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Company Registration Number: C 1607
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements
31 December 2023
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
1
CONTENTS
Chairman’s Statement to the Members 2
Chief Executive Officer’s Review 4
Directors’ Report 9
Statement of Compliance with the Principles of Good Corporate Governance 45
Remuneration Report 56
Company Information 61
Financial Statements:
Statements of Financial Position 63
Income Statements 65
Statements of Comprehensive Income 66
Statements of Changes in Equity 67
Statements of Cash Flows 71
Notes to the Financial Statements 72
Additional Regulatory Disclosures 197
Five Year Summaries 227
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 2023
2
Chairman’s Statement to the Members
The Lombard Bank Group’s financial position strengthened further in 2023 in the context of a sustained economic
recovery, registering a pre-tax profit of €14.5 million. Both components of the Group, Lombard Bank Malta p.l.c
(‘the Bank’) and MaltaPost p.l.c, contributed to this satisfactory outcome. While the Bank operated with a reduced
lending, and therefore earnings, capacity for most of the year for reasons that will be explained later, its income
stream benefitted from the higher prevailing market interest rates. At MaltaPost p.l.c, meanwhile, improved
profitability was driven mainly by growth in the parcel and e-commerce business, but also by increased efficiency
in the delivery of postal services and minor revisions to some postal tariffs.
The Bank’s main revenue source in 2023 was again net interest income, accounting for almost four-fifths of the
total. Two factors in the main were responsible for the increase, namely the Bank’s money market operations and
its credit activity. In the case of the former, the higher inflows reflected the pronounced move of the ECB’s
benchmark rates from negative to positive territory. With regard to the Bank’s lending activity, which nevertheless
remained the single largest source of interest income, the pace of credit creation was influenced for most of the
year by the need to remain compliant with regulatory capital requirements. This, combined with the fact that
average lending rates did not increase, had a calming effect on income flows from this source. Net fees and
commission income as well as dividends also contributed. As a result of all these movements, the Bank’s total
operating income reached a new high of €32.9 million.
The Bank’s running costs grew at a slower rate than in 2022 and totalled €17.7 million. Employee compensation
and benefits again accounted for just above half of the total. Though the staff complement increased only
marginally, the attraction and retention of qualified expertise in a tight labour market necessarily implied higher
outlays. For this same reason, as well as the need to ensure compliance with the ever-growing body of regulation,
staff training was allocated more time and resources. The Bank’s other major cost items, notably related to
information systems, card services and regulation and compliance, did not experience significant variations.
As a result of a judicious management of costs, which grew considerably less than the Bank’s income, and the
setting aside of a precautionary amount for potential credit losses as required by regulation, the cost to income
ratio improved further in 2023. The outcome of these movements resulted in the Bank’s total equity rising to €186
million.
The Bank’s time-tested, business model meanwhile continued to produce sound financial fundamentals, reflective
of a risk-averse management culture. At the end of the year the Total Capital Ratio and the Liquidity Coverage
Ratio were well above the minimum regulatory requirements at 21.0% and 301.8%, respectively, as was the
Leverage Ratio which was almost five times the required regulatory level. Other financial soundness indicators,
notably the ratio of Loans to Deposits and the ratio of facilities technically termed as Non-Performing Loans stood
at prudent levels of 74.3% and 3.7%, respectively. Equally significant is the fact that the average Loan-to-Value
Ratio of these facilities was only around 50%.
Another noteworthy aspect of the Bank’s risk management was the process of credit diversification. Continuing
an established trend, the share of retail lending increased to almost a third of the total, mainly reflecting strong
growth in the home loan portfolio. In this field the Bank employs an automated loan management system and the
entire process is supported by a team of qualified home loan officers. The quality of the Bank’s loan book is also
reflected in our relatively high levels of collateral, on average equivalent to almost three times the amount of total
lending.
On the liabilities side of the balance sheet, the Bank continued to attract a steady inflow of customer deposits.
Significantly, however, most of the growth last year took the shape of longer-term fixed deposits in response to
the attractive rates offered.
During the year the Bank continued to implement the strategic priorities spelled out in the Business Plan 2023-
2025, notably the expansion of its physical presence in the country and the replacement of the core banking
system, including digital channels and payments systems. Our automated customer onboarding platform, which
also includes anti-money laundering monitoring, is now fully operational. Important progress has also been
registered in meeting the Bank’s ESG obligations, where a working group is implementing the Action Plan, and in
strengthening our cyber security defences.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
3
Chairman’s Statement to the Members (continued)
As I remarked earlier, the Bank’s subsidiary, MaltaPost p.l.c. also contributed to the Group’s positive performance,
registering a pre-tax profit of €2.3 million. Reflecting success in the ongoing process of diversification, the parcel
and e-commerce business produced higher revenues. This factor largely offset the losses incurred due to the
continuing decline in Letter Mail volumes and in fulfilling the company’s Universal Postal Service Obligation. In this
regard, although some minor tariff revisions were approved by the regulator, domestic postal service tariffs in
Malta remain the lowest in Europe. Increased efficiency in mail delivery was also achieved, including through
investment in more electric vehicles. In terms of new revenue sources, positive returns are expected to accrue
from the company’s insurance and financial services business.
The past year was not without its challenges for the Bank either. Two in particular deserve mention. The first was
the one-year delay in launching the share Rights Issue. The Bank’s Qualifying Shareholder only supported a
resolution for this purpose in 2023 so that we were obliged to forego several bankable lending opportunities. The
second, and long standing, challenge has been the ever-increasing burden of regulation, which is absorbing
considerable human and financial resources. For a small bank such as Lombard, this factor is exacerbated by the
insufficient application of the principle of proportionality to take account of the Bank’s small size and conservative
business model.
As I have noted, the Rights Issue was successfully implemented, though late in the year so that the Bank could only
earn a fraction of the income which would have been derived from the increase in lending that the new capital
would have permitted in a full year. As a result of this brake on profitability, as well as the expectation that
regulatory minimum capital requirements will rise further in the near future, the Board of Directors considered it
prudent to recommend a gross dividend of 1.63 cent per share. The full benefit of the capital raise will only be
taken during the current year, on the basis of which we expect to be in a position to propose a distribution of
about one-third of annual profits, subject to regulatory approval and business requirements.
Going forward, the Board believes that following the capital increase the conditions now exist for the opportunities
for growth which have been identified to be exploited. This will be done without making any fundamental changes
to the Bank’s business model, which has consistently created shareholder value without weakening our
commitment to maintain a prudent risk appetite. The main focus will be on growing the Bank’s loan book, which
is the primary source of income, while seeking a greater balance between commercial and retail lending,
particularly home loans. At the same time, however, we also plan to grow our non-interest income, including
through the funds business, wealth management services and the offering of pension products. Further
investment will be undertaken in the areas of human and information technology resources, in the Bank’s
distribution channels and in seeking synergies with our postal subsidiary.
Last but not least the Board will continue in its endeavours to ensure that the Bank’s Qualifying Shareholder meets
its 2018 commitment to dispose of its shareholding. Settlement of this long-outstanding matter stands to benefit
all stakeholders, not least our correspondent banking relationships, as well as provide visibility to prospective
investors.
In conclusion, Lombard Bank is well equipped to build on last year’s satisfactory performance and on behalf of the
Board I would like to thank the staff and management team, ably led by the Chief Executive Officer, Joseph Said,
whose expertise and commitment made these encouraging results possible. I would also like to thank my fellow
directors and all our stakeholders for their loyalty and support.
Signed on behalf of the Bank's Board of Directors on 26 April 2024 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 2023.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
4
Chief Executive Officer’s Review
The results of the Lombard Bank Group for the financial year ended 31 December 2023 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 - 2023
Though geopolitical tensions, high inflation and rising interest rates prevailed, lower energy prices and the easing
of supply chain pressures resulted in 2023 being defined as the global economy’s ‘year of transition’.
Closer to home, while the EU narrowly avoided a recession, Malta performed well, despite being exposed to the
performance of overseas economies. Domestic demand, bolstered by subsidies on energy prices, a growing
population and low unemployment, together with a strong tourism industry contributed to the growth in Malta’s
service-oriented economy.
Our own activities remained firmly anchored to the Maltese economy, and despite the external threats and
uncertainties, the local economy had a positive influence on our operations.
When allowing for the one-time impact of a 2022 write-back in our Provisions, our FYE 2023 results exceeded
those of the previous year. We consider this to be confirmation of the validity of our straightforward business
model and of the team that plans, manages, and implements that model.
We proceeded with the execution of our strategic priorities, chiefly related to the raising of our capital, increasing
physical representation, the loan portfolio diversification, and the updating of our digital capabilities. Progress was
made on all priorities, as shown in our figures. We registered a satisfactory increase in our loan book, deriving
mostly from home loans. This was reflective of our drive to direct Credit activity to those loans which consume
less regulatory capital. We are reasonably satisfied that despite our limited advertising and promotion spend, we
continue making progress in growing our loan book and establishing new relationships.
Interest rates on our lending were generally held at the levels prior to the interest rates hikes experienced during
the year. We considered this to be a prudent measure so as to avoid possible shocks to borrower repayment
capability, particularly in the case of home loans. That said, as the expected gradual reduction in benchmark rates
settles at target levels, a realignment of interest rates charged may be made on a case-by-case basis, while not
losing sight of market realities. We also continued with our longer-term Xtra deposit accounts, with above-market
average interest rates. Our net interest margin improved, mostly driven by improved income from higher rates on
our Treasury activities.
In Fund Management we are reassessing our options to launch our proprietary funds, always with a view to
minimise the related regulatory and reputational risks. Meanwhile our Wealth Management and Investment
Services functions continue providing execution-only and advisory services. We also registered measured growth
in our discretionary Portfolio Management Services.
Much effort was directed towards the November 2023 Rights Issue. This was perhaps the most significant
corporate event for the Bank, since over twenty years. Though not all shareholders exercised their Rights, the
remaining shares were swiftly subscribed in the Excess Share Offer period. We consider this to be an investor show
of trust in the Bank, particularly so in a market with a strong preference for fixed income paper. The Bank’s key
ratios, namely the Total Capital Ratio and the Liquidity Ratio closed and remain well above the minimum of those
required by the regulator.
At MaltaPost we maintained our involvement in the strategic aspects of the subsidiary, within the context of ever
decreasing Letter Mail volumes. Increased revenue resulted from tariff revisions to some of the services covered
by the Universal Service Obligation (USO) and from higher volumes in inbound parcels. Discussions with the
Regulator continued particularly with respect to the establishment of an automatic tariff revision mechanism to
ensure timely review of USO tariffs. Meanwhile the initiatives in life and general insurance proceeded, and we also
continued to support our subsidiary’s financial services activities.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
5
Chief Executive Officer’s Review (continued)
Review of Financial Performance
Group Profit before Tax (GPT) for the FYE 2023 stood at €14.53 million, a decrease of 48% - though when excluding
the one-off items included in the figures of the previous year, the GPT for FYE 2023 rose by 17%.
Loans and Advances to Customers rose to €758.30 million contributing to a 16% increase in gross interest revenues
of €33.70 million. Higher interest rates on money market deposits were also a significant contributor to the rise in
interest income. Interest Expense was up by 16% reflecting a higher volume of Amounts Owed to Customers,
which stood at €1,019.08 million as well as higher interest rates paid resulting from repricing of customer deposits.
Net Interest Income rose by 16% to €25.86 million when compared to the previous year.
Net Fee and Commission Income decreased by 4% to reach €5.18 million, resulting mainly from lower Commercial
Credit activity during the year.
Group Employee Compensation and Benefits increased by 2% to €24.38 million, while Group operating costs rose
by 30% to €27.18 million. These included those MaltaPost expenses associated with higher international postal
tariffs as set by the Universal Postal Union, which were offset by an even higher percentage increase in revenue
from the same source. The Bank’s Cost Efficiency Ratio was contained at 53.9% (FYE 2022: 57.4%), a reflection of
effective cost management.
Impairment Allowances, as determined by International Financial Reporting Standard 9 (IFRS 9), stood at €12.11
million. The change in ‘expected credit losses’ (ECL) resulted in a net impairment charge of €1.26 million compared
to a reversal of €16.24 million in the previous year. The reversal in 2022 was mainly attributable to the resolution
of a non-performing loan which had been largely provided for in previous years, as well as the reversal of 2021
pandemic-related management overlays, in line with changed economic circumstances. We remained vigilant to
ensure that, as far as practically possible, loan repayments were punctual. Our Non-Performing Loan ratio stood
at 3.7%, well below that required by regulation.
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 the benefits of such tenors outweigh the higher
interest rate that they command.
The Bank Loan-to-Deposit Ratio reached 74.3% compared to 70.4% same period last year.
Total Assets stood at €1,265.13 million (2022: €1,203.42 million), while Equity Attributable to the Shareholders of
the Bank stood at €190.38 million. Net Asset Value (NAV) per share stood at €1.23 (2022: €1.50). Group Earnings
per Share (EPS) decreased to €0.09. Return on Assets (ROA) stood at 0.8% (2022: 1.5%) while post-tax Return on
Equity (ROE) was 5.6% (2022: 12.8%).
Treasury Management
While also conscious of our role in providing finance for economic growth, we still maintained ample liquidity
levels throughout the year. Liquidity not applied in Credit was in the main employed in money market deposits,
with reputable counterparties and local government. Our main objective remained that of protecting funds, while
also seeking to benefit from the high interest rate environment. Though we hold a modest portfolio of foreign
assets, the bulk of these consist of euro balances. Our policy remains that of placing funds exclusively in
investment-grade securities, issued by sovereigns, government-related entities and international financial
institutions.
Healthy counterparty relationships were maintained, always ensuring that the profile of our risk appetite did not
clash with that of our foreign counterparties. These relationships remain an important aspect of our Treasury
operations, thereby assuring continued access to international markets.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
6
Chief Executive Officer’s Review (continued)
Risk Management
Managing our multi-faceted business risks is the key objective of our risk management processes. Safeguarding
the Bank’s assets, while protecting depositors’ funds and maintaining public confidence remains the top priority.
In this regard, we have in place an enterprise-wide Risk Management Framework having a structured approach to
identify, monitor, and measure potential risks and mitigating them, as necessary, in terms of our Risk Appetite.
Our independent Risk Management function forms part of the Second Line in our Three Lines of Defence model.
It reports directly to the Audit & Risk Committee and Board of Directors, and reports periodically on various risk
areas, by exercising oversight of several key metrics in respect of the tolerance limits as set in our Risk Appetite
Statement. This Statement is a live document which is regularly reviewed and updated as necessary, to take into
consideration the changing policy environment and to reflect current macroeconomic developments. Hence, the
limits within the Statement ensure that the Bank may carry on with its business while safeguarding its assets and
protecting depositors’ funds, invariably in compliance with all statutory obligations.
Following the November 2023 Rights Issue, the Bank’s Total Capital Ratio (‘TCR’) stood at 21.0% as at the end of
2023, well above regulatory requirements. Besides allowing the Bank to pursue its growth strategy, these capital
buffers cater for possible increases in regulatory capital requirements.
The Leverage Ratio, which is also monitored and reported to the Board regularly, highlights the Bank’s exposure
to the risk of excessive leverage. While invariably remaining sufficient, this was further strengthened by the Rights
Issue and at the end 2023 stood at 14.2%, significantly higher than the minimum regulatory requirement of 3%.
Internal policy requires the Bank to remain sufficiently liquid at all times so as to meet requirements when these
fall due. Monitoring of key liquidity metrics ensures this and, in this respect, the Liquidity Coverage Ratio (‘LCR’),
the Net Stable Funding Ratio (‘NSFR’) at end of 2023 stood at 301.8% and 155.7% respectively and well above
minimum regulatory requirements and within our Risk Appetite. Also, our Bank Loan-to-Deposit Ratio at the end
of 2023 stood at 74.3%, highlighting the Bank’s prudent approach re liquidity management.
Our Internal Capital and Liquidity Adequacy Assessment Processes (ICAAP/ILAAP) are essential elements of the
Capital and Liquidity planning process. These are reviewed annually to ensure that our Capital and Liquidity needs
are in line with the scale, nature and complexity of our operations. Also, in line with our stress-testing framework,
Capital and Liquidity positions are stressed to ensure that the Bank remains resilient to extreme, though plausible,
shocks.
Human Resources
In a scenario where the Maltese economy continued to perform well, attracting the right candidates to meet our
human resources needs remained a challenge. Competition for talent was strong, with new joiners to the labour
market having several options both within and outside the industry. Similarly, those with work experience in
financial services and looking for a career change or for better work-life balance continued to have various options.
Nevertheless, we continued to meet the demand for new recruits, filling various roles across the Group. The
number of persons employed with the Group stood at 918; Bank - 210, MaltaPost – 708.
We continued to invest in human resources by providing improved remuneration and benefits to all staff. Besides
a performance-driven reward structure, the wellbeing of staff is also supported by advantageous interest rates on
lending, health, and life insurance cover. Improved working hours were maintained so as to allow staff more time
away from the office, though also remaining sensitive to customer service expectations. We believe that such
initiatives improve staff engagement and maintain a collaborative work environment.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
7
Chief Executive Officer’s Review (continued)
The focus on supporting staff to grow within the Bank was ongoing by way of personal development opportunities,
improving skills and abilities. Here we provided various training and development programmes, while on-the-job
training was also constantly provided. Development programmes also facilitate the identification of staff members
who may in future fit in leadership roles. This strengthens our succession planning processes and has proven to
deliver results. In fact, during the year various Chief Officer and other senior management appointments were
made internally, also in view of incumbents having reached retirement age.
Our staff continues to play a pivotal role in the successful achievement of business objectives and the success of
the Group. Indeed, I am proud and grateful to be leading a staff team that is professional at all levels and grades.
Projects
Cards are an important part of our service offerings. For several years we offered cards by both Visa and
MasterCard. However, with the advent of many different payment solutions, also offered by non-bank entities,
and the ever-increasing related costs, we considered it prudent to limit our offering to just VISA cards. While our
customers would still benefit from the full suite of debit and credit cards, related costs will be reduced. The
migration of the card portfolio to one brand is an on-going project which we aim to complete by H1 2024.
We opened a further two branches during 2023 so that we now have 11 branches. Our subsidiary, MaltaPost also
continued with its investment in its network. As is our policy, we seek outright purchase of properties that are
needed for running our business. MaltaPost also continued with its investment in zero emissions last-mile delivery,
now totalling more than 160 all-electric vehicles. These allow for the combined delivery of postal mail and parcels
and packages, thereby also reducing emissions by other vehicles as well as contributing to the reduction in traffic
congestion.
As to technology projects, we have in progress several digitalisation projects, some related to the infrastructure
and others to customer engagement.
Continuing the success of previous years, we participated in a gold bullion coin issue in collaboration with the
Central Bank of Malta. The Melita gold coin was struck in four denominations and the issue sold out, having
generated strong interest from collectors and which has now become an annual issue.
Corporate Social Responsibility
The Group is tangibly committed to actively, though discreetly, support socially meaningful initiatives, including
those aimed at preserving and enhancing heritage, philanthropic and charitable causes. We also encourage those
staff members who on their own initiative assist in worthy causes.
Outlook
We started this year on the back of a satisfactory 2023 financial performance and a successful capital raise
programme shoring up our regulatory capital buffers. These pave the way for execution of our strategic priorities,
seeking measured growth. In fulfilling this strategy, we shall not carry out radical changes to our business model,
nor shall we be assuming a higher risk appetite than that as at present. We remain very much committed to Malta
and to the accomplishment of our main mission which remains that of assisting businesses and individuals in their
financing requirements. No doubt during 2024 we shall realise the full benefit of the November 2023 capital
increase and it therefore rests with us to employ this capital judiciously and, of course, profitably.
We strongly believe that the prospects for MaltaPost are bright, and we shall remain steadfast in our commitment
to this subsidiary, which apart from generating a significant income stream also adds value to the Group. We shall
assist our colleagues there as necessary, both in matters relating to its core activities, as also in those concerning
financial services and its new ventures.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
8
Chief Executive Officer’s Review (continued)
The positive economic outlook for Malta supports our commitment to deliver on our promises and more
importantly to remain a truly Maltese bank having a vocation to focus exclusively on servicing the needs of the
Maltese community at large.
Signed on behalf of the Bank's Board of Directors on 26 April 2024 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 2023.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
9
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 62 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 2023 the Bank’s 72.03% shareholding in MaltaPost p.l.c.,
with the remaining 27.97% of the ordinary share capital of MaltaPost p.l.c. being held by the general public
1
.
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 (‘the SICAV’) holds a collective investment scheme licence in terms of the Investment
Services Act, 1994.
As at 31 December 2023, Lombard Capital Asset Management Limited was licensed to act as a UCITS management
company and to provide investment management services to undertakings for collective investment in
transferable securities (UCITS schemes). This company has voluntarily surrendered its license as a third party
provider has been appointed to act as the UCITS manager for its sub-funds.
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 2023 amounted to €14.5 million (2022: €27.7
million). Profit attributable to equity holders of the Bank was €9.1 million (2022: €17.5 million).
Net interest income at €25.9 million was 16.1% higher than the previous year. Growth in the lending portfolio
contributed to this increase, while the main driver for the increased interest income was higher interest earned
on money market deposits. Net fee and commission income decreased by 4.3% mainly from lower commercial
credit activity during the year.
Net loans and advances to customers increased by 6.6% to €758.3 million. Customer deposits increased by 1.1%
to €1,019.1 million. Group post tax return on equity for 2023 was 5.6% (2022: 12.8%). Group total assets increased
to €1,265.1 million (2022: €1,203.4 million). Total capital ratio at 21.0% (2022: 15.4%) exceeded the minimum
regulatory requirements.
Bank cost efficiency ratio was contained at 53.9% (2022: 57.4%) affected by increases in human resources costs
and other operating costs well offset by increased interest revenues.
1
Following a scrip dividend issued in March 2024, the Bank’s shareholding in MaltaPost p.l.c. amounts to
72.65%, with the remaining 27.35% being held by the general public.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
10
Directors’ Report (continued)
Expected credit losses (‘ECL’) as determined by International Financial Reporting Standard 9 (IFRS 9) resulted in a
charge of €1.3 million compared to a reversal of €16.2 million taken in the previous year. The reversal in 2022 was
mainly attributable to the full recovery of a commercial non-performing loan which had been largely provided for
in previous years as well as the reversal of 2021 pandemic-related management overlays in line with changed
economic circumstances.
For MaltaPost p.l.c., FY 2023 was a year of business transformation and adjustment to industry challenges and
realities including changes in consumer and business behaviour. Investment to render the last mile delivery more
agile and efficient continued while managing respective costs. The cross-border parcel delivery business and its
international activity, both outside the Universal Service Obligation (‘USO’), were strengthened. It is these and
other non-postal services that continued to provide reasonable profit margins. Following the loss incurred during
FY2022 to deliver the Universal Postal Service Obligation, select tariff revisions were approved by the MCA which
left a positive impact on the financials of the Universal Service. Although no longer loss making, MaltaPost still
does not make a just and fair return as the provider of the USO in Malta. Despite the tariff adjustments
implemented during FY 2023, the domestic postal service tariffs in Malta remain the lowest in Europe.
Equity attributable to equity holders of the Bank stood at €190.4 million (2022: €136.2 million). Group net asset
value (NAV) per share stood at €1.23 (2022: €1.50). Group earnings per share (EPS) decreased to €0.09.
Profits after taxation of €9.6 million and €8.8 million for the Group and the Bank, respectively were registered for
the twelve months ended 31 December 2023.
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 61 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 2023
11
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 2023 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 2023,
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 R1-2.2.3 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 Annual 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 22 June 2023, the authorised share capital of the Bank was €37,500,000
divided into 300,000,000 Ordinary Shares of a nominal value of €0.125 each. As at that date the issued and fully
paid-up share capital of the Bank was €11,340,966.75 divided into 90,727,734 ordinary shares of a nominal value
of €0.125 each, all of one class.
Following the approval by the Bank’s shareholders at the above-mentioned 2023 Annual General Meeting, the
amount of €252,024.63 from the Bank’s Retained Earnings Account was capitalised for the purpose of issuing
2,016,197 fully paid ordinary shares of a nominal value of €0.125 cent per share representing 1 bonus share for
every 45 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 19 July 2023. Following this allotment, the Issued and fully paid-up Share
Capital of the Bank increased to €11,592,991.38 divided into 92,743,931 ordinary shares of a nominal value of
€0.125 each, all of one class.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
12
Directors’ Report (continued)
During 2023, the Bank resumed its efforts to raise its capital as commenced in November 2022. Following approval
of the necessary resolution during the 2023 Annual General Meeting, the Bank sought regulatory approval from
the Malta Financial Services Authority of an Application for Authorisation for Admissibility to Listing as set out in
a prospectus in relation to a 2-for-3 rights issue of new ordinary shares to be admitted to listing and trading on the
Official List of the Malta Stock Exchange and which were to form part of the same class, have equal rights as, and
rank pari passu with, the Bank’s existing shares (the ‘Rights Issue’).
On 20 September 2023, regulatory approval was received for the prospectus dated 20 September 2023 relative to
a Rights Issue (the ‘Prospectus’), and for the admissibility to listing on the Official List of the Malta Stock Exchange
of up to 61,828,332 new ordinary shares in the Bank having a nominal value of €0.125 each offered, pursuant to
the Rights Issue, to the shareholders appearing on the Bank’s Register of Members as at the Record Date. Any
rights to subscribe for new ordinary shares not accepted, assigned or paid by such eligible shareholders were to
constitute lapsed rights, and the amount of new ordinary shares equivalent to the number of lapsed rights (the
‘Excess Shares’) were to be made available as detailed in the Prospectus.
The Rights Issue Offer Period in respect of the Rights Issue closed on 26 October 2023 at 10:00 hours in accordance
with the timetable set out in the Prospectus. Not all the rights to subscribe for New Ordinary Shares were accepted
or validly assigned by Existing Shareholders by the close of the Rights Issue Offer Period and there remained a
balance of New Ordinary Shares equivalent to the number of lapsed rights resulting from the Rights Issue,
amounting to 13,916,357 New Ordinary Shares (the ‘Excess Shares’). The Excess Shares Offer Period opened on 1
November 2023 and was set to close on 27 November 2023. The Excess Shares Offer was over-subscribed and the
Bank exercised its right to close the Excess Shares Offer Period earlier on 3 November 2023.
On 16 November 2023, 61,828,332 New Ordinary Shares having a nominal value of €0.125 each were admitted to
listing on the Official List of the Malta Stock Exchange, with trading expected to commence on 17 November 2023.
The Bank’s issued share capital thereby increased from €11,592,991.38 divided into 92,743,931 Ordinary Shares
having a nominal value of €0.125 each to €19,321,532.88 divided into 154,572,263 Ordinary Shares of €0.125 each,
fully paid-up.
Full details on the Rights Issue and Excess Shares Offer are included in the Prospectus, available on the Bank’s
website at https://www.lombardmalta.com/en/rights-issue-2023 and in the relative Company Announcements
issued by the Bank in this regard at https://www.lombardmalta.com/en/company-announcements.
The total gross proceeds from the Rights Issue and Excess Shares Offer amounted to €46.4 million.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
13
Directors’ Report (continued)
The Remuneration Report on page 56 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’.
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 2023
31 March 2024
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%
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 2023
Shares in MaltaPost p.l.c.
at 31 December 2023*
Safaco Ltd
147,611
92,774
First Gemini p.l.c.
8,201,836
75,350
Shares in Lombard
Bank Malta p.l.c.
at 31 March 2024
Shares in MaltaPost p.l.c.
at 31 March 2024*
Safaco Ltd
147,611
96,991
First Gemini p.l.c.
8,201,836
78,775
* The increase in the shareholding of Safaco Ltd and First Gemini p.l.c. in MaltaPost p.l.c. between 31
December 2023 and 31 March 2024 is attributed to a Scrip Dividend.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
14
Directors’ Report (continued)
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 2023.
Other Information
During 2023, the Bank’s Qualifying Shareholder, the National Development and Social Fund (the ‘NDSF’) appointed
two directors on the Bank’s Board of Directors, subject to regulatory approval. The relative suitability assessments
for Dr John Bonello and Mr Paul Abela were carried out by the Bank’s Suitability & Evaluations Committee and
submitted to the Regulator. Regulatory approval for the appointment of Dr John Bonello as a non-executive
director on the Bank’s Board was received on 23 October 2023, whereas the Bank was informed that Mr Paul
Abela was unable to take up his position on the Board. In January 2024, the NDSF appointed Mr Richard Dimech
as a director on the Board of Directors. Furthermore, with effect from 13 March 2024, Graham A. Fairclough
resigned from his position as non-executive director subsequent to which the Board of Directors co-opted Aldo-
Joseph Giordano as non-executive director. As at the date of publication of this Annual Report, these
appointments are subject to regulatory approval.
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 is a Tied Insurance Intermediary for long term insurance business and can therefore provide
its Home Loan customers a 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
operations. As per current strategic plan, the Bank seeks prudent growth, while continuing to adhere 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. 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 branches, with a further 2 Bank owned properties earmarked for
this purpose.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
15
Directors’ Report (continued)
The Bank’s business model seeks to build 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
25 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 continues to pursue its diversification into logistics,
document management, insurance and financial services. In insurance, MaltaPost 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 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 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 respective obligations at all times.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
16
Directors’ Report (continued)
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 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.
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 practices 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. holds 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 7%, 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
17
Directors’ Report (continued)
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 2023, 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.
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 2023 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 0.006% 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 52 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. Some Group staff benefit from
personal accident insurance cover and others benefit from private health care insurance, as well as death in
service cover.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
18
Directors’ Report (continued)
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 16,000 individuals, though about 13,000
remain active.
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 2023, 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.
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 generating
circa 116kWp. 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 130 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 97,000 kg of CO
2
emissions. The Group continues with its efforts to reduce paper use.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
19
Directors’ Report (continued)
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.
The Bank is mindful of the increasing requirements emanating from the Environmental, Social & Governance
(ESG) regulatory framework. It continues following developments closely, improve understanding 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. The ESG Working Group
