On 21 February 2023, HSBC Bank Malta plc published its Annual Report for the financial year ended 31 December 2022.
Net interest income increased by 10.7% to €108.2 million (2021: €97.8 million) as gross interest income advanced by 10.3% to €116.6 million (2021: €105.7 million) whilst interest costs increased by 5.6% to €8.40 million (2021: €7.95 million). In this respect, the Bank explained that the improvement was mainly driven by the multiple increases to the ECB’s overnight deposit facility during the second half of 2022 which changed from negative 0.5% (until 26 July 2022) to positive 2% as from 21 December 2022.
Excluding insurance operations, non-interest income remained virtually unchanged at €31.3 million as the decline in net fee income was offset by higher levels of net trading income and other operating income. HSBC Malta explained that the reduction in net fee income was driven by the removal of the high balance fee in July 2022 in view of the rising interest rate environment.
Meanwhile, HSBC Life Assurance (Malta) Limited reported a profit before tax of €4.8 million in contrast to the loss before tax of €3 million in 2021, as the negative movements in the fair value of investments were outweighed by the positive impact from rising interest rates and lower actuarial losses.
Overall, the Bank’s net operating income before changes in expected credit losses (“ECL”) climbed by 14.7% to €150.6 million compared to €131.3 million in the 2021 financial year.
On the expenditure side, operating costs declined by 2% to €103.0 million which including a restructuring provision of €1.5 million (2021: €2.8 million) related to two Voluntary Redundancy Schemes launched in 2021. In this respect, HSBC Malta noted that the results continue to demonstrate the effective cost management actions of the Bank.
The Bank’s financial performance was boosted by the release of ECL amounting to €9.6 million (2021: €1 million) largely reflecting the significant recovery on a commercial loan as well as the release of Covid-19 provisions booked in prior years. Nonetheless, HSBC Malta explained that during the year under review it also registered provisions relating to a deterioration in the forward economic outlook from heightened levels of uncertainty and inflationary pressures.
Overall, HSBC Malta reported a profit before tax (“PBT”) of €57.3 million which is more than double the reported figure of €26.9 million in 2021. After accounting for a tax charge of €19.7 million, the net profit figure for the year amounted to €37.6 million (equivalent to €0.104 per share) which, in turn, translates into a return on average equity of 7.61%, the highest level since 2016.
The Statement of Financial Position as at 31 December 2022 shows that total assets increased by 3.4% (or +€243.5 million) to €7.42 billion reflecting the higher levels of ‘Balances with the Central Bank of Malta, Treasury Bills and cash’ and ‘financial investments’ to €2.59 billion compared to €2.34 billion as at the end of 2021. In contrast, customer loans dropped by 0.7% (or -€21.6 million) to €3.18 billion.
On the liabilities side, the major movement was the 6.2% increase (or +€349.8 million) in customer deposits to €5.97 billion. 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 53.2%.
Meanwhile, shareholders’ funds grew by 1.5% to €497.1 million reflecting the profit registered during the 2022 financial year which was partially offset by the €23.2 million drop in the Bank’s fair value of investments (accounted for directly in equity). This translates into a net asset value per share of €1.380 compared to €1.359 as at 31 December 2021. The bank’s capital ratios continued to improve during 2022 with the Common Equity Tier 1 capital ratio increasing to 18.5% from 18.4% as at 31 December 2021. Similarly, the Total Capital Ratio rose to 21.3% from 21.1% as at the end of 2021. 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 €0.0364 per share. This represents a payout ratio of 35% which the Directors explained is based on the adverse price movements on financial instruments incurred in 2022, the expected changes in capital regulations and the uncertain economic outlook. Moreover, the Directors also noted that the Bank is determined to maintain a strong capital base and at the same time recognising the importance of dividends.
The dividend will be paid on 25 April 2023 to all shareholders as at close of trading on 17 March 2023 subject to approval by the Annual General Meeting scheduled for 20 April 2023.
Commenting on the results, HSBC Malta’s CEO Mr Simon Vaughan Johnson stated that HSBC’s financial performance in 2022 exceeded expectations and was driven by rising interest rates, a significant credit recovery, increase in trading income and rigorous cost management actions.
The CEO explained that “while the interest rate outlook is now more positive, the outlook for 2023 remains uncertain in view of the heightened levels of inflationary pressures and continued geopolitical tensions. HSBC remains strategically focused on growing its business in Malta through the Safe Growth program which is delivering tangible benefits to our customers, shareholders, and the wider community.”