HSBC Bank Malta plc - Interim Directors’ Statement

Tuesday, November 15th, 2011

On 15 November, HSBC Bank Malta plc published its Interim Directors’ Statement covering the period from 1 July to the date of this announcement. The Directors explained that although the financial performance of the HSBC Malta Group was broadly in line with expectations, revenue is slightly below expectations and the profitability in the Group’s subsidiaries (including the life assurance company) has been negatively impacted by the volatile markets.

During the period under review, HSBC Malta also incurred slightly higher costs mainly due to the on-going investment in the business as detailed below. Nonetheless, the cost efficiency ratios have marginally improved as growth in operating income has outpaced increases in expenditure. Given the current economic climate, loan impairments continued to increase although these remain below the Bank’s expectations.

With respect to movements in the balance sheet, HSBC reported that the level of deposits remained unchanged despite increasing competitive pressures. The Bank also maintained its market share in lending as business pipeline remained reasonably resilient. HSBC reported that following the changes made in the first half of 2011 to the Bank’s available for sale portfolio, HSBC Malta continued to de-risk its investment portfolio by reducing further its exposure to sovereign and other bank holdings in peripheral Eurozone countries. The Directors also re-iterated that the Bank holds no material concentrations and has limited exposures to problem asset classes. More importantly, HSBC Malta confirmed that it has no direct exposure towards sovereign debt in southern Europe.

The Directors also stated that the Bank is closely monitoring the regulatory implications for the banking sector particularly those related to the potential implications on capital. Nonetheless, HSBC Malta noted that it remains well placed to meet both current and future challenges.

Looking ahead, the announcement reveals that the Bank expects a more difficult 2012 given the prevailing market conditions and the increasing pressures on revenue and capital. Therefore, HSBC Malta will continue to focus on improving its productivity and cost effectiveness to ensure that current levels of profitability remain sustainable. In this respect, the Board of Directors of HSBC Malta has approved a plan to deliver sustainable cost savings by the end of 2013. The Bank will launch a number of initiatives, including the potential disposal of the Bank’s card acquiring business (announced on 28 October), as from early 2012.

Such restructuring initiatives are expected to result in an exceptional charge in the 2011 financial statements of approximately €10 million which will mainly comprise costs for early retirement schemes.

In conclusion, the CEO of HSBC Malta, Alan Richards, emphasised the need to increase the focus on cost and risk management as trading conditions become more challenging. Mr Richards indicated that the Bank has a clear strategy and looks forward to next year with confidence.

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