HSBC Malta achieved a “satisfactory” financial performance in the opening six months of 2022, after a rise of €6 million in profit before tax from the comparable period, it announced on Monday. This reflects a recovery on a non-performing loan and favourable market conditions positively impacting the performance of its insurance subsidiary.

Additionally, strong growth was reported in net fee income and net trading income, while net interest income continued to be adversely impacted by tightened margins and negative interest rates on surplus liquidity.

Total operating expenses increased by €5.3 million to €57.4 million primarily due to a change in legislation impacting the cash contribution payable to the Depositor Compensation Scheme and higher amortisation and depreciation linked to the bank’s investment in software and property development. HSBC Malta’s capital was negatively impacted as a result of adverse price movements on financial instruments classified as hold-to-collect-and-sell.

The rise in profit before tax to €23.5 million was mainly down to a significant recovery of a non-performing loan that was partially offset by an increase in regulatory fees paid and provisioned due to changes in the Depositor Compensation Scheme’s legislation. The increase in profit came despite a decrease in revenue of three per cent from the same period in 2021, driven by lower net interest income as margins continued to tighten and excess liquidity was placed at negative rates. Negative variances were partially offset by higher net fee and trading income.

A release of €11.8 million was reported on Expected Credit Losses (ECL) resulting in a positive variance of €13.7 million compared to the first half of 2021. This is mainly attributable to the non-performing loan’s recovery that was largely provided for in prior years.

Costs rose by €5.3 million from the same period in 2021, which was mostly driven by higher regulatory fees due to changes in the aforementioned Depositor Compensation Scheme.

Over the first six months of 2022, deposits increased by €360.7 million (amounting to a six per cent increase), while loans to customers marginally decreased by €4.4 million (0.1 per cent) to €3.19 billion. While this was experienced in commercial banking, the bank continued to improve the asset quality by reducing non-performing loans in both commercial banking as well as wealth and personal banking. The commercial banking business also generated a significant increase in corporate new money applications while volumes during the first half of 2022 represent 75 per cent of those reported in 2021.

Profit attributable to shareholders of €15.5 million for the six months ended 30th June 2022 resulted in earnings per share of 4.3 cents, which compared favourably with the 3.2 of the same period in 2021.

Common equity tier one capital ratio stood at 16.3 per cent. This reflects a decrease from the 18.4 per cent at the end of 2021, yet it still remained above regulatory requirements. This was driven by adverse movements on financial instruments classified as hold-to-collect-and-sell, due to an increase in term market yield curves over the first six months of the year. No interim dividend is being recommended due to the prevailing uncertainty surrounding the global economy.

HSBC Malta registered a return on equity of 6.5 per cent for the six months ended 30th June 2022, compared to the 4.7 per cent for the same period in 2021.

Cost Efficiency Ratio (CER) rose to 83.1 per cent compared to the comparable period’s 72.9 per cent, primarily due to higher regulatory fees. Excluding the higher Depositor Compensation Scheme charge and provision driven by the change in legislation, CER amounted to 75.9 per cent.

HSBC Malta’s life insurance subsidiary, HSBC Life Assurance (Malta) Ltd, reported a profit of €2.7 million compared to €4.2 million in the same period last year. While it benefitted from the direct impact of the increased interest rate expectations, reflected in the revision of the yield curve and movements on the financial securities’ prices, lower income was earned on fees and shareholders’ bonuses. This decrease was higher than the net income increase on the yield curve and the financial securities’ prices when compared to the same period in 2021. The effective tax rate of 34 per cent was in line with 2021, translating into an interim tax expense of €8 million.

HSBC Malta Director and CEO Simon Vaughan Johnson

“The performance in the first half of 2022 reflected a significant recovery of a commercial loan which was partially offset by increased regulatory fees as a result of a change in the legislation,” HSBC Malta Director and CEO Simon Vaughan Johnson said.

“It is pleasing to see that we have achieved good growth in net fee and trading income, as a result of higher transaction banking and trading activities, successfully leveraging HSBC’s strength as the leading international bank in Malta,” he continued. “While we have started to see improvements in interest rates, net interest income continued to be impacted by tighter margins, negative interest rates, and higher surplus liquidity,” Mr Vaughan Johnson added.

“Economic uncertainty remains as Malta, like many other countries, emerges from the COVID-19 pandemic, government support measures unwind, and inflationary pressures prevail due to the Russia-Ukraine war,” he said. In June 2022, HSBC Bank Malta and The Malta Chamber held a joint webinar on ‘The Global Economic Outlook 2022’, focusing on how uncertainty and increasing commodity prices are affecting the prospects of the global economy.

Additionally, HSBC Malta “recognises the importance of actively promoting and implementing environmental and climate initiatives within the community”, aiming to achieve net zero by 2030 and support customers “on this very important and transformational journey”. HSBC Malta is a “proud and committed” founding member of the Malta ESG Alliance that launched in July.

The decision to take Malta off the Financial Action Task Force grey list in June, as well as the “positive trajectory in interest rates and a strong and focused safe growth plan, gives us confidence for the future,” Mr Vaughan Johnson concluded.