraction, shall be entitled to vote in the election of the remaining Directors together with the
remaining body of shareholders. These are entitled to appoint the remaining Board members in accordance with
the provisions of the Bank’s statute.
This notwithstanding, in light of regulatory requirements, the Suitabilities & Evaluations Committee referred to
above was set up specifically to carry out suitability assessments of nominated and existing Directors, key function
holders or any other persons as may be required and also to assess the Board’s annual performance and that of its
committees. This Committee remains guided by applicable laws, rules, regulations and guidelines.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
32
Statement of Compliance with the Principles of Good Corporate Governance (continued)
Principle 9: (Code Provision 9.3)
There are no procedures disclosed in the Bank’s Memorandum or Articles as recommended in Code Provision 9.3 to
resolve conflicts between minority shareholders and controlling shareholders.
D. Internal Control (Capital Markets Rule 5.97.4)
The Board is ultimately responsible for the Bank’s internal controls as well as their effectiveness, while authority to
operate the Bank is delegated to the Chief Executive Officer. The Bank’s system of internal controls is designed to
manage all the risks in the most appropriate manner. Such controls, however, cannot completely eliminate the
possibility of material error or fraud. The Board, therefore, assumes responsibility for executing the four basic roles
of corporate governance, i.e. accountability, monitoring, strategy formulation and policy development.
In summary, the Board is therefore responsible for:

reviewing the Bank’s strategy on an ongoing basis as well as setting the appropriate business objectives in
order to enhance value for all stakeholders;

appointing and monitoring the Chief Executive Officer whose function it is to manage the operations of the
Bank; and

