HSBC Bank Malta p.l.c. and its subsidiaries generated a profit on ordinary activities before tax of €96.1 million for the year ended 31 December 2008, a decrease of €18.6 million, or 16.2 per cent, from the previous year. Profit after tax was down 17.3 per cent, or €13.2 million, to €63.1 million, compared with €76.3 million in 2007.
“Considering the introduction of the euro and the volatility of world financial markets, HSBC Bank Malta achieved a set of solid results in 2008. Overall, profitability was strong with a return on equity of 22.3 per cent,” said Alan Richards, director and chief executive officer of HSBC Bank Malta, during a briefing for media and stockbrokers.
Net interest income of €123.0 million in 2008 was down 2.5 per cent, from €126.2 million in 2007. Increases in loans and advances generated steady growth in interest receivable. This was off-set by the increase in interest payable on retail deposits, and margin pressure from a combination of increased competition and the lowering of base rates by the European Central Bank in the last quarter of 2008.
Net fees and commission income of €31.8 million in 2008, compared to €31.0 million in 2007, was achieved despite reduced levels of business activity during the first quarter of 2008 following Malta’s adoption of the euro on 1 January 2008 and the general election. Adopting the euro also affected foreign exchange dealing income which, at €7.9 million, was significantly lower than the €16.7 million earned in the previous year.
Strong organic growth in sales of regular premium term life and investment products, and flat costs contributed to the life insurance business generating a profit before tax of €16.4 million in 2008, up 25.0 per cent on 2007.
During the year, gains from property disposals and a revaluation gain on investment property generated €3.5 million in other operating income.
Operating expenses of €90.4 million in 2008 were €6.7 million, or 8.1 per cent, higher compared to the previous year, with a cost efficiency ratio of 48.0 per cent compared to 42.1 per cent in 2007. Employee compensation and benefits increased by €5.6 million in 2008 primarily due to an exceptional charge to support a voluntary early retirement scheme. General and administrative expense growth of €1.0 million was driven primarily by non-recurring costs related to the euro conversion and information technology investment, as well as utility and communications expenditure. Stripping out the costs incurred by the euro conversion and voluntary retirement scheme, operating expenses remained flat year-on-year.
The net impairment charge of €1.9 million was six basis points of loans and advances to customers. The year-on-year increase was mainly due to the non-recurrence of the high levels of recoveries experienced during 2007. The quality of the overall loan book remains good with non-performing loans at the 2008 year end representing 2.3 per cent of gross loans, an improvement from 2.7 per cent at the end of 2007.
Loans and advances to customers increased by 10.3 per cent or €289.9 million in 2008 to €3,112.2 million, from €2,822.3 million in 2007, reflecting growth across both the personal and commercial sectors.
Short-term liquid money market placements in the form of loans and advances to banks increased by €441.3 million to €1,072.3 million as more new funds and maturing liquidity were placed safely with HSBC Group as a result of increasing market risks.
In these challenging times, the available-for-sale investments portfolio was marked down by €9.7 million during the year. HSBC Malta believes that the credit quality of these assets remains strong and that this deficit will reverse over the long-term. The mark-down was charged to revaluation reserves, net of tax.
The capital adequacy ratio, on a Basel II basis, remained strong at 11.0 per cent. In September 2008, the bank issued a €30.0 million, 5.9 per cent, subordinated bond to further strengthen its funding base and to support future business growth.
Earnings per share stood at €0.216, down 17.2 per cent when compared to €0.261 for 2007.
The Board recommended to the AGM to be held on 1 April 2009 a final ordinary dividend of €0.096 gross per share (€0.062 net per share) scheduled to be paid on 20 April 2009. The final dividend will be payable to shareholders on the bank’s register as at 4 March 2009. This, together with the gross interim ordinary dividend of €0.119 per share, results in a total gross dividend for the year of €0.215. The final dividend amounted to €18.2 million which, when taken together with the interim dividend paid in August 2008, reached a total of €40.8 million.
HSBC also contributed funds in excess of €440,000 in projects for the local community as part of its Corporate Social Responsibility programme. HSBC’s ‘Cares For’ Funds have supported causes to give children from a difficult background a better quality of life, funded initiatives to safeguard and raise awareness on environmental issues and spearheaded schemes for the conservation of Malta’s heritage wealth. Other funds were pledged in favour of charitable and philanthropic causes, financial literacy projects, NGOs, Local Councils, and sporting and cultural events.
Mr Richards said: “This year will be a particularly challenging year as many parts of the world head into a recession which will leave its mark on Malta. The Bank’s profitability will be under pressure as the economy slows, margins contract further in a low interest rate environment and impairments are likely to increase as the credit cycle turns.