What’s Bank of Valletta’s loss on its €4.5 billion bond portfolio?

It is common for banks to list their bond portfolios under their historical amortised cost, but standard accounting principles may not be sufficient to provide full transparency in these turbulent financial times. In its latest annual report, Bank of Valletta has listed a bond portfolio of around €4.5 billion in total at its historical purchase cost, however when marked-to-market, this portfolio costs much less than its historical cost. BOV bought a total of €1 billion in bonds from 2021 to 2022 during the same period when interest rates went up and the value of public debt went down significantly. Now, BOV is left holding a bag of foreign and local public debt at what most probably is a huge unrealised loss.

The bank has some interest rate swaps as hedges against interest rate increases, but their size seems to have been trimmed down over time.

The infamous Silicon Valley Bank which imploded recently did the same accounting trick to hide its massive losses on its bond portfolio. Listing interest rate swaps is not enough because these can be mishandled or traded at the wrong time, and they may not be enough to cover your losses. BOV is teetering with scandals and structural problems and the least it can do right now is to be very transparent about its finances. However, being transparent is not on BOV’s priority list right now. In their list for credit impairments, Steward’s €36 million is not even mentioned, showing that BOV is making extra efforts to present their dirt over a silver platter.

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