identifying and ensuring that significant risks are managed satisfactorily.
Given the fiduciary responsibility involved, the Board of Directors also sets high business and ethical standards for
adoption right across the organisation.
The Board upholds a policy of clear demarcation between its role and responsibilities and those of Management.
It has defined the level of authority that it retains over strategy formulation and policy determination together
with delegated authority and has vested accountability for the Bank’s day-to-day business in the Assets &
Liabilities Committee, Credit Committee and in the management team comprising of the:
 Chief Executive Officer; and
 Deputy Chief Executive Officers (effective from 1 April 2023);
 Chief Officers and other officers.
The Board frequently participates in asset allocation decisions as well as credit proposals above a certain
threshold, after the appropriate recommendations have been made.
The Bank’s internal control framework covering all the Bank’s activities ensures:
 effective and efficient operations and prudent conduct of business;
 proper risk management;
 reliable financial and non-financial information; and
 compliance with all internal policies, processes and procedures, laws, rules and regulations.
To this effect, a three-lines-of-defence model has been adopted by the Bank as follows:
 First line of defence – Business Units
/
Operations: This is provided by front line staff members and business
unit management. The internal controls and systems, the culture and control environment developed and
implemented by these business units play a vital role in anticipating and managing operational risks.
 Second line of defence - Risk Management & Compliance: The Bank maintains permanent and effective
compliance and risk management functions which report directly to the Audit & Risk Committee and Board of
Directors. The Compliance Function identifies, assesses and manages compliance risk. The Risk Management
Function is responsible for overseeing the Bank’s activities and for identifying, monitoring, controlling and
reporting such risk. Through the Bank’s Risk Management Framework, an appropriate balance is struck
between sound practices and profitability, by applying strict internal controls and discretionary limits, and
optimising the returns thereof, in line with the Bank’s risk appetite.
 Third line of defence – Internal Audit: This is an integral part of the Bank’s control environment and provides
Management and the Audit & Risk Committee and Board of Directors with an independent and objective
review of the Bank’s business activities and support functions.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
33
Statement of Compliance with the Principles of Good Corporate Governance (continued)
E. General meetings (Capital Markets Rule 5.97.6)
General meetings are called by giving at least twenty-one (21) days’ notice and conducted in accordance with the
provisions contained in the Bank’s Articles of Association.
The ‘Ordinary Business’ which is dealt with at the Annual General Meeting consists of the adoption of the annual
financial statements, declaration of a dividend, appointment of Board members, appointment of auditors and the
fixing of their remuneration together with the voting of remuneration to the Directors for the holding of their
office. All other business shall be deemed ‘Special Business’.
All shareholders registered in the shareholders’ register on record date as defined in the Capital Markets Rules
have the right to attend, participate and vote in the general meeting.
A shareholder or shareholders holding not less than five per cent (5%) of the voting issued share capital of the
Bank may: (i) request the Bank to include items on the agenda and; (ii) table draft resolutions for items included
in the agenda of a general meeting. Such requests shall be submitted to the Bank at least forty-six (46) days
before the date set for the general meeting.
Every shareholder shall be entitled to appoint only one (1) person to act as proxy holder to attend and vote at
a general meeting instead of him. The proxy holder shall enjoy the same rights to speak and ask questions in
the general meeting as those to which the member thus represented would be entitled.
Signed on behalf of the Bank's Board of Directors on 27 April 2023 by Michael C. Bonello (Chairman) and Joseph
Said (Director and Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report
submitted in conjunction with the Annual Report and Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
34
Remuneration Report
As indicated in the ‘Statement of Compliance with the Code of Principles of Good Corporate Governance’, in terms
of the ‘Code of Principles of Good Corporate Governance’ within the Capital Markets Rules issued by the Malta
Financial Services Authority, the Board of Directors performs the functions of a Remuneration Committee on the
basis that the remuneration of the Bank’s Directors for the holding of their office on the Board, is not performance-
related and does not include share options, pension benefits, profit-sharing arrangements or any emolument related
to the performance of the Bank. Among the obligations established in the Capital Markets Rules, the Board, where
applicable, carries out the main duties established in the Supporting Principles enshrined in Principle 8A of the ‘Code
of Principles of Good Corporate Governance’. This Remuneration Report was approved by the Board of Directors at
the Board Meeting held on 27 April 2023.
Directors
The Bank’s Remuneration Policy for Directors drawn up in terms of the Capital Markets Rule 12.26A et seq. was
approved by the Annual General Meeting on 2 December 2020 and became effective from such date. (Refer
to https://www.lombardmalta.com/annual-general-meeting-2020). The result of the vote at the 2020 Annual
General Meeting when the Policy was last approved was 33,545,565 votes in favour, 34,325 votes against and
329,087 abstentions.
This document formalised the Bank’s policy in this regard and any remuneration paid following approval of the policy
was to be in accordance with the same. The remuneration of the Chief Executive Officer (‘CEO’), is also considered
in the above-mentioned Remuneration Policy for Directors.
This Policy is reviewed by the Board on an annual basis and shall be put to a vote by the General Meeting at every
material change and, in any case, at least every four years. Changes are being proposed for approval at the 2023
Annual General Meeting so as to include reference to Deputy Chief Executive Officers in view of recent
appointments.
There were no deviations from the procedure for the implementation of the Remuneration Policy for Directors.
In terms of the Bank’s Memorandum and Articles of Association, the Bank’s shareholders determine the maximum
annual aggregate remuneration of the Directors. The maximum amount is established by resolution at each Annual
General Meeting of the Bank. The aggregate amount fixed for this purpose during the 2022 Annual General Meeting
was one hundred and twenty thousand euro (€120,000).
As per policy, members of the Board, in their role as directors, only receive a fixed fee, the amount of which is
determined on the basis of market practice as well as the Bank’s size and internal organisation and the nature, scale
and complexity of its activities and business model.
The fees paid to Directors for the holding of their office during 2022 amounted to €85,673 (2021: €69,444). This
amount is within the limit of €120,000 approved by the Annual General Meeting of 26 May 2022.
It is confirmed that none of the directors in their role as directors of the Bank are entitled to profit-sharing, share
options, pension benefits, variable remuneration, any other remuneration or related payments. One director
(Graham A. Fairclough) provides specific services to the Group, though he is still considered a non-executive director.
Only one of the directors has a service contract with the Bank, which director is the only Executive Director and is
the CEO Joseph Said.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
35
Remuneration Report (continued)
In terms of Code Provision 8.A.5 of the Malta Financial Services Authority Capital Markets Rules, the total
emoluments received by Directors relative to their directorship for the financial year 2022, as compared to 2021
and 2020, are specified below:
* Peter Perotti was co-opted and appointed as a Director of the Bank with effect from 14 April 2022 and was re-appointed during the Annual
General Meeting held on 26 May 2022.
In determining the remuneration of the CEO, the Board of Directors considers factors which include among others,
professional qualifications, experience, initiative, acumen, number of years of service, the design and
implementation of the overall business strategy, objectives and risk appetite at Bank as well as Group level. The
remuneration of the CEO is fixed with no variable remuneration.
The CEO is also entitled to the use of a company car, health insurance and telecommunication allowance.
In a previous financial year, the Bank had decided to grant the CEO an ex-gratia gratuity upon his eventual
retirement, which amount was fully provided for and reflected in the financial statements of previous years.
In terms of Code Provision 8.A.5 of the Capital Markets Rules, during financial year 2022, the total emoluments
received by the executive Director from the Group amounted to €362,718, split as follows:
€ € €
2022 2021 2020
Gross annual, fixed salary & fixed role-based allowances 330,718 333,377 333,511
Director Fees - Lombard Bank Malta p.l.c. 15,000 10,991 6,985
Chairman / Director Fees MaltaPost p.l.c. 17,000 17,000 17,000
The total remuneration for 2022 of the non-executive Director who provided specific services to the Group,
amounted to €93,808, split as follows:
€ € €
2022 2021 2020
Payments for specific services 57,708 54,138 55,395
Director Fees – Lombard Bank Malta p.l.c. 15,000 10,991 6,985
Director Fees - MaltaPost p.l.c. 7,100 7,100 7,100
Company Secretary Fees - MaltaPost p.l.c. 4,000 4,000 4,000
Director Fees – Lombard Select SICAV p.l.c. 10,000 5,000 N/A
There is no formal provision for the reclamation of variable remuneration. In any case, the directors and the CEO
do not receive variable remuneration.
€
2022
€
2021
€
2020
Michael C. Bonello (Chairman) 30,000 25,480 20,960
Graham A. Fairclough 15,000 10,991 6,985
Joseph Said 15,000 10,991 6,985
Michael Zammit N/A 10,991 6,985
Peter Perotti* 10,673
N/A
N/A
Kimon Palamidis 15,000 10,991 6,985
Total 85,673 69,444 48,900
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
36
Remuneration Report (continued)
The above remuneration levels for 2022 comply with the provisions of the approved Remuneration Policy for
Directors and take into consideration the interests of all the Bank's stakeholders together with the external context.
Senior Management
Senior Management refers to the Chief Officers of the Bank, excluding the Chief Executive Officer.
The Board of Directors is satisfied that the packages offered to Senior Management continue to ensure that the
Bank attracts and retains management staff with the necessary qualities and skills. The Bank’s policy remains that
of engaging its senior management staff on the basis of indefinite contracts of employment, and this after a period
of probation. The terms and conditions of employment of senior management are established in the relative
employment contracts. The applicable notice period, after probation, is that provided for in the relevant legislation.
Share options, share incentive schemes and profit sharing do not feature in the Bank’s Remuneration Policy, and
the individual contracts of employment of senior management do not contain provisions for termination payments
and/or other payments linked to early termination other than as determined by the law.
From time to time the Board of Directors of the Bank approves the allocation of a financial contribution towards
retirement gratuities that it may decide to grant and/or contribute towards a staff pension fund that may be formally
established in the future. Gratuities that it may make, on an ex-gratia basis, to its employees are made accordingly.
Amounts contributed for this purpose in respect of 2022 amounted to €150,000 (2021: €100,000). Once contributed,
these amounts are held in a separate bank account which is not controlled by the Bank and is therefore not included
in the Bank’s financial statements. Amounts intended as a contribution to an eventual pension fund will be regulated
by rules yet to be determined in light of relevant legislation. No other pension benefits are currently payable by the
Bank.
Senior management staff are eligible for annual salary increases, which are not directly performance-related. The
remuneration of Senior Management staff members is determined also by the role, responsibilities covered, market
practice, seniority, experience and qualifications. Annual bonuses are paid to senior management staff members
according to individual overall performance during the previous financial year. Bonus payments do not exceed 100%
of the fixed component of the total remuneration for each individual.
Non-cash benefits include private health care insurance as well as death-in-service benefits and personal accident
insurance cover.
Total emoluments received by Senior Management, excluding the CEO, during the period under review are as
detailed below, in terms of Code Provision 8.A.5.
Fixed Remuneration Variable Remuneration Share Options Others
2022 2021 2020
2022
2021 2020
2022
2021 2020
2022
2021 2020
€ € €
€
€ €
€
€ €
€
€ €
769,000 568,000 550,723
88,000
98,000 114,000
-
- -
-
- -
For other employees, fixed pay is determined by a Collective Agreement and annual bonuses are differentiated by
individual performance and grade.
The changes effected in the Bank’s Remuneration Policy during the financial year under review were such as to
further align it with regulatory requirements. Furthermore, the Bank does not plan to effect changes in its
Remuneration Policy in the forthcoming financial year, unless required to do so in terms of any regulatory obligations
or otherwise.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
37
Remuneration Report (continued)
In terms of Chapter 12 of the Capital Markets Rules, this Remuneration Report is being put to an advisory vote at
the 2023 Annual General Meeting in accordance with the requirements of the Capital Markets Rule 12.26 L.
The Directors’ Remuneration Report for 2021 was approved at the Annual General Meeting held on 26 May 2022,
with 34,620,695 votes in favour, 51,854 votes against and 232,483 abstentions. There were no issues raised on the
Report during the said Annual General Meeting.
Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules
In terms of the requirements within Appendix 12.1 of the Capital Markets Rules, the following tables present the
annual change regarding each individual director’s remuneration, the performance of the Bank, and of average
remuneration on a full-time equivalent basis of employees of the Bank, other than Directors over the three most
recent financial years.
2022
€
2021
€
2020
€
% change
(2022-2021)
% change
(2021-2020)
Michael C. Bonello (Chairman) 30,000 25,480 20,960
18% 22%
Graham A. Fairclough 15,000 10,991 6,985
36% 57%
Joseph Said 15,000 10,991 6,985
36% 57%
Kimon Palamidis 15,000 10,991 6,985
36% 57%
Peter Perotti 10,637 N/A N/A
N/A N/A
Michael Zammit N/A 10,991 6,985
N/A 57%
Total 85,637 69,444 48,900
% annual change of the
Bank’s performance based
on profit before tax
(2022-2021)
% annual change of the
Bank’s performance based
on profit before tax
(2021-2020)
% annual change of the
average remuneration on
a full-
time equivalent
basis of employees of the
Bank other than Directors
(2022-2021)
% annual change of the
average remuneration on
a full-
time equivalent
basis of employees of the
Bank other than Directors
(2021-2020)
136% 32%
4% 2%
€'000
2022
2021
% change
Group Bank
Group Bank
Group Bank
Employee remuneration
(excluding CEO) 23,681 8,352
24,027
7,862
(1%) 6%
CEO remuneration 331 331
333
333
(1%) (1%)
Entity’s performance – Profit before
tax 27,676 28,767
12,638
12,193
119% 136%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
38
Remuneration Report (continued)
€'000
2021
2020
% change
Group Bank
Group Bank
Group Bank
Employee remuneration
(excluding CEO) 24,027 7,862 22,424 7,312 7% 8%
CEO remuneration 333 333 334 334 0% 0%
Entity’s performance – Profit before
tax 12,638 12,193 10,372 9,251 22% 32%
The Group’s/Bank’s performance is measured using Profit before tax.
The contents of the Remuneration Report have been reviewed by PricewaterhouseCoopers, the external auditors,
to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules have
been included.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
39
Company Information
Number of shareholders analysed by range:
31 December 2022 31 March 2023
Range Shareholders Shares Shareholders Shares
1 – 500 122 21,956 120 21,285
501 – 1000 51
37,470 51 37,470
1001 – 5000 367 1,098,156 370 1,109,802
5001 and over 885 89,570,152 879 89,559,177
Total 1,425 90,727,734 1,420 90,727,734
The Bank has one class of shares and each share is entitled to one vote.
BOARD OF DIRECTORS Michael C. Bonello Chairman
Graham A. Fairclough
Kimon Palamidis
Joseph Said
Peter Perotti
COMPANY SECRETARY Helena Said
SENIOR MANAGEMENT Joseph Said Chief Executive Officer
Anthony Bezzina Deputy Chief Executive Officer
Eugenio Farrugia Deputy Chief Executive Officer
David Attard Chief Officer - Group Corporate Services
Paul Debono Chief Officer - Legal
Aurelio Theuma Chief Financial Officer
Anthony Zahra Chief Information Officer
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
40
Company Information (continued)
REGISTERED OFFICE
67 Republic Street, Valletta VLT 1117
Tel: 25581 117
BRANCHES
67 Republic Street, Valletta VLT 1117 Bertu Fenech Square, Balzan BZN 1409
Tel: 25581 100 Tel: 25581 500
82 St. Sebastian Street, Qormi QRM 2335 225A Tower Road, Sliema SLM 1601
Tel: 25581 360 Tel: 25581 260
Ninu Cremona Street, Victoria VCT 2561 126 Tigne’ Street, Sliema SLM 3174
Tel: 25581 600 Tel: 25581 251
43 Pitkali Road, Attard ATD 2219 4 Fleur-de-Lys Junction, Santa Venera SVR 1587
Tel: 25581 560 Tel: 25581 300
24/7 OUTLET
Paceville Avenue, St. Julian’s STJ 3103
CREDIT
9A St. Fredrick Street, Valletta VLT 1470
Tel: 25581 115
HOME LOANS
4 Main Street, Qormi QRM 1100
Tel: 25581 370
INTERNATIONAL BUSINESS BANKING
Graham Street, Sliema SLM 1711
Tel: 25581 226
LEGAL OFFICE
59 Republic Street, Valletta VLT 1117
Tel: 25581 116
TRADE SERVICES
4 Main Street, Qormi QRM 1100
Tel: 25581 366
WEALTH MANAGEMENT
Financial Advice & Stockbroking Services: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 167
Portfolio Management: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 288
Research & Corporate Advisory: 225A, Tower Road, Sliema SLM 1601
Tel: 25581 287
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
41
Financial Statements
Statements of Financial Position
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash 5 139,234 126,279 138,393 125,552
Cheques in course of collection 1,053 530 1,053 530
Financial investments 6 220,815 227,135 218,286 224,234
Loans and advances to banks 7 27,615 78,279 20,936 68,424
Loans and advances to customers 8 711 ,612 642,893 711,613 642,895
Trade and other receivables 16 13,243 10,787 3,445 1,606
Accrued income and other assets 17 5,302 4,536 4,581 3,912
Assets classified as held for sale 8 703 661 703 661
Current tax assets 575 2,691 296 2,682
Inventories 15 1,271 1,324 602 625
Investments in subsidiaries 9 - - 16,058 15,858
Investments in associates 10 2,607 3,006 1,645 1,645
Intangible assets 11 2,121 2,145 57 122
Property, plant and equipment 12 66,375 65,346 42,400 41,585
Deferred tax assets 14 10,889 7,034 10,552 6,538
Total assets 1,203,415 1,172,646 1,170,620 1,136,869
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
42
Statements of Financial Position (continued)
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Equity and Liabilities
Equity
Share capital 18 11, 341 11,192 11,341 11,192
Share premium 19 18, 530 18,530 18,530 18,530
Revaluation and other reserves 19 4,639 23,668 1,918 20,828
Retained earnings 101,700 83,910 100,204 81,452
Equity attributable to equity holders of the
Bank
136,210 137,300 131,993 132,002
Non-controlling interests 8,090 8,470 - -
Total equity 144,300 145,770 131,993 132,002
Liabilities
Amounts owed to banks 20 535 1,224 535 1,224
Amounts owed to customers 21 1,008,431 977,143 1,010,100 978,365
Current tax liabilities -
809 -
-
Accruals and deferred income 24 11,015 10,839 7,589 7,271
Other liabilities 23 33,347 30,649 17,220 14,772
Provisions for liabilities and other charges 22 1,688 2,113 383 435
Deferred tax liabilities 14 4,099 4, 099 2,800 2,800
Total liabilities 1,059,115 1,026,876 1,038,627 1,004,867
Total equity and liabilities 1,203,415 1,172,646 1,170,620 1,136,869
Memorandum items
Contingent liabilities 25 13,611 13,195 13,610 13,360
Commitments 25 202,396 195,848 203,285 196,413
The notes on pages 51 to 166 are an integral part of these financial statements.
These financial statements on pages 41 to 166 were approved and authorised for issue by the Board of Directors on 27 April
2023. The financial statements were signed on behalf of the Bank's Board of Directors by Michael C. Bonello (Chairman) and
Joseph Said (Director and Chief Executive Officer) as per the Directors' Declaration on ESEF Annual Financial Report submitted
in conjunction with the Annual Report and Financial Statements 2022.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
43
Income Statements
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Interest receivable and similar income
- on loans and advances, balances with Central
Bank of Malta and treasury bills 26 26,497
23,451
26,455
23,414
- on debt and other fixed income instruments 26
2,523
2,274
2,450
2,174
Interest expense 26 (6,744)
(6,169)
(6,702)
(6,120)
Net interest income 22,276 19,556 22,203 19,468
Fee and commission income 27 5,669 5,424 4,569 4,341
Fee and commission expense 27
(253)
(213) (253) (213)
Net fee and commission income 5,416 5,211 4,316 4,128
Postal sales and other revenues 28
30,693
37,371 605
518
Dividend income 29 141 80 1,798
1,738
Net trading income 30
793
615 634
590
Other operating income 309 231 117
286
Operating income
59,628 63,064
29,673 26,728
Employee compensation and benefits 31 (24,012)
(24,360)
(8,683)
(8,195)
Other operating costs 33
(20,867)
(24,544)
(7,239)
(7,129)
Depreciation and amortisation 11,12 (2,915)
(2,719)
(1,121)
(927)
Provisions for liabilities and other charges 22
(2)
135 26 250
Net movement in expected credit losses 32 16,243 1,464 16,111
1,466
Operating profit 28,075 13,040 28,767 12,193
Share of loss of investment accounted for using the
equity method, net of tax 10
(399) (402)
- -
Profit before taxation 27,676 12,638
28,767 12,193
Income tax expense 34
(10,050)
(4,759)
(10,279)
(4,389)
Profit for the year 17,626 7,879 18,488 7,804
Attributable to:
Equity holders of the Bank 17,530 7,481 18,488 7,804
Non-controlling interests
96
398 - -
Profit for the year 17,626 7,879 18,488 7,804
Earnings per share 35 €0.19 €0.08
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
44
Statements of Comprehensive Income
Group Bank
Notes 2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Profit for the year
17,626 7,879 18,488 7,804
Other comprehensive income
Items that may be
subsequently reclassified to profit
or loss
Debt investments measured at FVOCI
Net losses from changes in fair value, before tax
6 (25,825)
(2,711)
(25,483)
(2,653)
Net gains on financial investments reclassified to
profit or loss on disposal, before tax
- (168) - (168)
Net movements in credit losses released to profit
and loss, before tax
62 (343) 62 (341)
Income taxes relating to these items
34 8, 897 1,108 8,897 1,108
Items that will not be subsequently reclassified to
profit or loss
Net
(losses)/gains from changes in fair value of
investments in equity instruments designated at
FVOCI, before tax 6
(1,717)
149 (1,717)
149
Surplus arising on revaluation of land and buildings,
before tax
12
- 8,486 - 6,844
Remeasurements of defined benefit obligations,
before tax
264 - - -
Income taxes relating to these items
34
525 (1,492)
617 (1,221)
Other
comprehensive income for the year, net of
income tax
(17,794)
5,029 (17,624)
3,718
Total comprehensive income for the year, net of
income tax
(168) 12,908 864 11,522
Attributable to:
Equity holders of the Bank
(217) 12,137
Non-controlling interests
49 771
Total comprehensive income for the year, net of
income tax
(168) 12,908
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
45
Statements of Changes in Equity
Group
Attributable to equity holders of the Bank
Revaluation Non-
Share Share and other Retained
controlling Total
capital premium reserves earnings
Total interests Equity
Notes € 000 € 000 € 000 € 000
€ 000 € 000 € 000
At 1 January 2021 11,044 18, 530 18,978 77,469
126,021 7,741 133,762
Comprehensive income
Profit for the year - - - 7,481
7,481 398 7,879
Other comprehensive income
Surplus on revaluation of land and buildings, net of tax 12 - - 6,658 - 6,658 390 7,048
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (1,669)
- (1,669) (17) (1,686)
Reclassification adjustments:
-
net amounts reclassified to profit or loss on disposal
- -
(110)
- (110) - (110)
-
net movement attributable to changes in credit risk
- -
(223)
- (223) - (223)
Total other comprehensive income for the year - - 4, 656 - 4,656 373 5,029
Total comprehensive income for the year - - 4, 656 7,481
12,137 771 12,908
Transfers and other movements - - 34 (34) - - -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (858) (858) (429) (1,287)
Bonus issue 18 148 - - (148)
- - -
Non-controlling interests arising on acquisition of subsidiary 9 - - - -
- 387 387
Total transactions with owners 148 - - (1,006)
(858) (42) (900)
At 31 December 2021 11,192 18, 530 23,668 83,910
137,300 8,470 145,770
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
46
Statements of Changes in Equity (continued)
Group
Attributable to equity holders of the Bank
Revaluation Non-
Share Share and other Retained
controlling Total
capital premium reserves earnings
Total interests Equity
Notes € 000 € 000 € 000 € 000
€ 000 € 000 € 000
At 1 January 2022 11,192 18,530 23,668 83,910
137,300 8,470 145,770
Comprehensive income
Profit for the year - - - 17,530
17,530 96 17,626
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (17,909)
- (17,909) (96) (18,005)
Reclassification adjustments:
-
net movement attributable to changes in credit risk
- -
40
-
40 - 40
Remeasurements of defined benefit obligations - - 122 - 122 49 171
Total other comprehensive income for the year - - (17,747)
- (17,747) (47) (17,794)
Total comprehensive income for the year - - (17,747)
17,530
(217) 49 (168)
Transfers and other movements 19 - - (1,282)
1,282
- - -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (873) (873) (429) (1,302)
Bonus issue 18 149 - - (149)
- - -
Total transactions with owners 149 - - (1,022)
(873) (429) (1,302)
At 31 December 2022 11,341 18,530 4,639 101,700
136,210 8,090 144,300
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
47
Statements of Changes in Equity (continued)
Bank
Revaluation
Share Share and other Retained Total
capital premium reserves earnings Equity
Note € 000 € 000 € 000 € 000 € 000
At 1 January 2021 11,044 18,530 17,076 74,692 121,342
Comprehensive income
Profit for the year - - - 7,804 7,804
Other comprehensive income
Surplus on revaluation of land and buildings, net of tax 12 - - 5,678 - 5,678
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (1,628) - (1,628)
Reclassification adjustments:
-
net amounts reclassified to profit or loss on disposal - - (109) - (109)
-
net movement attributable to changes in credit risk - - (223) - (223)
Total other comprehensive income for the year - - 3,718 - 3,718
Total comprehensive income for the year - - 3,718 7,804 11,522
Transfers and other movements - - 34 (34) -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (862) (862)
Bonus issue 18 148 - - (148) -
Total transactions with owners 148 - - (1,010) (862)
At 31 December 2021 11,192 18,530 20,828 81,452 132,002
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
48
Statements of Changes in Equity (continued)
Bank
Revaluation
Share Share and other Retained Total
capital premium reserves earnings Equity
Note € 000 € 000 € 000 € 000 € 000
At 1 January 2022 11,192 18,530 20,828 81,452 132,002
Comprehensive income
Profit for the year - - - 18,488 18,488
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year - - (17,664) - (17,664)
Reclassification adjustments:
-
net movement attributable to changes in credit risk - - 40 - 40
Total other comprehensive income for the year - - (17,624) - (17,624)
Total comprehensive income for the year - - (17,624) 18,488 864
Transfers and other movements 19 - - (1,286) 1,286 -
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders 36 - - - (873) (873)
Bonus issue 18 149 - - (149) -
Total transactions with owners 149 - - (1,022) (873)
At 31 December 2022 11,341 18,530 1,918 100,204 131,993
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
49
Statements of Cash Flows
Group
Bank
2022
2021
2022
2021
N
otes
€ 000
€ 000
€ 000
€ 000
Cash flows from operating activities
Interest
, fees
and commission receipts
30,830
28,586
30,918
28,599
Receipts from customers relating to
postal sales and other revenue
35,204
36,402
605
518
Interest
, fees
and commission payments
(6,651)
(5,712)
(6,651)
(5,714)
Payments to employees and suppliers
(48,175)
(45,664)
(15,302)
(15,582)
Cash flows attributable to funds collected on
behalf of third parties
634
683
-
-
Cash flows from operating profit before changes
in operating assets and liabilities
11,842
14,295
9,570
7,821
Movements
in operating assets:
Treasury bills
(34,069)
18,027
(34,069)
18,027
Balances
with Central Bank of Malta
7,245
341
7,245
341
Loans and advances to banks and customers
(49,399)
(26,052)
(52,799)
(21,552)
Other receivables
(2,227)
4
(2,236)
(279)
Movements
in operating liabilities:
Amounts owed to banks and to customers
31,287
36,033
31,735
29,887
Other payables
2,216 (5,146)
2,229
(4,859)
Net cash (used in) / generated from operating
activities, before tax
(33,105)
37,502
(38,325)
29,386
Income tax paid
(3,176)
(5,870)
(2,392)
(5,516)
Net cash flows (used in) / generated from
operating activities
(36,281)
31,632
(40,717)
23,870
Cash flows from investing activities
Dividends received
141
81
1,798
1,738
Interest received from
debt securities
3,486
3,012
3,359
2,863
Purchase of
financial
investments
6
(27,519)
(75,270)
(27,519)
(75,270)
Proceeds from maturity/disposal of investments
5,220
6,760
5,194
6,151
Purchase of property, plant and equipment and
intangible assets
11,12
(3,709)
(7,601)
(1,660)
(3,728)
Investments in associate
s
10
-
(1,500)
-
-
Investment
s
in subsidiaries
9
-
-
(200)
(126)
Investment
s
in subsidiaries, net of cash acquired
9
-
833
-
-
Net cash flows used in investing activities
(22,381)
(73,685)
(19,028)
(68,372)
Cash flows from financing activities
Dividends paid to equity holders of the Bank
36
(873)
(862)
Dividends paid to non
-
controlling interests
-
-
Principal element of lease payments
13
(873) (862)
(429) (429)
(478) (523)
(162)
(203)
Net cash flows used in financing activities
(1,780) (1,814)
(1,035)
(1,065)
Net decrease
in cash and cash equivalents
(60,442)
(43,867)
(60,780)
(45,567)
Cash and cash equivalents at beginning of year
166,260
210,127
161,678
207,245
Cash and cash equivalents at end of year
37
105,818
166,260
100,898
161,678
The notes on pages 51 to 166 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
50
Notes to the Financial Statements
1. Summary of significant accounting policies .............................................................................................. 51
2. Financial risk management........................................................................................................................ 67
3. Accounting estimates and judgements ................................................................................................... 127
4. Segmental information ............................................................................................................................ 130
5. Balances with Central Bank of Malta, treasury bills and cash ................................................................. 131
6. Financial investments .............................................................................................................................. 131
7. Loans and advances to banks .................................................................................................................. 133
8. Loans and advances to customers ........................................................................................................... 133
9. Investment in subsidiaries ....................................................................................................................... 133
10. Investment in associates ......................................................................................................................... 135
11. Intangible assets ...................................................................................................................................... 137
12. Property, plant and equipment ............................................................................................................... 139
13. Leases ...................................................................................................................................................... 143
14. Deferred tax assets and liabilities ............................................................................................................ 146
15. Inventories ............................................................................................................................................... 148
16. Trade and other receivables .................................................................................................................... 148
17. Accrued income and other assets ............................................................................................................ 148
18. Share capital ............................................................................................................................................ 149
19. Reserves ................................................................................................................................................... 149
20. Amounts owed to banks .......................................................................................................................... 150
21. Amounts owed to customers ................................................................................................................... 151
22. Provisions for liabilities and other charges .............................................................................................. 151
23. Other liabilities ........................................................................................................................................ 153
24. Accruals and deferred income ................................................................................................................. 153
25. Commitments and contingent liabilities .................................................................................................. 153
26. Net interest income ................................................................................................................................. 154
27. Net fee and commission income .............................................................................................................. 155
28. Postal sales and other revenues .............................................................................................................. 155
29. Dividend income ...................................................................................................................................... 155
30. Net trading income .................................................................................................................................. 156
31. Employee compensation and benefits ..................................................................................................... 156
32. Net movement in expected credit losses ................................................................................................ 156
33. Profit before taxation .............................................................................................................................. 158
34. Income tax expense ................................................................................................................................. 160
35. Earnings per share ................................................................................................................................... 161
36. Dividends ................................................................................................................................................. 162
37. Cash and cash equivalents....................................................................................................................... 162
38. Related parties ........................................................................................................................................ 163
39. Investor compensation scheme ............................................................................................................... 166
40. Events subsequent to the reporting period ............................................................................................. 166
41. Statutory information .............................................................................................................................. 166
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
51
1. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below.
Unless otherwise stated, these policies have been consistently applied to all the years presented and relate
to both the Group and the Bank.
1.1 Basis of preparation
The consolidated financial statements include the financial statements of Lombard Bank Malta p.l.c. (the
Bank) and its subsidiary undertakings (together referred to as ‘the Group’ and individually as ‘Group
entities’). The Bank’s financial statements have been prepared in accordance with the requirements of
International Financial Reporting Standards (‘IFRSs’) as adopted by the EU and with the requirements of the
Banking Act 1994 (Chapter 371 of the Laws of Malta) and the Companies Act, 1995 (Chapter 386 of the Laws
of Malta). These consolidated financial statements are prepared under the historical cost convention, as
modified by the fair valuation of certain financial assets and financial liabilities and land and buildings
classified as property, plant and equipment which are measured at revalued amount.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of
certain accounting estimates. It also requires the Directors to exercise their judgment in the process of
applying the Group’s accounting policies (see note 3.1 – Critical accounting estimates and judgments in
applying the Group’s accounting policies).
1.2 Standards, interpretations and amendments to published standards effective in 2022
In 2022, the Group adopted amendments and interpretations to existing standards that are mandatory for
the Group’s accounting period beginning on 1 January 2022. The adoption of these revisions to the
requirements of IFRSs as adopted by the EU did not result in changes to the Group’s accounting policies
impacting the Group’s financial performance and position.
1.3 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 of these financial statements but are not yet effective for the Group’s current
reporting period.
The Group did not early adopt any new standards, amendments and interpretations to existing standards
applicable to periods after 1 January 2022 and the Bank’s management is of the opinion that there are no
requirements that will have a possible significant impact on the Group’s consolidated financial statements
in the period of initial application.
1.4 Consolidation
Subsidiaries are all entities over which the Group has control. The Group controls an entity where 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 to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
date that control ceases.
The Group manages and administers investment vehicles on behalf of investors. The financial statements
of these entities are not included in these financial statements, except when the Group controls the entity.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
52
1. Summary of significant accounting policies (continued)
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 the
identifiable net assets acquired is recorded as goodwill. If this aggregate is less than the fair value of the
identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The accounting policies of the subsidiaries are consistent with the
policies adopted by the Group. In the Bank’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 Bank’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.
1.5 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Board
of Directors which is the Group’s chief operating decision-maker.
An operating segment’s operating results are reviewed regularly by the Board of Directors to make
decisions about resources to be allocated to the segment and to assess its performance executing the
function of the chief operating decision-maker.
1.6 Foreign currency translation
The financial statements are presented in euro (€), which is the Group’s presentation currency.
1.6.1 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 Group’s functional and presentation
currency.
1.6.2 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 the
income statement.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
53
1. Summary of significant accounting policies (continued)
1.7 Financial assets
1.7.1 Initial recognition and measurement
The Group recognises a financial asset in its 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. At 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; and
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.
1.7.2 Classification and subsequent measurement
The Group 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.
1.7.2.1 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 1.7.3. Interest income from these
financial assets is included in 'Interest and similar income' using the effective interest rate method.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
54
1. Summary of significant accounting policies (continued)
Fair value through other comprehensive income (‘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 fair value
through other comprehensive income (‘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. Interest income from these financial assets is included in 'Interest income'
using the effective interest rate method.
Fair value through profit or loss (‘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 investment
income'. Interest income from these financial assets is included in 'Interest income' using the effective
interest.
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 Bank 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 Bank 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 Bank 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.
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Annual Report and Financial Statements 2022
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1. Summary of significant accounting policies (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.
Financial assets that are held for trading and those that are managed and whose performance is evaluated
on a fair value basis will be measured at FVPL because they are neither held to collect contractual cash
flows nor held both to collect contractual cash flows and to sell financial assets. Securities held for trading
are held principally for the purpose of selling in the near term or are part of a portfolio of financial
instruments that are managed together and for which there is evidence of a recent actual pattern of short-
term profit-taking.
The Bank may also irrevocably designate financial assets at fair value through profit or loss if doing so
significantly reduces or eliminates a mismatch created by assets and liabilities being measured on different
bases.
(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 solely payments of principal and interest (the SPPI test). 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 that is consistent with a basic lending arrangement. 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.
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 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).
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1. Summary of significant accounting policies (continued)
Financial assets with embedded derivatives are considered in their entirety when determining whether
their cash flows are solely payment of principal and interest.
1.7.2.2 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, continue to be recognised in profit
or loss as other income when the Group's right to receive payments is established.
Gains and losses on equity investments at FVPL are included in the 'Net trading income’ line in the income
statement.
1.7.3 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:
an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes;
the time value of money; and
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.
Note 2.3.4 provides more detail of how the Expected Credit Loss allowance is measured.
Expected Credit Loss allowances are presented in the statement 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 statement of financial
position against the carrying amount of the asset because the carrying amount of these assets is their
fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at
amortised cost is recognised in other comprehensive income as an accumulated impairment amount,
with a corresponding charge to profit or loss.
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1. Summary of significant accounting policies (continued)
1.7.4 Modification of loans and advances to customers
The contractual terms of a loan may be modified for a number of reasons, including changing market
conditions, customer retention and other factors not related to a current or potential credit deterioration
of the customer.
The Group renegotiates loans and advances to customers in financial difficulties (referred to as
‘forbearance activities’) to maximise collection opportunities and minimise the risk of default. Under the
Group’s forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in
default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable
efforts to pay under the original contractual terms, and the debtor is expected to be able to meet the
revised terms. The revised terms usually include extending the maturity, revision of interest rate and
changing the timing of interest payments. Both retail and corporate loans are subject to the forbearance
policy.
When modification happens, the Group assesses whether or not the new terms are substantially different
to the original terms. The Group does this by considering, among others, the following factors:
If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash
flows to amounts the borrower is expected to be able to pay.
Whether any substantial new terms are introduced.
Significant extension of the loan term when the borrower is not in financial difficulty.
Significant change in the interest rate.
Insertion of collateral, other security or credit enhancements that significantly affect the credit risk
associated with the loan.
If the terms are substantially different, the Group derecognises the original financial asset and recognises
a 'new' asset at fair value, and recalculates a new effective interest rate for the asset. The date of
renegotiation is consequently considered to be the date of initial recognition for impairment calculation
purposes, including for the purpose of determining whether a significant increase in credit risk has
occurred. However, the Group also assesses whether the new financial asset recognised is deemed to be
credit-impaired at initial recognition, especially in circumstances where the renegotiation was driven by
the debtor being unable to make the originally agreed payments. Differences in the carrying amount are
also recognised in profit or loss as a gain or loss on derecognition.
If the terms are not substantially different, the renegotiation or modification does not result in
derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of
the financial asset and recognises a modification gain or loss in profit or loss.
The new gross carrying amount is recalculated by discounting the modified cash flows at the original
effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired
financial assets). The impact of modifications of financial assets on the Expected Credit Loss calculation is
discussed in note 2.3.9.
1.7.5 Derecognition of financial assets (other than on a modification)
Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash
flows from the assets have expired, or when they have been transferred and either (i) the Bank transfers
substantially all the risks and rewards of ownership, or (ii) the Bank neither transfers nor retains
substantially all the risks and rewards of ownership and the Bank has not retained control.
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Annual Report and Financial Statements 2022
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1. Summary of significant accounting policies (continued)
1.7.6 Derivative financial instruments
The Group deploys no hedging strategies that achieve hedge accounting in terms of IAS 39.
Derivative financial instruments are initially recognised at fair value on the date on which a derivative
contract is entered into, and are subsequently remeasured at their fair value. Fair values are obtained from
valuation techniques for over-the-counter derivatives, including discounted cash flow models. All
derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Fair
values for currency forwards are determined using forward exchange market rates at the end of the
reporting period. Discounting techniques, reflecting the fact that the respective exchange or settlement
will not occur until a future date, are used when the time value of money has a significant effect on the fair
valuation of these instruments.
Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are
recognised immediately in profit or loss.
The Group uses derivatives such as cross currency swaps and forward foreign exchange contracts.
1.8 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of
financial position when there is a legally enforceable right to offset the recognised amounts and there is
an intention to settle on a net basis or realise the asset and settle the liability simultaneously .
1.9 Investments in subsidiaries
The Group classifies investments in entities which it controls as subsidiaries.
The Group’s investments in subsidiaries are stated at cost less impairment losses in the Group’s stand-
alone financial statements. Impairment losses recognised in prior periods are reversed through profit or
loss if there has been a change in the estimates used to determine the investment’s recoverable amount
since the last impairment loss was recognised.
1.10 Investments in associates
Associates are all entities over which the Group has significant influence but not control or joint control,
generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting in the consolidated financial
statements, after initially being recognised at cost. Under the equity method of accounting, the investment
is initially recognised at cost, and the carrying amount is adjusted thereafter to recognise the Group’s share
of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements
in other comprehensive income of the investee in other comprehensive income. The Group’s investment
in associates includes goodwill identified on acquisition. Dividends received or receivable from associates
are recognised as a reduction in the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including
any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal
or constructive obligations or made payments on behalf of the associate.
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1. Summary of significant accounting policies (continued)
The Group determines at each reporting date whether there is any objective evidence that the investment
in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value and recognises the
amount adjacent to ‘share of profit/(loss) of investment accounted for using the equity method’ in the
income statement.
Profits and losses resulting from upstream and downstream transactions between the Group and its
associate are recognised in the Group’s financial statements only to the extent of unrelated investor’s
interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of associates have been changed where necessary
to ensure consistency with the policies adopted by the Group.
If the ownership interest in an associate is reduced but significant influence is retained, only a
proportionate share of the amounts previously recognised in other comprehensive income is reclassified
to profit or loss where appropriate.
Dilution gains and losses arising in investments in associates are recognised in the income statement.
In the Bank’s separate financial statements, investments in associates 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 impairment in value. Where there has been 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 the associate
are reflected in the Bank’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.
1.11 Intangible assets
1.11.1 Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the
identifiable net assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in ‘intangible assets’.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made
to those cash-generating units or groups of cash-generating units that are expected to benefit from the
business combination in which the goodwill arose, identified according to operating segment. A cash-
generating unit to which goodwill has been allocated is tested for impairment annually, and whenever
there is an indication that the unit may be impaired by comparing the carrying amount of the unit, including
the goodwill, with the recoverable amount of the unit. The recoverable amount is the higher of fair value
less costs to sell and value in use.
1.11.2 Computer software
Costs incurred to acquire and bring to use specific software are capitalised and amortised on the basis of
the expected useful lives. Software has a maximum expected useful life of four years.
1.11.3 Other intangible assets
Other intangible assets include leasehold rights on buildings that are initially recognised at their acquisition
cost and then amortised over their estimated useful life, which does not exceed the expected lease period,
on a straight-line basis.
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1. Summary of significant accounting policies (continued)
1.12 Property, plant and equipment
All property, plant and equipment used by the Group is initially recorded at historical cost, including
transaction costs and borrowing costs. Historical cost includes expenditure that is directly attributable to
the acquisition of the items.
Freehold and long leasehold properties (land and buildings) comprise mainly branches and offices. Land
and buildings are shown at fair value based on periodic valuations by external independent valuers, less
subsequent depreciation for buildings. Valuations are carried out on a regular basis such that the carrying
amount of property does not differ materially from that which would be determined using fair values at
the end of the reporting period. Any accumulated depreciation at the date of revaluation is eliminated
against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of
the asset.
All other property, plant and equipment is stated at historical cost less accumulated depreciation.
Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset 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.
Subsequent costs are included in the asset’s carrying amount or 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.
Increases in the carrying amount arising on revaluation of land and buildings are credited to other
comprehensive income and shown as a revaluation reserve in shareholders’ equity. Decreases that offset
previous increases of the same asset are charged to other comprehensive income and debited against the
revaluation reserve; all other decreases are charged to profit or loss.
Land is not depreciated as it is deemed to have an indefinite life. Depreciation on other assets is calculated
using the straight-line method to allocate their cost or revalued amounts to their residual values over their
estimated useful lives, as follows:
Years
Buildings
100 or over period of lease
arrangement
Leasehold property
Over period of lease
arrangement
Computer equipment
4
Other
4
–
8
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 (see note 1.13).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and
are recognised in profit or loss. When revalued assets are sold, the amounts included in the revaluation
reserve relating to that asset are transferred to retained earnings.
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1. Summary of significant accounting policies (continued)
1.13 Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill or certain intangible assets, are not subject
to amortisation and are tested annually for impairment. Assets that are subject to 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 inflows (cash-generating units). The impairment test
also can be performed on a single asset when the fair value less costs to sell or the value in use can be
determined reliably. Non-financial assets other than goodwill that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
1.14 Assets classified as held for sale
In certain circumstances, property is repossessed following the judicial action on loans that are in default.
These non-current assets that are held for sale are stated at the lower of their carrying amount and fair
value less costs to sell when their carrying amount is to be recovered principally through a sale transaction
rather than through continuing use and a sale is considered highly probable.
1.15 Current and deferred income 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 income 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 consolidated financial statements.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill;
deferred income 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 income tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the end of the reporting period and are expected to apply
when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income 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 income tax is provided on temporary differences arising on investments in subsidiaries, except
for deferred income tax liability where the timing of the reversal of the temporary difference is controlled
by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income 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 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.
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1. Summary of significant accounting policies (continued)
1.16 Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of postal stationery and
inventories held for resale is determined on a weighted average cost basis. The cost of inventories is
determined on a first-in first-out basis. The cost of inventories comprise the invoiced value of goods
purchased and in general includes transport and handling costs. Net realisable value is the estimated selling
price in the ordinary course of business, less applicable variable selling expenses.
1.17 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the
ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle
of the business if longer), they are classified as current assets. If not, they are presented as non-current
assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest method, less provisions for impairment. A provision for impairment of
trade and other receivables is established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of the receivables. Significant financial difficulties
of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or
delinquency in payments are considered indicators that the receivable is impaired. The amount of the
provision is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced
through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When
a receivable is uncollectible, it is written off against the allowance account for trade and other receivables.
Subsequent recoveries of amounts previously written off are credited in profit or loss.
1.18 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary
shares are shown in equity as a deduction, net of tax, from the proceeds.
1.19 Financial liabilities
1.19.1 Initial recognition and measurement
The Group recognises a financial liability on its 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.
1.19.2 Classification and subsequent measurement
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 (see note 1.30).
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1. Summary of significant accounting policies (continued)
Financial liabilities measured at amortised cost comprise principally amounts owed to banks, amounts
owed to customers, and other liabilities.
1.19.3 Derecognition
The Group derecognises a financial liability from its 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.
1.20 Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date are not derecognised from the
statement of financial position as the Group retains substantially all of the risks and rewards of ownership.
The corresponding cash received is recognised in the statement of financial position as an asset with a
corresponding obligation to return it, including accrued interest as a liability, reflecting the transaction’s
economic substance as a loan to the Group. The difference between the sale and repurchase prices is
treated as interest expense and is accrued over the life of agreement using the effective interest rate.
When the counterparty has the right to sell or repledge the securities, the Bank reclassifies those securities
in its statement of financial position to financial assets recognised as FVPL pledged as collateral or to
financial investments recognised as FVOCI pledged as collateral, as appropriate.
Conversely, securities purchased under agreements to resell at a specified future date are not recognised
in the statement of financial position. The consideration paid, including accrued interest, is recorded in the
statement of financial position, reflecting the transaction’s economic substance as a loan by the Bank. The
difference between the purchase and resale prices is recorded in net interest income and is accrued over
the life of the agreement using the effective interest rate.
If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to
return the securities is recorded as a short sale within financial liabilities held for trading and measured at
fair value with any gains or losses included in net trading income.
1.21 Trade and other payables
Trade payables comprise obligations to pay for goods or services that have been acquired in the ordinary
course of business from suppliers. Accounts payable are classified as current liabilities if payment is due
within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented
as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
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1. Summary of significant accounting policies (continued)
