HSBC has recently published very good preliminary profit figures with profit after tax increasing by Lm2.1 million, or 16 per cent, over last year's figure. The increase was mainly due to the much lower net impairment losses which, for 2002, were Lm1.5 million compared to Lm5.8 million the previous year. Tax came in Lm3.2 million higher.
Compared to 2001, HSBC reported lower interest receivable, down by eight per cent, to Lm76.1 million but, at the same time, the group managed to reduce interest payable by 17 per cent to Lm42.8 million. This means that, for 2002, interest paid out was 56 per cent of interest earned, compared to 63 per cent in 2001.
As a result, even in very difficult times, even though deposits increased by 6.5 per cent and loans to customers by only 1.5 per cent, net interest income grew by eight per cent to Lm33.3 million.
Other net operating income for 2002 was Lm2.1 million lower than the previous year's and this nearly completely neutralised the advance in net interest income. Operating income was Lm51.6 million (Lm51.3 million in 2001). Operating expenses shrank marginally.
The sharp fall in net impairment losses is interesting but the review accompanying the results does not throw new light. One has to wait for the final audited financial statements. Net impairment losses generally consist of reduction in the value of investments, loans and advances from which are deducted any reversals of previous reductions.
Tax, which in 2001 took 16 per cent of profit before tax, in 2002 took 27 per cent, again for reasons which will come out later when the annual report is published.
Earnings per share were ahead to 42c1 (36c3 in 2001) and the historic price-earnings ratio, with the price now at around Lm4.10, is 9.7.
Interim gross dividends of eight cents per share were distributed which, taken to the proposed final dividend of 13c2, adds up to a distribution of 21c2, an increase of 8c2 over the distribution for 2001. The historic gross dividend yield is therefore 5.2 per cent. Dividend is well covered by profit.
First International Merchant Bank plc
Last week saw the publication of Fimbank's preliminary profit statement for 2002 which showed a loss before tax of $6.4 million. Net interest income remained at the same level at $2.6 million while other income improved by 40 per cent to $5.5 million. As a result, operating income was $8.1 million compared to $6.6 million in 2001. The loss was mainly the result of impairment losses of $10 million ($277,197 in 2001).
Again, there is not much on this heavy impairment loss, only that "the bank felt it prudent to take a specific impairment allowance for uncollectibility of $9.9 million".
Perhaps, due to the size of the impairment, more disclosure was appropriate (how old was the loan? Was the borrower completely independent of the bank? What are the circumstances of "uncollectibility"?).
The bank, as usual, is holding a presentation on its financial results for stockbrokers but perhaps certain major items are best explained with the publication of the preliminary statement.
The value of securities and the value of the currency in which they are denominated may go down as well as up.