HSBC Bank Malta on Wednesday said it had achieved record results in 2023, allowing it to declare a final gross dividend of nine cents per share.

The bank closed 2023 with €133.9 million in profit before tax, a 141% increase over the previous year, while operating costs grew by a far more meagre 3%. 

It tightened its pursestrings for customers, recording a drop of €91.3 million in net loans and advances to customers. 

Earnings per share rose to 24.1 cents, compared to 10 cents in the same period in 2022.

HSBC Malta said it was pleased it could reward its shareholders for their loyalty with what it described as "one of the highest dividends per share in the last 10 years."

The directors are recommending a dividend payout ratio of 40% on the reported profits for 2023. The final gross dividend will be nine cents per share (5.85 cents per share net of tax) which brings the total dividend for 2023 to 15 cents (9.75 cents net of tax).

Chief Executive Officer at HSBC Bank Malta Geoffrey Fichte said that in 2023, during the interim financial results in August, the dividend payout was higher than the full dividend paid in 2022.

"Our share price was the top performer in the Malta Stock Exchange in 2023, increasing by over 80%. Today we announced the highest annual dividend paid in the last decade."

Fichte added that HSBC's employees were "the cornerstone of the bank".

"We will continue to empower our employees to reach their full potential to deliver customer service excellence and be the best versions of themselves by investing in opportunities for colleagues to develop skills, learn new capabilities and adapt to the future, whilst reducing complexity and bureaucracy."

“It is to their collective credit that in 2023 HSBC Bank Malta was the recipient of renowned awards like Banker of the Year from the Financial Times, Market Leader and Best Service from Euromoney Cash Management Survey and Market Leader and Best Service Provider from Euromoney Trade Finance Survey."

In its financial review, the bank said:

• The reported profit before tax stood at €133.9 million for the year - registering an increase of €78.3 million or 141%.
• Increased profits were driven by increasing net interest income and higher profits from the insurance subsidiary. The bank experienced improvement in the credit quality of its loan portfolio resulting in releases of expected credit losses.
• Operating costs increased by 3% and amounted to €102.4 million -  mainly driven by investment in people and technology.
• The cost-efficiency ratio of 44% compared to 68% in 2022.
• Reported profit after tax attributable to shareholders of €86.8million, resulting in earnings per share of 24.1 cents, compared to 10 cents in the same period in 2022.
• Return on equity of 17.1% compared to 7.7% for 2022.
• Net loans and advances to customers decreased by €91.3 million to €3,084 million compared to 31 December 2022 while customer deposits increased by 3% to €6,142 million
• Strong capital and liquidity ratios were well above minimum regulatory requirements.
• Net fee income decreased by €2.2 million to €19.5 million (compared to 2022). This was driven by the removal of the high balance fee - a customer-driven decision taken by the bank given the rising interest rate environment.
• Net trading income was in line with 2022 income at €7.6 million.

Credit losses

During the year, the bank reported a release of expected credit losses of €4.6 million, compared to a release of €9.6 million in 2022.

In 2022, the bank's commercial banking business reported a net release of €12.3 million, mainly attributable to a significant recovery on a commercial non-performing loan which was largely provided for in prior years.

The release in 2023 is across retail and commercial banking driven by an improvement in the credit quality of our customers as well as an improved forward economic outlook, it added. 

Tax expense

The bank forked out €47.1 million in taxes, meaning its tax bill rose by €27.7 million when compared to 2022. It paid a 35.2% effective tax rate. 

The increase in tax expense resulted mainly from increased profits.

Life Assurance

HSBC Life Assurance (Malta) Ltd reported a profit before tax of €6.2 million compared to a profit of €3.9 million in 2022.

On January 1, 2023, HSBC adopted IFRS 17 ‘Insurance Contracts’.

"As required by the standard, we applied the requirements retrospectively with comparative data previously published under IFRS 4 ‘Insurance Contracts’ restated from the January 1, 2022, transition date.

"The positive variance in the profitability of €2.3 million is mainly attributable to a positive variance in the mark-to-market gains of the insurance asset portfolio."

Financial Position and Capital

Net loans and advances to customers decreased by €91.3 million to €3,084 million. The bank said it had retained "a prudent credit policy to ensure the long-term sustainability" of its service proposition while also delivering value for its shareholders.

It also continued to improve asset quality by reducing commercial non-performing loans by 14% and retail non-performing loans by 20%.

Customer deposits grew by 3% to €6,142 million driven by an increase in commercial deposits. The bank maintained a healthy advance-to-deposit ratio of 50.2% and its liquidity ratios remained well in excess of regulatory requirements.

The financial investments portfolio meanwhile increased by 31% to €1,316 million.

The bank said that in 2023, it increased the size and duration of its structural hedges to reduce the sensitivity of banking net interest income to interest rate movement and stabilise future earnings.

The bank’s common equity tier 1 capital was 20.6% by end of the year, compared to 18.5% at the end of 2022.

And the total capital ratio increased to 23.5% compared to 21.3% of 2022.

"The improvement in the capital ratios was driven by increased profits and higher revaluation reserves on our Hold-to-Collect investment portfolio partially offset by higher capital deductions for non-performing loans as we continue to gradually implement the capital requirements.

"The bank maintained a strong capital base and is fully compliant with the regulatory capital requirements." 

The bank said it was determined to maintain a strong capital base, at the same time recognising the importance of dividends to its shareholders.

New collective agreement 

Last month, the bank signed a new collective agreement with the Malta Union of Bank Employees for the period from 2024 to 2026.

The agreement was signed in Malta, and validated at HSBC Continental Europe’s headquarters in Paris.

This bank said in a statement ambitious and ground-breaking agreement is characterised by significant enhancements to employee pay, benefits and retirement pension plans.