1.22 Provisions for liabilities and other charges
Provisions for legal and other claims 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 has been reliably estimated. Provisions are not recognised for future
operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognised as
interest expense.
1.23 Provision for pension obligations
A subsidiary of the Bank provides for the obligation arising in terms of Article 8A of the Pensions Ordinance,
(Chapter 93 of the Laws of Malta), covering those former Government employees who opted to become
full-time employees of the subsidiary of the Bank, and who continued to be entitled to pension benefits
which go beyond the National Insurance Scheme.
The pension related accounting costs are assessed using the projected unit credit method. Under this
method, the cost of the subsidiary’s obligation is charged to profit or loss so as to spread the cost over the
years of service giving rise to entitlement to benefits in accordance with actuarial techniques. The
obligation is measured as the present value of the estimated future cash outflows using interest rates of
long-term Government bonds which have terms to maturity approximating the terms of the related
liability. All actuarial gains and losses are charged or credited to equity in other comprehensive income in
the period in which they arise.
The Group contributes towards the government pension defined contribution plan in accordance with local
legislation as applicable and to which it has no commitment beyond the payment of fixed contributions.
These obligations are recognised as an expense in the Income Statement as they accrue.
1.24 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.
1.25 Fees and commissions
Fee and commission income and expense that are an integral part of the effective interest rate on a
financial asset or liability are included in the calculation of the effective interest rate and treated as part of
effective interest. Other fees and commissions are generally recognised on an accrual basis when the
service has been provided.
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1. Summary of significant accounting policies (continued)
Fee and commission income, comprising account servicing fees, investment management fees, placement
fees and other similar fees, are recognised as the related services are performed.
Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct
costs) and recognised as an adjustment to the effective interest rate on the loan. When a loan commitment
is not expected to result in the drawdown of a loan, the related loan commitment fees are recognised on
a straight-line basis over the commitment period. Fee and commission expense, relating mainly to
transaction and service fees, are expensed as the services are received.
1.26 Postal sales and other revenue
Postal sales and service revenue comprises the fair value of the consideration received or receivable for
the sale of services in the ordinary course of the subsidiary’s activities. Revenue is shown net of sales taxes
and discounts. It comprises revenue directly received from customers, commissions earned on postal and
non-postal transactions and income from foreign outbound mail receivable from overseas postal
administrators.
Income from sale of stamps, commission earned on postal and non-postal transactions and revenue from
foreign outbound mail from overseas postal administrators is recognised when the service is rendered.
Allowance is made for the assessed amount of revenue from prepaid product sales at the end of the
reporting period for which the service has not yet been provided. In the case of services rendered to postal
administrators in countries subject to severe exchange control restrictions and undue delays in settlement,
revenue is not recognised until the subsidiary is in a position to ensure that the economic benefits
associated with the transaction will flow to it, which is often upon or shortly before actual receipt.
IFRS 15 requires that at contract inception the goods or services promised in a contract with a customer
are assessed and each promise to transfer to the customer the good or service is identified as a
performance obligation. Promises in a contract can be explicit or implicit if the promises create a valid
expectation to provide a good or service based on the customary business practices, published policies, or
specific statements.
A contract asset must be recognised if the Company recorded revenue for fulfilment of a contractual
performance obligation before the customer paid consideration or before irrespective - of when payment
is due – the requirements for billing and thus the recognition of a receivable exist.
A contract liability must be recognised when the customer paid consideration or a receivable from the
customer is due before the Company fulfilled a contractual performance obligation and thus recognised
revenue.
1.27 Dividend income
Dividends are recognised in profit or loss in ‘dividend income’ when the entity’s right to receive payment
is established.
1.28 Net trading income
Net trading income includes income from foreign exchange activities.
1.29 Leases
1.29.1 When a Group company is the lessee
The Group recognises lease liabilities in relation to leases within ’other liabilities’. The lease liability is
measured at the present value of the remaining lease payments, discounted at the Group’s incremental
borrowing rate. The associated right-of-use (ROU) assets are recognised and included within ‘property,
plant and equipment’ and are measured at the amount equal to the lease liability.
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1. Summary of significant accounting policies (continued)
The Group applies the following practical expedients:
a single discount rate is applied to a portfolio of leases with reasonable similar characteristics;
an assessment is performed on whether leases are onerous; and
hindsight are used in determining the lease term where the contract contains options to extend or
terminate the lease.
Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit
or loss over the lease term.
The lease term is the non-cancellable period of a lease, together with both (a) periods covered by an option
to extend the lease if the lessee is reasonably certain to extend that option; and (b) periods covered by an
option to terminate the lease if the lessee is reasonably certain not to exercise that option. In assessing the
length of the non-cancellable period of a lease, the Group applies the definition of a contract to determine
the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the
lessor each has the right to terminate the lease without permission from the other party with no more than
an insignificant penalty.
The ROU asset is depreciated over the shorter of the ROU asset’s useful economic life and the lease term
on a straight-line basis.
The leases with a remaining lease term of less than 12 months are accounted as short-term operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to
profit or loss on a straight-line basis over the period of the lease.
1.30 Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in
accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial
institutions and other bodies on behalf of customers.
In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit,
guarantees and acceptances.
Financial guarantee contracts are initially measured at fair value and subsequently measured at higher of:
the amount of the loss allowance (calculated as described in note 1.7.3); and
the premium received on initial recognition less income recognised in accordance with the principles of
IFRS 15.
'Loan commitments' are the Bank’s commitments to provide credit under pre-specified terms and
conditions, and are measured as the amount of the loss allowance (calculated as described in note 1.7.3).
For loan commitments and financial guarantee contracts, the loss allowance is recognised as a provision.
However, for contracts that include both a loan and an undrawn commitment and the Bank cannot
separately identify the Expected Credit Losses on the undrawn commitment component from those on the
loan component, the Expected Credit Losses on the undrawn commitment are recognised together with
the loss allowance for the loan. To the extent that the combined Expected Credit Losses exceed the gross
carrying amount of the loan, the Expected Credit Losses are recognised as a provision.
1.31 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at face value. Cash and cash
equivalents comprise balances with less than three months’ maturity from the date of acquisition,
including cash in hand, deposits held at call with banks and other short-term highly liquid investments with
original maturities of three months or less.
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1. Summary of significant accounting policies (continued)
1.32 Dividend distribution
Dividend distribution to the Bank’s shareholders is recognised as a liability in the Group’s financial
statements in the period in which the dividends are approved by the Bank’s shareholders.
2. Financial risk management
2.1 Introduction
2.1.1 Preamble
The Group’s business involves taking on risks in a targeted manner and managing them professionally. The
core functions of the Group’s risk management are to identify all key risks for the Group, measure these
risks, manage the risk positions and determine capital allocations. The Group regularly reviews its risk
management policies and systems to reflect changes in markets, products and best market practice. The
Group’s aim is to achieve an appropriate balance between risk and return and minimise potential adverse
effects on the Group’s financial performance. The Group defines risk as the possibility of losses or profits
foregone, which may be caused by internal or external factors.
The Group considers risk management a core competency that helps produce consistently high returns for
its various stakeholders. The Group aims to manage all major types of risk by applying methods that meet
best practice. The Group considers it important to have a clear distribution of responsibilities within the
area of risk management. One of the main tasks of the Group’s executive management is to set the
framework for this area. An understanding of risk-taking and transparency in risk-taking are key elements
in the Group’s business strategy and thus in its ambition to be a strong financial entity. The Group’s internal
risk management processes support this objective.
Risk management within the Bank is mainly carried out on a unified basis, using an integrated and entity-
wide framework. This framework is based on local and international guidelines, such as the Basel III Accord,
corresponding Directives and Regulations of the European Union, including technical standards, as well as
contemporary international banking practices. The Bank has adopted the Standardised Approach and the
Basic Method with respect to the calculation of capital requirements in relation to, and management of,
credit and market risks, and the Basic Indicator Approach with respect to operational risk. The Bank
regularly updates its Internal Capital and Liquidity Adequacy Assessment Processes (ICAAP and ILAAP), that
are approved by the Board of Directors.
2.1.2 Organisation
The Bank’s Board of Directors is responsible for ensuring that adequate processes and procedures exist to
ensure effective internal control systems for the Group. These internal control systems ensure that
decision-making capability and the accuracy of the reporting and financial results are maintained at a high
level at all times. The Board assumes responsibility for:
setting business objectives, goals and the general strategic direction for Management with a view to
maximise value;
selecting and appointing the Chief Executive Officer who is entrusted with the day-to-day operations of
the Group;
management of the Group’s operations;
ensuring that significant business risks are identified and appropriately managed; and
setting the highest business standards and code for ethical behaviour, and monitoring adherence with
these.
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2. Financial risk management (continued)
In deciding how best to discharge its responsibilities, the Board upholds a policy of clear demarcation
between its role and responsibilities and those of Management. It has defined the level of authority that it
retains over strategy formulation and policy determination, and delegated authority and vested
accountability for the Bank’s day-to-day business in the Assets & Liabilities Committee and Credit
Committee, and, for the Group’s day-to-day operations, in an Executive Team comprising the Chief
Executive Officer and Chief Officers. The Audit & Risk Committee reviews the processes and procedures to
ensure the effectiveness of the Group’s system of internal control, as well as the implementation of the
Board’s risk strategy by management. The Audit & Risk Committee is supported by the Internal Audit, Risk
Management and Compliance functions.
Authority to operate the Bank and its subsidiaries is delegated to the Chief Executive Officer within the
limits set by the Board. The Board is ultimately responsible for the Group’s system of internal control and
for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure
to achieve business objectives, and can provide only reasonable, and not absolute, assurance against
material misstatement or loss.
The Group is committed to the highest standards of business conduct and seeks to maintain these standards
across all operations. Group policies and procedures are in place for the reporting and addressing of
fraudulent activities.
The Group has an appropriate organisational structure for planning, executing, controlling and monitoring
business operations in order to achieve Group objectives.
2.1.3 Risk policies
The Bank’s Board of Directors is empowered to set out the overall risk policies and limits for all material risk
types. The Board also decides on the general principles for managing and monitoring risks. The Board
provides written principles for overall risk management, as well as written policies covering specific areas,
such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-
derivative financial instruments.
Internal controls, procedures and processes are managed within the following areas:
Finance
Treasury
Credit
Internal Audit
Risk Management
Compliance
Anti-Money Laundering
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2. Financial risk management (continued)
2.1.4 Risk appetite
The risk appetite determines the maximum risk that the Group is willing to assume to meet business targets.
To ensure coherence between the Group’s strategic considerations regarding risk-taking and day-to-day
decisions, from time to time, the Group formulates and updates its risk appetite for the purposes of
strategic direction. The Group’s risk appetite is set in a process based on a thorough analysis of its current
risk profile. The Group identifies a number of key risk components and for each, determines a target that
represents the Group’s view of the component in question. The following are the key risk components:
Credit risk
Market risk
Capital risk
Liquidity risk
Operational risk
Information technology risk
Information management risk
Financial crime risk
Compliance risk
Environmental, social, and governance (‘ESG’) risk
2.1.5 Reporting
The Group allocates considerable resources to ensure the ongoing compliance with approved limits and to
monitor its asset portfolio. In particular, the Bank has a fixed reporting cycle to ensure that the relevant
management bodies, including the Board of Directors and the Executive Team, are kept informed on an
ongoing basis of developments in the asset portfolio, such matters as non-performing loans and other
relevant information.
2.2 Risk exposures
In terms of the Capital Requirement Regulation (‘CRR’), ‘an exposure’ is the amount at risk arising from the
reporting credit institution's assets and off-balance sheet items. Consistent with this, an exposure would
include the amount at risk arising from the Bank’s:
claims on a customer including actual and potential claims which would arise from the drawing down
in full of undrawn advised facilities, which the Bank has committed itself to provide;
contingent liabilities arising in the normal course of business, and those contingent liabilities which
would arise from the drawing down in full of undrawn advised facilities which the Bank has committed
itself to provide; and
other on and off-balance sheet financial assets and commitments.
The Group is exposed to a number of risks, which it manages at different organisational levels.
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2. Financial risk management (continued)
The main categories of risk are:
Credit risk: Credit risk stems from the possible non-prompt repayment or non-payment of existing and
contingent obligations by the Group’s counterparties, resulting in the loss of equity and profit. It is the
risk that deterioration in the financial condition of a borrower will cause the asset value to decrease or
be extinguished. Country risk and settlement risk are included in this category. Country risk refers to
the risk of losses arising from economic or political changes that affect the country from which the asset
originates. Settlement risk refers to the risk of losses through failure of the counterparty to settle
outstanding dues on the settlement date owing to bankruptcy or other causes.
Market risk: Risk of losses arising from unfavourable changes in the level and volatility of interest rates,
foreign exchange rates or investment prices.
Liquidity risk: Liquidity risk may be divided into two sub-categories:
- Market (product) liquidity risk: Risk of losses arising from difficulty in accessing a product or
market at the required time, price and amount.
- Funding liquidity risk: Risk of losses arising from a timing mismatch between investing,
placements and fund raising activities resulting in obligations missing the settlement date or
satisfied at higher than normal rates.
Operational risk: Risk of loss resulting from the lack of skilful management or good governance within
the Group and the inadequacy of proper control, which might involve internal operations, personnel,
systems or external occurrences that in turn affect the income and capital funds of financial institutions.
The Bank has adopted an operational risk management framework and procedures, which provide for
the identification, assessment, management, monitoring and reporting of the Bank’s operational risks.
ESG risk: ESG risks refer to the risks of any negative financial impact on the Group and/or Bank stemming
from the current or prospective impacts of ESG factors on its counterparties or invested assets. ESG
factors refer to environmental, social and governance factors that may have a positive or negative
impact on the financial performance of the Group or solvency of the Bank. The Group is currently in the
process of evaluating its potential exposure towards climate and environmental risks.
The Bank’s approach to management of the above risks is addressed in this note.
2.3 Credit risk
2.3.1 Introduction
Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market
counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from
consumer loans and advances and loan commitments arising from such lending activities, but can also arise
from credit enhancement provided, such as financial guarantees and letters of credit.
The Group is also exposed to other credit risks arising from investments in debt securities and other
exposures arising from its investing activities.
Credit risk constitutes the Bank’s largest risk in view of its significant lending and securities portfolios, which
is monitored in a structured and formal manner through several mechanisms and procedures. The credit
risk management and control functions are centralised.
2.3.2 Credit risk management
The granting of a credit facility (including loans and advances, loan commitments and guarantees) is based
on the Bank’s insight into the customer’s financial position, which is reviewed regularly to assess whether
the basis for the granting of credit has changed. Furthermore, the customer must be able to demonstrate,
in all probability, the ability to repay the debt. Internal approval limits are in place starting from Bank
operational managers leading up to the Credit Committee and the Board of Directors depending on the
magnitude and the particular risks attached to the facility. Facilities are generally adequately secured either
by property and/or guarantees and are reviewed periodically by management in terms of the exposure to
the Bank and to ensure that collateral still covers the facility.
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2. Financial risk management (continued)
In order to minimise the credit risk undertaken, counterparty credit limits are defined with respect to
investment activities, which limits consider a counterparty’s creditworthiness, the value of collateral and
guarantees pledged, which can reduce the overall credit risk exposure, as well as the type and the duration
of the asset. In order to examine a counterparty’s creditworthiness, the following are considered: country
risk, quantitative and qualitative characteristics, as well as the industry sector in which the counterparty
operates.
The Group has set limits of authority and has segregation of duties so as to maintain impartiality and
independence during the approval process and control new and existing assets or credit facilities.
The Group manages, limits and controls concentrations of credit risk wherever they are identified in
particular, to individual counterparties and groups, and to industries and countries. The Group structures
the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one
borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on
a revolving basis and subject to an annual or more frequent review, when considered necessary. The
exposure to any one borrower including banks and brokers is further restricted by sublimits covering on
and off-balance sheet exposures. Actual exposures against limits are monitored at end of day on a daily
basis and on a real-time basis too.
During the financial year ended 31 December 2022, the socioeconomic impact of the COVID-19 pandemic
continued to subside, with a significant rebound in economic growth registered during 2021 and 2022,
almost restoring the local economy to pre-COVID levels. The economic growth registered was in part a
result of a recovery in the tourism sector in the aftermath of the COVID-19 pandemic as well as an increase
in private consumption.
In addition, Malta was officially removed from the Financial Action Task Force’s (‘FATF’) grey list in June
2022. This was the result of nation-wide efforts to strengthen the effectiveness of the country’s Anti-
Money Laundering and Countering the Financing of Terrorism (‘AML/CFT’) regime to meet the
commitments established within the national action plan to address the strategic deficiencies identified by
the FATF in June 2021, related to the detection of inaccurate company ownership information and
sanctions on gatekeepers who fail to obtain accurate beneficial ownership information, as well as the
pursuit of tax-based money laundering cases utilising financial intelligence.
Notwithstanding the above, the level of economic uncertainty remained elevated during the financial year
ended 31 December 2022, primarily driven by the geopolitical developments as a result of the escalation of
the military conflict between Russia and Ukraine in February 2022, as well as widespread supply chain
disruptions experienced as the world economy recovers from the impacts of the pandemic, which triggered
significant inflationary pressures across the world. In order to curb the spiralling effect of inflationary
pressures, the European Central Bank (‘ECB’) and other national central banks applied monetary policy tools
at their disposal by increasing interest rates to manage demand.
Moreover, in March 2023, the international financial sector was hit by stress events resulting in the collapse
of a number of U.S. Regional Banks, and in a government brokered deal between two major banks in
Switzerland. This created further turmoil and uncertainty in the international financial markets.
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2. Financial risk management (continued)
Locally, the government has implemented price-mitigating fiscal measures to support households and
firms, with energy prices in Malta remaining fixed and the production of essential foodstuffs being
subsidised. In this respect, whilst significantly higher than both national targets and previous year levels,
inflation rates in Malta remain below those observed in most euro area countries. Corrections to national
salary levels were also implemented through the national Cost Of Living Adjustment (‘COLA’) mechanism.
As a result, economic uncertainty continues to prevail especially in view of the increasing interest rate
environment and inflationary pressures, partially mitigated by government support measures. This
uncertainty impacts the business model, income levels and/or cash flow generation capacity of a significant
portion of the Bank's customers. This has impacted the performance of the Bank’s expected credit loss
models, requiring enhanced monitoring of model outputs.
In view of the above, the Bank continued to closely monitor activities on its loan portfolio. During the year
ended 31 December 2022, the Bank continued to provide support to customers experiencing liquidity
pressures as a result of the prevailing macro-economic scenario, though to a lesser extent than the previous
year.
In view of the nature of the Bank’s portfolio, where a relatively small number of loans comprise a significant
proportion of the loan book value, during the past three years, the Bank continued to apply an individual-
debtor-focused credit management process. Such process enabled the identification of any deterioration
in credit risk at the level of the Bank’s material exposures at an early stage and the estimation of expected
credit loss allowances using the best possible judgement.
Subsequent to the outbreak of COVID-19, the Bank had adapted further its credit risk management
processes for the purposes of identifying deterioration in credit risk within its portfolios as early as possible.
In this respect, the Bank had increased the frequency and depth of monitoring activities on its loan
portfolios.
During the financial years ended 31 December 2020 and 2021, moratoria on capital and/or interest
payments in respect of retail and wholesale exposures were granted in accordance with ‘Directive No. 18
On Moratoria on Credit Facilities in Exceptional Circumstances’ ('Directive No. 18') issued by the Central
Bank of Malta (‘CBM’), in line with European Banking Authority ('EBA') Guidelines on legislative and non-
legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (the 'EBA Guidelines').
These moratoria, referred to as general payment moratoria, have now matured and customers have
gradually returned to the pre-moratoria repayment schedules. The Bank has not experienced significant
defaults subsequent to the expiry of general payment moratoria. In addition, the Bank continues to service
facilities which were granted to support corporates during the pandemic and which are guaranteed under
the Malta Development Bank COVID-19 Guarantee Scheme.
In relation to those customers that requested moratoria during 2020 and 2021, the Bank carried out
assessments to determine whether the COVID-19 induced shock may transform into long-term financial
difficulties, thereby potentially requiring a downgrade of individual exposures or exposures sharing similar
credit risk characteristics to Stage 2 or Stage 3 to reflect the change in the level of credit risk as appropriate.
Notwithstanding the diminishing effects of COVID-19 during 2022, the Bank continued to assess and
individually rate on an ongoing basis those borrowers deemed mostly impacted by the current macro-
economic uncertainties, including the ones which accepted payment deferrals and other relief designed to
address short-term liquidity issues. Exposures deemed mostly impacted and in respect of which significant
increase in credit risk (‘SICR’) and unlikeness-to-pay (‘UTP’) indicators have been observed are assigned an
elevated internal credit rating, requiring closer and more frequent monitoring on a monthly or quarterly
basis (depending on the extent of credit risk deterioration).
The Bank continued to monitor closely corporate exposures previously assigned to any of the
underperforming grades (P2, P3) (note 2.3.8) to update credit risk assessments by reference to actual
financial performance and, where available, financial forecasts.
In relation to retail exposures, the Bank typically resorts more to portfolio measures or reviews in respect
of groups of exposures exhibiting shared risk characteristics, unless specific debtor level information which
suggests developments in the respective credit risk becomes known to the Bank.
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2. Financial risk management (continued)
The current macro-economic environment has elevated the level of uncertainty in respect of the economic
outlook. Hence, the level of subjectivity underlying the ECL model parameters, including how these react
to forward-looking economic conditions remains high. This necessitates more regular monitoring and
rigorous evaluation of forecast economic conditions, together with heightened expert judgement, in order
to best determine the range of possible economic outcomes used for the purposes of estimating ECL.
Further information in respect of macro-economic forecasts reflected within the ECL calculations is
provided in note 2.3.4. (Forward looking information incorporated in the ECL model).
2.3.3 Credit risk measurement
The measurement of credit exposure for risk management purposes considers that an exposure varies with
changes in market conditions, expected cash flows and the passage of time. The assessment of credit risk
of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the
associated loss ratios and of default correlations between counterparties. The Group measures credit risk
using Probability of Default (‘PD’), Exposure at Default (‘EAD’) and Loss Given Default (‘LGD’). This is similar
to the approach used for the purposes of measuring Expected Credit Loss (‘ECL’) under IFRS 9. Refer to note
2.3.4 for more details.
(a) Loans and advances to customers
The Group uses internal credit risk gradings (note 2.3.8) to reflect its assessment of the Probability of
Default of individual counterparties. Internal credit risk gradings are based on payment behaviour, loan
specific information and expert judgement.
Corporate
Information considered by the Group when determining the internal credit risk grades include the payment
behaviour of the borrower and other information about borrowers which impact their creditworthiness,
including level of income and/or financial performance.
The Group determines its internal rating grades at a borrower level. The Group incorporates any updated
or new information/credit assessments on an ongoing basis. In addition, the Group also updates
information about the creditworthiness of the borrower from sources such as financial statements.
The creditworthiness of the borrower is considered in every periodic review - normally on a yearly basis; or
more frequently on an exceptions basis. This determines the updated internal credit risk gradings.
Retail
After initial recognition, for retail business, the payment behaviour of the borrower is monitored on an
ongoing basis. Any other known information about the borrower which impacts the respective credit
worthiness, such as unemployment and previous delinquency history, is also captured.
(b) Other financial assets
Other financial assets include Balances with Central Bank of Malta, financial investments and loans and
advances to banks. The Group utilises internally generated models (as described in note 2.3.4.3) to reflect
its assessment of the Probability of Default of individual counterparties. These grades are continuously
monitored and updated. The PDs associated with each grade are determined based on realised default
rates over the prior 12 months.
In determining the Probability of Default of individual counterparties, the Group distinguishes between
exposures considered ‘investment-grade’ and ‘non-investment grade’ based on credit ratings by recognised
external rating agencies .
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2. Financial risk management (continued)
2.3.4 Expected Credit Loss measurement
IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial
recognition as summarised below:
- a financial instrument that is not credit-impaired on initial recognition is classified in 'Stage 1' and has
its credit risk continuously monitored by the Group;
- if a significant increase in credit risk (‘SICR’) since initial recognition is identified, the financial instrument
is moved to 'Stage 2' but is not yet deemed to be credit-impaired. Please refer to note 2.3.4.1 for a
description of how the Bank determines when a significant increase in credit risk has occurred;
- if the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage 3'. Please
refer to note 2.3.4.2 for a description of how the Group defines credit-impaired and default;
- financial instruments in ‘Stage 1’ have their ECL measured at an amount equal to the portion of lifetime
Expected Credit Losses that result from default events possible within the next 12 months. Instruments
in ‘Stages 2’ or ‘3’ have their ECL measured based on Expected Credit Losses on a lifetime basis. Please
refer to note 2.3.4.3 for a description of inputs, assumptions and estimation techniques used in
measuring the ECL;
- a pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward
looking information. Note 2.3.4.4 includes an explanation of how the Group has incorporated this in its
ECL models; and
- purchased or originated credit-impaired financial assets are those financial assets that are credit-
impaired on initial recognition. Their ECL is always measured on a lifetime basis (‘Stage 3’).
Further explanation is also provided in respect of how the Group determines appropriate groupings of loans
and advances to customers for ECL measurement (refer to note 2.3.4.5).
The Expected Credit Loss requirements apply to financial assets measured at amortised cost and FVOCI,
and certain loan commitments and financial guarantee contracts. At initial recognition, an impairment
allowance (or provision in the case of commitments and guarantees) is required for ECL resulting from
default events that are possible within the next 12 months (12-month ECL). In the event of a significant
increase in credit risk, an allowance (or provision) is required for ECL resulting from all possible default
events over the expected life of the financial instrument (lifetime ECL). Financial assets where 12-month
ECL is recognised are considered ‘Stage 1’. Financial assets which are considered to have experienced a
significant increase in credit risk would be classified as ‘Stage 2’ and financial assets for which there is
objective evidence of impairment, thus considered to be in default or otherwise credit-impaired, would be
classified as ‘Stage 3’.
The Group recognises loss allowances at an amount equal to 12-month ECL for debt investment securities
that are determined to have low credit risk at the reporting date. The Group considers a debt security to
have low credit risk when it is considered ‘investment-grade’, as defined by recognised external rating
agencies.
The following diagram summarises the impairment requirements under IFRS 9 (other than purchased or
originated credit-impaired financial assets):
Stage 1
Stage 2
Stage 3
(Initial recognition)
(Significant increase in credit risk
since initial
recognition)
(Credit
-
impaired financial
assets)
12
-
month Expected Credit Losses
Lifetime Expected Credit Losses
Lifetime Expected Credit
Losses
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
75
2. Financial risk management (continued)
2.3.4.1 Significant increase in credit risk (‘SICR’)
To determine whether the credit risk (i.e. risk of default) on a financial instrument has increased
significantly since initial recognition, the Group considers reasonable and supportable information that is
relevant and available without undue cost or effort, including both quantitative and qualitative
information. Such analysis is based on the Group’s historical experience, credit assessment and forward-
looking information.
The Group primarily identifies whether a SICR has occurred for an exposure within the loans and advances
to customers, through the Group’s internal risk gradings. The Group allocates each exposure to an internal
rating grade based on a variety of data that is determined to be predictive of the risk of default and applying
experienced credit judgement. These factors vary depending on the nature of the exposure and the type
of borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved
to a different internal rating grade.
The Group identifies SICR and classifies such non-defaulted exposures into ‘Stage 2’ when they fulfil at
least one of the following conditions:
• the exposure is considered forborne;
• the credit quality of any other exposure(s) of the same customer is/are not considered ‘regular’ (except
where otherwise stated in the Group’s Credit Policy e.g. cash covered facilities); and
• the borrower’s internal rating grade is not considered ‘performing’, as defined in note 2.3.8.
As referred to previously, existing geopolitical factors as well as current inflationary and interest rate
scenarios, with the consequential economic conditions, continue to pose an elevated level of uncertainty,
particularly with respect to the identification of customers that would have experienced a SICR.
The Bank’s individual-debtor-focused approach enables the identification of SICR of significant exposures,
specifically within its corporate portfolio. These exposures are assessed periodically for SICR through
individual credit risk assessments, on the basis of recently obtained management information, including
forecasts. Exposures in respect of which SICR has been observed are attributed higher ECL, and are assigned
an elevated internal rating of P2 or P3, hence requiring closer and more frequent monitoring on a monthly
or quarterly basis (depending on the extent of credit risk deterioration) to facilitate timely identification of
further deterioration in financial condition. The assessments continue to be performed by the Commercial
Credit Department and are discussed and reviewed at Credit Committee or Board level as applicable.
For the purpose of achieving a comprehensive assessment the Bank also utilises, as applicable,
segmentation techniques in relation to identifying indicators of SICR within both corporate and retail
portfolios.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
76
2. Financial risk management (continued)
In relation to retail portfolios, SICR is generally determined on the basis of delinquency related indicators
since less information is available at asset level to enable the timely identification of a SICR. The Bank
continues to apply rigorously its credit assessment and oversight processes, which include monitoring of
arrears. Retail borrowers are considered to exhibit signs of SICR and consequently downgraded to Stage 2
if they met the following criteria:
- repayments being past-due by more than 30 days; and
- other qualitative criteria, including but not limited to actual or potential loss of personal income.
In respect of individually significant loans within the corporate portfolio, during 2022, the Bank focused
particularly on those borrowers that are deemed to be more susceptible to the current inflationary and
increasing interest rate environment.
During the financial years ended 31 December 2020 and 2021, a set of criteria specifically designed to
address pandemic induced credit risk deteriorations, were put in place to determine whether borrowers
who were granted a general payment moratorium (see note 2.3.9) exhibited signs of SICR.
In summary, the Bank’s monitoring typically includes the assessment of following risk criteria:
Corporate exposures Retail exposures All exposures
•
i
nformation obtained during periodic review of
customer files – e.g. audited financial statements,
management accounts, budgets and projections.
Examples of areas of particular focus are: gross
profit margins, financial leverage ratios, debt
service coverage, compliance with contractual
conditions, quality of management and senior
management changes;
• data from credit reference agencies, press
articles; and
• actual and expected significant changes in the
political, regulatory and technological
environment of the borrower or in its business
activities
.
•
i
nternally collected
data on customer
behaviour – e.g.
utilisation of credit
card facilities;
• affordability metrics;
and
• external data from
credit reference
agencies including
industry-standard
credit scores.
•
p
ayment record
–
this
includes overdue status as
well as a range of variables
about payment ratios;
• utilization of the granted
limit;
• requests for and granting
of forbearance; and
• existing and forecast
changes in business,
financial and economic
conditions.
The assessment of SICR incorporates forward-looking information (refer to note 2.3.4.4 for further
information) and is performed at the counterparty level on a periodic basis. The criteria used to identify
SICR are monitored and reviewed periodically for appropriateness by the independent Risk Management
function.
As a backstop, and as required by IFRS 9, the Group presumptively considers that a SICR occurs when an
asset is more than 30 days past due. The Group determines days past due by counting the number of days
since the earliest elapsed due date in respect of which full payment has not been received.
In the case of other financial assets (including loans and advances to banks and investments in debt
securities), the Group applies the low credit risk simplification to all its exposures considered ‘investment-
grade’, thus they are not subject to the SICR assessment. Moving from ‘investment-grade’ to ‘non-
investment grade’ does not automatically mean that there has been a SICR.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
77
2. Financial risk management (continued)
2.3.4.2 Definition of default and credit-impaired assets
The Group’s assessment to determine the extent of increase in credit risk of a financial instrument since
initial recognition is performed by considering the change in the risk of default occurring over the remaining
life of the financial instrument. As a result, the definition of default is important.
The Group applies the definition of default in a consistent manner with internal credit risk management
practices for the relevant instruments and the definition considers qualitative and quantitative factors
where appropriate.
The Group determines that a financial instrument is credit-impaired (in default and in ‘Stage 3’ for IFRS 9
purposes) by considering relevant objective evidence, primarily whether:
- contractual payments of either principal or interest are past due for more than 90 days for any material
credit obligations to the Group;
- there are other indications that the borrower is unlikely to pay such as that a concession has been
granted to the borrower for economic or legal reasons of an enduring nature relating to the borrower’s
financial condition, which indicates the borrower is in significant financial difficulty (unlikeliness to pay
criteria); and
- the loan is otherwise considered to be in default in line with an instrument’s terms and conditions.
Therefore, the definitions of credit-impaired and default are aligned so that ‘Stage 3’ represents all loans
which are considered defaulted or credit-impaired.
In assessing whether a borrower is in default, the Group will consider indicators that are:
- qualitative – such as non-adherence to terms and conditions of sanction and/or other breaches of
covenants, overdue status and non-payment of another obligation of the same obligor to the Group;
- quantitative - such as changes in probabilities of default; and
- based on data developed internally and obtained from external sources.
The default definition has been applied consistently to model the Probability of Default (‘PD’), Exposure at
Default (‘EAD’) and Loss Given Default (‘LGD’) throughout the Bank's expected loss calculations.
As referred to previously, existing geopolitical conditions as well as the current inflationary and increasing
interest rate environment and the consequential economic impacts have exacerbated the level of
uncertainty, particularly with respect to the identification of customers that would have showed signs of
unlikeness-to-pay (‘UTP’). The Bank performs assessment to determine whether the current macro-
economic circumstances may transform into long-term borrower financial difficulties, thereby potentially
requiring a downgrade of individual exposures or exposures sharing similar credit risk characteristics to
Stage 3 to reflect the level of change in credit risk.
Except for forborne exposures, an instrument is considered to no longer be in default (i.e. to have been
cured) when it no longer meets any of the default criteria for a consecutive period of three months. This
period has been determined based on an analysis which considers the likelihood of a financial instrument
returning to default status after cure using different possible cure definitions.
In the case of forborne exposures, the cure period comprises 12 consecutive monthly repayments made in
a timely manner with a minimal grace period of one day (i.e. one or more repayments may be made no
more than one day late).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
78
2. Financial risk management (continued)
The Group considers other financial assets to be in default when a payment due including a coupon
payment is not effected.
2.3.4.3 Measuring ECL – Explanation of inputs, assumptions and estimation techniques
The Expected Credit Loss (‘ECL’) is measured on either a 12-month (12M) or on a lifetime basis depending
on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is
considered to be credit-impaired. Expected Credit Losses are the discounted product of the Probability of
Default (‘PD’), Exposure at Default (‘EAD’) and Loss Given Default (‘LGD’). When calculating the Bank’s ECL,
special considerations were made to assess the impact of the current economic conditions. Further details
are set out in note 2.3.4.4.
The ECL is determined by projecting the PD, EAD and LGD for each future month and for each individual
exposure. These three components are multiplied together and adjusted for the likelihood of survival (i.e.
the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL for each
future month, which is then discounted back to the reporting date and summed. The discount rate used in
the ECL calculation is the original effective interest rate or an approximation thereof.
The 12-month ECL is calculated by multiplying the 12-month PD, LGD, and EAD. Lifetime ECL is calculated
on a similar basis for the residual life of the exposure.
The PD, EAD and LGD parameters are derived from internally developed statistical models and other
historical data, adjusted to reflect forward-looking information as described below.
The PD represents the likelihood of a borrower defaulting on its financial obligation (as per ‘definition of
default and credit-impaired’ above), either over the next 12 months (12M PD), or over the remaining
lifetime (Lifetime PD) of the obligation. Accordingly, the 12-month and lifetime PDs represent the
Probability of Default occurring over the next 12 months and the remaining maturity of the instrument,
respectively.
PD estimates are estimates at a certain date, which, for the loans and advances to customers, are calculated
based on statistical rating models and assessed using rating tools tailored to the various categories of
counterparties and exposures. These statistical models are based on internally-compiled data comprising
both quantitative and qualitative factors. The PD calculation is based on a transition matrix approach. The
main assumptions underlying such approach is that the PD depends on the particular periods after
origination (‘months on book’) and the current characteristics of the exposure or borrower. Default is
considered to be an absorbing state, whereby if an exposure is defaulted, it remains in this state during all
next years. Market data is used for the PD of loans and advances to banks and investment securities. If a
counterparty or exposure migrates between internal rating grades or external credit ratings, then this will
lead to a change in the associated PD.
The 12 month and lifetime PDs are developed by utilising statistical methodologies to analyse historical
observed data to estimate the probability of a borrower’s transition from one internal rating class to
another (or of staying in the same class) within a given horizon. The conditional PD is adjusted to consider
forward-looking information through macro-economic modelling.
EAD represents the expected exposure in the event of a default (including any expected drawdowns of
committed facilities). The Group derives the EAD from the current exposure to the counterparty and
potential changes to the current amount allowed under the contract. The EAD of a financial asset is the
gross carrying amount at default.
EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months
(12M EAD) or over the remaining lifetime (Lifetime EAD). For example, for a revolving commitment, the
Group includes the current drawn balance plus any further amount that is expected to be drawn up to the
current contractual limit by the time of default, should it occur.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
79
2. Financial risk management (continued)
The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by
product type:
• for amortising products and bullet repayment loans, this is based on the contractual repayments owed
by the borrower over a 12-month or lifetime basis; and
• for revolving products, the Exposure at Default is predicted by taking current drawn balance and adding
a ‘credit conversion factor’ which allows for the expected drawdown of the remaining limit by the time
of default. These assumptions vary by product type and current limit utilisation band, based on analysis
of the Group's recent default data.
The Loss Given Default (‘LGD’) represents the Bank’s expectation of the extent of loss on a defaulted
exposure. Hence, the LGD represents Expected Credit Losses on the EAD given the event of default, taking
into account, among other attributes, the mitigating effect of collateral values at the time it is expected to
be realised and the time value of money. The 12-month and lifetime LGD are determined based on the
factors which impact the recoveries made post default.
For secured products, LGD is primarily based on collateral type and projected collateral values, historical
discounts to market/book values due to forced sales, time to repossession and recovery costs observed.
The LGD for exposures secured by real estate will be derived from the adjusted loan-to-value ratio of the
individual facilities, and takes into account the expected recovery by applying a costs to sell haircut and a
market value haircut to the property value, and by discounting (using the effective interest rate) the
updated market value of the property after haircuts, over a period of time equivalent to the perceived time
to sell. The LGD for other exposures is based on the Group’s perceived risk on the collateral. For unsecured
products, LGDs are typically set at product level due to the limited differentiation recoveries achieved
across different borrowers. These LGDs are influenced by collection strategies.
The ECL is measured from the initial recognition of the financial asset. The maximum period considered
when measuring ECL (be it 12-month or lifetime ECL) is the maximum contractual period over which the
Group is exposed to credit risk. With respect to non-revolving credit facilities, the contractual life of the
facility is considered. In the case of revolving credit facilities, provided that such facilities do not have a
fixed term or repayment structure, the Group defines the lifetime of such exposures as 12 months, in case
the next substantive credit review is within the next 12 months. For the credit cards portfolio, the Group
also applies a lifetime of 12 months.
Forward-looking economic information is also included in determining the 12-month and lifetime PD and
LGD. Refer to note 2.3.4.4 for an explanation of forward-looking information and its inclusion in ECL
calculations.
The assumptions underlying the ECL calculations are monitored and reviewed on a regular basis.
For individually significant credit impaired loans, management determines the size of the allowance
required based on a range of factors such as the realisable value of security, the viability of the customer’s
business model and the capacity to generate cash flow to service debt obligations, under different
scenarios. Judgement is applied in estimating the expected future cash flows from each borrower and the
time to recover these cash flows under the different scenarios as well as to attach probabilities to those
scenarios. The assumptions around forecasted recoveries from the sale of collateralised properties,
including around valuation haircuts and time to recovery, are key drivers in the estimation of credit loss
allowances in respect of individually assessed loans. The heightened level of uncertainty within the local
property market, driven by the current macro-economic environment, increases the level of expert
judgement required to predict with reasonable accuracy the recoverability of exposures through the sale
of collateral, since the real impact of the current macro-economic uncertainties will not be fully known until
market conditions stabilise. To reflect the volatile economic conditions currently being experienced,
judgemental overlay were applied by management in order to overcome limitations in respect of
determining collateral valuations, and the uncertainty around the time to repossess properties held as
collateral and to resell such properties in the open market.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
80
2. Financial risk management (continued)
2.3.4.4 Forward-looking information incorporated in the ECL model
The calculation of ECL incorporates forward-looking information. The Group performs a historical analysis
to identify the key economic variables affecting credit risk and Expected Credit Losses for each portfolio.
These economic variables and their associated impact on the PD, EAD and LGD may vary by portfolio.
In this respect, the Group has identified key drivers of credit risk and credit losses for each portfolio of
financial instruments and, using an analysis of historical data, has analysed relationships between macro-
economic variables, credit risk and credit losses. The key driver continues to be predominantly, Gross
Domestic Product (‘GDP’) at constant prices.
The impact of this economic variable on the PD, EAD and LGD has been determined by performing statistical
regression analysis to understand the impact changes in these variables have had historically on default
rates and on the components of LGD and EAD.
Three possible scenarios are considered to capture non-linearity across credit portfolios. The ‘base line’
scenario represents the most-likely outcome. It is based on authoritative sources forecasting these
economic variables referred to above and providing the best estimate view of the economy. Apart from
the ‘base line’ scenario, the Group considers two other macro-economic scenarios – Upside and Downside
scenarios – which respectively represent a more optimistic and a more pessimistic outcome. Such scenarios
reflect the current top and emergent risks and opportunities. The more optimistic and more pessimistic
scenarios are economically plausible, and the more pessimistic scenario will not necessarily be as severe as
scenarios used in stress testing.
Modelling of the economic scenarios, i.e. the forecast values of GDP growth for optimistic and pessimistic
scenario, is performed on the basis of the historical values of annual GDP growth and annual forecast values
for base scenario, based on the published three-year forecast of the Central Bank of Malta.
The pessimistic and optimistic scenarios represent a sensitivity to the base scenario, and are deemed to
represent management's best forecast of an economically plausible upside and downside scenario.
Each scenario is weighted by a probability of occurrence, determined by a combination of macro-economic
research and expert credit judgment, taking account the range of possible outcomes each chosen scenario
represents. The Group measures ECL as either a probability weighted 12-month ECL (Stage 1), or a
probability weighted lifetime ECL (Stages 2 and 3). These probability-weighted ECLs are determined by
running each scenario through the relevant ECL model and multiplying the outcome by the appropriate
scenario weighting (as opposed to weighting the inputs).
As with any macro-economic forecasts, the projections and likelihood of occurrence are subject to a high
degree of uncertainty and therefore, the actual outcomes may be significantly different to those projected.
Notwithstanding the unprecedented global economic events that were brought about by the military
conflict between Russia and Ukraine during the current financial year, the local economy in 2022 was
characterised by robust economic growth driven by domestic demand and the export of services, including
tourism, particularly due to the subsiding effects of the COVID-19 pandemic. The tourism sector in Malta is
expected to continue to show particularly strong growth continuing the path to recovery in line with the
2019 levels.
According to the Central Bank of Malta’s latest forecasts, Malta’s gross domestic product (GDP) growth is
projected to moderate significantly from 6.8% in 2022 to 3.7% in 2023, and to ease slightly further to 3.6%
and 3.5% in 2024 and 2025, respectively. The Central Bank of Malta further projects that in 2023, domestic
demand is expected to be the main driver of growth as investment begins to recover after the previous
years’ contraction as a consequence of the COVID-19 pandemic, while consumption is expected to remain
relatively robust. Moreover, in view of the increase in inflation in 2023, together with tight labour market
conditions, wage growth is projected to be relatively strong. Nevertheless, nominal wage growth is forecast
to remain below consumer price inflation in 2023 due to lags in the transmission from prices to wages.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
81
2. Financial risk management (continued)
On an international front, global economic growth slowed and economic forecasts deteriorated in the
fourth quarter of the financial year ended 31 December 2022. In Europe, high inflation and rising interest
rates have reduced real household incomes and raised business costs, dampening consumption and
investment and lowering growth expectations. The effects of higher interest rate expectations and lower
growth are evident in asset price expectations, with house prices forecasts, in particular, significantly lower.
Economic forecasts remain subject to a high degree of uncertainty. At the end of 2022, risks to the
economic outlook included the persistence of inflation risks relating to energy pricing and supply security.
Geopolitical risks also remain significant and include the possibility of a prolonged and escalating military
conflict between Russia and Ukraine, continued differences between the United States of America (‘US’)
and other countries with China over a range of economic and strategic issues, and the evolution of the
United Kingdom’s (‘UK’) relationship with the European Union (‘EU’).
The significant changes in economic and market drivers, customer behaviours and Government actions
caused by the economic events have also impacted the performance of ECL models, since the severity of
projections of macro-economic variables being forecasted are outside the historical observations on which
the ECL models have been built and calibrated. In this regard, a significant judgement within the Bank’s
estimation of ECL impairment allowances as at 31 December 2022 and 2021 relates to the determination
of forward-looking scenarios reflecting potential future economic conditions under different scenarios and
their impact on PDs and LGDs.
The most significant period-end assumptions used for the ECL estimate as at 31 December 2022 and 2021
are set out below. The ‘base’, ‘upside’ and ‘downside’ scenarios were used for all portfolios:
- The ‘Base’ Scenario captures business-as-usual macro-economic expectations, whereby the current
rhythm of economic activity is maintained;
- The ‘Downside’ Scenario is based on a subdued level of economic activity hypothesized to correspond
to prolonged period of an economic contraction;
- The ‘Upside’ Scenario is based on the assumption that it would be possible to marginally improve
further over the economic conditions considered in the ‘Base’ Scenario.
As of 31 December
202
2
202
3
2024
2025
Gross Domestic Product, constant prices (YoY)*
‘Base’
3.70%
3.60%
3.50%
Range of forecasts for alternative scenarios
[0.8 – 6.6]% [0.7 – 6.5]% [0.6 – 6.4]%
As of 31 December 2021
2022
2023
2024
Gross Domestic Product, constant prices (YoY)*
‘Base’
6.50%
5.30%
3.80%
Range of forecasts for alternative scenarios
[4.0
-
9.0]%
[2.8
-
7.8]%
[1.3
-
6.3]%
*YoY = year on year % change
The weightings assigned to each economic scenario were 68% (2021: 64%) for the ‘Base’ Scenario, 16%
(2021: 18%) for the ‘Downside’ scenario and 16% (2021: 18%) for the ‘Upside’ scenario. The number of
scenarios used is based on the analysis of each major product type to ensure that non-linearities are
captured. The number of scenarios and their attributes are reassessed at each reporting date. The
economic scenarios were simulated over a full economic cycle.
The Bank considers the macro-economic forecasts to represent its best estimate of the possible outcomes
after analysing its different portfolios to establish that the chosen scenarios are appropriately
representative of the range of possible scenarios.
The Bank’s weightings take into account the current performance of the Maltese economy over the
foreseeable future. The Board considers that the probability weightings assigned to the respective
scenarios reflect an unbiased evaluation of range of possible outcomes.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2022
82
2. Financial risk management (continued)
Based on the above, the estimation of credit loss allowances as of 31 December 2021 and 2022 continued
to require an elevated level of subjectivity and expert judgement. Despite the recovery in economic
conditions, ECL estimates remain subject to a high degree of economic uncertainty. In this respect,
judgements applied by management in estimating ECL continue to reflect a degree of caution, both in the
determination of probability of defaults (particularly for exposures currently classified as performing), for
selection of economic scenarios and in terms of the calibration of scenario weightings.
Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the
impact of any regulatory, legislative, or political changes, have also been considered, but are not deemed
to have a material impact and therefore no adjustment has been made to the ECL for such factors. This is
reviewed and monitored for appropriateness on an ongoing basis.
The outcome of the Bank’s credit loss allowances estimation process is sensitive to judgements and
