HSBC Bank Malta plc half-yearly results for 2015

  • Profit before tax of €36m for the six months ended 30 June 2015. The performance was €4m lower than for the same period last year but was higher than for the second half of 2014. Net operating income was up 3% year-on-year, however, higher costs and loan impairment charges contributed to the decline in the first half profits.
  • Profit attributable to shareholders of €24m for the six months ended 30 June 2015 resulting in earnings per share of 6.6 cents compared with 7.1 cents in the same period in 2014.
  • Common equity tier 1 capital ratio of 11.5% as at 30 June 2015, up from 10.6% at the end of 2014.
  • Cost efficiency ratio of 55.6% for the six months ended 30 June 2015, compared with 53.2% for the same period in 2014. Managed costs were well controlled; however total costs increased as a result of new regulatory costs, continued investment in risk and compliance staff and additional expenses in relation to outsourced services.
  • Return on equity of 10.5% for the six months ended 30 June 2015, compared with 11.6% for the same period in 2014.
  • Total assets of €7,682m at 30 June 2015, up €483m, or 7%, compared with 31 December 2014.
  • Customer accounts of €5,198m at 30 June 2015, up €331m, or 7%, compared with 31 December 2014.

Commentary

HSBC Bank Malta p.l.c. reported a profit before tax of €36m for the six months ended 30 June 2015 compared with €40m for the same period in 2014. This performance reflected the continuing low interest rate environment as a result of record low European Central Bank rates, muted commercial lending growth and an increase in costs as a result of compliance investment and new regulatory charges. In addition, the 2014 performance benefited from a bigger gain on the sale of securities.

All three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets, were profitable during the six month period under review.

Net interest income increased to €60m compared with €58m in the same period in 2014. The increase in net interest income was primarily driven by a lower interest expense as deposits rates reduced. Interest income decreased as well as a result of diminishing lending margins. Interest income on investment portfolio declined as proceeds of higher yielding maturing bonds were re-invested at the lower prevailing rates.

Net fee income was up 2% compared with the same period in 2014 primarily as a result of higher asset management fees in the insurance subsidiary. Custody and stock brokerage fee income declined following the winding-up of these businesses in early 2014. Credit fees reduced as fewer credit facilities were sanctioned in the first half of 2015 compared with the same period in 2014.

HSBC Life Assurance (Malta) Ltd. reported a profit before tax of €7m compared with €6m in the first half of 2014. The results in 2015 benefited from a recovery in yield curve, release of model uncertainty reserve and new revenue earned on the portfolio of investment contracts transferred to the company at the end of 2014.

A net gain on disposals of available-for-sale securities of €0.4m was reported for the six months ended 30 June 2015, compared with €1.5m for the same period in 2014.

Operating expenses of €50m were €4m, or 7%, higher than the first half of 2014 largely due to compliance investment, regulatory fees and costs attributable to regulatory obligations (new Single Supervisory Mechanism fees and the new requirement for contribution to the Single Resolution Fund) and the increased cost of outsourced services as a result of currency fluctuations and new services related to the transferred insurance portfolio. Excluding these items, expenses were well controlled and marginally above the comparable period in 2014.

Net impairment charges of €3.6m were €2m higher than in the first half of 2014 but considerably lower than in the second half of 2014. Overall asset quality remains satisfactory with a high percentage of tangible security held against the overall loan portfolio.

Net loans and advances to customers were €3,249m, €24m lower than at 31 December 2014. The growth in mortgage balances supported by government incentives for first time buyers was offset by the reduction in corporate lending where repayments were higher as a result of the persistent low interest rate environment. The lending pipeline remains robust and newly sanctioned loans amounted to €462m reflecting the bank’s continued support of the local economy. The second tranche of the Malta Trade for Growth fund of €75m was launched in June 2015, aimed at helping Maltese companies internationalise their business.

Customer deposits increased by €331m to €5,198m reflecting the growth in both retail and corporate deposits. As deposit rates decrease, the shift from longer-dated to shorter-dated deposits continues.

The bank’s available-for-sale investment portfolio is composed of highly-rated paper and is conservatively positioned.

The bank’s liquidity position was further strengthened with an advances-to-deposits ratio of 62% compared with 67% at 31 December 2014.

The bank continued to strengthen its total CET 1 ratio to 11.5% from 10.6% at 31 December 2014. Total capital ratio increased to 13.3% compared with 13% at 31 December 2014.

Mark Watkinson, Director and Chief Executive Officer of HSBC Malta, said: “Operating conditions remain difficult. The European Union has been unsettled by the challenges around Greece, levels of liquidity in the market remain very high, the European Central Bank continues to pay negative rates of interest on deposits and regulatory fees have seen considerable rises, particularly with respect to deposit compensation and bank resolution fund schemes. Despite these challenges, the three main business lines all operate profitably and a continuing improvement in the local economy will be positive for our business over time. The Bank remains focused on continuing its investment in its local franchise and leveraging the opportunities as Malta becomes increasingly globally connected, sitting astride the world’s single largest trade route connecting Asia, the Middle East and Europe.”

“I would like to take this opportunity to thank our staff, Directors and shareholders for their commitment, hard work and support during the first half of 2015.”

The Board has declared an interim gross dividend of 5.1 cents per share (3.3 cents net of tax). This will be paid on 10 September 2015 to shareholders who are on the bank’s register of shareholders at 14 August 2015.

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