HSBC Bank Malta p.l.c. first half 2010 results - highlights

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30 July 2010

The following is the text of an advertisement which is to be published in the press in Malta on 31 July 2010 by HSBC Bank Malta p.l.c., a 70.03 per cent indirectly held subsidiary of HSBC Holdings plc.

Review of Performance

• Profit before tax of €42.2 million for the six months ended 30 June 2010 - an increase of 21.4 per cent, or €7.4 million, compared with €34.8 million for the same period in 2009.
• Profit attributable to shareholders increased by 21.8 per cent, or €4.9 million, to €27.4 million, compared with €22.5 million in the comparable period in 2009.
• Earnings per share for the six months ended 30 June 2010 were 9.4 euro cent, compared with 7.7 euro cent for the same period in 2009.
• Total assets of €5,606.8 million at 30 June 2010, an increase of €489.0 million, or 9.6 per cent, compared with 31 December 2009.
• Loans and advances to customers were €3,204.3 million at 30 June 2010, a decrease of €22.1 million, or 0.7 per cent, compared with 31 December 2009.
• Customer deposits were €4,146.0 million at 30 June 2010, an increase of €59.4 million, or 1.5 per cent, compared with 31 December 2009.
• Return on equity for the six months ended 30 June 2010 was 16.9 per cent, compared with 15.6 per cent for the first half of 2009.

Commentary

HSBC Bank Malta p.l.c. delivered a strong performance in the six months ended 30 June 2010, reporting a profit before tax of €42.2 million. This represents an increase of 21.4 per cent or €7.4 million compared to same period in 2009, substantially driven by an improved level of revenues while keeping costs flat.

Net interest income increased by 26.2 per cent to €60.8 million, compared to €48.2 million in the first half of 2009, as a result of the re-pricing of loans during 2009 and the unwinding of term deposits. However, liability margins remain under pressure given the low interest rate environment.

Net fees and commission income of €16.9 million for the six months ended 30 June 2010 increased by 11.2 per cent or €1.7 million compared to €15.2 million recorded in the first half of 2009. Strong growth was recorded in lending, card issuance and usage fees and from trust and retail brokerage trading activities.

Profits from life insurance business, weakened by recent market conditions, at €3.7 million for the first half of 2010 was 32.5 per cent lower than for the same period in 2009.

Operating expenses of €40.8 million for the six months ended 30 June 2010 were in line with those in the first half of 2009. The cost efficiency ratio improved to 48.4 per cent compared to 54.7 per cent for the same period in 2009. This was achieved through strict cost discipline.

In a challenging economic environment, net loan impairments charges of €1.4 million were reported for the six months ended 30 June 2010 compared to a release of €0.9 million in the comparable period in 2009. From an extremely low historic base the charge remains at the modest level of 9 basis points of the overall loan book.

Total assets grew by €489 million to €5,606.8 million at 30 June 2010 compared to €5,117.8 million at 31 December 2009. The main increases were reported in treasury bills and debt securities investments as part of the bank's liquidity management.

The credit quality of the available-for-sale investments portfolio remained satisfactory with an increase in fair value of €6.8 million during the current period compared to €3.8 million for the six months ended 30 June 2009. This increase in fair value is credited directly to the revaluation reserve, net of tax.

During the first half of 2010 net loans and advances to customers fell by €22.1 million as, in the current economic environment, borrowers looked to reduce debt levels. However where lending opportunities arose the bank continued to support its customers' financial needs while maintaining asset quality. Consumer lending showed resilience and good growth was registered in new mortgages. Demand for corporate lending was soft. The quality of the lending portfolio showed a marginal deterioration with non-performing loans representing 3.2 per cent of gross loans as at June 2010 compared to 2.9 per cent as at 31 December 2009. Liquidity and capital ratios remain strong and are well above regulatory requirements.

In a period of growing competitive pressures, characterised by a number of local government and corporate bond issues, deposit levels of €4.1 billion were maintained. The bank's liquidity position remains strong with an advances-to-deposits ratio of 77.3 per cent, compared with 79.0 per cent at 31 December 2009.

Alan Richards, Director and Chief Executive Officer of HSBC Bank Malta p.l.c., said: "We are encouraged by the bank's strong performance during the first half of 2010. After a period of negative GDP growth, the local economy is showing clear signs of stability and we anticipate continued growth in the foreseeable future. However, challenges within the international economy remain and the broader Eurozone recovery is at best fragile, as the recent sovereign bond crisis has highlighted. We have made good progress during these six months and we continue to emphasise our competitive advantage as an international bank. We remain well capitalised, liquid and very much open for business."

The Board is declaring an interim gross dividend of 7.9 euro cent per share (5.1 euro cent net of tax). This will be paid on 24 August 2010 to shareholders who are on the bank's register of shareholders as at 10 August 2010.

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