The first quarter of 2009 has been difficult for HSBC Bank Malta and, as predicted, short-term financial performance has been appreciably impacted by market conditions.

In an interim directors’ statement, the bank remarked that although the Maltese banking system is in good shape, the outlook for the near term remains highly challenging with significant uncertainty and continued pressure on short-term profitability.

Director and chief executive officer Alan Richards commented, “In line with our expectations, core income and profitability levels at HSBC Malta were affected by the global downturn in the period under review. Profitability is being materially impacted by a combination of: reduced revenues as the economy slows; significant margin compression from lower interest rates; and downward pressure on profitability in insurance and investment-related businesses as volatility in equity and bond markets constrains business volume.”

Over the year’s first quarter, the bank increased its lending portfolio cautiously so as to maintain high asset quality and to support its customers’ financial needs during these difficult economic times.

There was no material deterioration in the quality of the lending portfolio, and liquidity and capital ratios remained strong and significantly ahead of regulatory requirements.

Deposits, meanwhile, remained broadly stable in a period characterised by a number of local government and corporate bond issues and growing competitive pressures.

Mr Richards added, “It is apparent that mortgage lending and corporate activity in some sectors are slowing, impairments are likely to increase as the credit cycle turns and our businesses with exposure to investment markets will continue to suffer from market volatility. Margin compression will significantly impact the bank’s profitability as long as interest rates remain at current levels.

“Through this period of major uncertainty and beyond, we will continue to position HSBC Malta for long-term profitable growth. Our capital and balance sheet strength, and a commitment to strict cost control, will continue to underpin our performance. So while 2009 is difficult and challenging, I would stress that HSBC is well-positioned to weather the current storm and to support its customers and the local economy as a whole.”