HSBC Bank Malta plc - Full-Year Results
On 23 February 2021, HSBC Bank Malta plc published its Annual Report for the financial year ended 31 December 2020.
Performance Overview
During 2020, net interest income contracted by 3.8% to €105.9 million (2019: €110.1 million) as the 5.8% decline in gross interest income to €113.6 million (2019: €120.6 million) offset the further substantial reduction of 26.4% in interest costs to €7.7 million (2019: €10.5 million). The contraction in gross interest income reflected lower average yields on debt securities and money market placements as well as lower overdraft and credit card balances arising from the current subdued economic environment. These were partly mitigated by the proactive and effective liquidity management by the bank’s Treasury function, as well as the lower interest paid on customer deposits as a result of repricing exercises and changes in deposit composition towards the short term. Despite the adverse interest rate scenario across the euro area, the bank’s net interest margin (reflecting the amount of net interest income to gross interest income) improved further to 93.2% compared to 91.3% in 2019.
Excluding the impact of insurance operations, non-interest income eased by 2.1% to €29.4 million (2019: €30.1 million). Net trading income increased considerably to €8.52 million compared to €5.36 million in the 2019 financial year on the back of a higher fair value gain on Visa shares. However, this was offset by the decline of 7.9% in net fee and commission income to €21 million (2019: €22.8 million) as well as a charge of €0.04 million related to other income compared to a gain of €1.98 million in 2019. Meanwhile, HSBC Life Assurance (Malta) Limited reported a loss before tax of €9.1 million compared to a profit before tax of €3.1 million in 2019. The adverse variance of €12.2 million was mainly attributable to: (i) a drop in the financial markets and further deterioration of the yield curve negatively impacting revenues by €3 million; (ii) actuarial losses of € 8.4 million as modelled parameters such as lapses and interest rates were worse than those estimated in 2019; and (iii) lower new business of €1 million.
Overall, the bank’s net operating income before changes in expected credit losses and one-off items dropped by 10.2% to €133.4 million compared to €148.6 million in the 2019 financial year.
On the expenditure side, total adjusted operating costs dropped by almost 7% to €97.4 million (2019: €104.7 million) reflecting rigorous cost management initiatives and the sustainable savings from the restructuring programme initiated in 2019. In contrast, the bank’s financial performance was dented by the considerable increase in expected credit losses amounting to €25.6 million compared to just €0.39 million in 2019. In this respect, HSBC Malta explained that the much higher charge reflects the benefit of support measures introduced by the Government, policy guidance from regulators, as well as the bank’s conservative risk culture. During 2020, a number of corporate names were deemed to have suffered a significant increase in credit risk as they operate in industries heavily impacted by the Covid-19 pandemic. Moreover, the bank considered the possibility of future defaults linked to extended moratoria measures.
Overall, HSBC Malta reported a pre-tax profit of €10.4 million which is considerably lower than the comparable adjusted figure of €43.5 million for the 2019 financial year. After accounting for a tax charge of €2.87 million, the net profit figure for the year amounted to €7.57 million compared to €20.2 million in 2019. On an adjusted basis, the bank’s return on equity slid to 1.6% compared to 6.4% in 2019.
The Statement of Financial Position as at 31 December 2020 shows that total assets increased by 3.6% to €6.73 billion, reflecting the significant increase in short-term and liquid assets (€323.8 million) as well as the marginal increase in customer loans to €3.26 billion. On the other hand, financial assets and investments decreased by 5% to €1.62 billion.
On the liabilities side, the major movement was in customer deposits as these increased by 6% (€296.4 million) to €5.27 billion. As a result, the loans to deposits ratio deteriorated to 61.9% compared to 65.5% as at the end of 2019.
Shareholders’ funds grew by 1.8% to €478.4 million. This translates into a net asset value per share of €1.328 compared to €1.304 as at 31 December 2019. The bank’s capital ratios continued to improve during 2020 with the Common Equity Tier 1 capital ratio increasing to 18% from 16.4% as at 31 December 2019. Similarly, the Total Capital Ratio rose to 20.7% from 19% as at the end of 2019. HSBC Malta also added that it continues to have a strong capital base and is fully compliant with the regulatory capital requirements.
Dividend
The Board of Directors is recommending a final gross dividend of €0.0116 per share (net dividend: €0.0075 per share). This translates into a dividend payout ratio of 15% on the cumulated 2019 and 2020 reported profits (after deducting the dividends paid in relation to the same period) in line with the recommendation of the European Central Bank. The final dividend will be paid on 26 April 2021 to all shareholders as at close of trading on Thursday 18 March 2021.
Outlook
Commenting on the results, HSBC Malta’s CEO Mr Simon Vaughan Johnson explained that:
“HSBC’s financial performance in 2020 was materially impacted by the Covid-19 outbreak. The increase in ECL reflected the impact of Covid-19 on the forward economic outlook. Losses incurred by the insurance subsidiary arose from adverse market movements. Both these impacts overshadowed the strong progress made on cost reduction as a result of rigorous cost management sustained throughout the year. Despite the impact of Covid-19, the bank’s fundamentals remain strong and underlying performance was resilient.”
“Covid-19 posed significant challenges for our personal and commercial customers. Our immediate priority has been to provide proactive support and flexibility to our customers from the outset of the pandemic. We have partnered with customers through payment moratoria, restructuring payments, short-term credit facilities and access to cash. We are providing facilities to support our commercial banking customers through both Malta Development Bank backed schemes and HSBC relief initiatives, as well as helping businesses to navigate the current environment.”
“2020 was a uniquely challenging year in which unprecedented events and an uncertain environment meant that we had to adapt quickly to new ways of working and deploy innovative practices to meet and exceed our customers’ expectations. We developed and released a number of digital enhancements to support the ongoing delivery of fair outcomes for our customers. These included the launch of an online onboarding journey for retail customers and the launch of Virtual Assistant for commercial customers and Live Chat for HSBCnet users, to ensure that our customers continued to receive products and services securely, safely and conveniently.”
“In 2020 we have continued to focus on our digital banking services since launching our mobile banking app for personal customers towards the end of 2019. The trend in customer behaviour has shown that digital transactions have more than doubled since this launch. This investment will be complemented shortly by the opening of a new and modern branch which will offer our personal banking customers a one-stop shop for advice on all major life events. Branch banking and our ATM network will remain a critical part of our service offering to customers.”
“We are embarking on the execution of our Safe Growth strategy, focusing on three key pillars: growth, our customers and our people. We will strive to be an externally-focused, performance-led organisation and we remain committed to long-term measures of performance and risk management with zero appetite for financial crime risk. We will accelerate growth from our core businesses and we will be leveraging our international advantage. We will build and invest in a bank that is fit for the future and which puts the customer at the centre of what we do.”
“HSBC remains a strong bank in spite of the Covid-19 crisis and continues to maintain high standards through applying our core values and doing the right thing. We remain firmly committed to this ethos as we pivot the business towards Safe Growth in the years ahead.”