continues to coordinate, advise and provide recommendations and related actions on ESG matters. This
Working Group is also 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
The Group has in place an enterprise-wide risk management framework which, inter alia, lays down the
foundation for the risk management reporting process. To ensure it meets the requirements of the markets in
which the Group operates, including regulatory standards and industry best practices, this is subject to
constant evaluation.
This framework is also enhanced by well-defined procedures and subject to ongoing review including clear
organisational structures and reporting lines.
The Group’s plain vanilla organisation structure ensures that responsibilities and duties are well-defined,
managed and communicated. Processes are in place to identify, monitor, manage and report risks. Effective
internal control mechanisms are in place to assist Management safeguard resources and ensure that our first
line of defence complies with relevant processes.
To achieve the above, a formal Risk Management Policy, which is reviewed periodically, is in place. This
overarching Policy allows for the applying of strict internal controls and discretionary limits, and optimising the
returns thereof, invariably in line with the Bank’s risk appetite, thus achieving the objective of enhancing and
maintaining stakeholder value as well as the successful execution of its strategy.
The risk appetite determines the maximum risk the Bank is willing to accept to meet business objectives. For
the purposes of strategic direction, macroeconomic developments and changes in the regulatory environment,
it is reviewed and updated at least annually, this after a thorough analysis of the current risk profile.
The main categories of risk to which the Group is exposed to are:
Capital Risk – arises from the inability to hold sufficient capital to allow the Group 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 to cater for sudden
unexpected shocks. Constant monitoring of the Bank’s capital positions against regulatory and management
limits as set in our Risk Appetite Statement is carried out. Where required, this monitoring is supplemented by
a robust capital planning process which establishes suitable capital levels tailored for the Bank’s risk profile
and regulatory requirements. Risk-based capital measures are further strengthened by a volume-based
leverage ratio which protects the Bank from excessive growth in its Balance Sheet (Notes to the Financial
Statements note 2.7; Additional Regulatory Disclosures notes 6 and 7).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
20
Directors’ Report (continued)
Credit Risk – arises from adverse changes in the credit quality should any of the Group’s customers or
counterparties fail to honour their contractual obligations to the Group. This constitutes the Group’s single
largest risk in view of its significant lending and securities portfolio. In this respect, Credit risk mainly arises
from customer loans and advances since risks to exposures in credit institutions and investments is considered
to be low. 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. These
are reviewed periodically to ensure that the conduct is in line with the terms and conditions stipulated in the
Sanction letter and to ensure the collateral still covers the facilities (Notes to the Financial Statements note
2.3; Additional Regulatory Disclosures note 2).
Liquidity Risk – arises when the Bank is unable to meet current and future anticipated and unforeseen payment
obligations as they fall due. Liquidity management comprises of constant monitoring of liquidity positions
through established ratios against regulatory and internal limits as set in our Risk Appetite Statement. 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. The Bank continued to hold robust liquidity buffers and adequate
stable funding to ensure that the Liquidity Coverage Ratio (LCR) and Net Stability Funding Ratio (NSFR) remains
significantly above regulatory minima (Notes to the Financial Statements note 2.5; Additional Regulatory
Disclosures note 4).
Market Risk – arises from adverse movements in the fair value or future cash flows because of fluctuations in
market prices or rates such as interest rates, credit spreads and foreign exchange rates. Should these risks
materialise, the Group may experience significant losses in its investment portfolio declines in interest income
and negative movements in the fair value of assets and liabilities. The Bank does not operate a Trading Book
and hence this risk is limited to Interest Rate Risk, Currency Risk and Equity Price Risk. The Bank seeks to
manage and control market risk by taking measures to limit the adverse impact of market movements.
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. Likewise, 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 2.3; Additional Regulatory Disclosures note 2).
Macroeconomic and Market Conditions Risk – refers to risks associated with a deterioration in the economic
and general business climate, both domestically and at global level. The prolonged occurrence of such events
may have an adverse material affect on the Group’s financial performance and possibly asset quality.
Non-Financial Risks – are risks arising out of 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 our Risk Appetite Statement and Risk Management Policy, these serving as one of the four pillars
of the Risk Management Framework. These risks are benchmarked by using established parameters that are
reviewed periodically and set by the Board. Operational policies and procedures are in place to ensure that the
Bank remains in compliance with the limits set within its Risk Appetite.
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. Also, 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).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
21
Directors’ Report (continued)
Regulatory Compliance Risk – arises out of legal sanctions or regulatory sanctions, material financial loss, or
loss to reputation the Bank may suffer as a result of failing to comply with regulations, code of conduct, laws,
rules, and standards of best practice. This risk is managed by our Regulatory Compliance Function which holds
a second line of defence role and is independent of operations. The Bank promotes the mitigation of
Compliance Risk as part of a culture that encompasses the whole Bank and all staff. Also, the Function acts as
the Bank’s central point through which all interaction with regulatory and enforcement bodies are channelled.
Financial Crime Risk – is 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
various 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. A number of
policies and procedures related to Financial Crime are in place. These set out the Bank’s risk appetite in respect
of customer on-boarding, economic sectors and jurisdictions that it considers acceptable.
Information Security Risk – 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. Likewise, in its daily operations, the Bank runs the risk of loss from threats or malicious
attacks from internal staff and / or potential malicious intruders. The Bank is cognisant of these threats and in
this regard has in place Data Protection and Information & Cyber Security Policies to mitigate such risks. These
Policies ensure that corporate information and systems are safeguarded and protected against the risk of data
compromise and growing cyber security threats. Procedures supporting these Policies highlight that sufficient
internal controls and adequate measures are set and maintained at all times to mitigate such threats.
ESG risks – arise from environmental, social, and governance (ESG) matters, including climate change, societal
impact on nature, and human rights violations. Climate & Environmental risks, pose broader risks through
market, credit, reputational, and regulatory avenues, potentially affecting the Group’s business and reputation.
The Group is also susceptible to governance risks which may arise from inadequate management and control,
which would in turn affect income and capital. For the purposes of complying with ESG-related disclosure
requirements, the Bank relies on various data sources, with improving data quality but still limited
comparability. Failure to address ESG requirements appropriately could have a material adverse effect on the
Group’s business, operations, reputation, prospects and strategy.
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 submitted
to the Audit & Risk Committee for continuous assessment. These are a set of quantifiable metrics that ensure
that material risks faced are kept within set parameters as detailed in the Risk Appetite Statement. A selection
of key metrics as at 31 December 2023 are presented hereunder.
Solvency
TCR
21.0%
Leverage
14.2%
Liquidity
LCR
301.8%
NSFR
155.7%
Profitability
Asset Quality
ROE*
NPL
5.6%
3.7%
*
After tax
The KPIs are reported in the form of a risk scorecard by using the “traffic light” approach and comparing the
actual metric to the limits set in the Risk Appetite Statement.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
22
Directors’ Report (continued)
Consolidated disclosures pursuant to Article 8 of the EU Taxonomy Regulation
Introduction
In order to achieve the targets established by the European Union (‘EU’) of reaching net zero greenhouse gas
(‘GHG’) emissions by 2050, with an interim target of reducing GHG emissions by 55% by 2030, compared to 1990
levels, the EU has developed the EU Taxonomy Regulation
2
(‘the EU Taxonomy’). This is a classification system
which establishes the criteria for determining whether an economic activity qualifies as environmentally
sustainable, in terms of six environmental objectives, against which entities assess whether economic activities
qualify as environmentally sustainable.
In order to qualify as such, an economic activity must be assessed to substantially contribute to at least one of
these environmental objectives, whilst doing no significant harm to the remaining objectives. This is achieved by
reference to technical screening criteria established in delegated acts to the EU Taxonomy. The economic activity
is also required to meet minimum safeguards established in the EU Taxonomy.
The six environmental objectives established by the EU Taxonomy are the following, where climate-related
environmental objectives (1-2 below) are established in the Climate Delegated Act
3
(‘CDA’), whilst non-climate
environmental objectives (3-6 below) are established in the Environmental Delegated Act
4
(‘EDA’).
1. Climate change mitigation;
2. Climate change adaptation;
3. Sustainable use and protection of water and marine resources;
4. Transition to a circular economy;
5. Pollution prevention and control; and
6. Protection and restoration of biodiversity and ecosystems.
A delegated act to the EU Taxonomy was issued in 2021, supplementing Article 8 of the Taxonomy Regulation (‘the
Disclosures Delegated Act
5
’), which establishes the disclosure requirements of entities within the scope of the
Taxonomy Regulation, which currently comprises entities subject to an obligation to publish non-financial
information pursuant to the Non-Financial Reporting Directive (‘NFRD
6
’), emanating from article 19a or 29a of the
Accounting Directive
7
.
The Disclosures Delegated Act was further updated in 2023 by the Complementary Climate Delegated Act
8
to
include certain energy activities relating to fossil gas and nuclear energy.
Taxonomy eligibility of economic activities have been reported in financial years 2021 and 2022, in respect of both:
- total on-balance sheet assets of Lombard Bank Malta p.l.c.;
- total turnover, CapEx, and OpEx of the Bank’s subsidiary MaltaPost p.l.c.
2
EU Regulation 2020/852
3
Commission Delegated Regulation 2021/2139
4
Commission Delegated Regulation 2023/2486
5
Commission Delegated Regulation 2021/2178
6
EU Directive 2014/95/EU. NFRD entities are public interest entities exceeding an average of 500 employees during the reporting period. The
introduction of EU Directive 2022/2464/EU (the Corporate Sustainability Reporting Directive, ‘CSRD’, which will replace the NFRD) will
significantly extend the scope of EU Taxonomy reporting.
7
EU Directive 2013/34/EU
8
Commission Delegated Regulation 2022/1214
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
23
Directors’ Report (continued)
The Bank is now also required to disclose its initial Taxonomy alignment of eligible activities in the Climate
Delegated Act based on the current financial year of reporting, and also required to report its initial Taxonomy
eligibility of exposures in respect of the Environmental Delegated Act.
Comparative templates relating to prior period reporting of EU Taxonomy disclosures are not required given that
this is the Bank’s first EU Taxonomy disclosure in line with mandatory templates required by the Disclosures
Delegated Act. Furthermore, since the Bank’s prior period EU Taxonomy eligibility disclosure was not required with
the same level of detail as the current financial year, and was based on total assets rather than covered assets,
Taxonomy eligibility disclosures are not strictly comparable. Accordingly, comparative EU Taxonomy information
has not been reported.
Scope of consolidation
On 21
st
December 2023, the EC published a Draft Commission Notice
9
in the form of a set of FAQs specific to
financial undertakings’ EU Taxonomy reporting. The Draft Commission Notice clarifies that parent undertakings of
mixed groups are required to consolidate the activities of their financial subsidiaries, and separately consolidate
the activities of their non-financial subsidiaries, reporting relevant Taxonomy KPIs as relevant in both cases.
Accordingly, the Bank reports relevant Taxonomy KPIs applicable to credit institutions in respect of the Bank, and
relevant Taxonomy KPIs applicable to non-financial undertakings in respect of the Bank’s non-financial subsidiaries
within the contextual information, as referred to in FAQ 10 of the Draft Commission Notice, which contemplates
Taxonomy disclosures of mixed groups in which the activities of subsidiaries may differ in risks or impacts from
those of the Group.
The Draft Commission Notice is, at the time of reporting, yet to be adopted into the Official Journal of the European
Union. Considering this, and the recency of the publication of such FAQs, interpretations to the guidance resulting
from such FAQs have been implemented on a best-effort basis. It has therefore not been operationally possible to
implement all aspects of the mentioned FAQs in time for this reporting year.
EU Taxonomy KPIs disclosed
The following KPIs related to the Bank are reported in the templates disclosed.
- The Green Asset Ratio (‘GAR’) is a ratio calculated as the percentage of EU Taxonomy aligned assets as a
proportion of total covered assets.
- The numerator of the GAR includes loans and advances, debt securities, equities and
repossessed collateral financing Taxonomy aligned economic activities based on turnover KPI
and CapEx KPI of underlying assets.
- The denominator of the GAR includes total loans and advances, total debt securities, total
equities, total repossessed collateral and other covered on-balance sheet assets outlined in the
section ‘Assets excluded from the numerator for GAR calculation (covered in the denominator)’.
- The calculation of the KPI for off-balance sheet exposures relates to Lombard Bank Malta plc’s assets
under management, reported in Template 1 relating to GAR as off-balance sheet items and also in
Template 5 as off-balance sheet items in their own right. Other off-balance sheet exposures such as
commitments are excluded from the off-balance sheet KPI.
- The Green Ratio for Assets under Management (‘AuM KPI’) is calculated as the percentage of
assets under management from undertakings financing Taxonomy aligned economic activities
as a proportion of the total assets under management of the Bank.
- The Green Ratio for Financial Guarantees to financial and non-financial undertakings (‘FinGuar
KPI’) is not calculated since it relates to guarantees supporting loans and advances and debt
securities. The Bank did not issue guarantees in respect of loans and advances and debt
securities throughout the financial year.
9
Draft Commission Notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under
Article 8 of the EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets (third
Commission Notice).
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
24
Directors’ Report (continued)
The following KPIs related to the Bank’s non-financial subsidiaries are reported in the contextual disclosures to
the templates disclosed.
- The turnover KPI is a ratio calculated as the percentage of EU Taxonomy aligned turnover as a proportion
of total revenue.
- The CapEx KPI is a ratio calculated as the percentage of EU Taxonomy aligned CapEx as a proportion of
total CapEx.
- The OpEx KPI is a ratio calculated as the percentage of EU Taxonomy aligned OpEx as a proportion of total
OpEx.
Furthermore, a contextual consolidated group-level KPI is disclosed in the section ‘Consolidated group-level KPI on
Taxonomy aligned activities in the form of a weighted average KPI’ of the Bank’s Taxonomy disclosure, in line with
FAQ 9 of the Draft Commission Notice.
Green Asset Ratio
Covered assets
Covered assets comprise all on-balance sheet assets other than those excluded altogether from the GAR, where
such exclusions relate to exposures to central governments, central banks and supranational issuers. Lending
towards, or financing of, local governments where the use of proceeds is unknown (i.e. general purpose lending)
is also excluded from the GAR.
These assets are all excluded from both the numerator and denominator of the GAR.
Assets excluded from the numerator for GAR calculation (covered in the denominator)
Exposures to undertakings that are not in scope of NFRD, derivatives, on-demand interbank loans, cash and cash-
related assets, as well as other assets including tangible and intangible assets are excluded from the assessment
of Taxonomy eligible economic activities. Similarly, retail exposures, except for the mortgage lending portfolio,
building renovations loans, and credit consumption loans for cars, are also excluded from the EU Taxonomy
framework, and not assessed for Taxonomy eligibility. These assets are therefore all excluded from the numerator
of the GAR but included in the denominator. The Bank’s cheques in course of collection from NFRD banks as at
reporting date are allocated towards row 47 of Template 1 ‘Other categories of assets’ since these are not
considered to be loans and advances to banks in nature.
Taxonomy eligible and aligned economic activities
Taxonomy eligible economic activities are those activities which can be assessed as environmentally sustainable
and are therefore included in annexes to the EU Taxonomy with relevant technical screening criteria available.
Taxonomy aligned economic activities are those activities which have been assessed as environmentally
sustainable, and therefore also comply with the applicable technical screening criteria. Throughout all templates
disclosed, ‘Environmentally sustainable assets’ therefore refers to Taxonomy aligned assets.
Taxonomy eligibility and alignment of general purpose lending (where the use of proceeds is unknown), have been
assessed using the turnover and CapEx eligibility and alignment ratios published in the most recently available
annual reports by the Bank’s in-scope counterparties.
Taxonomy eligibility and alignment of specific purpose lending (where the use of proceeds is known), have been
assessed in line with the technical screening criteria established in the EU Taxonomy, comprising ‘substantial
contribution’ and ‘do no significant harm’ criteria. Compliance with minimum safeguards is required further to this,
which is an integral part of assessing EU Taxonomy alignment. This is applicable to specific purpose lending in the
case of financial and non-financial counterparties, since households and public authorities are not required to meet
minimum safeguards under article 18 of the EU Taxonomy. In this respect, the Bank has not yet developed a system
of capturing such information.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
25
Directors’ Report (continued)
In addition, the Bank’s car loan and renovation loan exposures are allocated towards row 24 ‘Households’ of
Template 1 of Annex VI of the Disclosures Delegated Act without further allocation.
Data limitations
In the case of the Bank’s exposures where the use of proceeds is not known, in the case of NFRD entity
counterparties, the Bank relies on published counterparty eligibility and alignment ratios to assess eligibility and
alignment of exposures. In this respect, the Bank determines whether counterparties are subject to NFRD through
the use of both research and a financial data terminal. Upon identification of relevant counterparties, the Bank
researches annual reports of such entities in order to obtain relevant EU Taxonomy KPIs.
However, in certain cases, the Bank is unable to obtain the required information from counterparties. This is
relevant in the case of counterparties disclosing EU Taxonomy data for the first time in 2024, particularly:
- Financial undertakings’ Taxonomy alignment disclosures; and
- Financial and non-financial undertakings’ Taxonomy eligibility disclosures in terms of non-climate
environmental objectives. Accordingly, the specific columns in the Bank’s disclosure templates relating
to the non-climate environmental objectives have been excluded from all templates.
As data becomes more available and improvements in data quality take place over time, differences in the data
reported in future financial years, when compared to the current financial year, are expected, as more
counterparties adopt the EU Taxonomy requirements for their own disclosures, and enhance their relevant
processes relating to EU Taxonomy reporting.
Business Strategy
The process around EU Taxonomy reporting within the Bank is led by an ESG working group comprising a number
of the Bank’s senior officials, who are tasked with such process and the strategy related to the Bank’s disclosures.
The ESG working group expects the Bank’s business strategy to develop in line with the EU Taxonomy, where
engagement with clients and counterparties related to the Taxonomy eligibility and alignment of exposures will
develop accordingly.
EU Taxonomy templates – Annex VI
This section outlines the templates to be disclosed by credit institutions, such requirement emanating from Annex
VI of the Disclosures Delegated Act.
Each template is duplicated in order to disclose Turnover-based and CapEx-based information, except for Template
0, which is adjusted to also include CapEx-based information.
The Bank is also required to disclose the Taxonomy eligibility and Taxonomy alignment of its relevant exposures by
climate-related environmental objective. However, until now, certain non-financial undertakings have reported
Taxonomy eligibility and Taxonomy alignment of economic activities without distinguishing between the
environmental objectives of Climate Change Mitigation and Climate Change Adaptation. For the purposes of its
GAR calculation, the Bank does not assign exposures to individual environmental objectives, disclosing respective
amounts in ‘total’ columns i.e. ‘Total (CCM + CCA)'. In this respect, this will be done once all counterparty Taxonomy
disclosures are fully allocated towards individual environmental objectives.
The Bank does not currently extend loans and advances to counterparties in scope of NFRD, except for money
market placements with counterparty banks.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
26
Directors’ Report (continued)
Template 0: Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
Template 0 summarises the KPIs required to be disclosed by the Bank as a credit institution.
The Fees and Commissions KPI is required to be disclosed from 1 January 2026, whilst in respect of the Trading Book KPI, also applicable from the same date, the Bank does not
operate a trading book. Therefore, the applicable rows for these KPIs are not populated.
0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
Total environmentally
sustainable assets
(Turnover)
€ million
KPI
(Turnover)
%
Total environmentally
sustainable assets
(CapEx)
€ million
KPI
(CapEx)
%
% coverage
(over total assets)
%
% of assets excluded from
the numerator of the GAR
(Article 7(2) and (3) and
Section 1.1.2. of Annex V)
%
% of assets excluded from the
denominator of the GAR
(Article 7(1) and Section 1.2.4
of Annex V)
%
Main KPI
Green asset ratio (GAR) stock
0.65
0.07%
0.76
0.06%
75.42%
50.04%
24.58%
Total environmentally
sustainable assets
(Turnover)
€ million
KPI (Turnover)
%
Total environmentally
sustainable assets (CapEx)
€ million
KPI (CapEx)
%
% coverage (over total assets)
%
% of assets excluded from
the numerator of the GAR
(Article 7(2) and (3) and
Section 1.1.2. of Annex V)
%
% of assets excluded from the
denominator of the GAR
(Article 7(1) and Section 1.2.4
of Annex V)
%
Additional KPIs
GAR (flow)
0.00
0.00%
0.00
0.00%
91.52%
63.48%
8.48%
Trading book
Financial guarantees
-
-
-
-
Assets under management
2.16
4.84%
0.27
2.50%
Fees and commissions income
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
27
Directors’ Report (continued)
Template 1: Assets for the calculation of GAR
Template 1 discloses assets used in the calculation of the GAR disaggregated by counterparty type and asset class. Total assets are further categorised between the following.
- Covered assets in both numerator and denominator;
- Assets excluded from the numerator for GAR calculation (covered in the denominator); and
- Assets not covered for GAR calculation
This template has been duplicated to disclose turnover-based and CapEx-based information, where in both cases, the Bank’s ‘Main KPI’ Green Asset Ratio can be calculated with
reference to amounts reported in Row 48 of Template 1 ‘Total GAR assets’, where Column ‘ac’ ‘Of which environmentally sustainable (Taxonomy-aligned)’ relates to the numerator,
and Column ‘a’ ‘Total gross carrying amount’ relates to the denominator.
The gross carrying amount column excludes impairment allowances for all banking exposures. As a result, total assets reported in this template is not equal to total assets reported
in the Bank’s balance sheet, with the difference amounting to impairment allowances on banking exposures.
Row 34 'SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations' also includes non-NFRD financial undertakings in the EU, in the absence of a more
appropriate row for such financial undertakings.
In the case of off-balance sheet exposures, the Bank does not issue any financial guarantees supporting loans and advances or debt securities.
The gross carrying amount disclosed for assets under management forms the denominator of the respective KPIs and includes exposures to both NFRD and non-NFRD
counterparties while excluding exposures to central governments, central banks and supranational issuers. In the case of assets under management which are funds, these are
treated as non-NFRD entities since the Bank does not look through to underlying investees regarding their status as NFRD entities, given data limitations.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
28
Directors’ Report (continued)
1.Assets for the calculation of GAR (Turnover)
a
b
c
d
e
f
g
h
i
j
ab
ac
ad
ae
af
Million EUR
Disclosure reference date 2023
Total [gross]
carrying amount
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which towards taxonomy relevant
sectors (Taxonomy-eligible)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Of which environmentally
sustainable (Taxonomy-aligned)
Of which environmentally sustainable (Taxonomy-
aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which Use
of Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and
denominator
1
Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation
316.67
-
-
-
-
-
-
-
-
-
290.37
0.65
0.02
0.01
0.02
2
Financial undertakings
30.00
-
-
-
-
-
-
-
-
-
9.44
0.19
0.02
0.01
0.02
3
Credit institutions
27.62
-
-
-
-
-
-
-
-
-
9.09
0.18
0.02
0.01
0.02
4
Loans and advances
9.04
-
-
-
-
-
-
-
-
-
2.50
0.05
-
0.02
5
Debt securities, including UoP
16.36
-
-
-
-
-
-
-
-
-
5.73
0.13
0.02
-
0.0033
6
Equity instruments
2.22
-
-
-
-
-
-
-
0.86
0.00
-
0.0003
7
Other financial corporations
2.38
-
-
-
-
-
-
-
-
-
0.35
0.01
-
-
-
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
0.33
-
-
-
-
-
-
-
-
-
0.07
-
-
-
-
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
0.33
-
-
-
-
-
-
-
0.07
-
-
-
16
of which insurance undertakings
2.05
-
-
-
-
-
-
-
-
-
0.28
0.01
-
-
-
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
2.05
-
-
-
-
-
-
-
-
-
0.28
0.01
-
-
-
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
20.53
-
-
-
-
-
-
-
-
-
15.50
0.46
-
-
-
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
3.45
-
-
-
-
-
-
-
-
-
1.55
0.46
-
-
-
23
Equity instruments
17.08
-
-
-
-
-
-
-
13.95
-
-
-
24
Households
265.43
-
-
-
-
-
-
-
-
-
265.43
-
-
-
-
25
of which loans collateralised by residential
immovable property
231.20
-
-
-
-
-
-
-
-
-
231.20
-
-
-
-
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
-
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking possession:
residential and commercial immovable properties
0.70
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
Assets excluded from the numerator for GAR
calculation (covered in the denominator)
624.44
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33
Financial and Non-financial undertakings
537.67
34
SMEs and NFCs (other than SMEs) not
subject to NFRD disclosure obligations
529.42
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
29
Directors’ Report (continued)
a
b
c
d
e
f
g
h
i
j
ab
ac
ad
ae
af
Million EUR
Disclosure reference date 2023
Total [gross]
carrying amount
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which towards taxonomy relevant
sectors (Taxonomy-eligible)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Of which environmentally
sustainable (Taxonomy-aligned)
Of which environmentally sustainable (Taxonomy-
aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which Use
of Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
35
Loans and advances
513.31
36
of which loans collateralised by
commercial immovable property
-
37
of which building renovation loans
-
38
Debt securities
9.33
39
Equity instruments
6.78
40
Non-EU country counterparties not
subject to NFRD disclosure obligations
8.25
41
Loans and advances
-
42
Debt securities
7.35
43
Equity instruments
0.89
44
Derivatives
-
45
On demand interbank loans
16.86
46
Cash and cash-related assets
8.15
47
Other categories of assets (e.g. Goodwill,
commodities etc.)
61.76
48
Total GAR assets
941.11
-
-
-
-
-
-
-
-
-
290.37
0.65
0.02
0.01
0.02
49
Assets not covered for GAR calculation
306.73
50
Central governments and Supranational
issuers
180.44
51
Central banks exposure
126.29
52
Trading book
-
53
Total assets
1,247.84
-
-
-
-
-
-
-
-
-
290.37
0.65
0.02
0.01
0.02
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
54
Financial guarantees
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55
Assets under management
44.54
-
-
-
-
-
-
-
-
-
2.34
2.16
0.17
0.01
0.20
56
Of which debt securities
20.16
-
-
-
-
-
-
-
-
-
0.32
0.32
0.17
0.01
0.17
57
Of which equity instruments
4.17
-
-
-
-
-
-
-
-
-
0.46
0.05
-
0.004
0.03
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
30
Directors’ Report (continued)
1.Assets for the calculation of GAR (CapEx)
a
b
c
d
e
f
g
h
i
j
ab
ac
ad
ae
af
Million EUR
Disclosure reference date 2023
Total [gross]
carrying
amount
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which towards taxonomy relevant
sectors (Taxonomy-eligible)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Of which environmentally
sustainable (Taxonomy-aligned)
Of which environmentally sustainable (Taxonomy-
aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and
denominator
1
Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation
316.67
-
-
-
-
-
-
-
-
-
283.81
0.76
0.02
0.01
0.50
2
Financial undertakings
30.00
-
-
-
-
-
-
-
-
-
8.91
0.22
0.02
0.01
0.03
3
Credit institutions
27.62
-
-
-
-
-
-
-
-
-
8.80
0.21
0.02
0.01
0.03
4
Loans and advances
9.04
-
-
-
-
-
-
-
-
-
2.52
0.07
-
0.003
0.03
5
Debt securities, including UoP
16.36
-
-
-
-
-
-
-
-
-
5.43
0.14
0.02
0.004
0.01
6
Equity instruments
2.22
-
-
-
-
-
-
-
0.85
0.001
-
0.001
7
Other financial corporations
2.38
-
-
-
-
-
-
-
-
-
0.11
0.01
-
-
-
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
0.33
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
0.33
-
-
-
-
-
-
-
-
-
-
-
16
of which insurance undertakings
2.05
-
-
-
-
-
-
-
-
-
0.11
0.01
-
-
-
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
2.05
-
-
-
-
-
-
-
-
-
0.11
0.01
-
-
-
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
20.53
-
-
-
-
-
-
-
-
-
9.47
0.54
-
-
0.47
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
3.45
-
-
-
-
-
-
-
-
-
2.07
0.54
-
-
0.47
23
Equity instruments
17.08
-
-
-
-
-
-
-
7.40
-
-
-
24
Households
265.43
-
-
-
-
-
-
-
-
-
265.43
-
-
-
-
25
of which loans collateralised by residential
immovable property
231.20
-
-
-
-
-
-
-
-
-
231.20
-
-
-
-
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
-
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking possession:
residential and commercial immovable
properties
0.70
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
Assets excluded from the numerator for GAR calculation
(covered in the denominator)
624.44
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33
Financial and Non-financial undertakings
537.67
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
31
Directors’ Report (continued)
a
b
c
d
e
f
g
h
i
j
ab
ac
ad
ae
af
Million EUR
Disclosure reference date 2023
Total [gross]
carrying
amount
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which towards taxonomy relevant
sectors (Taxonomy-eligible)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Of which environmentally
sustainable (Taxonomy-aligned)
Of which environmentally sustainable (Taxonomy-
aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
34
SMEs and NFCs (other than SMEs) not
subject to NFRD disclosure obligations
529.42
35
Loans and advances
513.31
36
of which loans collateralised by
commercial immovable property
-
37
of which building renovation loans
-
38
Debt securities
9.33
39
Equity instruments
6.78
40
Non-EU country counterparties not
subject to NFRD disclosure obligations
8.25
41
Loans and advances
-
42
Debt securities
7.35
43
Equity instruments
0.89
44
Derivatives
-
45
On demand interbank loans
16.86
46
Cash and cash-related assets
8.15
47
Other categories of assets (e.g. Goodwill,
commodities etc.)
61.76
48
Total GAR assets
941.11
-
-
-
-
-
-
-
-
-
283.81
0.76
0.02
0.01
0.50
49
Assets not covered for GAR calculation
306.73
50
Central governments and Supranational
issuers
180.44
51
Central banks exposure
126.29
52
Trading book
-
53
Total assets
1,247.84
-
-
-
-
-
-
-
-
-
283.81
0.76
0.02
0.01
0.50
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
54
Financial guarantees
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55
Assets under management
44.54
-
-
-
-
-
-
-
-
-
2.78
1.12
0.52
0.05
0.58
56
Of which debt securities
20.16
-
-
-
-
-
-
-
-
-
2.43
1.06
0.52
-
-
57
Of which equity instruments
4.17
-
-
-
-
-
-
-
-
-
0.35
0.06
-
-
-
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
32
Directors’ Report (continued)
Template 2: GAR Sector information
Template 2 presents eligible and aligned exposures in the banking book to non-financial counterparties subject to NFRD, broken down by sector of economic activities based on
the NACE code of the principal activity of the immediate counterparty.
2. GAR sector information (Turnover)
a
b
c
d
e
f
g
h
y
z
aa
ab
Breakdown by sector - NACE 4 digits level (code and label)
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC not
subject to NFRD
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC not
subject to NFRD
Non-Financial corporates (Subject
to NFRD)
SMEs and other NFC not
subject to NFRD
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
NFRD
Mn
EUR
Of which
environmentally
sustainable (CCM)
Mn
EUR
Of which
environmentally
sustainable (CCM)
Mn
EUR
Of which
environmentall
y sustainable
(CCA)
Mn
EUR
Of which
environmentall
y sustainable
(CCA)
Mn EUR
Of which
environmentall
y sustainable
(CCM + CCA)
Mn
EUR
Of which
environmentally
sustainable (CCM
+ CCA)
1
M7010 - Activities of head offices
-
-
-
-
0.80
-
2
K6420 - Activities of holding companies
-
-
-
-
0.31
-
3
C1105 - Manufacture of beer
-
-
-
-
0.32
-
4
J6201 - Computer programming activities
-
-
-
-
0.74
-
5
C2910 - Manufacture of motor vehicles
-
-
-
-
0.82
0.09
6
H4910 - Passenger rail transport, interurban
-
-
-
-
0.73
0.36
7
H5310 - Postal activities under universal service obligation
-
-
-
-
16.81
-
2. GAR sector information (CapEx)
a
b
c
d
e
f
g
h
y
z
aa
ab
Breakdown by sector - NACE 4 digits level (code and label)
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC not
subject to NFRD
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC not
subject to NFRD
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC not
subject to NFRD
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
[Gross] carrying amount
NFRD
Mn
EUR
Of which
environmentally
sustainable (CCM)
Mn
EUR
Of which
environmentally
sustainable (CCM)
Mn
EUR
Of which
environmentally
sustainable (CCA)
Mn
EUR
Of which
environmentally
sustainable (CCA)
Mn EUR
Of which
environmen
tally
sustainable
(CCM +
CCA)
Mn
EUR
Of which
environmentally
sustainable (CCM
+ CCA)
1
M7010 - Activities of head offices
-
-
-
-
0.80
-
2
K6420 - Activities of holding companies
-
-
-
-
0.31
-
3
C1105 - Manufacture of beer
-
-
-
-
0.32
-
4
J6201 - Computer programming activities
-
-
-
-
0.74
-
5
C2910 - Manufacture of motor vehicles
-
-
-
-
0.82
0.27
6
H4910 - Passenger rail transport, interurban
-
-
-
-
0.73
0.27
7
H5310 - Postal activities under universal service obligation
-
-
-
-
16.81
-
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
33
Directors’ Report (continued)
Template 3: GAR KPI Stock
Template 3 discloses the proportion of total covered assets funding Taxonomy relevant sectors in respect of both Taxonomy eligibility and Taxonomy alignment on a stock basis.
The Bank’s approach towards disclosing GAR KPI (stock) ratios in this template is based on the amounts of assets disclosed in Template 1, whereby each ratio’s denominator is
equal to the respective gross carrying amount of the particular counterparty type and asset class. This is in line with guidance provided in the respective sub-sections of section
1.2.1 of the Disclosures Delegated Act.
Template 3 also discloses the particular counterparty type and asset class captured in each relevant row as a proportion of the Bank’s total assets.
3. GAR KPI stock (Turnover)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to total covered assets in the denominator)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-
eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered
assets funding taxonomy
relevant sectors (Taxonomy-
aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and denominator
1
Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation
-
-
-
-
-
-
-
-
-
91.70%
0.20%
0.01%
0.002%
0.01%
25.38%
2
Financial undertakings
-
-
-
-
-
-
-
-
-
31.47%
0.63%
0.06%
0.02%
0.07%
2.40%
3
Credit institutions
-
-
-
-
-
-
-
-
-
32.91%
0.65%
0.07%
0.02%
0.07%
2.21%
4
Loans and advances
-
-
-
-
-
-
-
-
-
27.66%
0.52%
-
0.03%
0.18%
0.72%
5
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
35.04%
0.80%
0.11%
0.02%
0.02%
1.31%
6
Equity instruments
-
-
-
-
-
-
-
38.57%
0.02%
