HSBC Bank Malta p.l.c. preliminary profit statement for the year ended 31 December 2006

16 February 2007

The following is the text of an announcement which is to be published in the press in Malta on 17 February 2007 by HSBC Bank Malta p.l.c., a 70.03 per cent indirectly held subsidiary of HSBC Holdings plc.

The preliminary profit statement is published pursuant to Listing Rule 9.39 of the MFSA Listing Authority and Article 4 (2) (b) of the Prevention of Financial Markets Abuse (Disclosure and Notification) Regulations, 2005. Figures have been extracted from HSBC Bank Malta p.l.c.'s Annual Report and Accounts which have been audited by KPMG.

These financial statements have been prepared and presented in accordance with the provisions of the Banking Act, 1994 and the Companies Act, 1995 which requires adherence to International Financial Reporting Standards.

All figures are stated in Maltese lira, the functional currency of HSBC Bank Malta p.l.c. The euro exchange rate ruling on 31 December 2006 was €1 = Lm0.4293. The US dollar and sterling exchange rates ruling on the same day were US$1 = Lm0.3258 and £1 = Lm0.6397. Average exchange rates for 2006 for euro, US dollar and sterling were €1 = Lm0.4293, US$1= Lm0.3418 and £1 = Lm0.6296.

Review of Performance

During the year ended 31 December 2006, HSBC Bank Malta p.l.c. and its subsidiaries generated a profit before tax on ordinary activities of Lm41.4 million, an increase of Lm4.7 million, or 12.8 per cent compared with 2005.

Profit attributable to shareholders was Lm26.8 million, an increase of Lm2.8 million, or 11.4 per cent, over prior year figures.

Earnings per share increased to 9.2 cents from a 2005 figure of 8.2 cents, with the pre-tax return on average shareholders' funds increasing to 32.1 per cent from 27.6 per cent in 2005.

Net interest income grew by 5.4 per cent over the prior year and contributed Lm47.0 million to total operating income driven by growth in lending volumes of 10 per cent. Principal areas of growth in the lending portfolios were in the higher yielding personal and non-public sector customer segments and with a reduction in lower yielding public sector debt. This was partly offset by a higher interest rate environment for new customer deposits which pushed up interest payable costs.

Non-interest income levels grew by 18.8 per cent, contributing Lm28.6 million to total operating income. Net fees and commissions grew by 14.7 per cent as transactional activity on credit card payments and debit card EPOS machine usage grew substantially; funds under management, stockbroking sales and life assurance business also grew significantly.

Against a background of stronger income flows, operating expenses were Lm34.3 million, an increase of Lm2.3 million over prior year figures. Employee compensation grew by 5.5 per cent, driven largely by performance-related pay benefits due to the higher sales and profits of the bank. Whilst general expenses increased by Lm1.0 million, there were significant investments in infrastructure and branch network, which substantially improved automation and operational efficiencies. This has enabled the bank to absorb larger volumes of business and positioned it for future growth.

As a result, the group's cost to income ratio improved to 45.5 per cent from 46.7 per cent in 2005.

Total assets increased by Lm231.4 million to Lm1,887.3 million.

Loans and advances to customers increased by Lm110.0 million, supported by growth in both the personal and commercial sectors. New product lines were introduced with a diversification in mortgage product choice as well as new financing proposals for the SME and larger corporate markets. Credit quality remained sound.

Advances to deposits ratio increased to 76.3 per cent from a prior year end level of 74.3 per cent.

Amounts owed to customers increased by Lm108.2 million to Lm1,475.5 million driven by competitive pricing and the investment in automated bank channels which strengthened the growth in deposit volumes and contributed to significantly higher transaction activity.

The capital solvency ratio was at 10.9 per cent.

Shaun Wallis, Director and Chief Executive Officer of HSBC Bank Malta p.l.c. said: "2006 has been a record year for HSBC Bank Malta p.l.c. with record sales volumes across all product groups, record customer service satisfaction levels and strong staff engagement levels, all contributing to improved financial results.

"We achieved this by having a clear customer focus, by investing in our staff and upgrading our systems. We have also benefited from being able to leverage the HSBC brand.

"With good customer relationships, strong recurrent business streams, excellent resources and the backing of the HSBC Group, we are confident we will continue to grow our business successfully and in a sustainable manner and remain Malta's leading provider of financial services."

The Board is recommending to the Annual General Meeting to be held on 19 April 2007 a final ordinary dividend of 5.3 cents gross per share and a special dividend of 5.3 cents gross per share, giving a total final dividend of 10.6 cents gross per share scheduled to be paid on 21 April 2007. The total final dividend will be payable to shareholders on the bank's register as at 2 March 2007. This, together with the interim dividend of 5.3 cents gross, produces a total dividend for the year of 15.9 cents gross.

HSBC Bank Malta p.l.c. is a member of the HSBC Group, whose ultimate parent company is HSBC Holdings plc. Headquartered in London, HSBC Holdings plc is one of the largest banking and financial services organisations in the world. The HSBC Group's international network comprises over 9,500 offices in 81 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

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