HSBC Bank Malta plc - Full-Year Results

On 21 February, HSBC Bank Malta plc published its preliminary results for the financial year ended 31 December 2016.

Performance Overview

During 2016, net interest income eased by 0.5% to €126.4 million as the 5.6% drop in gross interest income to €142.1 million was partly mitigated by the sharp drop in interest expense to €15.6 million (FY2015: €23.5 million). The Bank explained that the trend of low interest rates persisted in 2016 and continued to have an adverse impact on lending margins and the yields on its investment book. Lending margins on both the retail and commercial sides remained under pressure whilst yields on the Bank’s financial investments declined. On the other hand, the reduction in interest expense reflects the further decline in deposit rates as well as the continued shift by customers to shorter-dated deposits.

Non-interest income increased by 11.8% to €55.1 million when compared to the corresponding figure last year. However, excluding the one-time gain of €10.8 million related to the sale of VISA Europe shares to VISA Inc., non-interest income dropped by 10.1% to €44.3 million reflecting the Bank’s decisions to exit certain business segments which fall outside the Bank’s risk appetite. In addition, HSBC Malta saw a decrease in card fees as the new regulation which introduced the reductions in interchange fees came into effect from the end of 2015. Furthermore, the profits made by the Bank’s life assurance subsidiary dropped by 17% to €7.3 million reflecting lower premiums on the existing insurance policies, the adverse impact of the yield curve movement and lower management fees on the run-off portfolio of investment policies.

Overall, the net operating income of HSBC Malta improved by 2.9% to €181.5 million (FY2015: €176.4 million).

On the expenditure side, operating expenses of €107.1 million were 7.4% lower when compared to the previous financial year. The one-time provision for the early voluntary retirement programme of €14.7m launched at the end of 2015 was the main driver for higher 2015 costs. At the same time, however, during 2016 HSBC Malta booked a one-time provision of €8.0 million in relation to a legacy operational and regulatory failure in the Bank’s now-closed brokerage business. HSBC Malta explained that this non-recurring item relates to “execution-only” trades dealt in by customers purchasing complex instruments without the Bank undertaking an appropriateness test as required by regulations. The Bank added that it will contact affected customers directly once final details of the resolution approach are agreed with the Malta Financial Services Authority (MFSA) at which point the final costs will be confirmed.

Excluding the aforementioned two exceptional items, the Bank’s non-interest expense contracted by 1.8% to €99.1 million largely reflecting the positive impact on staff costs following the implementation of the early voluntary retirement programme last year as well as cost management actions and the favourable affect of currency fluctuations on the cost of outsourced services.

As a result, HSBC Malta’s operating profit before impairment allowances surged by 23.7% to €71.3 million (FY2015: €57.6 million).

Impairment provisions against non-performing loans amounted to €9.0 million compared to €10.8 million in 2015. The Bank explained that the decrease in loan provisioning was largely attributable to better collection of defaulted retail exposures whilst maintaining a cautionary approach to provisioning for non-performing loans.

Overall, the 2016 pre-tax profit figure amounted to €62.2 million – representing a 33.0% jump from the previous year’s comparable figure and the highest in the last three years. Excluding the effects of the provision for early voluntary retirement in FY2015 (€14.7 million) and the gains on the sale of VISA Europe shares as well as the provision for brokerage remediation costs (in aggregate a net effect of +€2.8 million) in FY2016, adjusted pre-tax profits of HSBC Malta fell by 3.3% to €59.4 million from €61.4 million in 2015. The tax charge for the year under review amounted to €22.0 million (FY2015: €17.3 million) leading to a net profit of €40.2 million compared to the €29.5 million registered in the previous financial year.

The Statement of Financial Position shows a 0.9% increase in total assets to €7,306 million. Net loans and advances to customers rose by 1% to €3,320 million mainly reflecting continued growth in mortgages. Conversely, early prepayments in both retail and corporate loan books remained at a high level creating a pressure on the margin and offsetting the effect of the record gross new loans sanctioned. Loan quality improved further in 2016 with non-performing exposures decreasing to 6.4% of gross loans and advances to customers compared to 7.0% in 2015.

Similarly, total liabilities advanced by 0.8% to €6,832 million as customer deposits grew by a further 1% to €5,000 million. The advances-to-deposits ratio remained flat at 66%. Shareholders’ funds increased by 2.7% to €473.5 million reflecting the profit registered during the year. This translates into a net asset value per share of €1.314 (FY2015: €1.280). During the year, HSBC Malta continued to build its regulatory capital base as its common equity Tier 1 capital increased to 13.0% from 12.4% as at the end of 2015.


The Board of Directors is recommending a final gross dividend of €0.041 per share (€0.027 per share net of tax), representing an increase of 57.7% over last year’s final dividend. Together with the gross interim dividend €0.071 per share (net: €0.0462) paid on 9 September 2016, the total gross dividend for the year amounts to €0.112 per share (€0.0728 per share net of tax), representing a 45.5% increase compared to the dividend declared with respect to 2015. Furthermore, HSBC Malta increased its payout ratio to 65.2% from 61.2% which is one of the highest in the industry. During 2016, the Bank adhered to the revised Banking Rule 09 which imposes higher allocations for past due exposures. Taking into consideration the reduction in non-performing exposures, HSBC Malta was not required to set aside an additional General Banking risk provision.

Shareholders as at the close of trading on 10 March 2017 will be eligible to receive the final dividend on 20 April 2017 subject to shareholder approval at the upcoming Annual General Meeting scheduled to be held on 13 April 2017.


Commenting on the results, HSBC Malta CEO Mr Andrew Beane explained that on an adjusted basis the level of profitability achieved by the Bank was in line with expectations. Mr Beane highlighted the cost reduction efforts undertaken during 2016 that offset some of the pressures arising from the low interest rate scenario and the rising regulatory costs.

The CEO also noted that the legacy charge relating to the Bank’s now closed brokerage business is disappointing and dates back to an operational failure that took place some ten years ago. Nonetheless, Mr Beane believes that HSBC’s approach to self-identify, self-report and remediate this issue demonstrates to its customers that HSBC is committed to the highest standards of conduct.

Looking ahead, Mr Beane noted that the Bank will continue to focus on diversification to avoid an undue level of concentration in certain sectors whilst facing a more challenging environment driven by negative interest rates, increased regulatory expectations for higher levels of capital adequacy and for compliance with the highest global standards of financial crime risk management and the need to concurrently invest into new digital technology. Nonetheless, in this respect, the CEO believes that HSBC Malta is uniquely well positioned with capital levels exceeding regulatory requirements, transformational investments undertaken in financial crime risk management as well as plans to bring new digital innovation to Malta.

Furthermore, in the coming year, the Bank plans to re-launch its services for small businesses and further strengthen its financial crime compliance standards. The latter is expected to further impact profitability in the short-term but represents an investment in the long-term future of the Bank.


HSBC Bank Malta plc – Preliminary Results for the financial year ended 31 December 2016.