HSBC Bank Malta plc - Interim Directors’ Statement

On 16 November 2022, HSBC Bank Malta plc issued an Interim Directors’ Statement updating the market on its performance during the nine-month period ended 30 September 2022.

The Bank explained that pre-tax profits rose considerably to €33.5 million compared to €25.2 million in the comparable period in 2021. Moreover, on an adjusted basis when accounting for the €3.4 million restructuring provision and related transformation costs incurred in 2021, pre-tax profits surged by almost 22% to €34.8 million (Q1 to Q3 2021: €28.6 million).

The improved profitability reflects the growth in revenues and a material release in expected credit losses (ECLs) which offset the increase in costs. Indeed, total revenues increased by €2.9 million, of which €2.5 million came from the Bank’s insurance subsidiary on the back of favourable equity market trends. Meanwhile, net interest income drifted lower whilst net fee income remained at 2021 levels as the growth registered in cards, payments and foreign exchange were offset by the removal of the high balance fee as from July 2022.

The financial performance of HSBC was also boosted by a significant release in ECLs which amounted to €10 million compared to just €0.1 million in the same period in 2021. This release was mainly attributable to a significant recovery on a commercial non-performing loan which was largely provided for in prior years. On the other hand, additional charges were booked during the year reflecting heightened levels of economic uncertainty and increasing inflationary pressures.

On the expenditure side, adjusted operating expenses increased by €6.6 million. Regulatory fees increased as a change in the Depositor Compensation Scheme legislation enacted in H1 2022 required banks to anticipate the cash contributions payable in 2023 and 2024. However, a further legislative change took place in October which will result in a release of the additional regulatory fees booked prior to this period. Elsewhere, the Bank also accounted for higher depreciation and amortisation charges arising from additional investments made by the Bank in property and software developments.

In terms of financial position, HSBC explained that net loans and advances to customers remained at the same level as at 31 December 2021 (€3.2 billion). On the other hand, customer deposits increased by 6.2% (or +€351 million) to just under €6 billion. As a result, the loan-to-deposit ratio deteriorated to 53.5% compared to almost 57% as at the end of 2021.

The Bank’s capital ratios trended lower with the CET 1 capital ratio easing to 16.6% (31 December 2021: 18.4%) and the Total Capital ratio decreasing to 19.3% (31 December 2021: 21.1%) but still remained well above regulatory requirements. This reduction was driven by adverse movements on financial instruments classified as ‘Hold-to-Collect-and-Sell’ as a result of the increase in term market yield curves, thus impacting negatively revaluation reserves by €20.6 million. The negative revaluation reserves remained at June 2022 levels as the Bank took action to address the negative impact by entering into fair value hedges to mitigate against further decreases in market prices as well as setting up a ‘Hold-to-Collect’ portfolio.

Commenting on the performance up to September 2022, HSBC Malta’s CEO Mr Simon Vaughan Johnson explained that: “We delivered a good set of results in the first nine months of the year with very strong foreign exchange performance and sustained good progress in fee income despite the removal of the high balance fee. We also started experiencing an increase in net interest income on the back of rising interest rates. We continue to deliver on our safe growth strategy and are focused on executing our plans.”