estimations made through the reflection of several forward-looking economic conditions. Management has
assessed the sensitivity of the Bank’s expected credit losses by assigning a 100% weighting to the baseline,
downside and upside scenarios respectively. The Bank’s credit loss allowances would decrease by €2.8
million (2021: €17.1 million) if the provisions has to be calculated solely on the baseline scenario; ECLs
would increase by €0.5 million (2021: €7.6 million) if these had to be estimated using only the downside
scenario and would reduce by €3.0 million (2021: €17.4 million) if the upside scenario only were to be taken
into consideration. This demonstrates the Bank’s resilience in overcoming negative shocks and its ability to
absorb such allowance changes, if necessary.
2.3.4.5 Categorisation of loans and advances to customers for ECL measurement
As part of the ECL model, the Group classifies its exposures to loans and advances to customers into
homogeneous groups with similar credit risk characteristics that include instrument type and credit risk
gradings. In this respect, the Group considers the following categories for ECL measurement:
retail portfolio, which includes loans and advances to individual customers such as mortgages, credit
cards and other consumer credit;
construction and real estate portfolio, which includes loans and advances to customers in respect of
financing construction of real estate projects for the purpose of re-sale or rental; and
corporate portfolio, which includes loans and advances to business entities, other than construction
and real estate related borrowers.
2.3.5 Maximum exposure to credit risk
An ‘exposure’ is defined as the amount at risk arising from the Group’s assets and off-balance sheet items.
The Group’s maximum credit risk with respect to on- and off-balance sheet items can be classified into the
following categories:
Financial assets recognised on-balance sheet comprising principally balances with Central Bank of
Malta, financial investments and loans and advances to banks and customers. The maximum exposure
to credit risk of these financial assets equals their gross carrying amounts.
Documentary credits and guarantee obligations incurred on behalf of third parties. The latter carry the
same credit risk as loans, whilst documentary credits are collateralised by the underlying shipments of
goods to which they relate, and therefore carry less risk than a loan to a customer. The maximum
exposure to credit risk is the full amount that the Group would have to pay if the guarantees are called
upon or if documentary credits are exercised.
Loan commitments and other credit related commitments that are irrevocable over the life of the
respective facilities. The maximum exposure to credit risk is the full amount of the committed facilities.
However, the likely amount of loss is less than the total unused commitments as most commitments to
extend credit are contingent upon customers maintaining specific credit standards. These exposures
are monitored in the same manner in respect of loans and advances.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
83
2. Financial risk management (continued)
The Group’s credit risk exposures relating to on-balance sheet assets and off-balance sheet instruments, reflecting the maximum exposure to credit risk before collateral held or
other credit enhancements, include the following:
Group Bank
2022 2021 2022 2021
Gross
exposure
ECL
allowance
Gross
exposure
ECL
allowance
Gross
exposure
ECL
allowance
Gross
exposure
ECL
allowance
€ 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Credit risk exposures relating to on-balance sheet assets:
Subject to IFRS 9 impairment allowance
Financial assets measured at amortised cost:
Balances with Central Bank of Malta and treasury bills 132,119 -
119,395
- 132,119 -
119,395 -
Cheques in course of collection 1,053 -
530
- 1,053
-
530
-
Loans and advances to banks 27,615 -
78,279
- 20,936 - 68,424 -
Loans and advances to customers 721,561 (9,949) 668,515 (25,622) 721,562 (9,949)
668,517 (25,622)
Trade and other receivables 13,388 (145) 11,064 (277)
3,445
-
1,606
-
Accrued income and other assets 3,972 - 3,365
- 3,951
-
3,331
-
Debt securities measured at FVOCI
213,391
(526)
218,080
(464)
210,862
(526)
215,179
(464)
Credit risk exposure 1,113,099 (10,620) 1,099,228 (26,363) 1,093,928 (10,475)
1,076,982
(26,086)
Credit risk exposure relating to off-balance sheet instruments:
Contingent liabilities
13,611
(3
6
)
13,195
(24)
13,610
(36)
13,360
(24)
Undrawn commitments to lend
202,041 (7)
195,264 (45)
203,150 (7)
196,372 (45)
Credit risk exposure
215,652 (43)
208,459 (69)
216,760 (43)
209,732 (69)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
84
2. Financial risk management (continued)
Accrued income substantially arises from loans and advances to customers. Expected Credit Losses in
respect of accrued income have been allocated to loans and advances to customers.
2.3.6 Credit concentration risk
Within the Bank, concentration risk of losses results from inadequate diversification of the credit
exposures. This risk is managed by actively measuring, reporting and monitoring on a regular and ongoing
basis risk concentration levels against reasonable thresholds for industry sectors, counterparties, products,
and collateral types.
Credit concentration risk by industry sector
The Bank’s financial investments measured at FVOCI, excluding equity investments are analysed by industry
sector in the following table:
Group Bank
2022 2021
2022
2021
€ 000 € 000
€ 000
€ 000
Government
169,725
173,418
168,377
171,755
Corporate
Tourism 503 506
459
461
Property and construction 1,345 1,605
768
991
Financial institutions 37,094 37,394
36,534
36,815
Other sectors 4,724 5,157
4,724
5,157
Gross financial investments 213,391
218,080
210,862
215,179
The industry sector analysis of the Bank’s loans and advances to customers (gross of Expected Credit Losses) is
described in the following table:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Manufacturing 9,754
9,895 9,754
9,895
Tourism 58,187
59,430 58,187
59,430
Trade 45,296
38,147 45,296
38,147
Property and construction 266,643
236,693 266,643
236,693
Personal, professional and home loans 196,334
162,282 196,334
162,282
Financial institutions 133,771
140,253 133,771
140,253
Other sectors 11,576
21,815 11,577
21,817
Gross advances to customers 721,561 668,515 721,562 668,517
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
85
2. Financial risk management (continued)
The majority of the Bank’s loans and advances to customers comprise exposures to corporates.
As at 31 December 2022 and 2021, no loans and advances to customers were deemed to be prohibited
large exposures, prior to any eligible exemptions, in accordance with the requirements of Part Four: Large
Exposures, of the CRR. A limited number of customers account for a certain percentage of the Bank’s loans
and advances. Whilst no individual customer or group of dependent customers is considered by
management as a significant concentration of credit risk in the context of the CRR, these exposures are
monitored and reported more frequently and rigorously.
Credit concentration risk by geographical region
The Group also monitors credit concentration risk by geographical region. The majority of the Group’s
exposures are in Malta in view of the Group’s lending operations being conducted with Maltese corporate
entities. Moreover, the significant part of the Group investments in debt securities are all issued by local
government and local corporate entities.
The Group’s balances with correspondent banks in different jurisdictions are split by geographical region,
as shown in the following table:
Group
Bank
2022
2021
2022
2021
€ 000
€ 000
€ 000
€ 000
Loans and advances to banks
Germany
10,706
16,998
10,706
16,998
United Kingdom
2,927
12,001
2,927
12,001
United States of America
4,508
-
4,508
-
Spain
123
7,614
123
7,614
Belgium
433
7,630
433
7,630
Malta
6,689
9,859
10
4
Switzerland
2,090
13,443
2,090
13,443
Ireland
-
8,830
-
8,830
Other
139
1,904
139
1,904
Gross loans and advances to banks
27,615 78,279 20,936
68,424
2.3.7 Information on credit quality of balances with banks, investments and treasury bills
The Group holds debt instruments that are issued by local government, local banks and other local
corporate entities. All such securities are listed on the Malta Stock Exchange, which is currently the only
locally-based Recognised Investment Exchange (‘RIE’). The other debt securities held by the Group, issued
by foreign governments and entities, are listed on other recognised exchanges. The Bank acquires debt
securities and similar instruments issued by counterparties having strong financial background. These
issuers are approved and regularly reviewed considering the process previously highlighted, focusing on
market developments.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
86
2. Financial risk management (continued)
Within its daily operations the Bank transacts with banks and other financial institutions. The Bank primarily
places short-term funds with pre-approved banks subject to limits in place and subject to the respective
institution’s credit rating being within controlled parameters. By conducting these transactions the Bank is
running the risk of losing funds due to the possible delays in the repayment to the Bank of the existing and
future obligations of the counterparty banks. Actual exposures are monitored against the limits on a daily
basis and in a real-time manner. The credit status of the pre-authorised banks is monitored on an ongoing
basis.
The Bank runs the risk of loss of funds due to the possible political, economic and other events in a
particular country where funds have been placed or invested with several counterparties. Countries are
assessed according to their size, economic data and prospects, and their credit ratings from international
rating agencies. Existing country credit risk exposures are monitored and reviewed periodically. The Bank’s
assets are predominantly in Malta. The Bank’s exposures to other countries are mainly limited to bank
balances and money market placements with a total carrying amount of €20,926,000 (2021: €68,420,000)
at the end of the reporting period.
At the end of the reporting period, none of these financial assets mentioned were past due or impaired.
The following tables set out information about the credit quality of financial assets of the Bank measured
at amortised cost and financial investments at FVOCI excluding equity investments. The credit quality of
financial assets is based on external credit ratings assigned to issuers or counterparties by recognised
external rating agencies:
2022
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta and treasury
bills at amortised cost
Gross carrying amount 132,119 -
-
132,119
Loss allowance -
-
-
-
Carrying amount – net of loss allowance 132,119 -
-
132,119
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta and treasury
bills at amortised cost
Gross carrying amount
119,395
- - 119,395
Loss allowance - - - -
Carrying amount – net of loss allowance
119,395
- - 119,395
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
87
2. Financial risk management (continued)
The credit rating of the Government of Malta as at 31 December 2022 and 2021 was considered as
‘investment grade’ and hence no loss allowance in respect of balances with the Central Bank of Malta was
recognised.
2022
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000 € 000 € 000
€ 000
Debt securities measured at FVOCI
AAA to AA- 19,037 - - 19,037
A+ to A- 164,291 - - 164,291
BBB+ to BBB- 19,479 - - 19,479
Unrated 8,055 - - 8,055
Carrying amount – fair value 210,862 - - 210,862
Loss allowance (526) - - (526)
Loans and advances to banks at amortised cost
AAA to AA- 4,941 - - 4,941
A+ to A- 3,050 - - 3,050
BBB+ to BBB- 12,932 - - 12,932
Lower than BB- 2 - - 2
Unrated 11 - - 11
Gross carrying amount 20,936 - - 20,936
Loss allowance - - - -
Unrated debt securities primarily represent bonds listed on the Malta Stock Exchange which are unrated
by international credit rating agencies.
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000 € 000 € 000
€ 000
Debt securities measured at FVOCI
AAA to AA- 12,228 - - 12,228
A+ to A- 172,601 - - 172,601
BBB+ to BBB- 21,682 - - 21,682
Unrated
8,668 - -
8,668
Carrying amount – fair value
215,179 - - 215,179
Loss allowance (464) - - (464)
Loans and advances to banks at amortised cost
AAA to AA- 807 - - 807
A+ to A- 55,975 - - 55,975
BBB+ to BBB- 11,636 - - 11,636
Lower than BB- 2 - - 2
Unrated 4 - - 4
Gross carrying amount 68,424 - - 68,424
Loss allowance - - - -
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
88
2. Financial risk management (continued)
As at 31 December 2022 and 2021, there were no purchased credit-impaired assets.
After the end of the reporting period there were no significant changes in credit ratings reflected in the
tables above which have a material impact on the credit quality of the financial assets.
2.3.8 Information on credit quality of loans and advances to customers
The Bank manages the credit quality of its loans and advances to customers by using internal risk grades,
which provide a progressively increasing risk profile ranging from ‘P1’ (best quality, less risky) to ‘NP’. These
risk grades are an essential tool for the Bank to identify both non-performing exposures and better-
performing customers. The internal risk grades used by the Bank are as follows:
- Performing: Internal grade ‘P1’
- Under performing: Internal grades ‘P2’, ‘P3’ and ‘PF’; and
- Non-performing: Internal grade ‘NP’.
P1
The Bank’s loans and advances to customers which are categorised as ‘P1’ are principally debts in respect
of which the payment of interest and/or capital is not overdue by 30 days and no recent history of customer
default exists. Management does not expect any losses from non-performance by these customers.
P2
Loans and advances which attract a ‘P2’ grading are those which are receiving the close attention of the
Bank’s management and are being reviewed periodically in order to determine whether such advances
should be reclassified to either the ‘P1’ or the ‘P3’ classification. Credit facilities that attract this category
include those where the payment of interest and/or capital becomes overdue by 30 days and over but not
exceeding 60 days.
P3
Loans and advances which attract a ‘P3’ grading are those having the weaknesses inherent in those loans
and advances classified as ‘P2’ with the added characteristics that repayment is inadequately protected by
the current sound worth and paying capacity of the borrower. Loans and advances so graded have a well-
defined weakness or weaknesses that could jeopardise the repayment of the debt. They are characterised
by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Credit
facilities that attract this category include those where the payment of interest and/or capital becomes
overdue by 60 days and over but not exceeding 90 days.
PF
Loans and advances which attract a ‘PF’ grading are those facilities (other than Non-Performing Exposures)
in respect of which forbearance measures have been extended. Forbearance measures consist of
concessions towards a debtor facing or about to face difficulties in meeting its financial commitments
(financial difficulties).
A concession is deemed to have taken place when any of the following two actions are taken;
(a) a modification of the previous terms and conditions of a contract, as the debtor is considered unable to
comply therewith, due to its financial difficulties (‘troubled debt’) to allow for sufficient debt service ability,
that would not have been granted had the debtor not been in financial difficulties; and/or
(b) a total or partial refinancing of a troubled debt contract, that would not have been granted had the
debtor not been in financial difficulties.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
89
2. Financial risk management (continued)
NP
Loans and advances which attract a ‘NP’ grading are those facilities where the Bank deems the
recoverability of principal to be remote as a result of worsening conditions of loans and advances classified
as ‘P3’. Credit facilities that attract this category include those where the payment of interest and/or capital
becomes overdue by 90 days and over. Accordingly, these loans and advances are generally past due by
more than 90 days and comprise those exposures which are deemed by the Bank as credit-impaired (see
definition in note 2.3.4.2).
The following table sets out information about the credit quality of the Bank’s loans and advances to
customers measured at amortised cost. Explanation of the terms: 12-month ECL, lifetime ECL and credit-
impaired are included in note 2.3.4.3.
2022
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL Lifetime ECL Total
€ 000
€ 000 € 000 € 000
Loans and advances to customers at amortised cost
P1 526,199
33,647
- 559,846
P2 - 57,326
- 57,326
P3 - 26,534
- 26,534
PF - 50,044
- 50,044
NP - - 27,812
27,812
Gross carrying amount 526,199
167,551
27,812
721,562
4
Loss allowance (2,339)
(1,614)
(5,996)
(9,949)
Carrying amount 523,860 165,937
21,816
711,613
2021
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL Lifetime ECL Total
€ 000
€ 000 € 000 € 000
Loans and advances to customers at amortised cost
P1 504,477 4,330 - 508,807
P2 - 34,065 - 34,065
P3 - 24,285 - 24,285
PF - 49,603 - 49,603
NP - - 51,757
51,757
Gross carrying amount 504,477 112,283 51,757 668,517
Loss allowance (5,187)
(3,361)
(17,074)
(25,622)
Carrying amount 499,290 108,922 34,683 642,895
As at 31 December 2022, the Bank’s undrawn commitments to lend amounted to €203,150,000 (2021:
€196,372,000) and predominantly comprise of sanctioned but not yet drawn facilities which are classified
as ‘Stage 1’ (12-month ECL) upon drawdown by customers. Undrawn facilities in respect of existing ‘Stage
2’ and ‘Stage 3’ (Lifetime ECL) facilities as at 31 December 2022 have not been considered significant. ECL
allowances on undrawn commitments specifically connected to revolving credit facilities to lend as at 31
December 2022 amounted to €7,000 (2021: €45,000).
Contingent liabilities as at 31 December 2022 amounting to €13,610,000 (2021: €13,360,000) are all
classified as ‘Stage 1’ (12-month ECL) by the Bank. ECL allowances on contingent liabilities as at 31
December 2022 amounted to €36,000 (2021: €24,000).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
90
2. Financial risk management (continued)
As at 31 December 2022 and 2021, there were no purchased credit-impaired assets.
The following table analyses the Bank’s impaired loans and advances, gross of impairment allowances, by
industry sector:
2022 2021
€ 000 € 000
Manufacturing
472
446
Tourism 2,483
2,483
Trade
1,645
3,923
Property and construction
19,488
35,785
Personal, professional and home loans
2,094
3,185
Financial institutions
534
5,173
Other sectors
1,096
762
Gross impaired advances to customers
27,812 51,757
The following table provides a detailed analysis of the credit quality of the Bank’s lending portfolio as at 31
December 2022:
Non-forborne
exposures
Forborne
exposures Total
2022 2022 2022
€ 000 € 000 € 000
Performing - Stage 1
Loans which are not past due 523,599 - 523,599
Loans which are past due up to 30 days 2,600
-
2,600
526,199
-
526,199
Performing - Stage 2
Loans which are not past due
P1 32,137
-
32,137
P2 56,177
-
56,177
P3 26,534
-
26,534
PF -
50,044
50,044
Loans which are past due up to 90 days
Past due between 1 and 30 days 1,981
-
1,981
Past due between 31 to 90 days 678
-
678
117,507
50,044
167,551
Non-performing – Stage 3
Past due loans by 90 days or more and credit-impaired loans
19,816 7,996 27,812
Gross loans and advances 663,522 58,040 721,562
Expected credit losses
12-month ECL (2,339) -
(2,339)
Lifetime ECL (7,026) (584)
(7,610)
Net loans and advances 654,157 57,456 711,613
Interest income recognised during the financial year ended 31 December 2022 in respect of forborne
exposures amounted to €2,377,000.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
91
2. Financial risk management (continued)
The following table provides a detailed analysis of the credit quality of the Bank’s lending portfolio as at 31
December 2021:
Non-forborne
exposures
Forborne
exposures Total
2021 2021 2021
€ 000 € 000 € 000
Performing - Stage 1
Loans which are not past due 500,928 - 500,928
Loans which are past due up to 30 days 3,549 - 3,549
504,477 - 504,477
Performing - Stage 2
Loans which are not past due
P1 4,317 - 4,317
P2 33,134 - 33,134
P3 23,795 - 23,795
PF - 49,603 49,603
Loans which are past due up to 90 days
Past due between 1 and 30 days 1,380 - 1,380
Past due between 31 to 90 days 54 - 54
62,680 49,603 112,283
Non-performing – Stage 3
Past due loans by 90 days or more and credit-impaired loans
40,501 11,256 51,757
Gross loans and advances 607,658 60,859 668,517
Expected credit losses
12-month ECL (5,187)
- (5,187)
Lifetime ECL (17,359)
(3,076) (20,435)
Net loans and advances 585,112 57,783 642,895
Interest income recognised during the financial year ended 31 December 2021 in respect of forborne
exposures amounted to €2,658,000.
2.3.9 Modification of financial assets
The contractual terms of a loan may be revised for a number of reasons, including changes in market
conditions, customer retention and other factors that are not related to the credit quality of a customer.
Forbearance measures comprise concessions made on the contractual terms of a loan in response to a
customer’s financial difficulties. The Group categorises loans on which concessions have been granted
under conditions of financial difficulties as ‘forborne loans’ when their contractual payment terms have
been revised, because of significant concerns about the customer’s ability to meet contractual payments
when due.
When considering whether there is significant concern regarding a customer’s ability to meet contractual
loan repayments when due, the Group assesses the customer’s delinquency status, account behaviour,
repayment history, current financial situation and continued ability to repay.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
92
2. Financial risk management (continued)
If the customer is not meeting contractual repayments or it is evident that the client will be unable to do
so without the renegotiation, there will be a significant concern regarding the ability to meet contractual
payments. Indicators of significant concerns regarding a borrower’s ability to pay include:
the customer is currently in default on any of its debt;
the customer has declared or is in the process of declaring bankruptcy or entering into a similar process;
there is significant doubt as to whether the customer will continue to be a going concern; and
the Group forecasts that the customer’s entity-specific cash flows will be insufficient to service the debt
(both interest and principal) in accordance with the contractual terms of the existing agreement
through maturity.
A range of forbearance measures are employed by the Group in order to improve the management of
customer relationships, maximise collection opportunities and, if possible, avoid default or call-in of
facilities. They include extended payment terms, a reduction in principal repayments, the deferral of call-
in of facilities and other forms of loan modifications. The Group’s policies and procedures in this area allow
the Group to provide a customer with terms and conditions that are more favourable than those provided
initially. Loan forbearance is only granted in situations where the customer has shown a willingness to repay
the loan and is expected to be able to meet the revised obligations. The Group’s credit risk management
policies set out restrictions on the number and frequency of forbearance measures and the minimum
period an account must have been opened before any forbearance measure can be considered.
For the purposes of determining whether changes to a customer’s agreement should be treated as
forbearance the following types of modification could be regarded as concessionary in cases where the
customer is in financial difficulty:
reduction of the stated interest rate for the remaining original life of the debt;
extension of the maturity date or dates at a stated interest rate lower than the current market rate for
new debt with similar risk;
reduction of the face amount or maturity amount of the debt; and
reduction of accrued interest.
Term extension is the most common type of modification granted by the Group. Other types of concession,
namely transfer to an interest-only arrangement or interest rate changes, occur less often.
In assessing whether forbearance is a sustainable strategy, the customer’s entire exposures are reviewed
and the customer’s ability to meet the terms in relation to the revised obligations and other unchanged
credit facilities is considered. In all cases, forbearance is only granted when the customer is expected to be
able to meet the revised terms. When considering acceptable modified terms the Group considers the
ability of the customer to be able to service the revised interest payments as a necessity. When principal
payment modifications are utilised, the Group requires the customer to be able to comply with the revised
terms as a necessary pre-condition for the restructuring to proceed.
Generally, forbearance is a qualitative indicator of a significant increase in credit risk.
The risk of default of modified assets is assessed at the reporting date and compared with the risk under
the original terms at initial recognition. When the modification is not substantial it does not result in
derecognition of the original asset (refer to notes 1.7.4).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
93
2. Financial risk management (continued)
The Group monitors the subsequent performance of modified assets and may determine that the credit
risk has significantly improved after restructuring:
modified assets are moved from ‘Stage 3’ (Lifetime ECL) to ‘Stage 1’ (12-month ECL) only if they have
performed in accordance with the new terms for 36 consecutive months or more; and
modified assets are moved from ‘Stage 2’ (Lifetime ECL) to ‘Stage 1’ (12-month ECL) only if they have
performed in accordance with the new terms for 24 consecutive months or more.
The gross carrying amount of the assets subject to modifications described above, not considered as
forbearance activities, as at 31 December 2022 amounted to €3,441,000 (2021: €8,151,000).
The Group continues to monitor if there is a subsequent significant increase in credit risk in relation to
modified assets that moved from Stage 3 (Lifetime ECL) or ‘Stage 2’ (Lifetime ECL) to ‘Stage 1’.
During the financial years ended 31 December 2020 and 2021, a number of government support schemes
and regulatory relief measures were announced in response to the outbreak of the COVID-19 pandemic,
one of which being the granting of moratoria on capital and/or interest payments to provide relief to retail
and corporate customers during the ensuing macro-economic recession triggered by the pandemic. In this
regard, the Central Bank of Malta issued Directive No. 18 on Moratoria on Credit Facilities in Exceptional
Circumstances (‘Directive No. 18’) in order to provide guidance on the treatment of such instances, in line
with European Banking Authority (‘EBA’) Guidelines on legislative and non-legislative moratoria on loan
repayments applied in the light of the COVID-19 crisis (the EBA Guidelines)
1
. These were referred to as
general payment moratoria. In line with the EBA Guidelines and Directive No. 18, exposures meeting
established criteria and eligible for the granting of a general payment moratorium were not classified as
forborne/renegotiated, unless the borrower was already experiencing financial difficulties prior to the
pandemic. Nevertheless, the Bank performed an assessment in respect of such exposures in order to
determine whether the short-term shock may transform into long-term financial difficulties, thereby
potentially requiring a downgrade to stage 2 or stage 3 to reflect the level of credit risk as appropriate. This
assessment was performed on a periodic basis at the level of significant corporate exposures, whereas the
assessment in respect of retail exposures was performed by reference to shared credit quality
characteristics (for instance employment status and sector within which the customer is employed).
In accordance with the requirements of Directive No. 18, applications for new general payment moratoria
or for extensions of existing general payment moratoria were accepted until 31 March 2021, with the total
duration of the moratorium, inclusive of extensions, being limited to nine months. In this respect,
applications for new general payment moratoria or for extensions of general payment moratoria received
after 31 March 2021, or extending beyond the maximum duration prescribed by Directive No. 18, are
considered to be forbearance measures. In addition, the granting of moratoria which do not meet the
conditions of a general payment moratorium are also considered to be forbearance measures.
During 2021, the Bank also granted new moratoria to 3 obligors in respect of gross exposures amounting
to €15.6 million, which moratoria met the criteria for a general payment moratorium as established within
Directive No. 18 and the EBA Guidelines.
As at 31 December 2022 and 2021, the Bank did not have any active general payment moratoria. The Bank
also did not experience significant defaults subsequent to the expiry of the general payment moratoria. As
part of its credit management process, the Bank monitors on a regular basis loans and advances to
customers which were subject to a general payment moratorium and are in arrears.
1
EBA Guideline (EBA/GL/2020/02) published on 2 April 2020, as amended by EBA/GL/2020/08 published on 25 June
2020, and EBA/GL/2020/15 published on 2 December 2020.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
94
2. Financial risk management (continued)
The movement in the carrying amount of forborne loans and advances, before impairment allowances, is
analysed below:
Forborne exposures
2022 2021
€ 000 € 000
At 1 January
60,859 31,163
Loans to which forbearance measures have been extended during the year
7,611 40,128
Repayments
(6,988) (2,281)
Retired from forborne
(3,442) (8,151)
At 31 December
58,040
60,859
Forborne loans, gross of Expected Credit Losses, are analysed by industry sector as follows:
2022 2021
€ 000 € 000
Manufacturing 196 -
Tourism 6,881 7,399
Trade 3,178 2,765
Property and construction 10,211 8,917
Personal, professional and home loans 3,259 2,099
Financial institutions 30,898 35,318
Other sectors 3,417 4,361
58,040 60,859
As at 31 December 2022 and 2021, forborne loans mainly comprise exposures to customers based in Malta.
Following the expiration of all general payment moratoria during 2021, a post-model mechanism was
enhanced to estimate the impact of delayed emergence of default in view of government support measures
which were still in force during the year ended 31 December 2021 and also the potential economic impact
of Malta’s grey listing by the Financial Action Task Force at the time. The overlay was in the region of €3
million.
During 2022 the Bank continued to perform sectorial reviews, in particular on exposures connected to the
hospitality industry, which had been mostly impacted by the pandemic, to identify customers or groups of
customers who were experiencing, or could likely experience, financial difficulty as a direct result of the
aftermath of the COVID-19 pandemic. The results of such reviews, also in the context of the economic
rebound of the industry registered during 2022, suggests a marked improvement in the business and
prospects of the same borrowers and accordingly the Bank determined that the level of credit risk,
emanating directly from the unprecedented economic disruptions brought about by the COVID-19
pandemic, from such debtors decreased significantly.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
95
2. Financial risk management (continued)
With respect to corporate exposures, as previously explained, during 2022 the Bank also continued to assess
and individually rate on an ongoing basis those borrowers which in 2020 and 2021 were deemed to be
mostly impacted by the pandemic. This assessment included the borrowers which in the previous two years
accepted payment deferrals and other relief designed to address short-term liquidity issues, especially
those which had extended deferrals. This assessment was carried out through individual ad-hoc credit
assessments on the basis of recently obtained management information including forecasts.
In line with the results of sectorial reviews described further above, the results of the individual assessments
indicate that the level of business experienced by the borrowers is close to the pre-pandemic levels of
March 2020 and the recent economic developments are unlikely to have any direct impact on any of the
Bank’s individually significant customers, which would then in turn materially impact the overall Bank’s
credit risk level, other than what is already considered in the forward looking information incorporated
within the ECL model.
In light of the above, and following the representations of management which were also endorsed by the
Bank’s Audit and Risk Committee, during the year ended 31 December 2022, the Bank resolved to release
the post-model overlay referred to above.
During 2020, the Bank participated in the Malta Development Bank COVID-19 Guarantee Scheme, whereby
the risk of newly originated loans under the scheme to viable businesses experiencing liquidity pressures
resulting from the effects of the pandemic are mitigated by a government guarantee.
In this respect, as at 31 December 2022, gross loans subject to the Malta Development Bank COVID-19
Guarantee Scheme amounted to €9.0 million (2021: €10.9 million), of which a maximum amount of €8.1
million (2021: €9.8 million) is considered guaranteed, though subject to an overall capping of €4.0 million
(2021: €4.9 million). As at 31 December 2022, originated gross loans, under this scheme, classified as Stage
1 and Stage 2, amounted to €3.7 million (2021: €5.1 million) and €5.2 million (2021: €5.8 million)
respectively. As at 31 December 2022 and 2021, there were no originated loans under this scheme classified
in Stage 3.
The total ECL allowance in respect of Stage 1 loans subject to the Malta Development Bank COVID-19
Guarantee Scheme amounted to €2,300 (2021: €117,000), while the ECL in respect of Stage 2 loans
amounted to €34,000 (2021: €468,000).
2.3.10 Loss allowances
Reconciliation of 12-month and lifetime ECL provision
The loss allowance recognised in the period is impacted by a variety of factors, as described below:
Transfers between ‘Stage 1’ and ‘Stages 2’ or ‘3’ due to financial instruments experiencing significant
increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent
‘step up’ (or ‘step down’) between 12-month and Lifetime ECL;
Additional allowances for new financial instruments recognised during the period, as well as releases
for financial instruments derecognised in the period upon full repayment;
Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from
regular refreshing of inputs to models;
Impacts on the measurement of ECL due to changes made to models and assumptions;
Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis;
Foreign exchange retranslations for assets denominated in foreign currencies and other movements;
and
Financial assets written off during the period and reversal of allowances related to assets that were
written off.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
96
2. Financial risk management (continued)
The following tables explain the changes in the Group’s loss allowance between the beginning and the end
of the annual period:
2022
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000 € 000 € 000 € 000
Debt securities measured at FVOCI
Loss allowance as at 1 January 2022 464 - - 464
Changes to risk parameters (model inputs: PDs/LGDs/EADs) 62 - - 62
Total net income statement charge during the year 62 - - 62
Loss allowance as at 31 December 2022 526 - - 526
Undrawn commitments
Loss allowance as at 1 January 2022 33 11 1 45
Changes to risk parameters (model inputs: PDs/LGDs/EADs) (27)
(11)
- (38)
Total net income statement credit during the year
(27)
(11)
- (38)
Loss allowance as at 31 December 2022 6 - 1 7
Contingent liabilities
Loss allowance as at 1 January 2022 24 - - 24
Changes to risk parameters (model inputs: PDs/LGDs/EADs) 12 - - 12
Total net income statement charge during the year
12 - - 12
Loss allowance as at 31 December 2022 36 - - 36
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
97
2. Financial risk management (continued)
2022
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000
€ 000
€ 000 € 000
Loans and advances to customers at amortised cost
Loss allowance as at 1 January 2022
5,187
3,361 17,074 25,622
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(48)
48 -
-
Transfer from Stage 1 to Stage 3
(8)
-
8 -
Transfer from Stage 2 to Stage 1
5
(5) -
-
Transfer from Stage 2 to Stage 3
- 1
(1) -
Transfer from Stage 3 to Stage 1
5
- (5) -
Transfer from Stage 3 to Stage 2
-
66 (66) -
Net remeasurement of ECL arising from stage
transfers
(4)
27
20
43
Total remeasurement of loss allowance arising
from transfers in stages
(50)
137
(44)
43
New financial assets originated
1,060
131 4 1,195
Changes to risk parameters (model inputs:
PDs/LGDs/EADs) *
(3,719)
(1,834)
1,117
(4,436)
Financial assets derecognised **
(139)
(181) (12,336) (12,656)
Total net income statement credit
during the year
(2,848)
(1,747)
(11,259)
(15,854)
Other movements
Write-offs
- - (46) (46)
Unwinding of discount
- - 227 227
Loss allowance as at 31 December 2022
2,339
1,614 5,996 9,949
The movements reflected within the line item “Changes to risk parameters” have been analysed and
described in notes 2.3.4.3, 2.3.4.4 and 2.3.9.
* The changes to risk parameters include the reversal of a post-model adjustment of €3 million within Stage
1 ECL, which was accounted for as of 31 December 2021 (as previously explained in Note 2.3.9). The changes
in ECL within Stage 2 principally arise on one exposure, in respect of which specific model inputs relating to
the PD and LGD were updated. The increase in ECL on Stage 3 exposures is attributable to a number of
updates affected to the underlying LGD inputs.
** Financial assets derecognised include a €12 million write-back of an ECL allowance on a particular Stage
3 exposure following full repayment of such exposure during 2022.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
98
2. Financial risk management (continued)
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000 € 000 € 000 € 000
Debt securities measured at FVOCI
Loss allowance as at 1 January 2021 808 - - 808
Changes to risk parameters (model inputs: PDs/LGDs/EADs) (344)
- - (344)
Total net income statement credit during the year (344)
- - (344)
Loss allowance as at 31 December 2021 464 - - 464
Undrawn commitments
Loss allowance as at 1 January 2021 224 - 2 226
Changes to risk parameters (model inputs: PDs/LGDs/EADs) (191)
11 (1)
(181)
Total net income statement charge/(credit) during the year
(191)
11 (1)
(181)
Loss allowance as at 31 December 2021 33 11 1 45
Contingent liabilities
Loss allowance as at 1 January 2021 61 - - 61
Changes to risk parameters (model inputs: PDs/LGDs/EADs) (37)
- - (37)
Total income statement credit during the year (37)
- -
(37)
Loss allowance as at 31 December 2021 24 - - 24
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
99
2. Financial risk management (continued)
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
Total
€ 000
€ 000
€ 000 € 000
Loans and advances to customers at amortised cost
Loss allowance as at 1 January 2021
6,200 2,799 16,915 25,914
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(167)
167 - -
Transfer from Stage 1 to Stage 3
(10)
- 10 -
Transfer from Stage 2 to Stage 1
41
(41)
- -
Transfer from Stage 2 to Stage 3
- (8) 8 -
Transfer from Stage 3 to Stage 1
4 - (4) -
Transfer from Stage 3 to Stage 2
- 1,059 (1,059) -
Net remeasurement of ECL arising from stage
transfers
- 10 1 11
Total remeasurement of loss allowance arising
from transfers in stages
(132)
1,187 (1,044) 11
New financial assets originated
881 189 54 1,124
Changes to risk parameters (model inputs
PDs/LGDs/EADs)
(811)
(681)
954
(538)
Financial assets derecognised
(951)
(133) (417) (1,501)
Total net income statement (credit)/charge
during the year
(1,013)
562
(453)
(904)
Other movements
Write-offs
- - (81) (81)
Unwinding of discount
- - 693 693
Loss allowance as at 31 December 2021
5,187
3,361 17,074 25,622
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
100
2. Financial risk management (continued)
The unwinding of discount on ‘Stage 3’ financial assets is reported within 'Interest Income' so that interest
income is recognised on the amortised cost basis (after deducting the ECL allowance).
Remeasurement of loss allowances arising from foreign-exchange and other movements were not
considered significant.
Changes in the gross carrying amount that contributed to changes in loss allowance
The following table explains changes in the gross carrying amount of the Group’s financial assets to help
demonstrate their significance to the changes in the loss allowance for the same portfolios as discussed
above:
2022
Stage 1
12-
month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta and treasury
bills
Gross carrying amount as at 1 January 2022 119,395 - - 119,395
New financial assets originated 11,347,585 - - 11,347,585
Financial assets derecognised (11,334,861)
- - (11,334,861)
Gross carrying amount as at 31 December 2022 132,119 - - 132,119
Debt securities measured at FVOCI
Gross carrying amount as at 1 January 2022 218,080 - - 218,080
New financial assets purchased
27,417
- -
27,417
Financial assets derecognised
(5,215)
- -
(5,215)
Fair value and other movements
(26,891)
- -
(26,891)
Gross carrying amount as at 31 December 2022 213,391 - - 213,391
Loans and advances to banks at amortised cost
Gross carrying amount as at 1 January 2022 78,279 - - 78,279
New financial assets originated
1,527,708
- -
1,527,708
Financial assets derecognised
(1,578,372)
- -
(1,578,372)
Gross carrying amount as at 31 December 2022 27,615 - - 27,615
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
101
2. Financial risk management (continued)
2022
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000 € 000 € 000
€ 000
Loans and advances to customers at
amortised cost
Gross carrying amount as at 1 January 2022 504,477 112,283 51,757 668,517
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(70,775) 70,775
-
-
Transfer from Stage 1 to Stage 3
(3,306) -
3,306
-
Transfer from Stage 2 to Stage 1
4,838 (4,838)
-
-
Transfer from Stage 2 to Stage 3
-
(5,481)
5,481
-
Transfer from Stage 3 to Stage 1
22 -
(22)
-
Transfer from Stage 3 to Stage 2
-
8,067
(8,067)
-
Total changes in gross carrying amounts arising from
transfers in stages
(69,221)
68,523
698
-
New financial assets originated 154,270 24,584
615
179,469
Changes in gross carrying amount in respect of facilities
present as at 1 January 2022
(10,929)
(18,657)
372
(29,214)
Financial assets derecognised (52,399) (19,182)
(25,583)
(97,164)
Write-offs
- -
(47)
(47)
Total net change during the year 21,721 55,268
(23,945)
53,044
Gross carrying amount as at 31 December 2022 526,198 167,551
27,812
721,561
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
102
2. Financial risk management (continued)
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta
Gross carrying amount as at 1 January 2021 162,072 - - 162,072
New financial assets originated 2,632,795 - - 2,632,795
Financial assets derecognised (2,675,472)
- - (2,675,472)
Gross carrying amount as at 31 December 2021 119,395 - - 119,395
Debt securities measured at FVOCI
Gross carrying amount as at 1 January 2021 152,182 - - 152,182
New financial assets purchased
75,271
- -
75,271
Financial assets derecognised
(6,819)
- -
(6,819)
Fair value and other movements
(2,554)
- -
(2,554)
Gross carrying amount as at 31 December 2021 218,080 - - 218,080
Loans and advances to banks at amortised cost
Gross carrying amount as at 1 January 2021 96,985 - - 96,985
New financial assets originated 4,833,173 - - 4,833,173
Financial assets derecognised (4,851,879)
- - (4,851,879)
Gross carrying amount as at 31 December 2021 78,279 - - 78,279
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
103
2. Financial risk management (continued)
2021
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL Total
€ 000
€ 000
€ 000
€ 000
Loans and advances to customers at
amortised cost
Gross carrying amount as at 1 January 2021 522,920 57,640 66,483 647,043
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(39,692) 39,692 - -
Transfer from Stage 1 to Stage 3
(2,774) - 2,774 -
Transfer from Stage 2 to Stage 1
6,392 (6,392)
- -
Transfer from Stage 2 to Stage 3
- (1,246) 1,246 -
Transfer from Stage 3 to Stage 1
4 - (4) -
Transfer from Stage 3 to Stage 2
- 15,036 (15,036) -
Total changes in gross carrying amounts arising from
transfers in stages (36,070) 47,090 (11,020) -
New financial assets originated 103,553 22,383 4,553 130,489
Changes in gross carrying amount in respect of facilities
present as at 1 January 2021 9,310 (1,602) (1,781) 5,927
Financial assets derecognised (95,238) (13,228) (6,396) (114,862)
Write-offs - - (82) (82)
Total net change during the year (18,445) 54,643 (14,726) 21,472
Gross carrying amount as at 31 December 2021 504,475 112,283 51,757 668,515
Undrawn commitments to lend as at 31 December 2022 amounted to €202,041,000 (2021: €195,264,000)
and predominantly comprise of sanctioned but not yet drawn facilities which are classified as ‘Stage 1’ (12-
month ECL) upon drawdown by customers. Changes in gross carrying amount of undrawn commitments to
lend mainly relate to existing facilities drawn down by customers and new facilities sanctioned during 2022
and 2021.
Contingent liabilities and undrawn commitments to lend as at 31 December 2022 amounting to
€13,611,000 (2021: €13,195,000) are all classified as ‘Stage 1’ (12-month ECL) by the Group. Changes in
gross carrying amount of contingent liabilities mainly related to the expiry or enforcement of existing
financial guarantees and the issuance of new financial guarantees during 2022 and 2021.
Changes in gross carrying amount arising from foreign-exchange and other movements were not significant.
2.3.11 Write-off policy
The Group writes off loans and advances to customers 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 borrower does not have assets or
sources of income that could generate sufficient cash flows to repay the amounts subject to the write-offs.
The Group may write-off financial assets that are still subject to enforcement activity. The Group still seeks
to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable
expectation of full recovery.
The outstanding contractual amounts of assets written off during the year ended 31 December 2022
amounted to €47,000 (2021: €82,000).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
104
2. Financial risk management (continued)
2.3.12 Collateral
The Group employs a range of policies and practices to mitigate credit risk. The amount and type of
collateral required depends on an assessment of the credit risk of the counterparty. The Group’s Board
established a policy regarding the acceptability of types of collateral and valuation parameters.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit
facilities are generally unsecured.
The main types of collateral obtained are as follows:
for corporate lending, charges over real estate properties, cash or securities;
for retail lending (including home loans and consumer credit), mortgages over residential properties,
cash or securities; and
for exposures arising from reverse repurchase transactions, a pledge on liquid sovereign debt securities.
Collateral held as security for financial assets other than loans and advances depends on the nature of the
instrument. Debt securities, treasury and other eligible bills are generally unsecured.
Management assesses the market value of collateral as part of the loan origination process. This assessment
is reviewed periodically through ongoing credit file reviews. The Group requests additional collateral in
accordance with the underlying agreement when necessary.
The Group's policies regarding obtaining collateral have not significantly changed during the reporting
period and there has been no significant change in the overall quality of the collateral held by the Group
since the prior period.
A portion of the Group’s financial assets has sufficiently low ‘loan-to-value’ (‘LTV’) ratios, which result in nil
loss allowance being recognised in accordance with the Group’s Expected Credit Loss model. As at 31
December 2022, the gross carrying amount of such financial assets is €496,600,000 (2021: €450,511,000).
Loans granted as part of the Malta Development Bank COVID-19 Guarantee Scheme (note 2.3.9) are
secured by guarantees granted as part of this Scheme and included within Other collateral in the tables
below.
The extendible value of the collateral is the lower of the fair value of a pledged asset for lending purposes
and the gross carrying amount of the secured loans.
The Group closely monitors collateral held for financial assets considered to be credit-impaired, as it
becomes more likely that the Group will take possession of collateral to mitigate potential credit losses.
Financial assets that are credit-impaired and related collateral held in order to mitigate potential losses are
shown below:
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
105
2. Financial risk management (continued)
Gross
exposure
Impairment
allowance
Carrying
amount
Extendible value
of collateral
held
Credit
-
impaired assets
€ 000
€ 000
€ 000
€ 000
As at 31 December
202
2
-
Overdrafts
5,432
462
4,970
14,794
-
Term loans 19,229
3,492
15,737
49,240
-
Credit cards
5
1
4
13
Total credit
-
impaired assets
24,666
3,955
20,711
64,047
As at 31
December 2021
-
Overdrafts
15,303
2,655
12,648
19,744
-
Term loans 33,394
12,656
20,738
74,474
-
Credit cards
-
-
-
-
Total credit
-
impaired assets
48,697
15,311
33,386
94,218
Financial assets that are credit-impaired, but with no collateral held in this respect, are shown below:
Gross
exposure
Impairment
allowance
Carrying
amount
€ 000
€ 000
€ 000
Credit
-
impaired assets
As at 31 December
202
2
-
Overdrafts 493
381
112
-
Term loans
2,635
1,642
993
-
Credit cards 18
18
-
Total credit
-
impaired assets
3,146
2,041
1,105
As at 31 December 2021
-
Overdrafts 426
380
46
-
Term loans
2,622
1,370
1,252
-
Credit cards 12
12
-
Total
credit
-
impaired assets
3,060
1,762
1,298
It is the Bank's policy to dispose of properties acquired through judicial action in an orderly fashion. The
proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy
properties acquired through judicial action for business use.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
106
2. Financial risk management (continued)
The following tables show the distribution of LTV ratios for the Bank’s loans and advances to customers.
Non-forborne
exposures
Forborne
exposures
Total
Non-forborne
exposures
Forborne
e
xposures
Total
2022
2022
2022
2021
2021
2021
€
000
€
000
€
000
€ 000
€ 000
€ 000
Performing
-
Stage 1
Not collateralised
45,97
2
-
45,97
2
36,776
-
36,776
Fully
collateralised:
Less than 50% LTV
285,608
-
285,608
298,058
-
298,058
51% to 75% LTV
108,427
-
108,427
108,427
98,708
-
98,708
76% to 90% LTV
65,687
-
65,687
54,011
-
54,011
91% to 100% LTV
9,619
-
9,619
6,190
-
6,190
469,341
-
469,341
456,967
-
456,967
Partially collateralised
Greater than 100% LTV
10,886
-
10,886
10,734
-
10,734
Total performing
-
Stage 1
526,19
9
-
526,19
9
504,477
-
504,477
Underperforming
-
Stage 2
Not collateralised
16,
098
1,179
17,27
7
4,902
69
4,971
Fully collateralised:
Less than 50% LTV
76,503
25,750
102,253
17,620
29,521
47,141
51% to 75% LTV
15,883
7,399
23,282
33,256
860
34,116
76% to 90% LTV
970
1,254
2,224
-
512
512
91% to 100% LTV
2,72
2
13,00
2
15,724
3,403
-
3,403
96,07
8
47,40
5
143,48
3
54,279
30,893
85,172
Partially collateralised
Greater than 100% LTV
5,331
1,460
6,791
3,499
18,641
22,140
Total underperforming
-
Stage 2
117,50
7
50,04
4
167,55
1
62,680
49,603
112,283
Non
-
performing
-
Stage 3
Not collateralised
3,13
6
1
0
3,14
6
3,051
9
3,060
Fully collateralised:
Less than 50% LTV
6,596
6,845
13,441
12,067
8,643
20,710
51% to 75% LTV
5,264
759
6,02
3
2,326
1,376
3,702
76% to 90% LTV
1,162
38
2
1,54
4
1,492
832
2,324
91% to 100% LTV
672
-
672
-
-
-
13,69
4
7,98
6
21,6
80
15,885
10,851
26,736
Partially collateralised
Greater than 100% LTV
2,986
-
2,986
21,565
396
21,961
Total non
-
performing
-
Stage 3
19,81
6
7,99
6
27,81
2
40,501
11,256
51,757
At 31 December
663,52
2
58,0
40
721,56
2
607,658
60,859
668,517
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
107
2. Financial risk management (continued)
2.3.13 Trade and other receivables
The Bank’s subsidiary assesses the credit quality of its customers taking into account financial position, past
experience and other factors. It has policies in place to ensure that sales of products and services are
effected to customers with an appropriate credit history in the case of credit sales. The subsidiary monitors
the performance of these financial assets on a regular basis to identify incurred collection losses which are
inherent in the subsidiary’s receivables taking into account historical experience in collection of accounts
receivable.
Standard credit terms are in place for individual clients, however, wherever possible, new corporate
customers are analysed individually for creditworthiness before the subsidiary’s standard payment and
service delivery terms and conditions are offered. The entity’s review includes external creditworthiness
databases when available. The subsidiary establishes an allowance for impairment that represents its
estimate of both incurred and expected losses in respect of trade and other receivables. This allowance
represents Expected Credit Losses (‘ECL’) against individual exposures. The movement in provisions for
impairment in respect of trade receivables is disclosed in note 16. Other overdue trade receivables include
€86,000 (2021: €248,000), principally overdue by nine months, but were not impaired.
The subsidiary’s receivables, which are not impaired financial assets, are principally in respect of
transactions with customers for whom there is no recent history of default. Management does not expect
any material losses from non-performance by these customers.
2.3.14 Contingencies and commitments
Guarantees and standby letters of credit carry the same credit risk as loans. Documentary, credit and
commercial letters of credit – which are written undertakings by the Bank on behalf of a customer
authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and
conditions – are collateralised by the underlying shipments of goods to which they relate and therefore
carry less risk than a direct loan. Commitments to extend credit represent unused portions of
authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit
risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the
total unused commitments. However, the likely amount of loss is less than the total unused commitments
as most commitments to extend credit are contingent upon customers maintaining specific credit
standards. These exposures are monitored in the same manner outlined above in respect of loans and
advances.
2.4 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, currency and equity 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, foreign exchange rates and equity prices.
Accordingly, market risk for the Group consists of three elements:
- Interest rate risk, which is the risk of losses because of changes in interest rates;
- Exchange rate risk, which is the risk of losses on the Group’s positions in foreign currency because of
changes in exchange rates; and
- Equity price risk, which is the risk of losses because of changes in investment prices.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
108
2. Financial risk management (continued)
2.4.1 Interest rate risk
Interest rate risk is the risk that the value or cash flows of a financial instrument will fluctuate due to
changes in market interest rates. 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. Fair value interest rate risk
is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest
rates. The Group, through its banking operations, takes on exposure to the effects of fluctuations in the
prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may
increase as a result of such changes but losses may occur in the event that unexpected movements arise.
The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning
assets and interest-bearing liabilities mature or reprice within different time periods or on different terms.
The Bank accepts deposits from customers at both fixed and floating rates and for varying terms. This poses
a risk to the Bank, which risk is managed by monitoring on a continuous basis the level of mismatch of
interest rate repricing taking cognisance of the terms of the Bank’s principal assets, loans and advances to
customers, that are repriceable at the Bank’s discretion. The Bank also invests in highly liquid quality assets
and other short-term instruments for the purposes of mitigating exposures to fluctuations in interest rates.
The Bank is accordingly in a position to manage the interest rate terms of its financial assets and
simultaneously to effect changes to interest terms of liabilities reflecting the Bank’s strategy together with
market developments. The Group seeks to manage its net interest spread, considering the cost of capital,
by investing funds in a portfolio of assets with a longer term than the liabilities funding them (therefore
normally giving rise to a negative maturity gap position) but with shorter repricing periods or terms. The
Bank manages the shorter term nature of the liabilities funding the assets for the purposes of ensuring a
steady base of deposits with differing terms over the medium to longer term. The Bank’s Assets & Liabilities
Committee is primarily responsible for oversight over the Bank’s interest rate risk management process
and monitors actively the interest rate risk measures utilised by the Bank.
Credit facilities and commitments to lend funds to customers are granted at prevailing market interest rates
at drawdown date.
The Group has evaluated the extent of the discontinuation of the Interbank Offered rates (‘IBOR’) on local
loans and advances granted by the Group. The Group’s exposure in this respect is insignificant and the Bank
expects to migrate all loans by July 2023, in line with the deadline set by the EU.
Considering the Group’s insignificant and limited exposure to IBOR, the transition is expected to have an
insignificant impact on the Bank’s operations and financial position. The Group will continue to monitor the
regulatory developments in this respect, with a particular focus on developments relating to the
EURIBOR reference rate.
The financial years ended 31 December 2022 and 2021 have been characterised by unprecedented
economic conditions. Despite a general recovery in economic conditions, the level of estimation
uncertainty and judgement has remained elevated as a result of the economic effects of the global
geopolitical and macro-economic developments occurring in the aftermath of the COVID-19 pandemic.
Escalation of the military conflict between Russia and Ukraine as well as the continued economic effects of
the COVID-19 pandemic, comprising supply chain disruptions, have resulted in significant inflationary
pressures experienced globally. In turn, this triggered a response by the European Central Bank (‘ECB’) as
well as other national central banks across Europe from a monetary policy perspective, with announced
increases in interest rates designed to curb the spiralling effect of inflationary pressures.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
109
2. Financial risk management (continued)
The following tables summarise the Group’s exposures to interest rate risks. These analyse the Group’s financial instruments, which were interest-bearing, at their carrying
amounts categorised by the earlier of contractual repricing or maturity dates.
Group
Average
e
f
fective
Between
Between
Carrying
i
nterest
Less than
3 months
1 year
More than
Non
-
interest
a
mount
r
ate
3 months
and 1 year
and 5 years
5 years
be
aring
As at 31 December
202
2
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta
and
treasury bills
132,119
2.15
110,88
1
21,238
-
-
-
Debt and other fixed income instruments measured at FVOCI
213,391
1.15
1,682
4,747
120,840
86,122
-
Loans and advances to
banks
27,615
0.05
26,115
1,500
-
-
-
Loans and advances to customers
711,612
3.73
576,810
40,546
80,374
10,047
3,835
Total financial assets
1,084,737
715,48
8
68,031
201,214
96,16
9
3,835
Financial liabilities
Amounts owed to banks
535
0.16
535
-
-
-
-
Amounts owed to customers
1,008,431
0.87
479,584
85,209
192,235
78,368
173,035
Total financial liabilities
1,008,966
480,119
85,209
192,235
78,368
173,035
Interest repricing gap
235,3
69
(17,178)
8,9
79
17,80
1
Cumulative gap
235,3
69
218,19
1
227,17
0
244,97
1
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
110
2. Financial risk management (continued)
Group
Average
e
ffective
Between
Between
Carrying
i
nterest
Less than
3 months
1 year
More than
Non
-
interest
a
mount
r
ate
3 months
and 1 year
and 5 years
5 years
bearing
As at 31 December 2021
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank
of Malta
and
treasury bills
119,395
(0.10)
105,362
14,033
-
-
-
Debt and other fixed income instruments measured at FVOCI
218,080
1.14
531
4,091
88,095
125,363
-
Loans and advances to banks
78,279
0.11
75,779
2,500
-
-
-
Loans and advances to customers
642,893
3.72
549,358
12,607
53,233
15,990
11,705
Total financial assets
1,058,647
731,030
33,231
141,328
141,353
11,705
Financial liabilities
Amounts owed to banks
1,224
0.14
1,224
-
-
-
-
Amounts owed to customers
977,143
0.77
514,225
66,209
183,384
59,676
153,649
Total financial liabilities
978,367
515,449
66,209
183,384
59,676
153,649
Interest repricing gap
215,581
(32,978)
(42,056)
81,677
Cumulative gap
215,581
182,603
140,547
222,224
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
111
2. Financial risk management (continued)
Bank
Average
e
ffective
Between
Between
Carrying
interest
Less than
3 months
1 year
More
than
Non
-
interest
a
mount
rate
3 months
and 1 year
and 5 years
5
years
bearing
As at 31 December
202
2
€ 000
%
€ 000
€ 000
€ 000
€
000
€ 000
Financial assets
Balances with Central Bank of
Malta and treasury bills
132,119
2.15
110,881
21,238
-
-
-
Debt and other fixed income instruments measured at FVOCI
210,862
1.11
1,682
4,747
120,384
84,049
-
Loans and advances to banks
20,936
-
20,936
-
-
-
-
Loans and advances to customers
711,613
3.73
576,811
40,546
80,374
10,047
3,835
Total financial assets
1,075,530
710,31
0
66,531
200,758
94,096
3,835
Financial liabilities
Amounts owed to banks
535
0.16
535
-
-
-
-
Amounts owed to customers
1,010,100
0.87
480,02
4
85,609
192,235
78,368
173,864
Total financial liabilities
1,010,635
480,5
59
85,609
192,235
78,368
173,864
Interest repricing gap
229,75
1
(19,078)
8,523
15,728
Cumulative gap
229,75
1
210,67
3
219,19
6
234,924
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
112
2. Financial risk management (continued)
Bank
Average
e
ffective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non
-
interest
a
mount
rate
3 months
and 1
year
and 5 years
5 years
bearing
As at 31 December 2021
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta
and treasury bills
119,395
(0.10)
105,362
14,033
-
-
-
Debt and other fixed income instruments measured at FVOCI
215,179
1.09
531
4,066
87,371
123,211
-
Loans and advances to banks
68,424
0.09
68,424
-
-
-
-
Loans and advances to customers
642,895
3.72
549,360
12,607
53,233
15,990
11,705
Total financial assets
1,045,893
723,677
30,706
140,604
139,201
11,705
Financial liabilities
Amounts owed to banks
1,224
0.14
1,224
-
-
-
-
Amounts owed to customers
978,365
0.77
514,358
66,410
183,384
59,676
