HSBC Bank Malta 2012 Annual Results

Commentary

HSBC Bank Malta p.l.c. delivered a positive performance for the year ended 31 December 2012. Reported profit before tax of €95m increased by 8% or €7m over prior year. The main factors driving the improvement in profit before tax were a strong performance from the life insurance company reflecting a recovery in investment returns and available-for-sale gains as a result of the repositioning of the bond portfolio. These more than offset the impact of the non-recurring gains made in 2011 on the sale of the card acquiring business and the refinement in the methodology used to calculate the present value of in-force long-term insurance policies.

 

All the three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets, were profitable in 2012.

 

Net interest income increased by 3% to €133m compared with €129m in 2011. The increase reflected growth in mortgage lending from new business and improved balance sheet management returns.

 

Net fee and commission income fell to €30m in 2012 compared with €34m in 2011. Growth in fee income for payments and cash management was more than offset by lower card fees following the sale of the merchant card acquiring business in December 2011.

 

During 2012 there was a greater focus on strengthening the connectivity between Global Banking and Markets and Commercial Banking and as a result FX revenues grew by €1m or 11% year on year.

 

HSBC Life Insurance (Malta) Ltd reported a profit before tax of €18m compared with €11m in 2011 reflecting a recovery in investment returns. Underlying new business performance generation, particularly with respect to life-insurance protection, was encouraging.

 

Net other operating income of €3m compared with €24m in 2011. The gain on the sale of the card acquiring business in 2011 and one-offgain from a refinement in the methodology used to calculate the present value of in-force long-term insurance business were not repeated in 2012.

 

A net gain of €4m was reported on the disposal of available-for-sale securities compared to a net loss of €2m in 2011.

 

Operating expenses of €96m were €2m or 2% lower than the previous year. The fall in expenses was despite a €2m rise in amortisation costs, relating to the implementation of an IT system in 2011 and the costs associated with an early voluntary retirement programme incurred during the year. The bank has continued to simplify and de-layer the organisation and the positive benefits of this global HSBC initiative are becoming evident. The cost efficiency ratio improved from 50.4% to 48.7% in 2012.

 

Net impairments reduced from €8m to €6m in 2012. This was principally due to the non-recurrence of a €4m impairment taken on Greek government bonds held by the life insurance subsidiary in its available-for-sale bond portfolio in 2011. During 2012, following the Greek bonds restructuring programme all Greek debt exposure was sold and no Southern European country government debt is now held in this portfolio.

 

In a challenging economic environment loan impairments increased by €1m to €5m (14 basis points of the overall loan book). At a bank level, non-performing loans remained stable at 5% of gross loans and asset quality remains generally good.

 

Net loans and advances to customers increased by €10m to €3,354m. The bank's share of the mortgage market was stable. Despite a softening in loan demand in the challenging economic conditions gross new lending to customers amounted to €507m. This reflects the bank's continued support to the local economy.

 

Customer deposits rose by €114m during the year and stood at €4,517m at the year end reflecting an increase in both corporate and institutional deposits. The levels of retail deposits were marginally higher despite heightened competition for deposits.

 

The bank's available-for-sale investments portfolio remains well diversified and conservative.

 

The bank's liquidity position remains strong with an advances-to-deposits ratio of 74%, compared to 76% at 31 December 2011.

 

The bank strengthened its capital ratio to 12.4% which comfortably exceeds the 8.0% minimum regulatory requirement. The bank will maintain its conservative approach to capital, building capital where appropriate.

 

Mark Watkinson, Director and Chief Executive Officer of HSBC Bank Malta, said: "We have delivered another positive set of results that saw pre-tax profit increase by 8% with a return on equity of 15.4%. This performance was achieved in spite of the continued travails of the eurozone, a low interest rate environment, heightened competition and softer demand.

 

"The bank's capital and liquidity position remains strong.

 

"Despite all the current global and regional challenges, we have a clear strategy in place of assisting our customers and Malta to access broader global markets with faster growth, simplifying our business, improving the customer experience and driving greater organisational efficiency.

