The Board of Directors will not recommend an interim dividend for the period under review, the press statement says.

Total consolidated assets dropped by 5% to US$1.77b (approximately €1.5b) on 30 June 2019, compared to US$1.87b (approximately €1.6b) at end of 2018. The total consolidated liabilities were also down by 7% to US$1.48b (approximately €1.3b), compared to US$1.59b (approximately €1.4b) reported at the end of the previous year. Nevertheless, deposits from corporate and retail clients increased by US$65m (approximately €58m).

During the period under review, the group’s net operating income saw a marginal decrease of 2% during January-June, going up from US$28.3m (approximately €25.2m) to US$27.8m (approximately €24.8m). 

The net interest income increased by 19% to US$16m (approximately €14.2m), as improvements in the liability structure of the group offset the reduction in interest income resulting from lower asset levels, the press statement explains.

Net impairment charges for the first six months of 2019 amounted to US$0.6m (approximately €535,980), compared to the US$2.1m (approximately €1.8m) charged in 2018 due to the group maintaining adequate coverage on non-performing exposures identified last year. In 2019, net impairments are inclusive of the successful recovery of a fully provided exposure, amounting to US$3m (approximately €2.6m), the press statement adds.

Transformation of ‘critical’ importance

“The group has successfully completed a derisking exercise of its main portfolios, aimed at strengthening its varied exposures across the different products and geographical presences, thereby reducing concentrations, and ensuring sustained growth in the years to come. This has led to a short-term reduction in the size of the balance sheet, as key portfolios have readjusted their client and market profile, refining structuring and increasing risk mitigation,” said Murali Subramanian, CEO of FIMBank Group.  

Group Chairman John C. Grech tagged FIMBank’s performance as “positive”, which he says now extended into its fourth year, and comes in the context of a “critically important transformation of the underlying portfolios of the group during this period, the result of which places FIMBank in a position of strength, as it makes its business model fundamentals even more attractive.” 

Moreover, Mr Grech added that FIMBank’s expertise in structuring transactions across the trade-related product portfolio, together with the ability of its people to pursue and maintain the building of business partnerships with the bank’s diverse client base, stayed key to FIMBank’s reputation.

“We will remain vigilant on risk, controls and governance in order to ensure that the expansion of the business is executed in a sustainable way. FIMBank has sufficient business pipeline, funding, and resource structures in place to support this path,” said Mr Grech.

“Under the leadership of CEO Murali Subramanian and his management team, with the right mix of talent and focus on client delivery, and operating within a risk-balanced approach, we are confident of FIMBank’s ability to generate higher value and returns for the benefit of all stakeholders,” Mr Grech added. 

The aforementioned figures have been approved at a meeting of the group’s Board of Directors on 8 August 2019.

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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.

For the comparative period of the previous year, the Group registered a pre-tax profit of €13.5 million, which included a litigation loss provision of €75 million, the press statement adds.

Group operating income, which has remained at last year’s level, amounted to €127 million. Recurrent costs grew by 27% to €81m as compared to the same period a year earlier. BOV attributes the increasing costs chiefly to fees and expenses related to the ongoing transformation programme and on the substantial recruitment of resources in the group’s control functions. The impairment charge for the period is just under €1m, compared to reversals of €20 million booked for the corresponding period, the press statement adds.

Customer deposits grew by €223m to €10.6b by the end of the first half of the year as compared to December 2018. Net advances at amortised cost increased by €126m to €4.5b over the same period. Shareholders’ funds, comprising capital reserves, has topped the €1 billion mark for the first time in the Group’s history.

‘Full transformation mode’

BOV Chairman Deo Scerri underscored that the group is in a “full transformation mode” as BOV embarked on a two-year transformation programme, in agreement with its supervisors, with the assistance of two international consultancy firms.

“The aim is to ensure the long-term sustainability of the institution, by reducing the risk profile of the business model, strengthening capital buffers and enhancing the anti-financial crime framework. The increased costs reported in these results primarily reflect the costs of this programme. We do not see these costs as recurring overheads, but as a solid investment in the future,” Mr Scerri said.

“We are in the process of exiting a number of businesses and closing down a large number of higher-risk relationships, all of which naturally result in a loss of income. The situation is further impacted by heightened competition from non-traditional players and by the persisting low interest rate environment. Despite all this, the Group has managed to maintain the same income levels as last year. This shows the resilience of our core operations,” Mr Scerri added.

S&P’s rating comes expected

Standard & Poor’s has lowered the long term credit rating for the bank BBB with a negative outlook, to BBB- with a stable outlook. Short term rating was revised from A-2 to A-3. S&P justified its decision by stating perceived weaknesses in BOV’s internal control frameworks and to the potential impact of ongoing litigation cases. S&P named BOV’s sound franchise, customer confidence and ample liquidity as being among its major strengths.

Chairman Scerri said S&P’s decision had not come unexpected, in view that the rating outlook had already been set as “negative” last year. The chairman said that the underlying factors for the lowered rating — the need for strengthening internal controls, government and oversight — are being addressed in the transformation programme.

In reference to BOV’s USD clearing situation, Mr Scerri announced that Raiffeisen Bank International had recently opened accounts denominated in US dollars for BOV. He added that BOV’s short term objective is to put into place the necessary mechanism to enable it to offer full USD services, assuring that the bank is on the verge of achieving this objective. The longer-term objective is that the bank will have access to a wider network of USD correspondents.

“The Board has chosen to retain its prudent stance and has resolved not to declare an interim dividend, with the aim of further strengthening the Bank’s capital buffers, especially in the context of its status as a systemically important institution. This is in line with our strategy of foregoing short term benefits in the interest of long term stability. The situation will be re-assessed at the year-end, in consultation with supervisory authorities,” Mr Scerri said.

Mr Scerri expressed his full confidence in BOV’s future as a strong, secure and profitable institution. “The ongoing transformation programme will result in a stronger and safer bank, that will continue to play a leading role in tomorrow’s economy while delivering fair and sustainable returns to its shareholders,” the chairman added.

The post BOV records €54.3m pretax profit 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.