FINANCIAL REVIEW 2021

SPARKASSE BANK MALTA

Every year the licence holder conducts a short exercise on the counterparties with which it conducts
business. Sparkasse Bank acts as Custodian to the UCITS and PIFS managed and administered by
Investor Service Provider.
Sparkasse Bank has been custodian for the past eight years and has always been seen to provide a
good service to both Investor Service Provider as Fund Manager/Administrator and the respective
funds managed.

In 2021 year Sparkasse Malta Bank was facing the impact of the Covid19 virus that caught the world
by surprise and disrupted daily lives, businesses travel and economies. During this period the Bank
did not experience any disruptions to its daily operations as its priorities were focused on
supporting its business, protect and fosterstaff health and safety and heighten monitoring of the
Bank’sfinancial assets as a result of the stock market volatility triggered by the pandemic. As
granting of loans is not a core business for the Bank this element of inherent risk brought about by
the pandemic was of no effect to the Bank. Despite the challenges brought about by the COVID-19
outbreak and Malta’s grey listing by the FATF, the bank recorded strong revenues for the audited
year 13.5 mln euro compared to 11.8 milion euro achieved in the previous year.

STATEMENT OF CASH FLOW

Generally, during the overviewing, we had an impression that the crucial values related to the
operating, investment and financial activities of Sparkasse Malta Bank were signicantly changed in
the 2021 year in the comparison with the 2020 year. The total amount of movement in cash and
cash equivalents were increase 6 times more in 2021 (158,163 million) year than in the 2020 year –
25,619 million, but the situation has been improved to take into account the cash and cash
equivalents at beginning of the year 2021 which has been also closing balance of cash and cash
equivalents in the previous year of 2020 – 415,628 million. In the end the total value of cash and
cash equivalents applicable for the 2021 year (over 573,792 million) we increasing in the
comparison with 2020 (over 415,628 million). This result is proved that the cash base of Sparkasse
Bank has been strengthed every year even during the Covid19 outbreak.
On reviewing the Cash flow Statement, it has been noted that net cash from operating activities
increasing from over 7,526 million in 2020 to over 214,222 million in the 2021 year due to the fact
there were noticed crucial movements in operating assets and liabilities especially with deposit
transactions done between Sparkasse Banka and Central Bank of Malta, amount owed to banks and
customers, loans and advances to customers and banks. Simply we can say that the customers of
this bank and also either the owners of the Sparkasse bank took the cautious investment strategy in
the middle of coivid19 outbreak do not expose yourself too much into risky and unpredictible
financial markets transactions.
 Net Cash generated from operating activity
250,000

200,000

150,000

100,000

50,000

0
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

In the 2021 year like it was happened in the previous year - 2020 for investment activity had impact
that there is the biggest movements in cash flow arise from sales and purchase of securities rather
than based on purchasing and selling the intangible/tangible assets. If we are reffering the total
values for sales of securities (from over 92,237 milion in 2021 to 125 milion in 2020) and purchase
of securites (from over 105 milion in 2020 to 149 milion in 2021) applicable for 2021 year they were
increased with the comparison of 2020 year. However like it was previously mentioned the owners
of Sparkasse Bank and also either their customers took the cautious investment strategy which have
been reflection of situation in global financial markets during the outbreak of covid 2019 virus were
investors were reluctant to take risk and invest their money in unpredictable during this period
derivates markets. Generally, the Sparkasse Bank obtained the second time in their whole
economical activity the negative result based on the investment activity due to the fact they were
continue developing the IT infrastructure – they overall invested over 59 million in 2021 year. The
Sparkasse Bank has continued to invest in IT infrastructure and in line with previous years, software
under development has not been amortised in accordance with the Bank's accounting policies and
in line with IAS 38 - Intangible Assets. This is due to the fact that the Board of Directors of Sparkasse
Bank Malta plc firmly believes that once the software under development goes live, an economic
benefit will flow to the Bank. In 2021 year Sparkasse Bank was recovered of written off security
which total amount was over 623 milion.

Net Cash generated from investing strategy

60,000
40,000
20,000
0
-20,000 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
-40,000
-60,000
-80,000
-100,000
-120,000
The Sparkasse Bank owners decided to develop own IT department inside the bank organization
since from 2019 rather to bearing the expenses for outsourced it services from external companies.
We can notice that bank every year is investing a lot of money for purchasing the intangible asset
which is a good sign that they are developing and customizing IT infrastructure and other IT tools
which are making this bank more innovative and secure for their customers and business partners.

