HSBC pre-tax profits down to €10.4 million

HSBC Bank has reported a profit-before-tax value worth €10.4 million for the financial year, representing a 66% year-on-year decrease.

This was revealed in their financial performance report covering the year ended 31 December 2020. 

Net interest income, derived from interest revenue and expenses, saw a 4% decrease to €105.9 million compared to the previous year. This was due to lower interest payments on customer, resulting from repricing exercises and changes in deposit composition, being offset by lower average yields on debt securities, money market placements, and lower overdraft and credit card balances arising from the current economic conditions. 

The bank's net fee income decreased by €1.8 million compared to 209 figures, which the bank says was driven largely by a reduction in activity due to COVID-19 across cards, playments, insurance and credit facilities.

Operating costs also took a dip, amounting to €97.4 million compared to €120.7 million reported in 2019, the latter of which included a restructuring provision worth €16 million.

Excluding this provision, the bank said it delivered a cost reduction worth €7.3 million, or 7%, while absorbing inflationary and other expenses related to COVID-19.  

Expected credit losses and other credit impairment charges for the financial year stood at €25.6 million – an increase of €25.2 million compared to 2019. The bank said that this increase was driven by expected losses, as opposed to incurred losses.

The bank mentioned the possibility of future defaults linked to extended moratoria measures, and said that this has been considered.

Tax expense totalled €2.9 million in 2020, at an effective tax rate worth 27.5%. This is €7.7 million lower than the expense incurred in 2019, which stood at €10.5 million.

The bank’s insurance intermediary, HSBC Life Assurance, reported a loss before tax of €9.1 million – a significant drop compared to the €3.1 million profit before tax reported in 2019. The bank said that this adverse variance is largely attributable to a drop in financial markets and further deterioration of the yield curve negatively impacting revenues by €3 million.

Actuarial losses of €8.4 million, as modelled parameters such as lapses and interest rates, were worse than those estimated in 2019.

Financial position and capital

Net loans and advances to customers increased by €7.2 million, totalling to €3,265 million with retail balances up 1% and commercial balances down 1% compared to December 2019.

Customer deposits held in the bank grew by 6% to €5,273 million, driven by retail deposits with commercial balances broadly flat.

The bank’s advances-to-deposits ratio was mainted at a 62% level, and its liquidity ratios remained “well in excess of regulatory requirements”.

HSBC’s financial investments portfolio decreased by 7% to €877 million, relating to the investment of maturing debt securities in treasury bills.

The HSBC Board recommended a dividend pay-out ratio of 15% on the cumulated 2019 and 2020 reported profits, after deducting any dividend paid in relation to the same period.

The final gross dividend will be 1.16 cents per share, with the final dividend to be paid on 26 April 2021 to those on the bank’s register of shareholders as at 23 March 2021.

Digital banking trends

Simon Vaughan Johnson, CEO at HSBC Bank Malta, mentioned that customer behaviour trends have shown that digital transactions have more than doubled since the launch of their mobile banking app for personal customers towards the end of 2019.

“This investment will be complemented shortly by the opening of a new and modern branch which will offer our personal banking customers a one stop shop for advice on all major life events. Branch banking and our ATM network will remain a critical part of our service offering to customers,” he said.