HSBC Bank Malta plc – Annual Report and Financial Statements 2021
Financial Performance
The bank’s reported profit before tax for the year ended December 31, 2021 was €26.9m. This represents an increase of €16.4m or 157% compared 2020. Adjusted profit before tax of €29.7m increased by €19.2m, or 184% versus 2020. The adjusted profit before tax for 2021 excludes the impact of a restructuring provision of €2.8m.
Reported profit attributable to shareholders was €17.8m resulting in earnings per share of 4.9 cents compared with 2.1 cents in the same period in 2020.
Net interest income decreased by 8% to €97.8m compared to prior year. The decrease was mainly driven by lower average yields on debt securities, tighter margins and placement of surplus liquidity at negative rates. This was partially offset by lower interest paid on customer deposits and changes in deposit composition towards short-term placements.
During the year, the bank reported a release of expected credit losses (ECL) of €1.0m, compared to a charge reported in 2020 of €25.6m. In 2020, higher ECL were booked to reflect the prevailing negative outlook and uncertainty arising from the Covid-19 pandemic. The net release in 2021 mainly reflected the performance of specific customers rather than an improvement in the economic outlook.
Operating costs for the year amounted to €105.4m, compared to €97.4m reported in 2020. 2021 operating expenses include a restructuring provision of €2.8m. Excluding the restructuring provision, expenses increased by €5.2m or 5% compared to prior year. While the bank continued to achieve sustainable savings from the transformation programs announced in 2019 and 2021, non-staff costs increased by €9.5m. The increase in non-staff costs was driven by compliance costs due to increased monitoring, transformation expenses, regulatory fees, fraud losses, as well as higher investment in digitalization.
Financial Position and Capital
The bank’s net loans and advances to customers decreased marginally by €67.9m to €3,197m. The decrease mainly related to the corporate portfolio due to unforeseen repayments. Despite the fact that the bank continues to monitor the asset quality of non-performing loans (NPL), the bank saw an annual net increase in NPL of €36.9m. The increase in wholesale NPL is mainly driven by the downgrade of a small number of corporate customers engaged in industries impacted by the Covid-19 pandemic, while the increase in retail NPL is primarily a result of individuals requesting a moratoria extension. Customer deposits grew by 7% to €5,621m, driven by both retail and commercial deposits. The bank maintained a healthy advances to deposits ratio of 57% and its liquidity ratios remained well in excess of regulatory requirements.
The financial investments portfolio decreased by 4% to €846m. The decrease relates to the investment of maturing debt securities in balances held with the Central Bank of Malta. The risk appetite for investment quality remained unchanged. The portfolio is managed as a high-quality liquidity buffer and consists entirely of securities of sovereign and supranational issuers rated A- (S&P) or better.
The bank’s capital ratios continued to improve with common equity tier 1 ratio increasing from 18.0% to 18.4% and the total capital ratio improving from 20.7% to 21.1%. The bank maintained a strong capital base and is fully compliant with the regulatory capital requirements. The bank continued in its effort to manage down risk weighted assets across 2021, driven by placements of excess liquidity with the Central Bank of Malta and improved collateral recognition.
The board recommended a dividend pay-out of 45% on reported profits after tax. The final dividend will be paid on April 21, 2022 to shareholders who are on the bank’s register of shareholders at March 14,2022 subject to approval by the Annual General Meeting scheduled for April 13, 2022.
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