For the part of financing activity in cash flow statement applicable for 2021 year we noticed that
Sparkasse Bank is following according to IFRS 16 requirements company was obligated to expose
in their financial reports the liabilities due to sign the leasing contracts. New standards,
amendments and interpretations are effective for the second time in these financial statements
but none have had a material effect on the Bank. Relating to dividends paid in 2021 the Sparkasse
Bank was following after European Central Bank reccomendiations which say do not distribute
cash dividends in order to support the economy in light of the increased uncertainty caused by the
pandemic. The Management Board is decided do not distribute the 4 million dividend and
generally bank will not be proposing pay out any cash dividend for the 2021 year. In 2021 year
Sparkasse Bank decided to issue shares worth over 3,2 milion in the order to receive the
additional source of financing their econonomical activity.
2021 2020

Summarizing this part we can give the statement that Sparkasse Bank generate net cash used in
financing activity in 2021 year based on implementation of IFRS 16 standards were the obligated
to show expenses covered the lease liablilities and mainly receiving additional source of financing
by issuing the shares for stakeholders in 2021 year worth over 3,2 milion. The total balance of net
cash generated from finanacing activites was overall in 2021 year – 2,980 milion in the comparison
with the 2020 year then total balance was negative (264,162 milion).
STATEMENT OF FINANCIAL POSITIONS

Assets

We noticed the fact that bank has been tying less and less funds through loans and advances to banks
which have been decreased by 30% in the 2021 year if we compare this value with (over 46 million at 2021)
the previous year (over 65 million in the 2020 year). Apparently, the total value of cash and balance held by
the Central Bank of Malta has been increasing double over the same period due to the fact currently
commercial banks are facing excess liquidity and there payoff in the form of the interest to the central bank
rather than to a bank throughout Money Market Lending’s from over 574 million in 2020 to 620 million in
2021 year.

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

Balance held with Central Bank of Malta Loans and advances to banks Loans and advances to customers

Sparkasse Bank is carring on the following of the IFRS 9 standards with the presentation of financial assets
from AFS as at amortized cost since the 1st of January 2018, which is already reflected by the Note for the
Fianancial Statements. Ignoring this reclassification, the increase from 2021 to 2020 we can observing the
growing tendency due to the fact the bank invests its excess liquidity in a portfolio of debt securities which
it holds until maturity. Accordingly, these are classified as at amortised cost.
Liabilities

The bank continues its successful strategy to attract funding and at cheaper rates from the retail customers
at large and from Money Borrowing Markets. Generally we can say, that Sparkasse Bank is preferring to
minimalize their liabilities towards other bank institutions which were shown clearly in the 2020 year where
we noticed that the total value of amount owned to banks was decreasing about 168 k in the comparison
with the 2019 year. Apparently, the Sparkasse Bank raise double the liabilities towards bank institutions
from 910 milion in 2020 year to 2,400 million in 2021 year. We also noticed the growing trend where the
total amount owed to customers are still increasing in 2021 year at the level of over 95 million euro more
with in the comparison of 2020.

1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

Amount owed to banks Amount owed to customers

We recognized that other liabilities were shown on the liabilities side in the Balance Sheet were increased
in the 2021 (2,076million) year by about 418k within the comparison of the 2020 (1,658 milion)year.
Generally, we can say that Sparkasse Bank was successfully protecting yourself and your own customer's
transactions done in derivative markets against in the event of default by the other counterparty by the
creation of a special reserve for future liabilities which was recognized as Variation Margin from the 2019
year. This special Variation Margin reserve has been protected the Sparkasse Bank transactions towards
more intensive exposure on financial markets in the 2021 year.

Other Liabilities
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
During of the 2021 year the European Central Bank issued a recommendation to credit institutions
to refrain from distributing cash dividends. As a result, the Bank could not distribute the EUR 4
million cash dividend previously approved by the Board.

Equity and Share Capital

Equity capital increased by another six million per year showing the banks’ willingness to increase
their capital again in 2021 year either. In line with the IAS 16 – Property, Plant and Equipment, the
value of any immovable property accounted for at Fair Value should be reviewed periodically at
least every two to three years. In accordance with this, the Bank engaged an independent architect
to review the value of the property during 2021, which resulted in an increase in the fair value of
the said property by EUR1.5million. The value of the property will be reviewed again in 2024.
Unfortunetly in the 2021 of year the bank has been decreased the retained earnings reserve around
894 million due to the fact in the current year has been implementing the CRD IV Banking Rule
required insititutions to divide their capital base into Tier 1 and Tier 2 Capital.

Total Equity
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
INCOME STATEMENT
On reviewing the Income Statement, total Operating Income for the 2021 year stood at €13.5 milion
against €11.8 milion in the previous year. The net interest income in 2021 of year (3,056 milion) has
decreased by almost 2 million lees in the comparison of previous year of 2020 (4,960 milion). While interest
payable were increased by 2,418 milions in 2021 year from 1,879 milions in 2020 year.

