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maltatoday WEDNESDAY 21 FEBRUARY 2018 11 HSBC Bank Malta p.l.c. reported a profi t before tax of €49.8m for the year ended 31 December 2017. This represents a de- crease of €12.4m or 19.9% on the previ- ous year. The bank confirms its business model and risk management change programme was substantially completed in 2017 leading to a short term reduction in profitability. HSBC has announced €20m extraordinary dividends to reward shareholders, given the strong progress made with implementation of the bank's strategic plan. The reported profit before tax incorporates three notable items which are excluded from the adjusted results as this is considered a better reflection of management's performance. In 2016, the bank recognised the gain on disposal of the bank's membership interest in Visa Europe amounting to €10.8m and raised a provision totalling €8m in relation to a remediation of the legacy operational failure in the bank's brokerage business. During 2017, the remediation programme was largely completed and it was assessed that a partial reversal of the conservatively estimated provision was warranted. In this regard, a reversal of €1.8m was affected in 2017. During the year, the bank re-examined its approach to the provision for the collective agreement clauses related to future employee benefits. A longer-term view was assumed in the application of the current clauses which resulted in an additional charge of €7.6m in 2017 as compared with the charge of €2m in 2016. While the movements in this provision will periodically occur depending on the changes in the composition of the bank's employee base, the provision adjustment in 2017 was not related to the business performance of the year. Profit attributable to shareholders amounted to €30.9m resulting in earnings per share of 8.6 cent compared with 11.2 cent in 2016. The Board recommended maintaining a current dividend payout ratio of 65% of net profit. The Board also made a decision to return part of retained earnings to the shareholders and recommended an extraordinary dividend of €20m in addition to the regular dividend paid out of the net profit for the year. The final gross dividend will be 12.4 cent per share (8.1 cent per share net of tax). Together with the interim dividend paid in September 2017, the total gross dividend for 2017 will be 17.1 cent per share (11.1 cent per share net of tax) or €61.6m (€40.2m net of tax) representing a 54.0% increase on the dividends paid for 2016. The final dividend will be paid on 19 April 2018 to shareholders who are on the bank's register of shareholders at 13 March 2018. The year under review was characterised by broadly stable but persistently low interest rates and increasing excess liquidity in the market while attractive investment opportunities remained limited. In this environment, a record number of debt issuances by corporate entities was registered on the Malta Stock Exchange fuelled by investors' demand for higher yield. Interest income Net interest income of the bank decreased by 4.6% to €120.7m compared with the prior year principally due to the reduction in the corporate loan book and in the bonds portfolio. While lending margins remained largely unchanged, the average yield of the investment book declined further due to continuing amortisation of higher yielding bonds. Retail banking performed well and increased its interest income by 2.9%. The European Central Bank negative deposit rate remained unchanged during 2017 resulting in additional interest expense on the bank's excess liquidity. The reduction in interest expense due to the maturity of the bank's subordinated debt in February 2017 partially mitigated the decline in interest income. Net non-interest income decreased by 9.7% compared with 2016. A lower level of credit activity and the ongoing review of the bank's risk appetite had an adverse impact on fees and commissions as well as trading income. Other operating income was adversely impacted by lower valuation of investment property held by the bank. HSBC Life Assurance (Malta) Limited reported a profit before tax of €7.3m, which was broadly in line with the prior year. In 2017, the volume of new 'with- profits' business increased resulting in a higher premium income. In November 2017, the company announced a partial sale of the unit-linked portfolio acquired in 2014 from another HSBC Group entity. As the transfer of this portfolio will be at the consideration of €1, no gain or loss will be registered as a result of this transaction. Operating expenses were €112.2m, 1.8% higher compared with the previous year. Two notable cost items described above had a negative impact on the level of expenses in 2016 and 2017. The bank accelerated the work in raising risk and compliance standards which resulted in higher administrative costs. At the same time, the bank continued to benefit from the early voluntary retirement programme implemented in 2016 and saw a decline in underlying staff costs by 3% absorbing the annual pay increase. The bank's capital ratios continued to improve as risk-weighted assets decreased year on year. Common equity tier 1 capital increased to 13.9% from 13.2% and the total capital ratio was 14.4% up from 14.2% at the end of 2016. The bank remained fully compliant with its end- point regulatory capital requirements during 2017. Its strong capital position enables the bank to sustain its high dividend payout ratio at 65% of profit after tax and to pay extraordinary dividend out of retained earnings. Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way HSBC Bank Malta announces lower profi ts but increases dividends • Reported profi t before tax of €49.8m for the year ended 31 December 2017, a decrease of €12.4m, or 19.9%, compared with prior year • Adjusted profi t before tax, which excludes the effect of notable items, was €55.6m, 9.5% down on 2016 2017 2016 €000 €000 Reported profi t before tax 49,823 62,221 Gain on VISA transaction - (10,787) Movement in the brokerage remediation provision (1,800) 8,000 Costs of the provision for collective agreement benefi ts 7,600 2,000 Adjusted profi t before tax 55,623 61,434 Andrew Beane, Chief Executive Officer at HSBC Bank Malta p.l.c., said: "In 2017 we largely completed changes to our business model in order to meet the highest global standards for compliance and risk management. While these actions reduced profitability during the year due to lower revenues and higher costs, they have materially strengthened the bank's risk profile and position it well for the future. Our changed business model is creating value for our shareholders, notably by generating dividends. Indeed, given the strategic progress the bank has made, the Board was pleased to declare an exceptional dividend of €20m which reflects HSBC's capacity to generate more capital than is required by our risk profile. Looking to the future, the outlook for the local economy remains favourable with strong GDP growth, low unemployment and inflation and government finances forecast to remain in surplus. Amidst this positive economic landscape, it is essential to ensure that growth remains broad based and sustainable and that risks are managed appropriately including an increasing level of long-term risk in the local bond market which has become a greater cause for concern. In 2018, within our changed business model, HSBC will increase investment in customer service and innovation to support growth over the medium term while sustaining the bank's signature conservative credit discipline that supports strong performance through the full economic cycle. I would like to thank my colleagues for their outstanding commitment to HSBC in 2017 and our customers and shareholders for their continued trust."