HSBC reports pre-tax profit of €88.3 million for 2011

HSBC Malta registered a solid pre-tax profit of €88.3 million at end-2011 against a backdrop in which eurozone debt concerns continued to dominate European market sentiments.

The reported €88 million pre-tax profits increased by 6.3%, or €5.2 million, over the comparable period in 2010. On a like-for-like basis, excluding non-recurring items, profits were in line with the prior year's performance.

The board is declaring a final gross dividend of 7.2% per share (4.7%t net of tax).

"We have delivered another good set of results that saw pre-tax profit increase by 6.3% with a return on equity of 15.7%. The bank's capital and liquidity position remain strong and we have a firm grip on both our risks and costs," HSBC Malta CEO Mark Watkinson said.

"We will continue to focus on improving productivity and cost effectiveness to ensure long-term business sustainability. The bank's strategy is clear and we continue to emphasise our competitive advantage as an international bank and as an important part of HSBC, one of the world's largest and strongest banking groups," Watkinson said.

During the year the bank launched a staff voluntary retirement scheme and also closed down several of its Malta branches, as well as disposing of its card acquiring business, in line with HSBC Group's global strategy for this business.

The cost of the voluntary retirement scheme (€11m) was broadly offset by the proceeds from the sale of the card acquiring business. Net other-operating income increased significantly, from €5.2m in 2010 to €23.6m in 2011, driven by the sale of the card acquiring business and the non-recurring gain in the life insurance subsidiary relating to a methodology change.

During 2011, the bank introduced a new banking computer system at a cost of €10 million during the year and the roll-out of upgraded branches and ATMs at a cost of €11 million continues.

Net interest income improved by 5.2% to €129.3 million compared with €122.8 million in 2010. The increase reflected growth in mortgage lending and improved balance sheet management. Net fees and commission income of €33.5m in 2011 was marginally down on the prior year. Growth in account services fees were offset by a decline in stockbroking fees largely due to the slow-down in local capital markets bond issuance activity.

HSBC Life Insurance (Malta) Ltd generated a profit before tax of €11.3m compared to €12.6m in 2010. The business benefitted from a non-recurring gain of €6.9m as a result of a refinement in the methodology used to calculate the present value of in-force long-term insurance business. This benefit was eroded during the year as the yields on euro swaps continued to fall and the market value of investment holdings reduced.

In view of significantly heightened stress in the eurozone debt markets, the bank reduced its exposure to higher risk eurozone countries through selling holdings in the available-for-sale bond portfolio at a net loss of €1.6m.

Operating expenses of €98.2m were €10.6m or 12.1% higher compared to the previous year with a cost efficiency ratio of 50.4% compared to 49.7% in 2010. Costs increased principally due to the staff voluntary retirement scheme provision of €11m and due to higher costs relating to utilities, regulatory fees and compliance costs.

Impairments rose from €5.5m to €8.3m in 2011, principally due to a €4 million impairment taken on Greek government bonds held by the life insurance subsidiary in the available-for-sale bond portfolio. The life insurance subsidiary's remaining exposure to Greek debt is modest and stands at a net book value of less than €2 million.

Other than the exposures noted above and investments in Maltese government debt, the group has no exposure to southern European government debt.

But there was a marginal deterioration in non-performing loans from 3.6% to 5.1%, although HSBC said asset quality remains good and loan impairments declined to €4.1m (11 basis points of the overall loan book) compared with €5.3m in 2010.

Net loans and advances to customers increased by €53.8 million to €3.3 billion. Mortgage market share remained stable. Gross new lending to customers amounted to €656 million which reflects the bank's continued support to the local economy.

Liabilities rose by €141.8m during the year and stood at €5.4 billion at the year end. The increase in liabilities reflected a rise in placements with the bank offsetting a small fall in customer deposits.

The bank's liquidity position remains strong with advances to deposits ratio of 75.9%, compared with 73.7% at 31 December 2010.

The bank strengthened its capital ratio by 140 basis points to 11.6%. This exceeds the 8.0% minimum regulatory requirement. The bank intends to maintain a conservative approach to capital and will continue to build capital where appropriate.