Thursday 28 March 2024

HSBC Malta delivers a solid performance in challenging times

HSBC Bank Malta p.l.c. delivered a solid performance in the year ended 31 December 2011, against a backdrop in which eurozone debt concerns continued to dominate European market sentiments. The reported profit before tax of €88.3m increased by 6.3%, or €5.2m, over the comparable period in 2010. On a like-for-like basis, excluding non-recurring items, profits were in line with the prior year’s performance.

All three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets all contributed positively to the bank’s overall performance.

During the year the bank continued to execute against its key transformation programme with a view to building long-term sustainability. In this light, and reflecting changing customer behaviour patterns, an announcement was made in relation to a branch optimisation programme and the launch of a staff voluntary retirement scheme. In addition the bank disposed of its card acquiring business in line with HSBC Group global strategy for this business. The cost of the voluntary retirement scheme (€11m) was broadly offset by the proceeds from the sale of the card acquiring business.

Speaking during the announcement of the results, Mark Watkinson, Director and Chief Executive Officer of HSBC Malta, said: “We have delivered another good set of results that saw pre-tax profit increase by 6.3% with a return on equity of 15.7%. The bank’s capital and liquidity position remain strong and we have a firm grip on both our risks and costs.”

“We will continue to focus on improving productivity and cost effectiveness to ensure long-term business sustainability. The bank’s strategy is clear and we continue to emphasise our competitive advantage as an international bank and as an important part of HSBC, one of the world’s largest and strongest banking groups,” said Mr Watkinson.

During 2011, the bank continued to invest in expanding its business and transforming its operations. A new banking computer system was introduced at a cost of €10m during the year and the roll-out of upgraded branches and ATMs at a cost of €11m continues.

Net interest income improved by 5.2% to €129.3m compared with €122.8m in 2010. The increase reflected growth in mortgage lending and improved balance sheet management. Net fees and commission income of €33.5m in 2011 was marginally down on the prior year. Growth in account services fees were offset by a decline in stockbroking fees largely due to the slow-down in local capital markets bond issuance activity.

HSBC Life Insurance (Malta) Ltd generated a profit before tax of €11.3m compared to €12.6m in 2010. Underlying new business performance generation, particularly with respect to life-insurance protection was encouraging. The business benefitted from a non-recurring gain of €6.9m as a result of a refinement in the methodology used to calculate the present value of in-force long-term insurance business. This benefit was eroded during the year as the yields on euro swaps continued to fall and the market value of investment holdings reduced.

In view of significantly heightened stress in the eurozone debt markets, the bank reduced its exposure to higher risk eurozone countries through selling holdings in the available-for-sale bond portfolio at a net loss of €1.6m.

Net other operating income increased significantly, from €5.2m in 2010 to €23.6m in 2011. The increase was driven by the sale of the card acquiring business and the non-recurring gain in the life insurance subsidiary relating to a methodology change.

Operating expenses of €98.2m were €10.6m or 12.1% higher compared to the previous year with a cost efficiency ratio of 50.4% compared to 49.7% in 2010. Costs increased principally due to the staff voluntary retirement scheme provision of €11m and due to higher costs relating to utilities, regulatory fees and compliance costs.

At a consolidated level, impairments rose from €5.5m to €8.3m in 2011. This was principally due to a €4.0m impairment taken on Greek government bonds held by the life insurance subsidiary in the available-for-sale bond portfolio. The life insurance subsidiary’s remaining exposure to Greek debt is modest and stands at a net book value of less than €2m.

Other than the exposures noted above and investments in Maltese government debt, the group has no exposure to southern European government debt.

The group’s available-for-sale portfolio remains well diversified and conservative.

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