HSBC Bank Malta plc - Interim Results

On 4 August 2014, HSBC Bank Malta plc issued its half-year report covering the six months ended 30 June 2014.

Performance Overview

During the period under review, the HSBC Malta Group generated €58.3 million in net interest income representing an 8.2% drop from the previous comparable period. This drop was largely attributable to the decline in interest income earned on investments and loans, as it shrank by 7.5% to €76.1 million (1H2013: €82.3 million). This was the result of the proceeds of higher-yielding maturing bonds being re-invested at the lower prevailing interest rates, as well as a 1.5% decline in the loan book of the Bank. This adverse impact of lower interest income was partially offset by a 5.2% drop in interest expense to €17.8 million. The Bank’s net fee and commission income also dropped marginally to €14.7 million during the period under review (1H2013: €15.6 million).

The life assurance business reported a pre-tax profit of €6 million compared to €8 million in the first six months of 2013, which included a one-off release of reserves to the profit statement that was not repeated during the first 6 months of 2014. The insurance arm of the Group registered a decline in premiums received, although  this was offset by a fair value gain on its investment portfolio, exceeding also the increase in the amount of claims paid by the insurance business unit.

Overall, the HSBC Group generated a drop in its operating income for the period, which declined by 11.3% to €87.4 million, when compared to the €98.6 million made during the same period in 2013.

Administrative expenses increased by 7.3%, mainly due to an increase in compliance and regulatory costs. As a result, non-operating costs increased by 3.6% to €46.3 million, including an uplift in the depreciation charge for the year of 25.8% to €3.3 million, and the Group’s cost-to-income ratio edged to 53% (compared to 45.4% for the same period in 2013). Impairment charges in the first half of 2014 were 68% higher than those in 1H2013 at €1.4 million, as 1H2013 was characterised by a higher level of recoveries which partially offset the impairment charge for the period.

For the first half of 2014, the HSBC Malta Group registered a pre-tax profit of €39.6 million, and after accounting for a tax charge of €13.9 million, the net profit for the Bank amounted to €25.7 million, which is 25.3% less than that reported in the first half of 2013.

The balance sheet of the Group stood at €5.86 billion, indicating a 2.4% growth since the beginning of 2014. The Bank had a notably smaller loan portfolio than that as at 31 December 2013, although HSBC reported that gross new lending amounted to €518 million when compared to the €474 million in 2013. Customer deposits increased by €32 million to €4.55 billion, and consequently, HSBC’s liquidity position remained strong, with a loan-to-deposit ratio of 72%. Return on equity declined to 11.6% on the back of lower profit levels and an increase in shareholders’ funds of 5.2% to €443.7 million, which translates to a net asset value of €1.368 per share. During the first half of 2014, the Bank continued to strengthen its total capital ratio to 13.6% in line with the new capital requirement directive, and reported a 10.4% tier 1 capital ratio for the same period (1H2013: 9.9%).

Commenting on the interim results, CEO Mr Mark Watkinson explained that the growth pipeline in both the commercial and retail business is looking more encouraging than it has for some time, even if the current record-low interest rates present some challenging issues.

Dividend

The Directors declared an interim dividend of €0.045 (net: €0.029) per share to shareholders as at the close of trading on Monday 11 August 2014, with subsequent payment on 4 September 2014. The level of dividends payable is 50% lower than the interim dividend declared in 2013 of €0.09 per share. This decline is not only due to the 25% drop in profits but also as a result of the provisions of Banking Rule 09.

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HSBC Bank Malta plc – Interim Results 2014