-
-
0.18%
7
Other financial corporations
-
-
-
-
-
-
-
-
-
14.77%
0.39%
-
-
-
0.19%
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
-
-
-
-
-
-
-
-
-
21.50%
-
-
-
-
0.03%
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
-
-
-
-
-
-
-
21.50%
-
-
-
0.03%
16
of which insurance undertakings
-
-
-
-
-
-
-
-
-
13.70%
0.45%
-
-
-
0.16%
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
13.70%
0.45%
-
-
-
0.16%
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
-
-
-
-
-
-
-
-
-
75.49%
2.23%
-
-
-
1.65%
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
44.85%
13.28%
-
-
-
0.28%
23
Equity instruments
-
-
-
-
-
-
-
81.68%
-
-
-
1.37%
24
Households
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
21.27%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
34
Directors’ Report (continued)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to total covered assets in the denominator)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-
eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered
assets funding taxonomy
relevant sectors (Taxonomy-
aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
25
of which loans collateralised by residential
immovable property
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
18.53%
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking possession:
residential and commercial immovable
properties
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.06%
32
Total GAR assets
-
-
-
-
-
-
-
-
-
30.85%
0.07%
0.002%
0.001%
0.002%
75.42%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
35
Directors’ Report (continued)
3. GAR KPI stock (CapEx)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to total covered assets in the denominator)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant
sectors (Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered
assets funding taxonomy
relevant sectors (Taxonomy-
aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and denominator
1
Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation
-
-
-
-
-
-
-
-
-
89.62%
0.24%
0.01%
0.00%
0.16%
25.38%
2
Financial undertakings
-
-
-
-
-
-
-
-
-
29.70%
0.75%
0.06%
0.02%
0.12%
2.40%
3
Credit institutions
-
-
-
-
-
-
-
-
-
31.86%
0.77%
0.07%
0.02%
0.13%
2.21%
4
Loans and advances
-
-
-
-
-
-
-
-
-
27.87%
0.80%
-
0.03%
0.31%
0.72%
5
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
33.18%
0.85%
0.11%
0.02%
0.04%
1.31%
6
Equity instruments
-
-
-
-
-
-
-
38.39%
0.04%
-
0.03%
0.18%
7
Other financial corporations
-
-
-
-
-
-
-
-
-
4.59%
0.53%
-
-
-
0.19%
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.03%
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
0.03%
16
of which insurance undertakings
-
-
-
-
-
-
-
-
-
5.32%
0.61%
-
-
-
0.16%
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
5.32%
0.61%
-
-
-
0.16%
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
-
-
-
-
-
-
-
-
-
46.12%
2.62%
-
-
2.27%
1.65%
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
60.09%
15.61%
-
-
13.49%
0.28%
23
Equity instruments
-
-
-
-
-
-
-
43.30%
-
-
-
1.37%
24
Households
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
21.27%
25
of which loans collateralised by residential
immovable property
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
18.53%
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking possession:
residential and commercial immovable
properties
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.06%
32
Total GAR assets
-
-
-
-
-
-
-
-
-
22.74%
0.06%
0.001%
0.001%
0.04%
75.42%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
36
Directors’ Report (continued)
Template 4: GAR KPI Flow
Template 4 discloses the proportion of total covered assets funding Taxonomy relevant sectors in respect of both Taxonomy eligibility and Taxonomy alignment on a flow basis.
The Bank’s approach towards disclosing GAR (flow) KPI ratios in this template is based on the amounts of new covered assets throughout the financial year, whereby each ratio's
denominator is equal to the respective gross carrying amount of the particular counterparty type and asset class. This is in line with guidance provided in the respective sub-
sections of section 1.2.1 of the Disclosures Delegated Act.
Template 4 also discloses the particular counterparty type and asset class captured in each relevant row as a proportion of the Bank’s total new assets throughout the financial
year.
4. GAR KPI flow (Turnover)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to flow of total eligible assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-
eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion
of total new
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered
assets funding taxonomy
relevant sectors (Taxonomy-
aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which Use
of Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and
denominator
1
Loans and advances, debt securities and
equity instruments not HfT eligible for GAR
calculation
-
-
-
-
-
-
-
-
-
99.78%
0.001%
-
-
-
36.52%
2
Financial undertakings
-
-
-
-
-
-
-
-
-
59.02%
0.20%
-
-
-
0.11%
3
Credit institutions
-
-
-
-
-
-
-
-
-
59.02%
0.20%
-
-
-
0.11%
4
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
59.02%
0.20%
-
-
-
0.11%
6
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
7
Other financial corporations
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
16
of which insurance undertakings
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
-
-
-
-
-
-
-
-
-
38.12%
-
-
-
-
0.06%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
37
Directors’ Report (continued)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to flow of total eligible assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-
eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion
of total new
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered
assets funding taxonomy
relevant sectors (Taxonomy-
aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which Use
of Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
38.12%
-
-
-
-
-
23
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
24
Households
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
36.36%
25
of which loans collateralised by
residential immovable property
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
32.78%
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
-
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking
possession: residential and commercial
immovable properties
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
Total GAR assets
-
-
-
-
-
-
-
-
-
36.44%
0.0002%
-
-
-
91.52%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
38
Directors’ Report (continued)
4. GAR KPI flow (CapEx)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
af
% (compared to flow of total eligible assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant
sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion
of total new
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
GAR - Covered assets in both numerator and
denominator
1
Loans and advances, debt securities and
equity instruments not HfT eligible for GAR
calculation
-
-
-
-
-
-
-
-
-
99.85%
0.001%
0.02%
-
-
36.52%
2
Financial undertakings
-
-
-
-
-
-
-
-
-
58.35%
0.28%
8.23%
-
-
0.11%
3
Credit institutions
-
-
-
-
-
-
-
-
-
58.35%
0.28%
8.23%
-
-
0.11%
4
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
58.35%
0.28%
8.23%
-
-
0.11%
6
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
7
Other financial corporations
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
of which investment firms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
12
of which management companies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
16
of which insurance undertakings
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
20
Non-financial undertakings
-
-
-
-
-
-
-
-
-
83.43%
-
-
-
-
0.06%
21
Loans and advances
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
Debt securities, including UoP
-
-
-
-
-
-
-
-
-
83.43%
-
-
-
-
0.06%
23
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
24
Households
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
36.36%
25
of which loans collateralised by
residential immovable property
-
-
-
-
-
-
-
-
-
100.00%
-
-
-
-
32.78%
26
of which building renovation loans
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
of which motor vehicle loans
-
-
-
-
-
-
-
-
-
-
-
28
Local governments financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
Housing financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
Other local government financing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31
Collateral obtained by taking
possession: residential and commercial
immovable properties
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
Total GAR assets
-
-
-
-
-
-
-
-
-
36.47%
0.0003%
0.01%
-
-
91.52%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
39
Directors’ Report (continued)
Template 5: KPI off-balance-sheet exposures
Template 5 presents eligible and aligned off-balance sheet exposures as a proportion of covered assets by Taxonomy environmental objective. The covered assets forming the
denominator of each ratio is the respective off-balance sheet exposure relating to the Bank’s assets under management, including exposures with both NFRD and non-NFRD
counterparties while excluding exposures to central governments, central banks and supranational issuers.
In the case of assets under management which are funds, these are treated as non-NFRD entities since the Bank does not look through to underlying investees regarding their
status as NFRD entities, given data limitations.
5. KPI off-balance sheet exposures (Turnover) (Stock)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
% (compared to total eligible off-balance sheet assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
1
Financial guarantees (FinGuar KPI)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
Assets under management (AuM KPI)
-
-
-
-
-
-
-
-
-
5.26%
4.84%
0.39%
0.03%
0.46%
5. KPI off-balance sheet exposures (Turnover) (Flow)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
% (compared to total eligible off-balance sheet assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
1
Financial guarantees (FinGuar KPI)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
Assets under management (AuM KPI)
-
-
-
-
-
-
-
-
-
24.65%
3.70%
0.52%
0.27%
2.45%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
40
Directors’ Report (continued)
5. KPI off-balance sheet exposures (CapEx) (Stock)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
% (compared to total eligible off-balance sheet assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant
sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
1
Financial guarantees (FinGuar KPI)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
Assets under management (AuM KPI)
-
-
-
-
-
-
-
-
-
6.24%
2.50%
1.16%
0.12%
1.30%
5. KPI off-balance sheet exposures (CapEx) (Flow)
a
b
c
d
e
f
g
h
i
aa
ab
ac
ad
ae
% (compared to total eligible off-balance sheet assets)
Disclosure reference date 2023
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy relevant sectors
(Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
Of which
Use of
Proceeds
Of which
enabling
Of which
Use of
Proceeds
Of which
transitional
Of which
enabling
1
Financial guarantees (FinGuar KPI)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
Assets under management (AuM KPI)
-
-
-
-
-
-
-
-
-
35.95%
5.05%
0.81%
1.09%
4.48%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
41
Directors’ Report (continued)
EU Taxonomy templates - Annex XII
The following template is required to be disclosed by the Bank in terms of Annex XII of the Disclosures Delegated Act.
Template 1: Nuclear and fossil gas related activities
Template 1 indicates whether, or not, the Bank carries out, funds, or has exposures to the nuclear energy and fossil gas related activities referred to in rows 1-6 of such template.
Since the Bank does not carry out, fund, or have exposures to such activities in the current year, it consequently does not disclose the remainder of the nuclear and fossil gas
related templates found in Annex XII of the Disclosures Delegated Act (Templates 2-5), in line with FAQ 28 of the afore-mentioned Draft Commission Notice issued in December
2023.
Row
Nuclear energy related activities
1
The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the
fuel cycle.
NO
2
The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as
hydrogen production, as well as their safety upgrades, using best available technologies.
NO
3
The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen
production from nuclear energy, as well as their safety upgrades.
NO
Fossil gas related activities
4
The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels.
NO
5
The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels.
NO
6
The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels
NO
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
42
Directors’ Report (continued)
Disclosure in respect of the Bank’s subsidiary MaltaPost p.l.c.
The Bank’s subsidiary MaltaPost p.l.c. (‘MaltaPost’) is subject to the NFRD and is therefore also subject to
disclosure requirements emanating from the Disclosures Delegated Act as a Group in its own right.
The Group is required to disclose the share of its turnover, capital expenditure (CapEx) and operating expenditure
(OpEx) for its non-financial subsidiaries, which are associated with the following, in accordance with the Disclosures
Delegated Act.
- Taxonomy-eligible and Taxonomy-aligned economic activities in respect of climate-related environmental
objectives; and
- Taxonomy-eligible economic activities in respect of non-climate environmental objectives.
Proportion of Taxonomy-eligible and Taxonomy-aligned economic activities in total turnover, CapEx
and OpEx
Total
(€000)
Proportion of
Taxonomy-eligible
(non-aligned)
economic
activities
Proportion of
Taxonomy-aligned
economic
activities
Proportion of
Taxonomy non-
eligible economic
activities
FY 2023
Turnover
39,610
86%
0%
14%
CapEx
1,844
42%
0%
58%
OpEx
1,141
82%
0%
18%
FY 2022
Turnover
31,513
83%
0%
17%
CapEx
2,246
44%
0%
56%
OpEx
1,146
78%
0%
22%
Taxonomy eligibility of turnover-generating activities
The Group has examined all economic activities which it carries out to determine which of these are Taxonomy
eligible in accordance with Annexes I and II to the Climate Delegated Act and Annexes I to IV to the Environmental
Delegated Act. The table below indicates the activities performed by the Group which have been identified as
Taxonomy eligible and the environmental objective with which the activity may be associated. Given that none of
the Group’s economic activities in terms of turnover, CapEx, or OpEx are Taxonomy aligned, no further detail with
respect to Taxonomy alignment is provided.
Taxonomy eligible activities were identified by extracting the total turnover, CapEx and OpEx required to be
captured in the denominators of the respective KPIs and assessing the NACE code of the activities to which the
amounts relate. The Group then assessed which of the identified NACE codes relate to activities included within
the annexes to the Climate Delegated Act. For the identified eligible activities, the Group then began the process
to assess them against the technical screening criteria.
Through the activities highlighted in the following table, the Group generates turnover, and may incur both CapEx
and OpEx for such activities.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
43
Directors’ Report (continued)
Economic activity
Description
Turnover
(%)*
CapEx
(%)*
OpEx
(%)*
Environmental
objective(s)
6.4 Operation of personal
mobility devices, cycle
logistics
Postal revenue earned through
delivery of post on foot and by
e-pedal cargo bikes
14%
0%
0%
CCM, CCA
6.5 Transport by
motorbikes, passenger
cars and light commercial
vehicles
Postal revenue earned through
delivery services by motorbikes,
cars and light commercial
vehicles including electric
vehicle quadricycles
52%
37%
72%
CCM, CCA
6.15 Infrastructure
enabling low-carbon road
transport and public
transport
Postal revenue earned through
infrastructure and related
activities in sorting centres and
hubs essential to minimise the
transport activities required
20%
0%
0%
CCM, CCA
*of the total turnover, CapEx and OpEx included in the denominator of the respective KPI
The Group has developed a system to allocate the proportion of its postal turnover towards transport activities.
This is based on transport modalities of postal beats, in the case of delivery services, where 17% of the Group’s
turnover attributable to its non-financial undertaking activities is allocated towards activity 6.4 ‘Operation of
personal mobility devices, cycle logistics’, and 60% towards activity 6.5 ‘Transport by motorbikes, passenger cars
and light commercial vehicles’. In the case of sorting activities, this is based on the area of its property used for
sorting as a proportion of total property area, where the remaining 23% of turnover attributable to Group non-
financial undertaking activities is allocated towards activity 6.15 ‘Infrastructure enabling low-carbon road transport
and public transport’.
Economic activities classified under activity 6.4 ‘Operation of personal mobility devices, cycle logistics’ relate to on-
foot deliveries and e-pedal cargo bikes, being two delivery methods used in the Group’s Last Mile Delivery which
are eligible under such activity.
Economic activities classified under activity 6.5 ‘Transport by motorbikes, passenger cars and light commercial
vehicles’ relate to motorcycles, delivery vans and light cargo electric vehicles (Micro Logistics Electric Vehicles),
which are another three delivery methods used in the Group’s Last Mile Delivery which are eligible under this
activity. In this respect, the CapEx classified as Taxonomy eligible entails capital investments pertaining to the
execution of such turnover-generating economic activity. Such CapEx relates to motor vehicle additions throughout
the year, whilst OpEx in this respect pertains to direct non-capitalised costs incurred in the day-to-day servicing of
such motor vehicles, namely running expenses relating to repair and maintenance, and short-term operating
leases.
Economic activities classified under activity 6.15 ‘Infrastructure enabling low-carbon road transport and public
transport’ relate to infrastructure and related activities in the Group’s sorting centre and hubs, which are
considered essential to enable the efficient transport of letters, small packets and parcels, making it a driver in
minimising the required transport activities in the postal business.
The Group also operates four heavy vehicles in scope of activity 6.6 ‘Freight transport services by road’, however,
these are considered not to directly contribute to turnover generation.
The Group assessed its turnover-generating economic activities in light of the Environmental Delegated Act,
however, none are currently deemed to be eligible in this respect.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
44
Directors’ Report (continued)
Whilst the Group currently assesses its operating activities in accordance with activities classified under section 6
‘Transport’ of the Climate Delegated Act, PostEurop, the trade association that represents European public postal
operators, submitted a position paper on the EU Taxonomy in September 2022 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 Group will re-assess the Taxonomy eligibility of its
turnover-generating activities.
Other turnover-generating activities classified as Taxonomy non-eligible
The Group’s Taxonomy non-eligible economic activities include warehousing services, document management
services, philatelic activities, retail sale of stamps, non-postal stationery and provision of non-postal services.
Taxonomy eligibility of investment activities not directly related to turnover-generating activities
Further to the activities from which the Group generates turnover, and generally incurs both CapEx and OpEx, it
also engages in investment activities not directly related to its turnover-generating activities as highlighted in the
following table.
Economic activity
Description
CapEx
(%)*
OpEx
(%)*
Environmental
objective(s)
7.7 Acquisition and ownership
of buildings
Additions to leased property
5.5%
10%
CCM, CCA
*of the total CapEx and OpEx included in the denominator of the respective KPI
Economic activities classified under activity 7.7 Acquisition and ownership of buildings relate to additions to leased
property.
The Group assessed its investment activities not directly related to turnover-generating economic activities in light
of the Environmental Delegated Act, however, none are currently deemed to be eligible in this respect.
Consolidated group-level KPI on Taxonomy aligned activities in the form of a weighted average KPI
The Group discloses a weighted average KPI of its financial and non-financial activities as required by FAQ7 in the
afore-mentioned Draft Commission Notice. The Group’s weighted average turnover-based KPI is 0.03% while its
weighted average CapEx-based KPI is 0.02%
Signed on behalf of the Bank's Board of Directors on 26 April 2024 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 2023.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
45
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 2023, 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 2023, the Board of Directors of the Bank consisted of six (6) Directors, five (5) of whom being
non-executive Directors together with the Chief Executive Officer of the Bank being also a Director.
In January 2024, the Bank’s Qualifying Shareholder the National Development and Social Fund (NDSF) appointed
a further director (Mr Richard Dimech) on the Board of Directors. Furthermore, with effect from 13 March 2024,
Graham A. Fairclough resigned from his position as non-executive director subsequent to which the Board of
Directors co-opted Aldo-Joseph Giordano as non-executive director. As at the date of publication of this Annual
Report, these appointments are subject to regulatory approval. 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
46
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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. The Board of Directors also appointed two Deputy Chief Executive Officers, who support the Chief Executive
Officer in the exercise of his duties while leading the Credit and Operations functions respectively.
Principle 3: Composition of the Board
The following Directors served on the Board during the period under review:
Michael C. Bonello
John Bonello *
Graham A. Fairclough * *
Kimon Palamidis
Peter Perotti
Joseph Said
***
* John Bonello was appointed as a Director of the Bank by the Bank’s Qualifying Shareholder, the National Development & Social
Fund (‘NDSF’) and upon receipt of regulatory approval on 23 October 2023, his appointment became effective as of such date.
** Graham A. Fairclough resigned from his position as non-executive director with effect from 13 March 2024, subsequent to
which the Board of Directors co-opted Aldo-Joseph Giordano as non-executive director which appointment, as at the date of
publication of this Annual Report, is subject to regulatory approval.
*** As reported above, Richard Dimech was appointed by the National Development & Social Fund which appointment, as at
the date of publication of this Annual Report, is subject to regulatory approval.
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, John 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
47
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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, applicable regulatory framework 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.
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 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
48
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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.
Principle 5: Board Meetings
The Board convened twelve (12) times during the period under review with attendance of the Directors as follows:
Michael C. Bonello 12
John Bonello 3*
Graham A. Fairclough 12
Kimon Palamidis 12
Peter Perotti 12
Joseph Said 12
* John Bonello was appointed as a Director of the Bank by the Bank’s Qualifying Shareholder, the National
Development & Social Fund (‘NDSF’)
and upon receipt of regulatory approval on 23 October 2023, his
appointment became effective as of such date.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
49
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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 and risk-
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.
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.
Furthermore, Directors have access to the advice and services of any advisors and also the external auditors. The
External Auditors are invited to attend all Audit & Risk Committee meetings as well as Board meetings when
required.
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.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
50
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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 seven (7) 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. As stated earlier, Graham
A. Fairclough resigned from his position as non-executive director with effect from 13 March 2024.
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 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 Chief Risk Officer 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, the two Deputy Chief Executive Officers, the Chief Financial
Officer, and the Compliance Officer and Money Laundering Reporting 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
51
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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.
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, Peter Perotti, is an independent non-executive Director and Committee member
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 56 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 and
meetings with shareholders and other stakeholders as necessary. Ahead of the 2023 Rights Issue, the Bank sought
to provide shareholders and financial intermediaries with the relevant information also by virtue of Information
Sessions held in person which gave the opportunity to the relevant stakeholders to understand further the process
also by virtue of a presentation and to ask questions and seek clarifications as necessary.
The Bank also communicates with its shareholders with respect to its General Meetings. 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
52
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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.
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
Principle 4: (Code Provision 4.2.7)
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’.
In terms of law and the Bank’s Memorandum and Articles of Association, as stated earlier, the appointment of
Directors to the Board is a matter that is reserved to the Bank’s shareholders. Therefore, Board composition and size,
to an extent depend on the nominees proposed by shareholders as well as on their respective profiles and suitability.
The Bank also has a Qualifying Shareholder owning 49.01% of its shareholder base with rights pertaining to the
appointment of Directors. During the year under review, despite not having a formal consolidated Board Succession
Policy in place, the Board remained guided by its policy in this regard as set out in other relevant policies, applicable
laws, rules, regulations etc., its Board of Directors’ Charter, Terms of Reference of the Bank’s Suitability & Evaluations
Committee as well as the Bank’s Memorandum and Articles of Association. Furthermore, the Board continued to
remain on the alert to identify potentially suitable nominees who could be qualified to eventually succeed current
members and / or be added on as Board members. The concept of rotation of directors as currently stipulated in the
Bank’s Memorandum and Articles of Association also provides an element of continuity on the Board.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
53
Statement of Compliance with the Principles of Good Corporate Governance (continued)
During 2024, the Board of Directors shall be approving a consolidated Succession Policy document which is currently
being drafted and will serve as a dedicated document setting the basic principles to be adopted so as to ensure the
orderly succession of its directors, subject to the parameters of applicable laws, rules, regulations etc., and the Bank’s
Memorandum and Articles of Association.
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.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
54
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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.
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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
55
Statement of Compliance with the Principles of Good Corporate Governance (continued)
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 26 April 2024 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 2023.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
56
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 26 April 2024.
Directors
The Bank’s Remuneration Policy for Directors is drawn up in terms of the Capital Markets Rule 12.26A et seq and
sets out the Bank’s remuneration policy with respect to its Directors, Chief Executive Officer and Deputy Chief
Executive Officers with their remuneration being paid in accordance with the same. During 2023, this Policy was
reviewed and revised so as to include reference to Deputy Chief Executive Officers due to their appointments with
effect from 1 April 2023 and it was approved by the Annual General Meeting on 22 June 2023 (Refer to
https://www.lombardmalta.com/annual-general-meeting-2023).
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. No changes are being proposed for approval at the 2024
Annual General Meeting.
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 2023 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 2023 amounted to € €92,794 (2022: €85,673). This
amount is within the limit of €120,000 approved by the Annual General Meeting of 22 June 2023.
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. During the year
under review, one Director (Graham A. Fairclough who resigned as non-executive director of the Bank with effect
from 13 March 2024 as indicated earlier in this Annual Report) provided specific services to the Group until 30
September 2023. 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 2023
57
Remuneration Report (continued)
In terms of Code Provisions 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 2023, as compared to 2022
and 2021, are specified below:
* John Bonello was appointed as a non-executive director of the Bank with effect from 23 October 2023.
** Michael Zammit was a non-executive director who passed away on 3 February 2022.
In determining the remuneration of the CEO and Deputy CEOs, 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 and Deputy CEOs is fixed with no variable remuneration other than a
discretionary annual bonus which may be awarded as set out in the above-mentioned Policy.
The CEO and Deputy CEOs are 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 2023, the total emoluments
received from the Group by the Executive Director amounted to €385,513 (2022: €362,718; 2021: €361,368), split
as follows:
€
€
€
2023
2022
2021
Gross annual, fixed salary & fixed role-based allowances
352,513
330,718
333,377
Director Fees - Lombard Bank Malta p.l.c.
15,000
15,000
10,991
Chairman / Director Fees MaltaPost p.l.c.
18,000
17,000
17,000
The total remuneration for 2023 of the Non-Executive Director who until 30 September 2023 provided specific
services to the Group, amounted to €76,118 (2022: €93,808; 2021: €81,229), split as follows:
€
€
€
2023
2022
2021
Payments for specific services
38,268
57,708
54,138
Director Fees – Lombard Bank Malta p.l.c.
15,000
15,000
10,991
Director Fees - MaltaPost p.l.c.
8,850
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
10,000
5,000
€
2023
€
2022
€
2021
Michael C. Bonello (Chairman)
30,000
30,000
25,480
John Bonello*
2,794
N/A
N/A
Graham A. Fairclough
15,000
15,000
10,991
Joseph Said
15,000
15,000
10,991
Michael Zammit**
N/A
N/A
10,991
Peter Perotti
15,000
10,673
N/A
Kimon Palamidis
15,000
15,000
10,991
Total
92,794
85,673
69,444
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
58
Remuneration Report (continued)
There is no formal provision for the reclamation of variable remuneration.
During the financial year 2023, the total emoluments received by the Deputy Chief Executive Officers, appointed on
the 1 April 2023, from the Group amounted to €208,698 split as follows:
€
€
€
2023
2022
2021
Gross annual & fixed salary
99,924
N/A
N/A
€
€
€
2023
2022
2021
Gross annual & fixed salary
99,924
N/A
N/A
Director Fees – MaltaPost p.l.c.
8,850
N/A
N/A
The above remuneration levels for 2023 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 and there were no deviations from the procedure for the implementation of the said Policy.
Senior Management
Senior Management refers to the Chief Officers of the Bank, excluding the Chief Executive Officer and Deputy Chief
Executive Officers.
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 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 2023 amounted to €100,000 (2022: €150,000). 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.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
59
Remuneration Report (continued)
Total emoluments received by Senior Management, excluding the CEO and Deputy CEOs, during the period under
review are as detailed below, in terms of Code Provision 8.A.5.
Fixed Remuneration
Variable Remuneration
Share Options
Others
2023
2022
2021
2023
2022
2021
2023
2022
2021
2023
2022
2021
€
€
€
€
€
€
€
€
€
€
€
€
478,146
769,000
568,000
116,000
88,000
98,000
-
-
-
-
-
-
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.
In terms of Chapter 12 of the Capital Markets Rules, this Remuneration Report is being put to an advisory vote at
the 2024 Annual General Meeting in accordance with the requirements of the Capital Markets Rule 12.26 L.
The Directors’ Remuneration Report for 2022 was approved at the Annual General Meeting held on 22 June 2023.
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.
2023
€
2022
€
2021
€
% change
(2023-2022)
% change
(2022-2021)
Michael C. Bonello (Chairman)
30,000
30,000
25,480
0%
18%
John Bonello*
2,794
N/A
N/A
N/A
N/A
Graham A. Fairclough
15,000
15,000
10,991
0%
36%
Joseph Said
15,000
15,000
10,991
0%
36%
Kimon Palamidis
15,000
15,000
10,991
0%
36%
Peter Perotti
15,000
10,637
N/A
N/A
N/A
Michael Zammit**
N/A
N/A
10,991
N/A
N/A
Total
92,794
85,637
69,444
* John Bonello was appointed as a non-executive director of the Bank with effect from 23 October 2023.
** Michael Zammit was a non-executive director who passed away on 3 February 2022.
% annual change of the
Bank’s performance based
on profit before tax
(2023-2022)
% annual change of the
Bank’s performance based
on profit before tax
(2022-2021)
% annual change of the
average remuneration on
a full-time equivalent
basis of employees of the
Bank other than Directors
(2023-2022)
% annual change of the
average remuneration on
a full-time equivalent
basis of employees of the
Bank other than Directors
(2022-2021)
(52%)
136%
0%
4%
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
60
Remuneration Report (continued)
€'000
2023
2022
% change
Group
Bank
Group
Bank
Group
Bank
Employee remuneration (excluding CEO)
24,031
8,542
23,681
8,352
1%
2%
CEO remuneration
353
353
331
331
6%
6%
Entity’s performance – Profit before tax
14,526
13,850
27,676
28,767
(48%)
(52%)
€'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%
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 2023
61
Company Information
Number of shareholders analysed by range:
31 December 2023
31 March 2024
Range
Shareholders
Shares
Shareholders
Shares
1 – 500
115
20,736
114
20,611
501 – 1000
42
34,351
41
33,699
1001 – 5000
373
1,145,265
369
1,128,384
5001 and over
994
153,371,911
993
153,389,569
Total
1,524
154,572,263
1,517
154,572,263
The Bank has one class of shares and each share is entitled to one vote.
BOARD OF DIRECTORS
Michael C. Bonello
John Bonello
Chairman
Graham A. Fairclough
Kimon Palamidis
Peter Perotti
Joseph Said
COMPANY SECRETARY
Helena Said
SENIOR MANAGEMENT
Joseph Said
Anthony Bezzina
Eugenio Farrugia
Chief Executive Officer
Deputy Chief Executive Officer
Deputy Chief Executive Officer
David Attard
Chief Officer - Group Corporate Services
Moira Balzan
Carlos Camenzuli
Chief Financial Officer
Chief Risk Officer
Helena Said
Anthony Zahra
Chief Legal Officer
Chief Information Officer
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
62
Company Information (continued)
REGISTERED OFFICE
67 Republic Street, Valletta VLT 1117
Tel: 25581 117
BRANCHES
43, Pitkali Road, Attard ATD 2219 Bertu Fenech Square, Balzan BZN 1409
Tel: 25581 560 Tel: 25581 500
82, St Sebastian Street, Qormi, QRM 2335 198, Naxxar Road, San Gwann SGN 9030
Tel: 25581 360 Tel: 25581 650
4, Fleur-De-Lys Junction, Santa Venera SVR 1587 41, Robert Arrigo Street, Sliema SLM 3174
Tel: 25581 300 Tel: 25581 251
225, Tower Road, Sliema SLM 1601 67, Republic Street, Valletta VLT 1117
Tel: 25581 260 Tel: 25581 100
Ninu Cremona Street, Victoria VCT 2561 19, Sanctuary Street, Zabbar, ZBR 1010
Tel: 25581 600 Tel: 25581 400
21, Gregorio Bonici Square, Zejtun ZTN 1051
Tel: 25581 245
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 2023
63
Financial Statements
Statements of Financial Position
Group
Bank
Notes
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash
5
147,043
139,234
146,308
138,393
Cheques in course of collection
1,880
1,053
1,880
1,053
Financial investments
6
216,770
220,815
214,505
218,286
Loans and advances to banks
7
38,139
27,615
33,605
20,936
Loans and advances to customers
8
758,304
711,612
758,304
711,613
Trade and other receivables
16
11,369
13,243
3,405
3,445
Accrued income and other assets
17
5,203
5,302
4,537
4,581
Assets classified as held for sale
8
703
703
703
703
Current tax assets
643
575
-
296
Inventories
15
1,391
1,271
639
602
Investments in subsidiaries
9
-
-
17,135
16,058
Investments in associates
10
3,292
2,607
1,645
1,645
Intangible assets
11
2,192
2,121
19
57
Property, plant and equipment
12
66,511
66,375
42,255
42,400
Deferred tax assets
14
11,694
10,889
11,381
10,552
1,236,320
146,308
Total assets
1,265,134
1,203,415
1,236,321
1,170,620
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
64
Statements of Financial Position (continued)
Group
Bank
Notes
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Equity and Liabilities
Equity
Share capital
18
19,322
11,341
19,322
11,341
Share premium
19
56,534
18,530
56,534
18,530
Revaluation and other reserves
19
1,420
4,639
(1,297)
1,918
Retained earnings
113,107
101,700
111,444
100,204
Equity attributable to equity holders of the
Bank
190,383
136,210
186,003
131,993
Non-controlling interests
8,409
8,090
-
-
Total equity
198,792
144,300
186,003
131,993
Liabilities
Amounts owed to banks
20
145
535
145
535
Amounts owed to customers
21
1,019,075
1,008,431
1,021,254
1,010,100
Current tax liabilities
1,556
-
1,556
-
Accruals and deferred income
24
11,302
11,015
7,958
7,589
Other liabilities
23
28,762
33,347
16,236
17,220
Provisions for liabilities and other charges
22
1,403
1,688
369
383
Deferred tax liabilities
14
4,099
4,099
2,800
2,800
-
1,050,317
Total liabilities
1,066,342
1,059,115
1,050,318
1,038,627
Total equity and liabilities
1,265,134
1,203,415
1,236,321
1,170,620
Memorandum items
Contingent liabilities
25
14,315
13,611
14,315
13,610
Commitments
25
257,415
202,396
258,525
203,285
