On 2 August 2021, HSBC Bank Malta plc published its interim results covering the six-month period ended 30 June 2021.
During the first half of 2021, net interest income contracted by 7.6% to €49.4 million as the further decline of 4.8% in interest expense to €3.8 million was not enough to compensate for the 7.4% drop in gross interest income to €53.2 million. In this respect, the Bank explained that the lower interest paid on deposits was offset by the lower rates earned on debt securities and bank placements which were also dampened by subdued customer lending patterns. Nonetheless, the Bank’s net interest margin (reflecting the amount of net interest income to gross interest income) remained relatively unchanged at around 93%.
Non-interest income increased considerably to €22.1 million compared to €8.07 million in the first half of 2020. This was mostly due to: (i) the positive performance of the Bank’s life assurance subsidiary which reported a profit of €4.2 million compared to a loss of €9.8 million incurred in H1 2020 (largely on the back of favourable market movements); as well as (ii) the 10.7% increase in net fee and commission income which was mainly driven by the higher level of commercial business.
On the expenditure side, total operating costs increased by 2.1% to €52.2 million compared to €51.1 million in H1 2020. While HSBC continued to realise cost savings from the new Strategy Plan embarked on in 2019 and also from ongoing proactive management actions, the Bank incurred higher regulatory fees linked to its customer deposit base. Nevertheless, in view of the stronger increase in operating income, the cost-to-income ratio improved to 72.9% compared to 83% in H1 2020.
Meanwhile, the financial performance of HSBC was boosted by the much lower level of expected credit losses (“ECL”) and other related charges which amounted to €1.9 million compared to €8.68 million in the previous corresponding period. In this respect, the Bank explained that the higher level of ECL charges booked in 2020 reflected the prevailing negative outlook and uncertainty of the Covid-19 pandemic at the time. While the ECL charges booked in 2020 have not been released as yet, in view of the continued uncertainty in the market, the increases recorded in 2021 were limited to customers experiencing further deterioration. The Bank’s gross non-performing loan (‘NPL’) ratio worsened slightly to 3.67% as at 30 June 2021 compared to 3.52% as at the end of 2020.
Overall, HSBC Malta reported a pre-tax profit of €17.5 million compared to the corresponding figure of €1.81 million recorded in H1 2020. After taking into account tax charges amounting to €6.09 million, the net profit generated by the Bank in the first six months of 2021 amounted to €11.4 million (H1 2020: €1.18 million) which, in turn, translates into an annualised return on average equity of 4.77% (H1 2020: 0.5%).
The Statement of Financial Position shows that total assets increased by 1.4% to €6.82 billion compared to the €6.73 billion figure as at 31 December 2020. The growth was primarily due to the increase in loans and advances to banks (+€468.5 million) which offset the declines in balances held with the CBM and treasury bills (-€367.7 million), financial investments (-€21.8 million), and customer loans (-€8.85 million).
Likewise, total liabilities increased by 1.4% to €6.34 billion mostly due to the 1.1% increase (or +€56.6 million) in customer deposits to €5.33 billion (31 December 2020: €5.27 billion). As a result of the increase in customer deposits and the marginal drop in customer loans, the loan-to-deposit ratio deteriorated to just over 61% compared to nearly 64% as at the end of 2020. Meanwhile, the bank’s equity base expanded by 1.3% to €484.6 million which, in turn translates into a net asset value per share of €1.345. The Bank’s capital ratios remained well above regulatory requirements with the Common Equity Tier 1 capital ratio standing at 17.2% (31 December 2020: 18%) and the Total Capital ratio at 19.8% (31 December 2020: 20.7%).
As the European Central Bank continues to recommend extreme prudence with regard to dividend distributions, and since uncertainty still prevails in the marketplace, the Board of Directors of HSBC elected not to distribute an interim dividend. Restrictions imposed on capital distribution will end after 30 September 2021 when the ECB’s current recommendation is due to expire.
Commenting on the results, HSBC Malta’s CEO Mr Simon Vaughan Johnson explained that:
“The performance in the first half of 2021 reflected the favourable market impact on the life insurance manufacturing business as well as the continued unfavourable impact of further declining interest rates. We also saw ECL stabilise following the increased ECL booked in 2020 as a result of the negative forward economic outlook prevailing at the time.”
“In June 2021, we announced two voluntary redundancy schemes. We aim to create a leaner working model that is externally focused and performance-led, building and investing in a bank that is fit for the future and which is centred around customers.”
“During the first half of the year, we continued to provide stability and continuity of service to our customers in a highly uncertain environment. We have invested in new customer journeys with the aim of improving customer experience and successfully launched two-factor authentication via HSBC Malta’s existing mobile banking App, thereby providing customers with ease of execution. We will continue to be focused on the future and on successfully executing our Safe Growth strategy. We are confident that, despite the challenging external environment, there are many opportunities ahead for a bank with HSBC’s competitive strengths and we remain focused on delivering these services to the Maltese market, as we strive to open up a world of opportunity.”