HSBC Malta reports financial performan
Strategy execution
• Higher adjusted profit in 2019 ahead of management expectations driven by continued focus on cost reduction and credit quality.
• Higher profitability supported by revenue growth in retail banking and balance sheet management.
• Lending growth in commercial banking as momentum increased in the fourth quarter of the year.
• Positive Jaws (revenues growing faster than costs) of 4.8% delivered, driven by cost reduction initiatives.
• Reported profit and return on equity are lower due to a oneoff restructuring provision that will deliver cost savings going forward.
• Material achievements in delivery of HSBC’s strategic plan; new digital solutions launched and traditional channels remodelled. Digital usage within retail banking increased by over 90% and new retail customer acquisition increased over 60%. • Strong dividend generation enabled by HSBC’s signature risk standards, payout ratio of 30% sustained on an adjusted basis which represents a full year payout ratio of 44% for 2019, on a reported basis.
Financial performance
• Adjusted profit before tax for the year ended 31 December 2019, which excludes the impact of notable items, of €45.3m, which represents an increase of €8.8m or 24% compared with prior year. • Reported profit before tax which includes the impact of a one-off restructuring provision of €30.7m, a decrease of €7.8m or 20%. The investment in restructuring will deliver sustainable cost savings going forward.
• Recommended gross final dividend of 2.1 cents per share (1.4 cents per share net of tax). • Adjusted cost efficiency ratio of 70% compared with 73% for 2018.
• Reported profit attributable to shareholders of €20.2m for the year ended 31 December 2019 resulting in earnings per share of 5.6 cents compared with 8 cents in the same period in 2018.
• Strong capital base with a common equity tier 1 ratio of 16.4% up from 14.6% at the end of 2018. Total capital ratio was 19% compared to 17% at 31 December 2018.
• Return on equity of 4.3% for the 12 months ended 31 December 2019 reflecting the investment in restructuring compared with 6.1% for the same period in 2018. Excluding notable items return on equity is 6.4%.
• Net loans and advances to customers were €3,257m, up €147m or 5% compared with 31 December 2018.
• Customer deposits increased by 2% to €4,977m at 31 December 2019.
• Strong Liquidity Position with advances to deposits ratio marginally higher at 65%.
Financial performance commentary
The adjusted profit before tax for the year ended 31 December 2019 was €45.3m. This represents an increase of €8.8m or 24% compared to prior year. The adjusted results exclude the impact of the following notable items:
• a restructuring provision of
€16m in 2019; and
• a provision release relating to the brokerage remediation of €1.4m in 2019 versus €2m release in 2018
Reported profit before tax, which includes the above items, was €30.7m, a reduction of €7.8m or 20% versus same period last year.
Reported profit attributable to shareholders was €20.2m resulting in earnings per share of 5.6 cents compared with 8 cents in the same period in 2018.
Net interest income of the bank increased by 1% to €110.1m compared with 2018. Strong growth in mortgage NII offset the reduction in commercial banking NII as a result of lower average commercial loan balances versus 2018. Despite the European Central Bank deposit rate declining further, the bank increased the revenues on excess liquidity due to proactive management within the same conservative risk appetite.
Net non-interest income marginally decreased with strong fee performance within commercial banking as a result of the new fees offset by a reduction in fee income within Insurance due to the disposal of a specific insurance portfolio in December 2018.
Net trading income increased by €1.8m due to a fair value gain on Visa shares.
Reported operating costs were €120.7m which includes the restructuring provision of €16m which will deliver sustainable savings from 2020 onwards with full annualised saving delivered in 2021. Excluding the restructuring provision, adjusted operating expenses were €104.7m, an improvement of €3.7m or 3% driven by a number of cost initiatives which more than offset the inflationary costs, new pension expenses and continued investments in digital.
Expected credit loss for the year ended 31 December 2019 was €0.4m, an improvement of €3.1m versus 2018. The low charge in 2019 was driven by a number of recoveries and repayments across both retail and commercial.
There was a €1.4m positive movement in the provision for brokerage remediation costs in 2019. In 2016, the bank raised a provision totalling €8m in relation to a remediation of the legacy operational failure in the bank’s brokerage business. During 2017, the remediation programme was largely completed and it was assessed that a partial reversal of the conservatively estimated provision was warranted. In this regard, a reversal of €1.8m was effected in 2017. In 2018, an additional reversal of €2m was effected and the final provision of €1.4m was released in 2019 as the programme is now deemed closed.
The effective tax rate was 34%. This translated into a tax expense of €10.5m, €0.7m higher than the €9.9m expense for 2018. During 2018, the bank benefited from a different tax treatment applied on a specific transaction.
HSBC Life Assurance (Malta) Limited reported a profit before tax of €3.1m, €0.6m lower than prior year. The insurance company was adversely impacted by negative market movements in 2019.
Financial position & capital
Net loans and advances to customers increased by 5% to