154,537
Total financial liabilities
979,589
515,582
66,410
183,384
59,676
154,537
Interest repricing gap
208,095
(35,704)
(42,780)
79,525
Cumulative gap
208,095
172,391
129,611
209,136
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
113
2. Financial risk management (continued)
2.4.2 Interest rate profile
At the end of the reporting periods the interest rate profile of the Group’s interest-bearing financial
instruments was:
Group Fixed rate Variable rate
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Interest-bearing assets
Balances with Central Bank of Malta and treasury bills 123,872 67,151 8,247 52,244
Debt and other fixed income instruments measured at
FVOCI
213,391
218,080
-
Loans and advances to banks 2,600
48,254 25,015
30,025
Loans and advances to customers 132,948
86,062
574,829
545,126
472,811 419,547
608,091 627,395
Interest-bearing liabilities
Amounts owed to banks 23
23 512
1,201
Amounts owed to customers 391,895
358,094 443,501
465,400
391,918 358,117 444,013 466,601
At the end of the reporting periods the interest rate profile of the Bank’s interest-bearing financial
instruments was:
Bank Fixed rate Variable rate
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Interest-bearing assets
Balances with Central Bank of Malta and treasury bills 123,872 67,151 8,247 52,244
Debt and other fixed income instruments measured at
FVOCI
210,862
215,179
-
-
Loans and advances to banks -
42,254 20,936
26,170
Loans and advances to customers 132,948
86,062 574,830
545,128
467,682 410,646
604,013 623,542
Interest-bearing liabilities
Amounts owed to banks 23
23 512
1,201
Amounts owed to customers 392,296
358,294 443,940
465,532
392,319 358,317
444,452 466,733
2.4.3 Fair value sensitivity analysis for fixed rate instruments
The Group’s instruments exposing the Bank to fair value interest rate risk consist of quoted debt securities
measured at FVOCI (also refer to note 6) since these are fair valued with fair value changes recognised in
other comprehensive income. In this respect, the fair value sensitivity for fixed rate instruments is
performed in respect of debt financial investments measured at FVOCI. An increase of 200 basis points in
the yield to maturity of each respective debt security would lead to a decrease in value of debt financial
investments measured at FVOCI amounting to €20.7 million. Likewise, a decrease of 200 basis points in
interest rates would lead to an increase in value of debt financial investments measured at FVOCI
amounting to €21.9 million. As at 31 December 2021, a sensitivity disclosing how fixed rate instruments
would have been affected by changes in interest rates that were reasonably possible was not deemed
necessary. All other financial instruments subject to fixed interest rates are measured at amortised cost.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
114
2. Financial risk management (continued)
2.4.4 Cash flow sensitivity analysis for variable rate instruments
At the end of the reporting period, if interest rates had increased/decreased by 250 basis points (assuming
a parallel shift of 250 basis points in yields) with all other variables held constant, the pre-tax result for the
year would change by the following amounts determined by applying the shift to the net variable interest
exposure of the Group/Bank at the end of the reporting periods:
Group
2022
2021
€ 000
€ 000
(+)
250 bp (2021:
100 bp
)
4,
102
1,
608
(
-
)
250 bp (2021:
100 bp)
(
4,
102
)
(1,6
08
)
Bank
2022
2021
€ 000
€ 000
(+)
250 bp (2021: 100 bp)
3,989
1,568
(
-
)
250 bp (2021: 100 bp)
(3,989)
(1,568)
2.4.5 Currency 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 particularly within the Bank’s operations. Foreign exchange risk to
the Bank is the risk that earnings and values fluctuate as a result of changes in foreign exchange rates. The
Bank’s foreign exchange risk arises when financial assets or liabilities are denominated in currencies which
are different from the Bank’s functional currency.
The Bank essentially manages this 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. This mechanism is reflected in the figures reported in the tables below which present this
matching process.
The Bank maintains its exposure to foreign currencies within prescribed limits set by the Bank’s ALCO. ALCO
sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions
which are monitored on a real-time basis.
The Bank enters into forward foreign exchange contracts with customers in the normal course of its
business. Generally, it is the Bank’s policy to cover the exposure arising from forward contracts. As a result,
the Group would not exposed to any significant exchange risk in respect of outstanding derivative financial
instruments. The Bank also retains a deposit margin covering a portion of the notional amount of the
respective contract from the customer thereby reducing the extent of credit risk should the derivative client
default. The Bank did not have any outstanding derivative financial instruments as at 31 December 2022
and 2021.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
115
2. Financial risk management (continued)
The following tables summarise the Group’s exposures to foreign currency risk. Included in the tables are
the Group’s financial instruments which are subject to foreign exchange risk at carrying amounts,
categorised by currency.
Group Total EUR GBP USD Other
€ 000 € 000 € 000 € 000 € 000
As at 31 December 2022
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 139,234
93,586
21,624
24,017
7
Financial investments measured at FVOCI 220,815 201,823
6,338
12,654
-
Loans and advances to banks 27,615
10,059
5,300
7,916
4,340
Loans and advances to customers 711,612
706,056
4,594
962
-
Other assets 17,215
13,785
392
2,232
806
Total financial assets
1,116,491 1,025,309
38,248
47,781
5,153
Financial liabilities
Amounts owed to banks 535
535
-
-
-
Amounts owed to customers 1,008,431
919,963
38,334
45,769
4,365
Other liabilities 44,362
42,756
216
1,091
299
Total financial liabilities 1,053,328
963,254
38,550
46,860
4,664
Net currency position
62,055
(302) 921
489
Commitments and contingent liabilities 215,611
214,180
432
999
-
Group Total EUR GBP USD Other
€ 000 € 000 € 000 € 000 € 000
As at 31 December 2021
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 126,279 106,106 11,080 9,081 12
Financial investments measured at FVOCI 227,135
209,654
6,668
10,813
-
Loans and advances to banks 78,279
21,987
20,354
32,586
3,352
Loans and advances to customers 642,893
639,443
3,118
302
30
Other assets 14,219 11,879 274
1,553
513
Total financial assets 1,088,805 989,069 41,494
54,335
3,907
Financial liabilities
Amounts owed to banks 1,224
1,224
- - -
Amounts owed to customers 977,143
881,729
40,232
51,809
3,373
Other liabilities 42,297
38,913
1,137
1,895
352
Total financial liabilities 1,020,664
921,866
41,369
53,704
3,725
Net currency position 67,203 125
631
182
Commitments and contingent liabilities 208,390
206,517
1,195
678
-
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
116
2. Financial risk management (continued)
Under the scenario that the euro appreciates by 20% against all currencies the effect would result in a
decrease of €222,000 (2021: €187,000) in the carrying amount of financial instruments with the adverse
impact recognised in profit or loss. Should the euro depreciate against all currencies by 20%, the effect
would result in a gain of €222,000 (2021: €187,000) in the carrying amount of financial instruments and the
favourable impact would be recognised in profit or loss.
The following tables summarise the Bank’s exposures to foreign currency risk. Included in the tables are
the entity’s financial instruments which are subject to foreign exchange risk at carrying amounts,
categorised by currency.
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2022
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 138,393 92,746
21,624
24,017
6
Financial investments measured at FVOCI 218,286 199,294
6,338
12,654 -
Loans and advances to banks 20,936
3,191
5,300
8,104
4,341
Loans and advances to customers 711,613
706,057
4,594
962
-
Other assets 7,396 6,839
86
471
-
Total financial assets 1,096,624
1,008,127
37,942
46,208
4,347
Financial liabilities
Amounts owed to banks 535
535
-
-
-
Amounts owed to customers 1,010,100
921,440
38,334
45,962
4,364
Other liabilities 24,809
24,226
108
463
12
Total financial liabilities 1,035,444
946,201
38,442
46,425
4,376
Net currency position 61,926 (500)
(217) (29)
Commitments and contingent liabilities 216,717
215,286 432
999 -
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
117
2. Financial risk management (continued)
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2021
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash 125,552 105,379 11,080
9,081 12
Financial investments measured at FVOCI 224,234
206,753
6,668
10,813
-
Loans and advances to banks 68,424
12,237
20,354
32,482
3,351
Loans and advances to customers 642,895
639,445
3,118
302
30
Other assets 4,414
3,913
59
442
-
Total financial assets 1,065,519
967,727
41,279
53,120
3,393
Financial liabilities
Amounts owed to banks 1,224
1,224 -
- -
Amounts owed to customers 978,365
882,951
40,232
51,809
3,373
Other liabilities 22,043
19,742
995
1,244
62
Total financial liabilities 1,001,632
903,917
41,227
53,053 3,435
Net currency position 63,810 52
67 (42)
Commitments and contingent liabilities 209,663
207,790 1,195
678 -
Under the scenario that the euro appreciates by 20% against all currencies the effect would result in a
decrease of €149,000 (2021: €15,000) in the carrying amount of financial instruments with the adverse
impact recognised in profit or loss. Should the euro depreciate against all currencies by 20%, the effect
would result in a gain of €149,000 (2021: €15,000) in the carrying amount of financial instruments and the
favourable impact would be recognised in profit or loss.
2.4.6 Equity price risk
The exposure of the Group to this risk is not significant in view of the extent of the Group’s holdings of
equity investments designated at FVOCI (refer to note 6) which are not deemed significant in the context
of the Group’s statement of financial position. These investments are principally locally quoted equity
instruments issued by local well-known corporates. Frequent management reviews are carried out to
ensure continued high quality of the portfolio.
2.5 Liquidity risk
Liquidity risk is defined as the risk of losses due to:
- the Group’s funding costs increasing disproportionately;
- lack of funding preventing the Group from establishing new business; and
- lack of funding which will ultimately prevent the Group from meeting its obligations.
In relation to the Bank’s operations, liquidity risk is the risk that the Bank is unable to meet its obligations
when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual
commitments, or other cash outflows. The Group is exposed to daily calls on its available cash resources
from overnight deposits, current and call deposits, maturing term deposits, loan draw-downs and
guarantees together with other related off-balance sheet instruments. Such outflows would deplete
available cash resources for client lending and investments. In extreme circumstances, lack of liquidity could
result in sales of assets, or potentially an inability to fulfil lending commitments. The risk that the Group
will be unable to do so is inherent in all banking operations and can be affected by a range of institution-
specific and market-wide events including, but not limited to, credit events, systemic shocks and natural
disasters.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
118
2. Financial risk management (continued)
The objective of the Group’s liquidity and funding management is to ensure that all foreseeable funding
commitments and deposit withdrawals can be met when due. It is the Bank’s target to maintain a diversified
and stable funding base with the objective of enabling it to respond quickly and smoothly to unforeseen
liquidity requirements.
The Group manages this risk by ensuring that its assets and liabilities are matched in terms of maturities as
much as is practicable. However, the Bank ought to manage its net interest spread by investing funds in a
portfolio of assets with a longer term than the liabilities funding them (therefore giving rise to a negative
maturity gap position). To mitigate exposures arising in this respect, the Bank holds significant liquid assets
in the form of Malta Government treasury bills, money market placements and other short-term
instruments for managing liquidity risk to support payment obligations and contingent funding in a stressed
market environment.
The Bank’s Advances-to-Deposit ratio of 70.4% (2021: 65.7%) at the end of the reporting period reflects
Management’s prudent stance in the context of liquidity management.
Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) is designed to promote the short-term resilience of a bank’s liquidity
profile. This ratio became a minimum regulatory standard under the European Commission Delegated
Regulation 2015/61.
The LCR aims to ensure that a bank has adequate unencumbered high-quality liquid assets (‘HQLA’) to meet
its liquidity requirements within a 30-calendar-day liquidity stress scenario. Generally, HQLA consists of
cash or assets that can be converted into cash at little or no loss of value in markets.
The Bank’s LCR as at 31 December 2022 was 210.7% (2021: 225.3%). During the financial years ended 31
December 2022 and 2021, the LCR was in excess of both the regulatory minimum and the risk appetite
thresholds set by the bank.
Net Stable Funding Ratio
The Net Stable Funding Ratio (‘NSFR’) is a metric showing how a bank is able to maintain sufficient stable
funding relative to required stable funding, and reflects a bank’s long-term funding profile (typically, with
a term of more than one year).
The NSFR methodology is calculated in line with the amendments of the Capital Requirements Regulation
(EU) No 575/2013 (‘CRR II’) with effect from 28 June 2021.
The Bank’s NSFR as at 31 December 2022 was 148.3% (2021: 148.4%). During the financial years ended 31
December 2022 and 2021, the NSFR was in excess of both the regulatory minimum and the risk appetite
thresholds set by the bank.
The Bank’s ALCO focuses on the Bank’s management process with respect to market and funding liquidity
risks.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
119
2. Financial risk management (continued)
The Group’s liquidity management process, focusing on the liquidity of the Bank and that of its principal
subsidiary, includes:
• management of day-to-day funding, by monitoring future cash flows to ensure that requirements can
be met. This includes replenishment of funds as they mature or are borrowed by customers. The starting
point for those projections is an analysis of the contractual maturity of the financial liabilities and the
expected collection date of the financial assets;
• maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against
any unforeseen interruption to cash flow;
• monitoring the liquidity ratios of the Bank against internal and regulatory requirements; and
• managing the concentration and profile of debt maturities.
The Bank also monitors the level and type of undrawn lending commitments and the impact of contingent
liabilities such as guarantees as part of the liquidity management process previously referred to. As at 31
December 2022, the Bank had outstanding guarantees on behalf of third parties amounting to €10,886,000
(2021: €9,320,000), which are cancellable upon the request of the third parties. The Group’s liquidity
exposures arising from these commitments and contingencies are expected to expire principally within a
period of twelve months from the end of the reporting period.
The following tables analyse the Group’s and Bank’s principal financial assets and liabilities into relevant
maturity groupings based on the remaining period at the end of the reporting period to the contractual
maturity date.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
120
2. Financial risk management (continued)
Between
Between
Less than
3
months
1 year and
More than
No maturity
Group
3 months
and 1 year
5 years
5 years
date
Total
As at 31 December
202
2
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
110,470
21,238
-
-
7,526
139,234
Financial i
nvestments measured at FVOCI
1,682
4,747
120,840
86,122
7,424
220,815
Loans and advances to banks
26,115
1,500
-
-
-
27,615
Loans and advances to customers
146,69
7
29,675
157,474
377,766
-
711,612
Other assets
14,44
7
2,379
-
-
389
17,215
Total financial assets
299,
411
59,539
278,314
463,888
1
5,339
1,116,49
1
Financial liabilities
Amounts owed to
banks
535
-
-
-
-
535
Amounts owed to customers
652,619
85,609
191,835
78,368
-
1,008,431
Other liabilities
27,053
28
1,453
8,283
7,545
44,362
Total financial liabilities
680,207
85,637
193,288
86,651
7,545
1,053,328
Maturity gap
(380,
796
)
(26,098)
85,026
377,23
7
Cumulative gap
(380,
796
)
(406,
894
)
(321,
868
)
55,
369
As at 31 December 2021
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
104,850
14,033
-
-
7,396
126,279
Financial i
nvestments measured at FVOCI
531
4,092
88,095
125,362
9,055
227,135
Loans and advances to banks
75,779
2,500
-
-
-
78,279
Loans and advances to customers
166,537
38,216
117,555
320,585
-
642,893
Other assets
13,394
459
-
-
366
14,219
Total financial assets
361,
091
59,300
205,650
445,947
16,
817
1,088,805
Financial liabilities
Amounts owed to banks
1,224
1,224
Amounts owed to customers
667,873
66,210
183,384
59,676
-
977,143
Other liabilities
24,465
203
1,467
8,042
8,119
42,296
Total financial liabilities
693,562
66,413
184,851
67,718
8,119
1,020,663
Maturity gap
(33
2,471
)
(7,113)
20,799
378,229
Cumulative gap
(33
2,471
)
(3
25,358
)
(3
04,559
)
73,670
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
121
2. Financial risk management (continued)
Between
Between
Less than
3 months
1 year and
More than
No maturity
Bank
3 months
and 1 year
5 years
5 years
date
Total
As at 31 December
202
2
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Financial
assets
Balances with Central Bank of Malta, treasury bills and cash
109,629
21,238
-
-
7,526
138,393
Financial i
nvestments measured at FVOCI
1,682
4,747
120,384
84,049
7,424
218,
286
Loans and advances to banks
20,936
-
-
-
-
20,936
Loans and advances to customers
146,69
8
29,675
157,474
377,766
-
711,613
Other assets
4,62
8
2,379
-
-
389
7,
396
Total financial assets
28
3,573
58,039
277,85
8
461,815
15,339
1,096,62
4
Financial liabilities
Amounts owed to banks
535
-
-
-
-
535
Amounts owed to customers
653,88
8
85,609
192,235
78,368
-
1,010,100
Other liabilities
12,049
28
1,453
7,160
4,119
24,809
Total financial liabilities
666,47
2
85,637
193,688
85,528
4,119
1,035,444
Maturity gap
(38
2,899
)
(27,598)
84,170
376,287
Cumulative gap
(382,899)
(4
10,497
)
(32
6,327
)
49,960
As at 31 December 2021
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
104,123
14,033
-
-
7,396
125,552
Financial investments measured at FVOCI
531
4,066
87,371
123,211
9,
055
224,
234
Loans and advances to banks
68,424
-
-
-
-
68,424
Loans and advances to
customers
166,540
38,216
117,555
320,584
-
642,895
Other assets
3,589
459
-
-
366
4,
414
Total financial assets
343,207
56,774
204,926
443,795
16,817
1,065,519
Financial liabilities
Amounts owed to banks
1,224
-
-
-
-
1,224
Amounts owed to customers
668,896
66,409
183,384
59,676
-
978,365
Other liabilities
9,275
203
1,467
6,546
4,552
22,043
Total financial liabilities
679,395
66,612
184,851
66,222
4,552
1,001,632
Maturity gap
(33
6,188
)
(9,838)
20,075
377,573
Cumulative gap
(33
6,188
)
(34
6,026
)
(32
5,951
)
5
1,622
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
122
2. Financial risk management (continued)
The Bank’s amounts owed to customers of €617,805,000 (2021: €620,071,000) as at 31 December 2022 are repayable on demand and included in the “within 3 months” bucket
in the tables. However, the Bank’s experience is that a significant portion of such deposits remains stable. Additionally, a significant part of other deposits maturing within 3
months from the end of the reporting period is typically renewed. The tables below analyse the Group’s and Bank’s principal 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. The amounts disclosed in the tables are the contractual
undiscounted cash flows.
Group
Between
Between
Less than
3 months
1 year
More than
3 months
and 1 year
and 5 years
5 years
Total
As at 31 December
202
2
€
000
€
000
€
000
€
000
€
000
Financial liabilities
Amounts owed to banks
535
-
-
-
535
Amounts owed to customers
652,841
87,921
205,829
87,297
1,033,88
8
Other liabilities
27,127
399
3,257
7,063
37,846
Total financial liabilities
680,
503
8
8,320
20
9,086
9
4,360
1,07
2,269
As at 31 December 2021
Financial liabilities
Amounts owed to banks
1,224
-
-
-
1,224
Amounts owed to
customers
667,887
66,930
196,949
70,328
1,002,094
Other liabilities
24,536
630
3,412
6,775
3
3,353
Total financial liabilities
693,
647
67,
560
200,361
7
7,103
1,03
8,071
Bank
Between
Between
Less than
3 months
1
year
More than
3 months
and 1 year
and 5 years
5 years
Total
As at 31 December
202
2
€
000
€
000
€
000
€
000
€
000
Financial liabilities
Amounts owed to banks
535
-
-
-
535
Amounts owed to customers
654,111
87,922
206,229
87,297
1,035,55
9
Other liabilities
12,049
208
2,7
34
6,212
21,203
Total financial liabilities
66
6,695
88,
130
208,9
63
93
,509
1,05
7
,
297
As at 31 December 202
1
Financial
liabilities
Amounts owed to banks
1,224
-
-
-
1,224
Amounts owed to customers
668,907
67,133
196,949
70,328
1,003,317
Other liabilities
9,275
360
2,658
5,782
18,075
Total financial liabilities
679,406
67,493
199,607
76,110
1,022,616
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
123
2. Financial risk management (continued)
2.6 Operational risk
Operational risk is the risk of losses due to:
- deficient or erroneous internal procedures;
- human or system errors;
- external events, including legal events;
- internal and external fraud;
- employment practices and workplace safety;
- clients, products and business practices;
- damage to physical assets;
- business disruption and system failures; and
- execution, delivery and process management.
Operational risk is thus often associated with specific and one-off events, such as failure to observe business
or working procedures, defects or breakdowns of the technical infrastructure, criminal acts, fire and storm
damage or litigation. Operational risks are, non-financial risks. Operational risk management relies on a
framework of policies implemented by the different operational functions and which implementation is
overseen by the Risk Management Function.
A financial measurement of this risk is arrived at by the Group for the purpose of allocating risk capital using
the Basic Indicator Approach under the European Union Directive on Capital Requirements (‘CRD’) rules.
The capital requirement for operational risk under this method was calculated at €4,214,000 (2021:
€4,107,000).
In 2021, the COVID-19 pandemic situation was constantly monitored and when COVID-19 cases started to
rise, the pandemic business contingency plan was triggered. Where possible, employees were asked to
work remotely, and the remaining staff were working on a rotation basis and dispersed to allow sufficient
social distance. Contingency sites and equipment were tested regularly. The Executive Committee
maintained regular meetings to analyse the situation and provide direction accordingly. No major disruption
to the business was experienced.
2.7 Capital risk management
The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the
consolidated statement of financial position, are:
- to comply with the capital requirements set by the MFSA with respect to the Bank’s operations;
- to safeguard the Group’s ability to continue as a going concern so that it can continue to provide
returns for shareholders and benefits for other stakeholders; and
- to maintain a strong capital base to support the development of its business.
Accordingly, the purpose of the Group’s capital management is essentially that of ensuring efficient use of
capital taking cognisance of the Group’s risk appetite and profile as well as its objectives for business
development. The Group is subject to externally imposed capital requirements only in respect of the Bank’s
activities as a credit institution. The Bank is a licensed financial services provider and must therefore comply
with the capital requirements under the relevant laws and regulations.
The Bank’s Executive Team and ALCO are responsible for managing the Bank’s regulatory capital. The Bank
aims to maintain a strong capital base to support the risks inherent in its business, investing in accordance
with its strategy and meeting regulatory capital requirements at all times. Internal capital adequacy
assessments are aligned with the regulatory and supervisory requirements and with the Bank’s assessment
of risk, including credit, market and operational risks.
The Bank manages its capital requirements based on internal targets, which are set above the prescribed
minimum capital requirements, i.e. levels established within the CRR and the additional capital
requirements required by the MFSA for supervisory purposes.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
124
2. Financial risk management (continued)
Minimum capital requirements are computed for credit, market and operational risks. The Banking Act,
1994 requires a bank to maintain a ratio of total regulatory capital to risk-weighted assets and instruments
(the ‘Capital requirements ratio’) at or above the prescribed minimum of 8%.
The Bank is compliant with the CRD IV capital requirements and in addition to the prescribed minimum,
Banking Rule BR/15: ‘Capital Buffers of Credit Institutions authorised under the Banking Act 1994’ requires
Banks to hold additional buffers, namely the ‘capital conservation buffer’ and the ‘countercyclical buffer’.
Automatic restrictions on capital distributions apply if the Bank’s CET1 capital falls below the level of its CRD
IV combined buffer.
The Bank is required to maintain a capital conservation buffer of 2.5% and the institution-specific
countercyclical buffer as determined by Article 140 (1) of Directive 2013/36/EU which is composed of CET1
capital.
CRD IV contemplates a countercyclical buffer in line with Basel III, in the form of an institution-specific
countercyclical buffer and the application of increased requirements to address macro-prudential or
systemic risk. This is expected to be set in the range of 0-2.5% of relevant credit exposure risk-weighted
assets, whereby the rate shall consist of the weighted average of the ‘countercyclical buffer’ rates that apply
in the jurisdiction where the relevant exposures are located. Given that the local group’s exposures are all
contained within Malta, this buffer was set at 0%.
In June 2021, the Bank received from the MFSA a SREP Decision letter, whereby in addition to the regulatory
requirements stated above, the Bank is expected to maintain a Pillar 2 Requirement (‘P2R’) of 3.25% to be
held in excess of the minimum own funds requirement and to be maintained at all times in accordance with
Article 104a of the EU’s Capital Requirements Directive (‘CRD V’). In addition, a Pillar 2 Guidance (‘P2G’) of
1% and made up entirely of CET 1 Capital is to be held over and above the Overall Capital Requirement
(‘OCR’) of 13.75%. Hence the Bank’s OCR plus P2G stood at 14.75% since June 2021.
During the financial years ended 31 December 2022 and 31 December 2021, the Bank’s OCR was met at all
times. The Bank’s P2G was also met at all times, with the exception of short periods during the last quarter
of the financial year 2022 attributable to the significant decline in market value of fixed-income securities
held as a direct result of interest rate changes. The P2G was met at year end. A Capital Plan has been
submitted to the MFSA in December 2022, highlighting the Bank’s strategy in respect of capital
management.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
125
2. Financial risk management (continued)
The Capital requirements ratio expresses Own funds as a proportion of risk-weighted assets and off-balance
sheet instruments in relation to Credit Risk together with notional risk-weighted assets in respect of
Operational Risk and Market Risk.
The risk-weighted assets are measured by means of a hierarchy of risk weights classified according to the
nature of – and reflecting an estimate of credit, market and other risks associated with – each asset and
counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for
off-balance sheet instruments, with some adjustments to reflect the more contingent nature of the
potential losses. Risk-weighted assets are measured using the ’Standardised Approach’ for credit risk with
risk-weights being assigned to assets and off-balance sheet instruments according to their asset class and
credit risk mitigation. For the determination of credit assessments, independent rating agencies are
nominated as required.
Total risk-weighted assets are determined by multiplying the capital requirements for market risk and
operational risk by 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) and adding the resulting
figures to the sum of risk-weighted assets for credit risk.
2.8 Fair values of financial assets and liabilities
2.8.1 Financial instruments measured at fair value
The Group’s financial instruments which are carried at fair value include the Group’s debt securities and
equity instruments measured at FVOCI (note 6). The Group is required to disclose fair value measurements
by level of the following fair value measurement hierarchy for financial instruments that are measured in
the statement of financial position at fair value:
- 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
i.e. as prices, or indirectly i.e. derived from prices (Level 2).
- Inputs for the asset that are not based on observable market data i.e. unobservable inputs (Level 3).
The IFRS 13 hierarchy of valuation techniques is based on whether the inputs to those valuation techniques
are observable or unobservable. Observable inputs reflect market data obtained from independent sources;
unobservable inputs reflect the Bank’s market assumptions.
The Bank considers only relevant and observable market prices in its valuations. Fair values of financial
assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer
price quotations.
The fair value of the Bank’s financial assets measured at FVOCI, which are principally traded in active
markets, is mainly based on quoted market prices. Hence, as at 31 December 2022 and 2021, the principal
financial instruments that are measured at fair value, consisting of the investments measured at FVOCI,
were valued using principally Level 1 inputs.
No transfers of financial instruments between different levels of the fair value hierarchy have occurred
during the financial years ended 31 December 2022 and 2021.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
126
2. Financial risk management (continued)
2.8.2 Financial instruments not measured at fair value
Loans and advances to banks and customers
These categories of assets are presented net of impairment allowances to reflect the estimated recoverable
amounts. As at 31 December 2022, the Group’s aggregate carrying amount in this respect was €
739,227,000 (2021: €721,172,000). The loans and advances to customers, which are principally subject to
floating interest rates, are measured at the amount of €574,829,000 (2021: €545,126,000). This carrying
value approximates to fair value in view of the fact that these loans and advances are repriceable at the
Group’s discretion. The loans and advances to banks, comprising term placements maturing within one
month from the end of the reporting period, are carried at the amount of €2,600,000 (2021: €48,254,000).
Rates on advances reflect current market rates, and the Directors consider the carrying amounts 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 current market interest rates utilised for fair value
estimation, which reflect essentially the respective instruments’ contractual interest rates, are deemed
observable and accordingly these fair value estimates have been categorised as Level 2.
Trade and other receivables
This category principally represents short-term trade receivables arising from postal operations in respect
of which the carrying amount is a reasonable approximation of its fair value.
Amounts owed to banks and customers
These categories of financial liabilities are carried at amortised cost and amount to €1,008,966,000 as at 31
December 2022 (2021: €978,367,000). 17.1% (2021: 15.7%) of these liabilities is non-interest bearing, 47.6%
(2021: 52.7%) of these liabilities has a contractual repricing term of three months or less, 8.4% (2021: 6.8%)
reprices between three months and one year, 19.1% (2021: 18.7%) reprices between one year and five
years while 7.8% (2021: 6.1%) is repriceable after more than five years. Accordingly, in view of their profile,
the fair value of these financial liabilities is not deemed to be significantly different from their carrying
amounts. This applies to variable rate deposits in view of the short periods to repricing, but also applies to
liabilities subject to fixed interest rates, based on discounting future contractual cash flows at current
market interest rates, taking into account the short periods to maturity. The current market interest rates
utilised for discounting purposes, which were almost equivalent to the respective instruments’ contractual
interest rates, are deemed observable and accordingly these fair value estimates have been categorised as
Level 2.
Other financial instruments
The fair values of certain other financial assets, including balances with the Central Bank of Malta and
accrued income, are considered to approximate their respective carrying values due to their short-term
nature.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
127
3. Accounting estimates and judgements
3.1 Critical accounting estimates and judgements in applying the Group’s accounting policies
Estimates and judgements are continually evaluated and based on historical experience and other factors
including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates
will, by definition, seldom equal the related actual results. These estimates and assumptions present a risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year. The Group’s management also makes judgements, apart from those involving estimations, in the
process of applying the entity's accounting policies that may have a significant effect on the amounts
recognised in the financial statements.
3.2 Measurement of Expected Credit Losses
The measurement of the Expected Credit Loss allowance for financial assets measured at amortised cost
and debt securities measured at FVOCI is an area that requires the use of complex models and significant
assumptions about future economic conditions and credit behaviour. Explanation of the inputs,
assumptions and estimation techniques used in measuring ECL is further detailed in note 2.
A number of significant judgements are required in measurement of Expected Credit Loss, such as:
Determining criteria for significant increase in credit risk;
Choosing appropriate models and assumptions for the measurement of ECL; and
Establishing the number and relative weightings of forward-looking scenarios and associated ECL.
Detailed information about the judgements and estimates made by the Bank in the above areas is set out
in note 2.
3.3 Assessment of estimates and judgements
In the opinion of the Directors, the accounting estimates and judgements made in the course of preparing
these consolidated financial statements, which have been highlighted above, are not difficult, subjective or
complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1.
However, the Directors would like to draw attention to these accounting judgements that have a significant
risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next
financial year. In this respect these primarily comprise assumptions and estimates relating to the calculation
of impairment allowances in respect of loans and advances to customers (see notes 2.3, 8 and 32).
As previously explained, despite a general recovery in economic conditions during 2021 and 2022, the level
of economic uncertainty remained elevated during the financial year ended 31 December 2022, primarily
driven by the geopolitical developments as a result of the escalation of the military conflict between Russia
and Ukraine in February 2022, as well as widespread supply chain disruptions experienced as the world
economy recovers from the impacts of the pandemic. These developments triggered significant inflationary
pressures across the world. In order to curb the spiralling effect of inflationary pressures, the European
Central Bank (‘ECB’) and other national central banks applied monetary policy tools at their disposal by
increasing interest rates to manage demand.
Moreover, in March 2023, the international financial sector was hit by stress events resulting in the collapse
of a number of U.S. Regional Banks, and in a government brokered deal between two major banks in
Switzerland. This created further turmoil and uncertainty in the international financial markets.
The exercise of judgement in making estimations requires the use of assumptions that are highly subjective
and very sensitive to the risk factors, detailed in note 2.3.4. In addition, many of the factors have a high
degree of interdependency and there is no single factor to which loan impairment allowances as a whole is
sensitive.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
128
3. Accounting estimates and judgements (continued)
Therefore, the underlying models and their calibration, including how they react to forward-looking
economic conditions, continue to remain highly subjective.
Significant judgement is required in establishing the number, severity and relative weightings of forward-
looking economic scenarios given the rapidly changing economic conditions and wide economic forecasts
due to the potential impacts of further escalation of inflationary pressures and ensuing monetary policy
changes, geopolitical developments in respect of the military conflict between Russia and Ukraine, and the
effect of the implementation and eventual unwinding of government support measures designed to
alleviate adverse economic impacts, including subsidies in respect of energy prices and foodstuffs.
Significant judgement is therefore also required in making assumptions about the effects of inflation,
interest rates, economic growth, and supply chain disruptions. As alluded to earlier, there is an absence of
an observable historical trend that can accurately represent the severity and speed of such forecasts, which
represent a high degree of estimation uncertainty, particularly in assessing downside scenarios. Such
complexities have never been modelled.
Consequently, management applied a higher level of expert judgement in order to assess the impact of the
current geopolitical and macro-economic environment on the local group’s level of defaults, including
evaluating the impact of monetary policy and government support schemes, and the unwinding of such
measures, on both the incidence of default events and the severity of losses as described below.
The identification of customers experiencing significant increase in credit risk or credit impairment in the
context of the elevated level of uncertainty is also highly judgemental due to limitations in available credit
information on customers. This is particularly relevant in those instances where customers are significantly
dependent on government support measures, such as subsidies in respect of energy prices and foodstuffs,
to address short-term liquidity issues.
As previously explained in view of the nature of the Bank’s portfolio, where a relatively small number of
loans comprise a significant proportion of the loan book value, during the past two years the Bank continued
to apply an individual-debtor-focused credit management process.
Judgement was required in determining whether individually significant loans have experienced a SICR or a
UTP event, especially within the Banks corporate portfolio. In this respect, as part of management’s
response to the current inflationary pressures and high interest rate environment, the Bank assesses and
individually rates those individually significant borrowers which are deemed mostly impacted by these
macro-economic pressures through individual periodic credit assessments on the basis of recently obtained
management information, including forecasts. As part of these credit assessments, judgement is exercised
in evaluating all relevant information on indicators of impairment, particularly where factors indicate
deterioration in the financial condition and outlook of borrowers affecting their ability to pay.
In view of the above, management considered the sensitivity of the ECL outcome to the macro-economic
forecasts by recalculating the ECL under the different scenarios, applying a 100% weighting to each scenario.
The effect of economic uncertainty on the ECL outcome is disclosed in the sensitivity analysis presented in
Note 2.3.4.4. The ECL calculated for the upside and downside scenarios should not be taken to represent
the upper and lower limits of possible ECL outcomes as there is a high degree of estimation uncertainty in
the numbers representing tail risk scenarios when assigned a 100% weighting.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
129
3. Accounting estimates and judgements (continued)
For individually significant credit impaired loans, management determines the size of the allowance
required based on a range of factors such as the realisable value of security, the viability of the customer’
s business model and the capacity to generate cash flows to service debt obligations, under different
scenarios. Judgement is applied in estimating the expected future cash flows from each borrower and the
time to recover these cash flows under the different scenarios as well as to attach probabilities to those
scenarios. The assumptions around forecasted recoveries from the sale of collateralised properties,
including valuation haircuts and time to recovery, are key drivers in the estimation of credit loss allowances
in respect of individually assessed loans. The heightened level of uncertainty within the local property
market, driven by the current inflationary pressures and increasing interest rate environment, increases the
level of expert judgement required to predict with reasonable accuracy the recoverability of exposures
through the sale of collateral, since the real impact of these macro-economic pressures will not be fully
known until market conditions stabilise.
As explained in Note 2.3.9, following the expiration of all general payment moratoria during 2021, a post-
model mechanism was enhanced to estimate the impact of delayed emergence of default in view of
government support measures which were still in force during the year ended 31 December 2021 and also
the potential economic impact of Malta’s, at the time, grey listing by the Financial Action Task Force. The
post model overlay in ECL allowances was in the region of €3 million.
During 2022 the Bank continued to perform sectorial reviews, in particular on exposures connected to the
hospitality industry, which had been mostly impacted by the pandemic, to identify customers or groups of
customers who were experiencing, or could likely experience, financial difficulty as a direct result of the
aftermath of the COVID-19 pandemic. The results of such reviews, also in the context of the economic
rebound of the industry registered during 2022, suggests a marked improvement in the business and
prospects of the same borrowers and accordingly the Bank determined that the level of credit risk
emanating directly from the unprecedented economic disruptions brought about by the COVID-19
pandemic from such debtors, decreased significantly.
With respect to corporate exposures as previously explained, during 2022, the Bank also continued to assess
and individually rate on an ongoing basis those borrowers which in 2020 and 2021 were deemed to be
mostly impacted by the pandemic. This assessment included the borrowers which in the previous two years
accepted payment deferrals and other relief designed to address short-term liquidity issues, especially those
which had extended deferrals. This assessment was carried out through individual ad-hoc credit
assessments on the basis of recently obtained management information including forecasts.
In line with the results of sectorial reviews described further above, the results of the individual assessments
indicate that the level of business experienced by the borrowers is close to the pre-pandemic levels of March
2020 and the recent economic developments are unlikely to have any direct impact on any of the Bank’s
individually significant customers, which would then in turn materially impact the overall Bank’s credit risk
level, other than what is already considered in the forward looking information incorporated within the ECL
model.
In light of the above, and following the representations of management which were also endorsed by the
Bank’s Audit and Risk Committee, during 31 December 2022, the Bank resolved to release the post-model
overlay referred to above.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
130
4. Segmental information
The Group has two reporting segments, as described below, which are the Group’s strategic business units
and cash-generating units. The strategic business units offer different services and are managed separately
because they require different technology and marketing strategies. For each of the strategic business units,
the Board of Directors reviews internal management reports. The following summary describes the
operations in each of the Group’s reportable segments:
- Banking services comprise the Group’s banking services and other activities carried out as a licensed
credit institution, an authorised currency dealer and financial intermediary. Stockbroking activities may
also be carried out since the Bank is a member of the Malta Stock Exchange; and
- Postal services comprise the Group’s postal services activities, being the sole licensed Universal Service
Provider of postal services in Malta.
The Group’s internal reporting to the Board of Directors and senior executives is analysed according to the
below segments. Information about reportable segments:
Banking services Postal services Total
2022 2021 2022 2021 2022 2021
€ 000 € 000 € 000 € 000 € 000
€ 000
Interest receivable 28,905 25,586 115 139
29,020
25,725
Interest expense (6,693)
(6,115) (51) (54)
(6,744)
(6,169)
Postal sales and other revenue 281 180 30,412 37,190
30,693
37,370
Net fee and commission income 4,314 4,126 1,102 1,085
5,416
5,211
Other operating income 805 902 438 25
1,243
927
Segment operating income 27,612 24,679 32,016 38,385
59,628
63,064
Depreciation and amortisation (1,090)
(917) (1,825) (1,802)
(2,915)
(2,719)
Net movement in expected
credit losses
16,111 1,464
132 (2)
16,243
1,462
Employee compensation
and benefits (8,676)
(8,195) (15,336) (16,165)
(24,012)
(24,360)
Other costs (6,941)
(6,557) (13,928) (17,849)
(20,869)
(24,406)
Operating profit 27,016 10,474 1,059 2,567
28,075
13,041
Share of gain/(loss) of
investment accounted for
using the equity method, net
of tax
24 (185)
(423) (217)
(399)
(402)
Profit before taxation 27,040 10,289 636 2,350
27,676
12,639
Income tax expense (9,699)
(3,809) (351) (951)
(10,050)
(4,760)
Profit for the year 17,341 6,480
285 1,399
17,626
7,879
Segment total assets 1,153,537
1,120,474
49,878 52,172
1,203,415
1,172,646
Capital expenditure during the
year 1,563 3,728 2,145 3,374
3,708 7,102
Segment total liabilities 1,036,610
1,003,465
22,505 23,411
1,059,115 1,026,876
There are no material inter-segment transactions.
The Group mainly provides banking and postal services within the local market and economic sectors. From
a customers’ perspective, during 2022 MaltaPost p.l.c. generated 42.2% (2021: 53.4%) of its revenue
internationally.
The Group’s reliance on any single customer is not considered significant for disclosure purposes.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
131
5. Balances with Central Bank of Malta, treasury bills and cash
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta 53,578
71,805 53,578
71,805
Malta Government treasury bills 78,541
47,590 78,541
47,590
Cash in hand 7,115
6,884 6,274
6,157
139,234 126,279 138,393 125,552
The balances with the Central Bank of Malta include a reserve deposit amounting to €1,437,000 (2021:
€50,104,000) held in terms of Regulation (EC) No.1745/2003 of the European Central Bank. The average
reserve deposit balance held for the relevant maintenance period amounted to €7,526,000 (2021:
€7,396,000).
At 31 December 2022, the Bank had pledged a deposit with the Central Bank of Malta amounting to
€854,000 (2021: €2,139,000) in favour of the Depositor Compensation Scheme to comply with local
regulatory requirements.
As at 31 December 2022 and 2021, the credit loss allowance on balances with Central Bank of Malta and
Malta Government treasury bills was insignificant.
6. Financial investments
Financial investments measured at FVOCI include the following:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Debt and other fixed income instruments 213,391 218,080
210,862 215,179
Equity instruments 7,424 9,055 7,424 9,055
220,815 227,135 218,286 224,234
Debt and other fixed income instruments measured at FVOCI are analysed as follows:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Issued by public bodies:
- local government 161,305 168,145 159,957
166,483
- foreign government 8,420 8,679 8,420
8,679
- supranational 7,791 3,453 7,791 3,453
Issued by public issuers:
- local banks 11,153 13,020 10,593
12,440
- local corporates 5,335 5,714 4,714
5,055
- foreign banks 12,414 10,716 12,414 10,716
- foreign corporates 6,973 8,353 6,973 8,353
213,391 218,080 210,862 215,179
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
132
6. Financial investments (continued)
As at 31 December 2022, the Bank’s credit loss allowance measured in accordance with IFRS 9 expected
loss model was €526,000 (2021: €464,000).
At 31 December 2022, the Bank held Malta Government Stocks measured at FVOCI with a carrying amount
of €7,991,000 (2021: €10,575,000) pledged with the Central Bank of Malta, in terms of Directive No. 8
(Chapter 204 of the Central Bank of Malta Act) as security for a facility that was not utilised during the
reporting period.
The debt securities held by the Group are listed on the Malta Stock Exchange, a regulated market in Malta,
or on other recognised exchanges.
Equity instruments measured at FVOCI consist of equities listed on the Malta Stock Exchange.
The movement in debt and other fixed income financial investments measured at FVOCI is summarised as
follows:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
At 1 January 218,080 152,182
215,179 148,621
Amortisation (1,108)
(1,103)
(1,100)
(1,101)
Acquisitions 27,417 75,271
27,417 75,271
Redemptions/disposals (5,215)
(6,819)
(5,193)
(6,219)
Fair value movement (25,825)
(2,711)
(25,483)
(2,653)
Foreign exchange differences 42 1,260 42 1,260
At 31 December 213,391 218,080
210,862 215,179
The movement in equity financial investments designated at FVOCI is summarised as follows:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
At 1 January 9,055 8,900 9,055 8,900
Acquisitions 102 -
102 -
Fair value movement (1,717)
149
(1,717)
149
Foreign exchange differences (16)
6 (16)
6
At 31 December 7,424 9,055 7,424 9,055
The disclosure requirements emanating from IFRS 13 in respect of equity investments designated at FVOCI
were not deemed necessary by the directors taking cognisance of the insignificance of the carrying amount
of these equity investments in the context of the statement of financial position as at 31 December 2022
and 2021.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
133
7. Loans and advances to banks
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Repayable on call and at short notice 25,015
59,253 20,936
55,398
Term loans and advances 2,600
19,026 -
13,026
27,615 78,279 20,936 68,424
8. Loans and advances to customers
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Repayable on call and at short notice 116,386
97,898 116,387
97,900
Term loans and advances 605,175
570,617 605,175
570,617
Gross loans and advances to customers 721,561 668,515 721,562 668,517
Credit loss allowances (9,949)
(25,622)
(9,949)
(25,622)
Net loans and advances to customers 711,612 642,893 711,613 642,895
Credit loss allowances
Stage 1 2,339
5,187 2,339
5,187
Stage 2 1,614
3,361 1,614
3,361
Stage 3 5,996
17,074 5,996
17,074
9,949 25,622 9,949 25,622
Assets acquired in settlement of debt amounting to €703,000 (2021: €661,000) are presented as assets
classified as held for sale.
9. Investments in subsidiaries
Name of company
Country of
incorporation Nature of business Equity interest
Carrying amount
2022
2021
2022 2021
%
%
€ 000 € 000
Redbox Limited Malta Holding company 100
100
15,732 15,732
Lombard Capital Asset
Management Limited
Malta Asset management 100
100
325 125
Lombard Select SICAV p.l.c.
Malta
Collective Investment
Scheme 100
100
1 1
At 31 December 2022, Redbox Limited held 71.5% (2021: 71.5%) of the equity share capital and voting
rights of MaltaPost p.l.c., a listed company incorporated and operating in Malta, comprising the Group’s
postal services reportable segment (see note 4). The remaining 28.5% (2021: 28.5%) is held by the general
public.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
134
9. Investments in subsidiaries (continued)
The profit or loss allocated to non-controlling interests of MaltaPost p.l.c. during the financial year under
review, accumulated non-controlling interests of the subsidiary at the end of the reporting period and
dividends paid to non-controlling interests are presented within the Group’s statement of changes in
equity. Financial information about the assets, liabilities, revenues, profit or loss, total comprehensive
income and cash flows of the subsidiary are disclosed within the annual report and financial statements of
MaltaPost p.l.c., which are publicly available in view of the company’s listed status. Financial information
about the subsidiary is also disclosed within note 4 to these financial statements dealing with segmental
information. The non-controlling interests of this subsidiary are not deemed material to the reporting entity
with respect to the Bank’s consolidated financial statements for the purpose of disclosures in terms of the
requirements of IFRS 12 ‘Disclosure of interests in other entities’.
The end of the reporting period of the audited financial statements of MaltaPost p.l.c. and its associate
IVALIFE Insurance Limited that have been utilised in the preparation of these consolidated financial
statements is 30 September 2022, since the financial statements prepared as of this date constitute the
most recent audited financial statements of the respective companies. The Bank has considered the
utilisation of the subsidiary’s financial information as at 31 December 2022 as impractical for the purposes
of preparation of its consolidation financial statements.
Acquisition of controlling stake in subsidiaries
Ciantar Brothers Limited
On 26 April 2021, MaltaPost p.l.c. entered into a share purchase agreement with the shareholders of Ciantar
Brothers Limited (CBL), a limited liability company registered in Malta, with registration number C 577 and
registered office at 22, Warehouse il-Moll tal-Pont, Marsa MRS1400, for the purchase of 100% of the entity’s
issued share capital for a cash consideration of €140,000. The transfer of shares was effected on 6 May
2021. The purchase consideration was deemed equivalent to the fair value of the 100% equity holding in
CBL and accordingly of the identifiable assets and liabilities of CBL as at date of acquisition, which principally
comprised intangible assets.
CBL is principally engaged in leasing warehouse space, a service offering that is ancillary to services currently
provided by MaltaPost p.l.c. This acquisition is expected to give rise to synergies within the Group. The
impact of this acquisition on the Bank’s consolidated financial statements for the years ended 31 December
2022 and 2021 is considered insignificant.
PostaInsure Agency Limited
On 5 November 2020, MaltaPost p.l.c. entered into a share purchase agreement with PostaInsure Agency
Limited (‘PostaInsure’), formerly Untours Insurance Agents Limited, a limited liability company registered
in Malta under the Companies Act (Cap.386), with registration number C 5655 and registered office at 4,
Old Bakery Street, Valletta, for the purchase of 49% of the issued share capital for a consideration of
€275,000. The transfer of shares was effected on 9 December 2020, at which date MaltaPost p.l.c. also
acquired control over the entity in view of its rights to appoint 60% of the members of PostaInsure’s Board
of Directors.
The purchase consideration was deemed equivalent to the fair value of the 49% equity holding in
PostaInsure.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
135
9. Investments in subsidiaries (continued)
The assets and liabilities recognised as a result of the acquisition are as follows:
Fair value
€ 000
Property, plant and equipment 4
Deferred tax 103
Trade and other receivables 439
Current tax receivable 5
Cash and cash equivalents 1,108
Trade and other payables (997)
Net identifiable assets acquired 662
Less: non-controlling interest (387)
Net assets acquired 275
Non-controlling interests have been measured at the related proportion of the net identifiable assets at
acquisition.
Net cash inflow arising from acquisition of subsidiary is as follows:
€
000
Cash consideration
(275)
Cash and cash equivalents
1,108
833
PostaInsure is principally engaged in providing general insurance services, a service offering that is ancillary
to services currently provided by MaltaPost p.l.c. This acquisition is expected to give rise to synergies within
the Group. The impact of this acquisition on the Bank’s consolidated financial statements for the years
ended 31 December 2022 and 2021 is considered insignificant.
Lombard Select SICAV p.l.c. and Lombard Capital Asset Management Limited
In February 2021, the Bank established two wholly-owned subsidiaries, namely Lombard Select SICAV p.l.c.
and Lombard Capital Asset Management Limited. The impact of these additional investments on the
Group’s financial results and financial position as reflected in the financial statements for the years ended
31 December 2022 and 2021 was insignificant. In addition, the entities had not yet started operating as at
31 December 2022.
Lombard Select SICAV p.l.c. will be a muti-fund public liability investment company with variable share
capital (SICAV) under registration number SV 554. The Company qualifies as a ‘Maltese undertaking for the
collective investment in transferable securities (‘UCITS’)’ in terms of the UCITS Regulation and the UCITS
Directive. Lombard Capital Asset Management Limited will be a UCITS management company which will
primarily provide investment management services to collective investment schemes, carry on such other
investment services business in terms of its licence and provide any ancillary services.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
136
10. Investments in associates
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
At 1 January 3,006
1,932 1,645 1,645
Additions -
1,476 - -
Share of results (399)
(402)
- -
At 31
December
2,607
3,006
1,645
1,645
At 31 December
Cost 3,520
3,520 1,645 1,645
Share of results (913)
(514)
- -
Carrying amount 2,607 3,006 1,645 1,645
The Group's associates at 31 December 2022 and 2021 are shown below:
Name of company
Country of
incorporation
Nature of
business
Group
Equity interest carrying amount
2022
2021
2022 2021
%
%
€ 000 € 000
Gozo Hotels
Company Limited
Malta Accommodation 33.3
33.3
1,523
1,499
IVALIFE Insurance
Limited Malta Insurance 25.0
25.0
1,084
1,507
MaltaPost p.l.c. controls 25% of the share capital (and holds an equivalent amount of voting rights) of
IVALIFE Insurance Limited, an unlisted company which was incorporated in Malta towards the end of 2019
and commenced operations in 2021. The company was established to provide Class I and Class III long term
business of insurance within Malta with a registered office at ‘Gaba Buildings’, Level 2, Naxxar Road, Iklin,
Malta. During the 2021 financial year, MaltaPost p.l.c. further injected capital amounting to €1,476,000 in
its associate IVALIFE Insurance Limited. The Group’s 25% share of the losses registered by the associate
during the current financial year amounting to €423,000 was reflected within the Group’s 2022 financial
results.
The associate had capital and reserves as at 30 September 2022 amounting to €4,336,000 (2021:
€6,029,000) and registered a loss for the year amounting to €1,693,000 (2021: €861,000).
In previous financial years the exposure with Gozo Hotels Company Limited with a carrying amount of
€1,645,000 had been recognised as an investment in associate on the basis that the Bank controls 33.3% of
the shares (and holds an equivalent amount of voting rights). The Group is deemed to have significant
influence over the investee in accordance with the requirements of IAS 28 ‘Investments in Associates’. The
Group’s share of profits amounting to €24,000 (2021: loss of €146,000), was reflected within the Group’s
2022 financial result in respect of this investment.
Gozo Hotels Company Limited is an unlisted company incorporated and operating in Malta. Its principal
activity is the operation of the Hotel Calypso in Marsalforn, Gozo, and its registered address is ‘Calypso’,
Għar Qawqla Street, Żebbuġ, Gozo.
The associate’s capital and reserves as at 31 December 2021 stood at €4,568,000 (2020: €4,496,000) and
the entity registered a profit for the year amounting to €72,000 (2020: loss of €572,000).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
137
10. Investments in associates (continued)
These associates are not considered material for the reporting entity, with respect to the Bank’s
consolidated financial statements, as at 31 December 2022 for the purposes of disclosures in terms of the
requirements of IFRS 12 ‘Disclosure of interests in other entities’.
11. Intangible assets
Group Bank
Computer
Other
intangible
Computer
Goodwill software assets
Total
software
€ 000 € 000 € 000
€ 000
€ 000
At 1 January 2021
Cost 857
6,490 -
7,347
3,418
Accumulated amortisation -
(5,297)
-
(5,297)
(3,172)
Net book amount 857
1,193 -
2,050
246
Year ended 31 December 2021
At 1 January 2021 857
1,193 -
2,050
246
Additions -
635
-
635
3
Acquisition of subsidiary -
- 140
140
-
Amortisation for the year -
(662)
(18)
(680)
(127)
At 31 December 2021
857
1,166 122
2,145
122
At 31 December 2021
Cost 857
7,125 140
8,122
3,421
Accumulated amortisation -
(5,959)
(18)
(5,977)
(3,299)
Net book amount
857
1,166 122
2,145
122
Year ended 31 December 2022
At 1 January 2022 857
1,166 122
2,145
122
Additions -
658 -
658
28
Amortisation for the year -
(664)
(18)
(682)
(93)
At 31 December 2022 857
1,160 104
2,121
57
At 31 December 2022
Cost 857
7,783
140
8,780
3,449
Accumulated amortisation -
(6,623)
(36)
(6,659)
(3,392)
Net book amount 857
1,160 104
2,121
57
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
138
11. Intangible assets (continued)
11.1 Impairment test for the cash-generating unit to which goodwill has been allocated
The recognised goodwill represents payments made by the Group in anticipation of future economic
benefits from assets that are not capable of being individually identified and separately recognised. As at
31 December 2022 and 2021 the recognised goodwill amounted to €857,000 and related to the acquisition
of MaltaPost p.l.c.
In applying the requirements of IAS 36, ‘Impairment of assets’, in relation to goodwill arising in business
combinations, the Directors carried out an impairment test at the end of the reporting period to obtain
