On 22 February 2022, HSBC Bank Malta plc published its Annual Report for the financial year ended 31 December 2021.
During 2021, net interest income contracted by 7.7% to €97.8 million (2020: €105.9 million) as gross interest income dropped by 6.9% to €105.7 million (2020: €113.6 million) whilst interest costs increased by 3.3% to €7.95 million (2020: €7.69 million). In this respect, the Bank explained that the decrease was mainly driven by lower average yields on debt securities, tighter margins and placement of surplus liquidity at negative rates which were only partially offset by lower interest paid on customer deposits and changes in deposit composition towards short-term placements.
Excluding insurance operations, non-interest income increased by 5.5% to €31 million (2020: €29.4 million) as the growth in net fee income and other operating income was partially offset by the reduction in net trading income. The increase in net fee income was driven by higher activity across cards, payments and credit facilities as well as the introduction of a number of service fees. Moreover, the increase in other operating income was due to the non-recurrence of the losses arising from the disposal and fair value changes of investment property accounted for in the 2020 financial year. On the other hand, the contradiction in net trading income was mainly the result of fair value gains on equity investments realised in 2020.
Meanwhile, HSBC Life Assurance (Malta) Limited reported a loss before tax of €3 million (2020: loss of €9.1 million) as the positive movements in the fair value of investments on the back of improved market conditions, coupled with the growth in business and the reduction in costs, were offset by the higher actuarial losses related to a legacy product.
Overall, the Bank’s net operating income before changes in expected credit losses (“ECL”) dropped by 1.6% to €131.3 million compared to €133.4 million in the 2020 financial year.
On the expenditure side, operating costs increased by 5.4% to €102.6 million (2020: €97.4 million) when excluding a restructuring provision of €2.8 million related to two Voluntary Redundancy Schemes launched in 2021. In this respect, HSBC Malta explained that although it continues to achieve sustainable savings from the transformation programmes launched in 2019 and 2021, non-staff costs increased by €9.5 million reflecting higher compliance costs due to increased monitoring, transformation expenses, regulatory fees, fraud losses, as well as higher investment in digitalisation.
In contrast, the Bank’s financial performance was boosted by the release of ECL amounting to €1 million compared to the charge of €25.6 million taken on in 2020. The release in ECL mainly reflected the performance of specific customers rather than an improvement in the economic outlook. The Commercial Banking business reported a net release of €1.6 million as recoveries on non-performing loans (“NPL”) and the improved performance of a number of corporate names outweighed the charges linked to credit deterioration of other customers. On the other hand, Wealth and Personal Banking incurred a net charge of €0.6 million reflecting the extension of moratoria measures which exceeded reported recoveries.
Overall, HSBC Malta reported a profit before tax (“PBT”) of €26.9 million which although is considerably higher than the reported figure of €10.4 million in 2020, it is 12.5% lower than the PBT of €30.7 million achieved in 2019 prior to the outbreak of the pandemic. After accounting for a tax charge of €9.13 million, the net profit figure for the year amounted to €17.8 million which, in turn, translates into a return on equity of 3.67% (compared to 4.34% in 2019 and an average of 7% for the previous five years).
The Statement of Financial Position as at 31 December 2021 shows that total assets increased by 6.6% (or +€444.3 million) to €7.17 billion reflecting the surge in overnight deposits and other liquid assets to €2.12 billion compared to €1.59 billion as at the end of 2020. In contrast, financial assets and investments remained virtually unchanged at €1.61 billion whilst customer loans dropped by 2.1% (or -€67.9 million) to just under €3.2 billion.
On the liabilities side, the major movements were the 6.6% increase (or +€348.2 million) in customer deposits to €5.62 billion as well as the inclusion of a €60 million loan from HSBC Bank plc in line with the requirements as set out by the Single Resolution Board. As a result of the increase in deposits and the contraction in customer loans, the loans-to-deposits ratio deteriorated to a multi-year low of 56.9%.
Meanwhile, shareholders’ funds grew by 2.4% to €489.7 million. This translates into a net asset value per share of €1.359 compared to €1.328 as at 31 December 2020. The bank’s capital ratios continued to improve during 2021 with the Common Equity Tier 1 capital ratio increasing to 18.4% from 18% as at 31 December 2020. Similarly, the Total Capital Ratio rose to 21.1% from 20.7% as at the end of 2020. HSBC Malta also added that it continues to have a strong capital base and is fully compliant with regulatory capital requirements.
The Board of Directors is recommending a final net dividend of €0.0222 per share which represents a payout of 45%. The dividend will be paid on 21 April 2022 to all shareholders as at close of trading on 10 March 2022 subject to approval by the Annual General Meeting scheduled for 13 April 2022.
Commenting on the results, HSBC Malta’s CEO Mr Simon Vaughan Johnson explained that HSBC’s financial performance in 2021 improved but continued to be impacted by the pandemic and negative market factors including the sustained negative interest rate environment, pressures on margins and Malta’s grey-listing.
Looking ahead, Mr Vaughan Johnson noted that the outlook for 2022 will depend to a large extent on the evolution of the pandemic as this continues to impact economic growth and market confidence. However, HSBC remains a strong bank that is focused on growing the business in Malta through a ‘Safe Growth’ strategy.