APS Bank continues to gain market share

The earnings season in Malta continued last week with the publication of the annual financial statements of BMIT Technologies plc and APS Bank plc. Given the important developments taking place in the banking sector as CrediaBank SA is expected to finalise the acquisition of HSBC Bank Malta plc in the first quarter of 2027, it is fundamental to continue to monitor the financial results and key performance indicators of the main players in the industry.

APS is Malta’s third largest bank in terms of total assets but second largest in terms of loans as it continues to win additional market share. The results published last Thursday provide evidence that the bank’s strategy is starting to translate into tangible financial benefits.

The first half of 2025 was a very challenging period for APS as it suffered from margin compression and abandoned the acquisition of HSBC Malta. Meanwhile, in the second half of the year, the APS Group staged a remarkable recovery in its margins and profitability while raising fresh capital through a successful €45 million rights issue.

The APS Group generated a profit before tax of €26.5 million in 2025, an increase of 11.3 per cent over the €23.8 million achieved in 2024 and ahead of the forecast published at the time of the rights issue following a very strong final quarter of the year.

Evident progress on a quarterly basis

In order to review APS’s performance in 2025 in the best analytical manner, one must track the progression of the net interest margin (NIM) on a quarterly basis given the decision by the bank to report its figures every 3 months to ensure that the investing community is kept abreast of all developments.

In Q4 2024, the NIM stood at 1.65 per cent and it edged down minimally in Q1 2025 to 1.63 per cent. Since then, the NIM accelerated markedly reaching 1.81 per cent in Q2, 1.97 per cent in Q3 and 2.02 per cent in Q4. This consistent upward progression during the past three quarters reflects the rebalancing of the deposit book away from more expensive fixed-term deposits towards lower-cost on-demand deposits incorporating current accounts and savings accounts (CASA), as defined by CEO Mr Marcel Cassar in the 2025 Annual Report.

At the start of 2025, on-demand deposits accounted for 56 per cent of overall customer deposits totalling €3.7 billion. By year-end, this had risen to 68 per cent, with term deposits falling correspondingly from 44 per cent to just 32 per cent.

The shift in the deposit mix helped the bank reduce its cost of funds from 1.40 per cent in 2024 to 1.11 per cent in 2025 – just ahead of the forecast of 1.13 per cent within the rights issue prospectus. This improvement in the funding mix, coupled with the growth in the loan book, was instrumental in driving the recovery in the net interest income which surged by 20.1 per cent throughout the full year to €78.7 million. The growth in the net interest income accelerated in H2 2025 as net interest income amounted to €43.1 million compared to €35.6 million in H1.

This was also reflected in the quarterly profitability of the APS Group with profit before tax of €8.7 million in each of Q3 and Q4 2025 compared to much lower levels in the prior two quarters of the year. The upturn in profitability in the last two quarters of 2025 helped the return on equity to rise to over 7 per cent.

Expanding market share

During 2025, APS Bank grew its loan book by over €350 million (with €130 million during Q4 2025) to €3.55 billion, representing growth of 11.3 per cent. APS now holds a 25.6 per cent share of home loans in Malta. The bank’s overall lending market share is of approximately 20 per cent.

The non-performing loan ratio of APS, a key indicator of credit quality, closed the year at a record low of 1.36 per cent – a remarkable achievement given the speed of balance sheet expansion over recent years and one that reflects the high market share in mortgages.

On the deposit side, total deposits grew by €463 million during 2025 to €4.1 billion. On-demand deposits climbed by €759 million to reach €2.8 billion while fixed-term deposits dropped by €296 million to €1.3 billion. Therefore, the loan to deposit ratio of APS was of 86 per cent at the end of 2025.

Strengthened capital position

Following the abrupt termination of the bank’s efforts to acquire HSBC in the first half of 2025, APS successfully raised €45 million in fresh equity through a rights issue in Q4 2025.

The capital injection materially strengthened the bank’s capital position with the Tier 1 ratio improving from 14.3 per cent at the end of 2024 to 17.6 per cent in December 2025. The high level of capital provides the bank with ample capacity to continue its balance sheet expansion and the strategic flexibility to pursue growth – including, as the CEO has signalled, potential inorganic opportunities.

The capital raise also had an important impact on the bank’s ownership structure as AROM Holdings Limited (the wholly-owned vehicle of the Archdiocese of Malta) saw its stake diluted below 50 per cent for the first time (42.95 per cent as at 31 December 2025) and the Diocese of Gozo, the second qualifying shareholder, at 10.31 per cent thereby bringing the free float to 46.7 per cent. Since the IPO in 2022, the majority shareholder had clearly indicated its strategy of diluting its equity stake over time.

Clear guidance for 2026

The 2026 targets published by APS during the Market Briefing in February and re-iterated by CFO Ronald Mizzi last week are a natural flow from the trends already visible in the second half of 2025. The bank is targeting a net interest margin exceeding 2 per cent for 2026, cost of funds below 1 per cent, a cost-to-income ratio in the low 60’s, loan growth of between 5 per cent and 10 per cent, revenue growth of between 15 per cent and 20 per cent and a post-tax return on equity of between 6 per cent and 7 per cent. This should translate into a pre-tax profit of between €33.8 million and €39.7 million and a net profit of between €22 million and €25.8 million.

Investors may be pleased to note that the NIM has already crossed the 2 per cent threshold in Q4 2025 and the senior management of APS clearly indicated that the cost of funds is below 1 per cent during the first two months of 2026 which should lead to record profits in Q1 2026 as the deposit mix rebalancing is still ongoing.

Loan growth of between 5 per cent and 10 per cent should be achievable given the 11 per cent growth in 2025 and the structural demand for home loans in Malta. Revenue growth of between 15 per cent and 20 per cent from the level of €89.3 million in 2025 would bring overall group revenue to between €102.7 million and €107.2 million in 2026 (total income in Q4 2025 reached €24.7 million – the highest quarterly revenue figure for the bank).

Perhaps, the most ambitious target is to improve the cost to income ratio to the ‘low 60’s’ from the level of 70.7 per cent in 2025 which, however, included some one-off expenses. APS’s cost base grew by 10.8 per cent in 2025 to €63.1 million, split up as follows: staff costs +12 per cent to €33.3 million; administrative expenses +5 per cent to €23.6 million; depreciation and amortisation charges +12 per cent to €6.2 million in line with the ongoing technology investment programme.

The key focus by investors in the coming quarters as APS presents its Q1 2026 on 30 April and then the interim financial statements on 30 July should be on whether the bank is achieving most of its targets for 2026 and most especially that it can consistently deliver quarterly profits within the €9 million and €10 million across the full calendar year. This would help strengthen the ROE, which is a key metric for valuation purposes, to above the bank’s cost of capital. If this is achieved, the re-rating of APS shares would be warranted as the share price is currently trading at a 32 per cent discount to the book value of €0.72 per share.

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