HSBC Bank Malta plc - Interim Results

Monday, August 6th, 2018

On 6 August 2018, HSBC Bank Malta plc published its interim results covering the six-month period ended 30 June 2018.

Performance Overview

During the first half of 2018, HSBC Malta reported a 10.3% drop in net interest income to €54.1 million compared to €60.3 million in H1 2017, reflecting the further decline in the average yield on the bank’s investment book (due to continuing amortisation of higher yielding bonds) as well as contraction of the Commercial Banking loan book. In fact, whilst interest expense declined by €0.35 million to €5.72 million, gross interest income fell by almost 10% (or €6.54 million) to just under €60 million.

Similarly, non-interest income declined by 8.6% to €20.3 million, largely reflecting lower income from the insurance business as well as a negative movement amounting to €2.71 million in the fair value of other financial instruments. As a result, total operating income of €74.4 million was 9.8% lower than the €82.5 million figure of the corresponding period last year.

On the expenditure side, HSBC Malta reported a 5.1% increase in its cost base to €54.9 million (H1 2017: €52.2 million), reflecting continued investment in regulatory programmes, financial crime compliance and business growth initiatives. On the other hand, impairment charges against expected credit losses amounted to €3.36 million which, in turn, is nearly €1 million lower than the loan impairment charge of €4.35 million accounted for in the first half of 2017. In this respect, HSBC Malta also commented that it continues to maintain a conservative provisioning approach and that the total amount of non-performing loans of €155 million is 7.7% lower than that of €168 million as at 30 June 2017.

Overall, HSBC Malta reported a pre-tax profit of €16.2 million. This represents a decline of nearly 38% compared to the same period last year. However, in view of the much lower tax charge of just €1.83 million compared to €9.07 million in H1 2017 which, in turn, was due to a different tax treatment applied on a specific transaction, the net profit figure of €14.3 million represents a decline of 15%. This also translates into an earnings per share of €0.0398 compared to €0.0468 in H1 2017.

The Statement of Financial Position shows a marginal increase in total assets to €6.81 billion compared to the figure as at 31 December 2017. Similarly, total liabilities increased by 0.46% to €6.35 billion. In this respect, it is worth highlighting that although customer deposits increased at a faster pace (+1.4%) than customer loans (+0.4%), the loan-to-deposit ratio still remained at a comparatively high level of 65% from 65.6% as at 31 December 2017. Meanwhile, total equity contracted by 4.5% to €0.46 billion. This translates into a net asset value per share of €1.27 (31 December 2017: €1.3295). The bank’s Common Equity Tier (“CET”) 1 position improved slightly to 14% from 13.9% as at the end of 2017. On the other hand, whilst the Total Capital Ratio dropped to 14.1% compared to 14.4% as at 31 December 2017, this still remains above the fully-loaded regulatory requirement.

Dividend

The Directors declared an interim gross dividend of €0.04 per share (net: €0.026), representing a decline of almost 15% from the dividend declared in respect of the 2017 interim results. The interim dividend payout ratio is of 65.4%. The dividend will be paid on 18 September 2018 to all shareholders as at the close of trading on 14 August 2018.

Outlook

Commenting on the results, HSBC Malta’s CEO Mr Andrew Beane explained that the bank’s profitability in the first half of 2018 was lower than the prior year due to four main factors: (i) the impact of essential de-risking actions taken during 2017; (ii) the ongoing effect of negative interest rates; (iii) loan impairments arising where the sale of assets pledged as security by corporate borrowers in default for many years have been delayed by lengthy judicial processes which make the recovery of liabilities a very protracted exercise; and (iv) from investment in regulatory and risk programmes such as GDPR and customer due diligence.

Nonetheless, Mr Beane noted that HSBC Malta is proud of the progress made to achieve the highest level of financial crime compliance standards. Furthermore, as the substantive elements of the bank’s business model transformation are now complete, the bank can now move into a new strategic phase characterised by a return to growth and value creation. Over time, and without increasing the bank’s risk appetite, HSBC Malta will focus on growing revenue faster than costs in order to increase the return on tangible equity and, subject to ongoing capital management processes, sustain a high dividend payout ratio. In this respect, Mr Beane added that the early signs of this new phase are encouraging with significant increases in commercial banking business which has led to a stabilisation of loans and advances. The bank is also seeing increased volumes in retail banking and wealth management business.

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HSBC Bank Malta plc – Half-Year results covering the six months ended 30 June 2018.

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