comfort that the recoverable amount of the cash-generating unit to which goodwill has been allocated is at
least equal to its carrying amount.
The recoverable amount of the cash-generating unit is based on fair value less costs to sell.
This calculation takes into account the market capitalisation of MaltaPost p.l.c. based on the quoted price
of its equity on the Malta Stock Exchange at a price per share of €1.09 as at 31 December 2022 (2021:
€1.22). On this basis, the recoverable amount of the cash-generating unit is higher than its carrying amount.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
139
12. Property, plant and equipment
Group Land and Computer
buildings equipment Other Total
€ 000 € 000 € 000 € 000
At 1 January 2021
Cost 48,189 4,035 12,900 65,124
Accumulated depreciation (2,325)
(3,276)
(8,595)
(14,196)
Net book amount 45,864 759 4,305 50,928
Year ended 31 December 2021
At 1 January 2021
45,864
759
4,305
50,928
Revaluation surplus arising during the year:
Effect on cost or valuation
7,998 - - 7,998
Effect on accumulated depreciation
479 - - 479
Additions
6,779
393 691 7,863
Acquisition of subsidiary
- - 116 116
Disposals
- (20)
(8)
(28)
Depreciation charge for the year
(848)
(371)
(818)
(2,037)
Depreciation released on disposals
- 19 8 27
At 31 December 2021
60,272 780 4,294 65,346
At 31 December 2021
Cost or valuation
62,958
4,407
13,703
81,068
Accumulated depreciation
(2,686)
(3,627)
(9,409)
(15,722)
Net book amount
60,272 780 4,294 65,346
Year ended 31 December 2022
At 1 January 2022
60,272 780 4,294 65,346
Additions
1,029
774
1,248
3,051
Disposals
- (40)
(18)
(58)
Depreciation charge for the year
(1,013)
(388)
(832)
(2,233)
Depreciation released on disposals
- 40
17
57
Adjustments to right-of-use assets
212
-
-
212
At 31 December 2022
60,500
1,166
4,709
66,375
At 31 December 2022
Cost or valuation
64,199
5,141 14,933
84,273
Accumulated depreciation
(3,699)
(3,975)
(10,224)
(17,898)
Net book amount
60,500
1,166
4,709
66,375
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
140
12. Property, plant and equipment (continued)
Bank Land and Computer
buildings equipment Other Total
€ 000 € 000 € 000 € 000
At 1 January 2021
Cost 30,767 2,431 2,756 35,954
Accumulated depreciation (1,288)
(1,910)
(2,310)
(5,508)
Net book amount 29,479 521 446 30,446
Year ended 31 December 2021
At 1 January 2021 29,479
521
446
30,446
Revaluation surplus arising during the year:
Effect on cost or valuation 6,513 - - 6,513
Effect on accumulated depreciation 330 - - 330
Additions 4,635
289
171
5,095
Disposals - (11)
(8)
(19)
Depreciation charge for the year (441)
(232)
(126)
(799)
Depreciation released on disposals - 11 8 19
At 31 December 2021 40,516 578 491 41,585
At 31 December 2021
Cost or valuation 41,910
2,709
2,919 47,538
Accumulated depreciation (1,394)
(2,131)
(2,428)
(5,953)
Net book amount 40,516 578 491 41,585
Year ended 31 December 2022
At 1 January 2022 40,516 578 491 41,585
Additions
797
560
275
1,632
Disposals
- (40)
(14)
(54)
Depreciation charge for the year
(608)
(279)
(141)
(1,028)
Depreciation released on disposals
- 40
13
53
Adjustments to right-of-use assets
212
-
-
212
At 31 December 2022
40,917
859
624
42,400
At 31 December 2022
Cost or valuation
42,919
3,229
3,180
49,328
Accumulated depreciation
(2,002)
(2,370)
(2,556)
(6,928)
Net book amount
40,917
859
624
42,400
The adjustments to right-of-use assets referred in the table above, consist of the impacts of reassessment
of lease payments, determined on the basis of an index. These comprise adjustments of the future lease
payments based on the NSO Index of Inflation for the Housing (Decontrol) Ordinance in accordance with
the respective lease agreement which resulted in an increase in right-of-use assets of €212,000.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
141
12. Property, plant and equipment (continued)
Land and buildings presented in the tables above include improvements to leasehold properties as follows:
Group Bank
2022
€ 000
2021
€ 000
2022
€ 000
2021
€ 000
At 1 January 2,121 2,318 1,529 1,578
Additions 296 17 120 -
Depreciation charge for the year (291) (214)
(156) (49)
At 31 December 2,126 2,121 1,493 1,529
Property, plant and equipment of the Group and the Bank includes right-of-use assets of €4,287,000 (2021:
€4,613,000) and €3,174,000 (2021: €3,141,000) respectively, as disclosed in note 13.
12.1 Fair valuation of land and buildings
The Bank’s land and buildings were last revalued on 25 May 2021 while the subsidiary’s land and buildings
were last revalued on 30 September 2021, by an independent firm of property valuers 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 Group’s properties, 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, the availability of similar properties in the area, and whenever possible,
having regard to recent market transactions for similar properties in the same location. During 2021, the
carrying values of the properties, classified within property, plant and equipment, have been adjusted to
the valuations and the net resultant adjustment comprised an increase of €8,478,000 in the carrying values
for the Group and an increase of €6,844,000 in the carrying values for the Bank, to reflect the property’s
estimated open market value on an individual asset level. This increase was recognised in other
comprehensive income in the property revaluation reserve. The Directors assessed the carrying amounts
as at 31 December 2022 on the basis of management’s assessments of estimated changes in significant
inputs to valuations and other developments since the last external valuation, and concluded that no
adjustment to these carrying amounts were necessary.
The revaluation surplus net of applicable deferred income taxes is accordingly shown in ‘other reserves’ in
shareholders’ equity (note 19).
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 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 (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2);
- Inputs for the asset that are not based on observable market data (i.e. unobservable inputs) (Level 3).
The Bank’s land and buildings comprise various offices and operational premises, including the Bank’s head
office. The subsidiary’s land and buildings, within property, plant and equipment, comprises the head office,
mail delivery hubs and retail outlets. All the Group’s recurring property fair value measurements 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 as of the beginning of
the reporting period. There were no transfers between different levels of the fair value hierarchy during
the years ended 31 December 2022 and 2021.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
142
12. Property, plant and equipment (continued)
A reconciliation from the opening balance to the closing balance of land and buildings for recurring fair
value measurements categorised within Level 3 of the value hierarchy, is reflected in the table above. The
principal movements reflect changes in fair value, additions and depreciation charge for the years ended
31 December 2022 and 2021.
For all Group properties, their current use equates to the highest and best use.
12.2 Valuation processes
The valuations of the properties are performed on a periodic basis taking into consideration the valuation
reports prepared by independent and qualified valuers. These reports are based on both:
- information provided by the Bank such as current terms and conditions of lease agreements. This
information is derived from the Bank’s systems and is subject to the Bank’s overall control environment;
and
- assumptions and valuation models used by the valuers – the assumptions are typically market related,
such as rental yields, discount rates and sales prices. These are based on professional judgement and
market observation.
The information provided to the valuers – and the assumptions and the valuation models used by the
valuers – are reviewed by management.
When management considers that the valuation report is appropriate, the valuation report is considered
by the Audit & Risk Committee as part of its monitoring responsibility for effective financial reporting.
12.3 Valuation techniques
The Level 3 fair valuation of the Bank’s property was determined using discounted cash flow (DCF)
projections based on significant unobservable inputs. These inputs include estimated rental values per
square metre, estimated growth rate in rental values and the discount rate applied.
The external valuations of the subsidiary’s Level 3 property have been performed using an adjusted sales
comparison approach for the land component and the replacement cost approach for the buildings
component.
In view of a limited number of similar sales in the local market, the valuations have predominately been
performed using unobservable inputs. The significant input to the adjusted sales comparison approach is
generally a sales price per square metre related to transactions in comparable properties located in
proximity to the subsidiary’s property, with significant adjustments for differences in size, age, exact
location and condition of the property. The significant input to the replacement cost approach is the
estimated development costs per square metre.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
143
12. Property, plant and equipment (continued)
12.4 Information about fair value measurements using significant unobservable inputs (Level 3)
Significant unobservable inputs
Description by class based on
highest and best use
Fair value
Valuation
technique
Weighted
average
rental value
€/sqm
Growth
rate
%
Discount
rate
%
Current use as Bank’s offices
and operational premises
€27 million
Discounted cash
flow approach 360 2 5
Description by class based on
highest and best use Fair value
Valuation
technique
Significant
unobservable
input
Weighted
average
€/sqm
Current use as subsidiary’s
office premises, retail outlets
and mail delivery hubs €18 million
Adjusted sales
comparison
approach
Sales price per
square metre 2,795
The higher the rental value or the growth rate, the higher the resultant fair value. Conversely, the lower the
discount rate, the higher the resultant fair value.
The higher the sales price per square metre or the development costs per square metre, the higher the
resultant fair valuation.
12.5 Historical cost of land and buildings
If the land and buildings were stated on the historical cost basis, the carrying amounts would be as follows:
Group Bank
2022 2021
2022 2021
€ 000 € 000
€ 000 € 000
Cost 38,021
37,105
24,232
23,581
Accumulated depreciation (3,170) (2,788)
(2,592) (2,263)
Net book amount at 31 December 34,851
34,317
21,640
21,318
13. Leases
The Group leases various locations for offsite ATMs, offices and branches as well as low value items such as
IT equipment. Rental contracts are typically made for fixed periods but may have extension options.
Extension and termination options are included in a number of property leases across the Group. These are
used to maximise operational flexibility in terms of managing the assets used in the Group’s operations.
The majority of extension and termination options held are exercisable only by the Group and not by the
respective lessor. Most extension options in property and motor vehicle leases have been included in the
lease liability as the lease term reflects the exercise of such options.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any covenants other than the security interests in the
leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset within ‘Property, plant and equipment’ (note 12) and a
corresponding liability at the date at which the leased asset is available for use by the Group within ‘Other
liabilities’ (note 23).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
144
13. Leases (continued)
Group Bank
Buildings Other Total Buildings
€ 000 € 000 € 000 € 000
At 1 January 2021
Cost
3,900 315 4,215 2,219
Accumulated depreciation
(399) (57) (456) (193)
Net book amount
3,501 258 3,759 2,026
Year ended 31 December 2021
At 1 January 2021
3,501 258 3,759 2,026
Additions
1,396 - 1,396 1,370
Depreciation charge for the year
(480) (61) (541) (255)
At 31 December 2021
4,417 197 4,614 3,141
At 31 December 2021
Cost or valuation
5,290 315 5,605 3,582
Accumulated depreciation
(873) (118) (991) (441)
Net book amount
4,417 197 4,614 3,141
Year ended 31 December 2022
At 1 January 2022
4,417 197 4,614 3,141
Additions
- - - 97
Depreciation charge for the
year (478) (61) (539) (276)
Adjustments upon reassessment
of lease payments (see Note 12)
212
-
212
212
At 31 December 2022
4,151 136 4,287 3,174
At 31 December 2022
Cost or valuation
5,502 315 5,817 3,891
Accumulated depreciation
(1,351) (179) (1,530) (717)
Net book amount
4,151 136 4,287 3,174
The Group and the Bank’s lease liabilities are presented below:
Group Bank
2022
€ 000
2021
€ 000
2022
€ 000
2021
€ 000
Lease liabilities
Current 361 366 131 104
Non-current 3,867 4,015 2,973 2,781
4,228 4,381 3,104 2,885
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
145
13. Leases (continued)
The following tables show the movements in lease liabilities during the year:
Group Bank
2022
€ 000
2021
€ 000
2022
€ 000
2021
€ 000
Lease liabilities
At beginning of year 4,381 3,836 2,885 2,096
Additions - 945 97 920
Payments (478)
(523)
(162)
(203)
Interest charge 113 123 72 72
Adjustments upon reassessment of lease
payments
212
-
212
-
At end of year
4,228 4,381 3,104 2,885
Group Bank
2022
€ 000
2021
€ 000
2022
€ 000
2021
€ 000
The income statement reflects the following
amounts relating to leases:
Depreciation charge of right-of-use assets 539 541 276 255
Interest expense 113 123 72 72
Expense relating to short-term leases (included
in administrative expenses) 412 473 89 83
Expense relating to leases of low-value assets
that are not shown above as short-term leases
(included in administrative expenses) 251 293 52 50
The total cash payments for leases, including short-term and low-value leases, in 2022 was €1,188,000
(2021: €1,227,000) for the Group and €280,000 (2021: €318,000) for the Bank.
There were no expenses relating to variable lease payments which were not included in the measurement
of lease liabilities.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
146
14. Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net Assets Liabilities Net
2022 2022 2022 2021 2021 2021
Group € 000 € 000 € 000 € 000 € 000 € 000
Deferred tax asset, net
Differences between depreciation
and capital allowances
-
(110)
(110)
- (31)
(31)
Provisions for liabilities and
charges
344
-
344
441 - 441
Impairment allowances 3,831
-
3,831
9,372
- 9,372
Fair value movements on financial
investments
6,788
-
6,788
- (2,748)
(2,748)
Others 36
-
36
- - -
10,999 (110)
10,889
9,813 (2,779)
7,034
Deferred tax liability
Revaluation of property - (4,099)
(4,099)
- (4,099)
(4,099)
- (4,099)
(4,099)
- (4,099)
(4,099)
Bank
Deferred tax asset, net
Differences between depreciation
and capital allowances
-
(134)
(134)
- (117)
(117)
Provisions for liabilities and
charges
119
-
119
128 - 128
Impairment allowances 3,778
-
3,778
9,274 - 9,274
Fair value movements on financial
investments
6,789
-
6,789
- (2,747)
(2,747)
10,686 (134)
10,552
9,402 (2,864)
6,538
Deferred tax liability
Revaluation of property -
(2,800)
(2,800)
- (2,800)
(2,800)
-
(2,800)
(2,800)
- (2,800)
(2,800)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
147
14. Deferred tax assets and liabilities (continued)
Movement in deferred tax assets and liabilities relate to:
At 1
January
2021
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
Acquisition of
subsidiaries
At 31
December
2021
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
At 31
December
2022
Group € 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Differences between depreciation and capital
allowances (10)
(63)
-
42 (31)
(79)
-
(110)
Provisions for liabilities and charges 633 (192)
- - 441 (5) (92) 344
Credit loss allowances 9,389 (198)
120 61 9,372
(5,519) (22) 3,831
Revaluation of property (2,661)
- (1,438)
- (4,099)
- - (4,099)
Fair value movements on investments (3,682)
- 934 - (2,748)
- 9,536 6,788
Others - - - - - 36 - 36
3,669 (453)
(384)
103 2,935 (5,567)
9,422 6,790
Bank
Differences between depreciation and capital
allowances (106)
(11)
-
- (117)
(17)
- (134)
Provisions for liabilities and charges 316 (188)
- - 128 (9) - 119
Credit loss allowances 9,353 (198)
119 - 9,274
(5,474) (22) 3,778
Revaluation of property (1,633)
- (1,167)
- (2,800)
- - (2,800)
Fair value movements on investments (3,682)
- 935 - (2,747)
- 9,536 6,789
-
2
2
4,248 (397)
(113)
- 3,738 (5,500) 9,514 7,752
The recognised deferred tax assets and liabilities are expected to be recovered or settled principally after more than twelve months from the end of the reporting period. The deferred
tax liabilities reflected in other comprehensive income relate principally to the revaluation of property, plant and equipment and the fair valuation of investments measured at FVOCI
(note 34).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
148
15. Inventories
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Postal supplies and materials 312
288
-
-
Merchandise 356 411 -
-
Stocks for resale 544
567 544
567
Other stock items 59
58 58
58
1,271 1,324 602 625
16. Trade and other receivables
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Trade receivables - net of expected
credit loss allowances 5,911
5,004 - -
Others 7,332
5,783 3,445
1,606
13,243 10,787 3,445 1,606
The Expected Credit Loss allowances in respect of trade receivables are analysed as follows:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Loss allowance as at 1 January 277 104 - -
Acquisition of subsidiary - 172 - -
Net (credit)/charge recognised in profit
or loss during the year
(132) 1
- -
Loss allowance as at 31 December 145 277
- -
17. Accrued income and other assets
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Accrued income 2,533
1,946 2,510
1,912
Prepayments 1,330
1,171 630
581
Other assets 1,439 1,419 1,441 1,419
5,302 4,536 4,581 3,912
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
149
18. Share capital
Bank
2022 2021
No. of No. of
shares shares
000s € 000 000s € 000
Authorised
Ordinary shares of 12.5 cent each 300,000 37,500 - -
Ordinary shares of 25 cent each - - 80,000 20,000
Issued
Ordinary shares of 12.5 cent each 90,728 11,341 - -
Ordinary shares of 25 cent each - - 44,767 11,192
By virtue of a resolution dated 28 May 2021, the shareholders of the Bank approved the allotment of
589,047 ordinary shares of €0.25 cents each as a bonus issue of one (1) share for every seventy-five (75)
shares held by shareholders on the Company’s Register of Shareholders as at close of business on 23 June
2021, and thereby increased the issued and fully paid share capital to 44,766,961 shares of €0.25 cent
each, resulting in a paid up share capital of €11,191,740.
By virtue of a resolution dated 26 May 2022, the shareholders of the Bank approved the allotment of
596,906 ordinary shares of €0.25 each as a bonus issue of one (1) share for every seventy-five (75) shares
held by shareholders on the Company’s Register of Shareholders as at close of business on 22 June 2022,
and thereby increased the issued and fully paid share capital to 45,363,867 shares of €0.25 each, resulting
in a paid up share capital of €11,340,967.
By virtue of an Extraordinary General Meeting held on 10 November 2022, the shareholders of the Bank
approved extraordinary resolutions relating to the redenomination of the nominal value of the Bank’s
Share Capital (Share Split) and the increase in the Bank’s Authorised Share Capital with effect from 17
November 2022. As at 31 December 2022, the Authorised Share Capital of the Bank stood at €37,500,000
divided into 300,000,000 Ordinary Shares of a nominal value of €0.125 each and the Issued and Fully Paid-
Up Share Capital of the Bank stood at €11,340,967 divided into 90,727,734 Ordinary Shares of a nominal
value of €0.125 each.
19. Reserves
These reserves are non-distributable.
19.1 Share premium
The share premium comprises premium attributable to the scrip issue of ordinary shares. Utilisation of
the share premium account is governed by the requirements of Article 114 within the Companies’ Act,
Chapter 386 of the Laws of Malta.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
150
19. Reserves (continued)
19.2 Revaluation and other reserves
The Group and the Bank had the following reserves as at end of the reporting period:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Property revaluation reserve 13,041 13,041 10,122 10,122
Investment revaluation reserve (12,690) 5,179 (12,779)
4,845
Reserve for General Banking Risks 2,903 2,903 2,903 2,903
Other reserve 1,385 2,545 1,672 2,958
4,639 23,668 1,918 20,828
The property revaluation reserve relates to the fair valuation of the land and buildings component of
property, plant and equipment, and the balance represents the cumulative net increase in fair value of
such property, net of related deferred tax.
The investment revaluation reserve represents the cumulative net change in fair values of financial assets
measured at FVOCI held by the Group and by the Bank, net of related deferred tax impacts.
Banking Rule BR 09 ‘Measures addressing credit risks arising from the assessment of the quality of asset
portfolios of credit institutions authorised under the Banking Act 1994’, issued by the MFSA, requires
banks in Malta to hold additional reserves for general banking risks in respect of non-performing loans.
This reserve is required to be funded from planned dividends.
The other reserve mainly represents amounts set aside by the Bank from its retained earnings in relation
to the Depositor Compensation Scheme, reflecting the carrying amount of assets which as at end of the
financial year are pledged in favour of the Scheme to comply with local regulatory requirements.
20. Amounts owed to banks
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Term deposits with agreed maturity dates or
periods of notice
23
23
23
23
Repayable on demand 512
1,201 512
1,201
535 1,224 535 1,224
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
151
21. Amounts owed to customers
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Term deposits with agreed maturity dates 391,895
358,094 392,296
358,294
Repayable on demand 616,536
619,049 617,804
620,071
1,008,431 977,143 1,010,100 978,365
22. Provisions for liabilities and other charges
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Obligation to Government 1,305
1,678
-
-
Legal 340
366
340
366
Other Expected Credit Losses on off-balance
sheet items
43
69
43
69
1,688 2,113
383 435
These provisions are predominantly non-current in nature.
Group 2022 2021
Obligation to
Expected
Credit Loss
Obligation to
Expected
Credit Loss
Government
Legal
allowance
Total
Government Legal allowance Total
€ 000
€
000
€ 000 €
000
€ 000 € 000 € 000 € 000
At 1 January 1,678
366
69
2,113
1,728 616 288 2,632
Actuarial gains -
recognised in other
comprehensive
income (264)
-
-
(264)
- - - -
Charge/(reversal) -
recognised
in profit or loss 28 (26
)
-
2
115
(250)
- (135)
Crystallised obligations (137)
-
-
(137)
(165)
- - (165)
Change in ECL provision
on off-balance sheet
items -
-
(26) (26
)
- - (219)
(219)
At 31 December
1,305 34
0
43 1,688
1,678 366
69 2,113
The obligation to Government arises in terms of Article 8A of the Pensions Ordinance (Chapter 93 of the
Laws of Malta), covering former Government employees who opted to become full-time employees of
MaltaPost p.l.c., and who continued to be entitled to pension benefits which go beyond the National
Insurance Scheme. The pension benefits scheme is a final salary defined benefit plan and is unfunded.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
152
22. Provisions for liabilities and other charges (continued)
Obligation to Government recognised in the statement of financial position is derived as follows:
2022 2021
€ 000 € 000
Present value of unfunded obligations 3,754
3,988
Crystallised obligations (1,750)
(1,611)
Fair value of obligations to be reimbursed by Government (699)
(699)
1,305 1,678
The amounts recognised in other comprehensive income are as follows:
2022 2021
€ 000 € 000
Net actuarial gains
- attributable to financial assumptions 264 -
-
264
-
In computing the provision, the Group used a weighted average discount rate of 3.85% (2021: 1.46%).
Assumptions regarding future mortality experience are based on published mortality tables in Malta,
which translate into an average life expectancy of 83 (2021: 83) depending on age and gender of the
beneficiaries.
These factors are deemed to be the main assumptions used in the computation of the liability. The
sensitivity of the obligation to changes in these assumptions is considered immaterial for disclosure
purposes.
Bank 2022 2021
Expected
Credit Loss
Expected
Credit Loss
Legal allowance
Total Legal allowance Total
€ 000 € 000
€ 000 € 000 € 000 € 000
At 1 January 366
69
435
616 287 903
Reversal recognised in profit or loss
(26)
- (26)
(250)
- (250)
Change in ECL provision on off-
balance sheet items
-
(26)
(26)
- (218)
(218)
At 31 December
340
43
383
366 69 435
In addition, the Bank is also a defendant in legal actions by other customers as a result of which the
Directors are of the opinion that no liability will be incurred.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
153
23. Other liabilities
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Trade payables 7,150
7,762 - -
Bills payable 4,104
3,248 4,104
3,248
Cash collateral 846
969 846
969
Lease liabilities 4,228
4,381 3,104
2,885
Other payables 17,019
14,289 9,166
7,670
33,347 30,649 17,220 14,772
24. Accruals and deferred income
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Accrued interest 5,905
5,674 5,906
5,674
Other 5,110
5,165 1,683
1,597
11,015 10,839 7,589 7,271
25. Commitments and contingent liabilities
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Contingent liabilities
Guarantee obligations incurred on behalf of
third parties 10,887 9,155 10,886 9,320
Documentary credits 2,724 4,040 2,724 4,040
13,611 13,195 13,610 13,360
Commitments
Credit facilities and other commitments to lend 202,041
195,264 203,150
196,372
Capital commitments 355
584 135
41
202,396 195,848 203,285 196,413
Credit facilities and other commitments to lend funds to customers are granted at prevailing market
interest rates at drawdown date.
As at 31 December 2022, expected credit losses arising on contingent liabilities and undrawn
commitments to lend of the Group and the Bank amounted to €43,000 (2021: €69,000) and €43,000 (2021:
€69,000) respectively.
Capital commitments as at 31 December 2022 and 2021 mainly relate to the acquisition of property, plant
and equipment.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
154
25. Commitments and contingent liabilities (continued)
Total future minimum lease payments under non-cancellable short-term leases, with a lease term of less
than 12 months, are as follows:
2022 2021
€ 000 € 000
Current
Within 1 year 539 608
Specific lease agreements include an option to renew the lease after the original term but the amounts
presented in the table above do not reflect payments subsequent to renewal.
The Group is also committed to pay a licence fee of 1.50% (2021: 1.50%) of its total gross revenue from
postal services within the scope of the universal services.
26. Net interest income
Group
Bank
202
2
202
1
202
2
202
1
€
000
€ 000
€ 000
€ 000
Interest income
On loans and advances to banks
66
(5)
24
(42)
On loans and advances to customers
25,520
23,826
25,520
23,826
On balances with Central Bank of Malta
832
42
832
42
On Malta Government
treasury bills
79
(412)
79
(412)
26,497
23,451
26,455
23,414
On debt and other fixed income instruments
3,631
3,377
3,550
3,275
Net amortisation of premiums and discounts
(1,108)
(1,103)
(1,100)
(1,101)
2,523
2,274
2,450
2,174
Total interest income
29,020
25,725
28,905
25,588
Interest expense
On amounts owed to customers
(
6,6
31
)
(6,046)
(
6,630
)
(6,048)
On leases
(
11
3
)
(123)
(
72
)
(72)
Total
interest expense
(
6,74
4
)
(6,169)
(
6,702
)
(6,120)
Net interest income
22,27
6
19,556
22,203
19,468
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
155
27. Net fee and commission income
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Fee and commission income
Retail banking customer fees
3,432
3,007
3,434
3,007
Brokerage
63
53
63
53
Other
2,174
2,364
1,072
1,281
Total fee and commission income
5,669 5,424
4,569 4,341
Fee and commission expense
Inter
-bank transaction fees (234)
(198) (234)
(198)
Other
(19)
(15) (19)
(15)
Total fee and commission expense
(253)
(213) (253)
(213)
Net fee and commission income
5,416 5,211
4,316 4,128
28. Postal sales and other revenues
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Stamps, parcel post and postal stationery
including income from foreign inbound mail 25,892
32,552 -
-
Collectibles and philatelic sales
980
882 605
518
Other
3,821
3,937 -
-
30,693 37,371 605 518
29. Dividend income
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Subsidiary undertaking
-
- 1,657
1,657
Equity shares measured at FVOCI
141
80 141
81
141 80 1,798 1,738
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
156
30. Net trading income
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Gains on foreign
exchange activities 793 615 634 590
31. Employee compensation and benefits
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Staff costs
Wages, salaries and allowances
22,363
22,756
8,234
7,772
Social security costs
1,649
1,604 449
423
24,012 24,360 8,683 8,195
Group Bank
2022 2021 2022 2021
Average number of employees
Executives and senior managerial 45 44 36 36
Other managerial, supervisory and clerical 461 468 165 160
Others 436 496 6 7
942 1,008
207 203
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
157
32. Net movement in expected credit losses
Movement in expected credit losses during 2022 was as follows:
Group Bank
Write-
downs
Reversals
of write-
downs
Total
Write-
downs
Reversals
of write-
downs
Total
€ 000 € 000 € 000 € 000 € 000 € 000
Trade receivables
Stage 3 - 132 132 - - -
Total trade receivables
- 132 132 - - -
Loans and advances to
customers
Stage 1 -
2,848 2,848
-
2,848 2,848
Stage 2 -
1,747 1,747
-
1,747 1,747
Stage 3 -
11,259
11,259
-
11,259
11,259
Recoveries -
293 293
-
293 293
Total
loans and advances
to customers -
16,147
16,147 -
16,147
16,147
Debt securities
measured
at FVOCI
Stage 1 (62) - (62)
(62) - (62)
Total
financial investments
measured at FVOCI (62) - (62)
(62) - (62)
Off
-balance sheet items
Stage 1
-
15 15
-
15 15
Stage 2
-
11 11
-
11 11
Stage 3
-
- -
-
- -
Total
off-balance sheet items - 26 26 - 26 26
Net movement in expected
credit losses
(62)
16
,305
16,243
(62)
16,173
16,111
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
158
32. Net movement in expected credit losses (continued)
Movement in expected credit losses during 2021 was as follows:
Group Bank
Write-
downs
Reversals
of write-
downs
Total
Write-
downs
Reversals
of write-
downs
Total
€ 000 € 000 € 000 € 000 € 000 € 000
Trade receivables
Stage 3 (2) - (2)
- - -
Total trade receivables
(2) - (2)
- - -
Loans and advances to
customers
Stage 1 - 1,013 1,013
- 1,013
1,013
Stage 2 (562) - (562)
(562) - (562)
Stage 3 - 453
453
- 453
453
Total
loans and advances
to customers (562)
1,466
904
(562)
1,466
904
Debt securities measured
at FVOCI
Stage 1 - 344 344 - 344
344
Total
financial investments
measured at FVOCI - 344
344
- 344 344
Off
-balance sheet items
Stage 1 - 228
228
- 228
228
Stage 2 (11)
- (11)
(11)
- (11)
Stage 3 - 1 1 - 1 1
Total
off-balance sheet items (11) 229 218
(11) 229 218
Net movement in expected
credit losses (575)
2,039
1,464 (573)
2,039
1,466
33. Profit before taxation
Profit before taxation is stated after charging and crediting the following:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
After charging
Directors' emoluments
- fees 130 93
86 69
- other emoluments 392 392 388 388
After crediting
Net income from investment services
326 365
326 365
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
159
33. Profit before taxation (continued)
Other operating costs are analysed as follows:
Group Bank
2022
2021
2022 2021
€ 000
€ 000
€ 000 € 000
Foreign outbound mail 8,904
12,706
- -
Utilities and insurance 1,328
1,430
916 1,031
IT support and telecommunication costs 466
459
285 282
Repairs and maintenance 2,503
2,256
1,142 937
Short term and low value leases 663
766
141 133
Other administrative expenses 7,003
6,927
4,755 4,746
Total other operating costs 20,867
24,544
7,239 7,129
Other administrative expenses mainly comprise professional expenses, subcontracted services and other
services or expense items which are incurred in the course of the operations of the Group and the Bank.
Fees charged by the parent company auditor for services rendered during the financial years ended 31
December 2022 and 2021 relate to the following:
Audit
Other assurance/
advisory services
Tax
compliance
services
€ 000 € 000 € 000
Bank
202
2 103 26 4
202
1 90 - 4
Subsidiary companies
202
2 82 18 2
202
1 71 38 5
During the current year, fees amounting to €55,500 (2021: €75,800) have been charged to the Bank by
connected undertakings of the Bank’s auditor, in respect of regulatory advisory services and compliance
services.
During the current year, fees amounting to €23,500 (2021: €23,500) have been charged to the subsidiary
companies by connected undertakings of the subsidiaries’ auditor, in respect of regulatory advisory
services and tax advisory and compliance services .
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
160
34. Income tax expense
Recognised in profit or loss:
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Current taxation
Current tax expense
4,483 4,306 4,779 3,992
Deferred taxation
Deferred tax charge (note 14)
5,567 453 5,500 397
10,050 4,759 10,279 4,389
The tax on the profit before income tax differs from the theoretical amount that would arise using the tax
rate applicable as follows:
Group
Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Profit before tax
27,676 12,638 28,767 12,193
Tax on profit at 35%
9,687 4,423 10,068 4,268
Tax effect of:
Income not subject to tax
- (24)
- (10)
Expenses non
-deductible for tax purposes 290 255
257 208
Income taxed at different tax rates
(24)
(31)
(1)
(1)
Share of
results of associate 140 141 - -
Other differences
(43)
(5)
(45)
(76)
10,050 4,759 10,279 4,389
The tax impacts, which are entirely attributable to deferred taxation, relating to components of other
comprehensive income and accordingly presented directly in equity are as follows:
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
161
34. Income tax expense (continued)
2022 2021
Before
tax
Tax credit/
(charge)
Net of tax
Before
tax
Tax credit/
(charge)
Net of
tax
€ 000
€ 000
€ 000
€ 000
€ 000 € 000
Group
Fair valuation of land and
buildings
-
-
-
8,486
(1,438) 7,048
Fair valuation of financial
assets measured at FVOCI:
-
Net changes in fair value
(27,542) 9,537
(18,005)
(2,562)
876
(1,686)
- Reclassification
adjustments to profit or
loss upon disposal
-
-
-
(168) 58 (110)
- Net movement attributable
to change in credit risk
62
(22)
40
(344) 121 (223)
Remeasurements of defined
benefit obligations
264
(93)
171
- - -
(27,216) 9,422 (17,794) 5,412 (383)
5,029
2022 2021
Before tax
Tax credit/
(charge)
Net of tax
Before tax
Tax credit/
(charge)
Net of tax
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Bank
Fair valuation of land and
buildings
-
-
-
6,844
(1,166)
5,678
Fair valuation of financial
assets measured at FVOCI:
-
Net changes in fair value
(27,200)
9,536
(17,664)
(2,504)
876
(1,628)
- Reclassification
adjustments to profit or
loss upon disposal
-
-
-
(168)
59
(109)
-
Net movement attributable
to change in credit risk
62
(22)
40
(343)
120
(223)
(27,138)
9,514
(17,624)
3,829
(111)
3,718
35. Earnings per share
Earnings per share is based on the net profit for the year divided by the weighted average number of
ordinary shares in issue during the year.
Group
2022
2021
Restated
Net profit attributable to equity holders of the Bank (€ 000)
17,530 7,481
Weighted average number of ordinary shares in issue 90,158,629 90,158,629
Earnings per share €0.19 €0.08
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
162
35. Earnings per share (continued)
The comparative information has been restated to reflect the bonus issue and the share split effected
during the current financial year, and the related impact on the number of shares in issue, referred to in
note 18, retrospectively.
The Bank has no instruments or arrangements which give rise to dilutive potential ordinary shares, and
accordingly diluted earnings per share is equivalent to basic earnings per share.
36. Dividends
2022 2021
Dividends paid by the Bank (€ 000) 873 862
€ per share - net 0.02
0.02
The Board of Directors is proposing a bonus share issue of one (1) share for every forty-five (45) shares
held. The bonus issue will be funded by a capitalisation of reserves amounting to €252,000. Resolutions
to this effect will be proposed to the 2023 Annual General Meeting, subject to regulatory approval.
No dividend in respect of the financial year ended 31 December 2022 is being proposed by the Board of
Directors.
37. Cash and cash equivalents
Cash and cash equivalents comprise balances with less than three months’ maturity from the date of
acquisition, including cash in hand, deposits held at call with banks and other short-term highly liquid
investments with original maturities of three months or less.
Group Bank
2022 2021 2022 2021
€ 000 € 000 € 000 € 000
Balances with Central Bank of Malta (note 5) 51,288 62,269 51,288 62,269
Malta Government treasury bills (note 5) 22,911 26,029
22,911 26,029
Cash in hand (note 5) 7,115 6,885
6,274 6,157
Loans and advances to banks (note 7) 25,016 72,279 20,937 68,425
Amounts owed to banks (note 20) (512)
(1,202)
(512)
(1,202)
Cash and cash equivalents 105,818 166,260
100,898 161,678
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
163
38. Related parties
38.1 Identity of related parties
The Bank considers that it has a related party relationship with the National Development and Social Fund,
its subsidiary and associated companies, the Bank’s Directors and Chief Officers (collectively deemed to
be key management personnel), which latter category comprises Chief Executive Officer, Chief Officer –
Credit, Chief Operations Officer, Chief Financial Officer, Chief Information Officer) and other related
parties, principally entities controlled by key management personnel.
The Government of Malta is also considered to be a related party, through its control over the National
Development and Social Fund. Nevertheless, in its Company Announcement dated 10 August 2018, the
Bank reported that the NDSF had reaffirmed that:
Quote
- it does not intend to increase its holdings in the Bank;
- it shall not act in concert with any other shareholders;
- it will seek to reduce its shareholding in the Bank in an orderly manner, at the right market
conditions and by agreement with the regulatory authorities;
- it has no intention of exerting any influence on the operations of the Bank; and
- this acquisition will not result in a change in control of the Bank.
Unquote
The Group’s exposure to the Government of Malta arises through its investment in Government debt
securities and treasury bills which are disclosed in note 6 and 5, respectively, and other obligations
disclosed in note 22.
Other related party transactions with government owned/controlled entities were carried out on an arm’s
length basis and on normal commercial terms. These transaction amounts in this respect are not
considered material for disclosure purposes, as they do not materially impact the Group’s financial results
and financial position.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
164
38. Related parties (continued)
38.2 Principal transaction arrangements and agreements involving key management personnel and entities
controlled by key management personnel.
2022 2021
€ 000
€ 000
Income statement
Interest
expense 4
5
Interest receivable
and similar income 35
400
Other operating costs
1,005
950
2022 2021
€ 000 € 000
Statement of financial position
Loans and advances to customers
1,518 11,123
Amounts owed to customers
2,024 1,970
Contingent liabilities
1
9
Commitments
1,047
1,521
Loans and
advances Commitments
Loans and
advances Commitments
202
2
202
2
202
1
202
1
€ 000
€ 000
€ 000
€ 000
At 1 January
11,123
(1,5
21
)
9,674
(1,952)
Additions
86
(950)
3,396
(273)
Reductions/ repayments
(9,691)
1,424
(1,94
7
)
704
At 31 December
1,518
(1,04
7
)
11,123
(1,521)
The above banking facilities are part of long-term commercial relationships and were made in the ordinary
course of business on substantially the same terms, including rates and security, as for comparable
transactions with persons of a similar standing or, where applicable, with other employees. The
transactions did not involve more than the normal risk of repayment or present other unfavourable
features.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
165
38. Related parties (continued)
38.3 Compensation to key management personnel
Directors’ remuneration and salaries to executive officers amounts to €602,321 (2021: €549,402).
38.4 Transactions with other related parties
38.4.1 Subsidiaries
Information relating to principal transactions undertaken by the Bank with its subsidiary companies during
the year:
2022 2021
€ 000 € 000
Income statement
Postal sales and other
revenue
-
24
Other operating income
81
56
Interest
expense
4
2
Depreciation and amortisation
10
-
Other operating costs
294
94
Statement of financial position
Leases
88
-
Trade and other receivables
70
83
Amounts owed to customers
1,669
1,222
Accruals and deferred income
43
37
Other liabilities
101
-
Contingent liabilities
369
165
Commitments
1,109
1,108
During the year, Redbox Limited received gross dividends from MaltaPost p.l.c. amounting to €1,657,000
(2021: €1,657,000).
In 2022, other operating costs included an amount of €92,526 relating to financial support given to
Lombard Select SICAV p.l.c., in the form of expenses incurred on its behalf without seeking
reimbursement, to support its working capital in the initial phase of its operations.
Total right-of-use assets in MaltaPost p.l.c. accounts amounting to €142,000 is being leased from the Bank.
38.4.2 Associates
Information relating to principal transactions undertaken by the Bank with its associates during the year:
2022 2021
€ 000 € 000
Income statement
Interest receivable and similar income 15 19
Other operating costs 6 -
Statement of financial position
Loans and advances to customers/Accrued income and other assets 2,379 2,370
Investments in associates 1,645 1,64 5
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2022
166
39. Investor compensation scheme
In accordance with the requirements of the Investor Compensation Scheme Regulations, 2003 issued
under the Investment Services Act, 1994 (Chapter 370 of the Laws of Malta) licence holders are required
to transfer a variable contribution to an Investor Compensation Scheme Reserve and place the equivalent
amount with a bank, pledged in favour of the Scheme. Alternatively licence holders can elect to pay the
amount of variable contribution directly to the Scheme. Lombard Bank Malta p.l.c. has elected to pay the
amount of the variable contribution directly to the Scheme.
40. Events subsequent to the reporting period
On 3 February 2023, the Depositor Compensation Scheme (the “Scheme”) formally requested the Bank
to settle the amount of €1,199,819 to cover its pro-rata share of the shortfall in the Scheme’s available
financial means as a result of the pay-out by the Scheme to Nemea Bank plc’s eligible depositors.
The Bank paid the amount in full on 6 March 2023. The Bank has been notified that the amount is fully
refundable, once the Scheme receives the amount of the shortfall from the Controller of Nemea Bank plc.
Based on the information made available to the Bank as at the date of authorisation for issuance of these
financial statements, it appears to be unlikely that the Controller would not refund the entire amount to
the Scheme in the foreseeable future.
There were no other events after the reporting date that would have a material effect on the financial
statements of the Bank or the Group.
41. Statutory information
Lombard Bank Malta p.l.c. is a public limited liability company domiciled and incorporated in Malta.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
167
Additional Regulatory Disclosures
1. Risk management
1.1 Overview of risk disclosures
The Additional Regulatory Disclosures seek to increase public disclosure with respect to a bank’s capital
structure and adequacy as well as its risk management policies and practices. These disclosures have been
prepared by the Bank in accordance with the Pillar III quantitative and qualitative disclosure requirements
as governed by Banking Rule BR/07: Publication of Annual Report and Audited Financial Statements of
Credit Institutions authorised under the Banking Act, 1994, issued by the Malta Financial Services Authority.
These disclosures are published by the Bank on an annual basis as part of the Annual Report. The rule
follows the disclosure requirements of Directive 2013/36/EU (Capital Requirements Directive) and EU
Regulation No. 575/2013 (Capital Requirements Regulation) of the European Parliament and of the Council
of 26 June 2013.
Consistent with the requirements of banking regulations, these disclosures are not subject to an external
audit, except to the extent that any disclosures are equivalent to those made in the Financial Statements
which have been prepared in accordance with the requirements of International Financial Reporting
Standards (‘IFRS’) as adopted by the EU. The Bank is satisfied that internal verification procedures ensure
that these Additional Regulatory Disclosures are presented fairly.
1.2 Risk Management Framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk
management framework.
To enhance its risk oversight efforts, the Board of Directors established an Audit & Risk Committee with a
mandate to supervise and monitor inter alia, the Bank’s compliance with its risk management policies and
procedures, review any financial information, statements and disclosures to be issued and the adequacy of
the Bank’s risk management framework, including its risk appetite statement and strategy.
The Bank has also established the Assets & Liabilities Committee (‘ALCO’) and the Credit Committee that
are responsible for developing the Bank’s risk management policies in their specific areas.
The Bank also has an independent Risk Management function as the Bank's second line of defence and
independent of operations which also reports directly to the ARC and is represented during meetings of the
above-mentioned committees. It is responsible for ensuring that the Bank's Risk Management Policy, Risk
Appetite Statement and any other guidelines support the Bank’s objectives. It is also responsible for further
identifying any unmitigated risks and for formulating suitable action plans for their treatment. The function
monitors the high-level principles that guide staff in its day-to-day management of risk through oversight
of policies, limits, procedures, processes and systems as well as by using methods and tools for risk
measuring, monitoring, controlling and reporting.
The Bank considers risk management a core competency that helps produce consistently high returns for
its various stakeholders. The Bank’s business involves taking on risks in a targeted manner and managing
them professionally. The Bank aims to manage all major types of risk by applying methods that meet best
practice. The Bank considers it important to have a clear distribution of responsibilities within risk
management. One of the main tasks of the Bank’s executive management is to set the framework for this
area. The core functions of the Bank’s risk management are to identify all key risks for the Bank, measure
these risks, manage the risk positions and determine capital allocations. The Bank regularly reviews its risk
management policies and systems to reflect changes in markets, products and best market practice.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
168
1. Risk management (continued)
An understanding of risk-taking and transparency in risk-taking are key elements in the Bank’s business
strategy and thus in its ambition to be a strong financial institution. The Bank’s internal risk management
processes support this objective.
Risk management within the Bank is mainly carried out on a unified basis, using an integrated and global
framework. This framework is based on local and international guidelines, such as the Basel III Accord and
corresponding Directives and Regulations of the European Union, including technical standards, as well as
on contemporary international banking practices guided by the Basel Committee on Banking Supervision.
The Bank has adopted the Standardised Approach and the Basic Method with respect to the calculation of
capital requirements and management of credit and foreign exchange risk respectively, as well as the Basic
Indicator Approach with respect to operational risk.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to
set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management
policies and systems are reviewed regularly to reflect changes in market conditions, products and services
offered. The Bank, through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment, in which all employees understand their roles and
obligations.
The Board deems the risk management framework adopted by the Bank to be adequate and gives assurance
to the Bank’s stakeholders that the risk management systems are appropriate in relation to the Bank’s risk
profile and strategy.
The Bank’s different operational functions, on an entity-wide basis, are primarily responsible for risk
management procedures and activities in their respective areas. All the operational functions have a
primary role in risk management at Bank-wide level. The Risk Management Function provides oversight,
independently from operations. The Bank’s risk management is implemented and handled properly by the
operational functions. The Bank’s Internal Audit Function, through verification, ensures that effective risk
management procedures and activities are adequately designed and operating as prescribed.
1.3 Board and Senior Management Committees
The Bank’s Board of Directors is responsible for ensuring that adequate processes and procedures exist to
ensure effective internal control systems for the Bank. These internal control systems ensure that decision-
making capability and the accuracy of the reporting and financial results are maintained at a high level at
all times. The Board assumes responsibility for:
- setting business objectives, goals and the general strategic direction for Management with a view to
maximise value;
- selecting and appointing the Chief Executive Officer who is entrusted with the day-to-day operations of
the Bank;
- management of the Bank’s operations, as well as appointment of members of Management;
- ensuring that significant business risks are identified and appropriately managed; and
- setting the highest business standards and code for ethical behaviour, and monitoring performance in
this respect.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
169
1. Risk management (continued)
In deciding how best to discharge its responsibilities, the Board upholds a policy of clear demarcation
between its role and responsibilities and those of Management. It has defined the level of authority that it
retains over strategy formulation and policy determination, and delegated authority and vested
accountability for the Bank’s day-to-day business in the Assets & Liabilities Committee and Credit
Committee and, for the Bank’s day-to-day operations, in an Executive Team comprising the Chief Executive
Officer and Chief Officers. The Audit & Risk Committee reviews the processes and procedures to ensure the
effectiveness of the Bank’s system of internal control, as well as the implementation of the Board’s risk
strategy by Management. The Audit & Risk Committee is supported by the Internal Audit, Risk Management
and Compliance functions.
The ALCO monitors the Bank’s financial performance, considers investment policy and overseas
counterparty limits. Membership of this Committee is made up of a number of Chief Officers and Senior
Managers including managers from Finance and Treasury Departments. The Chief Executive Officer is
Chairman of ALCO and retains primary responsibility for asset and liability management. The ALCO oversees
risk management practices in relation to asset and liability management.
The Credit Committee considers the development of general lending principles and oversees risk
management practices in lending operations. The Credit Committee is chaired by the Chief Executive Officer
and is composed of other Chief Officers as well as other Senior Officers.
The Audit & Risk Committee assists the Board in fulfilling its supervisory and monitoring responsibility by
reviewing the financial statements and disclosures, the system of internal control established by
management as well as the external and internal audit processes. The Audit & Risk Committee is also
responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for
reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank.
The Bank’s independent Internal Audit Department reviews the adequacy and proper operation of internal
controls in individual areas of operation and reports its findings to the Audit & Risk Committee. The Internal
Audit Function carries out both regular and ad-hoc reviews of risk management controls and procedures,
in both cases reporting its findings.
The Bank has an appropriate organisational structure for planning, executing, controlling and monitoring
business operations in order to achieve the Bank’s objectives.
Authority to operate the Bank and its subsidiaries is delegated to the Chief Executive Officer within the
limits set by the Board. The Board is ultimately responsible for the Bank’s system of internal control and for
reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to
achieve business objectives, and can provide only reasonable, and not absolute, assurance against material
misstatement or loss.
The Bank is committed to the highest standards of business conduct and seeks to maintain these standards
across all of its operations. Bank policies and procedures are in place for the reporting and resolution of
fraudulent activities.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
170
1. Risk management (continued)
1.4 Key risk components
The Bank’s Board of Directors is empowered to set out the overall risk policies and limits for all material risk
types. The Board also decides on the general principles for managing and monitoring risks.
To ensure coherence between the Bank’s strategic considerations regarding risk-taking and day-to-day
decisions, from time to time, the Bank establishes its risk appetite as a strategic tool. Risk appetite is the
maximum risk that the Bank is willing to assume to meet business targets. The Bank’s risk appetite is set in
a process based on a thorough analysis of its current risk profile. The Bank identifies a number of key risk
components and for each determines a target that represents the Bank’s views on the component in
question.
In terms of the CRR, an ‘exposure’ is the amount at risk arising from the reporting credit institution's assets
and off-balance sheet instruments. Consistent with this, an exposure would include the amount at risk
arising from the Bank’s:
- claims on a customer including actual and potential claims which would arise from the drawing down in
full of undrawn advised facilities, which the Bank has committed itself to provide;
- contingent liabilities arising in the normal course of business, and those contingent liabilities which
would arise from the drawing down in full of undrawn advised facilities which the Bank has committed
itself to provide; and
- other on and off-balance sheet financial assets and commitments.
The Bank is exposed to a number of risks, which it manages at different organisational levels.
The main categories of risk are:
- Credit risk: Credit risk stems from the possible non-prompt repayment or non-payment of existing and
contingent obligations by the Bank’s counterparties, resulting in the loss of equity and profit. It
comprises the risk that deterioration in the financial condition of a borrower will cause the asset value
to decrease or be extinguished. Country risk and Settlement risk are included in this category. Country
risk refers to the risk of losses arising from economic or political changes that affect the country from
which the asset originates. Settlement risk refers to the risk of losses through failure of the counterparty
to settle outstanding dues on the settlement date owing to bankruptcy or other causes.
- Market risk: Risk of losses arising from unfavourable changes in the level and volatility of interest rates,
foreign exchange rates or investment prices.
- Liquidity risk: Liquidity risk may be divided into two sub-categories:
o Market (product) liquidity risk: Risk of losses arising from difficulty in accessing a product or market
at the required time, price and volume.
o Funding liquidity risk: Risk of losses arising from a timing mismatch between investing, placements
and fund raising activities resulting in obligations missing the settlement date or satisfied at higher
than normal rates.
- Operational risk: Risk of loss resulting from the lack of skilful management or good governance within
the Bank and the inadequacy of internal control, which might involve internal operations, staff, systems
or external occurrences that in turn affect the income and capital funds of financial institutions. The
Bank has adopted an operational risk management framework and procedures, which provide for the
identification, assessment, management, monitoring and reporting of the Bank’s operational risks.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
171
1. Risk management (continued)
1.5 Risk statement by the Board of Directors
The Bank’s business model throughout the years has been that of retaining a stable deposit base and
granting credit principally to the commercial real estate sector, particularly because the Board strongly
believes that despite the increased capital requirements introduced by the CRR, an active commercial real
estate market is a fundamental source of employment and economic growth in Malta. Nonetheless, the
Bank is conscious of the risks involved in commercial real estate lending, and thus ensures it prices loans by
reference to underlying risks. In this respect, the Bank’s return on assets, expressed as a percentage of profit
after tax to average total assets, for the reporting period ended 31 December 2022 amounts to 1.6%.
In this respect, the loan loss coverage ratio, calculated as provisions for impairment on non-performing
exposures to total non-performing exposures, which as at 31 December 2022, amounted to 21.6% differs
from that experienced within the sector, which generally tends to fluctuate between 50% to 55%. This
clearly illustrates the robustness of the Bank’s risk management practices particularly in respect of credit
risk.
2. Credit risk
2.1 Introduction to Credit risk
Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market
counterparties fail to fulfil their contractual obligations to the Bank. Credit risk arises mainly from
commercial and consumer loans and advances and loan commitments arising from such lending activities,
but can also arise from credit enhancement provided, such as financial guarantees, letters of credit,
endorsements and acceptances.
Credit risk constitutes the Bank’s largest risk in view of its significant lending and securities portfolios, which
are monitored in several ways. The Bank is fully aware of such risk and places great importance on its
effective management.
The Bank allocates considerable resources in ensuring the ongoing compliance with approved credit limits
and to monitor its credit portfolio. In particular, the Bank has a fixed reporting cycle to ensure that the
relevant management bodies, including the Board of Directors and the Executive Team, are kept informed
on an ongoing basis of developments in the credit portfolio, non-performing loans and other relevant
information.
2.2 Credit risk management
The Board of Directors has delegated the responsibility for the monitoring of management of credit risk to
the Credit Committee. The granting of a credit facility is based on the Bank’s insight into the customer’s
financial position, which is reviewed regularly to assess whether the basis for the granting of credit has
changed. Furthermore, the customer must be able to demonstrate a reasonable ability to repay the debt.
Approval limits are graded starting from authorised staff members and leading up to the Credit Committee
and the Board of Directors depending on the size and the particular risk attached to the loan. Facilities are
generally adequately secured either by property and/or guarantees and are reviewed periodically by
Management both in terms of the exposure to the Bank and to ensure that security is still valid.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
172
2. Credit risk (continued)
The Bank’s Credit Department is responsible for undertaking and managing credit risk in relation to the
entity’s lending activities; covering all the stages in the lending cycle comprising credit proposal, loan
approval, effecting advances, credit and collateral monitoring, processing repayments and credit recovery
procedures. The Bank manages, limits and controls concentrations of credit risk arising from loans and
advances wherever they are identified − in parcular, to individual customers and groups, and to industry
sectors. Such risks are monitored on a revolving basis and subject to frequent review, as considered
necessary. The exposure to any one borrower is further restricted by sub-limits covering on and off-balance
sheet exposures. Actual exposures against limits are monitored at end of day on a daily basis and on a real-
time basis too. As highlighted previously, the Bank’s reporting framework with respect to lending credit
risk is comprehensive with regular reporting by the Credit Department to the Board, Credit Committee and
Executive Team on adherence to limits, activity levels, performance measures and specific credit risk
events.
In order to minimise the credit risk undertaken, counterparty credit limits may be defined, which consider
a counterparty’s creditworthiness, the value of collateral and guarantees which can reduce the overall
credit risk exposure, as well as the type and the duration of the credit facility. In order to examine a
counterparty’s creditworthiness, the following are considered: country risk, quantitative and qualitative
characteristics, as well as the industry sector in which the counterparty operates. The Bank has set limits of
authority and has segregated duties so as to maintain impartiality and independence during the approval
process and control for new and existing credit facilities.
The Bank’s maximum exposure amount to credit risk before taking account of any collateral held or other
credit enhancements can be classified in the following categories:
- Financial assets recognised on-balance sheet comprising principally balances with Central Bank of Malta,
Malta Government treasury bills, cheques in course of collection, financial assets measured at FVOCI as
well as loans and advances to banks and customers. The maximum exposure of these financial assets to
credit risk equals their carrying amount.
- Guarantee obligations incurred on behalf of third parties. The maximum exposure to credit risk is the
full amount that the Bank would have to pay if the guarantees are called upon.
- Loan commitments and other credit related commitments that are irrevocable over the life of the
respective facilities. The maximum exposure to credit risk is the full amount of the committed facilities.
The Bank’s credit risk exposure amounts reflect the maximum exposure to credit risk before collateral held
or other credit enhancements in accordance with the regulatory information submitted to the MFSA and
