Photo: Jason BorgHSBC Bank Malta registered a profit before tax of €52 million for the year ending December 31, 2014, a decline of €38 million, or 42 per cent from the previous year.
Most of the decline was due to a €19m increase in loan impairment charges, up to €23m from €3m a year earlier, resulting principally from lower valuations on legacy commercial properties.
CEO Mark Watkinson said that since the beginning of the year, the board had moved to a much more cautious approach.
“Throughout the year we looked at our largest non-performing loans, which are largely and predominantly in commercial real estate. We got fresh valuations for them and found that the values were lower – principally because of slower sales. So we took a prudent approach and took provisions against them [turning into bad debts]. But bear in mind that the provisions are merely worst case scenarios. We intend to try to recover the amounts due.”
Talking about the impact of the provision on loans in arrears, he said non-performing loans had not changed and if anything, had gone down slightly.
There was also a €14m decrease in income associated with the operating environment and lower one-off items and a €5m rise in costs, primarily due to regulatory fees and additional compliance investment, including the ECB’s assessment. Operating expenses of €98m were six per cent higher compared with the previous year.
The bank also announced a final gross dividend of 2.6c per share and a bonus issue of one share for every nine shares held, which will result in €11m in reserves being capitalised and share capital increasing from €97m to €108m.
Deposits were up to €4,867m, an increase of eight per cent over 2013. HSBC Life Assurance (Malta) reported a profit before tax of €9m compared with €13m in 2013. While new insurance business was 10 per cent higher than the prior year, the result in 2014 was negatively impacted by downward yield curve movements and lower technical reserve releases. Gross new lending to customers increased by 19 per cent to €710m.
However, net loans and advances 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 repay loans early, the bank explained. The mortgage book, the bank’s largest lending portfolio, continued to show positive net growth.
Summary of HSBC returns
• 2014 profit before tax of €52m, which is a decrease of €38m, or 42%, compared with the previous year.
• Common equity tier 1 ratio increased to 10.6% as at December 31, 2014, from 9.4% as at December 31, 2013. The overall capital adequacy ratio was 13% as at December 31, 2014, and remained in line with the previous year.
• Cost efficiency ratio was 57%, against 50% in 2013.
• Return on equity for the year was 7.7%, compared to 13.9% in 2013.
• The advance to deposit liquidity ratio improved from 73% to 67%.
• Gross new loans of €710m, which increased by €113m or 19% over the previous year. Net loans and advances to customers were €3,273m and remained in line with 2013.
• Customer deposits increased by 8%, to €4,867m.
• Earnings per share were 10.4c, compared to 18.1c in 2013.