The notes on pages 72 to 196 are an integral part of these financial statements.
These financial statements on pages 63 to 196 were approved and authorised for issue by the Board of Directors on 26 April
2024. 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 2023.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
65
Income Statements
Group
Bank
Notes
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Interest receivable and similar income
- on loans and advances, balances with Central
Bank of Malta and treasury bills
26
31,525
26,497
31,492
26,455
- on debt and other fixed income instruments
26
2,173
2,523
2,094
2,450
Interest expense
26
(7,837)
(6,744)
(7,791)
(6,702)
Net interest income
25,861
22,276
25,795
22,203
Fee and commission income
27
5,471
5,669
4,475
4,569
Fee and commission expense
27
(288)
(253)
(288)
(253)
Net fee and commission income
5,183
5,416
4,187
4,316
Postal sales and other revenues
28
38,720
30,693
488
605
Dividend income
29
203
141
1,860
1,798
Net trading income
30
378
793
525
634
Other operating income
48
309
21
117
Operating income
70,393
59,628
32,876
29,673
Employee compensation and benefits
31
(24,384)
(24,012)
(8,895)
(8,683)
Other operating costs
33
(27,176)
(20,867)
(7,596)
(7,239)
Depreciation and amortisation
11,12
(3,159)
(2,915)
(1,219)
(1,121)
Net movement in provisions for liabilities and other
charges
22
429
(2)
-
26
Net movement in expected credit losses
32
(1,261)
16,243
(1,316)
16,111
Operating profit
14,842
28,075
13,850
28,767
Share of loss attributable to investment accounted for
using the equity method, net of tax
10
(315)
(399)
-
-
Profit before taxation
14,527
27,676
13,850
28,767
Income tax expense
34
(4,909)
(10,050)
(5,053)
(10,279)
Profit for the year
9,618
17,626
8,797
18,488
Attributable to:
Equity holders of the Bank
9,064
17,530
8,797
18,488
Non-controlling interests
554
96
-
-
Profit for the year
9,618
17,626
8,797
18,488
Earnings per share
35
€0.09
€0.19
The notes on pages 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
66
Statements of Comprehensive Income
Group
Bank
Notes
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Profit for the year
9,618
17,626
8,797
18,488
Other comprehensive income
Items that may be subsequently reclassified to profit
or loss
Investments in debt securities measured at FVOCI
Net losses from changes in fair value, before tax
6
(2,380)
(25,825)
(2,243)
(25,483)
Net losses reclassified to profit or loss on disposal,
before tax
376
-
376
-
Net movements in credit losses released to profit or
loss, before tax
(55)
62
(55)
62
Income taxes relating to these items
34
672
8,897
672
8,897
Items that will not be subsequently reclassified to
profit or loss
Net gains/(losses) from changes in fair value of
investments in equity instruments designated at
FVOCI, before tax
6
1,123
(1,717)
1,123
(1,717)
Remeasurements of defined benefit obligations,
before tax
159
264
-
-
Income taxes relating to these items
34
(449)
525
(393)
617
Other comprehensive income for the year, net of
income tax
(554)
(17,794)
(520)
(17,624)
Total comprehensive income for the year, net of
income tax
9,064
(168)
8,277
864
Attributable to:
Equity holders of the Bank
8,522
(217)
Non-controlling interests
542
49
Total comprehensive income for the year, net of
income tax
9,064
(168)
The notes on pages 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
67
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 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 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
68
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 2023
11,341
18,530
4,639
101,700
136,210
8,090
144,300
Comprehensive income
Profit for the year
-
-
-
9,064
9,064
554
9,618
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year
-
-
(824)
-
(824)
(41)
(865)
Reclassification adjustments:
- net movement attributable to changes in credit risk
-
-
(36)
-
(36)
-
(36)
- net amounts reclassified to profit or loss on disposal
-
-
244
-
244
-
244
Remeasurements of defined benefit obligations
-
-
74
-
74
29
103
Total other comprehensive income for the year
-
-
(542)
-
(542)
(12)
(554)
Total comprehensive income for the year
-
-
(542)
9,064
8,522
542
9,064
Transfers and other movements
19
-
-
(2,695)
2,695
-
-
-
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends to equity holders
36
-
-
-
-
-
(305)
(305)
Rights issue of ordinary shares
18
7,729
38,004
-
-
45,733
-
45,733
Bonus issue
18
252
-
-
(252)
-
-
-
Changes in ownership interests in subsidiaries that do not result in loss of control
Impacts of change in non-controlling interests in subsidiary
-
-
18
(100)
(82)
82
-
Total transactions with owners
7,981
38,004
18
(352)
45,651
(223)
45,428
At 31 December 2023
19,322
56,534
1,420
113,107
190,383
8,409
198,792
The notes on pages 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
69
Statements of Changes in Equity (continued)
Bank
Revaluation
Share
Share
and other
Retained
Total
capital
premium
reserves
earnings
Equity
Notes
€ 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 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
70
Statements of Changes in Equity (continued)
Bank
Revaluation
Share
Share
and other
Retained
Total
capital
premium
reserves
earnings
Equity
Notes
€ 000
€ 000
€ 000
€ 000
€ 000
At 1 January 2023
11,341
18,530
1,918
100,204
131,993
Comprehensive income
Profit for the year
-
-
-
8,797
8,797
Other comprehensive income
Fair valuation of financial assets measured at FVOCI:
Net movements in fair value arising during the year
-
-
(728)
-
(728)
Reclassification adjustments:
- net movement attributable to changes in credit risk
-
-
(36)
-
(36)
- net amounts reclassified to profit or loss on disposal
-
-
244
-
244
Total other comprehensive income for the year
-
-
(520)
-
(520)
Total comprehensive income for the year
-
-
(520)
8,797
8,277
Transfers and other movements
19
-
-
(2,695)
2,695
-
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Rights issue of ordinary shares
18
7,729
38,004
-
-
45,733
Bonus issue
18
252
-
-
(252)
-
Total transactions with owners
7,981
38,004
-
(252)
45,733
At 31 December 2023
19,322
56,534
(1,297)
111,444
186,003
The notes on pages 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Annual Report and Financial Statements 2023
71
Statements of Cash Flows
Group
Bank
2023
2022
2023
2022
Notes
€ 000
€ 000
€ 000
€ 000
Cash flows from operating activities
Interest, fees and commission receipts
35,578
30,830
35,614
30,918
Receipts from customers relating to
postal sales and other revenue
44,255
35,204
488
605
Interest, fees and commission payments
(7,757)
(6,651)
(7,759)
(6,651)
Payments to employees and suppliers
(58,653)
(48,175)
(16,248)
(15,302)
Cash flows attributable to funds collected on
behalf of third parties
872
634
-
-
Cash flows from operating profit before changes
in operating assets and liabilities
14,295
11,842
12,095
9,570
Movements in operating assets:
Treasury bills
52,695
(34,069)
52,695
(34,069)
Balances with Central Bank of Malta
(6,130)
7,245
(6,130)
7,245
Loans and advances to banks and customers
(47,557)
(49,399)
(48,157)
(52,799)
Other receivables
(763)
(2,227)
(829)
(2,236)
Movements in operating liabilities:
Amounts owed to banks and to customers
10,643
31,287
11,154
31,735
Other payables
(1,015)
2,216
(949)
2,229
Net cash generated from/(used in) operating
activities, before tax
22,168
(33,105)
19,879
(38,325)
Income tax paid
(3,989)
(3,176)
(3,171)
(2,392)
Net cash flows generated from/(used in)
operating activities
18,179
(36,281)
16,708
(40,717)
Cash flows from investing activities
Dividends received
203
141
203
1,798
Interest received from debt securities
4,675
3,486
4,568
3,359
Purchase of financial investments
6
(8,359)
(27,519)
(8,359)
(27,519)
Proceeds from maturity/disposal of investments
9,903
5,220
9,779
5,194
Purchase of property, plant and equipment and
intangible assets
(2,657)
(3,709)
(900)
(1,660)
Investments in associates
10
(1,000)
-
-
-
Investments in subsidiaries
9
-
-
-
(200)
Net cash flows generated from/(used in) investing
activities
2,765
(22,381)
5,291
(19,028)
Cash flows from financing activities
Proceeds from rights issue of ordinary shares
45,733
-
45,733
-
Principal elements of lease payments
13
(491)
(478)
(194)
(162)
Dividends paid to equity holders of the Bank
36
-
(873)
-
(873)
Dividends paid to non-controlling interests
(299)
(429)
-
-
Net cash flows generated from/(used in) financing
activities
44,943
(1,780)
45,539
(1,035)
Net movement in cash and cash equivalents
65,887
(60,442)
67,538
(60,780)
Cash and cash equivalents at beginning of year
105,818
166,260
100,898
161,678
Cash and cash equivalents at end of year
37
171,705
105,818
168,436
100,898
The notes on pages 72 to 196 are an integral part of these financial statements.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
72
Notes to the Financial Statements
1. Summary of material accounting policies ................................................................................................. 73
2. Financial risk management........................................................................................................................ 87
3. Accounting estimates and judgements ................................................................................................... 158
4. Segmental information ............................................................................................................................ 161
5. Balances with Central Bank of Malta, treasury bills and cash ................................................................. 162
6. Financial investments .............................................................................................................................. 162
7. Loans and advances to banks .................................................................................................................. 164
8. Loans and advances to customers ........................................................................................................... 165
9. Investment in subsidiaries ....................................................................................................................... 165
10. Investment in associates ......................................................................................................................... 167
11. Intangible assets ...................................................................................................................................... 168
12. Property, plant and equipment ............................................................................................................... 169
13. Leases ...................................................................................................................................................... 173
14. Deferred tax assets and liabilities ............................................................................................................ 176
15. Inventories ............................................................................................................................................... 178
16. Trade and other receivables .................................................................................................................... 178
17. Accrued income and other assets ............................................................................................................ 178
18. Share capital ............................................................................................................................................ 179
19. Reserves ................................................................................................................................................... 180
20. Amounts owed to banks .......................................................................................................................... 181
21. Amounts owed to customers ................................................................................................................... 181
22. Provisions for liabilities and other charges .............................................................................................. 181
23. Other liabilities ........................................................................................................................................ 183
24. Accruals and deferred income ................................................................................................................. 183
25. Commitments and contingent liabilities .................................................................................................. 184
26. Net interest income ................................................................................................................................. 185
27. Net fee and commission income .............................................................................................................. 185
28. Postal sales and other revenues .............................................................................................................. 186
29. Dividend income ...................................................................................................................................... 186
30. Net trading income .................................................................................................................................. 186
31. Employee compensation and benefits ..................................................................................................... 186
32. Net movement in expected credit losses ................................................................................................ 187
33. Profit before taxation .............................................................................................................................. 188
34. Income tax expense ................................................................................................................................. 190
35. Earnings per share ................................................................................................................................... 191
36. Dividends ................................................................................................................................................. 192
37. Cash and cash equivalents....................................................................................................................... 192
38. Related parties ........................................................................................................................................ 193
39. Investor compensation scheme ............................................................................................................... 196
40. Statutory information .............................................................................................................................. 196
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
73
1. Summary of material accounting policies
The material 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 the revaluation of the
land and buildings class within property, plant and equipment.
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).
Standards, interpretations and amendments to published standards effective in 2023
In 2023, the Group adopted amendments and interpretations to existing standards that are mandatory for
the Group’s accounting period beginning on 1 January 2023. 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 materially the Group’s financial performance and position. The adoption of IFRS17 Insurance
Contracts by IVALIFE Insurance Limited during 2023 did not have a material impact on the financial
statements of the Group.
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 2023 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.
1.1.1 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 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.
Notes to the Financial Statements for the year ended 31 December 2023
74
1. Summary of material 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 the 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 standalone 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. 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. The results of subsidiaries are reflected in the Bank’s standalone
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.
1.2 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. 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.
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
associates 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 on investments in associates are
recognised in the income statement.
In the Bank’s standalone 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 standalone 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
75
1. Summary of material accounting policies (continued)
1.3 Foreign currency translation
The financial statements are presented in euro (€), which is the Group’s presentation currency.
1.3.1 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 Bank’s ‘functional currency’). The
consolidated financial statements are presented in euro (€), which is the Bank’s functional currency and
the Group’s presentation currency.
1.3.2 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.
1.4 Financial assets
1.4.1 Initial recognition and measurement
The Group recognises a financial instrument 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.
1.4.2 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
76
1. Summary of material accounting policies (continued)
1.4.2.1 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 1.4.3. Interest income from
these financial assets is included in ‘Interest income’ using the effective interest rate method.
• 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 losses or reversals,
interest income 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 financial assets that is
subsequently measured at fair value through profit or loss is recognised in profit or loss and
presented in the income statement within ‘Net trading income’ in the period in which it arises,
unless it arises from assets that were designated at fair value or which are not held for trading, in
which case it is 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 credit 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 credit loss allowance) or to the amortised cost of a financial
liability.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
77
1. Summary of material accounting policies (continued)
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
asset 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.
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
78
1. Summary of material accounting policies (continued)
(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).
Financial assets with embedded derivatives are considered in their entirety when determining whether
their cash flows are solely payments of principal and interest.
1.4.2.2 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 dividend income when the Group's right to receive payment is established.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
79
1. Summary of material accounting policies (continued)
1.4.3 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 allowance 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 that 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.
1.4.4 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 personal and corporate & commercial 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
80
1. Summary of material accounting policies (continued)
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 expected credit losses
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.
1.4.5 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 Group transfers
substantially all the risks and rewards of ownership, or (ii) the Group neither transfers nor retains
substantially all the risks and rewards of ownership and the Group has not retained control.
1.4A 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 expected credit loss allowances. Credit loss allowances
include specific provisions for impairment against credit impaired individual exposures 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 exposure is credit impaired. For trade and other receivables the Group applies the simplified
approach permitted by the provisions of IFRS 9 which requires expected lifetime losses to be recognised
from initial recognition of the receivables. Note 2.3.4 provides more detail on how lifetime losses are
measured.
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.
1.4B Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at face value less expected
credit loss allowance. 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
81
1. Summary of material accounting policies (continued)
1.5 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 other inventories is
determined on a first-in first-out basis. The cost of inventories comprises 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.
1.6 Intangible assets
1.6.1 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.
1.6.2 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.
1.7 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
82
1. Summary of material accounting policies (continued)
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 1.8).
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.
1.8 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
can also 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.
1.9 Leases
1.9.1 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.
Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit
or loss over the lease term.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
83
1. Summary of material accounting policies (continued)
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 by exercising 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.
1.10 Share capital and share premium
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. When shares are issued at a
premium, the difference between the proceeds and the par value of the shares is recognised in the share
premium account.
1.11 Financial liabilities
1.11.1 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.
1.11.2 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; and
• financial guarantee contracts and loan commitments.
Financial liabilities measured at amortised cost comprise principally amounts owed to banks, amounts
owed to customers, and other liabilities.
1.11.3 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.
1.11A 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
84
1. Summary of material accounting policies (continued)
1.12 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.
The Group has agreements in place with third parties to collect, through the Group’s outlet network,
amounts due to these third parties owed by their customers. Any amounts collected in respect of these
agreements are retained by the Group until settlement with the respective third parties, during which time
the Group is exposed to the risks and rewards emanating from the amounts collected. Such amounts are
therefore presented within assets with a corresponding liability towards the third party presented within
trade and other payables.
1.13 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.
1.14 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.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to equity in other comprehensive income in the period in which they arise. Past-service
costs are recognised immediately in profit or loss.
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.
1.15 Interest income and expense
Interest income and expense for all interest-bearing financial instruments are recognised within ‘interest
income’ and ‘interest expense’ in 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 expected credit loss allowance) or to the amortised cost
of a financial liability.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
85
1. Summary of material accounting policies (continued)
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.
1.16 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. Accordingly, 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.
1.17 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, commissions earned on postal and non-postal transactions and revenue from
foreign outbound mail from overseas postal administrators are 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.
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 the consequent 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 hence recognised
revenue, such as in the case of prepaid stamps.
The Group measures revenue on a basis that reflects the amount of consideration that it expects to be
entitled to; this measurement of revenue is however limited to amounts to which the Group has
enforceable rights, and it excludes amounts collected on behalf of third parties.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
86
1. Summary of material accounting policies (continued)
Revenue is recognised when the Group satisfies a performance obligation, which occurs when it transfers
control of a promised good or service to a customer. Control of a promised good or service is transferred
to a customer when the customer is able to direct the use of the promised good or service. A performance
obligation is satisfied at a point in time unless it meets certain criteria that indicate that it is satisfied over
time.
1.18 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 the latter 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.
1.19 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 issues financial guarantee contracts, 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 1.4.3); 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 at the amount of the loss allowance (calculated as described in note 1.4.3).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
87
1. Summary of material accounting policies (continued)
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 that 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.
1.20 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.
1.21 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.
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 IV 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
88
2. Financial risk management (continued)
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.
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
• IT
• Compliance
• Anti-Money Laundering
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
89
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 & cyber security 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.
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
90
2. Financial risk management (continued)
• 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.
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
91
2. Financial risk management (continued)
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 2023, local economic activity remained resilient
notwithstanding weaknesses resulting from the geopolitical uncertainties as a result of the military conflicts
in Eastern Europe and in the Middle East. The local economic growth registered was in part a result of a
strong recovery in the tourism sector with domestic demand being generally robust.
The level of global economic uncertainty remained elevated during the financial year ended 31 December
2023, primarily driven by the geopolitical developments mentioned above, as well as widespread supply
chain disruptions, which triggered 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.
In addition, 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.
Locally, the Government has implemented price-mitigating fiscal measures to support households and
firms, with energy prices in Malta remaining constant and the production of essential foodstuffs being
subsidised. In this respect, inflation rates in Malta remained below those observed in most of the other
euro area countries. Corrections to national salary levels were also implemented through the national Cost
Of Living Adjustment (‘COLA’) mechanism.
Based on the above, economic uncertainty continues to prevail especially in view of the interest rate
environment and inflationary pressures, partially mitigated by government support measures, though these
are set to subside during 2024. This uncertainty impacts the business model, income levels and/or cash flow
generation capacity of a 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 2023, where required, the Bank continued to provide support to customers
experiencing liquidity pressures as a result of the prevailing macro-economic scenario, though to a much
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, 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.
Notwithstanding the resilience of the local economy, during 2023, the Bank continued to assess and
individually rate on an ongoing basis those borrowers deemed mostly impacted by the current macro-
economic uncertainties. 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 and commercial 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
92
2. Financial risk management (continued)
In relation to personal 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.
The current macro-economic environment continues to give rise to an elevated 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 elevated. 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 and commercial
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 frequent basis as deemed necessary. This determines the updated internal credit risk gradings.
Personal
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 published
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 .
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
93
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
Change in credit quality since initial recognitionMateriality
Group scoping
nKey audit matters
nce initial recognitio
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
94
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 the 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 and commercial 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 & commercial
and personal portfolios.
In relation to personal 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. Personal 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 and commercial portfolio, during 2023, the
Bank focused particularly on those borrowers that are deemed to be more susceptible to the current
inflationary and interest rate environment.
A set of criteria specifically designed to address credit risk deteriorations, is in place to determine whether
borrowers exhibit signs of SICR. In summary, the Bank’s monitoring typically includes the assessment of
following risk criteria:
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
95
2. Financial risk management (continued)
Corporate and commercial exposures
Personal exposures
All exposures
• information 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.
• internally 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.
• payment 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.
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 manner consistent 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
96
2. Financial risk management (continued)
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 interest
rate environments and the consequential economic impacts have continued to give rise to an elevated level
of uncertainty, particularly with respect to the identification of customers that would have showed signs
of unlikeness-to-pay (‘UTP’). The Bank performs assessments 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).
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
97
2. Financial risk management (continued)
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 period 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
future 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.
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 of 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
98
2. Financial risk management (continued)
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 economic conditions 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.
To reflect the economic conditions currently being experienced, conservative judgements 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.
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 drivers constitute Gross Domestic Product (‘GDP’)
at constant prices, unemployment rates and inflation rates.
The impact of these economic variables 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 economic variables for optimistic and
pessimistic scenarios, is performed on the basis of the historical values and annual forecast values for the
base scenario, mainly based on the published three-year forecast of the Central Bank of Malta.
The pessimistic and optimistic scenarios 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 into 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).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
99
2. Financial risk management (continued)
As with any macro-economic forecasts, the projections and likelihood of occurrence are subject to an
elevated degree of uncertainty and therefore, the actual outcomes may be significantly different to those
projected.
Notwithstanding the global economic events that occurred during the current financial year, the local
economy in 2023 was characterised, despite relatively high inflation rates, by robust economic growth
primarily driven by the export of services, including tourism, and private consumption. The tourism sector
in Malta continued to show particularly strong growth exceeding 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 6.3% in 2023 to 4.4% in 2024, and to decelerate further to 3.6%
and 3.3% in 2025 and 2026, respectively. The Central Bank of Malta further projects that in 2024, domestic
demand is expected to be the main driver of growth while employment growth is set to decline to 3.2% in
2024 before stabilising at 2.4% by 2026 as GDP growth eases.
Within the EU, economic growth in 2023 was mainly steered by the momentum of the post COVID-19
pandemic economic rebound though economic expansion is under pressure against the background of
falling household purchasing power, collapsing external demand, a sharp rise in interest rates and the
partial withdrawal of fiscal support in 2023. Against this backdrop, economic activity in the EU is expected
to have expanded by 0.5% in 2023 but is forecasted to grow by 0.9% and 1.7% in 2024 and 2025
respectively.
Despite mild upward pressure from higher shipping costs in the wake of Red Sea trade disruptions,
underlying inflation continues on a steady downward path mainly due to falls in energy prices. Credit
conditions remain tight though monetary loosening is expected to start earlier than anticipated. As the
labour market continues to perform strongly and inflation decelerates, the gradual acceleration of
economic activity appears to be likely.
However, on the downside, protracted geopolitical tensions in Eastern Europe and the broadening of the
Middle East conflict to the Red Sea tilt the balance of risks towards more adverse outcomes as additional
trade disruptions could bring renewed stress to supply chains, hampering production and increasing fuel
inflation. Moreover, a slower-than-expected loosing of the credit cycle could further delay the rebound in
economic activity, pushing inflation lower while emerging risks, such as climate and environmental risks
and the increasing frequency of extreme weather events continue to pose threats.
Economic forecasts remain subject to a significant degree of uncertainty. The 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 very important judgement within the Bank’s estimation of ECL allowances continues to be
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 2023 and 2022
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
100
2. Financial risk management (continued)
As of 31 December 2023
2024
2025
2026
Gross Domestic Product, constant prices (YoY)*
‘Base’
3.80%
3.60%
3.30%
Range of forecasts for alternative scenarios
[0.8 - 6.8]%
[0.6 - 6.6]%
[0.3 - 6.3]%
Unemployment rate (YoY)*
‘Base’
2.9%
2.9%
3.0%
Range of forecasts for alternative scenarios
[0.1 - 5.9]%
[0.1 - 5.9]%
[0 – 6.0]%
Inflation rate (YoY)*
‘Base’
3.0%
2.3%
2.0%
Range of forecasts for alternative scenarios
[0 - 6.0]%
[0.30 - 5.3]%
[1 - 5]%
As of 31 December 2022
2023
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]%
*YoY = year on year % change
The weightings assigned to each economic scenario were 68% (2022: 68%) for the ‘Base’ Scenario, 16%
(2022: 16%) for the ‘Downside’ scenario and 16% (2022: 16%) 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.
Based on the above, the estimation of credit loss allowances as of 31 December 2023 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 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 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 €4.3
million (2022: €2.8 million) if the allowances had to be calculated solely on the baseline scenario; ECLs
would increase by €2.8 million (2022: €0.5 million) if these had to be estimated using only the downside
scenario and would reduce by €5.7 million (2022: €3.0 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
101
2. Financial risk management (continued)
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:
• personal 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 and commercial 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 2023
102
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
2023
2022
2023
2022
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 expected credit loss allowance
Financial assets measured at amortised cost:
Balances with Central Bank of Malta and treasury bills
138,157
-
132,119
-
138,157
-
132,119
-
Cheques in course of collection
1,880
-
1,053
-
1,880
-
1,053
-
Debt securities
8,357
(72)
-
-
8,357
(72)
-
-
Loans and advances to banks
38,139
-
27,615
-
33,605
-
20,936
-
Loans and advances to customers
- Corporate and commercial
529,052
(10,148)
534,188
(9,159)
529,052
(10,148)
534,189
(9,159)
- Personal
Corporate
240,703
(1,303)
187,373
(790)
240,703
(1,303)
187,373
(790)
Trade and other receivables
11,460
(91)
13,388
(145)
3,405
-
3,445
-
Accrued income and other assets
3,704
-
3,972
-
3,676
-
3,951
-
Debt securities measured at FVOCI
199,965
(471)
213,391
(526)
197,700
(471)
210,862
(526)
Credit risk exposure
1,171,417
(12,085)
1,113,099
(10,620)
1,156,535
(11,994)
1,093,928
(10,475)
Credit risk exposure relating to off-balance sheet instruments:
Contingent liabilities
14,315
(23)
13,611
(36)
14,315
(23)
13,610
(36)
Undrawn commitments to lend
257,338
(6)
202,041
(7)
258,448
(6)
203,150
(7)
Credit risk exposure
271,653
(29)
215,652
(43)
272,763
(29)
216,760
(43)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
103
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 Group and Bank’s financial investments measured at FVOCI, excluding equity investments, are analysed
by industry sector in the following table:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Government
162,743
169,725
161,609
168,377
Corporate
Tourism
422
503
379
459
Property and construction
1,368
1,345
804
768
Financial institutions
32,345
37,094
31,821
36,534
Other sectors
3,087
4,724
3,087
4,724
Gross financial investments measured at FVOCI
199,965
213,391
197,700
210,862
The Group and Bank’s financial investments measured at amortised cost are analysed by industry sector in
the following table:
Group and Bank
2023
2022
€ 000
€ 000
Government
7,020
-
Corporate
Tourism
72
-
