Updated | HSBC Malta profits down by 42%

HSBC Malta made €52 million in profit before tax in 2014, a registered decrease of €38m (42%) when compared with 2013.

“2014 was a very challenging year,” HSBC Malta chief executive Mark Watkinson told a press conference to announce its financial results for 2014. “The Eurozone economy is still under considerable pressure and is only predicted to grow by 1% this year. In January, the French economy witnessed negative inflation for the first time in five years, which is incredibly worrying for regulators and European central banks. Part of the reaction to this fear of deflation was a record low interest rate.”

He said that while there is evidence of growth in Malta’s economy, a lag effect exists with regards financial institutions and no significant loan growth evidence has been seen.

The bank’s operating expenses stood at €98m, 6% higher when compared with 2013.

“Our expenses for last year were impacted by additional compliance and regulatory costs of €5 million associated with the build-up of the Compliance function, the European central Bank Comprehensive Assessment, higher regulatory fees and an increase of €1m in early voluntary retirement costs,” Watkinson said. “Excluding these incremental costs, expenses were held flat to 2013 despite an annual increase in staff salaries and the impact of inflation.”

The bank said that its common equity tier 1 ratio increased to 10.6% in 2014, up from 9.4% in 2013. Its cost efficiency ratio, that compares operating cost to net operating income, was 57%, up by 50% in 2013.

Gross new lending to customers increased by 19% to €710m but net loans and advances to customers of €3,273m were in line with 2013.

“In the current low interest rate environment there has been a heightened tendency for customers, both commercial and retail, to use excess funds to replay loans early,” Watkinson said. “The mortgage book, the bank’s largest lending portfolio, continued to show positive net growth.”

Customer deposits increased by 8% to €4,867m as of 31 December 2014. Its return on equity for 2014 stood at 7.7%, down from 13.9% in 2013. The advance to deposit liquidity ratio improved from 73% to 67%. Gross new loans of €710m increased by €113m (19%), while net loans and advances to customers were €3,273 million and remained in line with 2013.

‘Interesting’ next few years ahead

Watkinson admitted that 2015 is set to be another difficult and challenging year, largely due to the low interest environment and the European Central Bank’s new quantitative easing programme.

“The asset purchases by the European Central Bank will be based on the size of the countries’ economies,” Wilkinson said. “It will be interesting to see how much quantitative easing will impact this market but our banks have remained liquid and we are now looking at further opportunities to lend money so as to deploy this liquidity.

“Oil prices will facilitate growth and we’ve recently started seeing genuine signs of a commitment towards private investment into Malta’s market. I think Malta will become a very interesting market within the next three to five years.”