HSBC announces 19% increase in pre-tax profits of €50 million

The bank said its cost efficiency ratio improved to 43.9% compared to 48.4% in the first half of 2010. Return on equity improved to 18.5% from 16.9% in the comparable period in 2010.

CEO Alan Richards said the Maltese economy continued to perform relatively well although a prolonged crisis in Libya in particular and the eurozone sovereign debt crisis may yet affect projected GDP growth rates.

“Nonetheless, HSBC has made excellent progress during these six months as we continue to transform the bank, and we continue to emphasise our competitive advantages as an international bank. The fundamentals of HSBC remain in excellent shape. We remain strongly capitalised, liquid and well placed to service the needs of our customers and to support the local economy,” Richards said.

The Board is declaring an interim gross dividend of 8.2 cent per share (5.3 cent net of tax). This will be paid on 24 August 2011 to shareholders who are on the bank’s register of shareholders at 10 August 2011.

In the first six months of 2011, net interest income improved by 5.7% to €64.2m compared to €60.8m in the first half of 2010 attributable to effective balance sheet management and the unwinding of higher interest term deposits. Net fees and commission income of €16.9m for the six months ended 30 June 2011 was in line with the first half of 2010. Growth in lending and account services fees were offset by a decline in stockbroking fees largely due to the slow-down in local capital markets bond issuance activity. 

The life insurance subsidiary performed well during the period under review generating a profit before tax of €13.0m for the first half of 2011, up €9.3m, compared to €3.7m for the same period in 2010. A refinement of the methodology to the projection assumptions used in calculating the present value of in-force long-term insurance business contributed €6.9m to the growth from insurance activities.

In view of significantly heightened stress in the eurozone debt markets, the bank reduced its risk exposure through the sale of holdings in higher risk eurozone countries from the available-for-sale bond portfolio at a net loss of €3.7m.

The bank continued to invest in expanding its business and transforming its operations. As a result, costs increased by €1.7m, or 4.1%, to €42.5m for the six months ended 30 June 2011. The cost efficiency ratio improved to 43.9% compared to 48.4% in the first half of 2010 as growth in operating income outpaced the increased expenditure.

Net impairments of €4.3m for the six months ended 30 June 2011 included an impairment of €2.4m relating to the available-for-sale investment portfolio. The bank continues to focus on building a high quality base and it is encouraging that the level of loan impairments of €1.8m although slightly higher than the same period last year were lower than expected. Loan impairments remain at the modest level of 11 basis points of the overall loan book.

In the current economic environment, as borrowers looked to reduce debt levels net loans and advances to customers reduced marginally by €7.9m to €3,296.0m. Mortgage market share remained stable. Gross new lending to customers amounted to €355.0m which reflects the bank’s continued support to the local economy and was a modest increase on the same period last year. The quality of the lending portfolio showed a marginal deterioration with non-performing loans representing 4.3% of gross loans as at 30 June 2011 compared to 3.0% at 31 December 2010.

Customer deposits of €4,281.3m as at 30 June 2011 reduced by €181.6m compared to 31 December 2010 reflecting the levels of volatility of deposits from the institutional sector. Retail deposits were broadly stable despite continuing competitive pressure for deposits including from local government bond issuances.

The bank’s available-for-sale investments portfolio remains well diversified and conservative with limited exposure to sovereign debt in the peripheral eurozone countries following the sale of holdings in the higher risk eurozone countries during the period under review.

The bank’s liquidity position remains strong with advances to deposits ratio of 77.0%, compared with 74.0% at 31 December 2010. This is well within the Bank’s maximum benchmark ratio of 90.0% and highlights further room for lending growth. The capital adequacy ratio at 10.6% is well above regulatory requirements.