Financial institutions
224
-
Other sectors
1,041
-
Gross financial investments measured at
amortised cost
8,357
-
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
104
2. Financial risk management (continued)
The industry sector analysis of the Group and Bank’s loans and advances to customers (gross of expected credit
losses) is described in the following table:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Manufacturing
10,223
9,754
10,223
9,754
Tourism
56,601
58,187
56,601
58,187
Trade
51,210
45,296
51,210
45,296
Property and construction
254,919
266,643
254,919
266,643
Personal, professional and home loans
249,196
196,334
249,196
196,334
Financial institutions
136,319
133,771
136,319
133,771
Other sectors
11,287
11,576
11,287
11,577
Gross advances to customers
769,755
721,561
769,755
721,562
The majority of the Bank’s loans and advances to customers comprise exposures to corporates.
As at 31 December 2023 and 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: 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 entities.
Moreover, the significant part of the Group investments in debt securities are issued by local government
and local corporate entities.
The Group and Bank’s balances with correspondent banks in different jurisdictions are split by geographical
region as shown in the following table:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Loans and advances to banks
Spain
9,668
123
9,668
123
Germany
9,086
10,706
9,086
10,706
Ireland
7,264
-
7,264
-
Malta
4,542
6,689
8
10
United States of America
2,824
4,508
2,824
4,508
United Kingdom
2,200
2,927
2,200
2,927
Italy
1,863
-
1,863
-
Belgium
437
433
437
433
Switzerland
249
2,090
249
2,090
Other
6
139
6
139
Gross loans and advances to banks
38,139
27,615
33,605
20,936
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
105
2. Financial risk management (continued)
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.
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 €33,597,000 (2022: €20,926,000)
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:
2023
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
138,157
-
-
138,157
Loss allowance
-
-
-
-
Carrying amount – net of loss allowance
138,157
-
-
138,157
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
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
106
2. Financial risk management (continued)
The credit rating of the Government of Malta as at 31 December 2023 and 2022 was considered as
‘investment grade’ and hence no loss allowance in respect of balances with the Central Bank of Malta was
recognised.
2023
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-
15,500
-
-
15,500
A+ to A-
158,253
-
-
158,253
BBB+ to BBB-
17,599
-
-
17,599
Unrated
6,348
-
-
6,348
-
Carrying amount – fair value
197,700
-
-
197,700
Loss allowance
(471)
-
-
(471)
Debt securities measured at amortised cost
A+ to A-
7,020
-
-
7,020
Unrated
1,337
-
-
1,337
Gross carrying amount
8,357
-
-
8,357
Loss allowance
(72)
-
-
(72)
Carrying amount – net of loss allowance
8,285
-
-
8,285
Loans and advances to banks at amortised cost
AAA to AA-
3,266
-
-
3,266
A+ to A-
28,466
-
-
28,466
BBB+ to BBB-
1,863
-
-
1,863
Unrated
10
-
-
10
Gross carrying amount
33,605
-
-
33,605
Loss allowance
-
-
-
-
Carrying amount – net of loss allowance
33,605
-
-
33,605
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
107
2. Financial risk management (continued)
Unrated debt securities primarily represent bonds listed on the Malta Stock Exchange which are unrated
by international credit rating agencies.
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
-
-
-
-
As at 31 December 2023 and 2022, 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
108
2. Financial risk management (continued)
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.
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.
2023
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
Corporate and commercial
P1
379,074
1,841
-
380,915
P2
-
51,370
-
51,370
P3
-
16,262
-
16,262
PF
-
52,562
-
52,562
NP
-
-
27,943
27,943
Gross carrying amount
379,074
122,035
27,943
529,052
Loss allowance
(1,270)
(1,020)
(7,858)
(10,148)
Carrying amount
377,804
121,015
20,085
518,904
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
109
2. Financial risk management (continued)
2023
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
Personal
P1
232,239
3,440
-
235,679
P2
-
1,962
-
1,962
P3
-
175
-
175
PF
-
1,612
-
1,612
NP
-
-
1,275
1,275
Gross carrying amount
232,239
7,189
1,275
240,703
Loss allowance
(310)
(867)
(126)
(1,303)
Carrying amount
231,929
6,322
1,149
239,400
2023
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
Total
P1
611,313
5,281
-
616,594
P2
-
53,332
-
53,332
P3
-
16,437
-
16,437
PF
-
54,174
-
54,174
NP
-
-
29,218
29,218
Gross carrying amount
611,313
129,224
29,218
769,755
Loss allowance
(1,580)
(1,887)
(7,984)
(11,451)
Carrying amount
609,733
127,337
21,234
758,304
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
Corporate and commercial
P1
344,302
32,942
-
377,244
P2
-
56,231
-
56,231
P3
-
26,445
-
26,445
PF
-
48,453
-
48,453
NP
-
-
25,816
25,816
Gross carrying amount
344,302
164,071
25,816
534,189
Loss allowance
(1,924)
(1,548)
(5,687)
(9,159)
Carrying amount
342,378
162,523
20,129
525,030
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
110
2. Financial risk management (continued)
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
Personal
P1
181,897
705
-
182,602
P2
-
1,095
-
1,095
P3
-
89
-
89
PF
-
1,591
-
1,591
NP
-
-
1,996
1,996
Gross carrying amount
181,897
3,480
1,996
187,373
Loss allowance
(415)
(66)
(309)
(790)
Carrying amount
181,482
3,414
1,687
186,583
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
Total
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
Loss allowance
(2,339)
(1,614)
(5,996)
(9,949)
Carrying amount
523,860
165,937
21,816
711,613
As at 31 December 2023, the Bank’s undrawn commitments to lend amounted to €258,448,000 (2022:
€203,150,000) 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 2023 were not considered significant. ECL
allowances on undrawn commitments specifically connected to revolving credit facilities to lend as at 31
December 2023 amounted to €6,000 (2022: €7,000).
Contingent liabilities as at 31 December 2023 amounting to €14,315,000 (2022: €13,610,000) are all
classified as ‘Stage 1’ (12-month ECL) by the Bank. ECL allowances on contingent liabilities as at 31
December 2023 amounted to €23,000 (2022: €36,000).
As at 31 December 2023 and 2022, there were no purchased credit-impaired assets.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
111
2. Financial risk management (continued)
The following table analyses the Bank’s impaired loans and advances, gross of impairment allowances, by
industry sector:
2023
2022
€ 000
€ 000
Manufacturing
423
472
Tourism
2,494
2,483
Trade
550
1,645
Property and construction
20,801
19,488
Personal, professional and home loans
1,383
2,094
Financial institutions
564
534
Other sectors
3,003
1,096
Gross impaired advances to customers
29,218
27,812
The following table provides a detailed analysis of the credit quality of the Bank’s lending portfolio as at 31
December 2023:
Non-forborne
exposures
Forborne
exposures
Total
2023
2023
2023
€ 000
€ 000
€ 000
Performing - Stage 1
Loans which are not past due
604,157
-
604,157
Loans which are past due up to 30 days
7,156
-
7,156
611,313
-
611,313
Performing - Stage 2
Loans which are not past due
P1
5,092
-
5,092
P2
51,341
-
51,341
P3
16,242
-
16,242
PF
-
51,302
51,302
Loans which are past due up to 90 days
Past due between 1 and 30 days
825
2,872
3,697
Past due between 31 to 90 days
1,550
-
1,550
75,050
54,174
129,224
Non-performing – Stage 3
Past due loans by 90 days or more and credit-impaired loans
22,166
7,052
29,218
Gross loans and advances
708,529
61,226
769,755
Expected credit losses
12-month ECL
(1,580)
-
(1,580)
Lifetime ECL
(9,040)
(831)
(9,871)
Net loans and advances
697,909
60,395
758,304
Interest income recognised during the financial year ended 31 December 2023 in respect of forborne
exposures amounted to €2,682,000 (2022: €2,377,000).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
112
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 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
The Bank participated in the Malta Development Bank COVID-19 Guarantee Scheme, whereby the risk of
originated loans under the scheme to viable businesses experiencing liquidity pressures resulting from the
effects of the COVID-19 pandemic are mitigated by a government guarantee. In this respect, as at 31
December 2022, gross loans outstanding subject to the Malta Development Bank COVID-19 Guarantee
Scheme amounted to €6.4 million (2022: €9.0 million), of which a maximum amount of €5.8 million (2022:
€8.1 million) is considered guaranteed, though subject to an overall capping of €2.9 million (2022: €4.9
million). As at 31 December 2023, originated gross loans, under this scheme, classified as Stage 1 and Stage
2, amounted to €3.4 million (2022: €3.7 million) and €3.0 million (2022: €5.2 million) respectively. As at 31
December 2023 and 2022, there were no originated loans under this scheme classified in Stage 3. As at 31
December 2023 and 2022, the total ECL allowance in respect of Stage 1 and Stage 2 loans subject to the
Malta Development Bank COVID-19 Guarantee Scheme was insignificant.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
113
2. Financial risk management (continued)
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.
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
114
2. Financial risk management (continued)
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
note 1.4.5).
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 2023 amounted to €26,909,000 (2022: €3,442,000).
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’.
The movement in the carrying amount of forborne loans and advances, before expected credit loss
allowances, is analysed below:
Forborne exposures
2023
2022
€ 000
€ 000
At 1 January
58,040
60,859
Loans to which forbearance measures have been extended during the year
30,910
7,611
Repayments
(815)
(6,988)
Retired from forborne
(26,909)
(3,442)
At 31 December
61,226
58,040
Forborne loans, gross of expected credit losses, are analysed by industry sector as follows:
2023
2022
€ 000
€ 000
Property and construction
34,340
10,211
Financial institutions
17,523
30,898
Trade
5,645
3,178
Personal, professional and home loans
2,202
3,259
Other sectors
1,516
3,417
Manufacturing
-
196
Tourism
-
6,881
61,226
58,040
As at 31 December 2023 and 2022, forborne loans mainly comprised of exposures to customers based in
Malta.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
115
2. Financial risk management (continued)
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 2023
116
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:
2023
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 2023
526
-
-
526
Changes to risk parameters (model inputs: PDs/LGDs/EADs)
(55)
-
-
(55)
Total net income statement credit during the year
(55)
-
-
(55)
Loss allowance as at 31 December 2023
471
-
-
471
Debt securities measured at amortised cost
Loss allowance as at 1 January 2023
-
-
-
-
Changes to risk parameters (model inputs: PDs/LGDs/EADs)
72
-
-
72
Total net income statement charge during the year
72
-
-
72
Loss allowance as at 31 December 2023
72
-
-
72
Undrawn commitments
Loss allowance as at 1 January 2023
6
-
1
7
Changes to risk parameters (model inputs: PDs/LGDs/EADs)
(6)
5
-
(1)
Total net income statement credit/(charge) during the year
(6)
5
-
(1)
Loss allowance as at 31 December 2023
-
5
1
6
Contingent liabilities
Loss allowance as at 1 January 2023
36
-
-
36
Changes to risk parameters (model inputs: PDs/LGDs/EADs)
(13)
-
-
(13)
Total net income statement credit during the year
(13)
-
-
(13)
Loss allowance as at 31 December 2023
23
-
-
23
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
117
2. Financial risk management (continued)
2023
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
Corporate and commercial
Loss allowance as at 1 January 2023
1,924
1,548
5,687
9,159
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(287)
287
-
-
Transfer from Stage 1 to Stage 3
(4)
-
4
-
Transfer from Stage 2 to Stage 1
450
(450)
-
-
Transfer from Stage 3 to Stage 1
3
-
(3)
-
Net remeasurement of ECL arising from stage
transfers
(189)
143
-
(46)
Total remeasurement of loss allowance arising
from transfers in stages
(27)
(20)
1
(46)
New financial assets originated
397
160
-
557
Changes to risk parameters (model inputs:
PDs/LGDs/EADs)*
(980)
(381)
1,950
589
Financial assets derecognised
(44)
(287)
(13)
(344)
Total net income statement (charge)/credit during
the year
(654)
(528)
1,938
756
Other movements
Unwinding of discount
-
-
233
233
Loss allowance as at 31 December 2023
1,270
1,020
7,858
10,148
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
118
2. Financial risk management (continued)
2023
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
Personal
Loss allowance as at 1 January 2023
415
66
309
790
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(19)
19
-
-
Transfer from Stage 2 to Stage 1
31
(31)
-
-
Transfer from Stage 2 to Stage 3
-
(1)
1
-
Transfer from Stage 3 to Stage 1
39
-
(39)
-
Transfer from Stage 3 to Stage 2
-
158
(158)
-
Net remeasurement of ECL arising from stage
transfers
(9)
34
-
25
Total remeasurement of loss allowance arising
from transfers in stages
42
179
(196)
25
New financial assets originated
177
13
2
192
Changes to risk parameters (model inputs:
PDs/LGDs/EADs)
(299)
610
12
323
Financial assets derecognised
(25)
(1)
(3)
(29)
Total net income statement (charge)/credit during
the year
(105)
801
(185)
511
Other movements
Unwinding of discount
-
-
2
2
Loss allowance as at 31 December 2023
310
867
126
1,303
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
119
2. Financial risk management (continued)
2023
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
Total
Loss allowance as at 1 January 2023
2,339
1,614
5,996
9,949
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(306)
306
-
-
Transfer from Stage 1 to Stage 3
(4)
-
4
-
Transfer from Stage 2 to Stage 1
481
(481)
-
-
Transfer from Stage 2 to Stage 3
-
(1)
1
-
Transfer from Stage 3 to Stage 1
42
-
(42)
-
Transfer from Stage 3 to Stage 2
-
158
(158)
-
Net remeasurement of ECL arising from stage
transfers
(198)
177
-
(21)
Total remeasurement of loss allowance arising
from transfers in stages
15
159
(195)
(21)
New financial assets originated
574
173
2
749
Changes to risk parameters (model inputs:
PDs/LGDs/EADs) *
(1,279)
229
1,962
912
Financial assets derecognised
(69)
(288)
(16)
(373)
Total net income statement (charge)/credit during
the year
(759)
273
1,753
1,267
Other movements
Unwinding of discount
-
-
235
235
Loss allowance as at 31 December 2023
1,580
1,887
7,984
11,451
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 movements reflected within the line item “Changes to risk parameters” reflect changes in ECL as a
consequence of updates to specific model inputs impacting Stage 1 and Stage 2 PDs. The increase in ECL on
Stage 3 exposures principally arises on a particular borrower following an update to the respective LGD
parameter.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
120
2. Financial risk management (continued)
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 2023
121
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
Corporate and commercial
Loss allowance as at 1 January 2022
4,740
3,226
16,961
24,927
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(46)
46
-
-
Transfer from Stage 2 to Stage 3
-
1
(1)
-
Transfer from Stage 3 to Stage 2
-
62
(62)
-
Net remeasurement of ECL arising from stage
transfers
-
38
(22)
16
Total remeasurement of loss allowance arising
from transfers in stages
(46)
147
(85)
16
New financial assets originated
869
127
(1)
995
Changes to risk parameters (model inputs:
PDs/LGDs/EADs) *
(3,521)
(1,800)
970
(4,351)
Financial assets derecognised **
(118)
(152)
(12,330)
(12,600)
Total net income statement credit
during the year
(2,816)
(1,678)
(11,446)
(15,940)
Other movements
Write-offs
-
-
(45)
(45)
Unwinding of discount
-
-
217
217
Loss allowance as at 31 December 2022
1,924
1,548
5,687
9,159
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
122
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
Personal
Loss allowance as at 1 January 2022
447
135
113
695
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(2)
2
-
-
Transfer from Stage 1 to Stage 3
(8)
-
8
-
Transfer from Stage 2 to Stage 1
5
(5)
-
-
Transfer from Stage 3 to Stage 1
5
-
(5)
-
Transfer from Stage 3 to Stage 2
-
4
(4)
-
Net remeasurement of ECL arising from stage
transfers
(4)
(11)
42
27
Total remeasurement of loss allowance arising
from transfers in stages
(4)
(10)
41
27
New financial assets originated
191
4
5
200
Changes to risk parameters (model inputs:
PDs/LGDs/EADs)
(198)
(34)
147
(85)
Financial assets derecognised
(21)
(29)
(6)
(56)
Total net income statement credit/(charge)
during the year
(32)
(69)
187
86
Other movements
Write-offs
-
-
(1)
(1)
Unwinding of discount
-
-
10
10
Loss allowance as at 31 December 2022
415
66
309
790
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
123
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
Total
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 had been accounted for as of 31 December 2021 as elevated risks relating to the impact of the
COVID-19 pandemic subsided during 2022. The changes in ECL within Stage 2 principally arise on one
exposure, in respect of which specific model input 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 2023
124
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:
2023
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 2023
132,119
-
-
132,119
New financial assets originated
3,986,316
-
-
3,986,316
Financial assets derecognised
(3,980,278)
-
-
(3,980,278)
Gross carrying amount as at 31 December 2023
138,157
-
-
138,157
Debt securities measured at FVOCI
Gross carrying amount as at 1 January 2023
213,391
-
-
213,391
Financial assets derecognised
(9,477)
-
-
(9,477)
Fair value and other movements
(3,949)
-
-
(3,949)
Gross carrying amount as at 31 December 2023
199,965
-
-
199,965
Debt securities measured at amortised cost
New financial assets purchased
8,359
-
-
8,359
Fair value and other movements
(2)
-
-
(2)
Gross carrying amount as at 31 December 2023
8,357
-
-
8,357
Loans and advances to banks at amortised cost
Gross carrying amount as at 1 January 2023
27,615
-
-
27,615
New financial assets originated
271,954
-
-
271,954
Financial assets derecognised
(261,430)
-
-
(261,430)
Gross carrying amount as at 31 December 2023
38,139
-
-
38,139
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
125
2. Financial risk management (continued)
2023
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
Corporate and commercial
Gross carrying amount as at 1 January 2023
344,301
164,071
25,816
534,188
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(29,758)
29,758
-
-
Transfer from Stage 1 to Stage 3
(2,322)
-
2,322
-
Transfer from Stage 2 to Stage 1
68,134
(68,134)
-
-
Transfer from Stage 2 to Stage 3
-
(254)
254
-
Transfer from Stage 3 to Stage 1
51
-
(51)
-
Transfer from Stage 3 to Stage 2
-
281
(281)
-
Total changes in gross carrying amounts arising from
transfers in stages
36,105
(38,349)
2,244
-
New financial assets originated
39,903
11,869
47
51,819
Changes in gross carrying amount in respect of facilities
present as at 1 January 2023
(14,539)
(5,022)
883
(18,678)
Financial assets derecognised
(26,696)
(10,534)
(1,047)
(38,277)
Total net change during the year
34,773
(42,036)
2,127
(5,136)
Gross carrying amount as at 31 December 2023
379,074
122,035
27,943
529,052
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
126
2. Financial risk management (continued)
2023
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
Personal
Gross carrying amount as at 1 January 2023
181,897
3,480
1,996
187,373
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(2,636)
2,636
-
-
Transfer from Stage 1 to Stage 3
(198)
-
198
-
Transfer from Stage 2 to Stage 1
616
(616)
-
-
Transfer from Stage 2 to Stage 3
-
(97)
97
-
Transfer from Stage 3 to Stage 1
338
-
(338)
-
Transfer from Stage 3 to Stage 2
-
515
(515)
-
Total changes in gross carrying amounts arising from
transfers in stages
(1,880)
2,438
(558)
-
New financial assets originated
63,147
65
2
63,214
Changes in gross carrying amount in respect of facilities
present as at 1 January 2023
(3,424)
1,861
(141)
(1,704)
Financial assets derecognised
(7,501)
(655)
(24)
(8,180)
Total net change during the year
50,342
3,709
(721)
53,330
Gross carrying amount as at 31 December 2023
232,239
7,189
1,275
240,703
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
127
2. Financial risk management (continued)
2023
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
Total
Gross carrying amount as at 1 January 2023
526,198
167,551
27,812
721,561
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(32,394)
32,394
-
-
Transfer from Stage 1 to Stage 3
(2,520)
-
2,520
-
Transfer from Stage 2 to Stage 1
68,750
(68,750)
-
-
Transfer from Stage 2 to Stage 3
-
(351)
351
-
Transfer from Stage 3 to Stage 1
389
-
(389)
-
Transfer from Stage 3 to Stage 2
-
796
(796)
-
Total changes in gross carrying amounts arising from
transfers in stages
34,225
(35,911)
1,686
-
New financial assets originated
103,050
11,934
49
115,033
Changes in gross carrying amount in respect of facilities
present as at 1 January 2023
(17,963)
(3,161)
742
(20,382)
Financial assets derecognised
(34,197)
(11,189)
(1,071)
(46,457)
Total net change during the year
85,115
(38,327)
1,406
48,194
Gross carrying amount as at 31 December 2023
611,313
129,224
29,218
769,755
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
128
2. Financial risk management (continued)
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 2023
129
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
Corporate and commercial
Gross carrying amount as at 1 January 2022
360,014
108,058
48,661
516,733
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(69,515)
69,515
-
-
Transfer from Stage 1 to Stage 3
(2,395)
-
2,395
-
Transfer from Stage 2 to Stage 1
4,787
(4,787)
-
-
Transfer from Stage 2 to Stage 3
-
(5,386)
5,386
-
Transfer from Stage 3 to Stage 1
-
-
-
-
Transfer from Stage 3 to Stage 2
-
7,079
(7,079)
-
Total changes in gross carrying amounts arising from
transfers in stages
(67,123)
66,421
702
-
New financial assets originated
104,433
27,134
612
132,179
Changes in gross carrying amount in respect of facilities
present as at 1 January 2022
(7,294)
(18,456)
573
(25,177)
Financial assets derecognised
(45,729)
(19,086)
(24,687)
(89,502)
Write-offs
-
-
(45)
(45)
Total net change during the year
(15,713)
56,013
(22,845)
17,455
Gross carrying amount as at 31 December 2022
344,301
164,071
25,816
534,188
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
130
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
Personal
Gross carrying amount as at 1 January 2022
144,463
4,225
3,096
151,784
Transfers of financial instruments
Transfer from Stage 1 to Stage 2
(1,260)
1,260
-
-
Transfer from Stage 1 to Stage 3
(911)
-
911
-
Transfer from Stage 2 to Stage 1
51
(51)
-
-
Transfer from Stage 2 to Stage 3
-
(95)
95
-
Transfer from Stage 3 to Stage 1
22
-
(22)
-
Transfer from Stage 3 to Stage 2
-
988
(988)
-
Total changes in gross carrying amounts arising from
transfers in stages
(2,098)
2,102
(4)
-
New financial assets originated
49,837
(2,550)
3
47,290
Changes in gross carrying amount in respect of facilities
present as at 1 January 2022
(3,635)
(201)
(201)
(4,037)
Financial assets derecognised
(6,670)
(96)
(896)
(7,662)
Write-offs
-
-
(2)
(2)
Total net change during the year
37,434
(745)
(1,100)
35,589
Gross carrying amount as at 31 December 2022
181,897
3,480
1,996
187,373
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
131
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
Total
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
Undrawn commitments to lend as at 31 December 2023 amounted to €257,338,000 (2022: €202,041,000)
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 2023
and 2022.
Contingent liabilities as at 31 December 2023 amounting to €14,315,000 (2022: €13,611,000) 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 2023 and 2022.
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.
There were no write offs during the year ended 31 December 2023 (2022: €47,000).
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
132
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 Bank’s Board
established a policy regarding the acceptability of types of collateral and valuation parameters.
Longer-term finance and lending to corporate and commercial entities are generally secured; revolving
individual credit facilities are generally unsecured.
The main types of collateral obtained are as follows:
• for corporate and commercial lending, charges over real estate properties, cash or securities; and
• for personal lending (including home loans and consumer credit), mortgages over residential properties,
cash or 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 2023, the gross carrying amount of such financial assets is €485,112,000 (2022: €496,600,000).
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 2023
133
2. Financial risk management (continued)
As at 31 December 2023
Gross
exposure
Impairment
allowance
Carrying
amount
Extendible value
of collateral held
Credit-impaired assets
€ 000
€ 000
€ 000
€ 000
Corporate and commercial
- Overdrafts
4,253
1,108
3,145
6,324
- Term loans
20,581
4,859
15,722
48,377
Personal
- Term loans
1,235
86
1,149
3,694
- Credit cards
3
1
2
3
Total credit-impaired assets
26,072
6,054
20,018
58,398
As at 31 December 2022
Corporate and commercial
- Overdrafts
5,432
462
4,970
14,794
- Term loans
17,436
3,367
14,069
43,392
- Credit cards
4
-
4
13
Personal
- Term loans
1,793
125
1,668
5,848
- Credit cards
1
1
-
-
Total credit-impaired assets
24,666
3,955
20,711
64,047
Financial assets that are credit-impaired, but with no collateral held in this respect, are shown below:
As at 31 December 2023
Gross
exposure
Impairment
allowance
Carrying
amount
€ 000
€ 000
€ 000
Credit-impaired assets
Corporate and commercial
- Overdrafts
629
387
242
- Term loans
2,480
1,506
974
Personal
- Overdrafts
8
8
-
- Term loans
9
9
-
- Credit cards
20
20
-
Total credit-impaired assets
3,146
1,930
1,216
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
134
2. Financial risk management (continued)
As at 31 December 2022
Gross
exposure
Impairment
allowance
Carrying
amount
€ 000
€ 000
€ 000
Credit-impaired assets
Corporate and commercial
- Overdrafts
486
374
112
- Term loans
2,455
1,480
975
- Credit cards
3
3
-
Personal
- Overdrafts
7
7
-
- Term loans
180
162
18
- Credit cards
15
15
-
Total credit-impaired assets
3,146
2,041
1,105
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 2023
135
2. Financial risk management (continued)
The following tables show the distribution of LTV ratios for the Bank’s loans and advances to customers.
Corporate and commercial
Non-forborne
exposures
Forborne
exposures
Total
Non-forborne
exposures
Forborne
exposures
Total
2023
2023
2023
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Performing – Stage 1
Not collateralised
39,069
-
39,069
39,152
-
39,152
Fully collateralised:
Less than 50% LTV
276,216
-
276,216
232,540
-
232,540
51% to 75% LTV
42,182
-
42,182
54,465
-
54,465
76% to 90% LTV
1,829
-
1,829
2,616
-
2,616
91% to 100% LTV
14,095
-
14,095
5,435
-
5,435
334,322
-
334,322
295,056
-
295,056
Partially collateralised
Greater than 100% LTV
5,683
-
5,683
10,094
-
10,094
Total performing – Stage 1
379,074
-
379,074
344,302
-
344,302
Underperforming – Stage 2
Not collateralised
1,715
2,121
3,836
15,880
1,166
17,046
Fully collateralised:
Less than 50% LTV
46,345
25,979
72,324
76,275
24,679
100,954
51% to 75% LTV
19,304
11,253
30,557
14,681
7,399
22,080
76% to 90% LTV
377
-
377
967
747
1,714
91% to 100% LTV
-
-
-
2,537
13,002
15,539
66,026
37,232
103,258
94,460
45,827
140,287
Partially collateralised
Greater than 100% LTV
1,732
13,209
14,941
5,278
1,460
6,738
Total underperforming – Stage 2
69,473
52,562
122,035
115,618
48,453
164,071
Non-performing – Stage 3
Not collateralised
3,109
-
3,109
2,938
6
2,944
Fully collateralised:
Less than 50% LTV
6,034
5,809
11,843
6,471
6,237
12,708
51% to 75% LTV
6,298
653
6,951
4,960
603
5,563
76% to 90% LTV
1,910
-
1,910
944
-
944
91% to 100% LTV
-
-
-
672
-
672
14,242
6,462
20,704
13,047
6,840
19,887
Partially collateralised
Greater than 100% LTV
4,130
-
4,130
2,985
-
2,985
Total non-performing – Stage 3
21,481
6,462
27,943
18,970
6,846
25,816
At 31 December
470,028
59,024
529,052
478,890
55,299
534,189
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
136
2. Financial risk management (continued)
Personal
Non-forborne
exposures
Forborne
exposures
Total
Non-forborne
exposures
Forborne
exposures
Total
2023
2023
2023
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Performing – Stage 1
Not collateralised
10,888
-
10,888
6,820
-
6,820
Fully collateralised:
Less than 50% LTV
61,904
-
61,904
53,068
-
53,068
51% to 75% LTV
69,804
-
69,804
53,962
-
53,962
76% to 90% LTV
85,895
-
85,895
63,071
-
63,071
91% to 100% LTV
3,161
-
3,161
4,184
-
4,184
220,764
-
220,764
174,285
-
174,285
Partially collateralised
Greater than 100% LTV
587
-
587
792
-
792
Total performing – Stage 1
232,239
-
232,239
181,897
-
181,897
Underperforming – Stage 2
Not collateralised
3,902
2
3,904
218
13
231
Fully collateralised:
Less than 50% LTV
257
1,112
1,369
228
1,071
1,299
51% to 75% LTV
657
259
916
1,202
-
1,202
76% to 90% LTV
713
239
952
3
507
510
91% to 100% LTV
48
-
48
185
-
185
1,675
1,610
3,285
1,618
1,578
3,196
Partially collateralised
Greater than 100% LTV
-
-
-
53
-
53
Total underperforming – Stage 2
5,577
1,612
7,189
1,889
1,591
3,480
Non-performing – Stage 3
Not collateralised
31
6
37
198
4
202
Fully collateralised:
Less than 50% LTV
433
212
645
125
608
733
51% to 75% LTV
1
-
1
304
156
460
76% to 90% LTV
217
372
589
218
382
600
651
584
1,235
647
1,146
1,793
Partially collateralised
Greater than 100% LTV
3
-
3
1
-
1
Total non-performing – Stage 3
685
590
1,275
846
1,150
1,996
At 31 December
238,501
2,202
240,703
184,632
2,741
187,373
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
137
2. Financial risk management (continued)
Total
Non-forborne
exposures
Forborne
exposures
Total
Non-forborne
exposures
Forborne
exposures
Total
2023
2023
2023
2022
2022
2022
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Performing – Stage 1
Not collateralised
49,957
-
49,957
45,972
-
45,972
Fully collateralised:
Less than 50% LTV
338,120
-
338,120
285,608
-
285,608
51% to 75% LTV
111,986
-
111,986
108,427
-
108,427
108,427
76% to 90% LTV
87,724
-
87,724
65,687
-
65,687
91% to 100% LTV
17,256
-
17,256
9,619
-
9,619
555,086
-
555,086
469,341
-
469,341
Partially collateralised
Greater than 100% LTV
6,270
-
6,270
10,886
-
10,886
Total performing – Stage 1
611,313
-
611,313
526,199
-
526,199
Underperforming – Stage 2
Not collateralised
5,617
2,123
7,740
16,098
1,179
17,277
Fully collateralised:
Less than 50% LTV
46,602
27,091
73,693
76,503
25,750
102,253
51% to 75% LTV
19,961
11,512
31,473
15,883
7,399
23,282
76% to 90% LTV
1,090
239
1,329
970
1,254
2,224
91% to 100% LTV
48
-
48
2,722
13,002
15,724
67,701
38,842
106,543
96,078
47,405
143,483
Partially collateralised
Greater than 100% LTV
1,732
13,209
14,941
5,331
1,460
6,791
Total underperforming – Stage 2
75,050
54,174
129,224
117,507
50,044
167,551
Non-performing – Stage 3
Not collateralised
3,140
6
3,146
3,136
10
3,146
Fully collateralised:
Less than 50% LTV
6,467
6,021
12,488
6,596
6,845
13,441
51% to 75% LTV
6,299
653
6,952
5,264
759
6,023
76% to 90% LTV
2,127
372
2,499
1,162
382
1,544
91% to 100% LTV
-
-
-
672
-
672
14,893
7,046
21,939
13,694
7,986
21,680
Partially collateralised
Greater than 100% LTV
4,133
-
4,133
2,986
-
2,986
Total non-performing – Stage 3
22,166
7,052
29,218
19,816
7,996
27,812
At 31 December
708,529
61,226
769,755
663,522
58,040
721,562
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
138
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 expected and 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 and
commercial 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 credit losses 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 Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables
and contract assets have been grouped based on shared credit risk characteristics and the days past due.
The expected loss rates are based on the payment profiles of sales over a period of time before the
reporting date and the corresponding historical credit losses experienced within this period. The historical
loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle the receivables.
The movement in provisions for impairment in respect of trade receivables is disclosed in note 16. Other
overdue trade receivables include €431,000, which are principally overdue by at least three months, but
were not impaired (2022: €86,000).
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 credits 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
139
2. Financial risk management (continued)
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.
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 main assets, loans and advances to
customers, that are principally 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 principal
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 effect of the discontinuation of the Interbank Offered rates (‘IBOR’) on local
loans and advances granted by the same Group. During 2023, the Bank migrated all loans that were
previously referenced to the LIBOR rate to the Secured Overnight Financing Rate (‘SOFR’). The effect of this
change did not result in any significant impact on the Bank’s operations and financial position. The Group
will continue to monitor regulatory developments, with a particular focus on developments relating to the
EURIBOR reference rate.
The financial years ended 31 December 2023 and 2022 have been characterised by unprecedented
economic conditions. Despite a general recovery, the level of estimation uncertainty and judgement has
remained elevated during 2023 as a result of the economic effects of the global geopolitical developments,
particularly the ongoing military conflict between Russia and Ukraine as well as the escalation of the
military conflict between Israel and Hamas in the Middle East, that resulted in supply chain disruptions
causing significant inflationary pressures experienced both locally and on a global context. 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 2023
140
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 are interest-bearing, at their carrying amounts
categorised by the earlier of contractual repricing or maturity dates.
Group
Average
effective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non-interest
amount
rate
3 months
and 1 year
and 5 years
5 years
bearing
As at 31 December 2023
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
147,043
4.19
137,174
983
-
-
8,886
Debt and other fixed income instruments measured at FVOCI
199,965
1.01
1,475
26,998
97,100
74,392
-
Debt and other fixed income instruments measured at amortised cost
8,285
5.12
-
-
7,227
1,058
-
Loans and advances to banks
38,139
2.59
37,739
400
-
-
-
Loans and advances to customers
758,304
3.67
594,376
53,652
106,060
759
3,457
Total financial assets
1,151,736
770,764
82,033
210,387
76,209
12,343
Financial liabilities
Amounts owed to banks
145
0.22
134
-
-
-
11
Amounts owed to customers
1,019,075
1.09
488,388
104,885
167,407
77,571
180,824
Total financial liabilities
1,019,220
488,522
104,885
167,407
77,571
180,835
Interest repricing gap
282,242
(22,852)
42,980
(1,362)
Cumulative gap
282,242
259,390
302,370
301,008
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
141
2. Financial risk management (continued)
Group
Average
effective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non-interest
amount
rate
3 months
and 1 year
and 5 years
5 years
bearing
As at 31 December 2022
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
139,234
2.15
111,917
21,238
-
-
7,115
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
1,091,852
716,524
68,031
201,214
96,169
10,950
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
236,405
(17,178)
8,979
17,801
Cumulative gap
236,405
219,227
228,206
246,007
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
142
2. Financial risk management (continued)
Bank
Average
effective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non-interest
amount
rate
3 months
and 1 year
and 5 years
5 years
bearing
As at 31 December 2023
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
146,308
4.19
137,174
983
-
-
8,151
Debt and other fixed income instruments measured at FVOCI
197,700
1.01
1,474
26,682
96,611
72,933
-
Debt and other fixed income instruments measured at amortised cost
8,285
5.12
-
-
7,227
1,058
-
Loans and advances to banks
33,605
2.59
33,605
-
-
-
-
Loans and advances to customers
758,304
3.67
594,376
53,652
106,060
759
3,457
Total financial assets
1,144,202
766,629
81,317
209,898
74,750
11,608
Financial liabilities
Amounts owed to banks
145
0.22
134
-
-
-
11
Amounts owed to customers
1,021,254
1.09
488,764
105,285
167,407
77,571
182,227
Total financial liabilities
1,021,399
488,898
105,285
167,407
77,571
182,238
Interest repricing gap
277,731
(23,968)
42,491
(2,821)
Cumulative gap
277,731
253,763
296,254
293,433
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
143
2. Financial risk management (continued)
Bank
Average
effective
Between
Between
Carrying
interest
Less than
3 months
1 year
More than
Non-interest
amount
rate
3 months
and 1 year
and 5 years
5 years
bearing
As at 31 December 2022
€ 000
%
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
138,393
2.15
110,881
21,238
-
-
6,274
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
1,081,804
710,310
66,531
200,758
94,096
10,109
Financial liabilities
Amounts owed to banks
535
0.16
535
-
-
-
-
Amounts owed to customers
1,010,100
0.87
480,024
85,609
192,235
78,368
173,864
Total financial liabilities
1,010,635
480,559
85,609
192,235
78,368
173,864
Interest repricing gap
229,751
(19,078)
8,523
15,728
Cumulative gap
229,751
210,673
219,196
234,924
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
144
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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Interest-bearing assets
Balances with Central Bank of Malta and treasury bills
129,737
123,872
8,420
8,247
Debt and other fixed income instruments measured at:
FVOCI
199,965
213,391
-
-
Amortised cost
8,285
-
-
-
Loans and advances to banks
16,698
2,600
21,441
25,015
Loans and advances to customers
168,298
132,948
586,548
574,829
522,983
472,811
616,409
608,091
Interest-bearing liabilities
Amounts owed to banks
23
23
112
512
Amounts owed to customers
431,721
391,895
406,530
443,501
431,744
391,918
406,642
444,013
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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Interest-bearing assets
Balances with Central Bank of Malta and treasury bills
129,737
123,872
8,420
8,247
Debt and other fixed income instruments measured at:
FVOCI
197,700
210,862
-
-
Amortised cost
8,285
-
-
-
Loans and advances to banks
16,298
-
17,307
20,936
Loans and advances to customers
168,298
132,948
586,548
574,830
520,318
467,682
612,275
604,013
Interest-bearing liabilities
Amounts owed to banks
23
23
112
512
Amounts owed to customers
432,121
392,296
406,906
443,940
432,144
392,319
407,018
444,452
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 €14.1 million (2022: €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 €22.9 million (2022: €21.9 million). 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 2023
145
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
2023
2022
€ 000
€ 000
(+) 250 bp
5,060
4,102
