Non-performing loans at HSBC Malta up from 3.6% to 5.1%

Non-performing loans at HSBC Bank Malta rose from 3.6 per cent in 2010 to 5.1 per cent in 2011, Chief Executive Officer Mark Watkinson said yesterday.

Announcing the yearly results in his first appearance before the media since his appointment at the beginning of the year, Mr Watkinson said this rise was not unexpected and in line with the situation in the market and in competitor countries.

While retail banking non-performing loans remained relatively stable, an increase was registered in commercial loans.

All in all, HSBC Bank Malta 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 per cent, or €5.2 million, 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.

Mr Watkinson also announced that provision for impairments rose by 50.1 per cent or from €5.5 million to €8.3 million in 2011. This was principally due to a €4.0 million 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 €2 million.

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.

But for some one-off items, the bank’s performance would closely echo that of last year.

The non-recurring items, which in one way or another impacted on the balance sheet, were:

The card acquiring company has been sold. This was a decision taken at global level by the HSBC Group since this is non-core business. In this case the sale resulted in a revenue of €10.2 million. Mr Watkinson said he had done the same when he was in charge of the Philippines branch.

The early retirement scheme for employees amounted to a negative impact of €8.5 million, after taking into account some items relating to previous years.

The Life Company increased its profits by €5.2 million, part of a €6.9 million gain as a result of a refinement in the methodology used to calculate the present value of in-force long-term insurance business imposed at group level. This benefit was eroded during the year as the yields on euro swaps continued to fall and the market value of investment holdings reduced.

Lastly, there was the disposal, by the bank, of high volatility holdings in what were considered to be weak European holdings, impacting the balance sheet by €2.1 million. 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 €1.6 million.

Speaking at the announcement of the results, Mr Watkinson, said: “We have delivered another good set of results that saw pre-tax profit increase by 6.3 per cent with a return on equity of 15.7 per cent. 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.”

Net interest income improved by 5.2 per cent to €129.3 million compared with €122.8 million 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 €11.3 million compared to €12.6 million in 2010. Underlying new business performance generation, particularly with respect to life-insurance protection was encouraging. The business benefited from a non-recurring gain of €6.9 million

Other net operating income increased significantly, from €5.2 million in 2010 to €23.6 million in 2011. The increase was driven by, as stated, 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 €98.2 million were €10.6 million or 12.1 per cent higher compared to the previous year with a cost efficiency ratio of 50.4 per cent compared to 49.7 per cent in 2010. Costs increased principally due to the staff voluntary retirement scheme provision of €11 million and due to higher costs relating to utilities, regulatory fees and compliance costs.

Staff costs increased by 15.8 per cent, but after considering the early retirement scheme, staff costs have increased by just 1.3 per cent also considering the impact of a three per cent salary increase as a result of a collective agreement.

Administrative expenses rose by 10.8 per cent (VAT 17.5 per cent increase, utilities 33.3 per cent increase, the IT operating system 27 per cent increase).

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 €10 million during the year and the roll-out of upgraded branches and ATMs at a cost of €11 million continues.

Mr Watkinson spoke about the optimisation of the bank’s network. There was more investment in branches with the introduction of new state-of-the-art ATMs and a new system.

Six branches are being closed – four were closed on 15 February and two will be closed on 15 March. This has been brought about by a significant change in customers’ habits: there has been a 14 per cent decrease in across the counter trade while 13 per cent of the bank’s transactions are now done on the Internet and 11 per cent are done through the use of card products. These levels are about the same as one finds abroad.

HSBC Bank Malta now has 25 bank branches and three satellite branches.

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.

At a bank level, while there was a marginal deterioration in non-performing loans from 3.6 per cent to 5.1 per cent, in general asset quality remains good and loan impairments declined to €4.1 million (11 basis points of the overall loan book) compared with €5.3 million in 2010.

Net loans and advances to customers increased by €53.8 million to €3,344.2 million. Mortgage market share remained stable. Gross new lending to customers amounted to €656 million which reflects the bank’s continued support to the local economy.

Liabilities rose by €141.8 million during the year and stood at €5,458.4 million at the year end. The increase in liabilities reflected a rise in placements with the bank offsetting a small fall in customer deposits.

The bank’s liquidity position remains strong with advances to deposits ratio of 75.9 per cent, compared with 73.7 per cent at 31 December 2010.

The bank strengthened its capital ratio by 140 basis points to 11.6 per cent. This exceeds the 8.0 per cent minimum regulatory requirement. The bank intends to maintain a conservative approach to capital and will continue to build capital where appropriate.

The board is declaring a final gross dividend of 7.2 cent per share (4.7 cent net of tax). This will be paid on 27 April to shareholders who are on the bank’s register of shareholders at 19 March.

Mr Watkinson focused on the bank’s strategy for the future. The bank intends to leverage its belonging to one of the largest and best banks worldwide, especially through the Premier service, now available in 80 countries.

The bank also will seek to encourage selective asset growth. According to a survey published last week, Malta’s trade is seen as expanding by 83 per cent by 2026 and the bank intends to be at the forefront of this expansion.

The bank also intends to fully support Malta’s vision of itself as a key financial centre.

HSBC Bank Malta is a key player in the Maltese economy: it is one of the largest employers in the country and in 2011 it issued €656 million in new loans, just down from €682 million 2010.

It paid the government no less than €36.8 million between VAT, National Insurance and tax.

Mr Watkinson said: “The outlook for 2012 looks very challenging. While the Maltese economy has performed relatively well over the last 12 months, the continuing uncertainty in the eurozone will likely act to slow the domestic economy.

“That said HSBC Bank Malta remains confident in its abilities to rise to the challenges of the next 12 months.”

The first rays of the sun can be glimpsed and dawn is nearly breaking, Mr Watkinson said. There is room for careful optimism. Tourism figures in 2011 stand to be strong and there is also growth in real estate. Although a slow kind of growth, there has been no downturn in real estate as happened in other countries.

There are also signs of an early pick up in the US economy, especially in economy and employment.

It is true that Europe is still battling the Greek problem but there are increasing signs that many significant steps have been taken and there is now just a little way to go.

Since he has taken over, he has been meeting people from the financial services sector and has been impressed by some very good names that are now looking at Malta as a possible alternative to Dublin or Luxembourg.

Profit before tax of €88 million for the year ended 31 December 2011 – an increase of €5 million, or six per cent compared with €83 million in 2010.

Profit attributable to shareholders of €58 million for the year ended 31 December 2011 – up €4 million or seven per cent, compared with €54 million in 2010, resulting in earnings per share of 19.7 cent, up seven per cent.

Total assets of €5,835 million at 31 December 2011, up €174 million or three per cent, compared with 31 December 2010.

Loans and advances to customers were €3,344 million at 31 December 2011, an increase of €54 million, or two per cent, compared with 31 December 2011.

Customer accounts were €4,403 million at 31 December 2011, a decrease of €60 million, or one per cent, compared with 31 December 2010.

Return on equity for the year ended 31 December 2011 was 15.7 per cent, compared with 16.1 per cent in 2010.

Cost efficiency ratio for the year ended 31 December 2011 was 50.4 per cent, compared with 49.7 per cent in 2010.

Capital adequacy ratio of 11.6 per cent at 31 December 2011, compared with 10.2 per cent at 31 December 2010.


Sunday, February 26th, 2012 EN

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