are as follows:
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
173
2. Credit risk (continued)
2022 2022
Average value
Year end
Exposure value
€ 000 € 000
Central governments or central banks
331,509
307,189
Public sector industries
553
537
Multilateral development banks
6,860
7,791
International organisations
719
-
Institutions
53,616
51,148
Corporates
83,720
91,378
Retail
18,531
17,302
Secured by
mortgages on immovable property 459,551
484,937
Exposures in default
28,270
15,376
Exposures associated with particularly high risk
120,546
129,915
Equity
22,236
22,866
Other items
56,720
59,056
1,182,831
1,187,495
The exposures set out in the table above are based on the sum of on-balance sheet exposures and off-
balance sheet exposures adjusted for the credit conversion factors stipulated in Article 166(10) of the CRR.
The following is an analysis of the Bank’s exposure to credit risk split by on-balance sheet assets and off-
balance sheet instruments:
2022
€ 000
On
-balance sheet assets 1,170,620
Other adjustments
(2,910)
Off
-balance sheet instruments 19,785
1,187,495
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
174
2. Credit risk (continued)
As set out in the Financial Statements under ‘Accounting estimates and judgements’, the measurement of
the Expected Credit Loss allowance for financial assets measured at amortised cost and Fair Value through
Other Comprehensive Income (‘FVOCI’) is an area that requires the use of complex models and significant
assumptions about future economic conditions and credit behaviour. As previously explained, the level of
estimation uncertainty and judgement has remained elevated as a result of the economic effects of the
global geopolitical and macro-economic events occurring in the aftermath of the COVID-19 pandemic.
Specifically, despite a general recovery in economic conditions during 2021 and 2022, the level of estimation
uncertainty and judgement has remained high as a result of the escalation of the military conflict between
Russia and Ukraine as well as the ongoing economic effects of the COVID-19 pandemic, including supply
chain disruptions, which have resulted in significant inflationary pressures being experienced globally.
The situation is still highly fluid. Stressed probabilities of default (PDs) used in the sectorial macro-economic
variables were adjusted to reflect the forecasted severe Central Bank of Malta forecasts. However, at the
reporting date the asset quality of the Bank’s financial assets remains sound and there is no evidence of an
increase in credit risk. The Bank will continue to closely monitor its exposures in the light of developments
so as to align the Expected Credit Loss accordingly.
On 13 April 2021 the Central Bank of Malta issued Directive 18 (in terms of Legal Notice 142) specifying
parameters for granting of COVID-19 measures and other Government guaranteed assistance.
As at 31 December 2022, there were no outstanding gross loans and advances subject to general payment
moratoria as established within Directive No. 18 and the EBA guidelines.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
175
2. Credit risk (continued)
The gross carrying amount of the loans and advances to customers for which moratorium was offered or granted is analysed below:
Number of obligors Total
Of which:
legislative
moratoria
Of which:
expired
€ 000 € 000 € 000
At 31 December 2022
Loans and advances for which moratorium was offered 98 60,934
- -
Loans and advances subject to moratorium (granted) 96 60,657
60,657
60,657
of which: Households 11,563
11,563
11,563
of which: Collateralised by residential immovable property 10,969
10,969
10,969
of which: Non-financial corporations 27,474
27,474
27,474
of which: Small and Medium-sized Enterprises 11,149
11,149
11,149
of which: Collateralised by commercial immovable property 23,212
23,212
23,212
The gross carrying amount of newly originated loans and advances subject to public guarantee schemes are analysed below:
Total
of which:
forborne
Public
guarantees
received
Inflows to
non-performing
exposures
€ 000 € 000 € 000
€ 000
At 31 December 2022
Newly originated loans and advances subject to public guarantee schemes 8,957 3,020
4,030
-
of which: Households -
- -
-
of which: Collateralised by residential immovable property -
- -
-
of which: Non-financial corporations 8,583 3,020
3,862
-
of which: Small and Medium-sized Enterprises 1,627 - -
-
of which: Collateralised by commercial immovable property 167 - -
-
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
176
2. Credit risk (continued)
2.3 Concentration risk
Concentration risk arises as a result of the concentration of exposures within the same category, whether
the category relates to geographical location, industry sector or counterparty type.
As at 31 December 2022, no loans and advances to customers were deemed to be prohibited large
exposures, prior to any eligible exemptions, in accordance with the requirements of Part Four of the CRR,
Large Exposures. A limited number of customers account for a certain percentage of the Bank’s loans and
advances.
Credit risk attributable to concentration of investments is not considered by the Directors to be significant
in view of the credit standing of the issuers.
The following tables analyse the concentration of credit risk by geographical region, industry sector and
residual maturity at the end of the reporting period.
2.3.1 Credit risk exposures analysed by geographical region
The Bank monitors concentration of credit risk by geographical region. The following table summarises the
country of risk by exposure class:
At 31 December 2022 Total Malta Eurozone
Other European
countries Other
€ 000 € 000 € 000 € 000 € 000
Central governments or central banks
307,189
299,306
2,530
1,856
3,497
Public Sector entities
537
1
536
-
-
Multilateral Development Banks
7,791
-
5,134
-
2,657
International Organisations
-
-
-
-
-
Institutions 51,148
11,915
23,731
8,276
7,226
Corporates 91,378
90,119
749
510
-
Retail
17,302
17,302
-
-
-
Secured by mortgages on immovable property
484,937
484,937
-
-
-
Exposures in default
15,376
15,376
-
-
-
Items associated with particularly high risk
129,915
129,915
-
-
-
Equity
22,866
22,122
-
-
744
Other items
59,056
58,667
-
-
389
1,187,495
1,129,660
32,680
10,642
14,513
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
177
2. Credit risk (continued)
2.3.2 Credit risk exposures analysed by industry sector
The following are the exposure amounts split by exposure class according to the respective industry concentration:
At 31 December 2022
Property and
Personal,
professional and
Financial Other
Total Manufacturing Tourism Trade construction home loans Institutions sectors
€ 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Central governments or central banks
307,189 - - - - - 307,189
-
Public Sector entities
537 - - - - - 537
-
Multilateral Development Banks
7,791 - - - - - 7,791
-
International Organisations
-
- - - - - -
-
Institutions 51,148 - - - - - 51,148
-
Corporates 91,378 4,852
6,385
27,700 8,427 714 38,208
5,092
of which: SME 79,301 3,932
5,899
24,389 5,630 594 38,139
718
Retail
17,302 3,890
1,466
120 161 10,175 12
1,478
of which: SME
4,938 60
1,427
87 14 3,217 10
123
Secured by mortgages on immovable property
484,937 1,255
48,170
17,642 131,844 180,357 83,302
22,367
of which: SME
303,663 1,255
48,170
17,642 129,911 13,800 83,302
9,583
Exposures in default
15,376 335
975
1,502 9,310 1,684 520
1,050
of which: SME
13,959 335
975
1,502 9,310 267 520
1,050
Items associated with particularly high risk
129,915 -
65
850 116,517 3,098 9,385
-
of which: SME
125,528 -
65
848 113,373 1,857 9,385
-
Equity
22,866 221
1,645
- - - 2,820
18,180
Other items
59,056 - 2,379
- 41,620 - 8,395
6,662
1,187,495 10,553
61,085
47,814 307,879 196,028 509,307
54,829
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
178
2. Credit risk (continued)
2.3.3 Credit risk exposures analysed by residual maturity
The residual maturity breakdown by exposure class at the end of the reporting period was as follows:
Over 1 but
Carrying Less than less than Over
Amount 1 year 5 years 5 years
At 31 December 2022 € 000 € 000 € 000 € 000
Central Government or central banks
307,189
141,485
102,503
63,201
Public sector entities
537
1
536
-
Multilateral Development Banks
7,791
551
7,240
-
International Organisations
-
- - -
Institutions
51,148
25,476
7,492
18,180
Corporates
91,378
27,464
29,225
34,689
Retail exposures
17,302
6,501
3,543
7,258
Secured by mortgages on immovable property
484,937
108,195
55,044
321,698
Exposures in default
15,376
9,633
106
5,637
Exposures associated with particularly high risk
129,915
46,603
72,168
11,144
Equity exposures
22,866
22,866
- -
Other items
59,056
59,056
- -
1,187,495
447,831
277,857
461,807
2.3.4 Counterparty banks’ risk
The Bank runs the risk of loss of funds due to the possible delay in the repayment of existing and future
obligations by counterparty banks.
Within its daily operations, the Bank transacts with banks and other financial institutions. By conducting
these transactions, the Bank is running the risk of losing funds due to the possible delays in the repayment
to the Bank of the existing and future obligations of the counterparty banks. The Bank primarily places
short-term funds with pre-approved banks subject to the limits in place and subject to the respective
institutions’ credit rating being within controlled parameters. The positions are checked against the limits
in real time and at end of day on a daily basis.
2.3.5 Country risk
The Bank runs the risk of loss of funds due to the possible political, economic and other events in a particular
country where funds have been placed or invested with several counterparties. Countries are assessed
according to their size, economic data and prospects and their credit ratings from international rating
agencies. Existing country credit risk exposures are monitored and reviewed periodically. The Bank’s assets
are predominantly in Malta. The Bank’s exposures to other countries are mainly limited to bank balances
and money market placements with a total carrying amount of €39,233,000 (2021: €68,420,000) at the end
of the reporting period.
2.4 Use of External Credit Assessment Institutions
In calculating its risk-weighted exposure amounts, the Bank uses an External Credit Assessment Institution
(‘ECAI’) for Central governments, Institutions, Corporates and Items associated with particularly high risk
for which a credit assessment is available. The credit quality of such exposures is determined by reference
to external credit ratings applicable to issuers or counterparties. The Bank maps the external ratings to the
credit quality steps prescribed in the CRR as required by CEBS publication ‘Standardised Approach: Mapping
of ECAIs’ credit assessments to credit quality steps’.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
179
2. Credit risk (continued)
The following are the exposure values for which an ECAI is used:
Credit
quality
step
Central
governments
or central
banks
Public
Sector
entities
Multilateral
Development
Banks
International
organisations
Institutions
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
At 31 December
202
2
AAA to AA
-
1 4,922
537
7,791
-
10,241
23,491
A+ to A
-
2 302,267
-
-
-
7,542
309,809
BBB+ to BBB
-
3 - -
-
-
28,701
28,701
BB+ to BB
-
4 -
-
-
-
-
-
B+
to B
-
5 -
-
-
-
-
-
CCC+ and below
6 -
-
-
-
4,664
4,664
307,189
537
7,791
-
51,148
366,665
2.5 Credit quality of the Bank’s lending portfolio
The Bank manages the credit quality of its loans and advances to customers by using internal risk grades,
which provide a progressively increasing risk profile ranging from ‘P1’ (best quality, less risky) to ‘NP’. These
risk grades are an essential tool for the Bank to identify both non-performing exposures and better-
performing customers. The internal risk grades used by the Bank are as follows:
- Performing: Internal grade ‘P1’;
- Under performing: Internal grades ‘P2’ and ‘P3’; and
- Non-performing: Internal grade ‘NP’.
P1
The Bank’s loans and advances to customers which are categorised as ‘P1’ are principally debts in respect
of which the payment of interest and/or capital is not overdue by 30 days and with no recent history of
customer default. Management does not expect any losses from non-performance by these customers.
P2
Loans and advances which attract a ‘P2’ grading are those which are receiving the close attention of the
Bank’s Management and are being reviewed periodically in order to determine whether such advances
should be reclassified to either ‘P1’ or ‘P3’ classification. Credit facilities that attract this category include
those where the payment of interest and/or capital becomes overdue by 30 days and over but not
exceeding 60 days.
P3
Loans and advances which attract a ‘P3’ grading are those having the weaknesses inherent in those loans
and advances classified as ‘P2’ with the added characteristics that repayment is inadequately protected by
the current sound worth and paying capacity of the borrower. Loans and advances so graded have a well-
defined weakness or weaknesses that could jeopardise the repayment of the debt. They are characterised
by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Credit
facilities that attract this category include those where the payment of interest and/or capital becomes
overdue by 60 days and over but not exceeding 90 days.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
180
2. Credit risk (continued)
NP
Loans and advances which attract a ‘NP’ grading are those facilities where the Bank deems the
recoverability of principal to be remote as a result of worsening conditions of loans and advances classified
as ‘P3’. Credit facilities that attract this category include those where the payment of interest and/or capital
becomes overdue by more than 90 days. These loans and advances are generally past due by more than 90
days and comprise those exposures which are deemed by the Bank as credit-impaired (see definition in note
2.3.10).
The following table provides a detailed analysis of the credit quality of the Bank’s lending portfolio.
2022
€ 000
Gross loans and advances to customers
Performing (‘Stage 1’ assets) 526,199
Under-performing (‘Stage 2’ assets) 167,551
Non-performing (‘Stage 3’ assets) 27,812
721,562
2.5.1 Credit-impaired loans and advances to customers
Credit-impaired loans and advances are advances which are either more than 90 days past due, or for which
the Bank determines as probable that it will be unable to collect all principal and interest due according to
the contractual terms of the loans and advances agreement(s). The Bank’s credit-impaired loans and
advances mainly relate to a number of independent customers which are not meeting repayment
obligations or deemed by the Bank as unlikely to pay their obligations to the Bank without recourse by the
Bank to realising the collateral.
2.5.2 Past due but not credit-impaired loans
Past due but not credit-impaired loans include loans and advances where contractual interest or principal
payments are past due. Credit losses that may arise are covered through the Bank’s assessment of Expected
Credit Loss allowances.
Loans and advances to customers are analysed into credit-impaired, past due and other exposures as
follows:
202
2
€ 000
Gross loans and advances to customers
Credit-impaired 27,812
Past due but not credit-impaired 5,259
Neither past due nor credit-impaired 688,491
721,562
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
181
2. Credit risk (continued)
The table below analyses the impaired and the past due but not impaired gross loans and advances to
customers by industry sector.
Past due but
At 31 December
202
2
Impaired
not impaired
€ 000
€ 000
Manufacturing
472
1
Tourism
2,483
-
Trade
1,645
-
Property and construction
19,488
2,953
Personal, professional and home loans
2,094
1,946
Financial institutions
534
-
Other sectors
1,09
6
3
59
27,812
5,259
The majority of the impaired and past due but not impaired loans and advances to customers were
concentrated within Malta.
2.5.3 Collateral
The Bank holds collateral against exposures in the form of hypothecs over property, other registered
securities over assets and guarantees. The nature and level of collateral required depends on a number of
factors, including, but not limited to, the amount of the exposure, the type of facility provided, the term of
the facility, the amount of the counterparty’s contribution and an evaluation of the level of the credit risk
or Probability of Default involved. Collateral is an important mitigant of credit risk. Nevertheless, it is the
Bank’s policy to establish that facilities are within the customer’s capacity to repay rather than to over rely
on security. In certain cases, depending on the customer’s standing and the type of product, facilities may
be unsecured. The Bank applies various measures to reduce the risk on individual transactions, including
collateral in the form of physical assets and guarantees.
The principal collateral types used as credit risk mitigants are mortgages on residential properties and
commercial real estate. For regulatory purposes, none of the Bank’s collateral in the form of commercial
real estate qualifies as eligible collateral, as these properties fail to meet the conditions of Article 126(2) of
the CRR.
Out of the €711.6 million exposures arising from the Bank’s lending, €472.2 million are secured by
mortgages on immovable property, while €26.8 million are secured by mortgages on immovable property
but are classified within the high risk exposures since these are associated with speculative immovable
property financing. From the €472.2 million exposures secured by mortgages on immovable property,
€196.1 million qualify as fully and completely secured by mortgages on residential immovable property,
and accordingly attract a risk-weight of 35%.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
182
2. Credit risk (continued)
2.5.4 Loss allowances
The Bank assesses on a forward-looking basis the Expected Credit Losses associated with its loans and advances portfolio. The Bank recognises a loss allowances for such losses
at each reporting date.
Total Manufacturing Tourism Trade
Property and
construction
Personal,
professional and
home loans
Financial
institutions Other sectors
€ 000 € 000 € 000 € 000 € 000 € 000 € 000 € 000
Expected Credit Losses
At 1 January 2022 25,622
534
1,886
1,282
17,493
846
3,466
115
Additions 3,881
233
72
377
1,968
475
705
51
Reversals (19,554) (417)
(307)
(832)
(14,626)
(412)
(2,897)
(63)
At 31 December 2022
9,949 350
1,651
827
4,835
909
1,274
103
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
183
2. Credit risk (continued)
2.5.5 Write-off policy
The Bank writes off loan or advance balances (and any related allowances for impairment losses) when it
determines that these are uncollectible. This decision is reached after considering information such as the
occurrence of significant changes in the borrower’s financial position, such that the borrower can no longer
pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.
3. Market risk
The Bank 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, currency and equity 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, foreign exchange rates and equity prices.
Accordingly, market risk for the Bank consists of three elements:
- Interest rate risk, which is the risk of losses because of changes in interest rates;
- Exchange rate risk, which is the risk of losses on the Bank’s positions in foreign currency because of
changes in exchange rates; and
- Equity price risk, which is the risk of losses because of changes in investment prices.
3.1 Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market
interest rates. The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that
interest-earning assets and interest-bearing liabilities mature or reprice at different times or at different
amounts. The Bank accepts deposits from customers at both fixed and floating rates and for varying
maturity periods. This risk is managed through the matching of the interest resetting on repricing dates on
assets and liabilities as much as it is practicable. The Bank monitors on a continuous basis the level of
mismatch of interest rate repricing taking cognisance of the terms of the Bank’s principal assets, comprising
loans and advances to customers, that are repriceable at the Bank’s discretion. Accordingly, the Bank is in
a position to manage the interest rate terms of its financial assets and simultaneously modify the interest
terms of its liabilities. The Bank seeks to manage its net interest spread, taking cognisance of the cost of
capital, by investing funds in a portfolio of loans and advances and securities with a longer tenure than the
funding liabilities (therefore normally giving rise to a negative maturity gap position) through the effective
management of shorter term deposit liabilities with a view to securing steady base deposits with differing
terms over the medium to longer term.
Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved
limits for repricing bands which are set by ALCO. ALCO is the monitoring body for compliance with these
limits and is assisted by Treasury through its day-to-day operational activities. The management of interest
rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial
assets and liabilities to interest rate movements.
Accordingly, the Bank’s ALCO is primarily responsible for the interest rate risk management process and for
monitoring actively the interest rate risk measures utilised by the Bank. Reporting of interest rate risk
measures exposures vis-à-vis limits flows to the ALCO and Board on a regular systematic basis. The Bank’s
independent Risk Management Function provides oversight in respect of the interest rate risk management
process ensuring that it is designed in an appropriate manner and is functioning properly.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
184
3. Market risk (continued)
The Bank’s repricing gaps at 31 December 2022 are disclosed in the tables within note 2.4.1 to the financial
statements. The measures applied for the monitoring of the fair value sensitivity of the fixed rate
instruments and the cash flow sensitivity for variable rate instruments are disclosed within notes 2.4.3 and
2.4.4 to the financial statements.
3.2 Currency risk
The Bank 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 Bank’s functional currency.
The Bank manages this risk principally by ensuring that its foreign currency denominated liabilities are
matched with corresponding assets in the same currency.
Accordingly, 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. This mechanism is reflected in the
figures reported in the table below which presents this matching process.
The Bank’s foreign exchange risks are managed actively and monitored by the Treasury Function, which
process ensures that the Bank maintains its exposure to foreign currencies within prescribed limits set by
the Bank’s ALCO. ALCO sets limits on the level of exposure by currency and in aggregate for both overnight
and intra-day positions which are monitored on a real-time basis. Reporting of exposures vis-à-vis limits
flows to the ALCO and Board on a regular systematic basis. The Bank’s independent Risk Management
Function is responsible for assuring that the foreign exchange risk management process is designed in an
appropriate manner and is functioning effectively.
The Bank enters into forward foreign currency exchange contracts with customers in the normal course of
its business. Generally, it is the Bank’s policy to cover these contracts by other forward positions. As a result,
the Bank is not open to any significant exchange risk in respect of derivative contracts. The Bank also takes
a deposit margin of the nominal value from the customer thereby reducing its credit risk should the client
default. The Bank had no open forward foreign currency contracts at the end of the reporting period.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
185
3. Market risk (continued)
The following table summarises the Bank’s net exchange position by currency taking into account the Bank’s
financial assets and liabilities as well as off-balance sheet instruments exposing the Bank to foreign
exchange risk.
Bank Total EUR GBP
USD
Other
€ 000 € 000 € 000
€ 000
€ 000
At 31 December 2022
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash
138,393
92,746
21,624
24,017
6
Financial investments measured at FVOCI 218,286
199,294
6,338
12,654
-
Loans and advances to banks
20,936
3,191
5,300
8,104
4,341
Loans and advances to customers
711,613
706,057
4,594
962
-
Other assets
7,396
6,839
86
471
-
Total financial assets
1,096,624
1,008,127
37,942
46,208 4,347
Financial liabilities
Amounts owed to banks
535
535
-
-
-
Amounts owed to customers
1,010,100
921,440
38,334
45,962
4,364
Other liabilities
24,809
24,226
108
463
12
Total financial liabilities
1,035,444
946,201
38,442
46,425
4,376
Net currency exposure in financial
assets/liabilities
61,926
(500)
(217)
(29)
Commitments and contingent liabilities
216,717
215,286 432 999 -
3.3 Equity price risk
The exposure of the Bank to this risk is not significant given the low holdings of equity instruments by the
Bank, which are not deemed material in the context of the Bank’s statement of financial position. Such
holdings are limited to locally quoted equity instruments issued by local well-known corporate issuers.
Frequent management reviews are carried out to obtain comfort on the high quality of the portfolio.
4. Liquidity risk
4.1 Management of liquidity risk
Liquidity risk is defined as the risk of losses due to:
- the Bank’s funding costs increasing disproportionately;
- lack of funding preventing the Bank from establishing new business; and
- lack of funding ultimately preventing the Bank from meeting its obligations.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
186
4. Liquidity risk (continued)
Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Bank
is exposed to daily calls on its available cash resources from overnight deposits, current and call deposits,
maturing term deposits, loan drawdowns and guarantees.
The objective of the Bank’s liquidity and funding management is to ensure that all foreseeable funding
commitments and deposit withdrawals can be met when due. It is the Bank’s objective to maintain a
diversified and stable funding base with the objective of enabling the Bank to respond quickly and smoothly
to unforeseen liquidity requirements.
The Bank manages this risk by ensuring that its assets and liabilities are matched in terms of maturities as
much as is practicable. However, the Bank ought to manage its net interest spread by investing funds in a
portfolio of assets with a longer term than the liabilities funding them. To mitigate exposures arising in this
respect, the Bank holds significant liquid assets in the form of Malta Government treasury bills, money
market placements and other short-term instruments for managing liquidity risk to support payment
obligations and contingent funding in a stressed market environment.
The Bank maintains internal liquidity buffers established by ALCO made up of cash and financial assets
which are also eligible for collateral against borrowing from the European Central Bank. In order to ensure
that maturing funds are always available to meet unexpected demand for cash, the Board sets parameters
within which maturities of assets and liabilities may be mismatched in line with the stance referred to
previously. Unmatched positions potentially enhance profitability, but also increase risks. The Bank’s ALCO
focuses on the entity’s management process with respect to market and funding liquidity risks. ALCO
maintains ongoing oversight of forecast and actual cash flows, by monitoring the availability of funds to
meet commitments associated with financial instruments. ALCO is supported by the Bank’s Executive Team
and Treasury Function in this respect, at operational level. ALCO monitors the Bank’s Liquidity Gap analysis
on a monthly basis. The Bank’s liquidity management process comprises management of day-to-day
funding, by monitoring future cash flows to ensure that requirements can be met and that funds are
replenished as they mature or are borrowed by customers. This implies a structured ongoing analysis of the
contractual maturity of the financial liabilities and the expected collection date of the financial assets. The
Bank’s liquidity management focuses on maintaining a portfolio of highly marketable assets, subject to pre-
established limits, that can easily be liquidated in case of any unforeseen interruption to cash flow; and
monitoring the liquidity ratios of the Bank against internal and regulatory requirements. In this respect, the
Bank’s advances-to-deposit ratio of 70.4% at the end of the reporting period reflects management’s
prudent stance in the context of liquidity management. Also, the Liquidity Coverage ratio at 31 December
2022 is 210.7%, which is significantly higher than the prudential parameters set by Regulation.
Reporting of measures of liquidity risk and liquidity ratios vis-à-vis internal limits flows to the ALCO and
Board on a regular basis. The Bank’s Risk Management Function provides oversight in respect of the
liquidity risk management process ensuring that it is functioning effectively.
The Bank also monitors the level and type of undrawn lending commitments and the impact of contingent
liabilities such as guarantees as part of the liquidity management process previously referred to.
As at 31 December 2022, the Bank had outstanding guarantees on behalf of third parties amounting to
€10,886,000 (2021: €9,320,000), which are cancellable upon the request of the third parties. The Bank’s
liquidity exposures arising from these commitments and contingencies are expected to expire principally
within a period of twelve months from the end of the reporting period.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
187
4. Liquidity risk (continued)
4.2 Asset Encumbrance
The disclosure on asset encumbrance is a requirement introduced in Banking Rule BR/07 transposing the
provisions of the EBA Guidelines on Disclosure of Encumbered and Unencumbered Assets
(EBA/GL/2014/03).
The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that
could be used to support potential future funding and collateral needs. An asset is defined as encumbered
if it has been pledged as collateral against an existing liability, and as a result is no longer available to the
Bank to secure funding, satisfy collateral needs or be sold to reduce the funding requirement.
The disclosure is not designed to identify assets which would be available to meet the claims of creditors
or to predict assets that would be available to creditors in the event of a resolution or bankruptcy.
In accordance with the EBA ‘Guidelines on Disclosure of Encumbered and Unencumbered Assets’, the
amounts disclosed in the table below represent median values, being the rolling quarterly amounts over
the previous 12 months.
Carrying
amount of
encumbered
assets
Fair value of
encumbered
assets
Carrying amount
of unencumbered
assets
Fair value of
unencumbered
assets
€ 000 € 000 € 000 € 000
At 31 December 2022
Assets of the reporting institution
11,498
11,498
1,181,265
1,181,265
Loans on demand
2,139
2,139
102,870
102,870
Equity instruments
-
-
8,356
8,356
Debt securities
8,539
8,539
283,397
283,397
Loans and advances
-
-
707,052
707,052
Other assets
820
820
79,590
79,590
The Bank does not encumber any of the collateral received. Moreover, as at 31 December 2022, the Bank
did not have any outstanding liabilities associated with encumbered assets and collateral received.
The Bank undertakes encumbrance by pledging debt securities against the provision of credit lines by the
Central Bank of Malta and in favour of the Depositor Compensation Scheme.
5. Operational risk
Operational risk is the risk of loss resulting from the lack of skilful management or good governance within
the Bank and the inadequacy of internal control, which might involve internal operations, staff, systems or
external occurrences that in turn affect the income and capital funds of financial institutions. The Bank has
adopted an operational risk management framework and procedures, which provide for the identification,
assessment, management, monitoring and reporting of the Bank’s operational risks. Operational risk is also
addressed through proper insurance cover.
Operational risk management relies on a framework of policies and procedures implemented by the
different operational functions within the Bank through transaction processing and business execution.
Regular reporting of operational risk events to the Board of Directors is carried out as required. The
implementation of such policies and procedures by the Bank’s operational functions is overseen by the Risk
Management Function.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
188
5. Operational risk (continued)
The Bank currently uses the Basic Indicator Approach to assess the operational risk capital requirements
and accordingly allocates 15% of average gross income for a three year period in accordance with regulatory
requirements. The operational risk capital regulatory requirement as at 31 December 2022 amounted to
€4,214,000.
6. Capital risk management
The Bank is a licensed credit institution and must therefore comply with the capital requirements under the
relevant capital requirements within laws and regulations. Maltese law and regulations on capital adequacy
are naturally based on EU capital requirements.
The prudent and efficient management of capital remains one of the Bank’s top priorities. The Bank must
have sufficient capital to comply with regulatory capital requirements. The purpose of the Bank’s capital
management is to ensure an efficient use of capital in relation to risk appetite as well as business
development. Capital management is managed primarily through the capital planning process that
determines the optimal amount and mix of capital that should be held by the Bank, subject to regulatory
limits.
Capital adequacy and the use of regulatory capital are monitored regularly by the Bank’s management,
employing techniques based on the guidelines developed by the Basel Committee, European Union
Regulations and Directives, as implemented by the MFSA for supervisory purposes. The Bank’s capital
management is based on the regulatory requirements established within the CRR and by local regulations
which are modelled on the requisites of the CRD rules.
The Bank’s Executive Team and ALCO are predominately responsible for the Bank’s capital risk management
process. Capital adequacy ratios together with the level and quality of Own funds are reported on a regular
basis to the Board and the ALCO by the Finance Function.
6.1 Own funds
Own funds represent the Bank’s available capital and reserves for the purposes of capital adequacy. Capital
adequacy is a measure of the financial strength of a bank, expressed as a ratio of its capital to its assets.
The Bank adopts processes to ensure that the minimum regulatory requirements are met at all times,
through the assessment of its capital resources and requirements given current financial projections.
During the year ended 31 December 2022, the Bank complied with all of the externally imposed capital
requirements to which it was subject.
In July 2013, the European Banking Authority (EBA) issued its final draft Implementing Technical Standards
(ITS) on Own funds disclosures. The disclosure requirements of these technical standards have been
integrated within the Bank’s disclosures set out below.
The Bank’s capital base comprises Common Equity Tier 1 (CET1) capital, which includes the following items:
 ordinary share capital;
 share premium;
 retained earnings;
 revaluation and other reserves; and
 other regulatory adjustments relating to items that are included in equity but are treated differently
for capital adequacy purposes including deductions relating to amounts pledged in favour of the
Depositor Compensation Scheme.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
189
6. Capital risk management (continued)
(a) Share capital
The Bank’s share capital as at 31 December 2022 is analysed as follows:
2022
No. of
shares
000s € 000
Authorised
Ordinary shares of 12.5 cent each 300,000 37,500
Issued
Ordinary shares of 12.5 cent each 90,728 11,341
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Bank. All shares rank equally with regard to the Bank's
residual assets.
The following table describes the terms and conditions of the ordinary share capital issued by the Bank.
Capital Instruments
Ordinary share capital and
share premium
Unique Identifier
MT0000040106
Governing law(s) of the instrument
Maltese Law
Regulatory treatment
Transitional CRR rules
Common Equity Tier 1
Post
-
transitional CRR rules
Common Equity Tier 1
Eligible at solo/(sub)
-
consolidated/ solo&(sub
-
) consolidated
Solo
Amount recognised in regulatory capital
€
11,340,967
Nominal
amount of instrument
€
11,340,967
Nominal amount of each share
€
0.
1
25
Accounting classification
Share capital
Issuer call subject to prior supervisory approval
No
Position in subordination hierarchy in liquidation
Subordinated to creditors
and depositors
Non
-
compliant transitioned features
No
(b) Share premium
The share premium represents the amounts at which ordinary shares were issued in excess of their nominal
value, normally arising as a result of rights issues approved by the shareholders during the Annual General
Meetings. The amount is not distributable by way of dividend to shareholders.
(c) Retained earnings
The retained earnings represent earnings not paid out as dividends.
Retained earnings form part of Own funds only if those profits have been verified by the Bank’s
independent external auditor. The Bank has demonstrated to the satisfaction of the competent authority
that any foreseeable charge or dividend has been deducted from the amount of those profits.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
190
6. Capital risk management (continued)
(d) Reserve for General Banking Risks
Banking Rule BR/09 ‘Measures addressing credit risks arising from the assessment of the quality of asset
portfolios of credit institutions authorised under the Banking Act 1994’, issued by the MFSA, requires banks
in Malta to hold additional reserves for general banking risks in respect of non-performing loans. This
reserve is required to be funded from planned dividends. As at the reporting date, this reserve amounted
to €2,903,000 (representing 100% of the total estimated amount). The amount has not changed during the
year under review.
(e) Property revaluation reserve
This represents the surplus arising on the revaluation of the Bank's freehold property net of related
deferred tax effects. The revaluation reserve is not available for distribution.
(f) Investment revaluation reserve
This represents the cumulative net change in fair values of assets measured at FVOCI held by the Bank, net
of related deferred tax effects.
The Bank’s Own funds and capital ratio calculations are set out below:
At 31 December 2022 € 000
Common Equity Tier 1 (CET1) capital
Common Equity Tier 1 (CET1) capital: instruments and reserves
Capital instruments and the related share premium accounts 29,871
Retained earnings 100,204
Accumulated other comprehensive income (and other reserves) (2,657)
Reserve for General Banking Risks 2,903
CET1 capital before regulatory adjustments 130,321
Common Equity Tier 1 (CET1) capital: regulatory adjustments
Intangible assets (57)
Other regulatory adjustments 6,710
Total regulatory adjustments to CET1 6,653
CET1 capital 136,974
Total risk-weighted assets 834,918
Capital ratios
CET1 capital 16.41%
Tier 1 capital 16.41%
Total capital 16.41%
Institution specific buffer requirement 7.00%
of which: capital conservation buffer requirement 2.50%
CET1 available to meet buffers in excess of the CRR 4.5% minimum requirement 11.91%
CET1 available to meet buffers 9.41%
€000
Items not deducted from own funds in accordance with Article 48 of CRR 6,933
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
191
6. Capital risk management (continued)
6.2 Capital requirements
The allocation of capital between specific operations and activities is, to a large extent, driven by
optimisation of the return achieved on the capital allocated. The amount of capital allocated to each
operation or activity is based primarily upon the regulatory capital, though in some cases the regulatory
requirements do not reflect differing risk profiles, subject to the overall level of capital to support a
particular operation or activity not falling below the minimum required for regulatory purposes. The
process of allocating capital to specific operations and activities is undertaken independently of those
responsible for the operation.
Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how
capital is allocated within the Bank to particular operations or activities, it is not the sole basis used for
decision-making. Account is also taken of synergies with other operations and activities, the availability of
management and other resources, and the fit of the activity with the Bank’s long-term strategic objectives.
The Bank’s policies in respect of capital management and allocation are reviewed regularly by the Board of
Directors.
The Pillar I minimum capital requirements are calculated for credit, market and operational risks. During
the year, the Bank continued to use the Standardised Approach for credit risk, the Basic Method for foreign
exchange risk and the Basic Indicator Approach for operational risk in order to calculate the Pillar I minimum
capital requirements. For credit risk, under the Standardised Approach, risk weights are determined
according to the asset class, credit risk mitigation and external credit ratings - or by using the applicable
regulatory risk weights for unrated exposures. Capital charge for foreign exchange risk using the Basic
Method is calculated at 8% of the higher of the sum of all the net short positions and the sum of all the net
long positions in each foreign currency. The Basic Indicator Approach requires that the Bank allocates
capital for operational risk by taking 15% of the average gross income of the preceding three years.
The Total Capital Ratio is calculated using the definition of regulatory capital and risk-weighted assets. As
required by the CRR, the minimum level of the Capital Requirements Ratio stands at 8%. The Capital
Requirements Ratio expresses Own funds as a proportion of risk-weighted assets and off-balance sheet
instruments for credit risk purposes, together with notional risk-weighted assets in respect of operational
risk and market risk. Total risk-weighted assets are determined by multiplying the capital requirements for
market risk and operational risk by 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) and adding
the resulting figures to the sum of risk-weighted assets for credit risk.
The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital on
shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between
the higher returns that might be possible with greater gearing and the advantages and security afforded by
a sound capital position.
The Bank fully implemented the CRD IV capital requirements with effect from January 2020. Although it is
not yet certain whether the Bank will be required to maintain an additional countercyclical capital buffer
as required by the CRR, given that the Bank’s exposures are mainly contained within Malta, this buffer is
expected to be marginal, since the deviation of Malta’s credit-to-GDP ratio is not expected to be significant
taking cognisance of its long-term trend.
Additionally, the Bank is required to maintain a capital conservation buffer of 2.5%, made up of CET1 capital,
on the risk-weighted exposures of the Bank as at 31 December 2022.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
192
6. Capital risk management (continued)
The Bank’s capital requirements and Total Capital Ratio computation are as follows:
At 31 December 2022
Exposure
value
€ 000
Risk weighted
assets
€ 000
Capital required
€ 000
Central governments or central banks 307,189 18,814 1,505
Regional Government or Local Authorities - - -
Public Sector Entities 537
108
9
Multilateral Development Banks 7,791
141
11
International Organisations -
-
-
Institutions 51,148
17,109
1,369
Corporates 91,378
90,989
7,279
Retail 17,302
12,976
1,038
Secured by mortgage on immovable property 484,937
349,162
27,933
Exposures in default 15,376
23,064
1,845
Items associated with particularly high risk 129,915
194,872
15,590
Covered Bonds - - -
Claim on Institutions and Corporate with a short
-
term credit assessment
-
-
-
Claims in the form of CIU - - -
Equity 22,866
24,032
1,923
Other items 59,056
50,927
4,074
Credit risk 1,187,495 782,194 62,576
Foreign exchange risk
53
4
Operational risk
52,671
4,214
Total capital required
8
34
,9
18
66,
794
Own funds
Common Equity Tier 1 capital
136,97
4
Total own funds
136,97
4
Total capital ratio
-
Transitional
16.
41
%
Total Risk weighted assets - Fully Phased In
(without A468 concession)
843,967
Total Capital Ratio
-
Fully Phased In
15.
43
%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
193
6. Capital risk management (continued)
The following is an analysis of the Bank’s Capital Base in accordance with the CRD’s requirements:
2022
2021
€ 000
€ 000
Common Equity Tier 1 (CET1) capital
Share capital
11,341
11,192
Share premium
18,530
18,530
Revaluation and other reserves
1,918
20,828
Retained earnings
100,204
81,452
131,993
132,002
Adjustments:
Final dividend (note 36)
-
(873)
Depositor Compensation Scheme
(1,67
2
)
(2,95
8
)
Intangible assets
(57)
(122)
Other regulatory adjustments
6,710
2,097
Total CET1 capital
136,97
4
130,145
Total own funds – Transitional
136,97
4
130,145
Other regulatory adjustments
(6,720)
(2,189)
Total own funds - Fully Phased In
130,25
4
127,956
6.3 Other disclosures on own funds
The Bank has opted for the transitional arrangements laid down in Regulation (EU) 575/2013 Article 473a
to mitigate the impact of IFRS9 on own funds. Under Regulation (EU) 2017/2395, during the transitional
period ending 31 December 2023, the Bank would have had the option to add back a proportion of:
 the Day 1 impact as a result of the introduction of IFRS 9, being the difference between IFRS 9 Expected
Credit Losses (‘ECLs’) on 1 January 2018 and IAS 39 provisions determined at 31 December 2017; and
 on difference in the IFRS 9 ECLs determined at reporting date and the ECLs determined on ‘day 1’ of
the introduction of IFRS 9 (being 1 January 2018 for the Bank) for ‘Stage 1’ (12-months ECLs) and ‘Stage
2’ (lifetime ECLs) assets.
The factors used to adjust the above ECLs declines across the transitional period starting at 100% during
the financial year ended 31 December 2020 to 25% in the final transitional financial year ended 21
December 2024. The above treatment is in accordance with the requirements laid down in paragraph 2 and
paragraph 4 of Regulation (EU) 2017/2395.
In line with Section 2 of the EBA ‘Guidelines on uniform disclosures under Article 473a of Regulation (EU)
No 575/2013 as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9
on own funds’, the Bank is required to disclose a comparison of the institutions’ own funds, Common Equity
Tier 1 capital, Tier 1 capital, risk-weighted assets, Common Equity Tier 1 capital ratio, Tier 1 capital ratio,
total capital ratio and leverage ratio with and without the application of transitional arrangements for IFRS
9 or analogous ECLs.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
194
6. Capital risk management (continued)
The comparison of Bank’s own funds and capital and leverage ratios with and without the application of
transitional arrangements for IFRS 9 or analogous ECLs, and with and without the application of the
temporary treatment in accordance with Article 473a of the CRR is presented below:
At 31 December 2022
€ 000
Available capital
CET1 capital 136,974
CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Tier1 capital 136,974
Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Total capital 136,974
Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 136,974
Risk-weighted assets
Total risk-weighted assets 834,918
Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not
been applied
834,918
Capital Ratios
CET1 (as a percentage of risk exposure amount) 16.41%
CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
16.41%
Tier 1 (as a percentage of risk exposure amount) 16.41%
Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
16.41%
Total capital (as a percentage of risk exposure amount) 16.41%
Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs
transitional arrangements had not been applied
16.41%
Leverage ratio
Leverage ratio total exposure measure 1,205,082
Leverage ratio 11.37%
Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied 11.37%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
195
6. Capital risk management (continued)
6.4 Internal Capital Adequacy Assessment Process (ICAAP)
The Bank considers the Internal Capital Adequacy Assessment Process (ICAAP) embedded in Pillar II as a
tool that ensures the proper measurement of material risks and capital and allows for better capital
management and improvements in risk management. Therefore, it facilitates a better alignment between
material risks and regulatory capital in order to have better capital deployment and improvements in the
risk management and mitigation techniques adopted by the Bank. The ICAAP as required by the MFSA
Banking Rule BR/12: The Supervisory Review Process of Credit Institutions authorised under the Banking
Act, 1994, is performed on an annual basis.
Therefore, ICAAP is a process that the Bank utilises to ensure that:
- there is adequate identification, measurement, aggregation and monitoring of the Bank’s risks;
- adequate internal capital is held by the institution in relation to its risk profile; and
- the Bank uses sound risk management systems and there is the intention to develop them further.
The Board and the Bank’s Executive Team take overall responsibility for the conceptual design and technical
details of the ICAAP document. Apart from the responsibility for the conceptual design, the Board
discussed, approved, endorsed and delivered the yearly ICAAP submission. The Bank’s independent Risk
Management Function is involved in the ICAAP with a view to ensuring that the process reflects and takes
cognisance of the Bank’s risk management activities and processes.
The ICAAP is an ongoing process which starts with defining risk strategy followed by identifying, quantifying
and aggregating risks, determining risk-bearing ability, allocating capital, establishing limits and ongoing
risk monitoring. The individual elements of the process are performed with varying regularity. All the
activities described are examined at least once a year to ensure that they are up to date, adequate and also
adjusted to current underlying conditions when necessary.
The process involves a quantitative assessment of individual types of risk and an assessment of the existing
methods and systems for monitoring and managing risk (qualitative assessment). The risk assessment
concept is based on a scoring procedure, thus providing a comprehensive overview of the risk situation of
the Bank.
The basis for the quantitative implementation of the ICAAP is the risk-bearing capacity calculation which
demonstrates that adequate capital is in place at all times to provide sufficient cover for risks that have
been entered into and which also ensures such cover is available for the future. The Bank’s ICAAP is based
upon a ‘Pillar I Plus’ approach whereby the Pillar I capital requirement for credit, market and operational
requirements are supplemented by the capital allocation for other material risks not fully addressed within
Pillar I. The risks considered for ICAAP include concentration, liquidity, reputational and strategic risks,
interest rate risk in the banking book, and risks arising from the macro-economic environment.
The Bank’s ICAAP contains three year projections as well as the capital plan, and the Board monitors that
there are adequate capital resources to support the corporate goals contained within the Bank’s plan and
the associated risks.
The Bank also covers Pillar II capital requirements through stress testing processes to forecast the Bank’s
projected capital requirements and resources in a range of stress scenarios. This enables the Bank to
guarantee that it can meet its minimum regulatory capital requirements in a stressed environment. The
results of the ICAAP once again show that the Bank maintains a comfortable level of excess capital and
substantial liquidity that ensured the flexibility and resources needed to achieve the long-term strategic
objectives of the Bank, even in situations of market stress.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
196
7. Leverage
The leverage ratio is a regulatory and supervisory tool intended to provide a transparent and non-risk based
measurement of an institution to supplement the risk-based capital requirements.
The leverage ratio is calculated on the end of year capital position as a proportion of total exposures. Capital
is defined as Tier 1 capital in line with Article 25 of the CRR, while total exposure relates to the total on-
and off-balance sheet exposures less the deductions applied to Tier 1 capital.
During 2016, the European Commission published a Proposal to amend Regulation 575/2013 (CRR), which
included the introduction of a 3% leverage ratio as a binding Pillar I requirement by 2018. The Bank complies
with a 3% leverage ratio based on fully-transitioned Basel III standards.
The following table represents the Bank’s estimated leverage ratio determined in accordance with the
requirements stipulated by Implementing Regulation EU 2016/200.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Tier 1 capital 136,974 130,254
Leverage ratio total exposure measure 1,205,082 1,208,702
Leverage ratio 11.37%
10.78%
The table shown hereunder represents the amounts making up the leverage ratio exposures.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
On-balance sheet exposures (excluding derivatives and SFTs)
On-balance sheet items (excluding derivatives and SFTs, but
including collateral)
1,167,778 1,117,398
Asset amounts deducted in determining Tier 1 capital (68)
(68)
On-balance sheet exposures (excluding derivatives and SFTs) 1,167,710 1,117,330
Off-balance sheet exposures
Off-balance sheet exposures at gross notional amount 216,760 216,760
Adjustments for conversion to credit equivalent amounts (179,388)
(179,388)
Off-balance sheet exposures 37,372 37,372
The following table provides a reconciliation of accounting assets and leverage ratio exposures.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Total assets as per published financial statements 1,170,620 1,170,620
Adjustment for off-balance sheet items 37,372 37,372
Other adjustments (2,910)
710
Leverage ratio total exposure measure 1,205,082 1,208,702
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
197
7. Leverage (continued)
The table below shows the different on-balance sheet exposures in relation to the calculation of the
leverage ratio.
At 31 December 2022
Transitional
definition of Tier
1 Capital
Fully phased in
definition of Tier
1 Capital
€ 000 € 000
Total on-balance sheet exposures (excluding derivatives and SFTs),
of which:
Exposures treated as sovereigns 307,189 310,809
Multilateral Development Banks 7,791 7,791
Institutions 50,799 50,799
Secured by mortgages on immovable property 472,153 472,153
Retail 15,234 15,234
Corporate 86,880 86,880
Exposures in default 15,376 15,376
Other exposures 212,288 212,288
1,167,710 1,171,330
The leverage ratio is a regulatory and supervisory instrument used by the Regulator to limit the build-up
of excessive leverage. The leverage ratio at 31 December 2022 stood at 11.37%.
The Bank is currently not at risk in curtailing excessive leverage since the growth in CET1 capital of 8.5%
was greater than the 3.3% increase in the Bank’s total exposure measure. As a result, the Leverage ratio
is expected to remain well above the mandatory requirement. Board limits to the leverage ratio are set
and reviewed annually and the ratio is monitored at every Audit & Risk Committee to ensure that it
remains above the tolerance limit set by the Board of Directors. This limit supports the Bank’s attitude
towards finding a suitable balance between risk and returns provided to shareholders.
8. Remuneration policy
Information on the Bank’s remuneration policy and practices is disclosed in the Remuneration Report
within the Annual Report located on page 34.
9. Other Directorships
In terms of Article 91 of Directive 2013/36/EU (CRD IV), directors of an institution that is significant in
terms of its size, internal organisation and the nature, scope and complexity of its activities shall not hold
more than one of the following combinations of directorships at the same time:
(a) one executive directorship with two non-executive directorships;
(b) four non-executive directorships.
According to the ‘Guide to banking supervision’ issued by the European Central Bank in November 2014,
a credit institution will be considered significant if any one of the following conditions is met:
- the total value of its assets exceeds €30 billion or – unless the total value of its assets is below €5
billion – exceeds 20% of national GDP;
- it is one of the three most significant credit institutions established in a Member State;
- it is a recipient of direct assistance from the European Stability Mechanism; or
- the total value of its assets exceeds €5 billion and the ratio of its cross-border assets/liabilities in
more than one other participating Member State to its total assets/liabilities is above 20%.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2022
198
9. Other Directorships (continued)
Lombard Bank Malta p.l.c. does not meet any of the above criteria, and therefore is currently not
considered significant by banking supervisors. Accordingly, the Bank is exempt from the requirements of
Article 91 of CRD IV.
The Bank is not disclosing the number of directorships held by the members of the Bank’s Board of
Directors on the basis of materiality in terms of Article 432 of the CRR.
10. Recruitment and Diversity policy
The Bank is aware that a vigorous and professional approach to recruitment and selection of prospective
staff members within the Bank helps it to attract and appoint those individuals having the necessary skills
and attributes compatible with achieving the Bank’s overall objectives. Thus, the Bank ensures that
appointments at all levels are based on each individual’s knowledge, skills, expertise and merit, as
required by laws, rules, regulations, etc. and in line with policy.
The Bank undertakes a rigorous selection process for all prospective staff members bearing in mind the
key activities, tasks and skills required. As part of the selection process, multiple interviews are conducted,
during which the individual’s knowledge, experience, skills and competence are evaluated against those
of other individual.
The Bank continues to promote diversity with no discrimination as to gender, race, family, disability,
sexual orientation, identity or preference, etc.
Bearing its objectives in mind, the Bank, particularly by virtue of the Board appointed Suitabilities &
Evaluations Committee, endeavours to have a Board of Directors composed of members possessing
diverse skills and expertise that allow the Board to create value for shareholders by ensuring that the
specific risks pursued by the Bank as well as risks that are intrinsic to banking business are appropriately
managed and mitigated within the Bank’s risk appetite.
199
Five Year Summary
Statements of Financial Position
Group
202
2
202
1
20
20
201
9
201
8
€ 000
€ 000
€ 000
€ 000
€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash
139,234 126,279 169,687 182,348 128,726
Cheques in course of collection
1,053
530 666 1,214 1,422
Financial i
nvestments
22
0,815
227,135 161,424 111,731 100,070
Loans and advances to banks
27,615
78,279 96,985 121,060 140,581
Loans and advances to customers
711,612
642,893 621,129 552,043 511,124
Investment
s
in associate
s
2,607
3,006 1,932 1,684 1,684
Intangible assets
2,121
2,145 2,050 2,000 1,701
Property, plant and equipment
66,375
65,346 50,928 43,348 38,554
Assets classified as held for
sale
703
661 134 134 778
Current tax assets
575
2,691 1,156 193 865
Deferred tax assets
10,889
7,034 10,117 9,801 9,221
Inventories
1,271
1,324 1,274 1,468 1,360
Trade and other receivables
13,243
10,787 9,136 5,625 5,010
Accrued
income and other assets
5,302
4,536 4,337 9,648 8,973
Total assets
1,203,415 1,172,646 1,130,955 1,042,297 950,069
Equity and liabilities
Equity
Share capital
11,341
11,192
11,044
11,044
11
11,044
Share premium
18,530
18,530 18,530 18,530 18,530
Property revaluation reserve
13,087
13,040
6,383
6,384
6,384
Investment revaluation reserve
(12,733) 5,180 7,181 7,978 4,975
Reserve for General Banking Risks
2,903 2,903 2,903 2,903 2,903
Other
reserves
1,382 2,545 2,510 2,567 3,094
Retained earnings
101,700 83,910 77,470 69,722 61,380
Equity attributable to equity holders
of the Bank
136,210
137,300
126,021
119,128
108,310
Non
-
controlling interests
8,090 8,470 7,741 7,674 7,525
Total equity
144,300 145,770 133,762 126,802 115,835
Liabilities
Amounts owed to banks
535
1,224 5,602 5,871 854
Amounts owed to customers
1,008,431
977,143 941,110 864,993 788,044
Provision for liabilities and other charges
1,688
2,113 2,632 3,236 3,135
Current tax liabilities
-
809 844 1,128 -
Deferred tax liabilities
4,099
4,099 6,448 6,832 5,264
Other liabilities
33,347
30,649 29,665 21,949 27,138
Accruals and
deferred income
11,015
10,839 10,892 11,486 9,799
Total liabilities
1,059,115 1,026,876 997,193 915,495 834,234
Total equity and liabilities
1,203,415 1,172,646 1,130,955 1,042,297 950,069
Memorandum items
Contingent liabilities
13,611 13,195 10,851 11,671 14,148
Commitments
202,396
195,848
200,870
225,826
202,384
200
Five Year Summary
Income Statements
Group
2022 2021 2020 2019 2018
€ 000 € 000 € 000 € 000 € 000
Interest receivable and similar income
29,020
25,725 24,898 25,285 23,188
Interest expense
(6,744)
(6,169)
(6,026)
(5,605) (5,677)
Net interest income
22,276
19,556 18,872 19,680 17,511
Other operating income
37,605
43,856 41,731 40,474 45,609
Other operating charges
(48,049)
(51,836)
(46,107)
(44,311) (49,225)
Net movement in expected credit losses
16,243
1,464 (3,973)
(549) (234)
Share of (loss)/profit of investment
accounted for using equity method
(399)
(402)
(151)
- 109
Profit before taxation
27,676
12,638 10,372 15,294 13,770
Income tax expense
(10,050)
(4,759)
(3,230)
(5,424) (4,831)
Profit for the year
17,626
7,879 7,142 9,870 8,939
Attributable to:
Equity holders of the Bank
17,530
7,481 6,640 9,320 8,447
Non-controlling interests
96
398 502 550 492
Profit for the year
17,626
7,879 7,142 9,870 8,939
201
Five Year Summary
Statements of Cash Flows
Group
2022 2021
2020 2019 2018
€ 000 € 000
€ 000 € 000 € 000
Net cash flows (used in) / generated
from operating activities (36,281)
31,632 14,475 53,125 (30,882)
Cash flows from investing activities
Dividends received 141 81 105 211 369
Interest received from investments 3,485 3,012 2,198 2,325 2,011
Proceeds on maturity/disposal -
of investments 5,220 6,760 16,468 8,163 4,406
Purchase of investments (27,518)
(75,270) (67,862)
(15,905)
(27,850)
Purchase of property, plant
and equipment (3,709)
(7,601) (8,942)
(3,345)
(2,921)
Proceeds from disposal of property,
plant and equipment - - 18 - -
Purchase of investment in associate - (1,500) (399)
- -
Net cash inflow arising from acquisition
of subsidiary - 833 - - -
Net cash flows used in investing
activities (22,381)
(73,685)
(58,414)
(8,551)
(23,985)
Cash flows from financing activities
Dividends paid to equity holders
of the Bank (873)
(862)
- (1,436)
(1,149)
Dividends paid to non-controlling
interests (429)
(429) (427)
(429)
(427)
Principal element of lease payments (478)
(523) (409)
- -
Net cash flows used in financing
activities (1,780)
(1,814) (836)
(1,865)
(1,576)

