Banks have been harder hit in comparison to other sectors since the unsettling rapid spread of the COVID-19 pandemic. Inevitably, the pandemic has sparked a significant economic downturn globally, and is indeed posing severe stress on the banking industry in general – namely the risk of non-performing loans.

In addition to the pandemic related challenges, the prolonged low yielding environment, mainly in Europe, has been reducing the core banking profitability. To this extent, this downward trend is also visible is HSBC Bank Malta plc’s (HSBC’s) latest financial interim results which continued to be adversely impacted by lower and negative interest rates, reduced demand for corporate borrowing, and personal loans arising from customer behaviour directly influenced by the pandemic.

More specifically, HSBC’s net interest income amounted lower during H121 to €49.4m, reflecting an overall deterioration in the Bank’s interest income of €4.1m or 7.6 per cent when compared to the same period in 2020. (H120: €53.5m). In line with the aforementioned argument, management reported that this decrease has been predominantly driven by lower interest rates and negative rates on excess liquidity.

Additionally, this revenue stream has also been adversely impacted by the subdued demand for corporate borrowing, credit cards and personal loans in view of the COVID-19 pandemic. Contrarily, lower interest paid on deposits was offset by lower rates on debt securities, customer lending and bank placements.

Moving to the bank’s non-interest income business line, net fee and commission income, increased by €1.1m on a comparable basis to €11.5m during H121 (H120: €10.4m). This increase is mainly attributable to a higher level of commercial business conducted by the bank during the first half of 2021, which contributed to an overall higher arrangement and commitment fees.

Notwithstanding the current pandemic climate, HSBC still reported a satisfactory financial performance in the first half of 2021 reflecting favourable market movements which impacted the life insurance subsidiary and lower expected credit losses. On a standalone basis, the bank’s life assurance segment registered a profit of €4.2m compared to a loss reported in the same period last year of €8.9m, implying a positive variance of €13.1m.

On the expenditure front, total operating expenditure, amounted higher by approximately €1.1m on a comparable basis and amounted to €52.2m during the first six months of 2021 (H120: €51.1m). While HSBC reiterated that the Bank’s ultimate aim is to continue realising cost savings from the cost strategy announced in 2019, and ongoing proactive cost management measures, HSBC incurred an increase in regulatory fees concerning higher customer deposits held at the end of 2020.

More positively, HSBC’s expected credit losses (ECLs) decreased by €6.8m to €1.9m compared with €8.7m booked in the same period of the prior year. The bank further explained that higher ECLs were booked in 2020, reflecting the prevailing negative outlook and implications brought about by the COVID-19 pandemic.

HSBC further noted that while the Bank’s decision not to reverse portions of the ECLs booked in 2020 was solely based on continued volatility and uncertainty across markets during 2021, the increases recorded in H121 were concerned with customers experiencing further deterioration.

In view of the fact that the European Central Bank recently announced that the current restrictions concerning payments of dividends, will be lifted after September 30, 2021, HSBC did not propose a dividend payment vis-à-vis its 2021 interim financial results.

In conclusion, as witnessed through the Bank’s latest results, 2021 is expected to possibly be a year of normalisation. Nevertheless, as the pandemic situation remains fluid, close monitoring is imperative, mainly in relation to how the pandemic can impact the business namely in terms of loan loss provisions. The unprecedented new COVID-19 variants, might continue conditioning the economy recovery path, and ultimately impact the banking industry’s outlook.

This article was issued by Andrew Fenech, research analyst at Calamatta Cuschieri. For more information visit The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.