HSBC Bank Malta plc - Full-Year Results

Monday, February 22nd, 2016

On 22 February, HSBC Bank Malta plc published its preliminary results for the financial year ended 31 December 2015.

Performance Overview

During 2015, net interest income increased for the first time since 2012 as it grew by 3.7% to €127.0 million. The 3.4% decrease in interest income to €150.6 million was completely offset by the bigger reduction in interest expense (-29.2%) as deposit rates continued declining and more customers moved to shorter-dated deposits. Lending margins on both the retail and commercial sides remained under pressure whilst yields on the Bank’s financial investments declined despite a larger portfolio balance (+4.3%).

On the other hand, non-interest income continued with its downward trend as it declined by a further 2.7% (the fourth consecutive yearly drop) to €49.3 million – the lowest level since 2004 – largely on the decreased contributions from the Bank’s custody, fund administration and stock brokerage units as these are being scaled down in line with HSBC’s overall de-risking strategy. Moreover, a lower gain of €0.7m on the sale of financial investments was reported in 2015 compared to €1.7m in 2014, reflecting the limited re-investment opportunities in the current scenario characterised by very low interest rates.

Conversely, net fee income increased by 2% compared with 2014 as the Group earned higher asset management fees in the insurance subsidiary. HSBC Life Assurance (Malta) Limited reported a profit before tax of €8.8m, in line with the profits registered in the corresponding period last year.

Overall, the net operating income of HSBC Malta improved by 1.8% to €176.4 million (FY2014: €173.3 million).

On the expenditure side, operating expenses of €118.8m were €20.2m or 20% higher compared with previous year. The early voluntary retirement programme launched at the end of 2015, as part of the bank’s efforts to improve productivity and cost effectiveness, was the main driver for the increase in 2015 costs. Excluding this one-off cost that is expected to yield sustainable savings in future years, operating expenses were up 6% compared with 2014. This is largely attributable to the additional compliance and regulatory costs. Furthermore, the increased cost of outsourced services as a result of currency fluctuations and new services related to the transferred insurance portfolio affected 2015 costs.

As a result, HSBC Malta’s operating profit before impairment allowances shrunk by 22.9% to €57.6 million.

Impairment provisions against non-performing loans amounted at €10.8 million compared to €22.5 million in 2014. Nonetheless, the Bank still maintained a cautious approach to provisioning. In particular, in 2015 a decision was taken to set aside impairment provisions for retail exposures which have been non-performing for a certain number of years. The Board felt that it would be prudent to provide for these loans due to the long legal process to repossess collateral.

Overall, the 2015 pre-tax profit figure amounted to €46.8 million representing a 10.3% drop from the previous year’s comparable figure and the lowest level since 2001. On an adjusted basis, excluding the effect of non-recurring expenses for the early voluntary retirement provision, profit before tax was up €9 million or 18% on the previous year. The tax charge for the year under review amounted to €17.3 million (2014: €18.5 million) leading to a net profit of €29.5 million compared to the €33.6 million registered in the previous financial year.

The Statement of Financial Position shows a minor increase in total assets to €7,236 million (+0.5%). Despite the total drawdowns of nearly €550 million during 2015, net loans and advances to customers at €3,285 million were 0.5% up on 2014. Moreover, the Bank’s mortgage book continued to perform well resulting in a net growth of over €60 million in 2015. This, however, was offset by the reduction in corporate lending where repayments were higher as a result of the persistent low interest rate environment. Asset quality improved during 2015 with non-performing exposures at 8% of gross loans compared to 8.9% in 2014. The percentage of tangible security held against the bank’s loan portfolio remains high.

Similarly, total liabilities advanced by 0.3% to €6,776 million. Customer accounts continued to grow during the year under review and reached €4,950m, an increase of 1.7% from 31 December 2014. Accordingly, the Bank’s loans to deposit ratio fell to 66.4% from 67.3% in 2014. Shareholders’ funds increased by 3.6% to €461.1m giving a net asset value per share of €1.28.

During the year, HSBC Malta continued to build a sound regulatory capital base as its common equity Tier 1 capital increased to 12.4% from 10.6% at the end of 2014.


Despite a lower level of profitability, the Board of Directors is recommending a final gross dividend of €0.026 per share (€0.017 per share net of tax), representing an increase of 11% over last year’s final dividend as the payout ratio increased. Together with the interim dividend paid in September 2015, the total gross dividend for the year amounts to €0.077 per share (€0.05 per share net of tax), which represents a 20% increase compared to 2014 dividend adjusted for the bonus share issue in April 2015.

During the year, the bank set aside €1 million to become fully compliant with the General Banking risk provision stipulated by the Banking Rule 09.

Shareholders as at the close of trading on 14 March will be eligible to receive the final dividend on 19 April 2016 subject to shareholder approval at the upcoming Annual General Meeting.


Commenting on the results, HSBC Malta CEO Mr Andrew Beane said: “In 2015 the operating environment for eurozone banks remained difficult with record low interest rates and higher operating costs, principally driven by new regulation. HSBC Malta’s underlying profitability was strong and our signature capital strength and conservative risk appetite enabled the bank to perform well in the European Central Bank’s regulatory assessments. Since I became Chief Executive in November my focus has been on reviewing the bank’s strategy and re-focusing the business to restore growth. We have taken decisive action to reduce costs, resolved a long-running union dispute and made a number of key leadership appointments. And our strong balance sheet has enabled the bank, with the support of our regulator, to increase the dividend payout ratio from 55% to 65% so that a greater share of profits is returned to our owners. While the global economy shows some signs of increased stress, the local outlook remains more favourable and HSBC is open for business. As CEO, I am committed to ensure that HSBC facilitates growth in Malta’s economy and creates value for our 10,000 local shareholders while continuing to operate to the highest regulatory standards. We will achieve this by investing in our team of banking professionals in order to raise customer service standards, by using HSBC’s unique international network to connect Malta’s economy to the global financial system and by sustaining strict cost discipline. Despite the challenges our industry faces, HSBC Malta is in a strong position to navigate these and I am confident about the future.”


HSBC Bank Malta plc – Preliminary Results for the financial year ended 31 December 2015.

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