Commitment to mortgage market, CSR 'unquestioned' - HSBC Malta CEO
Response to €100m fund for business 'positive'
HSBC Bank Malta's commitment to the local mortgage market is "unquestioned" and the bank will continue to support its 260,000 personal, corporate and investment clients, while working internally to keep costs in check, chief executive officer Alan Richards told The Times Business in an interview this week.
On February 20, HSBC Bank Malta plc and its subsidiaries reported a pre-tax profit of €96.1 million for the year ended December 31, down €18.6 million (16.2 per cent) on the previous year. Assets were worth €5,296.1 million at the year's end.
While recession in key parts of the world will "clearly leave its mark on Malta", Mr Richards is confident that with the backing of HSBC Group, the bank can build on its strengths even in the face of unprecedented challenges.
Presenting the results at the Chamber of Commerce, he had pointed out to stockbrokers and the media that the bank's profitability, especially in the short-term, would come under pressure this year as some key sectors like the property market slowed down and interest rates hovered low. What did he have to say to the bank's shareholders?
"I am confident that with the backing of the HSBC Group, our enduring commitment to liquidity, strong capital and a conservative approach to risk management, we are well-positioned to build on our many strengths and support our customers in driving future growth," he said. "This will primarily be delivered through activities and initiatives conducted through our three main customers groups: Personal Financial Services, Commercial Banking and Global Banking and Markets.
"To our shareholders, I would stress that HSBC Bank Malta is in a strong position with a sound business model. The bank has continued to experience growth across its main business activities, has a prudent loan-to-deposit ratio, and a strong liquidity position. Our capital adequacy ratio is 11 per cent, well in excess of the regulatory requirement of eight per cent. Furthermore, our gross dividend paid and payable to shareholders for 2008 amounts to €40.8 million. This gives an attractive gross dividend yield on current share price at 8.96 per cent."
Last year, the bank's "available-for-sale" investment portfolio was marked down by €9.7 million (€6.9 million post-tax). Mark-downs are charged to the balance sheet "available-for-sale" revaluation reserve. Mr Richards maintains that the assets' credit quality remains strong and the deficit will reverse in the long run.
"The life insurance business holds investments which are designated at fair value through profit or loss," Mr Richards explains. "These are managed at fair value to meet liabilities under insurance contracts, unit-linked and other investment contracts."
Although the International Accounting Standards Board changed regulations last year to allow reclassifications from trading book to "held to maturity", and loans and receivables on trading book and "available-for-sale" portfolio to "held to maturity", the bank did not reclassify any of its holdings.
"In terms of income statement impact, markdowns on investment portfolios are not impacting profits," Mr Richards points out.
He says the bank continually reviews its lending policies "in light of the prevailing economic environment and changing sector market dynamics", adding: "HSBC's commitment to the key mortgage market in Malta is unquestioned, though in the current climate and as a responsible lender, a more critical assessment of affordability criteria for higher loan to value requests is considered even more appropriate."
Mr Richards describes the utilisation of the €100 million fund created by the bank to support local businesses last December as "positive" although the scheme is only in its infancy. The initiative allocates specific funding where trade terms have been extended because of the current climate.
"It is our view that most of the cash flow pressures to date have been absorbed by creditors," he remarks. "We are expecting a further deterioration, and increased utilisation of the fund as we move through 2009. The important message for the local business community is that funds are available in these difficult times.
"It should also be pointed out that new money proposals continue to be approved, with approval volumes for the four months from October to January in excess of the same period last year."
HSBC, one of Malta's top two employers with 2,082 staff (including 530 at the Swatar call centre), is to implement strict discipline on expenses this year, although, it was made clear on February 20, that this policy would not be to the detriment of branch refurbishment - the bank has a local network of 47 branches and offices - and investment in people and technology.
The bank's cost-to-income ratio last year was a "healthy" 48 per cent.
Asked which expenses were to be cut back, he replies: "In the current economic environment characterised by slower business activity, low interest rates and uncertainty, we shall retain our focus on cost containment. However, this will not be done at the expense of reducing the levels of our high quality service or investment in technology and our automated delivery channels, including the ATM network."
Neither will the bank's overall corporate social responsibility strategies be affected, he says, although some adjustments to budget lines are possible. Activities surrounding three proprietary funds focused on helping underprivileged children, the environment, and cultural heritage will continue as "the commitment to these areas is as strong as ever".
All in all, Mr Richards explains, the results for 2008 are evidence of the bank's strength.
"We remain very much open for business," he says." All our fundamentals are strong, we have no direct exposure to the sub-prime market and a prudent loan-to-deposit ratio of 77 per cent at end 2008. This means that for every €100 of deposits we lend €77. This is in line with group policy of having more deposits than loans.
