HSBC Malta registers €90 million pre-tax profit

HSBC Bank Malta registered a profit before taxation of €90 million, a drop of €5 million or 5% compared to 2012.

Shareholders were given a 5.2 cent per share (3.4c net of tax) final gross dividend, and a bonus issue of one share for every nine shares, by capitalisation of reserves amounting to €10 million, increasing share capital from €87m to €97m.

The bank said it had delivered "a resilient performance" for its financial year ended 31 December 2013 against a challenging economic backdrop.

The bank said its drop in profits was due to a combination of the continuing difficult market conditions in Europe, the low interest rate environment, costs associated with regulatory changes both at home and abroad and a subdued local economy.

The fall in 2013 results reflected lower levels of net interest income and a lower contribution from life insurance business, which had benefitted from favourable equity markets in 2012 which was not repeated in 2013.

All three main business lines, retail banking and wealth management, commercial banking and global banking and markets, remained profitable during the year.

CEO Mark Watkinson said the bank had continued to deliver resilient results foin the face of difficult global conditions. "However we are starting to see green shoots of growth as the market becomes more optimistic. We continue to look for growth opportunities both in Malta and also in the wider global market place where HSBC Malta is well positioned to connect our customers to some 74 other countries in which HSBC, one of the world’s largest financial groups, operates."

Net interest income reduced by 6% to €125m compared with €133m in 2012, showing a tightening in interest margin on lower average lending balances, and a decline in interest earned on investments as the proceeds of higher yielding maturing bonds were re-invested at lower rates. This was partially offset by lower cost of funds as customers migrated to more liquid but lower yielding short-dated deposits.

Net fee and commission income of €30m was broadly in line with 2012.

HSBC Life Assurance (Malta) Ltd. reported a profit before tax of €13m compared with €18m in 2012. The results in 2012 benefited from higher investment returns in a more favourable equity market.

A net gain of €4m was reported as a result of a re-positioning of the investment portfolio.

Operating expenses of €93m were €3m or 4% lower compared to the previous year which included a €6m provision in relation to a staff early voluntary retirement scheme. Excluding this item, expenses rose by 3%. The increase of €2m, or 8% in administrative expenses reflected an increased cost of compliance, regulatory projects and security and fraud-risk related costs. Sustainable cost savings from the simplification and re-engineering of processes funded continuing investment to improve technology.

The cost efficiency ratio was 49.9% compared to 49.0% in 2012.

Net impairment provisions of €3m were lower compared with the €5m in 2012. Overall asset quality remains acceptable with a high percentage of tangible security held for the overall loan portfolio.

Net loans and advances to customers at €3,301m were €53m lower than at 31 December 2012. The demand for new commercial loans from customers remained subdued as commercial customers have used surplus cash to repay borrowings and delay investments in times of uncertainty. However, there are early indications of an increase in activity in the beginning of 2014. The residential mortgage portfolio continued to record steady growth. Gross new business lending to customers amounted to €597m (2012: €507m) reflecting the HSBC Bank Malta’s continued support of the local economy.

Customer deposit levels at €4,518m were broadly unchanged despite continued competitive pressures.

The bank’s available-for-sale investments portfolio remains well diversified and conservatively positioned.

The bank’s liquidity position is strong with an advances-to-deposits ratio of 73% compared with 74% at 31 December 2012.

The bank continued to strengthen its total capital ratio to 12.9% as at the end of year and the tier 1 capital ratio improved to 9.4%.

The bank has set aside €4 million in 2013 for increased bank reserves under MFSA rules. In 2014 it will participate in the ECB's asset quality review and a stress test.