Operating income have been decreasing in 2021 year almost twelth times (36,924 milion) in the comparison
with the 2020 year – 441,767 milion. In the 2021 of year the profits before income tax were increased (4,089
million) with the comparison in the 2020 year – 3,639 million . The total value of Earning Per Share in 2021
year has been increased to 58.82 in the comparison of 2020 year – 53.64. Also total comprehensive income
for the year has been increased in 2021 year – 3,490 milion in the comparison of 2020 year – 3,490 milion
which is showing that bank was overcoming in 2021 year the consequences of global covid2019 outbreak.

Financial Ratios:

 Trade Creditors Days ratio – this economical indicator is showing the average number of days that
compay takes to pay supplier.
In the 2021 of year for SPK it was taking over 88 days to pay off their obligations towards the vendors
companies. We can observe the decreasing trend of trade creditor days ratio in the comparison of 2020
(over 98 days) year but we still noticed that the obligation arising towards vendors were still increasing.

 Debt to Equity Ratio - is the key financial ratio and is used as a standard for judging a company's
financial standing. It is also a measure of a company's ability to repay its obligations. If the ratio is
increasing, the company is being financed by creditors rather than from its own financial sources
which may be a dangerous trend. Lenders and investors usually prefer low debt-to-equity ratios
because their interests are better protected in the event of a business decline. Thus, companies
with high debt-to-equity ratios may not be able to attract additional lending capital.

In the 2021 year we observed the Debt to Equity Ratio is returning almost for the same value from 2019
year. The total value of debt to quity was 19.56 in 2021 year and it meaning that bank is financed by
suppliers rathen than based on the own financial resources. This ratio result is ilustrate that Sparkasse
Bank is operating in highly risk buisness enviroment.

 Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and
the efficiency with which its capital is employed. ROCE is a long-term profitability ratio because it
shows how effectively assets are performing while taking into consideration long-term financing.
A higher ratio would be more favourable because it means that more profits are generated by each
EURO of capital employed.

In 2021 year we noticed that decreasing trend of Return on Capital Employed ratio in the comparision
with the previous year of 2020. Does it mean every euro invested in capital is generating around 8 euro
cents in operating income. We can also give a statement that SPK had a serious problem to achieve
during the last years significant profitability.

 Net Working Capital Ratio is frequently used to measure a firm's ability to meet current
obligations. It measures how much in liquid assets a company has available to build its business.
The number can be positive (acceptable) or negative (unsafe), depending on how much debt the
company is carrying. Positive working capital generally indicates that a company is able to pay off
its short-term liabilities almost immediately. In general, companies that have a lot of working
capital will be more successful since they can expand and improve their operations.
 In the 2021 year we noticed that value of net working capital ratio for SPK in the comparison of 2020
year is increasing by 0.06. Overall the total result of net working capital ratio in the 2021 year was
negative -0.256. This result is showing that bank has a problem to pay off immediately all of current
liabilites. Bank had problem to maintain the liquidity on reasonable level due to the fact is not
possesing enough the current assets to be able to covered all of current liabilities.

 Net profit margin is a ratio of profitability calculated as after-tax net income (net profits) divided by
sales (revenue). Net profit margin is displayed in percentage terms showing the amount of each
one euro made in sales left over after all expenses have been paid. This Margin is a key ratio of
profitability implying that a higher net profit margin makes the company more efficient at
converting sales into actual profit.

In 2021 year SPK achieved 13.62% of net profit after expesnes and taxes which means depositary bank was
a little bit more profitable in current year than it was on 2020 year.

 Trade Debtors Days indicator is meaning the average collection period is the approximate amount
of time that it takes for a business to receive payments owed, in terms of receivables, from its
customers and clients.

In 2021, SPK was was taking 1330 days approx to collect the same dues meaning that it was more efficient
in its debt collection in the comparison of the 2020 year.

 The current ratio is a popular indicator to assess a company's short-term liquidity with respect to
its available assets and pending liabilities. In other words, it reflects a company's ability to
generating enough cash to pay off all its debts once they become due. Generally we can say that
the current ratio measure the overall financial health of a company.
In 2021, for every 1 euro SPK have in liabilities, SPK only have 73 euro cents of assets

 Assets Turnover ratio - this figure represents how many EURO in revenue a company has
generated per EURO invested in assets. Asset Turnover is calculated by dividing total revenues for
the period by total assets for the same period. There is no set number that represents a good total
asset turnover value because it is industry-sensitive. It also depends on the proportion of labour
costs in relation to the capital required, i.e. whether the process is labour intensive or capital
intensive, however ideally the higher the asset turnover ratio, the more efficient a company.

In 2021, for every 1 euro we have in NET ASSETS, we are generating 33 euro cents in turnover. A lower rato
of Assets turnover indicates that bank is not ussing its assets effeciently and may have facing the internal
problems.

Conclusion
Given the current financial situation of the bank, we are largely satisfied with the Custodian's
Financial and liquidity Capabilities as well as ts ability to provide us with adequate Custodian
Services.