 

"Looking ahead, 2013 is likely to be another difficult year and while the Maltese economy has proved to be very resilient in times of crisis, we need to remain vigilant.

 

"I would like to take this opportunity to thank our staff, directors and shareholders for their commitment, hard work and support in 2012."

 

The Board is declaring a final gross dividend of 7.9 cent per share (5.1 cent net of tax). This will be paid on 27 April 2013 to shareholders who are on the bank's register of shareholders at 19 March 2013.

 

Income statements for the year 1 January 2012 to 31 December 2012
	Group		Bank
	2012	2011	2012	2011
	€000	€000	€000	€000
Interest and similar income
- on loans and advances, balances with Central Bank of    Malta, Treasury Bills and other instruments	151,261	153,397	151,232	153,399
- on debt and other fixed income instruments	23,376	22,565	21,715	19,208
Interest expense	(41,537)	(46,703)	(41,897)	(47,053)
Net interest income	133,100	129,259	131,050	125,554
Fee and commission income	32,572	36,597	28,610	32,653
Fee and commission expense	(2,081)	(3,047)	(1,819)	(2,814)
Net fee and commission income	30,491	33,550	26,791	29,839
Dividend income	-	1	20,896	24,987
Trading profits	9,316	8,306	9,316	8,306
Net income/(expense) from insurance financial instruments designated at fair value	42,917	(6,455)	-	-
Net gains/(losses) on sale of  available-for-sale financial investments	4,049	(2,107)	3,344	(2,113)
Net earned insurance premiums	67,284	64,459	-	-
Net other operating income	3,489	23,575	677	10,057
Total operating income	290,646	250,588	192,074	196,630
Net insurance claims incurred and movement   in policyholders' liabilities	(92,970)	(55,723)	-	-
Net operating income	197,676	194,865	192,074	196,630
Employee compensation and benefits	(54,680)	(58,807)	(51,344)	(55,910)
General and administrative expenses	(34,951)	(33,333)	(32,855)	(31,011)
Depreciation	(4,059)	(5,200)	(4,052)	(5,196)
Amortisation	(2,566)	(860)	(2,541)	(815)
Net operating income before impairment charges and   provisions	101,420	96,665	101,282	103,698
Net impairment	(5,638)	(8,250)	(5,638)	(4,103)
Net provisions for liabilities and other charges	(447)	(110)	(446)	(96)
Profit before tax	95,335	88,305	95,198	99,499
Tax expense	(33,733)	(30,738)	(33,642)	(32,940)
Profit for the year	61,602	57,567	61,556	66,559
Profit attributable to shareholders	61,602	57,567	61,556	66,559
Earnings per share	21.1c	19.7c	21.1c	22.8c

 

 

 

 

Statements of comprehensive income for the year 1 January 2012 to 31 December 2012
	Group		Bank
	2012	2011	2012	2011
	€000	€000	€000	€000
Profit attributable to shareholders	61,602	57,567	61,556	66,559
Other comprehensive income/(expense)
Available-for-sale investments:
- fair value gains	16,671	1,193	16,136	4,778
- fair value (gains)/losses transferred to profit or loss on disposal	(4,049)	2,107	(3,344)	2,113
- amounts transferred to profit or loss on impairment		4,179		-
- income taxes	(4,418)	(2,580)	(4,477)	(2,374)
Properties:
- revaluation	(4,022)	-	(4,022)	-
- income taxes	583	-	583	-
Other comprehensive income for the year, net of tax	4,765	4,899	4,876	4,517
Total comprehensive income for the year, net of tax	66,367	62,466	66,432	71,076

 

 

 

 

