HSBC Bank Malta was found to be underprovisioned by €30 million during the recent asset quality review carried out by the European Central Bank.
Bank of Valletta had been underprovisioned by €16 million – mostly in corporate loans, but when announcing its financial results for the year, chairman John Cassar White had also pointed out that it was overprovisioned in other segments of its loan book. He had also noted that, even though there was a difference between the so-called “prudential provisioning” of the AQR and accounting provisions, the bank had moved the €16 million into non-distributable reserves.
The underprovisions cannot be offset against the overprovisions, according to the AQR rules.
It is not apparent from the publicly-available information whether HSBC Bank Malta had any similar overprovisions in other areas of its loan book.
Sources said that, while BOV were able to comment on the issue as they were announcing their financial results, HSBC would not be able to do so because this information would have to be announced at market level – especially since it could have an impact on the dividend payout.
“BOV has already commented on the difference between the AQR and accounting standards but it is very important for the public to understand the implication of this,” the sources said.
“The methodological approach of the AQR is mechanical and quite inflexible for the simple reason that the intention was to have something which could be compared across all the 130 banks reviewed. So the baseline was set at a common level for all banks, without taking into account the idiosyncracies of different markets.
“Accounting standards take a more realistic approach. We are mostly talking here about corporate loans and a bank would look at the running of a business based on its own ‘know-your-customer’ approach and the strong relationship banking model for which Maltese banking is renowned.”
After adjusting for the impact of the AQR, HSBC Bank Malta’s 2013 CRR/CRD IV transitional basis common equity tier 1 (CET1) capital ratio was 9.02 per cent, which exceeds the ECB’s threshold of eight per cent.
BOV started the comprehensive assessment with a CET1 ratio of 11.2 per cent. This fell to 10.71 per cent as a result of the AQR assessment.