(-) 250 bp
(5,060)
(4,102)
Bank
2023
2022
€ 000
€ 000
(+) 250 bp
4,947
3,989
(-) 250 bp
(4,947)
(3,989)
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 be 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
2023 and 2022.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
146
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 2023
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash
147,043
124,871
220
21,932
20
Financial investments measured at FVOCI
208,485
194,479
4,915
9,091
-
Financial investments measured at amortised cost
8,285
8,285
-
-
-
Loans and advances to banks
38,139
11,098
4,099
20,135
2,807
Loans and advances to customers
758,304
749,956
7,201
1,143
4
Other assets
15,898
13,084
425
1,734
655
Total financial assets
1,176,154
1,101,773
16,860
54,035
3,486
Financial liabilities
Amounts owed to banks
145
145
-
-
-
Amounts owed to customers
1,019,075
947,752
16,400
52,127
2,796
Other liabilities
41,621
39,767
316
1,077
461
Total financial liabilities
1,060,841
987,664
16,716
53,204
3,257
Net currency position
114,109
144
831
229
Commitments and contingent liabilities
271,624
269,917
1,164
543
-
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
-
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
147
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 €240,000 (2022: €222,000) 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 €240,000 (2022: €222,000) 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 2023
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash
146,308
124,136
220
21,932
20
Financial investments measured at FVOCI
206,220
192,214
4,915
9,091
-
Financial investments measured at amortised cost
8,285
8,285
-
-
-
Loans and advances to banks
33,605
6,563
4,099
20,136
2,807
Loans and advances to customers
758,304
749,956
7,201
1,143
4
Other assets
7,906
7,509
91
305
1
Total financial assets
1,160,628
1,088,663
16,526
52,607
2,832
Financial liabilities
Amounts owed to banks
145
145
-
-
-
Amounts owed to customers
1,021,254
949,930
16,400
52,128
2,796
Other liabilities
25,749
25,509
142
87
11
Total financial liabilities
1,047,148
975,584
16,542
52,215
2,807
Net currency position
113,079
(16)
392
25
Commitments and contingent liabilities
272,734
271,027
1,164
543
-
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
148
2. Financial risk management (continued)
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
-
Under the scenario that the euro appreciates by 20% against all currencies the effect would result in a
decrease of €80,000 (2022: €149,000) 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 €80,000 (2022: €149,000) 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 2023
149
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 74.3% (2022: 70.4%) 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 LCR as at 31 December 2023 as calculated by the Bank was 301.8% (2022: 210.7%). During the financial
years ended 31 December 2023 and 2022, 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 NSFR as at 31 December 2023 as calculated by the Bank was 155.7% (2022: 148.3%). During the
financial years ended 31 December 2023 and 2022, 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 2023
150
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 2023, the Bank had outstanding guarantees on behalf of third parties amounting to €11,286,000
(2022: €10,886,000), 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 2023
151
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 2023
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
138,702
983
-
-
7,358
147,043
Financial investments measured at FVOCI
1,475
26,998
97,100
74,392
8,520
208,485
Financial investments measured at amortised cost
-
-
7,227
1,058
-
8,285
Loans and advances to banks
37,739
400
-
-
-
38,139
Loans and advances to customers
137,556
49,065
140,617
431,066
-
758,304
Other assets
13,275
2,379
-
-
244
15,898
Total financial assets
328,747
79,825
244,944
506,516
16,122
1,176,154
Financial liabilities
Amounts owed to banks
145
-
-
-
-
145
Amounts owed to customers
669,212
104,885
167,407
77,571
-
1,019,075
Other liabilities
23,974
594
1,269
7,853
7,931
41,621
Total financial liabilities
693,331
105,479
168,676
85,424
7,931
1,060,841
Maturity gap
(364,584)
(25,654)
76,268
421,092
Cumulative gap
(364,584)
(390,238)
(313,970)
107,122
As at 31 December 2022
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
110,470
21,238
-
-
7,526
139,234
Financial investments 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
146,697
29,675
157,474
377,766
-
711,612
Other assets
14,447
2,379
-
-
389
17,215
Total financial assets
299,411
59,539
278,314
463,888
15,339
1,116,491
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
377,237
Cumulative gap
(380,796)
(406,894)
(321,868)
55,369
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
152
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 2023
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
137,967
983
-
-
7,358
146,308
Financial investments measured at FVOCI
1,475
26,682
96,611
72,932
8,520
206,220
Financial investments measured at amortised cost
-
-
7,227
1,058
-
8,285
Loans and advances to banks
33,605
-
-
-
-
33,605
Loans and advances to customers
137,556
49,065
140,617
431,066
-
758,304
Other assets
5,283
2,379
-
-
244
7,906
Total financial assets
315,886
79,109
244,455
505,056
16,122
1,160,628
Financial liabilities
Amounts owed to banks
145
-
-
-
-
145
Amounts owed to customers
670,991
105,285
167,407
77,571
-
1,021,254
Other liabilities
12,923
594
1,269
6,378
4,585
25,749
Total financial liabilities
684,059
105,879
168,676
83,949
4,585
1,047,148
Maturity gap
(368,173)
(26,770)
75,779
421,107
Cumulative gap
(368,173)
(394,943)
(319,164)
101,943
As at 31 December 2022
Financial assets
Balances with Central Bank of Malta, treasury bills and cash
109,629
21,238
-
-
7,526
138,393
Financial investments 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
146,698
29,675
157,474
377,766
-
711,613
Other assets
4,628
2,379
-
-
389
7,396
Total financial assets
283,573
58,039
277,858
461,815
15,339
1,096,624
Financial liabilities
Amounts owed to banks
535
-
-
-
-
535
Amounts owed to customers
653,888
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
666,472
85,637
193,688
85,528
4,119
1,035,444
Maturity gap
(382,899)
(27,598)
84,170
376,287
Cumulative gap
(382,899)
(410,497)
(326,327)
49,960
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
153
2. Financial risk management (continued)
The Bank’s amounts owed to customers of €589,133,000 (2022: €617,804,000) as at 31 December 2023 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 2023
€ 000
€ 000
€ 000
€ 000
€ 000
Financial liabilities
Amounts owed to banks
145
-
-
-
145
Amounts owed to customers
669,922
106,960
177,459
90,185
1,044,526
Other liabilities
24,055
997
3,206
6,093
34,351
Total financial liabilities
694,122
107,957
180,665
96,278
1,079,022
As at 31 December 2022
Financial liabilities
Amounts owed to banks
535
-
-
-
535
Amounts owed to customers
652,841
87,921
205,829
87,297
1,033,888
Other liabilities
27,127
399
3,257
7,063
37,846
Total financial liabilities
680,503
88,320
209,086
94,360
1,072,269
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 2023
€ 000
€ 000
€ 000
€ 000
€ 000
Financial liabilities
Amounts owed to banks
145
-
-
-
145
Amounts owed to customers
671,702
107,363
177,459
90,185
1,046,709
Other liabilities
12,928
795
2,517
5,328
21,568
Total financial liabilities
684,775
108,158
179,976
95,513
1,068,422
As at 31 December 2022
Financial liabilities
Amounts owed to banks
535
-
-
-
535
Amounts owed to customers
654,111
87,922
206,229
87,297
1,035,559
Other liabilities
12,049
208
2,734
6,212
21,203
Total financial liabilities
666,695
88,130
208,963
93,509
1,057,297
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
154
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 Bank for the purpose of allocating risk capital using
the Basic Indicator Approach under the European Union Directive on Capital Requirements Regulation
(‘CRR’) rules. The capital requirement for operational risk under this method was calculated at €4,464,000
(2022: €4,214,000).
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 2023
155
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 V 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
V 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 are both composed
of CET1 capital.
CRD V 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 March 2023, 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 2% 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 15.86% as at December 2023.
Moreover, during 2023, the Central Bank of Malta introduced a Sectoral Systemic Risk Buffer (‘sSyRB’) of
1% on risk-weighted domestic mortgage exposures to households to be increased to 1.5% during 2024.
During the financial year ended 31 December 2023, 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 fourth quarter of financial year 2023
resulting from a decline in the fair-value of fixed-income securities. Following the Rights Issue and the
issuance of 61,828,332 new ordinary shares at a price of €0.75 per share, as disclosed in Note 18, the P2G
was also met at year end. The proceeds from the rights issue, amounting to €45.7 million and constituting
CET1 capital, have been applied by the Bank to further strengthen its capital base with a view to ensuring
that the Bank is well-positioned to meet the capital buffers required in terms of regulatory requirements
and to supplement the funding requirements for the implementation of the Bank’s strategic objectives as
describe in the Prospectus.
During the financial year ended 31 December 2022, 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. A Capital Plan was 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 2023
156
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 2023 and 2022, 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 2023 and 2022.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
157
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 expected credit loss allowances. As at 31 December 2023,
the Group’s aggregate carrying amount in this respect was €796,442,000 (2022: €739,227,000). The loans
and advances to customers, which are subject to floating interest rates, are measured at the amount of
€586,548,000 (2022: €574,829,000). 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 carrying amount of loans and
advances to customers, which are subject to fixed interest rates, is deemed fairly close to fair value in view
of their maturity profile. A significant part of loans and advances to customers are repayable on call and at
short notice, as highlighted in Note 8. 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 €16,698,000 (2022:
€2,600,000). Other loans and advances to banks are predominantly repayable on call and at short notice,
as disclosed in Note 7 to the financial statements. Generally, interest 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 fair value.
Amounts owed to banks and customers
These categories of financial liabilities are carried at amortised cost and amount to €1,019,220,000 as at 31
December 2023 (2022: €1,008,966,000). 17.7% (2022: 17.1%) of these liabilities are non-interest bearing,
47.9% (2022: 47.6%) of these liabilities have a contractual repricing term of three months or less, 10.3%
(2022: 8.4%) reprice between three months and one year, 16.4% (2022: 19.1%) reprice between one year
and five years while 7.6% (2022: 7.8%) are repriceable after more than five years. A very significant portion
of amounts owed to banks and customers are repayable on demand as disclosed within Note 20 and 21 to
the financial statements. 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.
Debt securities measured at amortised cost
Debt securities measured at amortised cost had a fair value of €8,447,000 as at 31 December 2023 (2022:
nil), compared to the carrying amount of €8,285,000. The fair value of these investments, which are
principally traded in active markets, is mainly based on quoted market prices which are categorised as Level
1 inputs.
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 2023
158
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 those 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 expected credit loss allowances in respect of loans and advances to customers (see notes 2.3, 8 and 32).
As previously explained, despite a robust recovery in economic conditions during 2023, the level of
economic uncertainty remained elevated during the financial year ended 31 December 2023, primarily
driven by the geopolitical developments as a result of the continued military conflict between Russia and
Ukraine, as well as widespread supply chain disruptions because of the broadening of the Middle East
conflict to the Red Sea. These developments have triggered significant inflationary pressures across the
world such that the European Central Bank (‘ECB’) and other national central banks applied monetary policy
tools at their disposal by increasing interest rates to manage such pressures.
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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
159
3. Accounting estimates and judgements (continued)
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 credit loss allowances as a whole is
sensitive.
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 together
with other conflicts in the Middle East, 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 in certain instances. 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, 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 Bank’s corporate and commercial portfolio. In this respect, as part of
management’s response to the current inflationary pressures and 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
160
3. Accounting estimates and judgements (continued)
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.
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 customers’
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 current economic conditions within the local property market,
driven by the current inflationary pressures and interest rate environment, increases the level of expert
judgement required to predict with reasonable accuracy the recoverability of exposures through the sale of
collateral.
During 2023 the Bank continued to perform regular and detailed reviews on its lending customers on
individual and sectorial bases. The results of such reviews, also in the context of the improved economic
performance during 2023, suggest 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 has decreased considerably.
In respect of corporate and commercial exposures, during 2023, the Bank continued to assess and
individually rate such borrowers on an ongoing basis. These assessments are carried out through individual
ad-hoc credit reviews on the basis of recently obtained management information including forecasts.
In line with the results of reviews described above, the outcome of the individual assessments indicate that
the level of business experienced by the borrowers is robust and indicative of more effective business
models. The current economic developments are unlikely to have any significant 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.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
161
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 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 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
2023
2022
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Interest receivable
33,585
28,905
113
115
33,698
29,020
Interest expense
(7,780)
(6,693)
(57)
(51)
(7,837)
(6,744)
Postal sales and other revenue
109
281
38,611
30,412
38,720
30,693
Net fee and commission income
4,184
4,314
999
1,102
5,183
5,416
Other operating income
668
805
(39)
438
629
1,243
Segment operating income
30,766
27,612
39,627
32,016
70,393
59,628
Depreciation and amortisation
(1,184)
(1,090)
(1,975)
(1,825)
(3,159)
(2,915)
Net movement in expected
credit losses
(1,316)
16,111
55
132
(1,261)
16,243
Employee compensation
and benefits
(8,895)
(8,676)
(15,489)
(15,336)
(24,384)
(24,012)
Other costs
(7,215)
(6,941)
(19,532)
(13,928)
(26,747)
(20,869)
Operating profit
12,156
27,016
2,686
1,059
14,842
28,075
Share of profit/(loss) attributed
to investment accounted for
using the equity method, net
of tax
53
24
(368)
(423)
(315)
(399)
Profit before taxation
12,209
27,040
2,318
636
14,527
27,676
Income tax expense
(4,474)
(9,699)
(435)
(351)
(4,909)
(10,050)
Profit for the year
7,735
17,341
1,883
285
9,618
17,626
Segment total assets
1,217,744
1,153,537
47,390
49,878
1,265,134
1,203,415
Capital expenditure during the
year
900
1,563
1,757
2,145
2,657
3,708
Segment total liabilities
1,047,870
1,036,610
18,472
22,505
1,066,342
1,059,115
There were 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 2023 MaltaPost p.l.c. generated 52.0% (2022: 42.2%) 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 2023
162
5. Balances with Central Bank of Malta, treasury bills and cash
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Balances with Central Bank of Malta
126,302
53,578
126,302
53,578
Malta Government treasury bills
11,855
78,541
11,855
78,541
Cash in hand
8,886
7,115
8,151
6,274
147,043
139,234
146,308
138,393
Balances with the Central Bank of Malta include a reserve deposit amounting to €7,358,000 (2022:
€1,437,000) held in terms of Regulation (EC) No.1745/2003 of the European Central Bank. The average
reserve deposit requirement held for the relevant maintenance period amounted to €7,358,000 (2022:
€7,526,000).
At 31 December 2023, the Bank had pledged a deposit with the Central Bank of Malta amounting to
€1,062,000 (2022: €854,000) in favour of the Depositor Compensation Scheme to comply with local
regulatory requirements.
As at 31 December 2023 and 2022, the credit loss allowance on balances with Central Bank of Malta and
Malta Government treasury bills was insignificant.
6. Financial investments
Financial investments include the following:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Debt securities measured at FVOCI
Debt and other fixed income instruments
199,965
213,391
197,700
210,862
Equity instruments
8,520
7,424
8,520
7,424
Debt securities measured at amortised cost
Debt and other fixed income instruments
8,285
-
8,285
-
216,770
220,815
214,505
218,286
Debt and other fixed income instruments measured at FVOCI are analysed as follows:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Issued by public bodies:
- local government
156,209
161,305
155,075
159,957
- foreign governments
6,534
8,420
6,534
8,420
- supranational
7,304
7,791
7,304
7,791
Issued by public issuers:
- local banks
11,748
11,153
11,225
10,593
- local corporates
3,554
5,335
2,946
4,714
- foreign banks
8,763
12,414
8,763
12,414
- foreign corporates
5,853
6,973
5,853
6,973
199,965
213,391
197,700
210,862
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
163
6. Financial investments (continued)
As at 31 December 2023, credit loss allowances in respect of debt instruments measured at FVOCI
computed in accordance with the IFRS 9 expected credit loss model, were €471,000 (2022: €526,000).
Debt and other fixed income instruments measured at amortised cost are analysed as follows:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Issued by public bodies:
- local government
7,020
-
7,020
-
Issued by public issuers:
- local banks
224
-
224
-
- local corporates
1,113
-
1,113
-
Expected credit loss allowances
(72)
-
(72)
-
8,285
-
8,285
-
At 31 December 2023, the Bank held Malta Government Stocks measured at FVOCI with a carrying amount
of €7,893,000 (2022: €7,991,000) 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 periods.
The debt securities held by the Group are listed on the Malta Stock Exchange 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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
At 1 January
213,391
218,080
210,862
215,179
Acquisitions
-
27,417
-
27,417
Amortisation
(1,364)
(1,108)
(1,364)
(1,100)
Redemptions/disposals
(9,478)
(5,215)
(9,348)
(5,193)
Fair value movement
(2,380)
(25,825)
(2,243)
(25,483)
Foreign exchange differences
(204)
42
(207)
42
At 31 December
199,965
213,391
197,700
210,862
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
164
6. Financial investments (continued)
The movement in debt and other fixed income financial investments measured at amortised cost is
summarised as follows:
Group and Bank
2023
2022
€ 000
€ 000
At 1 January
-
-
Acquisitions
8,359
-
Amortisation
(2)
-
Expected credit loss allowances
(72)
At 31 December
8,285
-
The movement in equity financial investments designated at FVOCI is summarised as follows:
Group and Bank
2023
2022
€ 000
€ 000
At 1 January
7,424
9,055
Acquisitions
-
102
Fair value movement
1,123
(1,717)
Foreign exchange differences
(27)
(16)
At 31 December
8,520
7,424
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 2023
and 2022.
7. Loans and advances to banks
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Repayable on call and at short notice
19,841
25,015
17,307
20,936
Term loans and advances
18,298
2,600
16,298
-
38,139
27,615
33,605
20,936
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
165
8. Loans and advances to customers
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Repayable on call and at short notice
118,166
116,386
118,166
116,387
Term loans and advances
651,589
605,175
651,589
605,175
Gross loans and advances to customers
769,755
721,561
769,755
721,562
Credit loss allowances
(11,451)
(9,949)
(11,451)
(9,949)
Net loans and advances to customers
758,304
711,612
758,304
711,613
Credit loss allowances
Stage 1
1,580
2,339
1,580
2,339
Stage 2
1,887
1,614
1,887
1,614
Stage 3
7,984
5,996
7,984
5,996
11,451
9,949
11,451
9,949
Assets acquired in settlement of debt amounting to €703,000 (2022: €703,000) 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
2023
2022
2023
2022
%
%
€ 000
€ 000
Redbox Limited
Malta
Holding company
100
100
16,809
15,732
Lombard Capital Asset
Management Limited
Malta
Asset management
100
100
325
325
Lombard Select SICAV p.l.c.
Malta
Collective Investment
Scheme
100
100
1
1
The registered office of these entities is situated at 67, Republic Street, Valletta, Malta.
At 31 December 2023, Redbox Limited held 72.0% (2022: 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 28.0% (2022: 28.5%) is held by the general
public.
The increase in the investment in Redbox Limited is attributable to the allotment of ordinary shares of
MaltaPost p.l.c. of €0.25 each at a premium of €0.84 each as a scrip issue in lieu of dividends payable to
Redbox Limited.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
166
9. Investments in subsidiaries (continued)
MaltaPost p.l.c. subsidiaries are shown below:
Subsidiary
Registered office
Percentage of
shares held
Nature of business
Tanseana Limited
305, Qormi Road,
Marsa, MTP 1001,
Malta
100% of ordinary
shares
Document management
Services
Ciabro Limited formerly known
as Ciantar Brothers Limited
22, Warehouse il-Moll
tal-Pont,
Marsa, MRS1400,
Malta
100% of ordinary
shares
Leasing warehouse
space
PostaInsure Agency Limited
4, Old Bakery Street,
Valletta, VLT 1450,
Malta
49% of ordinary
shares (rights to
appoint 60% of
the investee’s
Board of
Directors)
Insurance agent -
General insurance
services
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 2023, 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 2023 as impractical for the purposes
of preparation of its consolidation financial statements.
Acquisition of controlling stake in subsidiaries
Lombard Select SICAV p.l.c. and Lombard Capital Asset Management Limited
These entities are wholly-owned subsidiaries of the Bank which had not yet started operating as at 31
December 2023. Lombard Select SICAV p.l.c. will be a multi-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. During 2022, the Bank injected further capital in Lombard Capital Asset Management
Limited amounting to €200,000.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
167
10. Investments in associates
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
At 1 January
2,607
3,006
1,645
1,645
Additions
1,000
-
-
-
Share of results
(315)
(399)
-
-
At 31 December
3,292
2,607
1,645
1,645
At 31 December
Cost
4,520
3,520
1,645
1,645
Share of results
(1,228)
(913)
-
-
Carrying amount
3,292
2,607
1,645
1,645
The Group's associates at 31 December 2023 and 2022 are shown below:
Name of company
Country of
incorporation
Nature of
business
Group
Equity interest carrying amount
2023
2022
2023
2022
%
%
€ 000
€ 000
Gozo Hotels
Company Limited
Malta
Accommodation
33.3
33.3
1,576
1,523
IVALIFE Insurance
Limited
Malta
Insurance
25.0
25.0
1,716
1,084
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 Centris Business Gateway II, Level 1 D, Triq is-
Salib tal-Imrieħel, Central Business District, Birkirkara, Malta. During the 2023 financial year, MaltaPost p.l.c.
further injected capital amounting to €1,000,000 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 €368,000 was
reflected within the Group’s 2023 financial results. The adoption of IFRS17 Insurance Contracts by IVALIFE
Insurance Limited during 2023 did not have a material impact on the financial statements of the Group.
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 €53,000 (2022: €24,000), was reflected within the Group’s 2023
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.
These associates are not considered material for the reporting entity, with respect to the Bank’s
consolidated financial statements, as at 31 December 2023 for the purposes of disclosures in terms of the
requirements of IFRS 12 ‘Disclosure of interests in other entities’.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
168
11. Intangible assets
Group
Bank
Computer
Other
intangible
Computer
Goodwill
software
assets
Total
software
€ 000
€ 000
€ 000
€ 000
€ 000
At 1 January 2022
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
Year ended 31 December 2023
At 1 January 2023
857
1,160
104
2,121
57
Additions
-
666
-
666
-
Amortisation for the year
-
(577)
(18)
(595)
(38)
At 31 December 2023
857
1,249
86
2,192
19
At 31 December 2023
Cost
857
8,449
140
9,446
3,449
Accumulated amortisation
-
(7,200)
(54)
(7,254)
(3,430)
Net book amount
857
1,249
86
2,192
19
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 2023 and 2022 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 €0.47 as at 31 December 2023 (2022: €0.55
as adjusted to reflect the impacts of the share split effected by MaltaPost p.l.c.). 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 2023
169
12. Property, plant and equipment
Group
Land and
Computer
buildings
equipment
Other
Total
€ 000
€ 000
€ 000
€ 000
At 1 January 2022
Cost
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)
Adjustments to right-of-use assets
212
-
-
212
Depreciation charge for the year
(1,013)
(388)
(832)
(2,233)
Depreciation released on disposals
-
40
17
57
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
Year ended 31 December 2023
At 1 January 2023
60,500
1,166
4,709
66,375
Additions
419
617
1,163
2,199
Disposals
-
(11)
(20)
(31)
Adjustments to right-of-use assets
503
-
-
503
Depreciation charge for the year
(1,014)
(554)
(996)
(2,564)
Depreciation released on disposals
-
11
18
29
At 31 December 2023
60,408
1,229
4,874
66,511
At 31 December 2023
Cost or valuation
65,121
5,747
16,076
86,944
Accumulated depreciation
(4,713)
(4,518)
(11,202)
(20,433)
Net book amount
60,408
1,229
4,874
66,511
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
170
12. Property, plant and equipment (continued)
Bank
Land and
Computer
buildings
equipment
Other
Total
€ 000
€ 000
€ 000
€ 000
At 1 January 2022
Cost
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)
Adjustments to right-of-use assets
212
-
-
212
Depreciation charge for the year
(608)
(279)
(141)
(1,028)
Depreciation released on disposals
-
40
13
53
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
Year ended 31 December 2023
At 1 January 2023
40,917
859
624
42,400
Additions
318
457
245
1,020
Disposals
-
(11)
(20)
(31)
Adjustments to right-of-use assets
18
-
-
18
Depreciation charge for the year
(592)
(404)
(185)
(1,181)
Depreciation released on disposals
-
11
18
29
At 31 December 2023
40,661
912
682
42,255
At 31 December 2023
Cost or valuation
43,255
3,675
3,405
50,335
Accumulated depreciation
(2,594)
(2,763)
(2,723)
(8,080)
Net book amount
40,661
912
682
42,255
In 2023, the adjustments to the Group’s right-of-use assets referred to in the table above, comprise the
impacts of the reassessment of the lease term in respect of lease extensions in respect of lease agreements
of MaltaPost p.l.c, which resulted in an increase in right-of-use assets of €503,000.
The adjustment to the Bank’s right-of-use assets pertains to a specific lease contract resulting in an increase
in right-of-use assets of €18,000.
In 2022, the adjustments to right-of-use assets referred in the tables 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 2023
171
12. Property, plant and equipment (continued)
Land and buildings presented in the tables above include improvements to leasehold properties as follows:
Group
Bank
2023
€ 000
2022
€ 000
2023
€ 000
2022
€ 000
At 1 January
2,126
2,121
1,493
1,529
Additions
155
296
147
120
Depreciation charge for the year
(265)
(291)
(111)
(156)
At 31 December
2,016
2,126
1,529
1,493
As at 31 December 2023, property, plant and equipment of the Group and the Bank includes right-of-use
assets of €4,442,000 (2022: €4,287,000) and €3,011,000 (2022: €3,174,000) 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 had 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 increase in the carrying values to reflect the property’s estimated open
market value on an individual asset level, was recognised in other comprehensive income in the property
revaluation reserve. The Directors assessed the carrying amounts as at 31 December 2023 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 as at the date taking cognisance of the development that occurred during the
current financial year.
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 2023 and 2022.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
172
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 additions and depreciation charge for the years ended 31 December 2023 and
2022.
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 financial 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, together with 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.
At the end of every reporting period, management and the CFO assess whether any significant changes or
developments have been experienced since the last external valuation. This is supported by an assessment
performed by the independent firm of property valuers. Management and the CFO report to the Audit and
Risk Committee on the outcome of this assessment.
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 2023
173
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
358
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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Cost
38,331
38,021
24,550
24,232
Accumulated depreciation
(3,491)
(3,170)
(2,897)
(2,592)
Net book amount at 31 December
34,840
34,851
21,653
21,640
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 2023
174
13. Leases (continued)
Group
Bank
Buildings
Other
Total
Buildings
Other
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
At 1 January 2022
Cost
5,290
315
5,605
3,582
-
3,582
Accumulated depreciation
(873)
(118)
(991)
(441)
-
(441)
Net book amount
4,417
197
4,614
3,141
-
3,141
Year ended 31 December 2022
At 1 January 2022
4,417
197
4,614
3,141
-
3,141
Additions
-
-
-
97
-
97
Adjustments upon reassessment
of lease payments (see Note 12)
212
-
212
212
-
212
Depreciation charge for the year
(478)
(61)
(539)
(276)
-
(276)
At 31 December 2022
4,151
136
4,287
3,174
-
3,174
At 31 December 2022
Cost or valuation
5,502
315
5,817
3,891
-
3,891
Accumulated depreciation
(1,351)
(179)
(1,530)
(717)
-
(717)
Net book amount
4,151
136
4,287
3,174
-
3,174
Year ended 31 December 2023
At 1 January 2023
4,151
136
4,287
3,174
-
3,174
Additions
90
120
210
-
120
120
Adjustments upon reassessment
of lease term in respect of
extensions (see Note 12)
503
-
503
-
-
-
Adjustments upon reassessment
of lease payment (see Note 12)
-
-
-
18
-
18
Depreciation charge for the year
(474)
(84)
(558)
(279)
(22)
(301)
At 31 December 2023
4,270
172
4,442
2,913
98
3,011
At 31 December 2023
Cost or valuation
6,095
435
6,530
3,909
120
4,029
Accumulated depreciation
(1,825)
(263)
(2,088)
(996)
(22)
(1,018)
Net book amount
4,270
172
4,442
2,913
98
3,011
The Group and the Bank’s lease liabilities are presented below:
Group
Bank
2023
€ 000
2022
€ 000
2023
€ 000
2022
€ 000
Lease liabilities (Note 23)
Current
407
361
149
131
Non-current
4,138
3,867
2,921
2,973
4,545
4,228
3,070
3,104
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
175
13. Leases (continued)
The following tables show the movements in lease liabilities during the year:
Group
Bank
2023
€ 000
2022
€ 000
2023
€ 000
2022
€ 000
Lease liabilities
At beginning of year
4,228
4,381
3,104
2,885
Additions
183
-
69
97
Payments
(491)
(478)
(194)
(162)
Interest charge
122
113
73
72
Adjustments upon reassessment of lease
term in respect of extensions
503
-
-
-
Adjustments upon reassessment of lease
payments
-
212
18
212
At end of year
4,545
4,228
3,070
3,104
Group
Bank
2023
€ 000
2022
€ 000
2023
€ 000
2022
€ 000
The income statement reflects the following
amounts relating to leases:
Depreciation charge of right-of-use assets
558
539
301
276
Interest expense
122
113
73
72
Expense relating to short-term leases (included
in administrative expenses)
394
412
87
89
Expense relating to leases of low-value assets
that are not shown above as short-term leases
(included in administrative expenses)
205
251
33
52
The total cash payments for leases, including short-term and low-value leases, in 2023 was €1,212,000
(2022: €1,188,000) for the Group and €319,000 (2022: €280,000) 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 2023
176
14. Deferred tax assets and liabilities
Deferred taxes are calculated using the principal tax rate of 35% (2022: 35%), with the exception of deferred
taxation on the fair valuation of non-depreciable property, which is computed on the basis applicable to
disposals of immovable property, based on tax effects on the transfer value.
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Assets
Liabilities
Net
2023
2023
2023
2022
2022
2022
Group
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Deferred tax asset, after offsetting
Differences between depreciation
and capital allowances
-
(42)
(42)
-
(110)
(110)
Provisions for liabilities and
charges
288
-
288
344
-
344
Credit loss allowances
4,385
-
4,385
3,831
-
3,831
Fair value movements on financial
investments
7,048
-
7,048
6,788
-
6,788
Others
15
-
15
36
-
36
11,736
(42)
11,694
10,999
(110)
10,889
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, after offsetting
Differences between depreciation
and capital allowances
-
(140)
(140)
-
(134)
(134)
Provisions for liabilities and
charges
119
-
119
119
-
119
Credit loss allowances
4,353
-
4,353
3,778
-
3,778
Fair value movements on financial
investments
7,049
-
7,049
6,789
-
6,789
11,521
(140)
11,381
10,686
(134)
10,552
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 2023
177
14. Deferred tax assets and liabilities (continued)
Movement in deferred tax assets and liabilities relate to:
At 1
January
2022
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
At 31
December
2022
Recognised
in profit
or loss
Recognised
in other
comprehensive
income
At 31
December
2023
Group
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Differences between depreciation and capital allowances
(31)
(79)
-
(110)
68
-
(42)
Provisions for liabilities and charges
441
(5)
(92)
344
-
(56)
288
Credit loss allowances
9,372
(5,519)
(22)
3,831
535
19
4,385
Revaluation of property
(4,099)
-
-
(4,099)
-
-
(4,099)
Fair value movements on investments
(2,748)
-
9,536
6,788
-
260
7,048
Others
-
36
-
36
(21)
-
15
2,935
(5,567)
9,422
6,790
582
223
7,595
Bank
Differences between depreciation and capital allowances
(117)
(17)
-
(134)
(6)
-
(140)
Provisions for liabilities and charges
128
(9)
-
119
-
-
119
Credit loss allowances
9,274
(5,474)
(22)
3,778
556
19
4,353
Revaluation of property
(2,800)
-
-
(2,800)
-
-
(2,800)
Fair value movements on investments
(2,747)
-
9,536
6,789
-
260
7,049
-
2
3,738
(5,500)
9,514
7,752
550
279
8,581
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 2023
178
15. Inventories
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Postal supplies and materials
327
312
-
-
Merchandise
425
356
-
-
Stocks for resale
570
544
570
544
Other stock items
69
59
69
58
1,391
1,271
639
602
16. Trade and other receivables
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Trade receivables - net of expected
credit loss allowances
4,840
5,911
-
-
Others
6,529
7,332
3,405
3,445
11,369
13,243
3,405
3,445
The Expected Credit Loss allowances in respect of trade receivables are analysed as follows:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Loss allowance as at 1 January
146
277
-
-
Net credit recognised in profit
or loss during the year
(55)
(132)
-
-
Loss allowance as at 31 December
91
145
-
-
17. Accrued income and other assets
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Accrued income
2,405
2,533
2,377
2,510
Prepayments
1,499
1,330
861
630
Other assets
1,299
1,439
1,299
1,441
5,203
5,302
4,537
4,581
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
179
18. Share capital
Bank
2023
2022
No. of
No. of
shares
shares
000s
€ 000
000s
€ 000
Authorised
Ordinary shares of €0.125 each
300,000
37,500
300,000
37,500
Issued
Ordinary shares of €0.125 each
154,572
19,322
90,728
11,341
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.
By virtue of a resolution dated 22 June 2023, the shareholders of the Bank approved the allotment of
2,016,197 ordinary shares of €0.125 each as a bonus issue of one (1) for every forty-five (45) held by
shareholders on the Company’s Register of Shareholders as at close of business on 19 July 2023, and
thereby increased the issued and fully paid share capital to 92,743,931 shares of 0.125 each, resulting in
a paid share capital of €11,592,991.
By virtue of a resolution dated 22 June 2023, the shareholders of the Bank approved the issuance of up
to 65,000,000 new ordinary shares of a nominal value of €0.125 per share in the same class as the shares
in the Bank which were in issue as at the date. On 20 September 2023 the Bank announced that it received
regulatory approval from Malta Financial Services Authority for a prospectus dated 20 September 2023 in
relation to a rights issue of 2 new ordinary shares for every 3 ordinary shares held by shareholders
appearing on the Bank’s Register of Members at the Central Securities Depositary of the Malta Stock
Exchange as at the close of trading on 19 September 2023, at an offer price of €0.75 per share. The
admissibility to listing on the Official List of the Malta Stock Exchange of up to 61,828,332 new ordinary
shares in the Bank having a nominal value of €0.125 each was also approved.
New ordinary shares of 61,828,332 having a nominal value of €0.125 each were issued, allotted, and
admitted to listing on the Official List of Malta Stock Exchange on 16 November 2023, with trading
commencing on 17 November 2023, thereby increasing the issued share capital to €19,321,533 divided
into 154,572,263 Ordinary Shares of €0.125 each, fully paid-up.
The proceeds have been applied by the Bank to further strengthen its capital base with a view to ensuring
that the Bank is well-positioned to meet the capital buffers required in terms of regulatory requirements
and to supplement the funding requirements for the implementation of the Bank’s strategic objectives as
described in the Prospectus.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
