HSBC maintains 75 per cent dividend policy payout

"The first half of 2008 has been challenging. Profit before tax for the six months ended June 30 of €46.6 million is disappointing," chief executive officer Alan Richards said after an HSBC Malta board meeting on Friday. The meeting approved the group and bank interim accounts for the six-month period up to June 30.

"This result represents a decline of €12.4 million, or 21.1 per cent compared to €59 million for the same period last year. However, comparisons with 2007 need some qualification due to a number of one-off factors.

"The prior period included significantly stronger revenue flows from pre-euro conversion foreign exchange and investment dealing activities, and significant interest recoveries from non-performing loans. Furthermore, market conditions in 2008 have been softer and business towards the start of the year was slower due to the euro conversion and the general election. In spite of this, overall profitability relative to history, peers and industry benchmark remains strong with a return on equity of 22 per cent."

Operating expenses of €42 million are 6.1 per cent higher compared to the same period in 2007 with a cost efficiency ratio of 47.2 per cent compared to 40.1 per cent for the same period in 2007. Expense growth in the first half was primarily driven by non-recurring costs related to the euro conversion, increased staff costs and investment in IT.

Increases in loans and advances generated a steady growth in interest receivable. Loans and advances to customers stood at €2,968.9 million at June 30, up €146.6 million (5.2 per cent), compared with December 31, 2007. This was offset by the increase in interest payable on retail deposits and margin compression from heightened competition and euro conversion.

Core customer deposits were €3,394.5 million at June 30, up €18.8 million compared with December 31, 2007.

Net interest income of €60.8 million represents a decline of 3.9 per cent compared to €63.3 million during the prior year period.

Fees and commission income of €15.5 million was in line with the first half of 2007, despite reduced levels of business activity during the first quarter of this year due to Malta's adoption of the euro on January 1 and the general election. Adopting the euro also affected foreign exchange dealing income which, at €3.7 million, was significantly lower than the €8.5 million earned in the six months to June 30, 2007. Life insurance business generated a profit before tax of €6.4 million, up 5.6 per cent on the same period of the previous year.

Tax on profits was €16.5 million.

Total assets stood at €5,100.8 million, up €205.8 million, or 4.2 per cent higher, compared with December 31, 2007. Total liabilities were €4,828.0 million, up €209.2 million or 4.5 per cent, compared with December 31, 2007.

The board is declaring an interim gross dividend of €0.11.9 per share (€0.07.7 euro cents net of tax). The ordinary dividend payment of €22.6 million is 75 per cent of current profits attributable to the bank's circa 10,000 shareholders. This will be paid on August 22 to shareholders who are on the bank's register of shareholders as at August 6.

"In so far as dividend is concerned, the board will continue to review the current payout rate of 75 per cent. It is possible depending on international market conditions, that the current payout rate may be reduced as a consequence in the future.

"While local market conditions are likely to be increasingly challenging, HSBC Bank Malta remains liquid and well capitalised, and is well placed to support future business growth," Mr Richards pointed out.