22 February 2010
The following is the text of an advertisement which is to be published in the press in Malta on 23 February 2010 by HSBC Bank Malta p.l.c., a 70.03 per cent indirectly held subsidiary of HSBC Holdings plc.
Review of Performance
- Profit before tax of €71.2 million for the year ended 31 December 2009 - down €24.9 million, or 25.9 per cent, compared with €96.1 million in 2008.
- Profit attributable to shareholders down 27.3 per cent, or €17.2 million, to €45.9 million, compared with €63.1 million in 2008.
- Earnings per share for the year ended 31 December 2009 at 15.7 euro cent, compared with 21.6 euro cent for 2008.
- Loans and advances to customers of €3,226.5 million at 31 December 2009, up €114.2 million, or 3.7 per cent, compared with 31 December 2008.
- Customer deposits of €4,086.7 million at 31 December 2009, up €70.0 million, or 1.7 per cent, compared with 31 December 2008.
- Total assets of €5,117.8 million at 31 December 2009, down €178.3 million, or 3.4 per cent, compared with 31 December 2008.
- Return on equity of 15.0 per cent for the year ended 31 December 2009, compared with 22.3 per cent in 2008.
- Capital adequacy ratio of 11.8 per cent compared with 11.0 per cent in 2008.
HSBC Bank Malta and its subsidiaries reported a profit before tax in 2009 of €71.2 million. While this represents a decline of 25.9 per cent compared to 2008, this was achieved despite the exceptionally difficult economic environment in which the bank operated.
Alan Richards, director and chief executive officer of HSBC Bank Malta, said: "2009 has clearly been a challenging year for both the bank and its customers. It has been a year characterised by pressure on profitability as a consequence of a general slowdown in economic activity, continued low interest rates, which have resulted in significant margin compression, and ongoing volatility in equity and bond markets which have inevitably impacted our investment-related businesses.
"In spite of difficult market conditions, HSBC Bank Malta has continued to deliver strong results for its shareholders where profitability relative to history and peers remains attractive with a return on equity of 15.0 per cent."
Net interest income of €105.0 million in 2009 fell by 14.7 per cent, or €18.1 million, from €123.0 million in 2008 due to margin compression in the current low interest rate environment. Despite a growth in loans and advances to customers of €114.2 million (gross new lending €662.2 million), interest receivable declined by €36.4 million, or 19.9 per cent, from €182.8 million in 2008, reflecting multiple reductions in the European Central Bank intervention rate since October 2008. The fall in interest receivable on loans and advances would have been more pronounced were it not for the proactive re-pricing of the commercial and personal lending portfolios to better reflect the inherent risks in the market and higher cost of funding. Income from debt securities fell by €7.8 million, or 36.5 per cent, to €13.6 million. The fall in the cost of funds of €58.4 million, or 47.7 per cent, from €122.5 million in 2008, was less than the decline in asset yields as overall spreads narrowed.
Net fees and commission income of €32.4 million was slightly higher than 2008 levels of €31.8 million. Growth in lending, card issuance and usage fees, account services and retail brokerage activities were offset by declines in fees from remittances and retail investments from subdued demand. Commission payable reduced year-on-year mainly due to subdued investment activity.
Insurance performance was robust in a challenging environment for investment and protection sales. Regular premium sales volumes were ahead of prior year. Life insurance activities generated a satisfactory level of profit before tax of €11.7 million, down €4.7 million, or 28.7 per cent, compared to €16.4 million in prior year. In 2008 operating income included a non-recurring increase in present value of in-force long-term insurance business following a review of the actuarial basis of €3.8 million.
Strengthening price levels for bond and other debt capital instruments allowed fair values to recover significantly in 2009 when compared to prior year. A gain of €26.7 million in net income from insurance financial instruments designated at fair value swung significantly away from the €29.4 million loss recorded in prior year. Gains or losses recorded on this line are offset by corresponding movements in net other operating income and in policyholders' liabilities disclosed separately in the profit or loss.
The fall in the bank's net other operating income from €3.7 million in 2008 to €0.9 million in 2009 was mainly due to the non-recurrence of gains from property disposals and a revaluation gain on investment property of €3.5 million reported in 2008.
Anticipating the revenue pressures, costs have been tightly managed and operating expenses fell by €6.6 million, or 7.3 per cent, to €83.8 million in 2009. The cost to income ratio of 52.5 per cent is 4.5 per cent higher than in the prior year due to lower levels of income. Employee compensation and benefits decreased by €6.2 million in 2009, from €55.5 million in 2008, primarily due to provisions made in 2008 for payments under voluntary early retirement schemes amounting to €5.6 million. General and administrative expenses were slightly lower at €27.1 million reflecting the bank's focus on cost control.
In a challenging economic environment, loan impairments increased by €2.3 million to €4.2 million in 2009. This is from an extremely low historic base and remains at the modest level of 13 basis points of the overall loan book.
Loans and advances to customers increased by €114.2 million in 2009 to €3,226.5 million, from €3,112.2 million in 2008, with growth meeting the demand patterns in both the personal and commercial sectors. New lending to customers was €662.2 million which reflects HSBC ongoing support to customers and the local economy. The quality of the overall loan book remains good with non-performing loans at the 2009 year end representing 2.9 per cent of gross loans compared to 2.3 per cent in 2008.
Short-term liquid money market placements, in the form of loans and advances to banks, fell by €324.6 million to €747.7 million due to lower lending activity to other financial institutions.
Customer deposits rose by €70.0 million which is a sign of the trust personal customers have placed in HSBC during a period characterised by a number of bond issues and growing competitive pressures.
The available-for-sale investments portfolio reported a fair value gain of €17.7 million during the year. The mark-up was credited to revaluation reserves, net of tax.
The capital adequacy ratio remained strong at 11.8 per cent (2008: 11 per cent). The advances to deposits ratio at 79.0 per cent is in line with the 2008 level of 77.5 per cent.
"The unprecedented global financial and economic upheaval has clearly impacted the Maltese economy, although Malta has fared better than many of its European counterparts," continued Alan Richards.
"Whilst there are clear signs of markets stabilising internationally, the outlook for the Maltese economy and general impairment levels in 2010 remains challenging.
"Competition is increasing and it is important that we continue to emphasise our competitive advantages in the local market as an international bank. We have to focus on those areas where we have a natural advantage thanks to our brand, unique international franchise and Group technology and systems.
"We also have to ride the wave of Malta's growing international financial services sector as it develops and we are well placed to support this government-led initiative.
"There is a lot to be done and 2010 will be another challenging year. However we are in a position of real strength and well placed to support the local economy. We aim to remain Malta's leading provider of financial services.
"The financial result for 2009 is a testimony to the professionalism, commitment and hard work of our staff who performed admirably in demanding and complex circumstances."
The Board is declaring a final gross dividend of 8.0 euro cent per share (5.2 euro cent net of tax). This will be paid on 20 April 2010 to shareholders who are on the bank's register of shareholders at 4 March 2010. This, together with the gross interim ordinary dividend of 7.7 euro cent per share, results in a total gross dividend for the year of 15.7 euro cent.