180
19. Reserves
These reserves are non-distributable.
19.1 Share premium
The increase in the share premium reflected during the financial year ended 31 December 2023 comprises
the effects of the issuance of 61,828,332 new ordinary shares at a premium of €0.625 per share (see Note
18), net of incremental costs amounting to €638,000 which are directly attributable to the issue of the
new 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.
19.2 Revaluation and other reserves
The Group and the Bank had the following reserves as at end of the reporting period:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Property revaluation reserve
13,109
13,087
10,168
10,168
Investment revaluation reserve
(13,349)
(12,733)
(13,345)
(12,825)
Reserve for General Banking Risks
-
2,903
-
2,903
Other reserve
1,660
1,382
1,880
1,672
1,420
4,639
(1,297)
1,918
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 was required to be funded from planned dividends. During the year ended 31 December 2023,
this requirement was revoked and the Bank released the carrying amount of the ‘Reserve for General
Banking Risks’ of €2,903,000 to ‘Retained earnings’.
The other reserve mainly represents amounts set aside by the Bank from its retained earnings in relation
to the Depositor Compensation Scheme (the “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. The other reserve also reflects the impact of actuarial gains and losses with respect to
pension obligations in respect of Maltapost p.l.c. recognised in other comprehensive income in
accordance with the Group’s accounting policy, net of any related deferred tax impacts.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
181
20. Amounts owed to banks
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Term deposits with agreed maturity dates or
periods of notice
23
23
23
23
Repayable on demand
122
512
122
512
145
535
145
535
21. Amounts owed to customers
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Term deposits with agreed maturity dates
431,721
391,895
432,121
392,296
Repayable on demand
587,354
616,536
589,133
617,804
1,019,075
1,008,431
1,021,254
1,010,100
22. Provisions for liabilities and other charges
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Obligation to Government
1,034
1,305
-
-
Legal
340
340
340
340
Other expected credit losses on off-balance
sheet items
29
43
29
43
1,403
1,688
369
383
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
182
22. Provisions for liabilities and other charges (continued)
These provisions are predominantly non-current in nature.
Group
2023
2022
Obligation to
Legal
Expected
Credit Loss
Obligation to
Legal
Expected
Credit Loss
Government
claims
allowance
Total
Government
claims
allowance
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
At 1 January
1,305
340
43
1,688
1,678
366
69
2,113
Actuarial gains –
recognised in other
comprehensive
income
(159)
-
-
(159)
(264)
-
-
(264)
(Reversal)/charge -
recognised
in profit or loss
(429)
-
-
(429)
28
(26)
-
2
Crystallised obligations
(150)
-
-
(150)
(137)
-
-
(137)
Impact of settlements
467
-
-
467
-
-
-
-
Change in ECL provision
on off-balance sheet
items
-
-
(14)
(14)
-
-
(26)
(26)
At 31 December
1,034
340
29
1,403
1,305
340
43
1,688
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.
Obligation to Government recognised in the statement of financial position is derived as follows:
2023
2022
€ 000
€ 000
Present value of unfunded obligations
1,817
3,754
Crystallised obligations
(783)
(1,750)
Fair value of obligations to be reimbursed by Government
-
(699)
1,034
1,305
The amounts recognised in other comprehensive income are as follows:
2023
2022
€ 000
€ 000
Net actuarial gains
- attributable to financial assumptions
159
264
-
159
264
Crystallised obligations relate to amounts which became payable as at the end of the reporting period.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
183
22. Provisions for liabilities and other charges (continued)
In computing the provision, the Group used a weighted average discount rate of 4.42% (2022: 3.85%).
Assumptions regarding future mortality experience are based on published mortality tables in Malta,
which translate into an average life expectancy of 83 (2022: 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
2023
2022
Legal
Expected
Credit Loss
Legal
Expected
Credit Loss
claims
allowance
Total
claims
allowance
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
At 1 January
340
43
383
366
69
435
Reversal recognised in profit or loss
-
-
-
(26)
-
(26)
Change in ECL provision on off-
balance sheet items
-
(14)
(14)
-
(26)
(26)
At 31 December
340
29
369
340
43
383
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 arise.
23. Other liabilities
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Trade payables
7,242
7,150
-
-
Bills payable
3,845
4,104
3,845
4,104
Cash collateral
764
846
764
846
Lease liabilities
4,545
4,228
3,070
3,104
Other payables
12,366
17,019
8,557
9,166
28,762
33,347
16,236
17,220
24. Accruals and deferred income
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Accrued interest
6,152
5,905
6,153
5,906
Other
5,150
5,110
1,805
1,683
11,302
11,015
7,958
7,589
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
184
25. Commitments and contingent liabilities
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Contingent liabilities
Guarantee obligations incurred on behalf of
third parties
11,286
10,887
11,286
10,886
Documentary credits
3,029
2,724
3,029
2,724
14,315
13,611
14,315
13,610
Commitments
Credit facilities and other commitments to lend
257,338
202,041
258,448
203,150
Capital commitments
77
355
77
135
257,415
202,396
258,525
203,285
Credit facilities and other commitments to lend funds to customers are granted at prevailing market
interest rates at drawdown date.
As at 31 December 2023, expected credit losses arising on contingent liabilities and undrawn
commitments to lend of the Group and the Bank amounted to €29,000 (2022: €43,000).
Capital commitments as at 31 December 2023 and 2022 mainly relate to the acquisition of property, plant
and equipment.
Total future minimum lease payments under non-cancellable short-term leases, with a lease term of less
than 12 months, are as follows:
2023
2022
€ 000
€ 000
Current
Within 1 year
538
539
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% (2022: 1.50%) of its total gross revenue from
postal services within the scope of the universal services.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
185
26. Net interest income
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Interest income
On loans and advances to banks
296
66
263
24
On loans and advances to customers
26,461
25,520
26,461
25,520
On balances with Central Bank of Malta
3,778
832
3,778
832
On Malta Government treasury bills
990
79
990
79
31,525
26,497
31,492
26,455
On debt and other fixed income instruments
3,539
3,631
3,460
3,550
Net amortisation of premiums and discounts
(1,366)
(1,108)
(1,366)
(1,100)
2,173
2,523
2,094
2,450
Total interest income
33,698
29,020
33,586
28,905
Interest expense
On amounts owed to banks
(2)
-
(2)
-
On amounts owed to customers
(7,713)
(6,631)
(7,716)
(6,630)
On leases
(122)
(113)
(73)
(72)
Total interest expense
(7,837)
(6,744)
(7,791)
(6,702)
Net interest income
25,861
22,276
25,795
22,203
27. Net fee and commission income
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Fee and commission income
Retail banking customer fees
3,246
3,432
3,249
3,434
Brokerage
59
63
59
63
Other
2,166
2,174
1,167
1,072
Total fee and commission income
5,471
5,669
4,475
4,569
Fee and commission expense
Inter-bank transaction fees
(270)
(234)
(270)
(234)
Other
(18)
(19)
(18)
(19)
Total fee and commission expense
(288)
(253)
(288)
(253)
Net fee and commission income
5,183
5,416
4,187
4,316
Fee and commission income is principally recognised at a point in time.
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
186
28. Postal sales and other revenues
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Stamps, parcel post and postal stationery
including income from foreign inbound mail
33,629
25,892
-
-
Collectibles and philatelic sales
772
980
488
605
Other
4,319
3,821
-
-
38,720
30,693
488
605
29. Dividend income
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Subsidiary undertaking
-
-
1,657
1,657
Equity investments measured at FVOCI
203
141
203
141
203
141
1,860
1,798
30. Net trading income
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Gains on foreign exchange activities
378
793
525
634
31. Employee compensation and benefits
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Staff costs
Wages, salaries and allowances
22,738
22,363
8,424
8,234
Social security costs
1,646
1,649
471
449
24,384
24,012
8,895
8,683
Group
Bank
2023
2022
2023
2022
Average number of employees
Executives and senior managerial
48
45
36
36
Other managerial, supervisory and clerical
356
461
169
165
Others
502
436
6
6
906
942
211
207
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
187
32. Net movement in expected credit losses
Movement in expected credit losses during 2023 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
-
55
55
-
-
-
Total trade receivables
-
55
55
-
-
-
Loans and advances to
customers
Stage 1
-
759
759
-
759
759
Stage 2
(273)
-
(273)
(273)
-
(273)
Stage 3
(1,753)
-
(1,753)
(1,753)
-
(1,753)
Recoveries
-
38
38
0
38
38
Total loans and advances
to customers
(2,026)
797
(1,229)
(2,026)
797
(1,229)
Debt securities measured
at FVOCI
Stage 1
-
55
55
-
55
55
Total financial investments
measured at FVOCI
-
55
55
-
55
55
Debt securities measured
at amortised cost
Stage 1
(72)
-
(72)
(72)
-
(72)
Total financial investments
measured at amortised cost
(72)
-
(72)
(72)
-
(72)
Other financial assets
Stage 1
(84)
-
(84)
(84)
-
(84)
-
-
-
-
Total other financial assets
(84)
-
(84)
(84)
-
(84)
Off-balance sheet items
Stage 1
-
19
19
-
19
19
Stage 2
(5)
-
(5)
(5)
-
(5)
Total off-balance sheet items
(5)
19
14
(5)
19
14
Net movement in expected
credit losses
(2,187)
926
(1,261)
(2,187)
871
(1,316)
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
188
32. Net movement in expected credit losses (continued)
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
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
33. Profit before taxation
Profit before taxation is stated after charging and crediting the following:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
After charging
Directors' emoluments
- fees
139
130
93
86
- other emoluments
395
392
391
388
After crediting
Net income from investment services
334
326
334
326
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
189
33. Profit before taxation (continued)
Other operating costs are analysed as follows:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Foreign outbound mail
14,889
8,904
-
-
Utilities, insurance and security
1,020
1,049
649
636
Depositor and investor compensation schemes
488
570
488
570
Information system and telecommunication
2,570
2,469
1,759
1,603
Repairs and maintenance
1,194
1,044
422
368
Short-term and low value leases
599
663
121
141
Expenses associated with card services
1,108
1,040
1,108
1,040
Licence fees
639
737
403
498
Legal and professional fees
635
525
405
281
Other administrative expenses
4,034
3,866
2,241
2,102
Total other operating costs
27,176
20,867
7,596
7,239
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 2023 and 2022 relate to the following:
Audit
Other assurance/
advisory services
Tax compliance
services
€ 000
€ 000
€ 000
Bank
2023
108
26
4
2022
103
26
4
Subsidiary companies
2023
85
18
7
2022
82
18
2
During the current year, fees amounting to €115,500 (2022: €55,500) have been charged to the Bank by
connected undertakings of the Bank’s auditor, in respect of regulatory advisory services.
During the current year, fees amounting to €5,000 (2022: €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 2023
190
34. Income tax expense
Recognised in profit or loss:
Group
Bank
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Current taxation
Current tax expense
5,491
4,483
5,603
4,779
Deferred taxation
Deferred tax (credit)/charge (note 14)
(582)
5,567
(550)
5,500
4,909
10,050
5,053
10,279
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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Profit before tax
14,527
27,676
13,850
28,767
Tax on profit at 35%
5,084
9,687
4,848
10,068
Tax effect of:
Expenses not deductible for tax purposes
313
290
295
257
Deductions attributable to usage of electric
vehicles
(445)
-
-
-
Income taxed at different tax rates
(38)
(24)
(16)
(1)
Share of results of associate
110
140
-
-
Other differences
(115)
(43)
(74)
(45)
4,909
10,050
5,053
10,279
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 2023
191
34. Income tax expense (continued)
2023
2022
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 financial
assets measured at FVOCI:
- Net changes in fair value
(1,257)
392
(865)
(27,542)
9,536
(18,006)
- Reclassification
adjustments to profit or
loss upon disposal
376
(132)
244
-
-
-
- Net movement attributable
to change in credit risk
(55)
19
(36)
62
(22)
40
Remeasurements of defined
benefit obligations
159
(56)
103
264
(92)
172
(777)
223
(554)
(27,216)
9,422
(17,794)
2023
2022
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 financial
assets measured at FVOCI:
- Net changes in fair value
(1,120)
392
(728)
(27,200)
9,536
(17,664)
- Reclassification
adjustments to profit or
loss upon disposal
376
(132)
244
-
-
-
- Net movement attributable
to change in credit risk
(55)
19
(36)
62
(22)
40
(799)
279
(520)
(27,138)
9,514
(17,624)
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
2023
2022
Restated
Net profit attributable to equity holders of the Bank (€ 000)
9,064
17,530
Weighted average number of ordinary shares in issue
100,366,602
92,743,931
Earnings per share
€0.09
€0.19
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
192
35. Earnings per share (continued)
The comparative information has been restated to reflect the bonus issue effected during the current
financial year, and the related impact on the number of shares in issue, referred to in Note 18,
retrospectively. The weighted average number of ordinary shares in issue during the year for 2023 is based
on the number of shares determined above of 92,743,931 adjusted for the issuance of 61,828,332
ordinary shares on 16 November 2023 under the rights issue, giving rise to a weighted average of
100,366,602 ordinary shares in issue during 2023.
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
2023
2022
Dividends paid by the Bank (€ 000)
-
873
€ per share - net
-
0.02
The dividends per share reflected in the table above has been calculated on the basis of the number of
ordinary shares in issue of 45,363,867 as at 26 May 2022, being the date of approval of the dividends by
the shareholders of the Annual General Meeting.
In respect of the financial year ended 31 December 2023, a gross dividend of 1.63 cent per nominal €0.125
share (net dividend of 1.06 cent for a total amount of €1,638,000) is being proposed for approval by the
shareholders to be distributed. A resolution to this effect will be proposed at the Annual General Meeting.
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
2023
2022
2023
2022
€ 000
€ 000
€ 000
€ 000
Balances with Central Bank of Malta (note 5)
117,882
51,288
117,882
51,288
Malta Government treasury bills (note 5)
8,920
22,911
8,920
22,911
Cash in hand (note 5)
8,886
7,115
8,151
6,274
Loans and advances to banks (note 7)
36,139
25,016
33,605
20,937
Amounts owed to banks (note 20)
(122)
(512)
(122)
(512)
Cash and cash equivalents
171,705
105,818
168,436
100,898
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
193
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,
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, Deputy Chief
Executive Officers, Chief Financial Officer, Chief Information Officer, Chief Risk Officer, Chief Legal Officer,
Chief Officer – Group Corporate Services) 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 (NDSF). 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 treasury
bills and debt securities which are disclosed in notes 5 and 6, respectively, and other balances 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. The 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 2023
194
38. Related parties (continued)
38.2 Principal transaction arrangements and agreements involving key management personnel and entities
controlled by key management personnel.
2023
2022
€ 000
€ 000
Income statement
Interest expense
5
4
Interest receivable and similar income
30
35
Other operating costs
1,298
1,005
2023
2022
€ 000
€ 000
Statement of financial position
Loans and advances to customers
2,380
1,518
Amounts owed to customers
1,698
2,024
Contingent liabilities and commitments
464
1,048
Loans and
advances
Commitments
Loans and
advances
Commitments
2023
2023
2022
2022
€ 000
€ 000
€ 000
€ 000
At 1 January
1,518
(1,047)
11,123
(1,521)
Additions
1,273
(376)
86
(950)
Reductions/ repayments
(564)
950
(9,691)
1,424
Other movements
153
11
-
-
At 31 December
2,380
(462)
1,518
(1,047)
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 2023
195
38. Related parties (continued)
38.3 Compensation to key management personnel
Directors’ remuneration and salaries to chief officers amount to €1,236,000 (2022: €933,000).
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:
2023
2022
€ 000
€ 000
Income statement
Fee and commission income
3
2
Interest expense
2
1
Other operating income
70
81
Other operating costs
336
294
Statement of financial position
Loans and advances to customers
-
1
Trade and other receivables
4
70
Accrued income and other assets
7
3
Amounts owed to customers
2,180
1,669
Accruals and deferred income
49
43
Contingent liabilities
300
369
Commitments
1,110
1,109
During the year, Redbox Limited received gross dividends from MaltaPost p.l.c. amounting to €1,657,000
(2022: €1,657,000). The Bank injected further capital into certain subsidiaries as disclosed in Note 9.
During the year ended 31 December 2023, other operating costs included an amount of €92,000 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. As at
31 December 2023, the entity had not yet started operating.
As at 31 December 2023, lease liabilities payable to the Bank by MaltaPost p.l.c. amounted to €144,042
in respect of properties which are being leased to MaltaPost p.l.c.
38.4.2 Associates
Information relating to principal transactions undertaken by the Bank with its associates during the year:
2023
2022
€ 000
€ 000
Income statement
Interest receivable and similar income
-
15
Fee and commission income
36
29
Other operating costs
60
61
Statement of financial position
Loans and advances to customers/Accrued income and other assets
2,379
2,379
Investments in associates
1,645
1,645
Amounts owed to customers
9
7
Lombard Bank Malta p.l.c.
Notes to the Financial Statements for the year ended 31 December 2023
196
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. 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 2023
197
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 2023
198
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 appointed 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 2023
199
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 2023
200
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 2023
201
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 2023 amounts to 0.7%.
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 2023, amounted to 27.3% 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 2023
202
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 particular, 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
and amortised cost 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 2023
203
2. Credit risk (continued)
2023
2023
Average value
Year end
Exposure value
€ 000
€ 000
Central governments or central banks
309,416
317,638
Public sector industries
536
529
Multilateral development banks
7,712
7,304
Institutions
57,543
59,829
Corporates
72,522
77,653
Retail
23,712
32,748
Secured by mortgages on immovable property
533,734
550,942
Exposures in default
15,337
14,952
Exposures associated with particularly high risk
123,402
116,114
Equity
24,176
24,994
Other items
60,844
61,571
1,228,934
1,264,274
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:
2023
€ 000
On-balance sheet assets
1,236,321
Other adjustments
513
Off-balance sheet instruments
27,440
1,264,274
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
economic uncertainty remained elevated during the financial year ended 31 December 2023, primarily
driven by the geopolitical developments mentioned above, as well as widespread supply chain disruptions,
which triggered 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.
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.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
204
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 2023, 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 2023
Total
Malta
Eurozone
Other European
countries
Other
€ 000
€ 000
€ 000
€ 000
€ 000
Central governments or central banks
317,638
311,633
2,641
2,023
1,341
Public Sector entities
529
-
529
-
-
Multilateral Development Banks
7,304
-
5,172
-
2,132
International Organisations
-
-
-
-
-
Institutions
59,829
12,866
36,997
4,968
4,998
Corporates
77,653
76,307
803
543
-
Retail
32,748
32,748
-
-
-
Secured by mortgages on immovable property
550,942
550,942
-
-
-
Exposures in default
14,952
14,952
-
-
-
Items associated with particularly high risk
116,114
116,114
-
-
-
Equity
24,994
24,095
-
-
899
Other items
61,571
61,571
-
-
-
1,264,274
1,201,228
46,142
7,534
9,370
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
205
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 2023
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
317,638
-
-
-
-
-
317,638
-
Public Sector entities
529
-
-
-
-
-
529
-
Multilateral Development Banks
7,304
-
-
-
-
-
7,304
-
International Organisations
-
-
-
-
-
-
-
-
Institutions
59,829
-
-
-
-
-
59,829
-
Corporates
77,653
8,523
4,588
27,472
7,659
3,819
19,975
5,617
of which: SME
14,379
3,472
1,003
7,291
1,456
-
997
160
Retail
32,748
35
634
210
272
29,225
11
2,361
of which: SME
1,891
25
601
86
54
1,016
11
98
Secured by mortgages on immovable property
550,942
2,016
49,235
24,827
136,437
211,819
101,200
25,408
of which: SME
59,404
48
1,189
4,927
31,895
2,160
17,944
1,241
Exposures in default
14,952
292
975
353
9,070
1,146
375
2,741
of which: SME
6,422
152
-
184
6,045
-
-
41
Items associated with particularly high risk
116,114
-
-
1,328
99,747
2,217
12,649
173
of which: SME
17,621
-
-
-
17,621
-
-
-
Equity
24,994
230
1,645
-
-
-
4,343
18,776
Other items
61,571
-
2,379
-
41,461
-
10,687
7,044
1,264,274
11,096
59,456
54,190
294,646
248,226
534,540
62,120
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
206
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 2023
€ 000
€ 000
€ 000
€ 000
Central Government or central banks
317,638
171,428
92,634
53,576
Public sector entities
529
529
-
-
Multilateral Development Banks
7,304
3,541
3,763
-
International Organisations
-
-
-
-
Institutions
59,829
36,988
5,210
17,631
Corporates
77,653
34,011
15,991
27,651
Retail
32,748
5,800
4,515
22,433
Secured by mortgages on immovable property
550,942
107,661
68,638
374,643
Exposures in default
14,952
6,571
252
8,129
Exposures associated with particularly high risk
116,114
61,891
53,408
815
Equity exposures
24,994
24,994
-
-
Other items
61,571
61,571
-
-
1,264,274
514,985
244,411
504,878
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 €33,597,000 (2022: €20,926,000) 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 2023
207
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 2023
AAA to AA-
1
2,853
529
7,304
-
7,559
18,245
A+ to A-
2
311,633
-
-
-
31,719
343,352
BBB+ to BBB-
3
3,152
-
-
-
15,507
18,659
BB+ to BB-
4
-
-
-
-
-
-
B+ to B-
5
-
-
-
-
-
-
CCC+ and below
6
-
-
-
-
5,044
5,044
317,638
529
7,304
-
59,829
385,300
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’, ‘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 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.
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).
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
208
2. Credit risk (continued)
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.
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.
2023
€ 000
Gross loans and advances to customers
Performing (‘Stage 1’ assets)
611,313
Under-performing (‘Stage 2’ assets)
129,224
Non-performing (‘Stage 3’ assets)
29,218
769,755
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:
2023
€ 000
Gross loans and advances to customers
Credit-impaired
29,218
Past due but not credit-impaired
12,402
Neither past due nor credit-impaired
728,135
769,755
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
209
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 2023
Impaired
not impaired
€ 000
€ 000
Manufacturing
423
54
Tourism
2,494
51
Trade
550
5,191
Property and construction
20,801
4,833
Personal, professional and home loans
1,383
1,800
Financial institutions
564
1
Other sectors
3,003
472
29,218
12,402
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 €757.9 million exposures arising from the Bank’s lending, €532.7 million are secured by
mortgages on immovable property, while €112.8 million are classified within the high-risk exposures since
these are associated with speculative immovable property financing. From the €532.7 million exposures
secured by mortgages on immovable property, €230.8 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 2023
210
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 allowance 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 2023
9,949
350
1,651
827
4,835
909
1,274
103
Additions
4,392
116
78
197
2,661
1,033
255
52
Reversals
(2,890)
(143)
(132)
(292)
(1,027)
(488)
(774)
(34)
At 31 December 2023
11,451
323
1,597
732
6,469
1,454
755
121
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
211
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 2023
212
3. Market risk (continued)
The Bank’s repricing gaps at 31 December 2023 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 2023
213
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 2023
Financial assets
Balances with Central Bank of Malta,
treasury bills and cash
146,308
124,136
220
21,932
20
Financial investments measured at FVOCI
206,220
192,214
4,915
9,091
-
Financial investments measured at
amortised cost
8,285
8,285
-
-
-
Loans and advances to banks
33,605
6,563
4,099
20,136
2,807
Loans and advances to customers
758,304
749,956
7,201
1,143
4
Other assets
7,906
7,509
91
305
1
Total financial assets
1,160,628
1,088,663
16,526
52,607
2,832
Financial liabilities
Amounts owed to banks
145
145
-
-
-
Amounts owed to customers
1,021,254
949,930
16,400
52,128
2,796
Other liabilities
25,749
25,509
142
87
11
Total financial liabilities
1,047,148
975,584
16,542
52,215
2,807
Net currency exposure in financial
assets/liabilities
113,079
(16)
392
25
Commitments and contingent liabilities
272,734
271,027
1,164
543
-
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 2023
214
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 74.3% 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
2023 is 301.8%, 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 2023, the Bank had outstanding guarantees on behalf of third parties amounting to
€11,286,000 (2022: €10,886,000), 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 2023
215
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 2023
Assets of the reporting institution
10,120
10,120
1,182,425
1,182,425
Loans on demand
1,100
1,100
142,111
142,111
Equity instruments
-
-
7,681
7,681
Debt securities
7,782
7,782
211,324
211,324
Loans and advances
438
438
734,743
734,743
Other assets
800
800
86,566
86,566
The Bank does not encumber any of the collateral received. Moreover, as at 31 December 2023, 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 2023
216
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 2023 amounted to
€4,464,000.
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 2023, the Bank’s OCR continued to be met at all times. The Bank’s P2G
was also met at all times with the exception of short periods during the fourth quarter of financial year
2023 resulting from a decline in the fair-value of fixed-income securities. Following the Rights Issue, the
P2G was also met at year end.
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 2023
217
6. Capital risk management (continued)
(a) Share capital
The Bank’s share capital as at 31 December 2023 is analysed as follows:
2023
No. of
shares
000s
€ 000
Authorised
Ordinary shares of €0.125 each
300,000
37,500
Issued
Ordinary shares of €0.125 each
154,572
19,322
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
€19,321,533
Nominal amount of instrument
€19,321,533
Nominal amount of each share
€0.125
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 2023
218
6. Capital risk management (continued)
(d) 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.
(e) 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 2023
€ 000
Common Equity Tier 1 (CET1) capital
Common Equity Tier 1 (CET1) capital: instruments and reserves
Capital instruments and the related share premium accounts
75,856
Retained earnings
109,805
Accumulated other comprehensive income (and other reserves)
(3,177)
CET1 capital before regulatory adjustments
182,484
Common Equity Tier 1 (CET1) capital: regulatory adjustments
Intangible assets
(19)
Other regulatory adjustments
(366)
Total regulatory adjustments to CET1
(385)
CET1 capital
182,099
Total risk-weighted assets
868,827
Capital ratios
CET1 capital
20.96%
Tier 1 capital
20.96%
Total capital
20.96%
Institution specific buffer requirement
7.11%
of which: capital conservation buffer requirement
2.50%
of which: countercyclical buffer requirement
0.01%
of which: sectorial systemic risk buffer requirement
0.10%
CET1 available to meet buffers in excess of the CRR 4.5% minimum requirement
16.46%
CET1 available to meet buffers
13.85%
€000
Items not deducted from own funds in accordance with Article 48 of CRR
11,381
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
219
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 V capital requirements with effect from January 2020. During 2023,
the Central Bank of Malta introduced an additional Sectoral Systemic Risk Buffer (sSyRB) of 1% of risk-
weighted assets (to rise to 1.5% as of March 2024) of exposures to residential real estate. As the end of
December 2023, this Buffer was also met.
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 2023.
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
220
6. Capital risk management (continued)
The Bank’s capital requirements and Total Capital Ratio computation are as follows:
At 31 December 2023
Exposure
value
€ 000
Risk weighted
assets
€ 000
Capital required
€ 000
Central governments or central banks
317,638
30,028
2,402
Public Sector Entities
529
106
8
Multilateral Development Banks
7,304
145
12
Institutions
59,829
17,911
1,433
Corporates
77,653
77,238
6,179
Retail
32,748
24,561
1,965
Secured by mortgage on immovable property
550,942
389,092
31,127
Exposures in default
14,952
22,428
1,794
Items associated with particularly high risk
116,114
174,172
13,934
Equity
24,994
26,340
2,107
Other items
61,571
50,957
4,077
Credit risk
1,264,274
812,978
65,038
Foreign exchange risk
51
4
Operational risk
55,798
4,464
Total capital required
868,827
69,506
Own funds
Common Equity Tier 1 capital
182,099
Total own funds
182,099
Total capital ratio
20.96%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
221
6. Capital risk management (continued)
The following is an analysis of the Bank’s Capital Base in accordance with the CRD’s requirements:
2023
€ 000
Common Equity Tier 1 (CET1) capital
Share capital
19,322
Share premium
56,534
Revaluation and other reserves
(1,296)
Retained earnings
111,443
186,003
Adjustments:
Final dividend (note 36)
(1,638)
Depositor Compensation Scheme
(1,881)
Intangible assets
(19)
Other regulatory adjustments
(366)
Total CET1 capital
182,099
Total own funds
182,099
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 2023
222
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 2023
€ 000
Available capital
CET1 capital
182,099
CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied
182,099
Tier1 capital
182,099
Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied
182,099
Total capital
182,099
Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied
182,099
Risk-weighted assets
Total risk-weighted assets
868,827
Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not
been applied
868,827
Capital Ratios
CET1 (as a percentage of risk exposure amount)
20.96%
CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
20.96%
Tier 1 (as a percentage of risk exposure amount)
20.96%
Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional
arrangements had not been applied
20.96%
Total capital (as a percentage of risk exposure amount)
20.96%
Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs
transitional arrangements had not been applied
20.96%
Leverage ratio
Leverage ratio total exposure measure
1,285,729
Leverage ratio
14.16%
Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied
14.16%
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
223
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 Senior Management 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 total SREP 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 2023
224
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 2023
Tier 1 Capital
€ 000
Tier 1 capital
182,099
Leverage ratio total exposure measure
1,285,729
Leverage ratio
14.16%
The table shown hereunder represents the amounts making up the leverage ratio exposures.
At 31 December 2023
Tier 1 Capital
€ 000
On-balance sheet exposures (excluding derivatives and SFTs)
On-balance sheet items (excluding derivatives and SFTs, but
including collateral)
1,237,218
Asset amounts deducted in determining Tier 1 capital
(385)
On-balance sheet exposures (excluding derivatives and SFTs)
1,236,833
Off-balance sheet exposures
Off-balance sheet exposures at gross notional amount
272,763
Adjustments for conversion to credit equivalent amounts
(223,867)
Off-balance sheet exposures
48,896
The following table provides a reconciliation of accounting assets and leverage ratio exposures.
At 31 December 2023
Tier 1 Capital
€ 000
Total assets as per published financial statements
1,236,320
Adjustment for off-balance sheet items
48,896
Other adjustments
513
Leverage ratio total exposure measure
1,285,729
Lombard Bank Malta p.l.c.
Additional Regulatory Disclosures for the year ended 31 December 2023
225
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 2023
Tier 1 Capital
€ 000
Total on-balance sheet exposures (excluding derivatives and SFTs), of
which:
Exposures treated as sovereigns
317,638
Multilateral Development Banks
7,304
Institutions
59,563
Secured by mortgages on immovable property
532,703
Retail
29,655
Corporates
71,903
Exposures in default
14,952
Other exposures
203,115
1,236,833
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 2023 stood at 14.16%.
At this level, the Bank is currently not at risk in curtailing excessive leverage and 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 56.
9. Other Directorships
In terms of Article 91 of Directive 2013/36/EU (CRD V), 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 2023
226
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 V.
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.
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.
227
Five Year Summary
Statements of Financial Position
Group
2023
2022
2021
2020
2019
€ 000
€ 000
€ 000
€ 000
€ 000
Assets
Balances with Central Bank of Malta,
treasury bills and cash
147,043
139,234
126,279
169,687
182,348
Cheques in course of collection
1,880
1,053
530
666
1,214
Financial investments
216,770
220,815
227,135
161,424
111,731
Loans and advances to banks
38,139
27,615
78,279
96,985
121,060
Loans and advances to customers
758,304
711,612
642,893
621,129
552,043
Investments in associates
3,292
2,607
3,006
1,932
1,684
Intangible assets
2,192
2,121
2,145
2,050
2,000
Property, plant and equipment
66,511
66,375
65,346
50,928
43,348
Assets classified as held for sale
703
703
661
134
134
Current tax assets
643
575
2,691
1,156
193
Deferred tax assets
11,694
10,889
7,034
10,117
9,801
Inventories
1,391
1,271
1,324
1,274
1,468
Trade and other receivables
11,369
13,243
10,787
9,136
5,625
Accrued income and other assets
5,203
5,302
4,536
4,337
9,648
Total assets
1,265,134
1,203,415
1,172,646
1,130,955
1,042,297
Equity and liabilities
Equity
Share capital
19,322
11,341
11,192
11,044
11,044
11
1111
Share premium
56,534
18,530
18,530
18,530
18,530
Property revaluation reserve
13,109
13,087
13,040
6,383
6,384
Investment revaluation reserve
(13,349)
(12,733)
5,180
7,181
7,978
Reserve for General Banking Risks
-
2,903
2,903
2,903
2,903
Other reserves
1,660
1,382
2,545
2,510
2,567
Retained earnings
113,107
101,700
83,910
77,470
69,722
Equity attributable to equity holders
of the Bank
190,383
136,210
137,300
126,021
119,128
Non-controlling interests
8,409
8,090
8,470
7,741
7,674
Total equity
198,792
144,300
145,770
133,762
126,802
Liabilities
Amounts owed to banks
145
535
1,224
5,602
5,871
Amounts owed to customers
1,019,075
1,008,431
977,143
941,110
864,993
Provisions for liabilities and other charges
1,403
1,688
2,113
2,632
3,236
Current tax liabilities
1,556
-
809
844
1,128
Deferred tax liabilities
4,099
4,099
4,099
6,448
6,832
Other liabilities
28,762
33,347
30,649
29,665
21,949
Accruals and deferred income
11,302
11,015
10,839
10,892
11,486
Total liabilities
1,066,342
1,059,115
1,026,876
997,193
915,495
Total equity and liabilities
1,265,134
1,203,415
1,172,646
1,130,955
1,042,297
Memorandum items
Contingent liabilities
14,315
13,611
13,195
10,851
11,671
Commitments
257,415
202,396
195,848
200,870
225,826
228
Five Year Summary
Income Statements
Group
2023
2022
2021
2020
2019
€ 000
€ 000
€ 000
€ 000
€ 000
Interest receivable and similar income
33,698
29,020
25,725
24,898
25,285
Interest expense
(7,837)
(6,744)
(6,169)
(6,026)
(5,605)
Net interest income
25,861
22,276
19,556
18,872
19,680
Other operating income
44,820
37,605
43,856
41,731
40,474
Other operating charges
(54,578)
(48,049)
(51,836)
(46,107)
(44,311)
Net movement in expected credit losses
(1,261)
16,243
1,464
(3,973)
(549)
Share of (loss)/profit of investment
accounted for using equity method
(315)
(399)
(402)
(151)
-
Profit before taxation
14,527
27,676
12,638
10,372
15,294
Income tax expense
(4,909)
(10,050)
(4,759)
(3,230)
(5,424)
Profit for the year
9,618
17,626
7,879
7,142
9,870
Attributable to:
Equity holders of the Bank
9,064
17,530
7,481
6,640
9,320
Non-controlling interests
554
96
398
502
550
Profit for the year
9,618
17,626
7,879
7,142
9,870
229
Five Year Summary
Statements of Cash Flows
Group
2023
2022
2021
2020
2019
€ 000
€ 000
€ 000
€ 000
€ 000
Net cash flows (used in) / generated
from operating activities
18,179
(36,281)
31,632
14,475
53,125
Cash flows from investing activities
Dividends received
203
141
81
105
211
Interest received from investments
4,675
3,485
3,012
2,198
2,325
Proceeds from maturity/disposal
-
of investments
9,903
5,220
6,760
16,468
8,163
Purchase of investments
(8,359)
(27,518)
(75,270)
(67,862)
(15,905)
Purchase of property, plant
and equipment
(2,657)
(3,709)
(7,601)
(8,942)
(3,345)
Investments in associates
(1,000)
-
-
-
-
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
2,765
(22,381)
(73,685)
(58,414)
(8,551)
Cash flows from financing activities
Proceeds from rights issue of ordinary
shares
45,733
-
-
-
-
Dividends paid to equity holders
of the Bank
-
(873)
(862)
-
(1,436)
Dividends paid to non-controlling
interests
(299)
(429)
(429)
(427)
(429)
Principal element of lease payments
(491)
(478)
(523)
(409)
-
Net cash flows used in financing
activities
44,943
(1,780)
(1,814)
(836)
(1,865)