Independent auditor’s report

To the Shareholders of Lombard Bank Malta 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 Lombard Bank Malta p.l.c. (“the Bank”) give a true and fair view of the Group and the Bank’s financial position as at 31 December 2022, 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 Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386).

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

##### What we have audited

Lombard Bank Malta p.l.c.’s financial statements comprise:

· the Consolidated and Parent Company statements of financial position as at 31 December 2022;

· 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, which include significant accounting policies 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 Bank in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together 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 our audit of the financial statements in Malta. We have 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 Bank 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 Bank and its subsidiaries, in the period from 1 January 2022 to 31 December 2022, are disclosed in note 33 to the financial statements.

Our audit approach

#####

##### Overview

| · Overall group materiality: €640,000, which represents approximately 5% of the past 3-years average consolidated profit before tax adjusted for non-recurring items.
· The audit procedures carried out covered all the components within the Group namely Lombard Bank Malta p.l.c. (the Parent Company) and its subsidiaries Redbox Limited, Lombard Capital Asset Management Limited and Lombard Select SICAV p.l.c.. The Group also includes Maltapost p.l.c. which is a subsidiary of Redbox Limited (which is fully owned by Lombard Bank Malta p.l.c.) and Tanseana Limited, Ciantar Brothers Limited and PostaInsure Agency Limited, by virtue of Maltapost p.l.c.’s controlling shareholding in these three entities. The Parent Company and its subsidiaries are based in Malta.
· Credit loss allowances in respect of loans and advances to customers of Lombard Bank Malta p.l.c.

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated 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 consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated 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 | €640,000
How we determined it | Approximately 5% of the last 3-years average consolidated profit before tax adjusted for non-recurring items
Rationale for the materiality benchmark applied | We chose profit before tax 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 an average of the past 3 years, adjusted for non-recurring items, as it was determined more appropriate in view of the fluctuations in results. We chose 5% which is within the range of quantitative materiality thresholds that we consider acceptable.

We agreed with the Audit andRisk Committee that we would report to them misstatements identified during our audit above €64,000 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
Credit loss allowances in respect of loans and advances to customers of Lombard Bank Malta p.l.c. Credit loss allowances in respect of loans and advances to customers represent management’s best estimate of Expected Credit Losses (‘ECLs’) within the loan portfolios at the balance sheet date. The development of the models designed to estimate ECLs on loans measured at amortised cost in accordance with the requirements of IFRS 9 requires a considerable level of judgement since the determination of ECLs is subject to a high degree of estimation uncertainty. The outbreak of the COVID-19 pandemic, followed by the ensuing global macro-economic uncertainties driven by the Russia-Ukraine conflict, have resulted in supply chain disruptions and significant inflationary pressures. These realities have exacerbated the level of uncertainty around the calculation of ECLs, giving rise to heightened subjectivity in the determination of model assumptions used to estimate key model risk parameters and hence necessitating a higher level of expert judgement. Credit loss allowances relating to all loans and advances in the Bank’s portfolios are determined at an instrument level. In general, the Bank calculates ECLs by multiplying three main components: probability of default (PD), loss given default (LGD) and exposure at default (EAD): i. Probability of default (“PD”): the likelihood of a borrower defaulting on its financial obligation either over the next 12 months or over the remaining lifetime of the obligation. ii. Loss given default (“LGD”): the expected losses taking into account, among other attributes, the mitigating effect of collateral value (if any) at the time it is expected to be realised and the time value of money. The LGD modelling methodology utilises historical experience, which might result in limitations in its reliability to appropriately estimate ECLs especially during periods characterised by unprecedented economic conditions such as those currently experienced as a result of the aftermath of the COVID-19 pandemic and the ensuing supply chain disruptions and global inflationary pressures. iii. Exposure at default (“EAD”): the expected exposure in the event of a default (including any expected drawdowns of committed facilities). When applicable, the Bank also applies overlays based on expert judgement where management’s view is that the calculated ECLs based on these key inputs do not fully capture the risks within the Bank’s loan portfolios. For non-defaulted (Stage 1 and 2) loans and a number of defaulted (Stage 3) loans which are not individually significant, the Bank uses internally developed statistical models. For non-defaulted (Stages 1 and 2) exposures, PDs are estimated using historical model development data based on the Bank’s own experience as available at the reporting date. For exposures secured by immovable properties, LGDs are driven by the adjusted loan-to-value ratio of the individual facilities and takes into account other assumptions, including market value haircut (which includes costs to sell), time to sell and the impact of discounting the collateral from the date of realisation back to the date of default. The maximum period considered when measuring ECLs is the maximum contractual period over which the Bank is exposed to credit risk. For individually significant defaulted (Stage 3) exposures, discounted cash flow models are utilised in order to estimate ECLs. Internal credit risk management practices are used to determine when a default has occurred, considering quantitative and qualitative factors where appropriate. Judgement is required to determine when a default has occurred and then to estimate the expected future cash flows related to the loan, which are dependent on parameters or assumptions such as the valuation of collateral (including forced sale discounts and assumed realisation period) or forecasted operating cash flows. The Bank is required to assess multiple scenarios in this respect, which scenarios will have probabilities attached. The impact of supply chain disruptions and inflationary pressures experienced in the local economy has increased the level of uncertainty around judgements made in determining the timing of defaults and in respect of staging. In this respect, these economic conditions might be reasonably expected to impact the affordability of repayments due to the higher cost of living experienced locally together with the potential impact of changes in market interest rates. Such inflationary pressures appear to be partially mitigated by Government support measures. Under IFRS 9, the Bank is required to formulate and incorporate multiple forward-looking economic conditions, reflecting management’s view of potential future economic variables and environments, into the ECL estimates. A number of macro-economic scenarios based on the selected macro-economic variables are considered to capture non-linearity across credit portfolios. The complexity attributable to this factor requires management to develop multiple macro-economic scenarios involving the use of significant judgements. The outbreak of COVID-19 and the ensuing macro-economic uncertainty induced by the Russia-Ukraine conflict and related supply chain disruptions have significantly impacted macro-economic factors, increasing the uncertainty around judgements made in determining the severity and likelihood of macro-economic forecasts across the different economic scenarios used in ECL models. Overly sensitive ECL modelled outcomes can be observed when conditions fall outside the range of historical experience. Data used in the impairment calculation is sourced from a number of systems, including systems that are not necessarily used for the preparation of accounting records. The ECL models are based on a general-purpose application which requires extensive manual handling of data. This increases risk around the accuracy and completeness of data used to determine assumptions and to operate the ECL models. In some cases, data is unavailable and reasonable alternatives have been applied to allow calculations to be performed. Since the estimation of ECLs is subjective in nature and inherently judgmental, the Bank’s application of the IFRS 9 impairment requirements is deemed to be an area of focus, especially in the context of the unprecedented macro-economic conditions currently experienced, which have significantly increased the level of estimation uncertainty in respect of the calculation of credit loss allowances. We focused on credit loss allowances due to the subjective nature of specific data inputs into the calculation and the subjective judgements involved in both timing of recognition of impairment and the estimation of the size of any such impairment. Accordingly, summarising the key areas relevant to the Bank’s measurement of ECLs would include: · Allocation of assets to stage 1, 2, or 3 using criteria in accordance with IFRS 9; · Accounting interpretations and modelling assumptions used to build the models that calculate the ECL; · Completeness and accuracy of data used to calculate the ECL; · Inputs and assumptions used to estimate the impact of multiple macro-economic scenarios; and · Measurement of individually assessed provisions including the assessment of multiple scenarios. Relevant references in the Annual Report and Financial Statements: • Accounting policy: note 1.7 • Credit risk management: note 2.3; • Accounting estimates and judgements: note 3.2; • Note on Credit impairment losses: note 32; and • Note on Loans and advances to customers: note 8. | During our audit of the financial statements for the year ended 31 December 2022, we continued to focus on the key drivers of the estimation of ECL. Apart from assessing the continuing appropriateness of management assumptions, updates to key parameters and model enhancements, were evaluated and tested. Discussions with the Audit andRisk Committee and management were held on: · inputs, assumptions and adjustments to ECL, in particular changes to risk factors and other inputs within the Bank’s models, in respect of which we provided updates on the results of our testing procedures; · the application of forward economic scenarios, including the severity and magnitude of modelled downside scenarios, particularly in the context of the impact of macro-economic developments characterising the aftermath of the COVID-19 pandemic and the escalation of the military conflict between Russia and Ukraine; · considerations in respect of post model adjustments; and · individually significant loan impairments. With respect to the ECL models utilised by the Bank, the continued appropriateness of the modelling policies and methodologies used was independently assessed by reference to the requirements of IFRS 9. ECL calculation for non-defaulted loan exposures and a number of defaulted loans which are not individually significant We understood and critically assessed the models used for ECL estimation for the Bank’s loan portfolio. Since modelling assumptions and parameters are based on historic data, we assessed whether historic experience was representative of current circumstances and of the recent losses incurred within the portfolios. The appropriateness of management’s judgements was also independently considered in respect of calculation methodologies, calibration of PDs and LGDs, segmentation and selection of macro-economic variables. Model calculations were also tested independently. Substantive procedures were performed as follows: · Performed an overall assessment of the ECL provision levels by stage to determine if they were reasonable considering the Bank’s portfolio, risk profile, credit risk management practices and the macro-economic environment. · Tested a sample of loans to independently review the borrower’s financial performance and ability to meet loan repayments and assess the appropriateness of the credit rating assigned by management, taking into consideration the estimated impacts of the prevailing macro-economic environment on repayment capabilities of the sampled borrowers. · Challenged the criteria used to allocate an asset to stage 1, 2 or 3 in accordance with IFRS 9 and tested a sample of assets in stage 1, 2 and 3 to verify that they were allocated to the appropriate stage. · Tested the completeness and accuracy of the critical data extracted from the underlying systems, that is utilised within the models for the purposes of the year end ECL calculation. · Risk based testing of models, including a review of the continuing appropriateness of model assumptions. We tested the assumptions, inputs and formulas used in ECL models on a sample basis. This included assessing the appropriateness of model design and formulas used, and recalculating PDs, LGDs and EADs on a sample basis, through the involvement of subject matter experts. · We assessed the reasonableness of modelled PDs through a comparison of historically predicted and observed default rates, taking into consideration the potential postponement in timing of defaults due to government support programmes and measures, and the reasonableness of modelled LGDs taking cognisance the potential impacts of the current macro-economic environment. · We also assessed the reasonableness of market value haircuts and time to sell assumptions used as inputs in the light of the current economic climate. · Tested the multiple macro-economic scenarios and variables using our experts to assess their reasonableness. We assessed the reasonableness of changes effected to factor the impact of current economic conditions, including the recalibration of probability weights. We assessed whether the severity of the forecasted macro-economic variables was appropriate. We challenged the correlation and impact of the macro-economic factors on the ECL. Our testing of models and model assumptions did not highlight material differences. Based on the evidence obtained, we found the model assumptions, data used within the models and overlays to be reasonable. ECL calculation for defaulted individually significant loan exposures For defaulted exposures within the loan portfolio, the appropriateness of the methodology and policy used to calculate ECLs was independently assessed. We understood and evaluated the processes for identifying default events within loan portfolios, as well as the impairment assessment process. Substantive procedures were performed in respect of identification of defaults as follows: · Assessed critically the criteria used by management for identifying borrowers whose financial performance is expected to be particularly susceptible to the potential impact of the inflationary pressures being experienced and for determining whether a UTP/default event had occurred by testing a sample of loans with characteristics that might imply a default event had occurred (for example a customer experiencing financial difficulty or material sector disruption) to challenge whether default events had actually occurred and to assess whether default events had been identified by management in a timely manner. · Selected a sample of performing loans, including from those sectors that we consider to be particularly affected by the current macro-economic environment, which had not been identified by management as potentially defaulted, to form our own judgement as to whether that was appropriate and to further challenge whether all relevant events had been identified by management. Substantive procedures were performed on defaulted exposures in respect of the estimation of the amounts of the respective ECL provisions, as follows: · Reviewed the credit files of a selected sample of loans to understand the latest developments at the level of the borrower and the basis of measuring the ECL provisions and considered whether key judgements were appropriate. · Challenged the severity of scenarios being applied for these exposures, together with their respective probability weights by forming an independent view of the recoverability of the selected loan exposures under different scenarios, assigning probabilities independently and comparing the outcomes to that of the Bank. · Tested key inputs to and reperformed the impairment calculation used to derive expected cash flows under different scenarios. · Assessed the appropriateness of a sample of property valuations securing impaired loans through the use of experts. In the case of some impairment provisions, we formed a different view from that of management, but in our view the differences were within a reasonable range of outcomes.

How we tailored our group audit scope

The Group is composed of eight components: Lombard Bank Malta p.l.c. (the parent company), and its subsidiaries Redbox Limited, Lombard Select SICAV p.l.c. and Lombard Capital Asset Management Limited. The Group also includes Maltapost p.l.c. which is a subsidiary of Redbox Limited (which is fully owned by Lombard Bank Malta p.l.c.) and Tanseana Limited, Ciantar Brothers Limited and PostaInsure Agency Limited, by virtue of Maltapost p.l.c.’s controlling shareholding in these three entities.

MaltaPost p.l.c. has been determined to be a financially significant entity.

We tailored the scope of our audit in order to perform sufficient work on all components to enable us to provide an opinion on the consolidated 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, and local statutory requirements.

The Group audit team performed all of this work by applying the Group overall materiality, together with additional procedures performed on the consolidation. This gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.

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Other information

The directors are responsible for the other information. The other information comprises all of the information in the Annual Report and Financial Statements 2022 (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, 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 Banking Act (Cap. 371) and 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 Bank’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 Bank 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 Bank’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 Bank’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 Bank 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.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance 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 to 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.

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 Lombard Bank Malta p.l.c. for the year ended 31 December 2022, 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 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.

Other reporting requirements

The Annual Report and Financial Statements 2022 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 Report and Financial Statements 2022 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. With respect to the information required by paragraphs 8 and 11 of the Sixth Schedule to the Act, our responsibility is limited to ensuring that such information has been provided. | 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 the Principles of Good Corporate Governance 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.
Remuneration report The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare a Remuneration report, including the contents listed in Appendix 12.1 to Chapter 12 of the Capital Markets Rules. | We are required to consider whether the information that should be provided within the Remuneration report, as required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets Rules, has been included. | In our opinion, the Remuneration report has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.
| Other matters prescribed by the Maltese Banking Act (Cap. 371) In terms of the requirements of the Maltese Banking Act (Cap. 371), we are also required to report whether: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the Bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; · in our opinion, and to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law which may from time to time be in force in the manner so required. | In our opinion: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; and · to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law in force in the manner so required.
| 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. 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 Bank’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.

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Appointment

We were first appointed as auditors of the Bank on 10 April 2010. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 13 years.

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

Fabio Axisa

Partner

27 April 2023