The HSBC bank saw a "disappointing" €12.4 million decline in profit in the first six months of this year, representing a hefty 21 per cent slide over results for the same period last year.
The bank's CEO Alan Richards said, while announcing the results yesterday, that the lion's share of the slide was attributable to the euro changeover, however, he also pointed out that the first six months of this year were "soft" in comparison with 2007, due to "the euro conversion, and the general elections".
Profit before tax stood at €46.6 million, compared to €59million last year, leading the bank to pay out a dividend of €11.9cents per share.
The bank's revenue had grown during the pre-changeover period but then dropped when the lira was ditched. In fact, the decrease in foreign exchange earnings total €4.7million.
"In spite of this (the results), overall profitability relative to history, peers and industry benchmark remains strong with a return in equity of 22 per cent," Mr Richards qualified.
In fact, revenue from loans and advances saw a steady growth, increasing by €146.6million to reach almost €3billion, but the increase was offset by a decline in the profitability. In fact, some €2.5 million were lost to revised interest margins, which came about as a result of increasing competitiveness, Mr Richards explained.
He excluded, when asked, that the sliding profit margin had anything to do with bad debts, stressing that the decline was the result of reduced interest margins. "I want to make clear that the quality of the overall loan book remains good and there is no deterioration in credit lending," he insisted.
Asked whether there was a decline in mortgages, as opposed to commercial property loans, which could indicate a slowdown in the property market, he said there was a slight decrease but nothing significant.
The bank is steady, liquid and well positioned for future growth, he said, adding that he was "cautiously optimistic" about the bank managing to stabilise the squeeze, despite challenges ahead.
The bank is also warning that it may revise its dividend payout policy, which currently stands at 75 per cent, a rate which is about 20 per cent higher than HSBC's average international rate, Mr Richards pointed out.
Financial advisors who spoke to The Times, were not surprised by the results or the warning about the possible revision in the payout.
Edward Rizzo, from Rizzo and Farrugia was actually not against a decrease in the payout. "The 75 per cent pay out dividend ratio is in line with the HSBC's policy, and the board might do well to review it in the light of market conditions," he said. As for the results, Mr Rizzo said that while disappointing, the trend was nothing new internationally. Financial institutions were being hard hit overall, he said, adding that the euro conversion had a negative impact on this year's foreign activity in foreign exchange.
"HSBC last year had a strong performance in the foreign exchange, which this year was missing due to the conversion but the credit quality of bank remained strong however."
Similarly, Jesmond Mizzi, from Jesmond Mizzi Financial Services pointed to the negative international situation when asked to comment about the results.
On the bank's results in general, he said that the market had been expecting a drop in profitability. "The first three months of this year were hard due to the election as well as the Euro changeover and financial institutions worldwide are suffering... there are less investments in equities and funds, so such a drop in profitability was largely expected," he said, insisting that the results should not be seen in isolation and that the strong past performance has to be taken into account.