HSBC Bank Malta announced that as part of their vision to streamline their operations they will be implementing a direct banking strategy, which will focus on mobile banking applications, internet banking and the next generation of ATMs.

Speaking to stockbrokers and specialised media at the Chamber of Commerce on Monday, Chief Executive Officer Mark Watkinson explained that while only having been launched for a few weeks the mobile banking application already had 3000 sign-ups, which meant that the sign-up rate was three times faster than that of other European markets. Mr Watson suggested that this indicated that there was clear enthusiasm in Malta for online banking products.

HSBC Bank Malta also reported a profit before tax of €40 million for the six months ended 30 June compared with €53 million for the same period in 2013. This performance, which was an improvement on the performance in the second half of 2013, was principally impacted by lower interest earnings as a result of record low European Central Bank rates and muted loan growth, as well as an increase in costs as a result of compliance investment and increased regulatory fees. In addition, the 2013 performance benefited from a one-off insurance gain, which was not repeated in the first half of 2014.

The Maltese economy did better than that of the eurozone, he said, but it too had to face a very subdued rate of growth. The increased regulatory burden imposed by the ECB was identified as one cause of increased administrative costs, however Mr Watkinson also explained that as part of an international network HSBC was well able to address the new regulatory regime by being able to implement solutions across the whole group.

Mr Watkinson also outlined that in 2013 the MFSA has brought out a revised version of the BR09 regulations, which requires that banks build up their capital position over three years from dividends against credit risks. HSBC had decided to take a conservative approach towards BR09 and therefore had already met 85% of their reserve requirements.

Net interest income declined to €58 million compared with €64 million in the same period in 2013. The fall in net interest income reflected a decline in interest earned on investments as proceeds of higher yielding maturing bonds were re-invested at the lower prevailing rates and the lower interest earned on reduced average lending balances. The decline in net interest income was partially offset by lower cost of funds as customers migrated to lower yielding short-dated deposits.

HSBC Life Assurance (Malta) Ltd. reported a profit before tax of €6 million compared with €8 million in the first half of 2013. The results in 2013 benefited from a one-off with-profits modelling reserves release not repeated in the first half of 2014.

A net gain on disposals of available-for-sale securities of €2 million was reported for the six months ended 30 June 2014, compared with €4 million for the same period in 2013.

Mr Watkinson ascribed the reduced earnings to the following causes:

€5 million due to low interest rate in a highly-liquid environment €4.5 million due to a one-off profit in 2013 not repeated in 2014, and €2.5 million due to high regulatory costs.

Operating expenses of €46 million were €2 million, or 4%, higher than the first half of 2013 largely as a result of compliance investment and regulatory fees. Excluding these items expenses have been well controlled and marginally below the comparable period in 2013 as significant work continues around streamlining the business for greater efficiencies.

Net impairment provisions of €1 million were marginally higher than 2013, as the prior year benefited from a number of recoveries. Overall asset quality remains acceptable with a high percentage of tangible security held against the overall loan portfolio.

Net loans and advances to customers were €3,287 million, €14 million lower than at 31 December 2013. The lending pipeline remains encouraging and gross new lending to customers amounted to €518 million compared to €474 million in 2013, reflecting the bank’s continued support of new economic activity.

Customer deposits increased by €31 million to €4,549 million, reflecting normal fluctuations in corporate and institutional deposits.

The bank’s available-for-sale investment portfolio remains well diversified and conservatively positioned, Mr Watkinson stressed.

The bank’s liquidity position remains strong with an advances-to-deposits ratio of 72% compared with 73% at 31 December 2013.

The bank continued to strengthen its total capital ratio to 13.6% on a CRDIV basis as at June 2014 and improve its common equity tier 1 capital ratio to 10.4%.

Throughout the year the bank furthered its investment in its business and its people. Two more branches, Valletta and Victoria Gozo, were extensively refurbished and the bank launched its innovative, free mobile banking application for personal customers. This has been a roaring success and already some 6,000 have signed up for it, triple the rate of take-up in other HSBC areas in Europe.

The Malta Trade for Growth initiative, focused on helping Maltese companies internationalise their business, broke new ground. A key part of the initiative is the Malta Trade for Growth fund of €50 million, which is now 90% committed.

The bank reiterated its support of the SME sector and launched Maxicredit loans for small businesses and partnered with Malta Enterprise to assist smaller businesses explore export opportunities. New products will be announced in the coming weeks.

While commercial growth in the first half has been muted, the business pipeline is encouraging and retail loans, particularly mortgages, are beginning to perform strongly.

The board has declared an interim gross dividend of 4.5 cents per share (2.9 cents net of tax). This will be paid on 4 September to shareholders who are on the bank’s register of shareholders at 14 August. Mr Watkinson explained that had it not been for Banking Rule 09 which came into effect this year, the dividend would have been 6.7 cents per share. Banking Rule 09 is one of the instruments that banking in Europe has been given by the ECB to strengthen the banking sector. There is a three-year build-up period which would have mean the bank sets aside 55% of its dividend, but instead the bank decided to set aside 85%.

Other results:

Core capital (CRDIV common equity tier 1) of 10.4% as at 30 June, up from 9.9% at the end of 2013. Total assets of €5,859 million at 30 June, up €138 million, or 2%, compared with 31 December 2013. Customer accounts of €4,549 million at 30 June, up €31 million, or 1%, compared with 31 December 2013. Profit attributable to shareholders of €26 million for the six months ended 30 June resulting in earnings per share of 7.9 cents compared with 10.6 cents in the same period in 2013. Cost efficiency ratio of 53.0% for the period ended 30 June, compared with 45.4% for the same period in 2013. Cost control was maintained and expenses excluding compliance investment and regulatory fees were below the same period in 2013. Return on equity of 11.6% for the six months ended 30 June, compared with 16.3% for the same period in 2013.

As a systemically important bank in Malta, the bank is now going through the ECB compliance process which consists of an Asset Quality Review and a Stress Test. The results will be given to the bank in a one-on-one meeting to be held in Frankfurt in October and will be made public a week later.

Mr Watkinson expressed himself optimistic as regards the outlook for the coming months. Maltese businessmen, as they have proved, are resilient and they are very optimistic as regards the future.

Mark Watkinson, Director and Chief Executive Officer of HSBC Malta, said: “We continue to invest in our franchise, and the growth pipeline in both our commercial and retail businesses is looking more encouraging than it has done for some time, although the current record low rates of interest present their own set of issues. We remain confident in the growth opportunities ahead and, as part of one of the world’s largest banking groups, HSBC Malta is well positioned to assist our customers in accessing some of the most promising markets around the world.

“I would like to take this opportunity to thank our staff, Directors and shareholders for their commitment, hard work and support during the first half of 2014.”