HSBC Bank Malta reports €26m profit in first half of 2017
● Bank retains 65% dividend payout ratio
HSBC Bank Malta plc reported a profit before tax of €25.9m for the six months ended 30 June 2017, lower than the €41.3m profit before tax for the same period in 2016. This represents a decrease of €15.4m or 37% on the previous period.
The reported results for the first six months of 2016 included the gain on disposal of €10.8m arising on the sale of the bank’s membership interest in Visa Europe. “This was a significant event and therefore the income related to this transaction is excluded from the adjusted results to analyse the underlying business performance,” the bank said in a statement.
“The performance during the first six months of 2017 was adversely impacted by persistent low interest rates, risk management actions and increased compliance costs but was in line with the management’s expectations.”
Profit attributable to shareholders amounted to €16.9m resulting in earnings per share of 4.7 cents compared with 7.5 cents in the first half of 2016. The Board proposes to maintain the current dividend pay-out ratio of 65% and recommends an interim gross dividend of 4.7 cents per share (3.0 cents per share net of tax). The interim dividend will be paid on 11 September 2017 to shareholders who are on the bank’s register as at 10 August 2017.
“All three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Markets, continued to be profitable during the six month period under review,” the bank said.
Andrew Beane, Director and Chief Executive Officer of HSBC Malta, commented on the business performance and strategy execution: “Performance during the first half of the year was in line with management expectations. After adjusting for the gain from the sale of our interest in Visa Europe, profits were lower due to the ongoing impact of negative interest rates and the bank’s prioritisation of compliance actions.”
“The bank made further notable progress with the implementation of our strategy, particularly with regards to our commitment to run HSBC to the highest global standards of financial crime compliance. While these actions can reduce profitability in the short term, they are fundamental to protect long-term value for shareholders and to fulfil HSBC’s obligation to protect the integrity of the financial system, and its connections to international markets, on which the country’s economy depends,” he said.
“I am acutely conscious that achieving our high standards of compliance can, in the short term, cause some inconvenience to customers, particularly where we require updated and additional information from them. However I believe that being part of an institution with HSBC’s high standards will increasingly give our customers confidence about the protection that our standards offer to them as users of the financial system. And for business customers, ensuring full compliance with the requirements of the international financial system will become a consideration of growing strategic importance for Boards and Management Teams to support and protect their own growth.”
Beane added: “A number of notable announcements of new and enhanced HSBC services will be made in the second half of this year. These build on the good progress made within our insurance company, which is already benefiting from recent improvements to our product range.”
He said that HSBC’s capital and liquidity position remains “extremely robust in line with our conservative risk culture which enabled us to continue to distribute dividends to our shareholders, sustaining a 65% payout ratio.”
Net interest income decreased to €60.3m compared with €63.9m in the same period in 2016. “The persisting low interest rate environment continued to impact the bank’s performance – the yields on all interest earning assets continued to decline resulting in a lower interest income which was partly offset by lower funding costs,” the bank said in its statement.
Non-interest income (fees and commissions and trading income) was down 15.3% compared with the same period in 2016 as a result of the risk management actions taken by the bank to align its portfolio with the established risk appetite and high compliance standards.
Operating expenses of €52.2m remained broadly in line with the prior period.
“Net impairment charges of €4.3m were slightly higher than in the first half of 2016. The bank maintains a conservative provisioning approach and raised impairments in relation to a number of long-outstanding mortgage exposures. At the same time, the bank holds adequate collateral against these exposures and expects to have recoveries in future. Overall asset quality remained satisfactory and total non-performing loans further declined from €216m to €191m during the first six months of 2017,” the bank said.
HSBC Life Assurance (Malta) Limited reported a profit before tax of €4.4m compared with €2m in the first half of 2016.
Financial position and capital
The total assets of the Group decreased to €7,068m as at 30 June 2017. “This was attributable to the reduction in the loans and advances to customers and the decrease in interbank placements.”
“Net loans and advances to customers stood at €3,222m, €98m or three per cent lower than at 31 December 2016. The decline was in the corporate loan book driven primarily by early repayments by several clients who secured alternative funding through bond issuance. At the same time, the mortgage book continued to demonstrate healthy growth. Lending margins remained under pressure due to sustained competition and low interest rates.”
“The bank’s available-for-sale investment portfolio increased by 5% to €1,105m. It is composed of highly rated securities and is conservatively positioned with the lowest investment grade of A-.”
Customer accounts were €4,870m as at 30 June 2017, €131m or 2.6% lower than at 31 December 2016. The decrease was primarily attributable to the withdrawal of a limited number of large corporate deposits which were temporarily placed with the bank. Core funding in the form of retail deposits increased further by €75m during the first six months of 2017.
The bank’s liquidity position remained broadly unchanged with the conservative advances-to-deposits ratio standing at 66%.
Low interests rates likely not to change in foreseeable future.
Beane, speaking with The Malta Independent and asked about low interest rates, does not believe the situation will change in the foreseeable future. “The reason being that post the financial crisis, which was more than 10-years ago, regulators pushed down interest rates to reduce borrowing costs to encourage investment and growth in European economies, and that macroeconomic strategy remains in place today. That, broadly speaking, is why interest rates are so low.” He said that he understands that it is hard for “customers who work hard, save hard, put their funds into a bank and don’t get much return. It’s the same for banks as well in terms of the business model. The savings we collect from customers and invest, we get little return on. This is not something I believe will change in the foreseeable future.”