Common equity Tier 1 capital ratio rose to 16.2% by the end of H1, up from 14.6% at the end of 2018, which the bank says is “well above regulatory requirements”. The total capital ratio increased to 18.8% compared to 17.0% on 31 December 2018.

HSBC Malta’s cost efficiency ratio improved to 73% by end-June from 74% for the same period in 2018. However, return on equity dropped to 5.8% for the six months ended 30 June 2019, from 6.1% for the same period in 2018.

Net loans and advances to customers were up by €73m to €3.183b, as compared to 31 December 2018 with strong growth across the RBWM mortgage portfolio and marginal growth in the commercial lending book.

Customer deposits, however, dropped by 1% €38m to €4.850b compared to 31 December 2018 with increases in retail deposits offset by a reduction in commercial banking deposits. The bank says it maintained a “healthy” advances-to-deposits ratio of 66% and its liquidity ratios were well in excess of regulatory requirements.

The bank’s financial investments portfolio increased by €53m to €958m and composed of highly-rated securities and is conservatively positioned with the lowest investment grade of A-, the press statement sent to BM says.

Profit attributable to shareholders amounted to €13.6m resulting in earnings per share of 3.8 cents compared with 4.0 cents in the first half of 2018. The board proposes to maintain the current dividend payout ratio of 30% and recommends an interim gross dividend of 1.7 cents per share — 1.1 cents per share net of tax. The interim dividend will be paid on 18 September to shareholders who are on the bank’s register as at 16 August.

‘Good set of results’

“These are a good set of results as the bank emerges from the implementation of its successful risk management strategy with increasing momentum. Strategically we are now focused on the delivery of world-class customer service to support growth,” said Andrew Beane, Director and Chief Executive Officer of HSBC Bank Malta Plc.

“Progress in retail banking is ahead of expectations with significant market share gains achieved in new customer acquisition and home loans without increasing risk appetite. Retail banking will also benefit from a number of digital innovations the bank will launch in the second half of the year,” the CEO added.

Net interest income (NII) decreased marginally to €53.6m compared with €54.1m in the same period in 2018 with contraction in the commercial bank loan book interest and a further decline in the average yield on the investment book. The decline was largely offset by the growth in NII within the mortgage book and effective management of excess liquidity, HSBC says.

Non-interest income (fees and commissions and trading income) dropped by €0.6m, which is largely driven by a reduction in fees due to the disposal of a specific insurance portfolio in December 2018 and a reduction in management fees within the Asset Management Company partly offset by strong performance in foreign exchange.

HSBC Life Assurance Malta Ltd reported a profit before tax of €2.4m, some 39% higher than the same period of 2018. The increase was partly driven by positive market movements in 2019 which were not seen in the first half of 2018. In addition, the insurance subsidiary registered a 2% increase in premium income, as a result of the growth in pensions posts the launch of the new Employee Pension Plan to all HSBC Bank Malta employees in December 2018.

“Following completion of significant risk management actions, commercial banking has now stabilised and the performance of our insurance company improved. Both of these divisions require further work to increase profitability and are a strategic focus for the board. We have launched a quarter of a billion euro lending fund to signal to the market that our commercial division has returned to a growth focus,” the CEO said.

Dropping expenses

Operating expenses dropped by 2% to €53.6m compared with €54.9m in the same period in 2018. HSBC says that this reduction reflects the bank’s continuous focus on cost control and the implementation of initiatives at cost base streamlining through outsourcing and processes optimisation.

Expected Credit Loss (ECL) was a release of €1.0m versus a charge of €3.4m in 2018. Results of the first half benefited from the non-reoccurrence of the significant ECL seen in 2018. The bank says it continues to maintain a conservative provisioning approach. Overall asset quality remained satisfactory and total nonperforming loans further declined from €136m to €125m during the first six months of 2019.

“Progress on costs is encouraging and the bank is committed to further reduce its cost-efficiency ratio over time. Additionally, HSBC’s signature credit discipline has delivered further reductions to the risk profile of our portfolio. While Malta’s economic performance and outlook remain positive, we are positioning the bank for the long-term economic cycle and remain cautious in growing exposure to higher risk sectors such as corporate real estate,” Mr Beane said.

“We welcome actions being taken by the local authorities to reform corporate insolvency practices and augur this be completed at pace. The bank’s capacity to better use its capital to support lending into the economy and, if appropriate, higher dividends will significantly increase once these reforms are concluded,” the CEO he added.

The effective tax rate in the first half of the year came to 35%, which translated into a tax expense of €7.3m, some €5.5m higher than the same period in 2018. During the first six months of 2018, the bank benefited from a specific tax treatment applied on a one-off transaction.

“Finally, as is the case with all Domestic Systemically Important Banks in the Single Supervisory Mechanism, HSBC is in early-stage discussions with the European Central Bank Single Resolution Board to understand the requirements that will apply for new Required Eligible Liabilities, commonly known as MREL. MREL is likely to further increase capital requirements for the sector and the bank intends to provide more detail with the 2019 annual results as these requirements become clearer,” Mr Beane concluded.

EDITORIAL NOTE: The present article has been updated by adding HSBC Malta CEO Andrew Beane’s photo as the cover picture.

The post HSBC Malta’s pretax profit jumps 30% to €20.9m in H1 first appeared on The Malta Business Weekly.

The bank says that consolidated results additionally reflect the positive fair value movement in the APS diversified bond fund during the period under review pushing group pretax profit to €14.9m compared to €9.3m in 2018.

Net interest income grew by 14.4% while net non-interest income — in the main part, Fees and Commissions — increased by 11.9%, according to extracts from the unaudited accounts of the bank for the six months ended 30 June. As a result, Operating Income grew by 13.9%, from €22.9m in 2018 to €26.1m in 2019.

Despite continuing cost pressures arising from investment in personnel and other operating expenses, including risk and compliance, technology, security and process transformation, always in support of the orderly business growth, cost-efficiency was maintained around the 53% level, the press statement adds.

APS says that balance sheet activity remains the main driver behind the growth, as deposit raising and lending grew by 5.5% and 8.6%, to €1.74b and €1.45b respectively, since 31 December 2018.

On the one hand, high liquidity permits liquidity coverage (LCR) and net stable funding (NSFR) ratios to be maintained well above the regulatory minima. On the other hand, surplus liquidity creates challenges as a low or negative interest rate environment persists, the press statement adds.

While the bank remains buoyant about its growth prospects in line with its 2019-2021 business plan, funding strategies may need to be adjusted to optimise spread management.

Late in May the Bank received €13m of new CET1 equity at the conclusion of a rights issue which, as announced and on top of retained earnings from 2018, marked the conclusion of Phase 1 of its Capital Development Plan. This injection not only supports the capital adequacy of APS Bank but provides a platform for its future progress, the bank believes. The CET 1 Capital ratio as at the end of June stood at 14%, well above the statutory minimum. Key performance ratios for NPLs and profitability (adjusted ROAE) remained strong, at 3.1% and 10%, respectively, the bank press statement adds.

“APS Bank is continuing with its plans of scaling up around a core business model that looks at selective growth and diversification of both its funding and credit base. At the same time, we continue to strengthen governance, risk controls and technology to enrich the customer experience in a safe and prudent way. Our gradual gain in market share also continues in a business environment that remains competitive and challenging,” said Marcel Cassar, CEO of APS Bank.

The post APS Bank sees €11.4m pretax profit in H1 first appeared on The Malta Business Weekly.