"We primarily fund our business activity through raising deposits from our network and diversified customer base. We have only limited reliance on more volatile wholesale markets for funding. This gives us a strong liquidity position."
On February 20, HSBC Bank Malta plc and its subsidiaries reported a pre-tax profit of €96.1 million for the year ended December 31, down €18.6 million (16.2 per cent) on the previous year. Assets were worth €5,296.1 million at the year's end.
While recession in key parts of the world will "clearly leave its mark on Malta", Mr Richards is confident that with the backing of HSBC Group, the bank can build on its strengths even in the face of unprecedented challenges.
Presenting the results at the Chamber of Commerce, he had pointed out to stockbrokers and the media that the bank's profitability, especially in the short-term, would come under pressure this year as some key sectors like the property market slowed down and interest rates hovered low. What did he have to say to the bank's shareholders?
"I am confident that with the backing of the HSBC Group, our enduring commitment to liquidity, strong capital and a conservative approach to risk management, we are well-positioned to build on our many strengths and support our customers in driving future growth," he said. "This will primarily be delivered through activities and initiatives conducted through our three main customers groups: Personal Financial Services, Commercial Banking and Global Banking and Markets.
"To our shareholders, I would stress that HSBC Bank Malta is in a strong position with a sound business model. The bank has continued to experience growth across its main business activities, has a prudent loan-to-deposit ratio, and a strong liquidity position. Our capital adequacy ratio is 11 per cent, well in excess of the regulatory requirement of eight per cent. Furthermore, our gross dividend paid and payable to shareholders for 2008 amounts to €40.8 million. This gives an attractive gross dividend yield on current share price at 8.96 per cent."
Last year, the bank's "available-for-sale" investment portfolio was marked down by €9.7 million (€6.9 million post-tax). Mark-downs are charged to the balance sheet "available-for-sale" revaluation reserve. Mr Richards maintains that the assets' credit quality remains strong and the deficit will reverse in the long run.
"The life insurance business holds investments which are designated at fair value through profit or loss," Mr Richards explains. "These are managed at fair value to meet liabilities under insurance contracts, unit-linked and other investment contracts."
Although the International Accounting Standards Board changed regulations last year to allow reclassifications from trading book to "held to maturity", and loans and receivables on trading book and "available-for-sale" portfolio to "held to maturity", the bank did not reclassify any of its holdings.
"In terms of income statement impact, markdowns on investment portfolios are not impacting profits," Mr Richards points out.
He says the bank continually reviews its lending policies "in light of the prevailing economic environment and changing sector market dynamics", adding: "HSBC's commitment to the key mortgage market in Malta is unquestioned, though in the current climate and as a responsible lender, a more critical assessment of affordability criteria for higher loan to value requests is considered even more appropriate."
Mr Richards describes the utilisation of the €100 million fund created by the bank to support local businesses last December as "positive" although the scheme is only in its infancy. The initiative allocates specific funding where trade terms have been extended because of the current climate.
"It is our view that most of the cash flow pressures to date have been absorbed by creditors," he remarks. "We are expecting a further deterioration, and increased utilisation of the fund as we move through 2009. The important message for the local business community is that funds are available in these difficult times.
"It should also be pointed out that new money proposals continue to be approved, with approval volumes for the four months from October to January in excess of the same period last year."
HSBC, one of Malta's top two employers with 2,082 staff (including 530 at the Swatar call centre), is to implement strict discipline on expenses this year, although, it was made clear on February 20, that this policy would not be to the detriment of branch refurbishment - the bank has a local network of 47 branches and offices - and investment in people and technology.
The bank's cost-to-income ratio last year was a "healthy" 48 per cent.
Asked which expenses were to be cut back, he replies: "In the current economic environment characterised by slower business activity, low interest rates and uncertainty, we shall retain our focus on cost containment. However, this will not be done at the expense of reducing the levels of our high quality service or investment in technology and our automated delivery channels, including the ATM network."
Neither will the bank's overall corporate social responsibility strategies be affected, he says, although some adjustments to budget lines are possible. Activities surrounding three proprietary funds focused on helping underprivileged children, the environment, and cultural heritage will continue as "the commitment to these areas is as strong as ever".
All in all, Mr Richards explains, the results for 2008 are evidence of the bank's strength.
"We remain very much open for business," he says." All our fundamentals are strong, we have no direct exposure to the sub-prime market and a prudent loan-to-deposit ratio of 77 per cent at end 2008. This means that for every €100 of deposits we lend €77. This is in line with group policy of having more deposits than loans.
"We primarily fund our business activity through raising deposits from our network and diversified customer base. We have only limited reliance on more volatile wholesale markets for funding. This gives us a strong liquidity position."