HSBC interim pre-tax profit up 19.3 per cent to €50.4m

HSBC Bank Malta plc yesterday announced a pre-tax profit of €50.4 million for the six months to June 30, an increase of 19.3 per cent – €8.2 million – over the same period last year.

The bank is declaring an interim gross dividend of 8.2 cent per share – 5.3 cent net of tax – as the bank continues its 55 per cent dividend ratio pay-out policy in view of its efforts to retain earnings and boost Tier I capital ratios for regulatory purposes. The dividend will be paid on August 24 to shareholders on the register on August 10.

Describing the bank’s interim performance as “strong”, chief executive officer and director Alan Richards said the local economy continued to perform relatively well, but warned a prolonged Libyan crisis and the eurozone sovereign debt crisis may yet affect projected GDP growth rates.

Mr Richards later told The Times the bank was closely monitoring two relationships it had with customers involved in the property sector.

Asked for the bank’s view on the local property market’s current situation, Mr Richards told The Times: “The pricing in the property market looks as though it is stabilising. Clearly, prices have been off for a little while, but in terms of the bank’s exposure we are comfortable where we are. We have a very conservatively-positioned book and our loan-to-value ratio is around 45 per cent.

“On the commercial side, we are seeing a little more pressure. We have a couple of relationships which we are watching closely, but I do not think there is anything that causes us undue concern. In almost all cases, we are very adequately secure. There is no cause for alarm and we are in good shape.”

Addressing a presentation for the financial services community and the media, Mr Richards outlined how the bank’s cost-efficiency ratio improved to 43.9 per cent compared to 48.4 per cent in the first half of 2010 as growth in operating income outpaced the increased expenditure. Return on equity improved to 18.5 per cent from 16.9 per cent in the comparable period in 2010.

Liquidity is strong with an advances-to-deposits ratio of 77 per cent compared with 74 per cent at the end of last year. The capital adequacy ratio stands well above regulatory requirements at 10.6 per cent.

In the period under review, net interest income improved by 5.7 per cent to €64.2 million compared to €60.8 million in the first half of 2010, which Mr Richards attributed to effective balance sheet management and the unwinding of higher interest term deposits. Net fees and commission income of €16.9 million was in line with the first half of 2010. Growth in lending and account services fees were offset by a decline in stock-broking fees, largely due to the slowdown in local capital markets bond issuance activity.

The life insurance subsidiary generated a pre-tax profit of €13 million, an increase of €9.3 million. Mr Richards explained a refinement of the methodology to the projection assumptions used in calculating the present value of in-force long-term insurance business contributed €6.9 million to the growth from insurance activities.

The chief executive pointed out that 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 €3.7 million.

Costs increased by €1.7 million to €42.5 million, as the bank continued to invest in expanding its business and transforming its operations.

Net impairments of €4.3 million included an impairment of €2.4 million relating to the available-for-sale investment portfolio. Loan impairments remain at a modest 11 basis points of the overall loan book.

Mr Richards explained that as borrowers looked to reduce debt levels in the current economic environment, net loans and advances to customers reduced marginally by €7.9 million to €3,296 million.

Mortgage market share remained stable. Gross new lending to customers amounted to €355 million, with a modest increase.

Non-performing loans made up 4.3 per cent of gross loans as at June 30 compared to three per cent at the end of last year.

Customer deposits of €4,281.3 million at the end of June reduced by €181.6 million compared to December 31 last year, 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.

Mr Richards told The Times the bank expected to see more volatility in customer desposits, particularly as the business it was attracting from hedge funds and fund managers tended to bring significant inflows and outflows.

“We have moved from a position where deposits were largely reflecting movements in the retail and we are starting to see a little more volatility accordingly,” he said. “Overall, the core retail funding balances are very stable in what is a very competitive market and there is intense price competition out there. At the moment we are maintaining our market shares.”

He added that as an international bank, HSBC was ideally placed to help support the government’s efforts to attract business from captive insurers, fund managers, hedge funds and custody services to Malta and there is a “healthy” pipeline. HSBC, he said, was investing in this segment and it was seeing “encouraging trends”.