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 2023, 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 & Risk 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 2023;

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

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

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

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

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

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

##### Independence

We are independent of the Group and the 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 2023 to 31 December 2023, are disclosed in note 33 to the financial statements.

Our audit approach

#####

##### Overview

| · Overall group materiality: €649,000, 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, Ciabro Limited formerly known as 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 | €649,000
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 & Risk Committee that we would report to them misstatements identified during our audit above €65,000 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 end of the reporting period. 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 global macro-economic uncertainties driven by the conflict in Eastern Europe and the escalating tension in the Middle East, have resulted in supply chain disruptions and significant inflationary pressures. These conditions 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 loans and advances in the Bank’s Personal and Corporate and commercial 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 economic conditions such as those currently experienced as a result of 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 current inflationary pressures and the interest rate environment experienced locally have 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 attributable to exposures within the personal portfolio in view of rising cost of living and the impact of changes in market interest rates. Moreover the current macro-economic scenario, could create additional pressures on the business of the Bank’s borrowers in the corporate and commercial portfolio. 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 current economic conditions and the macro-economic uncertainty induced by fluctuations in market interest rates, together with geopolitical uncertainties attributable to the ongoing conflicts within Eastern Europe and the Middle East have significantly impacted macro-economic variables, 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 current 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 of ECLs 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 2.2; · Accounting estimates and judgements: note 3.2; · Note on Loans and advances to customers: note 8; and · Net movement in expected credit losses: note 32. | During our audit of the financial statements for the year ended 31 December 2023, 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 & Risk 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-looking economic scenarios, including the severity and magnitude of modelled downside scenarios, particularly in the context of the estimated impact of the macro-economic developments driven by the global inflationary pressures and the ensuing interest rate environment, together with geopolitical uncertainties attributable to the ongoing military conflict in Eastern Europe and the escalation of the Middle East conflict; 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 impact of the current macro-economic conditions on the 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 and the reasonableness of modelled LGDs taking cognisance of 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 to assess their reasonableness. We assessed the appropriateness of changes effected during the year to factor the impact of the current macro-economic environment. We assessed whether the severity of the forecasted macro-economic variables was appropriate in view of the elevated level of uncertainty related to the current economic conditions, which are characterised by significant inflationary pressures and higher levels of interest rates. We challenged the correlation between economic factors and ECL allowances and the impact of these 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 and data used within the models 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 economic 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 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 taking cognisance of the current macro-economic environment. · 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. These include 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 2023 (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 and will 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 2023, 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 2023 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 2023 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 2023 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 14 years.

Fabio Axisa

Principal

For and on behalf of

PricewaterhouseCoopers

78, Mill Street

Zone 5, Central Business District

Qormi

Malta

26 April 2024