HSBC Malta registered a significant drop in profit last year as it increased its expected credit losses by over €25 million due to the uncertainty caused by the pandemic, even as costs decreased on the back of restructuring plan announced prior to the crisis. 

Simon Vaughan Johnson, Chief Executive Officer at HSBC Bank Malta plc, admitted that HSBC’s financial performance in 2020 was materially impacted by the COVID-19 outbreak.

“The increase in Expected Credit Losses (ECL) reflected the impact of COVID-19 on the forward economic outlook. Losses incurred by the insurance subsidiary arose from adverse market movements.”

The financial statement, published on the Malta Stock Exchange as well as on company's website, noted that "ECL for the year ended 31 December 2020 were €25.6m, an increase of €25.2m compared with 2019."

"The increase in ECL was driven by expected rather than incurred losses. This reflects the benefit of support measures introduced by the government, policy guidance from regulators and the bank’s conservative risk culture."

The bank noted that a number of corporate names were deemed to have suffered a significant increase in credit risk as they operate in industries heavily impacted by the COVID-19 pandemic. "We also considered the possibility of future defaults linked to extended moratoria measures."

As for the bank's insurance subsidiary, it reported a loss before tax of €9.1m compared to a profit before tax of €3.1m reported in 2019. HSBC Malta said te adverse variance of €12.2m is mainly attributable to "a drop in the financial markets and further deterioration of the yield curve negatively impacting revenues by €3m; actuarial losses of €8.4m as modelled parameters such as lapses and interest rates were worse than those estimated in 2019; and lower new business of €1m."

“Both these impacts overshadowed the strong progress made on cost reduction as a result of rigorous cost management sustained throughout the year,” Mr Vaughan said, adding that, “Despite the impact of Covid-19, the bank’s fundamentals remain strong and underlying performance was resilient.”

Highlighting HSBC Malta’s response to the pandemic as a key institution, he said the bank’s immediate priority was “to provide proactive support and flexibility to our customers from the outset of the pandemic”.

“We have partnered with customers through payment moratoria, restructuring payments, short-term credit facilities and access to cash. We are providing facilities to support our commercial banking customers through both Malta Development Bank backed schemes and HSBC relief initiatives, as well as helping businesses to navigate the current environment.”

Describing 2020 as a “uniquely challenging year”, Mr Vaughan said the banks adapted quickly to new ways of working and deployed innovative practices to meet and exceed customers’ expectations, including the launch of an online onboarding journey for retail customers and Virtual Assistant for commercial customers as well as Live Chat for HSBCnet users.

He said HSBC continued to focus on its digital banking services since it launched a mobile banking app for personal customers towards the end of 2019, with digital transactions more than doubling since the launch.

Referring to the bank’s planned flagship branch in Qormi, Mr Vaughan said the digital investment “will be complemented by the opening of a new and modern branch which will offer our personal banking customers a one stop shop for advice on all major life events.”

In a nod to concerns about the bank’s reduced footprint around the islands, he added that branch banking and the HSBC ATM network will remain “a critical part of our service offering to customers”.

He said the bank is embarking on the execution of its Safe Growth strategy, “focusing on three key pillars: growth, our customers and our people”.

“We will strive to be an externally-focused, performance-led organisation and we remain committed to long-term measures of performance and risk management with zero appetite for financial crime risk.”

He said the bank will accelerate growth from its core businesses and will be leveraging its international advantage.

The CEO said HSBC Malta remains “dedicated to operate in a sustainable, climate-aware fashion, aligning our activities to the Group’s ambition to be net zero in operations and supply chain by 2030, and in financed emissions by 2050, in line with the goals of the Paris Agreement on climate.”

“Looking ahead to 2021, we seek to embed our Climate Strategy, actively supporting the Maltese economy to achieve the Paris Agreement goal of net zero by 2050.”

Turning to the bank’s employees, he said the andemic taught the company that many roles can be undertaken effectively outside the traditional workplace, helping it accelerate its focus on enabling greater flexibility in how its staff will work in the future.

“We will continue to invest in opportunities for our people, helping colleagues to develop skills, learn new capabilities and adapt to the future. I would like to express my sincere thanks and gratitude to my colleagues for their dedication and hard work in 2020.”

Concluding, Mr Vaughan said that HSBC remains a strong bank in spite of the COVID-19 crisis and continues to maintain high standards through applying its core values and doing the right thing.

“We remain firmly committed to this ethos as we pivot the business towards Safe Growth in the years ahead.”

Financial performance

• Reported profit before tax of €10.4m, a decrease of €20.3m or 66 per cent compared to prior year. The COVID-19 outbreak had a material impact on HSBC Malta's performance in particular on the expected credit losses and other credit impairment charges (‘ECL’) of €25.6m and on the insurance subsidiary results.
• Fundamentals remain strong with revenues broadly flat year on year.
• Significant improvement in the cost base as a result of rigorous cost management and sustainable savings from the restructuring programme announced in 2019.
• Recommended gross final dividend of 1.16 cents per share (0.75 cents per share net of tax).
• Reported cost efficiency ratio of 73.0 per cent compared with 80.2 per cent for 2019.
• Reported profit attributable to shareholders of €7.6m for the year ended 31 December 2020 resulting in earnings per share of 2.1 cents compared with 5.6 cents in the same period in 2019.
• Strong capital base with a common equity tier 1 (‘CET1’) ratio of 18.0 per cent, up from 16.4 per cent at the end of 2019. Total capital ratio was 20.7 per cent compared to 19.0 per cent at 31 December 2019.
• Return on equity of 1.6 per cent compared with 4.3 per cent for 2019.
• Net loans and advances to customers were €3,265m, up €7.2m compared with 31 December 2019.
• Customer deposits increased by 6% to €5,273m at 31 December 2020.
• Strong Liquidity Position with advances to deposits ratio at 62 per cent.

Strategy execution

• Effective execution of the 2019 restructuring programme contributed to a 7 per cent reduction in costs versus prior year.
• Design and launch of Safe Growth strategy.
• Rigorous focus on credit quality with €9.3m reduction (-16 per cent versus prior year) in wholesale non-performing loans (‘NPL’). Retail NPL increased by 34 per cent due to extended moratoria measures.
• Supported our customers during the pandemic through payment moratoria and short-term credit facilities, as well as the development of a lending product aligned with the Malta Development Bank COVID-19 Guarantee Scheme.
• Enabled 90 per cent our staff to work from home while our Corporate Real Estate team ensured that evolving Health Authority Guidelines were and remain respected in all our offices and branches.
• Launched digital enhancements such as online on boarding for retail customers and the launch of Virtual Assistant for commercial customers and Live Chat for HSBCnet users to support the ongoing delivery of fair outcomes for our customers.
• Updated our footprint reflecting further accelerated trends in our customer behaviour with over 90 per cent of basic retail transactions carried out digitally.
• Strengthened our capital ratios while continuing to build up capital reserves for non-performing loan requirements in line with prudential regulations.
• Proposed dividend of €2.7m based on 2019 and 2020 reported profits. This is in line with the recommendation of the European Central Bank.

HSBC Bank Malta p.l.c. informs the general public that the Annual Report and Accounts for the year ending 31 December 2020 can be viewed on the Bank’s website.