Statements of financial position at 31 December 2012
	Group		Bank
	2012	2011	2012	2011
	€000	€000	€000	€000
Assets
Balances with Central Bank of Malta,   Treasury Bills and cash	106,991	233,388	106,990	233,387
Cheques in course of collection	7,211	22,685	7,211	22,685
Derivatives	17,615	17,136	17,615	17,856
Financial assets designated at fair value	454,591	370,080	-	-
Financial investments	987,471	936,830	962,721	883,747
Loans and advances to banks	681,352	637,956	678,765	637,903
Loans and advances to customers	3,354,413	3,344,290	3,354,413	3,344,290
Shares in subsidiary companies	-	-	35,707	35,707
Intangible assets	91,210	89,011	11,943	12,497
Property, plant and equipment	54,872	60,113	54,953	60,195
Investment property	14,471	14,598	11,660	11,663
Non-current assets held for sale	11,240	12,978	11,240	12,978
Current tax assets	6,134	-	2,727	-
Deferred tax assets	11,273	14,158	11,253	13,897
Other assets	46,509	31,209	8,982	8,606
Prepayments and accrued income	41,121	40,629	35,699	35,527
Total assets	5,886,474	5,825,061	5,311,879	5,330,938
Liabilities
Derivatives	17,857	17,810	18,172	17,810
Deposits by banks	258,611	389,170	258,611	389,170
Customer accounts	4,516,999	4,402,975	4,537,127	4,440,646
Current tax liabilities	24	4,287	-	3,351
Deferred tax liabilities	24,363	18,113	-	-
Liabilities to customers under investment contracts	17,254	16,920	-	-
Liabilities under insurance contracts issued	493,254	436,672	-	-
Other liabilities	29,222	38,145	24,395	33,925
Accruals and deferred income	33,559	36,045	32,143	35,218
Provisions for liabilities and other charges	7,493	11,251	7,423	11,031
Subordinated liabilities	87,240	87,208	87,987	87,933
Total liabilities	5,485,876	5,458,596	4,965,858	5,019,084
Equity
Called up share capital	87,552	87,552	87,552	87,552
Revaluation reserve	37,637	32,872	36,975	32,099
Retained earnings	275,409	246,041	221,494	192,203
Total equity	400,598	366,465	346,021	311,854
Total liabilities and equity	5,886,474	5,825,061	5,311,879	5,330,938
Memorandum items
Contingent liabilities	104,569	130,763	106,272	132,466
Commitments	1,073,831	1,118,779	1,081,194	1,118,779

 

The financial statements were approved and authorised for issue by the Board of Directors on 04 March 2013 and signed on its behalf by:

 

 

Albert Mizzi, Chairman                                                                                             Mark Watkinson, Chief Executive Officer

 

 

 

Statements of changes in equity for the year 1 January 2012 to 31 December 2012
	Share capital	Revaluation reserve	Retained earnings	Total equity
Group	€000	€000	€000	€000
At 1 January 2012	87,552	32,872	246,041	366,465
Profit for the year	-	-	61,602	61,602
Other comprehensive income
Available-for-sale investments:
- fair value gains, net of tax	-	10,836	-	10,836
- fair value gains transferred     to profit or loss on disposal, net of tax	-	(2,632)	-	(2,632)
Properties:
- revaluation of properties, net of tax	-	(3,439)	-	(3,439)
Total other comprehensive income	-	4,765	-	4,765
Total comprehensive income for the year	-	4,765	61,602	66,367
Transactions with owners, recorded   directly in equity
Contributions by and distributions to owners:
- share-based payments	-	-	394	394
- dividends	-	-	(32,628)	(32,628)
Total contributions by and distributions to owners	-	-	(32,234)	(32,234)
At 31 December 2012	87,552	37,637	275,409	400,598
At 1 January 2011	87,552	28,674	217,604	333,830
Profit for the year	-	-	57,567	57,567
Other comprehensive income
Available-for-sale investments:
- fair value gains, net of tax	-	813	-	813
- fair value losses  transferred      to profit or loss on disposal, net of tax	-	1,370	-	1,370
- amounts transferred to profit or loss on impairment, net of tax	-	2,716	-	2,716
Properties:
- release of revaluation reserve on disposal, net of tax	-	(701)	701	-
Total other comprehensive income	-	4,198	701	4,899
Total comprehensive income for the year	-	4,198	58,268	62,466
Transactions with owners, recorded   directly in equity
Contributions by and distributions to owners:
- share-based payments	-	-	331	331
- dividends	-	-	(30,162)	(30,162)
Total contributions by and distributions to owners	-	-	(29,831)	(29,831)
At 31 December 2011	87,552	32,872	246,041	366,465