On 1 August 2022, HSBC Bank Malta plc published its interim results covering the six-month period ended 30 June 2022.
Net interest income contracted by 6.4% to €46.2 million (H1 2021: €49.4 million) reflecting the further decline of 3.6% in gross interest income to €51.3 million whilst interest expense surged by 33.3% to €5.03 million. In this respect, HSBC explained that the subdued interest rate environment continued to have an adverse effect on margins. Moreover, the increase interest expense was due to the strong growth in customer deposits (+12.2% when compared to the same period in 2021) as well as the new funding taken on in December 2021 in relation to the Bank’s MREL requirements.
In contrast, non-interest income increased by 3.4% to €22.9 million (H1 2021: €22.1 million) driven by the growth in net fees and commissions (on the back of higher credit card usage and account fees) as well as foreign exchange income. On the other hand, HSBC Life Assurance (Malta) Ltd reported a profit of €2.7 million compared to €4.2 million in the same period last year. While the insurance subsidiary benefited from the direct impact of the increased interest rate expectations, reflected in the revision of the yield curve and movements on the financial securities’ prices, lower income was earned on fees and shareholders’ bonuses calculated by reference to lower equity and bond prices. The decrease in fees and shareholders’ bonuses was higher than the net income increase on the yield curve and the financial securities’ prices, when compared to the same period in 2021.
On the expenditure side, total operating costs increased by 10.1% to €57.4 million (H1 €52.2 million) reflecting the increase in the contribution towards the Depositor Compensation Scheme as well as higher depreciation and amortisation charges arising from investments made by the Bank in property and software developments. As a result of the overall decline in operating income (-3.4%) and the increase in costs, the cost-to-income ratio deteriorated to 83.1% compared to 72.9% in H1 2021. Excluding the higher contribution towards the Deposit Compensation Scheme, the cost-to-income ratio stood at 75.9%.
Meanwhile, the financial performance of HSBC was boosted by a net reversal of expected credit losses of €11.8 million (H1 2021: charge of €1.9 million) mostly attributable to the recovery on a commercial non-performing loan which was largely provided for in prior years.
After accounting for a tax charge of €8 million, HSBC reported a net profit of €15.5 million (H1 2021: €11.4 million) which, in turn, translates into an annualised return on average equity of 6.45% (H1 2021: 4.77%).
The Statement of Financial Position shows that total assets increased by 3.9% to €7.45 billion compared to the €7.17 billion figure as at 31 December 2021. The growth was primarily due to the increase in liquid assets and short-term funds (+€396.9 million) whilst customer loans (-€4.39 million) and financial assets and investments (-€125.8 million) trended lower. Similarly, total liabilities increased by 4.4% to €6.98 billion due to the 6.4% growth (or +€360.7 million) in customer deposits to €5.98 billion (31 December 2021: €5.62 billion). As a result of the increase in customer deposits and the marginal drop in customer loans, the loan-to-deposit ratio deteriorated to 53.4% compared to 61.1% as at the end of 2021. Meanwhile, the bank’s equity base contracted by 2.7% to €476.6 million which, in turn, translates into a net asset value per share of €1.323. The Bank’s capital ratios eased lower but remained well above regulatory requirements with the Common Equity Tier 1 capital ratio standing at 16.3% (31 December 2021: 18.4%) and the Total Capital ratio at 19% (31 December 2021: 21.1%). In this respect, HSBC noted that the deterioration in the capital ratios was driven by adverse movements on financial instruments classified as hold-to-collect-and-sell, due to the increase in term market yield curves which resulted in a negative impact of €20.6 million in the revaluation reserves.
In view of the prevailing macroeconomic uncertainties, the Board of Directors elected not to declare an interim dividend.
Commenting on the results, HSBC Malta’s CEO Mr Simon Vaughan Johnson explained that: “The performance in the first half of 2022 reflected a significant recovery of a commercial loan which was partially offset by increased regulatory fees as a result of a change in the legislation. It is pleasing to see that we have achieved good growth in net fee and trading income, as a result of higher transaction banking and trading activities, successfully leveraging HSBC’s strength as the leading international bank in Malta. While we have started to see improvements in interest rates, net interest income continued to be impacted by tighter margins, negative interest rates and higher surplus liquidity.
Economic uncertainty remains as Malta, like many other countries, emerges from the Covid-19 pandemic, government support measures unwind and inflationary pressures prevail as a result of the Russia-Ukraine war. In June 2022, HSBC Bank Malta and The Malta Chamber held a joint webinar on ‘The Global Economic Outlook 2022’, focusing on how uncertainty and increasing commodity prices are affecting the prospects for the global economy.
HSBC Malta recognises the importance of actively promoting and implementing environmental and climate initiatives within the community. We aim to be net zero by 2030 and to support our customers on this very important and transformational journey. HSBC Malta is a proud and committed founding member of the Malta ESG Alliance that was launched last month.
Malta was taken off the Financial Action Task Force “grey list” in June 2022. This decision, along with a positive trajectory in interest rates and a strong and focused safe growth plan, gives us confidence for the future.”